Mereo BioPharma

Targeting TIGIT thoughtfully

Update | 9 December 2020

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Mereo BioPharma is set to progress its promising anti-TIGIT antibody, etigilimab, into Phase Ib/II trials for multiple solid tumour types in Q420. The study will focus on less common tumour types, including several rare cancers, and employ a flexible design to respond rapidly if data is promising. Phase II alvelestat results are expected in H221 for AATD, with Phase Ib data for COVID-19 likely in mid-21. A partner to progress setrusumab (osteogenesis imperfecta, OI) into the Phase III registration trial is expected to be announced soon. Similarly, partnering news for the non-core assets, leflutrozole and acumapimod, is anticipated. Our valuation, based on conservative assumptions, is $741m (£570m), equivalent to $5.06/ADS (101p/share) fully diluted.

Year-end: December 31201820192020E2021E
Revenues (£m)
Adj. PBT (£m)(35.1)(40.5)(39.3)(28.2)
Net Income (£m)(32.0)(34.8)(143.5)(26.7)
Adj. EPS (p)(42.2)(38.4)(21.3)(7.3)
Cash (£m)27.516.334.811.9
EBITDA (£m)(35.2)(36.9)(34.9)(27.1)
Source: Trinity Delta Note: Adjusted numbers exclude share-based payments and exceptionals.
  • TIGIT Phase Ib/II set for imminent start Mereo Biopharma has detailed its plans for etigilimab’s Phase Ib/II study. The Phase Ib element will recruit c 100 patients into a six-arm trial targeting specific tumours, including a number of rare types, to determine efficacy and safety when used in combination with an as yet unnamed PD-1 inhibitor. The study’s flexible format will allow rapid scale-up if promising data is seen. Interim results are expected in H221. TIGIT is increasingly viewed as a potential core treatment backbone, alongside PD-1, in immuno-oncology. We view etigilimab as a potentially transformative programme for the company.
  • Alvelestat clinical data due in mid-2021 Alvelestat is undergoing two Phase II trials for α1 antitrypsin deficiency (AATD) and a Phase Ib/II for COVID-19 complications. The rationale for neutrophil elastase (NE) inhibition in AATD and in NETosis-driven diseases is robust; alvelestat’s clinical activity and dosing profile makes it a leading candidate for first-in-class approval if data, expected from mid-2021, is supportive.
  • Funding in place for progressing key assets The successful $70m June placement has enabled management to expedite the development of its core programmes. The key beneficiary has been etigilimab, with a well-structured plan now in place to rapidly expand the pursuit of promising tumour indications. The TIGIT space is highly competitive and timely progress relies on adequate funding being in place.
  • Valuation of $5.06 per ADS or 101p per share Our rNPV model employs conservative assumptions, especially on the TIGIT programme’s potential, and values Mereo Biopharma at $741m or £570m, equivalent to $5.06/ADS or 101p/share (fully diluted). We reiterate our view that, with funding in place and clinical plans defined, share price appreciation will be driven by clinical progress and demonstrable success in partnering assets. We believe Mereo BioPharma remains largely underappreciated and, hence, undervalued.


9 December 2020

Market Cap
Enterprise Value
Shares in issue
12 month range
Free float35.1%
Primary exchange
AIM London
Other exchangesN/A
Company codes
Corporate clientYes

Company description

Mereo BioPharma develops and commercialises innovative therapeutics addressing oncology and rare diseases. These are acquired or licensed in at clinical stages from large pharmaceutical companies. The portfolio consists of six compounds that are progressing through late-stage clinical development.


Lala Gregorek
+44 (0) 20 3637 5043

Franc Gregori
+44 (0) 20 3637 5041

Mereo BioPharma has a broad clinical pipeline yet, understandably, investor attention will focus on its anti-TIGIT programme. Etigilimab will start a key c 100 patient Phase Ib/II PD-1 combination trial in a variety of solid tumours before end-2020, with top line results expected during H221. TIGIT is now widely viewed as a potential immuno-oncology treatment backbone as important as PD-1. Although early stage, etigilimab could, if successful, transform Mereo’s prospects. Meanwhile, partnering news flow is expected for setrusumab, for osteogenesis imperfecta (OI or brittle bone disease). Alvelestat for the treatment of alpha-1 antitrypsin deficiency (AATD), continues to progress development in both AATD and COVID-19. Our valuation is $741m or £570m, equivalent to $5.06/ADS or 101p/share (fully diluted).

Mereo BioPharma hosted a virtual R&D update in November 2020. This event provided useful insights into the status of its development pipeline, notably on expected timelines, and, importantly, mapped out the clinical trial pathways for etiligimab and alvelestat. These two compounds, together with setrusumab, form Mereo BioPharma’s core portfolio and represent the majority of the value within our rNPV model. It is their prospects that underpin our investment case.

Exhibit 1: Mereo BioPharma’s diversified late-stage clinical pipeline
Source: Mereo BioPharma

Following an impressive $70m equity raise in June 2020, coupled with existing resources, management has funding in place to progress the core programmes to key value-inflection points. Exhibit 1 highlights the four clinical trials, in darker blue, that are either ongoing or planned which represent important milestones. Etigilimab’s Phase Ib/II open label study has been designed to retain flexibility such that if any specific cancer indications prove particularly promising they can be pursued swiftly. The results of the Phase II AATD trial and Phase Ib/II COVID-19 study, likely mid-2021, will shape alvelestat’s future development. Setrusumab is expected to be partnered ahead of the pivotal Phase III, with the announcement of the partner still possible before end-2020.

Etigilimab: an emerging TIGIT player

Etigilimab, an anti-TIGIT antibody, is in our view Mereo BioPharma’s most promising programme. It targets the TIGIT (T-cell immunoreceptor with immunoglobulin and ITIM domains), a particularly exciting area in immuno-oncology (IO) that appears to stop T-cells from attacking tumour cells much like the PD-1 inhibitory protein. These agents are known as immune checkpoint receptors and their inhibitors (CPI), targeting checkpoints such as CTLA-4 (cytotoxic T lymphocyte‐associated antigen 4) and PD-1 (programmed cell death 1) receptors, demonstrate impressive clinical efficacy and durable responses in more than 15 types of malignancy.

These CPIs, such as Merck’s pembrolizumab (Keytruda), Bristol Myers Squibb’s nivolumab (Opdivo), and Roche’s atelzolizumab (Tecentriq), have transformed clinical practice over the past five years and increasingly form the basis of many first-line therapies. However, sizeable patient populations fail to respond or relapse quickly, and the search is on for new CPI targets that can improve more treatment outcomes. TIGIT is widely viewed as a next generation CPI, with extensive clinical programmes currently underway.

Exhibit 2: TIGIT plays a key role in immune suppression by cancer cells
Source:; The Immunoreceptor TIGIT Regulates Antitumor and Antiviral CD8+ T Cell Effector Function, Cancer Cell, Volume 26, Issue 6, P923-937, December 08, 2014

The attraction of TIGIT as a target is that it is a T-cell co-inhibitory receptor which is consistently highly expressed across multiple solid tumour types. It is frequently expressed in parallel with other co-inhibitory receptors, most notably PD-1, where it acts synergistically to regulate anti-tumour response. TIGIT exerts its negative regulator effects through competing with CD226 (DNAM-1) for PVR (poliovirus receptor or CD155), disrupting CD226 activation, and directly inhibiting T cells. These pathways consist of receptor–ligand pairs which, following receptor–ligand interaction, suppress the effector functions of T cells and natural killer (NK) cells and impair anti‐tumour immunity (Exhibit 2).

TIGIT alone is a modest inhibitor of CD4+ T cell priming and NK cell killing; however, especially in the presence of PD-1, there is potent suppression of CD8+ T cells. Hence, anti-TIGIT compounds would be expected to exhibit limited anti-tumour activity as monotherapy, which is what the clinical studies to date have shown, but, in theory at least, potent synergistic effects when used in combination with other CPIs, such as PD-1 and PD/L1 antagonists. It is this strong biological rationale that supports exploring the use of anti-TIGIT protocols as part of PD-1 based combination therapies in a growing number of clinical trials.

Exhibit 3: Overview of TIGIT expression and function
Source: Bristol-Myers Squibb, Trinity Delta

The precise mechanism of action remains unclear and may have both cell-intrinsic and cell-extrinsic components. A school of thought is that TIGIT dials down innate and adaptive immune responses by limiting the effector functions of cytotoxic T cells and natural killer (NK) cells; others believe it primarily enhances the activity of regulatory T (Treg) cells, curbs the release of proinflammatory cytokines from dendritic cells (DC), or inhibits cancer cell killing by CD8+ T cells. Yet the appeal of TIGIT is that it appears to act through multiple interrelated mechanisms, suggesting inhibition could result in profound and lasting activity. However, this uncertainty has resulted in differing approaches to antibody construction.

There are eleven TIGIT programmes known to be in clinical development, albeit six have only recently entered Phase I (Exhibit 4). The most advanced compound is Roche/Genetech’s tiragolumab which, following positive data from the CITYSCAPE Phase II trial, is being evaluated in two related Phase III studies, SKYSCRAPER-01 and -02, for first-line NSCLC (non-small cell lung cancer) and SCLC (small cell lung cancer). An ambitious clinical programme sees a further six pivotal Phase III studies also planned for other solid tumour indications. This sizeable commitment has spurred significant industry interest in exploring anti-TIGIT strategies in combination with a number of existing checkpoint inhibitors, as well as current gold standard regimens.

Exhibit 4: TIGIT programmes known to be in clinical development
Source: Evaluate,, Nature Biotechnology, Trinity Delta   Notes: Mut IgG1 = Mutant IgG1 (Fc receptor disabled), IgG1* = IgG1 (Fc enhanced with afucosylation), ND = not disclosed, Adv = advanced, Met = metastatic

The data presented to date suggests that the TIGIT and PD-1 combination strategy appears safe and well tolerated, with encouraging early signs of efficacy against a broad range of solid tumour types. The eventual winners in the efficacy stakes will reflect the mechanisms by which TIGIT actually promotes antitumour immunity. All the anti-TIGIT antibodies known to be in clinical development should block the CD155 ligand and remove the inhibitory cascade that prevents T cells and NK cells from attacking the tumour, as well as promoting related tumour-directed immunity pathways. However, a healthy debate centres around the role of the Fc binding capacity of the various antibodies being developed.

The most advanced programmes, such as Roche/Genentech’s tiragolumab and Merck’s vibostolimab, employ a wild-type IgG1 isotype and maintain TIGIT-directed antibody-dependent cellular cytotoxicity (ADCC). This does effectively destroy the antibody-coated target cells and removes T reg cells but has the potential to also deplete beneficial cytotoxic cells in the process. Hence other approaches, such as Bristol-Myers Squibb and Arcus Bioscience, use mutated IgG1 tails with inactivated Fc regions and others, such as Compugen and the recently terminated Astellas Pharma programme ASP8374, employ IgG4 backbones that offer only weak Fc binding.

Etigilimab is a wild-type IgG1 isotype monoclonal antibody with ADCC that showed potent anti-tumour effects in preclinical studies. A Phase Ia/Ib open label dose escalation trial in 23 heavily pre-treated patients with histologically confirmed locally advanced and metastatic solid tumours, at doses up to 20mg/kg every two weeks, was completed successfully. Tumour types included colorectal, endometrial, and pancreatic cancer, plus eight other solid tumour types. A related 10 patient Phase Ib dose escalation study in selected tumour types in combination with nivolumab has also shown promising results. No dose limiting toxicities were observed in either study. Skin rashes and pruritis (itching) were seen (Phase Ia: 35% of patients; Phase Ib: 50%), as is typical with most IO treatment regimens. A stable or partial response was seen in 27% of the patients across both studies.

Exhibit 5: Phase Ib/II ACTIVATE basket study design
Source: Mereo BioPharma   Note: * PDL1+; TMB-H =tumour mutational burden – high; MSS = micro-satellite stable

A Phase Ib/II study, known as ACTIVATE, of etigilimab in combination with an as yet undisclosed PD-1 inhibitor is planned to start in Q420. This will recruit c 100 patients into a Simon two-stage design exploring six different tumour groups (Exhibit 5). The tumour types have been selected for high PVR/TIGIT and PD-1 co-expression and anti-PD-1/L1 responsiveness, with patients selected for biomarkers for TMB, PDL1, PVR, and TIGIT. Notably “crowded” cancer types, such as NSCLC, have been deliberately avoided due not only to competitive pressures but also ease of patient recruitment. The six tumour types chosen are all high need with poor prognoses and include:

  • HNSCC (head and neck squamous cell carcinoma),
  • cervical cancer,
  • gastric/gastro-oesophageal (GE),
  • endometrial carcinoma,
  • TMB-H (tumour mutational burden -high) and MSS (micro-satellite stable) tumours, and
  • rare tumours, such as salivary gland and sarcoma.

The primary endpoint will be overall response rate, with secondary endpoints of safety and tolerability, PK/PD, and duration of response. Other parameters examined will include the biomarker suitability, progression-free survival, and overall survival. The Simon format was selected to enable a flexible study design so that if an encouraging response is seen in a particular tumour type that cohort of the study can be expanded rapidly into a randomised double-blind Phase II trial (which, depending on the tumour indication, could support registration). The ACTIVATE study is expected to enrol patients from Q420 and last for 12-15 months, with initial data expected in H221. The quality of this data will be pivotal in guiding etigilimab’s development strategy.

Alvelestat: addressing a real NE-ed (excuse the pun)

Alvelestat is a potent, oral inhibitor of neutrophil elastase (NE) that is in Phase II development for the treatment of severe AATD1-antitrypsin deficiency) lung disease, a rare and potentially life-threatening genetic condition. It is also in Phase Ib/II for COVID-19, examining in particular the hypothesis that the pathology is driven by NETosis (Neutrophil Extracellular Trap). NE is an aggressive and cytotoxic protease enzyme that is associated with the destruction of lung tissue. It is implicated in the signs, symptoms, and disease progression of many lung disorders through its role in the inflammatory processes, mucus over-production, and lung tissue damage. Normally NE activity is tightly regulated by endogenous protease inhibitors including α1-antitrypsin (AAT), secretory leukoprotease inhibitor, and α2-macroglobulin.

Alvelestat’s appears particularly well suited to negating the impacts of α1-antitrypsin deficiency. AATD is a relatively common inherited genetic disorder where the liver produces an abnormal version of the AAT protein or none at all. Normally AAT plays a protective role in the lungs; its lack can allow the destructive effects of NE to go unchecked. The damage to the lungs is progressive, cumulative, and irreversible, with therapy limited to symptomatic treatments, such as inhaled steroids and bronchodilators, or augmentation therapy with plasma-derived AAT (typically weekly one-hour IV infusions). As an inherited genetic disorder, AATD should be an ideal candidate for gene therapy, however the complexities mean progress is slow.

A proof-of-concept Phase II trial (ASTRAEUS) is underway, although it has taken longer than hoped to recruit, due to AATD being a lung disease and concerns over COVID-19 and hospital attendance as part of a clinical trial. The study examines around 165 severe AATD patients with the PiZZ or NULL genetic mutations who have confirmed emphysema, declining FEV1, and have not undergone augmentation (or similar) therapy. The study period is 12 weeks and consist of three arms (placebo and two alvelestat doses); it examines elastin breakdown and biomarkers of NE inhibition. The within-patient percentage change of levels of desmosine, a breakdown product of elastin and a good biomarker for lung damage, is a primary endpoint. Secondary endpoints such as plasma Aα-Val360 (a validated biomarker of NE activity), NE levels in sputum, and a battery of lung function tests are also included. Top line data is expected during H121.

An investigator-led Phase II study (ATALANTa) is also underway in AATD. This involves 66 patients randomised 1:1 into active and placebo arms. Dosing is 120mg (four 30mg tablets) twice daily, also over 12 weeks, with the primary endpoint being the desmosine/isodesmosine biomarker levels. Safety and tolerability are the other primary considerations. Preliminary data is expected in H221.

A Phase Ib/II double-blind, placebo-controlled clinical trial (COSTA) has initiated with alvelestat in adult patients with moderate to severe COVID-19 respiratory disease. The study involves c 15 patients that are hospitalised, but not yet ventilated, and initially examines safety and potential efficacy. There are three active arms, with unspecified doses, and a placebo arm. The first element lasts 10 days with safety and tolerability as primary endpoints; a 90-day safety follow-up will also be performed. Secondary endpoints will examine efficacy parameters, including blood biomarkers, inflammation, oxygen deficit, and clinical outcomes. The preliminary results are expected to be ready by mid-2021.

The rationale is COVID-19 infection typically results in acute lung injury (ALI); the neutrophil elastase pathway may be a key element in this and results in the formation of neutrophil extracellular traps (NETs). NETs are not only involved in lung inflammation but are seen in arterial and venous thrombus formation. Alvelestat has shown promising results in preclinical models, hence the inhibition of neutrophil elastase may have an important role in treating COVID-19 complications. We have not, as yet, included any potential contribution from alvelestat for any indication outside of AATD in our valuation model.

News flow: a rich vein of data and announcements

In terms of news flow (Exhibit 6), the near-term value inflection points centre around etigilimab’s development, notably the start of the Phase Ib/II study, and the successful closing of a setrusumab partnering deal that will enable its Phase III programme to start.

Exhibit 6: Upcoming key milestones and opportunities
Source: Mereo BioPharma   Note: Red dots signify key data or milestone event

Next year, the key event, from an investment perspective, will be the first data from the etigilimab trial. Promising results could truly transform Mereo’s outlook however, we would caution that, as described earlier, the TIGIT space remains uncertain and the optimal anti-TIGIT antibody structure has yet to be established. Nonetheless, compared to its known peers (both listed and private), we would argue that the TIGIT element contributes only a modest amount to our valuation model. Other important news flow for 2021 includes ASTRAEUS and ATALANTa results in AATD and COSTA data in COVID-19 for alvelestat; further details on the plans for the pivotal Phase III trial for setrusumab; and, possibly, news on the partnering of the non-core leflutrozole and acumapimod assets.


Valuation: underappreciated or undiscovered

We value Mereo BioPharma using an rNPV model of the clinical pipeline, which is then netted out against the cost of running the business and net cash. Our model yields a valuation of €741m or £570m, equivalent to $5.06/ADS or 101p/share (fully diluted).

Exhibit 7 summarises the contributions of each clinical programme, with additional detail regarding our expectations available in our September 2020 Outlook. Mereo BioPharma has announced its intention to cancel the admission of its AIM shares, effective from 18 December. Until this date, we continue to provide a per share and per ADS valuation for the benefit of all investors.

Exhibit 7: Mereo BioPharma rNPV-based valuation
Source: Trinity Delta; Note: *The rNPV of acumapimod and leflutrozole includes a deal success factor of 40% and 30%, respectively.


Exhibit 8: Summary of financials


Source: Company, Trinity Delta  Note: FY20 exceptionals include aggregate non-cash finance charges of £94.7m (changes in fair value of the embedded derivative and warrants in connection with the June private placement), and a £11.3m net loss in disposal (navi licence agreement with OncXerna).


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