Business Overview and History

Mereo's journey began in March 2015 when the company was founded in the United Kingdom. The company's strategy has been to selectively acquire and develop product candidates for rare diseases that have already received significant investment from large pharmaceutical and biotechnology companies. This approach has allowed Mereo to inherit substantial pre-clinical, clinical, and manufacturing data packages, accelerating the development process and reducing the overall risk profile of its pipeline.

Since its inception, Mereo has successfully executed this strategy, acquiring six clinical-stage product candidates, four of which were in rare diseases and oncology. Four of these candidates were acquired from large pharmaceutical companies, while two were obtained through Mereo's merger with OncoMed Pharmaceuticals Inc. in 2019. The company has successfully completed large, randomized Phase 2 clinical trials for four of its product candidates and the Phase 1b portion of a Phase 1b/2 study for a fifth product candidate.

Mereo has focused on rare diseases as an attractive development and commercialization opportunity, recognizing that these conditions typically have high unmet medical need and can utilize regulatory pathways that facilitate acceleration to approval and potential market access. The company's rare disease portfolio includes setrusumab for the treatment of osteogenesis imperfecta (OI) and alvelestat for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease (AATD-LD).

Over the years, Mereo has faced various challenges common to clinical-stage biopharmaceutical companies, including risks of delays in initiating or continuing research programs and clinical trials, failures of preclinical studies and clinical trials, the need to obtain marketing approvals, and dependencies on key personnel and collaboration partners. To fund its operations, the company has historically relied on a combination of public equity financings, private equity and debt financings, and various license and collaboration agreements.

Setrusumab, Mereo's lead rare disease asset, has received orphan designation for OI from both the European Medicines Agency (EMA) and the U.S. Food and Drug Administration (FDA), as well as PRIME designation from the EMA and rare pediatric disease designation and breakthrough therapy designation from the FDA. The company is currently conducting a Phase 3 clinical trial for setrusumab in partnership with Ultragenyx Pharmaceutical, Inc. (RARE).

Alvelestat, Mereo's second rare disease product candidate, has received U.S. Orphan Drug Designation for the treatment of AATD and Fast Track designation from the FDA for the treatment of AATD-LD. The company is actively advancing this program through clinical development.

Financials and Liquidity

As of September 30, 2024, Mereo reported cash and cash equivalents of $80.5 million, which the company believes will be sufficient to fund its operations and capital expenditure requirements into 2027. This strong cash position is a result of the company's successful capital-raising efforts, including a $50 million underwritten registered direct offering in June 2024.

Mereo's financial performance has been characterized by consistent investment in research and development (R&D) activities to advance its rare disease pipeline. In the nine months ended September 30, 2024, the company reported R&D expenses of $12.11 million, compared to $12.61 million in the same period of the prior year. This reflects Mereo's commitment to driving its drug candidates forward, despite the challenges posed by the COVID-19 pandemic.

The company's net loss for the nine months ended September 30, 2024, was $36.21 million, compared to a net loss of $20.36 million in the same period of the prior year. This increase in net loss can be attributed to higher general and administrative expenses related to pre-commercial activities for setrusumab in Europe and increased compliance costs associated with Mereo's U.S. public company status.

For the most recent fiscal year 2023, Mereo reported annual revenue of $10 million, an annual net loss of $29.47 million, and annual operating cash flow of -$21.13 million. The company's annual free cash flow for 2023 was -$21.55 million.

In the most recent quarter (Q3 2024), Mereo did not generate any revenue, compared to $9 million in revenue from a milestone payment in Q3 2023. The net loss for Q3 2024 increased to $15 million from $6.53 million in Q3 2023, primarily due to higher research and development and general and administrative expenses.

Mereo's liquidity position remains strong, with a debt-to-equity ratio of 0.016 as of September 30, 2024. The company's current ratio and quick ratio both stand at 6.10, indicating a healthy ability to meet short-term obligations.

Mereo's strong cash position, combined with its disciplined financial management, positions the company well to navigate the path towards potential regulatory approvals and commercialization of its rare disease therapies.

Rare Disease Pipeline and Development Milestones

Setrusumab (OI): Setrusumab, Mereo's lead rare disease asset, is a monoclonal antibody in Phase 3 clinical development for the treatment of osteogenesis imperfecta (OI), a rare and debilitating genetic disorder characterized by fragile bones and a high risk of fractures. In October 2020, Mereo entered into a license and collaboration agreement with Ultragenyx Pharmaceutical, Inc. to develop and commercialize setrusumab globally.

The Phase 3 "Orbit" study of setrusumab, conducted by Ultragenyx, is currently ongoing and fully enrolled. In June 2024, Mereo and Ultragenyx announced positive 14-month data from the Phase 2 portion of the Orbit study, demonstrating a sustained 67% reduction in annualized fracture rate and continued, substantial improvements in bone mineral density (BMD) in patients with OI. These results build upon the earlier positive data from the Phase 2 study, further strengthening the potential of setrusumab as a transformative therapy for this rare and debilitating condition.

In the three months ended September 30, 2024, Mereo's R&D expenses for the setrusumab program increased by $0.36 million, or 33%, from the prior-year period to $1.44 million. This increase was driven by additional activities in Europe and resources for input into development, regulatory, and manufacturing plans with Ultragenyx, as the global development program is funded by Ultragenyx pursuant to their license and collaboration agreement.

Alvelestat (AATD-LD):

Alvelestat, Mereo's second rare disease product candidate, is an oral neutrophil elastase inhibitor in development for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease (AATD-LD). In 2017, Mereo acquired the global rights to alvelestat from AstraZeneca.

Alvelestat has received U.S. Orphan Drug Designation for the treatment of AATD and Fast Track designation from the FDA for the treatment of AATD-LD. The company is actively advancing this program through clinical development, with plans to initiate a Phase 3 clinical trial in the near future.

In the three months ended September 30, 2024, Mereo's R&D expenses for the alvelestat program decreased by $0.37 million, or 24%, from the prior-year period to $1.21 million. This reduction was primarily due to lower levels of preparatory activity undertaken in respect of the planned Phase 3 study in the current quarter compared to the prior-year period, particularly including manufacturing and drug formulation activities and regulatory interactions.

Etigilimab (MPH-313) for Oncology: Mereo's etigilimab program, which is being developed for oncology indications, saw a decrease of $0.65 million, or 61%, in R&D expenses from the three months ended September 30, 2023 to $0.41 million in the current quarter. This reduction was primarily due to the winding down and completion during 2023 of the open-label Phase 1b/2 basket study in combination with an anti-PD-1 agent in a range of tumor types.

Other Programs:

Mereo also has other earlier-stage product candidates in its pipeline, including leflutrozole (BGS-649) and acumapimod (BCT-197), which had R&D expenses of $0.02 million each in the three months ended September 30, 2024.

Overall, Mereo's total R&D expenses decreased by $0.40 million, or 12%, from $3.60 million in the three months ended September 30, 2023 to $3.17 million in the current quarter. This decrease was primarily due to reductions in R&D expenses for the etigilimab and alvelestat programs, partially offset by an increase in expenses for the setrusumab program.

The positive progress on both setrusumab and alvelestat highlights Mereo's commitment to addressing the significant unmet medical needs in rare diseases and the company's ability to drive its pipeline forward, even in the face of challenges posed by the COVID-19 pandemic.

Competitive Landscape and Risks

Mereo operates in a competitive rare disease therapeutics landscape, with other biopharmaceutical companies vying for market share and regulatory approvals. However, the company's strategic approach of acquiring and advancing late-stage assets has allowed it to build a differentiated pipeline that targets areas of high unmet need.

One of the key risks facing Mereo is the inherent uncertainty associated with the clinical development and regulatory approval process. Delays or failures in the company's clinical trials, or the inability to obtain regulatory approval for its product candidates, could have a significant impact on Mereo's future prospects.

Additionally, Mereo's reliance on partnerships and collaborations, such as the one with Ultragenyx for setrusumab, introduces potential risks related to the successful execution of these agreements and the ability of its partners to effectively develop and commercialize the company's product candidates.

Outlook and Conclusion

Mereo BioPharma Group plc has established itself as a prominent player in the rare disease therapeutics space, leveraging its strategic approach to build a diversified pipeline of innovative product candidates. The company's lead assets, setrusumab and alvelestat, have demonstrated promising results in clinical trials and have received various regulatory designations that could accelerate their path to potential approval and commercialization.

With a strong cash position and a commitment to disciplined financial management, Mereo is well-positioned to navigate the challenges of the biopharmaceutical industry and continue advancing its rare disease pipeline. The successful development and commercialization of Mereo's product candidates could have a transformative impact on the lives of patients suffering from these debilitating conditions, further solidifying the company's position as a leader in the rare disease therapeutics space.

As Mereo continues to focus on its core rare disease programs, the company's financial strategy and resource allocation reflect its commitment to bringing innovative therapies to market. The reduction in R&D expenses for some programs, coupled with increased investment in key assets like setrusumab, demonstrates Mereo's strategic prioritization and efficient use of resources.

Looking ahead, Mereo's progress in clinical development, particularly with setrusumab and alvelestat, will be crucial in determining the company's future success. The positive data from the setrusumab trials and the planned initiation of a Phase 3 trial for alvelestat are significant milestones that could potentially lead to transformative treatments for patients with OI and AATD-LD.

While Mereo does not currently generate revenue from product sales, the company's strong cash position of $80.5 million as of September 30, 2024, provides a solid foundation for continued research and development efforts. The company's ability to manage its cash burn rate while advancing its pipeline will be critical in the coming years as it moves closer to potential commercialization of its lead candidates.

In conclusion, Mereo BioPharma Group plc stands at an exciting juncture in its development, with promising rare disease candidates progressing through clinical trials and a focused strategy to bring these potential treatments to market. While challenges remain, including the inherent risks of drug development and the competitive landscape of the rare disease market, Mereo's strategic approach, strong financial position, and innovative pipeline position the company well for potential future success in addressing significant unmet medical needs in the rare disease space.