Mereo BioPharma


Mereo BioPharma is a clinical-stage, UK-based, biopharmaceutical company which was founded in March 2015 in order to fund and develop novel treatments that would have otherwise been side-lined by larger pharmaceutical companies in favour of other strategic opportunities. With a focus on rare and specialty disease areas, the company’s business model looks to first establish clinical routes to market and then to optimise the commercial value of its acquired programs by entering into partnerships or, for selected opportunities, by commercialising the products itself.

Attracted by the clinical and commercial potential of Mereo’s pipeline of assets in rare diseases and by its impressive team, we decided to invest in the company in July 2015 when it was still a privately-owned entity. In looking to raise capital to fund its fast-evolving portfolio, Mereo made its market debut in May 2016 via a private placing and concurrent AIM admission.

In December 2018, Mereo announced it was combining US-listed biotech OncoMed, to form a larger business with an even broader asset base and a stronger balance sheet.

Investment case summary

The investment case in Mereo is based primarily around its attractive pipeline of assets and experienced management team which we believe is well-placed to successfully execute the company’s innovative business model.

Initially, Mereo acquired three drug candidates from Novartis, each with different therapeutic indications, which have since been progressing positively through the pipeline. These include: BPS-804, a potential treatment for osteogenesis imperfecta (OI, or brittle bone syndrome), BGS-649 – a medicine for obese men suffering from hypogonadotropic hypogonadism (testosterone deficiency) and BCT-197, a therapy for acute exacerbations of chronic obstructive pulmonary disease (AECOPD). More recently, in October 2017, the company entered into an agreement with AstraZeneca to acquire an exclusive license for AZD-9668, a potential therapy for alpha-1 antitrypsin deficiency, representing Mereo’s fourth clinical-stage asset. Each of these programs is backed by supportive clinical data which suggests excellent potential for first-in-class candidates with very attractive market opportunities.

The proposed combination with Oncomed brings two further assets to the portfolio: Navicixizumab for ovarian cancer and Etigilimab, an immunooncology therapy for solid tumours, which is being developed in collaboration with Celgene. In our view, the current share price substantially undervalues the collective potential of these assets. Consequently, we believe Mereo will create long-term shareholder value as it continues to progress its assets through the pipeline towards commercialisation.

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Fund exposure
Equity Income Fund 0.60%
Patient Capital Trust 1.64%

As at 28 February 2019

Geography United Kingdom
Industry Health Care
Themes Healthcare innovation

Source: Woodford

Share Price

Market Quotes by TradingView


Proposed combination with Oncomed

Mereo Biopharma has today announced that it intends to combine with US-listed biotech OncoMed. Mereo shareholders will own approximately three-quarters of the enlarged group and will issue shares to be used as ADRs (American Depositary Receipts) to current Oncomed shareholders, who will own the remainder. OncoMed shareholders will also receive (contingent value rights) CVRs, relating to the future performance of certain of its pipeline assets.

This looks like a positive, value-enhancing transaction from our perspective, for several reasons. Most importantly, it provides the combined group with a strong cash position, which extends the current operational runway into 2020, thereby financing Mereo through to all of its major milestones. In addition, it broadens the asset base, introduces new investors and forms an organisation with strengthened capabilities and resources.

The deal is expected to close in the first half of next year.

Lucinda Crabtree
5 December 2018

WPCT 2017 annual report case study

Drug discovery with a twist

Mereo BioPharma isn’t an ordinary biopharmaceutical company – it doesn’t do conventional drug discovery. Instead, it has seized on an opportunity to commercialise potential life-changing drugs that are being overlooked for business reasons by healthcare giants.

The cost of drug development is huge – it can cost around £2bn to develop a single treatment from discovery to launch – and subsequent margin pressure is forcing many big healthcare companies to focus on their core areas, resulting in many potential treatments falling by the wayside. This is where Mereo steps in.

The UK-based company seeks to acquire mainly rare disease drug candidates that have already had ‘gold-standard development’ and commercialise them. Its experienced team of scientists and researchers examine the trial data to identify only therapies that demonstrate significant medical and commercial potential. A key part of its analysis is exploring whether a drug tested for one type of disease could also be used as a treatment for another.

Founded in 2015, the AIM-listed company has already acquired three pipeline product candidates from Novartis that have passed phase II clinical trials and in October 2017 entered into an agreement with AstraZeneca for its fourth asset. In all of the deals, Mereo has purchased the assets with full intellectual property rights, with Novartis and AstraZeneca taking equity stakes in the company in exchange.

24 April 2018

Read the full report

Positive trial data

Mereo has reported positive top-line results from its phase IIb trial for BGS-649, which is being developed as a once-weekly oral enzyme inhibitor for obese men suffering from hypogonadotropic hypogonadism – a rare medical condition that manifests through testosterone deficiency, causing fatigue, erectile dysfunction and impaired physical endurance, among other things. BGS-649 is designed to reset to normal a patient’s own testosterone levels and has potentially considerable benefits over current treatments, particularly testosterone gels.

The trial data demonstrated that the drug is safe and well-tolerated and it met all its primary and secondary end points, including normalisation of testosterone levels in more than 75% of patients across all dose levels compared to placebo and improvement in other hormone levels which play an important role in sperm production. The treatment also met exploratory endpoints, such as reducing fatigue in patient reported outcomes.

Overall, we believe this is a good set of data – biologically, the drug does exactly what we would want to see and the results strengthen the company’s (and our) conviction in the medical potential of BGS-649. Mereo will conduct further data analysis while it waits for further safety data due towards the end of 2018 and in the meantime, it can engage with FDA on regulatory progression.

Saku Saha
19 March 2018

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

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