Focus shifts back to imminent data
Update | 8 May 2019
Mereo BioPharma has successfully completed the merger with OncoMed, and now the focus shifts firmly back to the pipeline. Initial data from the Phase II study in osteogenesis imperfecta (OI) with its leading rare disease asset, BPS-804, are due in the coming weeks, and top-line data for the full trial in Q419. The Phase II study with MPH-966 in alpha-1 anti-trypsin deficiency (AATD) is due to report top-line data around the year-end. At the same time, Mereo has strengthened the out-licensing packages of non-rare disease assets; notably the outline for a Phase III programme with BCT-197 has been agreed with the FDA, thereby raising the likelihood of BCT-197 being partnered by year-end. We value Mereo at 506p/share or $25.59/ADS.
|Year-end: December 31||2017||2018||2019E||2020E|
|Adj. PBT (£m)||(43.3)||(35.0)||(41.9)||(29.2|
|Net Income (£m)||(38.8)||(32.0)||(38.6)||(28.2|
|Adj. EPS (p)||(51.9)||(42.2)||(41.2)||(27.3)|
8 May 2019
|Price (UK share)|
|Enterprise Value ||£39.2m|
|Shares in issue (shares)|
|12 month range||77.5-325p|
|Company Code ||MPH.L|
Mereo BioPharma develops and commercialises innovative therapeutics addressing rare diseases. It also has specialty pharmaceutical products that it will partner. The assets are acquired or licensed in at clinical stages from large pharmaceutical companies. The portfolio consists of six compounds that are in clinical development.
Mick Cooper PhD
+44 (0) 20 3637 5042
+44 (0) 20 3637 5043
Pending the transaction, we suspended our valuation which was £510m, or 615p per share. Following the completion of the merger, we have updated our model, and now re-introduce our valuation and estimates. We value Mereo at £541m ($704m), equivalent to 506p/share or $25.59/ADS on a fully diluted basis.
We value the company using an rNPV model of the four late-stage clinical programmes, which are then netted out against the cost of running the business and net cash, as detailed in Exhibit 1. The rNPV of each individual clinical project is assessed and the success probabilities adjusted for the inherent clinical, commercial, and execution risks each carries. These are summed and netted against the costs of running the operation and net cash. We have not included the two oncology assets, navicixizumab and etigilimab, as they are early stage clinical assets and there are with CVRs associated with the potential partnering of the assets, although they could provide a useful source of funding.
Our financial forecasts are summarised in Exhibit 2. We estimate investment in R&D will increase by 22.6% to £27.8m in FY19, with c. 80% of the spending on BPS-804 and MPH-966. Mereo’s cash position following the completion of the merger was £53.9m ($70.1m), which should allow the company to operate to mid‑2020, but could be extended significantly by the successful partnering of non-rare disease assets.
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