Business Context and Reporting Period
Company: Mereo BioPharma Group Plc (AIM: MPH; NASDAQ: MREO)
Reporting Period: Year ended December 31, 2018 (Preliminary Results announced April 29, 2019)
Business Overview: Mereo is a clinical-stage biopharmaceutical company focused on rare diseases. Its strategy involves acquiring clinical-stage product candidates with substantial data packages and developing them toward regulatory approval. The company maintains a portfolio of four core products (BPS-804, MPH-966, BGS-649, BCT-197) and, following a post-period merger, added two oncology assets (navicixizumab and etigilimab).
Key Financial Metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Loss After Tax | £32.0 million | £38.8 million |
| Loss Per Share (Basic & Diluted) | 45 pence | 56 pence |
| Research & Development (R&D) Expenses | £22.7 million | £34.6 million |
| General & Administrative (G&A) Expenses | £12.5 million | £10.7 million |
| Operating Loss | £35.2 million | £45.3 million |
| Cash Resources (Dec 31, 2018) | £27.5 million | £52.5 million |
| UK R&D Tax Credit Received/Receivable | £5.3 million | £8.2 million |
Note: Cash resources are defined as cash, short-term deposits, and short-term investments. The company reported no revenue for the period.
Material Changes vs. Prior Period
- Reduced Loss: The loss after tax decreased by £6.8 million (17.5%) compared to 2017, driven primarily by a significant reduction in R&D spend.
- R&D Efficiency: Total R&D expenses fell by £11.9 million (34.4%) to £22.7 million. This reduction reflects the completion of Phase 2 trials for non-rare products (BCT-197 and BGS-649) and a strategic focus on two rare disease programs (BPS-804 and MPH-966).
- Increased G&A: General and administrative expenses rose by £1.8 million (16.8%) to £12.5 million. This increase was due to professional fees associated with an aborted Nasdaq IPO in early 2018 and costs related to the merger with OncoMed.
- Cash Burn: Cash resources declined from £52.5 million in 2017 to £27.5 million in 2018, reflecting operational cash outflows of approximately £23.1 million from operating activities.
Guidance, Outlook, and Material Events
Merger with OncoMed Pharmaceuticals
On April 23, 2019 (post-period), Mereo completed a merger with OncoMed Pharmaceuticals, Inc. Key outcomes include:
- Expanded Pipeline: Acquisition of two clinical-stage oncology programs: navicixizumab and etigilimab.
- Liquidity: Unaudited total group cash resources increased to £53.9 million ($70.1 million) immediately following the merger.
- Listing: American Depositary Receipts (ADRs) were listed on the NASDAQ Global Exchange on April 24, 2019.
- Runway: Management states the combined cash position is sufficient to fund operations into mid-2020.
Clinical Program Outlook
- BPS-804 (Osteogenesis Imperfecta): Initial six-month data from the Phase 2b study expected in Q2 2019; complete twelve-month data expected in Q4 2019. Pediatric Phase 3 study design is EMA-approved.
- MPH-966 (Alpha-1 Antitrypsin Deficiency): Phase 2 study initiated in Q4 2018; top-line data expected around the end of 2019.
- BGS-649 (Hypogonadotropic Hypogonadism): Positive Phase 2b data confirmed; regulatory interactions planned for 2019 to confirm development plans and potential partnering.
- BCT-197 (COPD): Pivotal Phase 3 trial design agreed with the FDA; partnering discussions are ongoing.
Risks and Contingencies
- Debt Obligations: The company has a bank loan facility with Silicon Valley Bank and Kreos Capital. Terms were amended in April 2019 to extend the interest-only period to December 31, 2019.
- Contingent Value Rights (CVR): The merger with OncoMed includes CVRs for former OncoMed shareholders, potentially payable upon achievement of milestones for etigilimab (Celgene option exercise) and navicixizumab (partnering agreements).
- Going Concern: Directors believe the company is a going concern based on current funding and the merger proceeds, sufficient to meet liabilities for at least 12 months.
Investor Verification Checklist
- Merger Integration: Verify the final purchase price allocation and goodwill recognition for the OncoMed acquisition in the upcoming interim financial statements.
- Cash Runway: Confirm the actual burn rate post-merger to validate the "mid-2020" funding runway claim.
- Clinical Data Readouts: Monitor the Q2 2019 release of BPS-804 six-month data and the end-of-2019 MPH-966 Phase 2 results as critical value drivers.
- Partnership Progress: Track the status of partnering discussions for non-rare assets (BCT-197, BGS-649) and the Celgene option exercise for etigilimab, which could trigger a $35 million milestone payment.
- Debt Covenants: Review the amended loan terms to ensure compliance with covenants and understand the repayment schedule commencing in 2020.