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Mereo honing its expertise in brittle bones, endocrine and respiratory diseases

For an AIM company, Mereo BioPharma Group has a pipeline more akin to those of a pharma major. Indeed, big names such as Novartis and AstraZeneca have small stakes in its drug development programmes

COPD
At the end of 2017, Mereo also received positive initial data for a treatment for people with severe exacerbation of COPD

Mereo BioPharma Group Plc  (LON:MPH) has four products, with three currently in or about to enter Phase II clinical trials and one that has completed a Phase II clinical trial.

This is a profile more akin to a pharma major than a company listed on AIM.

“It’s a very rich pipeline,” Denise Scots-Knight, chief executive, told Proactive Investors

She expects significant developments for the company to result from these trials in the coming months.

“We’ve had two great data points behind us but there is still a lot of news flow to come in terms of progress of the studies, data and partnering.”

Mereo specialises in rare and orphan diseases, which are defined in the US as affecting fewer than 200,000 people.

While that’s small relative to blockbuster drugs, all have serious and life-changing implications for people affected.

Encouragement for Mereo has come already from the results in two of the trials.

In March, data from an ongoing Phase 2B dosing study of a treatment for low testosterone in obese men (hypogonadotropic hypogonadism) met its primary endpoints.

The drug (BGS-649) is targeted at men with a body mass index of more than 30 and through a once-weekly tablet inhibits the conversion of testosterone to oestradiol.

In the study, normalised testosterone levels were recorded in 75% of patients across all dose ranges; more detailed, trial extension results are expected later this year.

What's worse than smoker's cough?

At the end of 2017, Mereo also received positive initial data for a treatment for people with severe exacerbations of the respiratory disease, chronic obstructive pulmonary disease (COPD), or smoker’s cough.

Known as AECOPD, this is a condition for people who have COPD but then catch an additional infection, such as flu, which can cause lung function to fail repeatedly and can be fatal.

Mereo’s treatment (BCT-197) is administered in three doses over a five day period and can reduce a patient’s rehospitalisation for up to six months.

This is especially important in the US as a hospital can lose reimbursement for a patient repeatedly re-hospitalised for an exacerbation.

The dosing study showed a statistically significant improvement and there is a clear benefit for both the hospital and patient, said Scots-Knight.

Mereo wants to find a partner for BCT 197, a process that is on track, said Scots-Knight, but can take up 12-18 months.

Elsewhere, enrolment has already started for a Phase II trial treatment of osteogenesis imperfecta or brittle bone disease in adults.

Brittle bone disease trial should be completed this year

Brittle bone disease is a genetic disorder where people suffer regular fractures due to an insufficient bone and fragile bone structure.

Full enrolment in the year-long trial is expected to be completed later this year with the first data expected in 2019.

Mereo is also narrowing the parameters for a Phase III/final stage trial in Europe for children with the condition.

Also known as glass baby syndrome, the trial will aim to demonstrate efficacy in reducing the number of bone breakages.

Some children with brittle bones suffer as many as ten breaks per year.

This drug, BPS-804 alongside BPS-197 and BPS-649, were acquired from Novartis and the Swiss giant has a direct 19.5% stake in Mereo.

UK pharma AstraZeneca PLC (LON:AZN) also has a small stake after Mereo acquired a treatment for alpha-1 antitrypsin deficiency (AATD), a genetic condition that leads to emphysema or COPD in the late twenties/early thirties even if the patient has never smoked.

A proof of concept Phase II study is scheduled to start this autumn with 160 patients.

Enrolment is often the toughest part of the process in rare and orphan trials, says Scots-Knight and starting the AATD trial will be a big milestone for the group.

Full enrolment of the adult brittle bone study likewise will also be a big step forward.

Valuation uplift on the horizon

The announcement of a partner for either the endocrine and acute exacerbations of COPD treatments, meanwhile, would be a trigger for the market to re-assess the value of the portfolio.

Scots-Knight though is already looking to new products and says that since Mereo took the trio of treatments from Novartis, it has looked at 50 others.

New additions are likely over the next 12-18 months but the company is not likely to move away too far from the current product range.

“We have developed real expertise in the three areas [brittle bones, endocrine, respiratory] ”.

The company did intend to list on Nasdaq earlier in the year but this was postponed due to market conditions at the time.

Scots-Knight say the Nasdaq filing is still on record and can be re-activated.

Companies traditionally get much higher valuations on the US market, but Mereo has had little trouble funding its plans so far.

Woodford Patient Capital is among a group of supportive institutional backers, while the shares have performed steadily since joining AIM in 2016.

At 307p, the company is currently valued at £222mln.

Conducting four trials simultaneously is expensive, but Mereo has around £50mln in the bank currently and that will be enough to see it through until the end of 2019, says Scots-Knight.

By that stage, the potential of the portfolio will also be much clearer and if all goes to plan, that valuation might be much higher.

Quick facts: Mereo BioPharma Group PLC

Price: 36 GBX

AIM:MPH
Market: AIM
Market Cap: £121.94 m
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