Business Context and Reporting Period
Company: Mereo BioPharma Group Plc
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2018
Business Overview: Mereo is a clinical-stage biopharmaceutical company focused on rare and specialty diseases. It has no approved products and generates no product revenue. The company's strategy involves acquiring late-stage product candidates from large pharmaceutical companies (Novartis, AstraZeneca) and developing them. As of the reporting date, the portfolio included four rare disease candidates (BPS-804, MPH-966, BCT-197, BGS-649).
Significant Event: On April 23, 2019 (post-reporting period), Mereo completed a merger with OncoMed Pharmaceuticals, Inc., adding two oncology candidates (OMP-305B83, OMP-313M32) to its pipeline and listing its ADSs on Nasdaq.
Key Financial Metrics
| Financial Metric (GBP '000s) | 2016 | 2017 | 2018 |
|---|---|---|---|
| Revenue | 0 | 0 | 0 |
| Research & Development Expenses | (24,563) | (34,607) | (22,704) |
| General & Administrative Expenses | (11,617) | (10,697) | (12,505) |
| Operating Loss | (36,180) | (45,304) | (35,208) |
| Net Loss Attributable to Equity Holders | (28,391) | (38,799) | (32,029) |
| Cash and Short-Term Investments | 53,578 | 52,545 | 27,541 |
| Total Assets | 86,765 | 96,335 | 67,276 |
| Total Liabilities | 7,508 | 33,852 | 34,505 |
| Total Equity | 79,257 | 62,483 | 32,771 |
Note: Financial statements are prepared in accordance with IFRS. Figures are in thousands of pounds sterling.
Material Changes vs. Prior Period
- Reduced R&D Spend: Research and development expenses decreased by approximately 34% from £34.6 million in 2017 to £22.7 million in 2018. This reduction was driven by the completion of Phase 2 trials for BCT-197 and BGS-649 and a shift in focus to the ongoing Phase 2b trial for BPS-804.
- Increased G&A Expenses: General and administrative expenses rose by 17% to £12.5 million, attributed to increased costs associated with being a public company and the aborted U.S. IPO in 2018.
- Cash Burn: Cash and short-term investments declined significantly from £52.5 million in 2017 to £27.5 million in 2018, reflecting the company's operating losses and capital expenditures.
- Debt Structure: Total liabilities increased due to the full drawdown of a £20.0 million credit facility in 2017 and the accrual of interest on Novartis Notes.
Guidance, Outlook, and Risks
Outlook and Guidance
- Capital Runway: Management expects existing cash resources to fund operations into mid-2020. However, this estimate is subject to change based on clinical trial progress and the need for additional financing.
- Clinical Milestones:
- BPS-804 (Osteogenesis Imperfecta): Phase 2b data expected in 2019; Phase 3 pediatric trial planned for 2019. FDA engagement regarding cardiovascular safety concerns is ongoing.
- MPH-966 (Alpha-1 Antitrypsin Deficiency): Phase 2 proof-of-concept data expected in Q4 2019.
- BCT-197 (COPD): FDA end-of-Phase 2 meeting held in April 2019; seeking strategic partners for Phase 3.
- BGS-649 (Hypogonadism): Positive Phase 2b and safety extension data reported; seeking strategic partners.
- Merger Impact: The merger with OncoMed (completed April 2019) added two oncology assets and increased cash reserves to approximately £53.9 million immediately post-merger.
Risks and Contingencies
- Regulatory Uncertainty: The FDA previously denied a meeting request for BPS-804 pediatric trials due to cardiovascular safety concerns with the drug class (sclerostin inhibitors), though a competitor drug was approved in April 2019.
- Need for Capital: The company has no revenue and expects to incur significant losses. Failure to raise additional capital could force delays or termination of clinical programs.
- Third-Party Dependence: Mereo relies entirely on third-party CROs for clinical trials and CMOs for manufacturing. It has no internal manufacturing capabilities.
- Intellectual Property: Risks include potential infringement claims and the uncertainty of patent term extensions.
- Merger Integration: Risks associated with integrating OncoMed's operations and realizing anticipated synergies.
Investor Verification Checklist
- Cash Runway: Verify the current cash balance and burn rate to confirm the "mid-2020" operational runway estimate remains valid post-merger.
- BPS-804 Regulatory Status: Confirm the outcome of Mereo's re-engagement with the FDA regarding the pediatric Phase 3 trial for BPS-804.
- Strategic Partnerships: Monitor announcements regarding partnership deals for BCT-197, BGS-649, and the OncoMed assets (OMP-305B83, OMP-313M32), which are critical for funding and commercialization.
- OncoMed Integration: Assess the financial impact of the OncoMed merger, including goodwill impairment risks and the status of the Celgene option for the etigilimab program.
- Debt Covenants: Review the terms of the £20 million credit facility and Novartis Notes for any restrictive covenants that could be triggered by future financing or operational changes.