Exhibit 99.1







ANNUAL INFORMATION FORM



FOR THE YEAR-ENDED SEPTEMBER 30, 2015



DECEMBER 29, 2015



MERUS LABS INTERNATIONAL INC.
100 Wellington St. West, Suite 2110

Toronto, Ontario, Canada

M5K 1H1










TABLE OF CONTENTS



|INTRODUCTORY NOTES                                                                     | 3 
|-------------------------------------------------------------------------------------- | --
|The Company                                                                            | 3 
|Date of Information                                                                    | 3 
|Currency                                                                               | 3 
|Cautionary Note Regarding Forward Looking Statements                                   | 3 
|CORPORATE STRUCTURE                                                                    | 6 
|Corporate Organization                                                                 | 6 
|DEVELOPMENT OF the BUSINESS                                                            | 7 
|BUSINESS OF MERUS LABS                                                                 | 13
|Our Products                                                                           | 13
|Our Business Model                                                                     | 13
|Government Regulation                                                                  | 16
|Employees                                                                              | 16
|Urology / Women's Health - Emselex®/Enablex®                                           | 16
|Anticoagulants - Sintrom®                                                              | 19
|Cholinergic Agents - Salagen                                                           | 22
|Hormone Replacement Therapies - Estraderm                                              | 23
|Vancocin®                                                                              | 23
|Risk Factors                                                                           | 25
|DIVIDENDS                                                                              | 33
|CAPITAL STRUCTURE                                                                      | 33
|Authorized Capital                                                                     | 33
|Common Shares                                                                          | 33
|Preferred Shares                                                                       | 34
|MARKET FOR SECURITIES                                                                  | 36
|ESCROWED SECURITIES                                                                    | 38
|DIRECTORS AND OFFICERS                                                                 | 38
|Principal Occupations and Other Information about Our Directors and Executive Officers | 41
|Cease Trade Orders, Bankruptcies, Penalties or Sanctions                               | 44
|Conflicts of Interest                                                                  | 45
|LEGAL PROCEEDINGS AND REGULATORY ACTIONS                                               | 45
|Factive® Arbitration Proceeding                                                        | 45
|INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS                             | 46
|TRANSFER AGENT AND REGISTRAR                                                           | 46
|MATERIAL CONTRACTS                                                                     | 46
|INTERESTS OF EXPERTS                                                                   | 46
|ADDITIONAL INFORMATION                                                                 | 46
|AUDIT COMMITTEE AND AUDIT FEES                                                         | 47



2






INTRODUCTORY
NOTES



The Company



References to the “Company”,
“Merus” and “we” are to Merus Labs International Inc. and its direct and indirectly owned
subsidiaries.



Date of Information



The date of the information
presented in this Annual Information Form (the “AIF”) is September 30, 2015, unless otherwise indicated.



Currency



All amounts in this
AIF are in Canadian dollars unless otherwise indicated. We indicate United States dollars as “US$”.



Cautionary Note Regarding Forward Looking
Statements



This AIF contains certain
statements or disclosures that may constitute forward-looking information or statements (collectively, “forward-looking information”)
under applicable securities laws. All statements and disclosures, other than those of historical fact, which address activities,
events, outcomes, results or developments that management of the Company, anticipates or expects may or will occur in the future
(in whole or in part) should be considered forward-looking information. In some cases, forward-looking information can be identified
by terms such as “forecast”, “future”, “may”, “will”, “expect”, “anticipate”,
“believe”, “could”, “potential”, “enable”, “plan, “continue”,
“contemplate”, “pro forma” or other comparable terminology. Forward-looking information presented in such
statements or disclosures may, among other things include:



| | · | our expectations regarding sales from
our existing products, including our sales forecasts;
| | - | -------------------------------------------------------------------------------------------



| | · | our ability to acquire new products;
| | - | ------------------------------------



| | · | our expectations regarding our ability
to raise capital, including our ability to secure the financing necessary to enable us to acquire new products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our expectations regarding sales from
products that we acquire or license;
| | - | --------------------------------------------------------------------------



| | · | our expectations regarding the pricing
of our products;
| | - | -------------------------------------------------------



| | · | our forecasts regarding our operating
expenditures, including general and administrative expenses,
| | - | --------------------------------------------------------------------------------------------------



| | · | our expectations regarding the development
of our target markets;
| | - | -----------------------------------------------------------------



| | · | our expectations regarding government
regulations of our products and any new products that we acquire;
| | - | -------------------------------------------------------------------------------------------------------



| | · | our expectations regarding currency exchange
rates;
| | - | ---------------------------------------------------



| | · | our expectations regarding income taxes;
| | - | ----------------------------------------



3






| | · | our plans, objectives and targets for
future revenue growth and operating performance;
| | - | --------------------------------------------------------------------------------------



| | · | our plans and objectives regarding new
products that we may acquire; and
| | - | ------------------------------------------------------------------------



| | · | our forecast business results and anticipated
financial performance.
| | - | --------------------------------------------------------------------



The forward-looking
information in statements or disclosures in this AIF is based (in whole or in part) upon factors which may cause actual results,
performance or achievements of the Company to differ materially from those contemplated (whether expressly or by implication) in
the forward-looking information. Those factors are based on information currently available to the Company, including information
obtained from third-party industry analysts and other third party sources. Actual results or outcomes may differ materially from
those predicted by such statements or disclosures. While the Company does not know what impact any of those differences may have,
their business, results of operations, financial condition and credit stability may be materially adversely affected. Factors that
could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking information
include, among other things:



| | · | our ability to successfully market and
sell our products;
| | - | ---------------------------------------------------------



| | · | our ability to service existing debt;
| | - | -------------------------------------



| | · | our ability to increase sales of our existing
products;
| | - | -------------------------------------------------------



| | · | our ability to acquire new products and,
upon acquisition, to successfully market and sell new products that we acquire;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | our ability to achieve the financing necessary
to complete the acquisitions to new products;
| | - | --------------------------------------------------------------------------------------------



| | · | market conditions in the capital markets
and the biopharmaceutical industry that make raising capital or consummating acquisitions difficult, expensive or both;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | unanticipated cash requirements to support
current operations, to expand our business or for capital expenditures;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | the acceptance of our products by regulatory
and reimbursement agencies in various territories including Canada and Europe and inclusion on drug benefit formularies, hospital
formularies and acceptance by pharmacies, physicians and patients in the marketplace;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | determinations by regulatory and reimbursement
agencies in various countries including Canada and Europe regarding the maximum reimbursement price payable for the products that
we sell;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | core patent protection for our product
portfolio has expired or will expire in the future, which could result in significant competition from generic products resulting
in a significant reduction in sales;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | delays or setbacks with respect to governmental
approvals, or manufacturing or commercial activities;
| | - | -----------------------------------------------------------------------------------------------------



| | · | the patient health, legal, and commercial
risks associated with patient adverse events or side effects resulting from the use of our products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



4






| | · | the inability to adequately protect our
key intellectual property rights;
| | - | -------------------------------------------------------------------------



| | · | the loss of key management or scientific
personnel;
| | - | ---------------------------------------------------



| | · | the activities of our competitors and
specifically the commercialization of innovative or generic products that compete in the same category as our products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the risk that the Company is not able
to arrange sufficient, cost-effective financing to repay maturing debt and to fund expenditures, future operational activities
and acquisitions, and other obligations; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the risks associated with legislative
and regulatory developments that may affect costs, revenues, the speed and degree of competition entering the market, global capital
markets activity and general economic conditions in geographic areas where we operate.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investors should review
the full discussions as to material risks and uncertainties, and factors and assumptions used to develop forward-looking statements,
including the Risk Factors identified in this AIF below.



Various assumptions
or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information.
Those assumptions and factors are based on information currently available to the Company, including information obtained from
third-party industry analysts and other third party sources. In some instances, material assumptions and factors are presented
or discussed elsewhere in this AIF in connection with the statements or disclosure containing the forward-looking information.
You are cautioned that the following list of material factors and assumptions is not exhaustive. The factors and assumptions include,
but are not limited to:



| | · | no unforeseen changes in the legislative
and operating framework for our business;
| | - | ----------------------------------------------------------------------------------



| | · | no unforeseen changes in the prices for
our products in markets where prices are regulated;
| | - | -------------------------------------------------------------------------------------------



| | · | no unforeseen changes in the regulatory
environment for our products;
| | - | ---------------------------------------------------------------------



| | · | a stable competitive environment; and
| | - | -------------------------------------



| | · | no significant event occurring outside
the ordinary course of business such as a natural disaster or other calamity.
| | - | --------------------------------------------------------------------------------------------------------------------



We are not obligated
to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except
as required by applicable laws. Because of the risks, uncertainties and assumptions contained herein, security holders should not
place undue reliance on forward-looking statements or disclosures. The foregoing statements expressly qualify any forward-looking
information contained herein.



We caution you that
the above list of risk factors is not exhaustive. Other factors which could cause actual results, performance or achievements of
the Company to differ materially from those contemplated (whether expressly or by implication) in the forward-looking statements
or other forward-looking information are disclosed in our publicly filed disclosure documents.



5






CORPORATE
STRUCTURE



Corporate Organization



Merus Labs International
Inc. (“We”, “Merus” or the “Company”) is a company existing under the
British Columbia Business Corporations Act (the “BCBCA”).



Organization



The Company was formed
on December 19, 2011 through the amalgamation of Envoy Capital Group Inc. (“Envoy”) with Merus Labs International
Inc. (“Old Merus”). On October 1, 2012, we completed a further amalgamation with our wholly owned subsidiary,
Merus Labs Inc. and continued under the name Merus Labs International Inc.



Old Merus was incorporated
under the laws of the Province of British Columbia on November 2, 2009 as a numbered company, 0865346 B.C. Ltd. On January 22,
2010, Old Merus changed its name to Merus Labs International Inc. in connection with a plan of arrangement with Range Gold Corp.



Envoy
was incorporated under the laws of the Province of British Columbia, Canada in December 1973 and was continued under the laws of
the Province of Ontario, Canada in December 1997. Envoy was engaged in the business of a merchant banking organization focused
on providing financial services as well as equity and debt capital to small and mid-cap companies from 2006 through to 2011. Envoy
was continued to the Province of British Columbia in connection with the amalgamation with Old Merus.



Subsidiaries



We carry out our business
through the following wholly owned subsidiaries, each of which is directly or indirectly 100% owned:



|Name of Subsidiary           |  | Jurisdiction ofIncorporation |  | Percentage Interest Owned
|---------------------------- |  | ---------------------------- |  | -------------------------
|                             |  |                              |  |                          
|Merus Labs Luxco S.a.r.L.    |  | Luxembourg                   |  | 100%                     
|                             |  |                              |  |                          
|Merus Labs Luxco II S.a.r.L. |  | Luxembourg                   |  | 100%                     
|                             |  |                              |  |                          
|Merus Labs Netherlands B.V.  |  | Netherlands                  |  | 100%                     
|                             |  |                              |  |                          
|Merus Pharma Inc.            |  | British Columbia             |  | 100%                     
|                             |  |                              |  |                          
|ECG Holdings Inc.            |  | Delaware                     |  | 100%                     
|                             |  |                              |  |                          
|Orbis Pharma Inc.            |  | Ontario                      |  | 100%                     



Stock Exchange Listings



Our Common Shares are
publicly traded on the Toronto Stock Exchange (“TSX”) under the symbol “MSL” and on NASDAQ under
the symbol “MSLI”.



6






Principal Office



Our head office is located
at 100 Wellington St. West, Suite 2110, Toronto, Canada M5K 1H1. We may be reached by telephone at (416) 593-3725 or facsimile
at (416) 593-4434.



Web Site



Our website is www.meruslabs.com.
Information contained on our website does not constitute a part of this AIF.



DEVELOPMENT
OF the BUSINESS



The development of
our pharmaceutical business, including material events during the past four years, is summarized below.



Vancocin® Acquisition



On May 13, 2011, Merus
Labs Inc. (“Merus Labs”), at that time a subsidiary of Old Merus, acquired all right, title and interest in
and to the pharmaceutical product Vancocin® (vancomycin hydrochloride) capsules (“Vancocin®”), including
the right to manufacture, market and sell Vancocin® in Canada, from Iroko International LP, a subsidiary of Iroko Pharmaceuticals,
LLC (“Iroko”). Merus Labs acquired Vancocin® for total consideration of approximately US$20 million.



Vancocin® capsules
are indicated for the treatment of:



| | · | Enterocolitis—caused by Staphylococcus aureus (including methicillin-resistant strains);
and
| | - | --------------------------------------------------------------------------------------------



| | · | Antibiotic-associated pseudomembranous colitis—caused by Clostridium difficile.
| | - | -------------------------------------------------------------------------------



FACTIVE® Acquisition



On March 7, 2012, we
completed the acquisition of the North American product rights for FACTIVE® (Gemifloxacin Mesylate) tablets from Cornerstone
Therapeutics Inc. (“Cornerstone”) for total consideration of $4.0 million paid in full on closing. FACTIVE®
is a FDA-approved quinolone with 5-day oral dosing indicated for the treatment of both acute bacterial exacerbation of chronic
bronchitis and mild to moderate community-acquired pneumonia. Factive has not been commercialized in Canada. Pursuant to the acquisition,
we acquired the license to the FACTIVE® trademark and patent, inventory on hand, and certain related intellectual property
and other information and materials required to continue marketing the brand in the North American market. We subsequently entered
into a sales and promotion agreement for FACTIVE® with Vansen Pharma Inc. to market the product in the United States.



May 2012 Private Placement



On May 29, 2012, we
completed a short form prospectus financing of5,556,000 Common Shares at a price of $1.80
per Common Share for gross proceeds of $10,000,800.



7






Emselex®/Enablex® Acquisition



On
July 11, 2012, we acquired the Canadian and European rights (excluding France, Spain and Italy) to manufacture, market, and sell
the branded prescription medicine product Emselex®/Enablex® (darifenacin) extended release tablets. The acquisition was
completed pursuant to an asset purchase agreement dated July 11, 2012 between Merus Labs Luxco SARL, one of our wholly owned subsidiaries,
and Novartis Pharma AG (the “Enablex® Acquisition Agreement”). Under the Enablex® Acquisition Agreement,
we acquired a fully paid-up license for the Emselex®/Enablex® (darifenacin) for the territories of Canada and Europe (exclusive
of France, Spain and Italy) for a purchase price of US$63 million. We have paid the purchase price in full by way of a $35 million
up-front cash payment and a $20 million vendor take back note issued in favour of Novartis which matured on July 11, 2013 (the
“Novartis VTB Note”). Pursuant to the acquisition, we acquired the license to the Emselex®/Enablex®
trademark and patent, certain related intellectual property, and other information and materials required to continue marketing
the brand in the territories acquired.



We funded the Emselex®/Enablex®
acquisition with cash on hand and a debt facility provided to us by PDL BioPharma, Inc. (“PDL BioPharma”). The
amount of the credit facility provided by PDL BioPharma was up to US$55 million, of which US$35 million of this amount was drawn
down upon the completion of the Emselex®/Enablex® acquisition with a further US$20 million guaranteed through a letter
of credit facility. We paid the balance of the purchase price for the Emselex®/Enablex® acquisition from cash on hand,
of which, US$4 million had been paid as a deposit at June 30, 2012. The PDL BioPharma loan bore interest at 13.5% per annum, with
monthly interest payments and periodic principal repayments until maturity on March 31, 2015. We used the unpaid balance of the
credit facility to repay the $20 million Novartis VTB Note at maturity in July 2013. The full amount owing under the PDL BioPharma
credit facility was repaid using the proceeds of the loan advanced under the 2013 Credit Agreement, as described below.



June 2013 Private Placement



On June 7, 2013, we
completed a private placement of 7,678,034 shares at a price of $0.60 per share for gross proceeds of $4,606,820. Proceeds were
used for debt repayment and general corporate purposes.



FACTIVE® Disposition



On August 26, 2013,
we sold the North American rights to FACTIVE® to Okana Ventures Inc. [OTC BB: OKNV] for gross proceeds of approximately
US$3.4 million. Pursuant to the definitive agreements, we divested the license to the FACTIVE® trademark and patent, inventory
on hand, various contingent liabilities, and certain related intellectual property and other information and materials required
to market the brand in the North American market. The gross proceeds from the divestiture are comprised of a cash payment of US$2.2
million paid on closing, a non-contingent deferred cash payment of US$800,000 to be paid in quarterly instalments over the next
15 months, and 3 million shares of OKNV. We determined to sell our rights due to the inherent challenges associated with the product
and the need for additional investment.



2013 Debt Facility and Convertible
Debenture Financing



On September 24, 2013,
we entered into a senior secured debt facility with a syndicate of lenders (the “2013 Credit Agreement”). We
used the proceeds of the loan advanced under the 2013 Credit Agreement, in combination with proceeds from the convertible debentures
described below, to repay our credit facility with PDL BioPharma. The loan under the 2013 Credit Agreement was a $30 million term
loan to mature on September 30, 2016 bearing interest at prime plus 3.0%, with monthly payments of principal and interest. The
principal payments were $700,000 per month for the first 24 months, increasing to $1,100,000 per month for the final 12 months.
The facility also provides for up to $2 million on a revolving line of credit, based on eligible accounts receivable. The loan
under the 2013 Credit Agreement was repaid in September 2014 using the proceeds of the loan under the 2014 Credit Agreement, as
described below.



8






In connection with
this refinancing, the Company issued convertible debentures with a principal value of $10,000,000 to two investment funds. The
debentures have a term of five years, maturing September 20, 2018, with interest at 8.0%, payable quarterly. The principal amount
of the debentures are convertible at the option of the holder into common shares at a fixed rate of $1.50 per common share, with
an option for the Company to force conversion if its common shares trade at, or above, $2.30 per share for 20 consecutive days.
The debt facility is secured by all assets of the Company and contains customary affirmative and negative covenants including compliance
with laws and restrictions on additional debt, as well as traditional financial covenants.



March 2014 Prospectus Offering



On March 25, 2014,
we completed the issuance of 13,529,750 Common Shares at a price of $1.70 per Common Share for gross proceeds of $23,000,575. The
Common Shares were offered and sold pursuant to a prospectus supplement to our base shelf prospectus.



June 2014 Prospectus Offering



On June 19, 2014, we
completed the issuance of 18,400,000 Common Shares at a price of $1.70 per Common Share for gross proceeds of $31,280,000. The
Common Shares were offered and sold pursuant to a prospectus supplement to our base shelf prospectus.



Preferred Shares



On July 11, 2014, we
completed the private placement issuance of $10 million of Series A convertible preferred shares (“Series A Preferred
Shares”) to a large Canadian institutional investor. In aggregate, we issued 10,000 Series A Preferred Shares at a price
of $1,000 per share for total gross proceeds of $10 million. The $10 million Series A Preferred Shares will pay a dividend of 8%
per annum, subject to adjustment if the Company does not redeem after October 31, 2019. At any time at the option of the holder,
the Series A Preferred Shares may be converted into the Company's common shares at a conversion price of $2.20 per share, provided
that accrued but unpaid dividends may be paid at cash or by the issuance of additional shares at the option of the holder. Any
additional shares issued on account of accrued but unpaid dividends will be issued at a conversion price that is equal to the greater
of (i) $2.20 per share, and (ii) the market value of the Company’s common shares at the time of the conversion. The Series
A Preferred Shares are redeemable at the option of the Company at any time after October 31, 2019. The Series A Preferred Shares
are also redeemable by the Company at any time in the event of a change of control subject to payment of a change of control premium.
The Series A Preferred Shares were originally redeemable by the holder if the Company did not complete a product acquisition transaction
by December 31, 2014, however this redemption right is no longer in effect as a result of our completion of the Sintrom® acquisition,
as described below.



Conversion of Convertible Debentures



On July 17, 2014, we
exercised our right to convert the $10 million unsecured convertible debentures issued to a large Canadian institutional investor
in September 2013 into common shares of the Company. We exercised our right based on the closing price of the Company’s common
shares having equaled or exceeded $2.30 per share for the 20 consecutive trading days ended July 14, 2014. The principal value
of the debentures were convertible at a fixed price of $1.50 per share, with accrued interest convertible at the weighted average
price for the 5 days prior to conversion. In aggregate, we issued 6,677,918 common shares to convert the outstanding $10 million
principal amount plus accrued but unpaid interest.



9






Financing Acquisition Transaction



On July 4, 2014, the
Company entered into a definitive acquisition agreement with Dacha Strategic Metals Inc. ("Dacha") (TSXV:DSM) pursuant
to which Dacha agreed to complete the balance of a previously announced investment of aggregate investment (inclusive of Dacha’s
initial investment of $5 million during the June 2014 prospectus offering) at least $11 million in Merus. As contemplated by the
letter agreement between Dacha and Merus entered into on June 10, 2014, the acquisition agreement provided that Merus would acquire
from Dacha, in exchange for common shares of Merus ("Dacha Merus Shares"), a new subsidiary to be incorporated
by Dacha ("Newco") and to which Dacha will contribute a minimum of $6 million cash by way of equity subscriptions.
The number of Dacha Merus Shares that Dacha was to receive in exchange for Newco was agreed to equal Newco's cash on hand at closing
divided by $1.70. Merus also agreed to pay to Dacha a transaction fee upon closing of the transaction, payable in the common shares
of Merus based on a price of $1.70 per share, equal to 3.5% of the aggregate value of the Merus Shares exchanged for Newco.



Dacha purchased $5
million of Merus Shares at a price of $1.70 per share as part of the Merus bought deal financing completed on June 19, 2014.



The Company completed
the financing acquisition transaction with Dacha on August 14, 2014. The Company issued 4,246,544 common shares to Dacha in exchange
for all of the issued and outstanding shares of Newco for the completion of the transaction. Newco held $6,975,001 in cash and
had no other assets or liabilities upon completion of the Acquisition.



Factive® Arbitration Proceeding



In the fourth quarter
of fiscal 2014, the Company received notice of a request for arbitration from the original owner of the Company’s former
Factive® product. The request for arbitration is based on the original license agreement entered into by the original owner
and Cornerstone Therapeutics, Inc. (now Chiesi USA, Inc.). The request for arbitration names the Company as a respondent together
with Cornerstone and Vansen Pharma, Inc. The request for arbitration includes the allegation that Cornerstone did not have the
legal right to transfer the Factive® product to the Company. The original owner is seeking an award for damages relating to
an alleged breach of contract, as well of disgorgement of revenues and other benefits derived by the Company from sales of Factive®.
The Company denies any liability to the original owner.



Sintrom® Acquisition and 2014
Credit Facility



On September 8, 2014,
Merus Luxco acquired from Novartis AG, in certain European countries including the key countries of Spain, Italy, Greece, Romania
and Bulgaria, the rights to manufacture, market, and sell the branded prescription medicine product Sintrom® (acenocoumarol).
Acenocoumarol is an anticoagulant indicated for the treatment and prevention of thromboembolic diseases. Sintrom® has been
available in Europe for over 50 years.



The Company paid Novartis
US$111 million for the Acquisition, which was completed pursuant to an asset purchase agreement executed among the Company, the
Merus Subsidiary and Novartis (the “Sintrom® Asset Purchase Agreement”). Pursuant to the Acquisition, Merus
inlicensed the Sintrom® trademark, certain related intellectual property, and acquired other information and materials required
to continue commercializing the brand in the Territories. The Merus Subsidiary did not acquire an assignment of any Novartis sales
contracts or assume any outstanding Novartis liabilities in connection with the acquisition.



10






Under the Sintrom®
Asset Purchase Agreement, the Company and the Merus Subsidiary entered into a license agreement with Novartis under which the Merus
Subsidiary acquired an exclusive, perpetual, royalty-free, fully paid-up license to market, sell and commercialize Sintrom®
in the Territories. The license rights include the rights to use the trademark Sintrom® in the Territories (the “Sintrom®
License Agreement”).



In addition, the Company
and the Merus Subsidiary entered into a supply agreement with Novartis under which Novartis has agreed to manufacture, distribute,
and sell Sintrom® during the first phase of the transition period for the economic benefit of the Merus Subsidiary. During
the second stage of the transition period, while Merus transfers the product manufacturing to a contract manufacturer, Merus will
distribute and sell Sintrom® and Novartis will continue to supply the product (the “Sintrom® Supply Agreement”).
.. The arrangements under the supply agreement are comparable to the arrangements between the Merus Subsidiary and Novartis for
the Company’s Enablex® product acquired from Novartis in 2012.



The Company funded
the Sintrom® Acquisition with cash on hand and new funding of approximately $58 million from an $80 million bank facility under
a credit agreement entered into by the Company with a syndicate of commercial lenders (the “2014 Credit Agreement”).
The 2014 Credit Agreement was entered into concurrent with and in order to fund the Sintrom® Acquisition. The loan under the
2014 Credit Agreement is non-revolving term loan that matures in 5 years. The Company is required to make equal quarterly payments
of principal amortized over the 5 year term. Interest is payable monthly based on the bank prime rate plus agreed upon margins.
The loan under 2014 Credit Agreement is secured by a first priority pledge of all assets of the Company and its key subsidiaries,
including the pledge by the Company of shares of its key subsidiaries. The balance of the advance under the 2014 Credit Agreement
of approximately $22 million was applied to repay the Company’s previously outstanding loan under the 2013 Credit Agreement,
which has now been repaid in full.



Performance Share Unit Plan



Our shareholders approved
our 2015 Performance Share Unit Plan (the “PSU Plan”) on March 26, 2015. The details of the PSU Plan are provided
in our information circular dated February 23, 2015 in respect of the annual general and special meeting of our shareholders held
on March 26, 2015. Shareholders also ratified the grant of 950,000 performance share units to our employees and officers.



April 2015 Prospectus Offering



On April 30, 2015,
we completed the issuance of 19,672,200 Common Shares at a price of $3.05 per Common Share for gross proceeds of $60,000,201 further
to an underwritten offering. On June 1, 2015, we completed the issuance of an additional 1,000,550 Common Shares at a price of
$3.05 per Common Share for gross proceeds of $3,051,678 further to the partial exercise by the underwriters’ of their overallotment
option. The Common Shares were offered and sold pursuant to a short-form prospectus.



Acquisition of Salagen ® and Estraderm
MX®



On May 22, 2015, we,
through one of our wholly owned subsidiaries, acquired the rights to manufacture, market, and sell two established specialty pharmaceutical
products in certain European and other markets. The products have been acquired from Novartis Pharma AG for a purchase price of
US$29.5 million.



11






We acquired rights
to the following products under an asset purchase agreement (the “Salagen/ Estraderm Asset Purchase Agreement”)
executed between the Company and its wholly owned subsidiary and Novartis Pharma AG and its parent, Novartis AG (together, “Novartis”):



| | · | Salagen® (pilocarpine hydrochloride), a pharmaceutical product used for the treatment of symptoms
of dry eye and dry mouth disorders and that is indicated for xerostomia following radiation therapy; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Estraderm MX®, a transdermal delivery format of estradiol used for (i) the treatment of
signs and symptoms of estrogen deficiency due to the menopause, whether natural or surgically induced, (e.g. hot flushes,
sleep disturbances, and urogenital atrophy, as well as accompanying mood changes), and (ii) the prevention of accelerated
postmenopausal bone loss.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Salagen/
Estraderm Asset Purchase Agreement, we acquired:



| | · | the rights of Novartis under a license agreement with a third-party licensor to manufacture, market
and sell Salagen®, in a territory comprised of 50 countries, the majority of which are European counties, inclusive of France,
Germany, Italy, Spain and the United Kingdom, and which also include Russia and a number of Western Asian countries. We will be
required to make payments of royalties calculated based on sales of Salagen® in the territories to the third party licensor
and, subject to the payment of these royalties, will own an exclusive, perpetual license to manufacture, market and sell Salagen®
in the territories; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an exclusive, perpetual, royalty-free, fully paid-up license to manufacture, market and sell Estraderm
MX® in six countries, including Great Britain, Australia, Italy, Colombia, Spain, Poland and Singapore, as well as other countries
in the European Union subject to limitations on the obligations of Novartis to supply product in these additional countries.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Similar to the arrangements
for our Sintrom® and Enablex® products acquired by us from Novartis, Novartis will continue to procure, supply and sell
the products acquired in the territories during a transition period in which the marketing authorizations for the products will
be transferred to our subsidiary. During this transition period, Novartis will pay to us the profit derived from sales of the products
in the territories based upon an agreed form of profit calculation. Upon transfer of the marketing authorizations to our subsidiary,
we will directly source the products and will commence selling the products directly to customers in the territories.



We funded the acquisition
with available cash.



12






BUSINESS
OF MERUS LABS



Our Products



We are a specialty
pharmaceutical company that currently owns, markets and distributes the following pharmaceutical products within the territories
described below pursuant to license and other intellectual property rights that we have acquired:



|Name of Product   |  | Indication                                                                                                                             |  | Territories                                                                                                                                                                                                                    |  | Patent Protection                                                                                         
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------
|                  |  |                                                                                                                                        |  |                                                                                                                                                                                                                                |  |                                                                                                           
|Sintrom®          |  | Treatment
    and prevention of thromboembolic diseases                                                                                |  | Certain
    European countries including the key countries of Spain, Italy, Greece, Romania and Bulgaria                                                                                                                       |  | None                                                                                                      
|                  |  |                                                                                                                                        |  |                                                                                                                                                                                                                                |  |                                                                                                           
|Emselex®/Enablex® |  | Treatment of overactive
    bladder syndrome                                                                                           |  | Canada
    and Europe (excluding France, Spain and Italy)                                                                                                                                                                      |  | Core patents expire
    in 2016, Supplemental Protection Certificate provides barrier through October 2019
|                  |  |                                                                                                                                        |  |                                                                                                                                                                                                                                |  |                                                                                                           
|Salagen ®         |  | Treatment of symptoms of dry eye and dry mouth disorders and that is indicated for xerostomia following radiation therapy              |  | Territory comprised of 50 countries, the majority of which are European counties, inclusive of France, Germany, Italy, Spain and the United Kingdom, and which also include Russia and a number of Western Asian countries     |  | None                                                                                                      
|                  |  |                                                                                                                                        |  |                                                                                                                                                                                                                                |  |                                                                                                           
|Estraderm MX®     |  | Treatment of signs and symptoms of estrogen deficiency due to the menopause and the prevention of accelerated postmenopausal bone loss |  | Great Britain, Australia, Italy, Colombia, Spain, Poland and Singapore, as well as other countries in the European Union subject to limitations on the obligations of Novartis to supply product in these additional countries |  | None                                                                                                      
|                  |  |                                                                                                                                        |  |                                                                                                                                                                                                                                |  |                                                                                                           
|Vancocin®         |  | Treatment of infections caused by bacteria such as C.difficile in the gastrointestinal tract                                           |  | Canada                                                                                                                                                                                                                         |  | None                                                                                                      



Our products are described
in detail below.



Our Business Model



Our business model
involves targeting the acquisition of established legacy prescription medicines in the following categories:



| | · | on patent but at maturity stage of product
life cycle;
| | - | ------------------------------------------------------



| | · | branded generics;
| | - | -----------------



| | · | under promoted products;
| | - | ------------------------



13






| | · | niche market pharmaceuticals; and
| | - | ---------------------------------



| | · | products with annual sales below critical
thresholds for large pharmaceutical companies.
| | - | ----------------------------------------------------------------------------------------



Once a product is acquired,
we will look to integrate the product into our operations and optomize the value through one of several levers, including increasing
sales volumes through targeted promotion, increasing revenue share through more efficient distribution or other cost savings in
manufacturing or operations. In many cases, we implement a focused sales and marketing plan to promote the product with the goal
of increasing sales and market share. Our corporate growth strategy is driven by a product acquisition plan which employs an opportunistic
approach to source product acquisition candidates. Our objective is to source pharmaceutical products across broad therapeutic
classes in order to provide access to acquisition targets not available to other players and to create a diversified strategy.
Although we have a broad therapeutic focus, we may pursue opportunities if the application of a dedicated small scale sales force
can deliver incremental product sales growth. Our current geographic focus is Europe, Canada and the United States. We believe
that our corporate strategy will result in a diversified product portfolio. To manage such a product portfolio, we have implemented
a low cost operating model in which there is a light infrastructure footprint. Consistent with this approach, we have partnered
with third party contract manufacturing and regulatory service providers to leverage their expertise while still maintaining maximum
flexibility for us.



We are not engaged
in the drug development process and do not target drugs that are in the development process for acquisition. Our strategy is to
acquire prescription medicines that have all necessary regulatory approvals to be marketed and sold for the territories where we
acquire marketing and distribution rights.



Superior Business Model for Acquisition
of Diversified Legacy Products



We believe that we
have a well defined strategy in seeking to acquire legacy products primarily for the purpose of generating a stream of stable revenues
and cash flow. We believe that this strategy will provide us with the flexibility to consider a broad range of acquisition targets
from a variety of therapeutic areas. Our management believes that our approach to product acquisition and our return objectives
provides us with a competitive advantage in acquiring products as we can purchase diversified bundles of products from a single
vendor. In contrast, our competitors, such as niche pharmaceutical companies, are more likely to focus on individual product acquisitions
within the same therapeutic area. As a result, certain vendors may view us as a preferred purchasing candidate.



Predictable Cost Structure



Our plan is to establish
a predictable cost structure by relying on a small employee base and outsourcing most of the operational functions associated with
our business, including warehousing, distribution, customer service, invoicing, collections, regulatory affairs, medical and drug
information, human resources and informational technology. Wherever possible, our objective will be to achieve cost controls by
entering into contractual supply and/or service agreements that dictate fixed or percentage fixed costs with annual adjustments
for inflation. In the case of our manufacturing supply agreements, our cost of goods will be based on a fixed, per unit cost with
annual inflationary adjustments. Our management believes the predictability, flexibility and efficiency gained by contracting with
established, experienced service organizations will assist us in maintaining our margins and maximizing distributable cash.



14






Partnership with Leading Service
Providers



As part of our business
plan, one of our key objectives will be to enter into outsourcing relationships with leading providers of pharmaceutical contract
services for many of the operational functions associated with our business and we intend to pursue this strategy in the future.



Intellectual Property



We will rely on a combination
of economic barriers, regulatory and patent and trademark rights to protect our investment in the products that we acquire. We
believe that trademark protection is an important part of establishing product and brand recognition and that these rights are
an important component of our ability to be able to effectively market and sell the products that we acquire. We will rely on patent
protection for products that we acquire in order to provide protection from generic pharmaceutical products during the remaining
life of patents that apply to the products that we acquire. A patent is the grant of a property right which allows its holder to
exclude others from, among other things, selling the subject invention in, or importing such invention into, the jurisdiction that
granted the patent. In the U.S., Canada and the European Union, patents expire 20 years from the date of application.



Our Competitors



Our competitors in
the pharmaceutical market range from large multinational pharmaceutical development corporations to small, single product companies
that may limit their activities to a particular therapeutic area or region or territory. Competition also comes from generic companies,
which develop and commercialize formulations that are identical to marketed brands.



With respect to our
acquisition strategy, we expect to compete principally with other pharmaceutical companies who seek to acquire mature pharmaceutical
products as part of their growth strategy. These companies, however, typically focus on under-promoted products in specific therapeutic
niches that offer growth potential through synergistic sales and marketing efforts. To our knowledge, few, if any, companies are
currently seeking to acquire legacy products solely for the purpose of generating a stream of consistent cash flow. In addition,
since we are not focused on specific therapeutic classes, we will have the ability to purchase diversified products and product
bundles.



We face increased competition
from manufacturers of generic pharmaceutical products when patents covering certain of our currently marketed products expire or
are successfully challenged. Generic versions are generally significantly less expensive than branded versions, and, where available,
may be required in preference to the branded version under third-party reimbursement programs, or substituted by pharmacies. If
competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our products can be subject
to progressive price reductions or decreased volume of sales, or both. Most products that we acquire must compete with other products
already on the market or products that are later developed by competitors. Manufacturers of generic pharmaceuticals typically invest
far less in research and development than research-based pharmaceutical companies and therefore can price their products significantly
lower than branded products. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price
competition from generic forms of the product. Our Vancocin product faces generic competition in Canada, as discussed below.



15






Government Regulation



Government authorities
in the U.S., at the federal, state and local level, in Canada and in other countries extensively regulate, among other things,
the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and reporting, packaging, promotion,
storage, advertising, distribution, marketing and export and import of pharmaceutical products and medical devices. The process
of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources. FDA approval must be obtained in the U.S., approval
of Health Canada must be obtained in Canada, EMA approval must be obtained for countries that are part of the European Union and
approval must be obtained from comparable agencies in other countries prior to marketing or manufacturing new pharmaceutical products
or medical devices for use by humans. Regulation by other federal agencies, such as the Drug Enforcement Administration (“DEA”),
and state and local authorities in the United States, and by comparable agencies in certain foreign countries, is also required.
The FTC, the FDA and state and local authorities regulate the advertising of medical devices, prescription drugs, over-the-counter
drugs and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended (“FDCA”) and the regulations promulgated thereunder,
and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, approval, sale, distribution, advertising and promotion of our products. The FDA requires a
Boxed Warning (sometimes referred to as a “Black Box” Warning) for products that have shown a significant risk of severe
or life-threatening adverse events and similar warnings are also required to be displayed on the product in certain other jurisdictions.



Manufacturers of drug
products and medical devices are required to comply with manufacturing regulations, including current good manufacturing regulations
enforced by the FDA and Health Canada and similar regulations enforced by regulatory agencies outside the U.S. and Canada. In addition,
we are subject to price control restrictions on our pharmaceutical products in many countries in which we operate.



We are also subject
to extensive U.S. federal and state health care marketing and fraud and abuse regulations, such as the federal False Claims
Act, Federal and Provincial marketing regulation in Canada and similar regulations in foreign countries in which we may conduct
our business. The federal False Claims Act imposes civil and criminal liability on individuals or entities who submit (or cause
the submission of) false or fraudulent claims for payment to the government. If our operations are found to be in violation of
any of these laws, regulations, rules or policies or any other law or governmental regulation, or if interpretations of the foregoing
change, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and
the curtailment or restructuring of our operations.



Employees



As at September 30,
2015, we had tenemployees.



OUR OPERATIONS



We currently have products
in the area of urology/women's health, anticoagulants and anti-infectives.



Urology / Women's Health - Emselex®/Enablex®



Over Active Bladder



Overactive bladder
occurs when a large muscle in the bladder known as the detrusor contracts more often than normal. This causes a person to feel
a sudden and sometimes overwhelming urge to urinate even when the bladder isn’t full. Urgency, incontinence, and urinary
frequency can also be caused by urinary-tract infections, kidney stones, prostate infection or enlargement, or medicine taken to
treat other conditions such as high blood pressure. Though not life-threatening, overactive bladder is inconvenient, can be embarrassing,
and can markedly reduce quality of life.



16






Emselex®/Enablex®



In 2003, Novartis Pharma
AG (Novartis) acquired the Emselex®/Enablex® (darifenacin) product from Pfizer Inc. and the product was approved for sale
in Europe and the United States in 2004. As the global sales of Emselex®/Enablex® were below the critical sales thresholds,
Novartis decided to reduce its marketing and sales efforts in the majority of territories where the product was marketed. In 2010,
Novartis divested the product rights for the United States to Warner Chilcott Plc. The core patents protecting the Emselex®/Enablex®
(darifenacin) product expire in August 2016. In addition, the patent rights are also covered by a Supplementary Protection Certificate
in most major European markets which provides a barrier to entry through October 2019.



Acquisition of Emselex®/Enablex®
(darifenacin) Product Rights



In July 2012, we acquired
from Novartis the Canadian and European rights (excluding France, Spain and Italy) to manufacture, market, and sell the branded
prescription medicine product Emselex®/Enablex® (darifenacin) extended release tablets. Darifenacin is a muscarinic antagonist
indicated for the treatment of overactive bladder with symptoms of urge urinary incontinence, urgency and frequency. The product’s
specific mechanism of action is the blocking of the M3 muscarinic receptor, which is primarily responsible for bladder muscle contractions.
As overactive bladder is a chronic condition, Emselex®/Enablex® is prescribed as a medication to be taken once daily and
the extended release tablet format is produced in 7.5mg and 15mg dosage strengths.



Transition Period under Enablex Acquisition
Agreement



The acquisition of
the license rights to Enablex were completed pursuant to the Enablex® Acquisition Agreement. As part of this agreement, we
entered into a transition services and supply agreement with Novartis to facilitate the seamless and efficient transfer of the
product to us. This transition period ended in 2013 and, as a result, we currently act as the principal in the sales of Enablex
as opposed to an agent. As such, revenues for sales of Enablex made by the Company acting as principal were accounted for on a
gross basis, as opposed for on a net-basis.



Promotion and Distribution Agreements



As we have acquired
the product rights in a number of European countries in which the product is not being actively marketed, we have partnered with
local marketing and sales organizations with the goal of incrementally increasing sales in those regions.



During 2013, we entered
into promotion and distribution agreements with selected partners in certain European countries for the Emselex®/Enablex®
product. Under the terms of the agreements, the partner companies have been granted exclusive rights to distribute, market, and
sell Emselex®/Enablex® in their respective territories. The general structure of the arrangements are such that the partners
contribute the local marketing and sales resources in exchange for a portion of the incremental net sales generated above the current
annual baseline net sales. The territories covered by these distribution and promotion agreements did not have any substantial
marketing and sales resources devoted to the product in recent years.



We have entered into
these promotion and distribution agreements with partner companies in order to access our partners’ knowledge and expertise
in their local markets. Our strategy is for Emselex®/Enablex® to become a major growth driver for the Company and we believe
these collaborations will enable Merus to broaden its reach in countries which were previously underserved in terms of marketing
and sales efforts.



17






Contract Manufacturing



We have entered into
an agreement with a European contract manufacturing group to manufacture Emselex®/Enablex® for sale and distribution in
Europe and Canada. The operational phase of the manufacturing tech transfer began in May 2013. During the operational transition
period Novartis will continue to manage the manufacturing of Emselex®/Enablex®. Once this operational transition period
is concluded, we will manage the manufacturing under the contract manufacturing agreement.



18






Customers



We have established
a number of marketing and promotional agreements in various countries throughout Europe. The counterparties to these agreements
effectively become our sole customers in that region. As such, we have a limited number of customers, each with contractual arrangement
and sales incentives. In Canada, Emselex®/Enablex® is sold through similar channels as our other Canadian products, whereby
a large majority of the sales are to large national wholesalers.



Pricing



During 2014, we were
informed by the German Federal Joint Committee (G-BA), responsible for directives on drug reimbursement policy, that they planned
to introduce a single reimbursement class for all anticholinergic-based OAB products in the German market. This new classification
would effectively set a maximum reimbursable price for public payors. The Committee has invited Merus to provide a rationale for
Enablex® (Darifenacin) being excluded from the class, which we have done. We participated with a number of pharmaceutical companies
and other stakeholders in a hearing conducted by the G-BA on June 9, 2015 as part of the G-BA detailed evaluation process. The
G-BA published its decision in October 2015 that Enablex® will be included in the reimbursement class. In December 2015, the
G-BA determined the applicable maximum reimbursement price that will apply to Emselex as part of the class to be approximately
40% of the current average price for the product in Germany. No date has been set by the G-BA for when the maximum reimbursement
price will apply, however, we do expect the maximum price to impact sometime during fiscal 2016. We anticipate that inclusion of
Enablex® in the reimbursement class will result in our sales revenues from Enablex® (Darifenacin) in the German market
being materially lower for future financial periods.



Competitive Conditions



There are several other
drugs in the over-active bladder market which compete directly with Enablex. Each drug has a certain risk profile and incompatibilities.
We believe Enablex is a superior product which compares favourably in certain key areas. The core patents protecting our Enablex®
products expire expire in August 2016, which could result in significant competition from generic products. We hold a Supplemental
Protection Certificate which provides additional protection through October 2019 and plan to employ a host of strategies in order
to stay competitive in changing market conditions.



Anticoagulants - Sintrom®



Anticoagulants prevent
stroke and systemic embolism in patients with Atrial Fibrillation. Atrial Fibrillation (“AF”) is the most common
cardiac arrhythmia (heart rhythm disorder) and is associated with palpitations, chest pain, or congestive heart failure. Embolism
refers to where a clot exists and breaks off and flows into the blood stream later clogging an artitery. Antigoagulants treat and
prevent deep vein thrombosis (“DVT”) and pulmonary embolism (“PE”) and also prevent venous
thromboembolic events (“VTE”) in patients who have undergone hip or knee replacement surgery.



| | · | Atrial Fibrillation: AF affects 1–2% of the population and likely to increase in the
next 50 years. Prevalence of AF increases with age, from 0.5% at age 40-50, to 5–15% at age 80. Over 6 million Europeans
suffer arrhythmia with prevalence estimated to double in the next 50 years
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | VTE: Approximately 1.1 million venous thromboembolic events occur each year across the EU
encompassing: DVT events - 61% of total and PE events - 39% of total
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



19






When patients have
AF the heart’s two upper chambers (atria) begin to quiver instead of beating effectively. As a result, blood isn’t
pumped completely out of the atria and begins to pool and clot. The clot later leaves the heart via blood flow to the brain where
it can lodge in a brain artery causing a stroke. It is estimated that 15% of strokes occur with patients with AF.



Anticoagulants are
a rapidly evolving market for both legacy and emerging treatment regimes. Dominated by just two therapy classes – vitamin
K antagonist and heparin injectables; the anticoagulants industry has come a long way since the 1990s, when advancements in thrombotic
disease detection and increased physician awareness were major drivers for market growth. Market growth is currently led by the
arrival of novel therapeutics as well as favorable demographic tailwinds. The United States and Europe dominate the global anticoagulants
market, which is expected to grow dramatically as advanced therapeutics present brighter prospects for coagulation as well as patient
management. While novel drugs are likely to impact the market sometime in near future, factors that already influence market prospects
include increasing use of low molecular weight heparins, patient population (Baby Boomers reaching age of retirement), and additional
indications for existing drugs. Future impact of anticoagulants is expected to mainly result from enormous patient potential. Among
these, an aging population at growing risk of venous and arterial problems and patients on long-term anticoagulation would be the
major influencers. Currently, the global anticoagulants market is led by vitamin K antagonist (VKA), unfractionated heparin and
low molecular weight heparins (heparins). The injectable anticoagulants market has maintained a steady pace over the years with
more number of patients receiving anticoagulation with one or more of the injectable therapies.



Acquisition of Sintrom®



In September 2014,
we acquired from Novartis, in certain European countries, the rights to manufacture, market, and sell the branded prescription
medicine product Sintrom® (acenocoumarol). Acenocoumarol is an anticoagulant indicated for the treatment and prevention of
thromboembolic diseases. Sintrom® has been available in Europe for over 50 years.



Sintrom is an anti-coagulant
drug prescribed by physicians for the treatment and the prevention of clotting disorders like thromboembolism diseases, which obstruct
the normal flow of blood in the blood vessels and can create serious health problems in the process. Sintrom may also be referred
to as a blood thinner. Sintrom does not have the capacity to dissolve clots that have already formed in the blood vessels but rather
is used as a preventative treatment. It functions as a vitamin K antagonist and the active ingredient is Acenocoumarol. Sintrom
is sold as an oral tablet in 1mg and 2mg doses. Typically, adults are advised to take between 1 and 10 milligrams of the medication
every day, depending on their blood test results.



Transition Period under Sintrom Acquisition
Agreement



As part of the Sintrom®
acquisition agreement, we entered into a transition services and supply agreement with Novartis to facilitate the seamless and
efficient transfer of the product to us. The agreement required that Novartis continue to manufacture, distribute, and promote
the Sintrom® product in the licensed territories until we had obtained the necessary marketing authorizations to allow us to
take over these functions as principal. During this transition period, Novartis provides us with a monthly reconciliation of revenues,
cost of goods, and marketing and selling expenses for which we then billed Novartis for the net amount receivable. Based on the
terms of this arrangement and the guidance per IAS 18 regarding agency relationships, we record revenues relating to Sintrom®
on a net basis in our statement of operations, net of cost of goods and marketing and selling expenses, for the transition period
of this arrangement.



20






During September 2015,
the presentation of revenues from Sintrom in Spain switched from a net basis to a gross basis as a result of the marketing authorization
and commercial operations in Spain being transferred from Novartis to us. As a result, the revenues and cost of goods related to
any sales conducted directly by Merus were recorded separately on a gross basis as if Merus were acting as the principal.



Customers



Sintrom will be sold
predominantly through distributors with whom Merus already has established relationships. Sintrom will be sold by the distributors
to wholesalers and pharmacy networks. During the fourth quarter of fiscal 2015, the Company began to transfer the majority of its
distribution from Novartis to local Company partners. These partners typically represent the end customer for Merus, with the partner
responsible for most activities at the regional level.



Contract Manufacturing



Sintrom will continue
to be manufactured by Novartis and its contract organizations for a period of time in order to allow Merus to transition the product
manufacturing to a contract manufacturer and obtain the related approvals. The transition to a third party manufacturer is expected
to provide additional cost savings. Given the legacy nature of the drug and the relatively straight forward production process,
sourcing a contract manufacturer is not expected to be an issue. The Company has begun the process to transfer the manufacturing
operations for Sintrom and it is expected that the new contract manufacturer will begin producing product in late fiscal 2016.



Competitive Conditions



Sintrom’s key
competition in the Vitamin K antagonist (“VKA”) segment of the anticoagulant business is Warfarin and Marcoumar.
Warfarin holds the largest market share and is sold in several different countries under different brand names. Warfarin is the
chemical name for Coumadin and is manufactured as a generic by several different manufactures including Barr, Sandoz, Merck, Taro,
and others. Warfarin is a direct competitor of Sintrom, but not a generic substitute because although similar, it is not the same
molecule. The major difference between these products is biological half-life, being the time required for a organism to eliminate
one-half of a substance which has been introduced into it. The key benefit of Sintrom is because it has a shorter biological half-life,
doctors are able to adjust dosages in the short term and can more readily apply an antidote. Both Warfarin and Marcoumar have a
longer life and thus provide more constant long term plasma levels.



New Oral Anti-Coagulants
(“NOAC’s”) such as Pradaxa (Boehringer Ingelheim), Xarelto (Bayer) and Eliquis (Apixaban) have obtained
EMA approval in 2011/2012 with patent expiry in 2020/2023. These products are the “next generation” of anti-coagulants
and have many benefits over legacy anti-coagulants such as VKA’s and as a result many international guidelines recommend
NOAC as the preferred option. However, VKA’s in some countries are still the preferred option due to local guidelines, broad
physician experience, and low price, given that NOAC's can be up to 50 times more expensive as VKA’s. NOAC’s are superior
to VKA’s in terms of safety, efficacy and therapeutic window and for this reason have received much attention since their
introduction. However, these drugs exhibit one key issue – in emergency bleeds or surgery, physicians are unable to medically
administer an antidote unlike VKA’s. Furthermore, given NOAC’s do not require the same level of monitoring, VKA’s
provide physicians with greater oversight over patient progress prompting emergency avoidance. Lastly, doctors have been using
VKA’s for decades and as a result are comfortable with dosing, monitoring procedures and reversals in comparison to NOAC’s.



21






Cholinergic Agents - Salagen



Cholinergic agents
work by increasing the secretion of saliva from the salivary glands, which helps to relieve dry mouth. Pilocarpine is considered
to be the gold standard, however there are less effective alternative therapies (non-pilocarpine) that exist.



Acquisition of Salagen



In May 2015, Merus
acquired the product rights to Salagen (pilocarpine hydrochloride) capsules from Novartis AG in 18 European territories. Salagen®
is indicated for xerostomia following radiation therapy, in addition to Sjogren's syndrome. Salagen® had total sales of approximately
$7.8 million in 2014. The first marketing authorization was received in 2001 (in EU) and the product has no patent life remaining.



Transition Period under Salagen Acquisition
Agreement



As part of the Salagen®
acquisition agreement, we entered into a transition services and supply agreement with Novartis to facilitate the transfer of the
product to us. The agreement required that Novartis continue to manufacture, distribute, and promote the Salagen® product in
the licensed territories until we had obtained the necessary marketing authorizations to allow us to take over these functions
as principal. During this transition period, Novartis provides us with a monthly reconciliation of revenues, cost of goods, and
marketing and selling expenses for which we then billed Novartis for the net amount receivable. Based on the terms of this arrangement
and the guidance per IAS 18 regarding agency relationships, we record revenues relating to Salagen® on a net basis in our statement
of operations, net of cost of goods and marketing and selling expenses, for the transition period of this arrangement.



Customers



Salagen is sold in
18 European markets via retail and hospital distribution. Salagen will be sold predominantly through distributors with whom Merus
already has established relationships. It is expected that the Company will complete the transfer of the majority distribution
to local partners sometime during the fiscal 2016 second quarter.



Contract Manufacturing



Salagen API is sourced
from Eisai and bulk production occurs at a contract manufacturer in Canada. Final packaging is performed in the UK. The Company
assumed these third party contracts as part of its acquisition of the IP rights.



Competitive Conditions



The competitive landscape
for Salagen for its primary indication (Xerostomia) are:

i)   Saliva
substitutes (variety)

ii)  Saliva
stimulants (lozenges, e.g. Natrol)

iii) Cevimeline
– cholinergic agonist that has an affinity for muscarinic M3 receptors

iv) Anethole
trithione – bile secretion-stimulating drug (cholagogue)

v)  Yohimbine
– alpha-2 adrenergic agonist



There is no generic competition in any
of the major markets, except Greece. There are no near-future new therapies for the given indications.



22






Hormone Replacement Therapies - Estraderm



Hormone replacement
therapies (HRT’s) use estrogen to alleviate menopausal systems or osteoporosis.



Acquisition of Estraderm



In May 2015, Merus
acquired the product rights to Estraderm MX (β-Estradiol) transdermal patches from Novartis AG in six markets, four of which
are in Europe. Estraderm® is indicated to manage certain symptoms of post-menopause and to prevent osteoporosis related to
menopause. Estraderm® sales were approximately $3.6 million in 2014. The first marketing authorization was received in 2001
(in EU) and the product has no patent life remaining.



Transition Period under Estraderm
Acquisition Agreement



As part of the Estraderm®
acquisition agreement, we entered into a transition services and supply agreement with Novartis to facilitate the transfer of the
product to us. The agreement required that Novartis continue to manufacture, distribute, and promote the Estraderm® product
in the licensed territories until we had obtained the necessary marketing authorizations to allow us to take over these functions
as principal. During this transition period, Novartis provides us with a monthly reconciliation of revenues, cost of goods, and
marketing and selling expenses for which we then billed Novartis for the net amount receivable. Based on the terms of this arrangement
and the guidance per IAS 18 regarding agency relationships, we record revenues relating to Estraderm® on a net basis in our
statement of operations, net of cost of goods and marketing and selling expenses, for the transition period of this arrangement.



Customers



Estraderm MX is sold
in 6 markets, 4 in Europe, via wholesale and retail distribution. Estraderm will be sold predominantly through distributors with
whom Merus already has established relationships, with the exception of two new territories (Australia, Columbia) within which
the Company has established new relationships. It is expected that the Company will complete the transfer of the majority distribution
to local partners sometime during the fiscal 2016 second quarter.



Contract Manufacturing



Estraderm API is sourced
from Bayer and production occurs at a contract manufacturer in Germany. The Company assumed these third party contracts as part
of its acquisition of the IP rights.



Competitive Conditions



The hormone replacement therapy market has
been shrinking globally due to concern over oncologic risks. Newer studies have questioned some of the earlier research and the
market shows signs of stabilization or slight growth. Estraderm share within the market has been stable over the last several years.



Vancocin®



We acquired Vancocin®
(vancomycin hydrochloride) from Iroko in May 2011. The core patents protecting our Vancocin products expired on July 13, 2010.



23






Vancomycin was first
isolated by Eli Lilly. The original indication for vancomycin was for the treatment of penicillin-resistant staphylococcus aureus.
One advantage that was quickly apparent is that staphylococci did not develop significant resistance despite serial passage in
culture media containing vancomycin. The rapid development of penicillin resistance by staphylococci led to the compounds being
fast-tracked for approval by the US Food and Drug Administration (“FDA”). Eli Lilly first marketed vancomycin
hydrochloride under the trade name Vancocin. Vancocin is a powerful antibiotic used to treat a life-threatening disease resulting
from the infection of Clostridium Difficile (“C. Difficile”).



C. Difficile is on
the increase with higher mortality and severity. Due to the nature of the disease, intravenous (systemic) solutions are regarded
as ineffective. To be effective against C. Difficile, drugs must act locally on the flora of the gastro intestinal track. Intravenous
solutions by definition do not act locally.



Clinical Practice Guidelines
(Clinical Practice Guidelines for Clostridium difficile Infection in Adults: 2010 Update by the Society for Healthcare Epidemiology
of America (SHEA) and the Infectious Diseases Society of America (IDSA)) state that oral vancomycin should be used as first line
therapy in severe cases of C. Difficile. The guidelines state that vancomycin is the drug of choice for an initial episode of severe
C. Difficile. The dosage is 125 mg orally four times per day for 10–14 days. Vancomycin administered orally (and per rectum,
if ileus is present) is the regimen of choice for the treatment of severe, complicated C. Difficile.



Vancocin® Customers



We generally sell between
80% and 90% of our products directly to three major wholesalers in Canada and United States: AmerisourceBergen, McKesson Corporation
and Matrix, which does business as Shoppers Drug Mart. Our management believes that it is common practice in Canada and the United
States for pharmacies to have multiple wholesale sources. Other direct buyers include additional smaller wholesalers and distributors,
in addition to certain pharmacy chains and food stores that warehouse the products internally.



Changes in the Competitive Landscape



Vancocin
is subject to competition from generic competitors and sales of Vancocin have declined materially in fiscal 2015 in comparison
to fiscal 2014 due to competition from a second generic competitor which entered the market during fiscal 2014.



24






Risk Factors



Our
business, financial condition and results of operations could be materially adversely affected by any of the following risks. In
addition, risk and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely
affect its business.



Our strategy to grow our business
through acquisitions is subject to significant risks.



A
key component of our strategy to grow our business is to complete additional pharmaceutical product acquisitions to expand our
product range and increase our revenues. Accordingly, we will be dependent upon our ability to enter into acquisition and license
agreements with pharmaceutical companies that have products that we believe are consistent with our business strategy. Risks in
acquiring new pharmaceutical products include: (a) our ability to locate new products that are attractive and complement our business,
and (b) our ability to acquire these products at attractive acquisition prices. We also face competition from other pharmaceutical
companies in acquiring rights to products, which makes it more difficult to find attractive products on acceptable terms. Accordingly
we may not be able to acquire rights to additional products on acceptable terms, if at all. Further, we may not be able to obtain
future financing for new product acquisitions on acceptable terms, if at all. Our inability to complete acquisitions of additional
branded products could limit the overall growth of our business. Furthermore, even if we are able to obtain rights to pharmaceutical
products, we may not generate sales sufficient to create a profit or otherwise avoid a loss. For example, the marketing strategy,
distribution channels and levels of competition with respect to acquired products may be different than those of our current products
and our ability to compete favourably in those product categories may be limited.



If we are not able to acquire
the license rights to new products, we may not be able to execute our business strategy and generate revenues as planned.



We depend on acquisition
of rights to products from other companies as the primary source for new products. Risks in acquiring new products include: (a)
the ability to locate new products that are attractive and complement our business, and (b) the price to acquire or obtain the
license for these products may be too costly to justify the acquisition. We also face competition from other pharmaceutical companies
in acquiring rights to products, which makes it more difficult to find attractive products on acceptable terms.



We may not be able to secure
additional financing which may impair our ability to complete future acquisitions.



There
can be no assurance that we will be able to raise the additional funding that we will need to carry out our business objectives
and to complete product acquisitions. The development of our business depends upon prevailing capital market conditions, our business
performance and our ability to obtain financing through debt financing, equity financing or other means. There is no assurance
that we will be successful in obtaining the financing we require as and when needed or at all in order to complete future acquisitions.
If additional financing is raised by the issuance of shares from treasury, control of our company may change and shareholders may
suffer additional dilution.



We have significant debt obligations
which require us to generate significant cash flows from operations in order to make mandated payments of principal and interest



We have incurred significant
debt obligations in connection with the acquisition of our current product line. Our ability to repay these liabilities will be
contingent upon our success in achieving sufficient revenues from these products to be able to make payments of principal and interest
against this debt when due and payable. There is no assurance that we will be able to secure future additional financing to repay
our current debt facility or our outstanding convertible debentures should cash flows from operations be insufficient to repay
these liabilities. Our inability to repay outstanding debt when due would have a material adverse impact on our business.



25






We may not be able to implement our
business strategy which may impair our ability to generate future revenues.



The growth and expansion
of our business is heavily dependent upon the successful implementation of our business strategy. There can be no assurance that
we will be successful in the implementation of our business strategy.



We may not be able to continue to
meet certain covenants under its existing credit facilities and our inability to meet these covenants could result in acceleration
of our long term liabilities.



Our credit facilities
require us to maintain specified collateral coverage ratios and satisfy financial covenants. There can be no assurance that we
will be able to continue to meet certain covenants under its existing credit facilities. A failure to meet such covenants could
result in our lenders seeking to enforce their security under such credit facilities. This may negatively affect our financial
condition, business and operating results. Our credit facility also contains restrictive covenants that, among other things, limit
our ability and the ability of our subsidiaries to:



| | · | incur additional indebtedness;
| | - | ------------------------------



| | · | repurchase certain indebtedness;
| | - | --------------------------------



| | · | pay dividends, redeem stock or make other distributions;
| | - | --------------------------------------------------------



| | · | make investments;
| | - | -----------------



| | · | create certain liens;
| | - | ---------------------



| | · | transfer or sell assets;
| | - | ------------------------



| | · | merge, consolidate or sell all or substantially all of our assets;
| | - | ------------------------------------------------------------------



| | · | create restrictions on the ability of our restricted subsidiaries to make payments to us; and
| | - | ---------------------------------------------------------------------------------------------



| | · | enter into certain transactions with our affiliates.
| | - | ----------------------------------------------------



The restrictions in
our credit facilities governing our other indebtedness may prevent it from taking actions that we believe would be in the best
interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete
with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional
restrictive covenants that could affect our financial and operational flexibility. We may be unable to refinance our indebtedness,
at maturity or otherwise, on terms acceptable to us, or at all.



Our ability to comply
with the covenants and restrictions contained in our credit facilities may be affected by economic, financial and industry conditions
beyond our control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result
in a default that would permit the lenders to declare all amounts outstanding to be due and payable, together with accrued and
unpaid interest. If we are unable to repay the indebtedness, the lenders could proceed against the collateral securing the indebtedness.
This could have serious consequences to our financial position and results of operations and could cause us to become bankrupt
or insolvent.



26






The pharmaceutical industry is
highly competitive and is subject to rapid and significant technological change, which could render our technologies and products
obsolete or uncompetitive.



Our products will face
competition from new pharmaceutical and biotech products that treat some of the same diseases and conditions as our products. Many
of our competitors have greater financial resources and selling and marketing capabilities. We will face further competition from
drug development companies that focus their efforts on developing and marketing products that are similar in nature to our products,
but that in some instances offer improvements over our products, such as less frequent dosing, more pleasant taste, new dosage
formats and other novel approaches to improve existing products. Our competitors may succeed in developing technologies and products
that are more effective or less expensive to use than any that we may license or acquire. These developments could render our products
obsolete or uncompetitive, which would have a material adverse effect on our business, financial condition and operating results.



Core patent protection for our
initial portfolio has expired or will expire in the future, which could result in significant competition from generic products
resulting in a significant reduction in sales.



Our Sintrom®, Salagen®
and Estraderm MX® products are not subject to patent protection. In addition, the core patents protecting our Vancocin®
products expired on July 13, 2010 and the core patents protecting our Enablex® products expire in August 2016. Expiry of patent
protection for our Enablex® products could result in significant competition from generic products and could result in a significant
reduction in sales. Further, in such situations, in order to continue to obtain commercial benefits from our products, we will
rely on product manufacturing trade secrets, know-how and related non-patent intellectual property. The effect of this patent expiration
depends, among other things, upon the nature of the market and the position of our products in the market from time to time, the
growth of the market, the complexities and economics of manufacture of a competitive product and regulatory approval requirements
of generic drug laws. In the event that competition develops from generic products, this competition could have a material adverse
effect on our business, financial condition and operating results. The entrance into the market of a generic pharmaceutical product
may erode the branded product’s market share which may have a material adverse effect on our business, financial condition
and results of operations.



We may not be able to protect and
maintain our intellectual property and licensing arrangements which could impact our ability to compete effectively in our targeted
markets.



Our success will depend
in part on our ability to protect and maintain intellectual property rights and licensing arrangements for our products. No assurance
can be given that the licenses or rights used by our company will not be challenged, invalidated, infringed or circumvented, or
that the rights granted thereunder will provide competitive advantages to our company. Any loss of intellectual property protection
is likely to adversely affect our operating results. Our commercial success will also depend in part on us not infringing patents
or proprietary rights of others and not breaching the licenses granted to us. There can be no assurance that we will be able to
obtain a license to any third party technology that it may be required to conduct our business or that such technology can be licensed
at a reasonable cost. There is no certainty that we will not be challenged by our partners for non-compliance with our existing
or future licensing arrangements. Consequently, there may be a risk that licensing arrangements are withdrawn with no compensation
or penalties to us.



27






The prices at which we are able to
sell our pharmaceutical products may be adversely impact by government mandated reductions in pricing resulting from changes in
drug reimbursement pricing policies



During 2014, we were
informed by the German Federal Joint Committee (G-BA), responsible for directives on drug reimbursement policy, that in Germany
there is a plan to introduce a single reimbursement class for all anticholinergic-based OAB products in the market. This new classification
would effectively set a maximum reimbursable price for public payors. The G-BA published its decision in October 2015 that Enablex®
will be included in the reimbursement class. The G-BA has not determined the applicable maximum reimbursement price that will apply
to the reimbursement class as of the date of this AIF. In addition, no date has been set by the G-BA for when the maximum reimbursement
price will apply. Accordingly, we are not able to fully assess the financial impact of the inclusion of Enablex® in the reimbursement
class as of the date of this AIF. However, we anticipate that inclusion of Enablex® in the reimbursement class will result
in our sales revenues from Enablex® (Darifenacin) in the German market being materially lower for future financial periods
Changes in other European countries regarding reimbursement policies for the Company’s products may also have an adverse
impact on sales and revenues in these counties.



We may be subject to product
liability claims, which can be expensive, difficult to defend and may result in large judgments or settlements.



The administration
of drugs to humans, whether in clinical trials or after marketing clearance is obtained, can result in product liability claims.
Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against our company.
In addition, third party collaborators and licensees may not protect us from product liability claims.



We will maintain product
liability insurance in connection with the marketing of our products. Merus may not be able to obtain or maintain adequate protection
against potential liabilities arising from product sales. If Merus is unable to obtain sufficient levels of insurance at acceptable
cost or otherwise protect against potential product liability claims Merus will be exposed to product liability claims. A successful
product liability claim in excess of its insurance coverage could harm its financial condition, results of operations and prevent
or interfere with its product commercialization efforts. In addition, any successful claim may prevent Merus from obtaining adequate
product liability insurance in the future on commercially desirable terms. Even if a claim is not successful, defending such a
claim may be time-consuming and expensive and would result in Merus needing to divert resources which could otherwise be used in
developing its business.



Unexpected products safety or
efficacy concerns may arise and result in unanticipated costs associated with product liability defence claims and potential reduction
in revenues.



Unexpected safety or
efficacy concerns can arise with respect to marketed products, whether or not scientifically justified, leading to product recalls,
withdrawals or declining sales, as well as product liability, consumer fraud and/or other claims. This could have a material adverse
effect on our business, financial results and operating results.



28






Uncertainty can arise regarding
the applicability of our proprietary information which could result in unanticipated competition.



We will rely on trade
secrets, know-how and other proprietary information as well as requiring employees, suppliers and other third-party service providers
to sign confidentiality agreements. However, these confidentiality agreements may be breached, and we may not have adequate remedies
for such breaches. Others may independently develop substantially equivalent proprietary information without infringing upon any
proprietary technology. Third parties may otherwise gain access to our proprietary information and adopt it in a competitive manner.
If a third party obtains our proprietary information and adopts it in a competitive manner, it may have a material effect on our
business, financial condition and operating results.



We rely on third parties to undertake
promotion and distribution of our products in certain markets and their inability to successfully market our products may impact
on our ability to generate revenues in these markets.



We have entered into
promotion and distribution agreements with selected partners in certain European countries for our certain of our products. We
will rely on these partners to undertake marketing and sales efforts in countries for which promotion and distribution rights have
beene granted. There is no assurance that our partners will effectively be able to achieve significant sales of products in their
respective territories and their inability to do so may impact adversely on our revenues and our results of operations.



We rely on third parties to manufacture
our products and the inability of these third parties to manufacture our products in accordance with our requirements may impact
on our ability to generate revenues.



We do not have the
internal capability to manufacture pharmaceutical products and rely on third parties to manufacture our products. We cannot be
certain that manufacturing sources will continue to be available or that we will be able to continue to outsource the manufacturing
of our products on reasonable or acceptable terms. In addition, outsourcing manufacturing exposes us to a number of risks which
are outside our control, including: our suppliers may fail to comply with government mandated current good manufacturing practices
which include quality control and quality assurance requirements, and the corresponding maintenance of records and documentation
and manufacture of products according to the specifications contained in the applicable regulatory file resulting in mandated production
halts or limitations; or our suppliers may experience manufacturing quality, control or yield issues which would require the supplier
to halt or limit production of our products.



If we encounter delays
or difficulties with contract manufacturers, packagers or distributors, sales of our products could be delayed. If we change the
source or location of supply or modify the manufacturing process, regulatory authorities will require us to demonstrate that the
product produced by the new source or from the modified process is equivalent to the product used in any clinical trials that were
conducted. If we are unable to demonstrate this equivalence, we will be unable to manufacture products from the new source or location
of supply, or use the modified process. We may incur substantial expenses in order to ensure equivalence. This may negatively affect
its business, financial condition and operating results.



If our supply of finished products
is interrupted, our ability to maintain inventory levels could suffer and future revenues could be delayed.



Supply interruptions
may occur and our inventory of finished products may not always be adequate to satisfy demand. Numerous factors could cause interruptions
in the supply of our finished products, including failure to have a third party supply chain validated in a timely manner, shortages
in raw material and packaging components required by our manufacturers, changes in our sources for manufacturing or packaging,
our failure to timely locate and obtain replacement manufacturers as needed and conditions affecting the cost and availability
of raw materials. There can be no assurances that our other products will not be interrupted in the future. This may have an adverse
effect on our business, financial results and operations.



29






We will rely on third parties
to perform distribution, logistics, regulatory and sales services for our products and their inability to perform these services
in accordance with our requirements could cause our business to suffer.



We will rely on third
parties to provide distribution, logistics, regulatory and sales services including warehousing of finished product, accounts receivable
management, billing, collection and record keeping. If the third parties cease to be able to provide us with these services, or
do not provide these services in a timely or professional manner we may not be able to successfully manage the product revenues
or integrate new products into its business, which may result in decreases in sales. Additionally, any delay or interruption in
the process or in payment could result in a delay delivering product to our customers, which could have a material effect on our
business, financial condition and operating results.



We must successfully integrate
any products that we acquired or will acquire in the future in order that we can generate anticipated revenues from these products.



We will pursue additional
products that could complement or expand our business. However, there can be no assurance that we will be able to identify appropriate
acquisition candidates in the future. If an acquisition candidate is identified, there can be no assurance that we will be able
to successfully negotiate the terms of any such acquisition, finance such acquisition or integrate such acquired product or business
into its existing products and business. Furthermore, the negotiation of potential acquisitions and integration of acquired product
lines could divert management’s time and resources, and require significant resources to consummate. If we consummate one
or more significant acquisitions through the issuance of Common Shares, our shareholders could suffer significant dilution of their
ownership interests.



Our inability to attract and
retain key managerial personnel may adversely impact our ability to carry out our business operations and strategies as planned.



We are highly dependent
on qualified managerial personnel. Our anticipated growth will require additional expertise and the addition of new qualified personnel.
There is intense competition for qualified personnel in the pharmaceutical field. Therefore, we may not be able to attract and
retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as
well as the failure to recruit additional key managerial personnel in a timely manner, would harm its business development programs,
and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees and generate
revenues. We may not maintain key person life insurance on any of its employees.



Increases in sales may attract
generic competition which could impact on the prices that we are able to charge for our products.



If sales of any of
our products that no longer enjoy market exclusivity or are not sufficiently protected by associated intellectual property were
to increase substantially, competitors may be more likely to develop generic formulations that compete directly with our products.
Increased generic competition would have a material adverse effect on our business and financial results.



30






Our business is subject to limitations
imposed by government regulation which may increase our costs of regulatory compliance as well as impact adversely on our ability
to market and sell our products.



In both domestic and
foreign markets, the formulation, manufacturing, packaging, labelling, handling, distribution, importation, exportation, licensing,
sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court
decisions and similar constraints which are beyond our control. Such laws, regulations and other constraints may exist at all levels
of government. There can be no assurance that we will be in compliance with all of these laws, regulations and other constraints.
Failure to comply with these laws, regulations and other constraints or new laws, regulations or constraints could lead to the
imposition of significant penalties or claims and could negatively impact our business. In addition, the adoption of new laws,
regulations or other constraints or changes in the interpretations of such requirements may result in significant compliance costs
or lead us to discontinue product sales and may have an adverse effect on the marketing of our products, resulting in significant
loss of sales.



In the United States,
the FDA perceives any written or verbal statement used to promote or sell a product that associates an unapproved nutrient with
a disease (whether written by us, the content of a testimonial endorsement or contained within a scientific publication) to be
evidence of intent to sell an unapproved new drug. If any such evidence is found with respect to our products, the FDA may take
adverse action against us, ranging from a warning letter necessitating cessation of use of the statement to injunctions against
product sale, seizures of products promoted with the statements, and civil and criminal prosecution of our executives. Such actions
could have a detrimental effect on sales.



Our policies regarding returns,
allowances and chargebacks may reduce revenues in future fiscal periods.



We cannot ensure that
our estimated reserves are adequate or that actual product returns, allowances and chargebacks will not exceed the estimates, which
could have a material adverse effect on our results of operations, financial condition, and cash flows



We may be subject to the risks
of foreign exchange rate fluctuation which could result in foreign exchange losses.



We may be exposed to
fluctuations of the Canadian dollar against certain other currencies because we publishes our financial statements in Canadian
dollars, while a portion of our assets, liabilities, revenues and costs are or will be denominated in other currencies, such as
the euro and the U.S. dollar. Exchange rates for currencies of the countries in which we operate may fluctuate in relation to the
Canadian dollar, and such fluctuations, especially as between the Canadian dollar, U.S. dollar and the euro, may have a material
adverse effect on its earnings or assets when translating foreign currency into Canadian dollars. In order to mitigate the risk,
we have used, in the past, forward contracts and other derivative instruments to reduce our exposure to foreign currency risk and
may or may not do so in the future. Dependent on the nature, amount and timing of foreign currency receipts and payments, we may
from time-to-time enter into foreign currency contracts. Accordingly, we may experience economic loss and a negative impact on
earnings solely as a result of foreign exchange rate fluctuations, which include foreign currency devaluations against the Canadian
dollar. We do not typically carry currency convertibility risk insurance.



Market rate fluctuations could adversely
affect our results of operations.



We may be subject to
market risk through the risk of loss of value in our portfolios resulting from changes in interest rates, foreign exchange rates,
credit spreads, and equity prices. We are required to mark to market our held-for-trading investments at the end of each reporting
period. This process could result in significant write-downs of our investments over one or more reporting periods, particularly
during periods of overall market instability, which could have a significant unfavourable effect on our financial position.



31






We may be unsuccessful in evaluating
material risks involved in completed and future investments which could impact our ability to realize the expected benefits from
future investments and acquisitions.



We will regularly review
investment opportunities and as part of the review, conduct business, legal and financial due diligence with the goal of identifying
and evaluating material risks involved in any particular transaction. Despite our efforts, we may be unsuccessful in ascertaining
or evaluating all such risks. As a result, we may not realize the intended advantages of any given investment and may not identify
all of the risks relating to the investment. If we fail to realize the expected benefits from one or more investments, or do not
identify all of the risks associated with a particular investment, our business, results of operations and financial condition
could be adversely affected.



Our inability to maintain effective
internal controls over financial reporting could increase the risk of an error in our financial statements.



Our management, with
the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives due to its inherent limitations. Internal control over financial reporting is a process that involves human diligence
and compliance and is therefore subject to error, collusion, or improper override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis, and although it is possible to incorporate into
the financial reporting process safeguards to reduce this risk, they cannot be guaranteed to entirely eliminate it. If we fail
to maintain effective internal control over financial reporting, then there is an increased risk of an error in our financial statements
that could result in us being required to restate previously issued financial statements at a later date.



There are unexercised convertible
securities and stock options outstanding. If these are exercised, the investor’s interest in our Common Shares will be diluted.



As of December 29,
2015, we had 102,599,906 Common Shares issued and outstanding. If all of the options that were issued and outstanding as of that
date were to be exercised, including options that are not yet exercisable, we would be required to issue up to an additional 5,573,500
Common Shares, or approximately 3.7% of our issued and outstanding Common Shares as of the date of this AIF. In addition, our Series
A Preferred Shares are also convertible into Common Shares. These issuances would decrease the proportionate ownership and voting
power of all other stockholders. This dilution could cause the price of our Common Shares to decline and it could result in the
creation of new control persons. In addition, our shareholders could suffer dilution in the net book value per Common Share.



A decline in the price of the
Common Shares could affect our ability to raise further working capital and adversely impact our ability to continue operations.



A prolonged decline
in the price of the Common Shares could result in a reduction in the liquidity of our Common Shares and a reduction in our ability
to raise capital. Because a significant portion of our operations have been and will be financed through the sale of equity securities,
a decline in the price of our Common Shares could be especially detrimental to our liquidity and our operations. Such reductions
may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations,
including its ability to acquire new products and continue its current operations. If our stock price declines, we can offer no
assurance that we will be able to raise additional capital on acceptable terms or generate funds from operations sufficient to
meet our obligations. If we are unable to raise sufficient capital in the future, we may not have the resources to continue our
normal operations.



32






Because we can issue additional
Common Shares, holders of our Common Shares may incur immediate dilution and may experience further dilution.



We are authorized to
issue an unlimited number of Common Shares, of which 102,599,906 shares were issued and outstanding as of December 29, 2015 and
an unlimited number of Preferred Shares, of which 10,000 Series A Preferred Shares were issued and outstanding as of December 29,
2015. Our board of directors has the authority to cause us to issue additional Common Shares without the consent of any of our
stockholders. Consequently, the stockholders may experience more dilution in their ownership of the Common Shares in the future.



Because it is unlikely that we
will pay dividends in the foreseeable future, stockholders may only benefit from owning Common Shares if the value of the Common
Shares appreciates.



We have never paid
dividends on our Common Shares and we do not intend to do so in the foreseeable future. We intend to retain any future earnings
to finance our growth. Accordingly, any potential investor who anticipates the need for current dividends from his or her investment
should not purchase Common Shares.



DIVIDENDS



We have not paid any
dividends on our Common Shares since our incorporation and currently have no plans to do so in the foreseeable future.



We are obligated to
pay dividends on our Series A Preferred Shares as per the terms of the these preferred shares as set out below. During the fiscal
year ended September 30, 2015, we paid dividends aggregating $800,000 on the outstanding 10,000 Series A Preferred Shares.



CAPITAL
STRUCTURE



Authorized Capital



Our authorized share
capital consists of an unlimited number of Common Shares without par value and an unlimited number of preferred shares without
par value. As of December 29, 2015, there were 102,599,906 Common Shares issued and outstanding as fully paid and non-assessable
and no preferred shares issued and outstanding.



Common Shares



Subject to the rights
of the holders of the preferred shares of the Company, holders of the Common Shares are entitled to dividends if, as and when declared
by the directors. Holders of the Common Shares are entitled to one vote per Common Share at meetings of shareholders except at
meetings at which only holders of a specified class of shares are entitled to vote. Upon liquidation, dissolution or winding-up
of the Company, subject to the rights of holders of preferred shares, holders of the Common Shares are to share ratably in the
remaining assets of the Company as are distributable to holders of Common Shares. The Common Shares are not subject to call or
assessment rights, redemption rights, rights regarding purchase for cancellation or surrender, or any pre-emptive or conversion
rights.



33






Preferred Shares



Our articles provide
that, subject to the BCBCA, our directors may alter the articles of the Company and authorize the alternation of the Notice of
Articles of the Company in order to establish series of preferred shares and to designate the rights and restrictions attached
to each series of preferred shares. The rights and restrictions attached to a series of preferred shares may include, without limitation,
provisions regarding (i) the payment of dividends, (ii) the consideration to be paid for the shares, (iii) conversion or exchange
rights, (iv) rights of redemption or repurchase, (v) restrictions on payment of dividends or the repayment of capital in respect
of other shares of the Company, and (vi) voting rights and restrictions. The holders of preferred shares shall be entitled on the
liquidation or dissolution of the Company to repayment of capital, together with accrued but unpaid dividends, in priority to the
holders of the common shares of the Company.



Further to preferred
share subscription agreements described above under “Our Business – Recent Developments – Series A Preferred
Shares”, we have created and designated a series of preferred shares that are referred to as the “Series A Preferred
Shares” and have issued and sold an aggregate of 10,000 Series A Preferred Shares to the subscribers at a price of $1,000
per Series A Preferred Share. The 10,000 Series A Preferred Shares were issued on July 11, 2014. The full rights and restrictions
of the Series A Preferred Shares, as agreed upon in the preferred share subscription agreements, were set forth in our material
change report dated June 10, 2014, as filed on SEDAR at www.sedar.com, and have been amended as of April 15, 2015. The amended
Articles setting forth the full rights and restrictions of the Series A Preferred Shares were filed on SEDAR at www.sedar.com
on April 15, 2015. Key material rights and restrictions of the Series A Preferred Shares are summarized below, and this summary
is qualified by the full rights and restrictions set forth in the material change report:



|Liquidation Preference Amount |  | CDN$1,000 per Series A Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Redemption                    |  | The Series A Preferred Shares will only
        be redeemable as follows:
        
        ·   by
        us in the event of a “Change of Control”, as described below under “Change of Control Redemption, and
        
        
        ·   by
        us at our option at any time after October 31, 2019 (the “Optional Redemption Date”), as described below under
        “Optional Redemption”.
        
        In the event that we do not exercise our
        option to redeem the Series A Preferred Shares within 90 days of the Optional Redemption Date, the Applicable Dividend Rate for
        determination of the dividends payable on the Series A Preferred Shares will increase as provided below under “Applicable
        Dividend Rate”.
        
        The Series A Preferred Shares may remain
        outstanding indefinitely should the Series A Preferred Shares not be redeemed or converted.
|                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Applicable Dividend Rate      |  | The Applicable Dividend Rate for determination
        of the dividends payable on the Series A Preferred Shares will be as follows:
        
        ·     8%
        per annum from the date of issuance to the Optional Redemption Date,
        
        ·      LIBOR
        plus 10% per annum during the one year period following the Optional Redemption Date should we elect not to redeem the Series
        A         Preferred Shares within 90 days of the Optional Redemption Date,
        
        ·      LIBOR
        plus 12% per annum during the period following the one year anniversary of the Optional Redemption Date should we elect not to
        redeem the Series A Preferred Shares during the one year period following the Optional Redemption Date.                                                                                                                                         



34






|Dividends                    |  | Holders of the Series A Preferred Shares will be entitled to receive, when and as declared by the Board of Directors of Merus, out of funds legally available for the payment of dividends, cumulative cash dividends at the Applicable Dividend Rate multiplied by the $1,000.00 per share Liquidation Preference, initially equivalent to $80.00 per annum per Series A Preferred Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Conversion                   |  | Each outstanding Series A Preferred Share shall be convertible (the “Conversion Right”) at any time at the option of the holder into that number of whole Common Shares determined as follows: (i) that number of whole Common Shares (the “Liquidation Preference Conversion Shares”) as is equal to the Liquidation Preference Amount divided by an initial conversion price of $2.20 per share, plus (ii) that number of whole Common Shares (the “Unpaid Dividend Conversion Shares”) as is equal to the amount of all accrued and unpaid dividends of such Series A Preferred Shares divided by a conversion price equal to the greater of (i) the initial conversion price of $2.20 per share, and (ii) Market Price of the Common Shares at the time of conversion, with such conversion of accrued but unpaid dividends being subject to TSX approval at the time of conversion. The holder may elect at the time of exercise of the Conversion Right whether to receive accrued but unpaid dividends on the Series A Preferred Shares converted either by (i) payment in cash, or (ii) issuance of Unpaid Dividend Conversion Shares. If the holder elects to receive payment of accrued but unpaid dividends in cash, then the Conversion Shares to be issued upon exercise of the Conversion Right will be comprised solely of the Liquidation Preference Conversion Shares and payment of the accrued but unpaid dividends in cash will be made concurrently with delivery of such Conversion Shares. If the holder elects to receive payment of accrued but unpaid dividends by issuance of Unpaid Dividend Conversion Shares, then the Conversion Shares will be comprised of both the Liquidation Preference Conversion Shares and the Unpaid Dividend Conversion Shares and no cash payment will be made in respect of accrued but unpaid dividends.
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Optional Redemption          |  | On and after the Optional Redemption Date, Merus may, at its option, upon not less than 15 nor more than 30 days' written notice, redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Liquidation Preference of $1,000.00 per share, plus all accrued and unpaid dividends thereon (whether or not earned or declared) to, but excluding, the date fixed for redemption, without interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Change of Control Redemption |  | At any time during which the Series A Preferred Shares are outstanding, in the event of a “Change of Control”, as defined, of Merus by a person, entity or group Merus (or the entity acquiring Merus) may, at its option, upon not less than 15 nor more than 30 days’ written notice, redeem the Series A Preferred Shares, in whole but not in part, within 120 days after the date on which the Change of Control has occurred, for cash at a redemption price equal to (i) the Liquidation Preference of $1,000.00 per share multiplied by 105%, plus (ii) all accrued and unpaid dividends thereon (whether or not earned or declared) to, but excluding, the redemption date, without interest (a “Change of Control Redemption”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



35






|Liquidation Preference |  | Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of Merus, then, before any distribution or payment shall be made to the holders of any Common Shares or any other class or series of junior shares in the distribution of assets upon any liquidation, dissolution or winding up of Merus, the holders of Series A Preferred Shares shall be entitled to receive out of the assets of Merus legally available for distribution to shareholders, liquidating distributions in the amount of the Liquidation Preference, or $1,000.00 per share, plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to, but excluding, the date of payment.
|---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Ranking                |  | Merus shall not issue any other class or series of preferred shares that rank senior to the Series A Preferred Shares, with respect to the payment of dividends and amounts distributed upon liquidation, dissolution or winding up.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Voting Rights          |  | The Series A Preferred Shares will not
        have any voting rights, except as prescribed by the BCBCA and as provided below.
        So long as any shares of Series A Preferred
        Shares remain outstanding, we will not, without the affirmative vote of the holders of at least two-thirds of the Series A Preferred
        Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting, authorize or create any class or
        series of preferred shares of the Company or issue any of such shares that will rank as “parity shares”, as defined
        above.                                                                                                               
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Adjustments            |  | The number of Common Shares issuable upon conversion of the Series A Preferred Shares and the conversion price will be subject to customary pro rata adjustments to any reflect any consolidation, stock split or other common share reorganization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Limits on Conversion   |  | A holder of Series A Preferred Shares shall not have the right to convert any Series A Preferred Shares to the extent that, after giving effect to such conversion, the holder (together with the holder’s affiliates and Persons acting jointly or in concert with such Persons (together, the “Joint Actors”)) would beneficially own in excess of 19.9% of the number of Common Shares outstanding immediately after giving effect to such conversion on a diluted basis, assuming the conversion of all securities of the Joint Actors which are convertible into Common Shares within sixty (60) days from the proposed date of conversion.                                                                                   
|                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Listing                |  | The Series A Preferred Shares have not been listed on any stock exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



MARKET FOR
SECURITIES



Our Common Shares are
traded on the TSX under the symbol “MSL” and on the NASDAQ under the symbol “MSLI”.



36






The
following table sets forth the high and low closing prices and the aggregate volume of trading of our Common Shares on the TSX
for each month during the fiscal year ended September 30, 2015:



|Month          |  | High (Cdn.$) |      |  | Low (Cdn.$) |  |      | Volume | 
|-------------- |  | ------------ | ---- |  | ----------- |  | ---- | ------ | 
|October 2014   |  |              | 1.76 |  |             |  | 1.44 |        | 
|November 2014  |  |              | 1.75 |  |             |  | 1.60 |        | 
|December 2014  |  |              | 1.93 |  |             |  | 1.42 |        | 
|January 2015   |  |              | 1.90 |  |             |  | 1.67 |        | 
|February 2015  |  |              | 2.69 |  |             |  | 1.98 |        | 
|March 2015     |  |              | 3.00 |  |             |  | 2.62 |        | 
|April 2015     |  |              | 3.28 |  |             |  | 2.49 |        | 
|May 2015       |  |              | 3.02 |  |             |  | 2.53 |        | 
|June 2015      |  |              | 3.46 |  |             |  | 2.89 |        | 
|July 2015      |  |              | 3.44 |  |             |  | 2.73 |        | 
|August 2015    |  |              | 3.46 |  |             |  | 1.89 |        | 
|September 2015 |  |              | 2.39 |  |             |  | 1.68 |        | 



The following table
sets forth the high and low closing prices and the aggregate volume of trading of the Common Shares on the NASDAQ for each month
during the fiscal year ended September 30, 2015:



|Month          |  | High (U.S.$) |      |  | Low (U.S.$) |  |      | Volume | 
|-------------- |  | ------------ | ---- |  | ----------- |  | ---- | ------ | 
|October 2014   |  |              | 1.57 |  |             |  | 1.24 |        | 
|November 2014  |  |              | 1.56 |  |             |  | 1.40 |        | 
|December 2014  |  |              | 1.67 |  |             |  | 1.21 |        | 
|January 2015   |  |              | 1.63 |  |             |  | 1.33 |        | 
|February 2015  |  |              | 2.20 |  |             |  | 1.59 |        | 
|March 2015     |  |              | 2.40 |  |             |  | 2.08 |        | 
|April 2015     |  |              | 2.60 |  |             |  | 2.06 |        | 
|May 2015       |  |              | 2.48 |  |             |  | 2.10 |        | 
|June 2015      |  |              | 2.85 |  |             |  | 2.48 |        | 
|July 2015      |  |              | 2.51 |  |             |  | 2.40 |        | 
|August 2015    |  |              | 2.11 |  |             |  | 1.93 |        | 
|September 2015 |  |              | 1.57 |  |             |  | 1.48 |        | 



PRIOR SALES



We
issued the following securities during the year ended September 30, 2015:



37






|Date                                |  | Price per Security/Exercise Price per Security |      |  | Number of Securities | 
|----------------------------------- |  | ---------------------------------------------- | ---- |  | -------------------- | 
|                                    |  |                                                |      |  |                      | 
|Common Shares                       |  |                                                |      |  |                      | 
|Issued pursuant to Public Offerings |  |                                                |      |  |                      | 
|April 30, 2015                      |  | $                                              | 3.05 |  |                      | 
|June 1, 2015                        |  | $                                              | 3.05 |  |                      | 
|Issued pursuant to Option Exercises |  |                                                |      |  |                      | 
|February 20, 2015                   |  | $                                              | 1.52 |  |                      | 
|February 23, 2015                   |  | $                                              | 0.51 |  |                      | 
|March 13, 2015                      |  | $                                              | 1.80 |  |                      | 
|April 13, 2015                      |  | $                                              | 2.00 |  |                      | 
|May 26, 2015                        |  | $                                              | 1.75 |  |                      | 
|                                    |  |                                                |      |  |                      | 
|Grants of Options                   |  |                                                |      |  |                      | 
|November 26, 2014                   |  | $                                              | 1.69 |  |                      | 
|December 22, 2014                   |  | $                                              | 1.88 |  |                      | 
|January 23, 2015                    |  | $                                              | 1.75 |  |                      | 
|March 26, 2015                      |  | $                                              | 2.73 |  |                      | 
|May 26, 2015                        |  | $                                              | 2.92 |  |                      | 
|                                    |  |                                                |      |  |                      | 
|Grants of Performance Share Units   |  |                                                |      |  |                      | 
|January 23, 2015                    |  |                                                | N/A  |  |                      | 
|January 23, 2015                    |  |                                                | N/A  |  |                      | 
|May 26, 2015                        |  |                                                | N/A  |  |                      | 



ESCROWED
SECURITIES



As at September 30,
2015, there were, to our knowledge, no securities of the Company of any class held in escrow or that are subject to any contractual
restrictions on transfer.



DIRECTORS
AND OFFICERS



The following table
is as at the date of the AIF and sets out the name, province/state of residence, positions and/or offices held with the Company,
and principal occupations of each person who is a director and/or an executive officer of the Company, as well as the period during
which each person, if applicable, has been a director of the Company.



The term of office
of each director of the Company ends immediately before the election of directions at the annual meeting of shareholders each year.



38






|Name, Office held,Province/ State andCountry of Residence                                      |  | Principal OccupationDuring PreviousFive Years                                                                                                                                                                                                                                                                |  | Director Since        |  | SharesBeneficiallyOwnedor Controlled(1)
|---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------- |  | ---------------------------------------
|Directors                                                                                      |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|Barry Fishman
        President, Chief Executive Officer and Director
        Toronto, Ontario |  | President and Chief Executive Officer of the Company since December 2014.  Interim CEO of the Company from September  2014 to December 2014.  Formerly Chief Executive Officer of Teva Pharmaceuticals Canada.                                                                                               |  | September 23, 2014(2) |  | 416,667(3)                             
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|David D. Guebert(4)(5)(6)
        Director
        Calgary, Alberta                            |  | Chartered accountant and certified public accountant; Chief Financial Officer of Marret Resource Corp. from August 2008 to present; Chief Financial Officer of Times Three Wireless Inc. from May 2004 to June 2015; Chief Financial Officer of Sereno Capital Corporation from March 2011 to December 2013. |  | February 11, 2011(2)  |  | 209,167(8)                             
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|Robert S. Pollock(5)(6)
        Director
        Toronto, Ontario                              |  | Director and Chief Executive Officer of Primary Capital Inc. from July 2008 to present; Chief Executive Officer and Director of Primary Corp. from August 2008 to June 2012.                                                                                                                                 |  | February 11, 2011(2)  |  | 3,760,000(9)                           
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|Michael Cloutier(4)(5)
        Director
        Burlington, Ontario                            |  | President and General Manager of Intermune Inc. from 2013 to present; CEO of Canadian Diabetes Association from 2010 to 2013; CEO of Critical Outcomes Technology Inc. from 2008 to 2010.                                                                                                                    |  | July 8, 2013          |  | Nil(10)                                
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|Timothy G. Sorensen(4)(5)(7)
        Director
        Toronto, Ontario                         |  | President of Primary Capital Inc. from November 2010 to present; Managing Director of Institutional Sales of Macquarie Capital Markets Canada Ltd. (formerly Orion Securities Inc.) from January 2008 to September 2010.                                                                                     |  | February 11, 2011(2)  |  | 913,500(11)                            
|                                                                                               |  |                                                                                                                                                                                                                                                                                                              |  |                       |  |                                        
|Theresa Firestone(5)(6)(7)
        Director
        Toronto, Ontario                           |  | Senior Vice President of Shoppers Drug Mart,
        May 2014 to present.
        Regional President, Emerging Markets Asia,
        Pfizer Inc. 2010 to 2014, General Manager, Established Products, Pfizer Canada, 2009 to 2010.                                                                           |  | May 26, 2014          |  | 10,000(12)                             



39






|Name, Office held,Province/ State andCountry of Residence                         |  | Principal OccupationDuring PreviousFive Years                                                                                                                                                                                                                                                                                                        |  | Director Since |  | SharesBeneficiallyOwnedor Controlled(1)
|--------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ---------------------------------------
|Dr. Robert Bloch(5)(7)
        Director
        Switzerland                       |  | Vice President, Global Head - Established Products of F. Hoffmann-La Roche from October 2008 to current                                                                                                                                                                                                                                              |  | March 27, 2015 |  | nil(13)                                
|                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|Executive Officers                                                                |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|Andrew Patient
        Chief Financial Officer
        Toronto, Ontario           |  | Chief Financial Officer of the Company (and predecessors) since 2008                                                                                                                                                                                                                                                                                 |  | Not Applicable |  | 140,000(14)                            
|                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|Frank Rotmann
        Vice-President, European Operations
        Switzerland     |  | Vice-President, European Operations of the
        Company
        since May 26, 2015; Vice-President for Central
        Eastern Europe for Takeda Pharmaceuticals from October 2011 to July 2014; Vice-President of Commercial Operations for Central Eastern
        Europe for Nycomed International Management from July 2009 to September 2011 |  | Not Applicable |  | 11,598(15)                             
|                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|Geoff Morrow
        Vice-President, Business Operations
        Toronto, Ontario |  | Vice-President, Business Operations of the
        Company
        since February 2015; Senior Sales and Marketing
        Manager at Allergan Canada from October 2011 to November 2014; Director, Business Development and Corporate Planning at Astellas
        Canada from October 2006 to October 2011                                         |  | Not Applicable |  | Nil(16)                                
|                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                      |  |                |  |                                        
|Bob McLay
        Vice-President, Sales and Marketing
        Toronto, Ontario    |  | Vice-President, Sales and Marketing of the Company since January 2014; Director of Sales at Takeda Canada from December 2010 to December 2013                                                                                                                                                                                                        |  | Not Applicable |  | Nil(17)                                



Notes:

| | (1) | This information has been obtained from public insider filings and from the directors themselves.
No individual director, either alone or together with such director’s associates or affiliates, owns or controls 10% of more
of the voting securities of the Company.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Appointed a director of Envoy on February 10, 2011. On December 19, 2011, Old Merus amalgamated
with Envoy continuing under the name “Merus Labs International Inc.” On October 1, 2012, the Company amalgamated with
its wholly-owned subsidiary, Merus Labs Inc. and continued under the name “Merus Labs International Inc.”
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Does not include (i) 875,000 stock options exercisable into Common Shares, and (ii) 533,333 performance
share units granted under the 2015 PSU Plan.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



40






| | (4) | Member of the Audit Committee.
| | --- | ------------------------------

| | (5) | Independent director.
| | --- | ---------------------

| | (6) | Member of the Compensation Committee.
| | --- | -------------------------------------

| | (7) | Member of the Nominating and Governance Committee.
| | --- | --------------------------------------------------

| | (8) | Includes 62,500 Common Shares controlled or directed by Deborah Guebert and 146,667 Common Shares
held directly but does not include 600,000 stock options exercisable into Common Shares.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Includes 470,000 Common Shares controlled or directed by Michelle Pollock and 3,290,000 Common
Shares held directly but does not include 600,000 stock options exercisable into Common Shares.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Does not include 575,000 stock options exercisable into Common Shares.
| | ---- | ----------------------------------------------------------------------

| | (11) | Includes 100,000 Common Shares controlled or directed by Anne Sorensen and 813,500 Common Shares
held directly but does not include 600,000 stock options held by Mr. Sorensen exercisable into Common Shares.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Does not include 450,000 stock options exercisable into Common Shares.
| | ---- | ----------------------------------------------------------------------

| | (13) | Does not include 300,000 stock options exercisable into Common Shares.
| | ---- | ----------------------------------------------------------------------

| | (14) | Includes 42,000 Common Shares controlled or directed by Angela Patient and 98,000 Common Shares
held directly but does not include (i) 600,000 stock options exercisable into Common Shares, and (ii) 40,000 performance share
units granted under the 2015 PSU Plan
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (15) | Does not include (i) 250,000 stock options exercisable into Common Shares, and (ii) 88,402 performance
share units granted under the 2015 PSU Plan.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (16) | Does not include 175,000 stock options exercisable into Common Shares.
| | ---- | ----------------------------------------------------------------------

| | (17) | Does not include 225,000 stock options exercisable into Common Shares.
| | ---- | ----------------------------------------------------------------------



As of the date of this
AIF, the directors and executive officers of the Company, as a group, beneficially own, directly or indirectly, or exercise control
or direction over 5,460,932 Common Shares, being 5.3% of the issued Common Shares on a non-diluted basis. The statement as to the
number of Common Shares beneficially owned, directly or indirectly, or over which control or direction is exercised by the directors
and executive officers of the Company, as a group, is based upon information furnished by the directors and executive officers.



Principal Occupations and Other Information
about Our Directors and Executive Officers



The principal occupations
of each of the Company’s directors and executive officers within the past five years are disclosed in the biographies set
forth below.



Barry Fishman –
Chief Executive Officer and Director



Prior
to joining us in 2014, Mr. Fishman was the President & CEO of Teva Canada Limited (the Canadian subsidiary of Teva Pharmaceutical
Industries Ltd.), a leading generic and specialty pharmaceutical company in Canada with over 1,500 employees and three production
facilities. Mr. Fishman was with Teva Canada for over ten years. Teva Pharmaceutical Industries Ltd. is a global Pharmaceutical
company specializing in the development, production and marketing of generic and proprietary specialty medicines as well as active
pharmaceutical ingredients. Barry spent seventeen years with Eli Lilly Canada where he held a variety of leadership positions in
finance, human resources, operations, business development and marketing. Mr. Fishman graduated from McGill University in Montreal
with a concentration in finance and accounting, and received his CPA designation at Deloitte in Costa Mesa, California. Barry is
past Chair of the Canadian Generic Pharmaceutical Association and a member of the Executive Committee.



41






Robert S. Pollock
— Director



Mr. Pollock is a Director
and Chief Executive Officer of Primary Capital Inc., an exempt market dealer. Mr. Pollock was President of Primary Corp. (TSX:
PYC), a natural resources lending company from August 2008 to June 2012. He was formerly Vice President-Investment Banking at Dundee
Securities Corporation and has 15 years of experience in the Canadian capital markets with specific experience in merchant banking,
institutional sales and investment banking. Mr. Pollock holds an MBA from St. Mary’s University (1993) and a BA from Queen’s
University (1991).



Mr. Pollock’s
principal occupations during the five preceding years are as follows: since July 2008 he has been Director and Chief Executive
Officer of Primary Capital Inc.; from August 2008 to June 2012, he was a Director and Chief Executive Officer of Primary Corp.;
from February 10, 2011 to January 12, 2012, he was the interim Chief Executive Officer of Envoy and our company.



David D. Guebert — Director



Mr. Guebert is a chartered
accountant and certified public accountant with over 30 years of experience in finance and accounting, 20 of which were served
as chief financial officer of public and private companies in the resource and technology sectors. He is currently the Chief Financial
Officer of Marret Resource Corp., a company focused on natural resource lending. Mr. Guebert holds a B.Comm. from the University
of Saskatchewan (1979).



Mr. Guebert’s
principal occupations during the five preceding years are as follows: Since 2008 he has been Chief Financial Officer of Marret
Resource Corp. and from 2004 to June 2015 was the Chief Financial Officer of Times Three Wireless Inc. From 2010 to 2013 he was
a director of Advitech Inc., a biotech company.



Timothy G. Sorensen — Director



Mr. Sorensen is a Director
and the President of Primary Capital Inc., an exempt market dealer. He joined Primary Capital from Macquarie Capital Markets Canada
where he served as Divisional Director Head of Institutional Sales. Mr. Sorensen has over 14 years of capital markets experience
in institutional sales and equity analysis. He has a CFA designation and holds an MBA (1996) and B.Comm (1995) both from the University
of Windsor.



Mr. Sorensen’s
principal occupation during the five preceding years is as follows: he has been President of Primary Capital Inc. since November
2010; from January 2008 until September 2010, he was the Divisional Director Head of Institutional Sales of Macquarie Capital Markets
Canada; and he was an institutional sales person from 2004 to 2008 with Orion Financial Inc., which became Macquarie Group in 2007.



Michael Cloutier — Director



Mr. Michael Cloutier was appointed Director
of Merus Labs International Inc. on July 8, 2013. He is currently the President and General Manager of InterMune Inc., a biotechnology
company focused on the research, development and commercialization of innovative therapies in pulmonology and orphan fibrotic diseases.
Prior to his appointment at Merus, Mr. Cloutier was the CEO of the Canadian Diabetes Association from 2010 to 2013 and was the
CEO of Critical Outcomes Technology Inc., an early stage biotech company based in London, Ontario with proprietary technology uniquely
positioned to accelerate and advance pre-clinical research and drug development activities, from 2008 to 2010. From 2003 to 2008,
Mr. Cloutier held several roles with AstraZeneca including the CEO of the Canadian operations and VP, HR, Global Marketing at the
corporate headquarters in London, England. Other leadership roles include President of Pharmacia Canada from 2000 to 2003 and President
of Searle Canada from 1998 to 2000.



42






Theresa Firestone — Director



Ms. Firestone was appointed
to to our Board of Directors on May 27th, 2014. She is currently Senior Vice President, Healthcare Businesses with Shoppers Drug
Mart, responsible for providing overall leadership to their healthcare divisions including MediSystem Pharmacy, Specialty Health
Network and Shoppers Home Healthcare. Prior to joining Shoppers, Ms. Firestone was Regional President, Emerging Markets Asia with
Pfizer Inc, a position she held for three years located in Shanghai and Hong Kong. Ms. Firestone has extensive experience and a
strong track record of success in pharmaceuticals and healthcare management with over 15 years of progressively senior roles at
Pfizer and over 12 years with government and not-for-profit organizations. During her tenure with the Ontario Ministry of Health
she was responsible for the overall operations of the provinces 10 psychiatric hospitals and later was the Director of Drug Programs
Branch where she was responsible for restructuring the largest managed drug program in Canada and establishing the Trillium Drug
Program. After her years in public service, she joined the Canadian Wholesale Drug Association as President and CEO. In 1999, Ms.
Firestone joined Pfizer Canada as Vice President Government and Public Affairs. She held several roles with Pfizer including Country
Manager of Pfizer Austria and General Manager of the Established Products Business in Canada.



Dr. Robert Bloch — Director



Dr. Robert Bloch was
appointed to our Board of Directors effective March 27, 2015. Dr. Bloch is a European-based pharmaceutical industry veteran. Dr.
Bloch has more than 15 years of leadership experience with global pharmaceutical companies, including seven years at F. Hoffmann-La
Roche, based in Switzerland, most recently as Vice President, Global Head - Established Products. At F. Hoffmann-La Roche, Dr.
Bloch successfully led a multi-billion dollar franchise and had considerable influence on the company's overall strategic direction
and operating performance. Before joining Roche, Dr. Bloch advanced through several leadership roles at Schering-Plough and Wyeth.



Andrew Patient — Chief Financial
Officer



Mr.
Patient has been Chief Financial Officer of the Company since the amalgamation of Envoy Capital and Old Merus in 2011. Since 2008,
Mr. Patient served as CFO of Envoy Capital, a communications focused merchant bank, and since 2010 as its President and CEO. Prior
to joining Envoy, Mr. Patient spent six years at BDO Dunwoody LLP in Canada and five years in financial roles assisting early stage
technology companies in San Diego, CA. Mr. Patient has 12 years experience serving as CFO of TSX and NASDAQ listed companies overseeing
investments, equity and debt financings, acquisitions, divestitures, tender offers, corporate reorganizations and plans of arrangement.
Mr. Patient holds a bachelor of cccounting degree from Brock University and is a Canadian Chartered Professional Accountant.



Frank Rotmann — Vice-President
and Head of European Operations



We appointed Frank
Rotmann as our Vice President and Head of European Operations on May 26, 2015. Mr. Rotmann has over 20 years of experience in the
pharmaceutical industry and is based in Switzerland. Prior to joining us, Mr. Rotman was Vice-President for Central Eastern Europe
for Takeda Pharmaceuticals from October 2011 to July 2014 and Vice-President of Commercial Operations for Central Eastern Europe
for Nycomed International Management from July 2009 to September 2011. Mr. Rotmann has also held European and US-based leadership
roles at Eli Lilly, Sanofi and Altana. Mr. Rotman has a Master of Business and Engineering degree from the Karlsruhe Institute
of Technology in Germany.



43






Bob McLay - Vice-President Sales
and Marketing



In January 2014, Mr.
McLay joined Merus Labs International Inc. as the Vice President Sales & Marketing for Canada. He brings extensive experience
leading sales and marketing teams and has an extensive background in all facets of the pharmaceutical business including operations,
trade, reimbursement, medical, regulatory and business development. Most recently, Mr. McLay was the Director of Sales for Takeda
Canada. In Canada since 1993, he has gained broad knowledge in the area of marketing and sales in progressive positions ranging
from sales representative, product manager, district sales manager, and director of sales for leading pharmaceutical companies
such as Pfizer, Sanofi, and Alcon. Mr. McLay obtained his MBA at Auburn University and a Bachelor of Science from Guelph University.



Geoff Morrow — Vice-President,
Business Development



We appointed Mr. Geoff
Morrow as our Vice President, Business Development in February 2015. Mr. Morrow has over 15 years’ experience in the pharmaceutical
industry. Prior to joining us, Mr. Morrow held the position of Senior Sales and Marketing Manager at Allergan Canada from October
2011 to November 2014 and Director, Business Development and Corporate Planning at Astellas Canada from October 2006 to October
2011. In addition, Mr. Morrow held US-based management roles at InVentiv Health and Eli Lilly and Canadian-based roles at AstraZeneca.



Cease Trade Orders, Bankruptcies, Penalties
or Sanctions



Cease Trade Order



No director or executive
officer of Merus is, as at the date of this AIF, or has been, within the last ten years before the date of this AIF, a director,
chief executive officer, or chief financial officer of any company (including Merus) that was:



| | (a) | subject to an order that was issued while the director or executive officer was acting in the capacity
as director, chief executive officer or chief financial officer; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | subject to an order that was issued after the director or executive officer ceased to be a director,
chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting
in the capacity as director, chief executive officer or chief financial officer.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the purpose of
the above paragraph, “order” means (a) a cease trade order, (b) an order similar to a cease trade order, or (c) an
order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of
more than 30 days.



Bankruptcy



No director or executive
officer of Merus, or a shareholder holding a sufficient number of securities of Merus to affect materially the control of Merus
is, as at the date of this AIF, or has been, within ten years before the date of this AIF, a director or executive officer of any
company (including Merus) that:



| | (a) | while that person was acting in that capacity, or within a year of ceasing to act in that capacity,
became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or was subject to or instituted any
proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets;
or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



44






| | (b) | became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager,
or trustee appointed to hold the assets of the director, executive officer or shareholder.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sanctions



No director or executive
officer of Merus, or a shareholder holding a sufficient number of securities of Merus to affect materially the control of Merus
has been subject to:



| | (a) | any penalties or sanctions imposed by a court relating to securities legislation or by a securities
regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | any other penalties or sanctions imposed by a court or regulatory body that would likely be considered
important to a reasonable investor in making an investment decision.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Conflicts of Interest



Several directors of
Merus also serve as directors of one or more other public companies involved in the pharmaceutical industry. It may occur from
time to time that as a consequence of a director’s activity in the pharmaceutical industry and serving on such other boards
that a director may become aware of acquisition opportunities which are of interest to more than one of the companies on whose
boards that person serves. Accordingly, situations may arise in the ordinary course that involve a director in an actual or potential
conflict of interest as well as issues in connection with the general obligation of a director to make corporate opportunities
available to the company on which the director serves. In all such events, any director who might have a disclosable financial
interest in a contract or transaction by virtue of office, employment or security holdings or other such interest in another company
or in a property interest under consideration by the Merus Board, would be obliged to abstain from voting as a Merus director in
respect of any transaction involving that other company(s) or in respect of any property in which an interest is held by him. The
directors will use their best business judgment to help avoid situations where conflicts or corporate opportunity issues might
arise and they must at all times fulfill their duties to act honestly and in the best interests of Merus. See “Risk Factors
– Conflicts of Interest”.



LEGAL PROCEEDINGS
AND REGULATORY ACTIONS



Factive® Arbitration
Proceeding



In the fourth quarter
of fiscal 2014, the Company received notice of a request for arbitration from the original owner of the Company’s former
Factive® product (the “Original Owner”). The request for arbitration is based on the original license agreement
entered into by the Original Owner and Cornerstone Therapeutics, Inc. (now Chiesi USA, Inc.). The request for arbitration names
the Company as a respondent together with Cornerstone and Vansen Pharma, Inc. The Original Owner’s request for arbitration
includes the allegation that Cornerstone did not have the legal right to transfer the Factive® product to the Company and that
the Company failed to use commercially reasonable efforts in marketing Factive®. The Original Owner is seeking an award for
damages relating to an alleged breach of contract, as well of disgorgement of revenues and other benefits derived by the Company
from sales of Factive®. The Company is defending the claim and has denied any liability to the Original Owner. The Company
and Cornerstone have each asserted claims against the other, seeking indemnity and damages related to the Original Owner’s
claim. The hearing for the arbitration was completed as of September 21, 2015 and final submissions were due by November 30, 2015.
A decision of the arbitration panel is not anticipated during the current calendar year.



45






INTEREST
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS



None of any of our
directors or our executive officers, nor any of their associates or affiliates, has had any material interest, direct or indirect,
in any transaction within the past three fiscal years or during the current fiscal year that has materially affected or is reasonably
expected to materially affect the Company.



TRANSFER
AGENT AND REGISTRAR



The transfer agent
and registrar for the Common Shares in Canada is Computershare Investor Services Inc. at its principal office in Vancouver, British
Columbia.



MATERIAL
CONTRACTS



The material contracts
entered into by the Company within the financial year ended September 30, 2015 or before such time that is still in effect, other
than in the ordinary course of business, are the following:



| | (a) | Enablex® Acquisition Agreement;
| | --- | -------------------------------



| | (b) | Enablex® License Agreement;
| | --- | ---------------------------



| | (c) | Sintrom® Asset Purchase Agreement;
| | --- | ----------------------------------



| | (d) | Sintrom® License Agreement;
| | --- | ---------------------------



| | (e) | Sintrom® Supply Agreement;
| | --- | --------------------------



| | (f) | 2014 Credit Agreement.
| | --- | ----------------------



INTERESTS
OF EXPERTS



Our current auditor,
MNP LLP, Chartered Professional Accountants, Licensed Public Accountants (“MNP LLP”) is independent within the meaning
of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia.



To our knowledge, MNP
LLP held less than 1% of the outstanding securities of the Company or of any associate or affiliate of the Company when they prepared
the reports referred to above or following the preparation of such reports. None of the aforementioned firms or persons received
any direct or indirect interest in any securities of the Company or of any associate or affiliate of the Company in connection
with the preparation of such reports.



ADDITIONAL
INFORMATION



Additional information
relating to the Company may be found on SEDAR at www.sedar.com.



46






Additional information,
including information regarding the remuneration of our directors and executive officers, the security ownership of the principal
holders of our securities, and securities authorized for issuance under our equity compensation plans, is contained in the management
information circular dated February 23, 2015 for our annual general and special meeting of shareholdersheld on March 27,
2015, which is available on SEDAR at www.sedar.com.



Additional financial
information is also provided in Merus’s audited consolidated financial statements and Management’s Discussion and Analysis
for the year ended September 30, 2015, which may be found on SEDAR at www.sedar.com.



AUDIT COMMITTEE AND AUDIT FEES



Audit Committee
Charter



The Audit Committee
is ultimately responsible for the policies and practices relating to integrity of financial and regulatory reporting, as well as
internal controls to achieve the objectives of safeguarding of corporate assets; reliability of information; and compliance with
policies and laws.



The Audit Committee’s
charter sets out its mandate and responsibilities, and is attached to this AIF as Schedule “A”.



Composition of
Audit Committee



David Guebert (Chair),
Tim Sorensen and Michael Cloutier are the members of our Audit Committee. All three members of our Audit Committee are independent
and financially literate within the meaning of National Instrument 52-110 Audit Committees.



Relevant Education
and Experience



For a description of
the education and experience of each audit committee member that is relevant to the performance of his responsibilities as an audit
committee member, see “Directors and Officers – Principal Occupations and Other Information about Merus’s Directors
and Executive Officers”. Such education and experience provides each member with:



| | • | an understanding of the accounting principles used by the Company to prepare its financial statements;
| | - | ------------------------------------------------------------------------------------------------------



| | • | the ability to assess the general application of such accounting principles in connection with
the accounting for estimates, accruals and reserves;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | • | experience preparing, auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Company’s financial statements, and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an understanding of internal controls and procedures for financial reporting.
| | - | -----------------------------------------------------------------------------



47






Pre-Approval Policies
and Procedures



The Audit Committee’s
charter sets out responsibilities regarding the provision of non-audit services by the Company’s external auditor. This policy
encourages consideration of whether the provision of services other than audit services is compatible with maintaining the auditor’s
independence and requires Audit Committee pre-approval of permitted audit and audit-related services.



External Auditor
Service Fees



The following table
shows the aggregate fees billed to the Company by MNP LLP, the Company’s current independent registered public accounting
firm, in each of the last two years:



|                      |  | Year Ended September 30 |        
|--------------------- |  | ----------------------- | -------
|Nature of Services    |  | 2015(1)                 |        
|Audit Fees(2)         |  |                         | 225,000
|Audit-Related Fees(3) |  |                         | -      
|Tax Fees(4)           |  |                         | 23,500 
|All Other Fees(5)     |  |                         | 143,000
|Total                 |  | $                       | 391,500






| | (1) | All amounts in Canadian dollars.
| | --- | --------------------------------

| | (2) | Audit fees represent the aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the Company’s annual financial statements or services that
are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Audit related fees represent the aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review
of the Company’s financial statements and are not reported under “Audit Fees” above.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Tax fees representthe aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice, and tax planning.These professional services
included tax compliance services and tax advice.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Other fees in 2015 and 2014 related to review of prospectus filing and consulting fees related
to internal controls over financial reporting.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



48






SCHEDULE “A”



AUDIT COMMITTEE CHARTER

OF

MERUS LABS INTERNATIONAL, INC.
(the “Corporation”)



| | 1. | PURPOSE
| | -- | -------



The primary function of the Audit Committee
is to assist the Board ofDirectors in fulfilling its oversight responsibilities. Consistent with thisfunction,
the Audit Committee should serve as an independent and objective party to monitor the Corporation’s financial reporting process
and internal control system in light of applicable legal and regulatory requirements, review and appraise the audit efforts of
the Corporation’s independent auditor, and provide an open avenue of communication among the independent auditor, financial
and senior management and the Board of Directors.



| | 2. | COMPOSITION
| | -- | -----------



The Audit Committee shall be comprised
of three or more directors as determined by the Board, each of whom shall satisfy the independence requirements applicable to members
of audit committees under the rules of the NASDAQ, National Instrument 52-110 – Audit Committees (“NI 52-110”),
the rules of the U.S. Securities and Exchange Commission and any other applicable laws and regulations. All members of the Committee
shall satisfy the financial literacy requirements or definitions applicable to members of audit committees under NI 52-110, the
rules of the NASDAQ and any other applicable laws and regulations. Committee members may enhance their familiarity with finance
and accounting by participating in educational programs conducted by the Corporation or an outside consultant. Each member of the
Committee shall be appointed by the Board and shall continue to be a member thereof until the expiration of his or her term of
office as a Director. The Chair of the Committee shall be designated by the Board of Directors.



| | 3. | MEETINGS
| | -- | --------



The Committee shall meet at least four
times per year or more frequently as circumstances dictate. The meetings are scheduled to permit timely review of the quarterly
and annual financial statements, reports and related press releases. As part of its responsibility to foster open communication,
the Committee should meet at least annually with management and the independent auditor in separate executive sessions to discuss
any matters that the Committee or these groups believe should be discussed privately with the Committee. A majority of the members
appearing at a duly convened meeting shall constitute a quorum and the Committee shall maintain minutes or other records of its
meetings and activities.



| | 4. | AUDIT COMMITTEE AUTHORITY AND RESOURCES
| | -- | ---------------------------------------



The Audit Committee has the authority,
without further approval of the Board of Directors: (a) to engage independent counsel and other advisors as it determines necessary
to carry out its duties; (b) to set and pay the compensation for any such advisors employed by the Committee; and (c) to communicate
directly with external auditors and internal auditors and any other personnel of the Corporation and to have unrestricted access
to any documents of the Corporation relevant to the performance of the Committee’s duties.



49






| | 5. | RESPONSIBILITIES AND DUTIES
| | -- | ---------------------------



The Audit Committee will fulfill its responsibilities
and duties by carrying out the following activities:



Documents/Reports Review



1.          Review and update this Charter periodically
and at least annually, as conditions dictate.



2.          Review the Corporation’s:



| | a. | annual and interim financial statements and related management’s discussion and analysis
and earnings releases; and
| | -- | -------------------------------------------------------------------------------------------------------------------



| | b. | financial information contained in annual reports, annual information forms, prospectuses, registration
statements and similar disclosure documents of the Corporation,
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



all prior to filing with any governmental
body or disclosure to the public, including any audit, review, attestation, certification, report or opinion rendered by the independent
auditor.



3.          The review referred to in Section
5.2 above would include, as appropriate, a discussion of the quality of the accounting principles as applied and significant judgments
affecting the Corporation’s financial statements, significant adjustments, management judgments and accounting estimates,
significant new accounting policies and disagreements with management.



Independent Auditor



4.          Recommend to the Board of Directors
the nomination of the independent auditor and approve the fees and other compensation to be paid to the independent auditor. The
Audit Committee shall have exclusive responsibility for the foregoing and the independent auditor shall report directly to the
Audit Committee.



5.          Ensure the independent auditor submits
a formal written statement delineating all relationships between the independent auditor and the Corporation and pre-approve, in
accordance with the requirements of NI 52-110 and any other applicable laws and regulations, all non-audit services to be provided
to the Corporation or any subsidiary by the independent auditor.



6.          On an annual basis, engage in a dialogue
with the independent auditor with respect to any disclosed relationships or services that may impact the objectivity and independence
of the independent auditor.



7.          Recommend that the Board of Directors
take appropriate action in response to the independent auditor’s report to satisfy itself of the independence of the independent
auditor.



8.          Review and oversee all aspects of
the performance of the independent auditor and approve any proposed discharge of the independent auditor when circumstances warrant.



9.          Meet periodically with the independent
auditor to discuss any matters that the Audit Committee believes should be discussed privately and without management present.
Such matters would normally include internal controls and the fullness and accuracy of the Corporation’s financial statements.



50






10.          Review and approve the Corporation’s
hiring policy regarding partners, employees and former partners and employees of the present and former independent auditor. At
this time, the Corporation’s policy shall be to not hire any partner or employee of its auditor, or any person who was within
the last two years a partner or employee of its auditor, unless the Committee decides otherwise.



Financial Reporting Process



11.          In consultation with the independent
auditor, periodically review and assess the integrity and adequacy of the Corporation’s financial reporting processes, both
internal and external. In particular, the Committee must be satisfied that adequate procedures are in place for the review of the
Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements
(other than the disclosure referred to in Section 5.2(i) and (ii) above, which the Committee will directly review) and must periodically
assess the adequacy of those procedures.



12.          Consider the independent auditor’s
judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting.



13.          Consider and approve, if appropriate,
major changes to the Corporation’s auditing and accounting principles and practices as suggested by the independent auditor
or management.



14.          After review of the audited financial
statements and discussions with management and the independent auditor, consider whether the financial statements are fairly presented
in conformity with Canadian and U.S. Generally Accepted Accounting Principles, as applicable.



15.          Establish procedures for the receipt,
retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing
matters and the confidential, anonymous submission by employees of the Corporation or any of its subsidiaries of concerns regarding
questionable accounting or auditing matters.



Process Improvement



16.          Establish regular and separate systems
of reporting to the Audit Committee by each of management and the independent auditor regarding any significant judgments made
in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.



17.          Following completion of the annual
audit, review separately with each of management and the independent auditor any significant difficulties encountered during the
course of the audit, including any restrictions on the scope of work or access to required information.



18.          Review any significant disagreements
between management and the independent auditor in connection with the preparation of the financial statements.



19.          Provide that the independent auditor
discuss with the Audit Committee the independent auditor’s judgments about the quality, not just the acceptability, of the
Corporation’s accounting principles as applied in its financial reporting; the discussion should include such issues as the
clarity of the Corporation’s financial disclosures and degree of aggressiveness or conservatism of the Corporation’s
accounting principles and underlying estimates and other significant decisions made by management in preparing the financial disclosures
and reviewed by the independent auditor.



20.          Review with the independent auditor
and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee,
have been implemented. This review should be conducted at an appropriate time subsequent to implementation of changes or improvements,
as decided by the Audit Committee.





51






Related Party Transactions



21.          The Committee shall review and approve,
if appropriate, any transaction between the Corporation or any of its subsidiaries and a related party and any transaction involving
the Corporation or a subsidiary and another party in which the parties’ relationship could enable the negotiation of terms
on other than an independent, arm’s length basis.



| | 6. | REMUNERATION OF AUDIT COMMITTEE MEMBERS
| | -- | ---------------------------------------



No member of the Audit Committee may accept,
directly or indirectly, any consulting, advisory or other compensatory fee from the Corporation or its subsidiaries, and is not
eligible to serve as a member of the Committee if he or she accepted, directly or indirectly, any such fee in the three-year period
prior to his or her proposed Committee appointment, except in each case in respect of remuneration for acting in his or her capacity
as a member of the Board of Directors or any board committee or as a part-time chair or vice-chair of the Board of Directors or
any board committee. For the purposes of the foregoing, “indirectly” includes the receipt of such fees by an immediate
family member.



52