Mereo BioPharma Group plc — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report, not a quarterly filing, and the financial statements are prepared under IFRS in pound sterling.
Business context
Mereo is a U.K.-based, clinical-stage biopharmaceutical company focused on rare diseases and oncology. Its principal programs are setrusumab for osteogenesis imperfecta, alvelestat for alpha-1-antitrypsin deficiency-associated lung disease and bronchiolitis obliterans syndrome, and etigilimab for oncology. Acumapimod and leflutrozole are non-core programs intended for partnering or sale. Navicixizumab is licensed globally to OncXerna.
- No product candidate had regulatory approval, and the Company had never generated commercial product-sale revenue.
- Setrusumab was being developed globally with Ultragenyx, with Mereo retaining commercial rights in Europe and the U.K.
- Alvelestat completed a Phase 2 study in AATD-LD and was being prepared for a global Phase 3 program.
- Etigilimab completed enrollment in the ACTIVATE Phase 1b/2 basket study, with interim responses reported in selected tumor cohorts.
- Employees declined to 36 at year-end from 49 in 2021, including 27 in the U.K. and nine in the U.S.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | £nil | £36.5 million | Down 100% |
| Operating loss | £43.6 million | £20.9 million | Loss increased 108% |
| Research and development expense | £25.0 million | £23.6 million | Up 6% |
| Administrative expense | £19.5 million | £15.9 million | Up 23% |
| Net loss attributable to equity holders | £34.2 million | £12.7 million profit | Material deterioration |
| Basic loss per share | £0.06 loss | £0.02 profit | Material deterioration |
| Net cash used in operating activities | £38.8 million | £5.2 million | Higher cash burn |
| Cash and short-term deposits at year-end | £56.3 million | £94.3 million | Down £38.0 million |
| Total liabilities | £26.2 million | £38.4 million | Down £12.2 million |
| Net assets | £61.9 million | £88.0 million | Down £26.1 million |
Revenue in 2021 consisted primarily of the £36.5 million upfront payment from Ultragenyx for setrusumab; no comparable upfront payment was recognized in 2022. The 2022 net loss included a £7.8 million gain from changes in the fair value of financial instruments, principally warrant liabilities, compared with a £40.0 million gain in 2021. The Company also recorded £1.5 million of foreign-exchange gains and £1.9 million of tax benefits, including R&D tax credits.
At December 31, 2022, convertible loan notes totaled £11.1 million, comprising £4.4 million of Novartis notes and £6.6 million of private-placement notes. The Company had £4.6 million of deferred cash consideration and £0.9 million of manufacturing commitments. Management stated that existing cash and short-term deposits were expected to fund current operating expenses and committed clinical activities into 2026, but additional funding would be required to complete development plans and potentially commercialize products.
Material changes versus the prior comparable period
- Revenue fell from £36.5 million to nil because the prior-year Ultragenyx upfront payment did not recur.
- Operating cash burn increased substantially as 2021 licensing proceeds and related cash inflows were absent in 2022.
- R&D spending increased primarily because of higher etigilimab costs in the ACTIVATE study; etigilimab R&D rose 17% to £15.8 million.
- Administrative costs increased 23%, partly due to costs associated with Rubric Capital filings and the October 2022 cooperation agreement, as well as higher share-based compensation.
- The Company announced a strategic review and an updated operating plan targeting an employee reduction of up to 40% and significant cost reductions.
- During 2022, £5.96 million of private-placement loan notes converted into equity, resulting in the issuance of approximately 40.0 million ordinary shares.
- The Company received a £1.5 million milestone payment from OncXerna for navicixizumab and paid £0.7 million to CVR holders.
- After year-end, the Novartis Loan Note maturity was extended from February 2023 to February 2025; new warrants for 2.0 million ordinary shares were issued at £0.150 per share.
Guidance, outlook, commentary and risks
- Management’s stated objective was to extend the cash runway into 2026 while retaining capabilities to advance setrusumab and alvelestat and deliver near-term clinical milestones.
- Ultragenyx expected to transition the pediatric setrusumab Phase 2/3 study to Phase 3 in mid-2023 and intended to initiate a study in children younger than five.
- Mereo planned a single global Phase 3 study of 240 mg alvelestat versus placebo in AATD-LD, subject to regulatory feedback and funding.
- The Company expected continuing significant losses and stated that profitability depended on successful clinical development, regulatory approvals, partnering and commercialization.
- Key risks include clinical-trial failure or delays, patient-enrollment constraints in rare diseases, adverse events, regulatory uncertainty, reliance on partners, CROs and CMOs, intellectual-property challenges, reimbursement and pricing pressure, foreign-exchange exposure, cybersecurity, and the need for additional capital.
- Alvelestat Phase 2 enrollment was limited to 99 patients after COVID-19-related recruitment delays. Reported adverse events included headache, a resolved liver-function abnormality and prolonged QTc in individual patients.
- Setrusumab manufacturing testing identified potential opalescence in the antibody formulation, although the Company stated that it had not affected potency or effectiveness in completed testing.
- The Company received a Nasdaq minimum-bid-price deficiency notice in November 2022 and had until May 1, 2023, subject to applicable extensions, to regain compliance.
- Mereo stated that it believed it was a passive foreign investment company for U.S. tax purposes for 2022, which may create adverse tax consequences for U.S. investors.
Most important facts for investors to verify
- Whether the projected cash runway into 2026 remains valid after incorporating Phase 3 alvelestat costs, setrusumab activities, restructuring and other commitments.
- Availability and terms of future financing, including potential dilution from equity, convertible notes and warrants.
- Regulatory alignment, enrollment, endpoints, funding and timing for the proposed alvelestat Phase 3 study.
- Progress, dose selection and Phase 3 transition for Ultragenyx’s setrusumab program.
- Final efficacy and safety data from etigilimab studies and the strategic decision to continue, partner or discontinue the program.
- Outstanding warrant and convertible-note obligations, including the 2023 warrant expiration and the amended Novartis note terms.
- Compliance with Nasdaq’s minimum bid-price and other continued-listing requirements.
- Potential milestone, royalty, CVR, Novartis and AstraZeneca payments, which remain dependent on uncertain clinical, regulatory and commercial events.