UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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* Not for trading, but only in connection with the registration of American Depositary Shares representing such Ordinary Shares pursuant to the requirements of the U.S. Securities and Exchange Commission.
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
Accelerated filer |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of November 11, 2024 the number of outstanding ordinary shares, par value £0.003 per share, of the registrant was
Table of Contents
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Item 1. |
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2 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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30 |
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Item 4. |
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Item1. |
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31 |
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Item 1A. |
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31 |
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Item 2. |
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31 |
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Item 3. |
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31 |
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Item 4. |
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Item 5. |
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31 |
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Item 6. |
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32 |
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33 |
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GENERAL INFORMATION
In this Quarterly Report on Form 10‑Q (“Quarterly Report”), “Mereo,” the “Group,” the “Company,” “we,” “us” and “our” refer to Mereo BioPharma Group plc and its consolidated subsidiaries, except where the context otherwise requires.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” or the negative of these words or other comparable terminology.
Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. Risk Factors of our most recent Annual Report on Form 10-K filed with the SEC on March 27, 2024 "2023 Annual Report". Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources.
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
MEREO BIOPHARMA GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
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September 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Research and development incentives receivables |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Intangible assets, net |
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Total assets |
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$ |
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$ |
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Liabilities |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Convertible loan notes – current |
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Operating lease liabilities – current |
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Other current liabilities |
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Total current liabilities |
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Convertible loan notes – non-current |
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Warrant liabilities – non-current |
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Operating lease liabilities – non-current |
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Other non-current liabilities |
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Total liabilities |
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$ |
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$ |
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Shareholders’ Equity |
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Ordinary shares, par value £ |
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Treasury shares |
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( |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
2
MEREO BIOPHARMA GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of revenue |
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( |
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Research and development |
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( |
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( |
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( |
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( |
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General and administrative |
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( |
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( |
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( |
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( |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income/(expenses) |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Changes in the fair value of warrants |
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( |
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( |
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Foreign currency transaction (loss)/gain, net |
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( |
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( |
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Other expenses, net |
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( |
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Benefit from research and development tax credit |
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Net loss before income tax |
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( |
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( |
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( |
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( |
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Income tax benefit |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Loss per share – basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding – basic and diluted |
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Net loss |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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Other comprehensive income/(loss) – Foreign currency translation adjustments, net of tax |
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( |
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Total comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
3
MEREO BIOPHARMA GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Share-based compensation |
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Depreciation |
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Amortization of intangible assets |
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Amortization of operating lease right-of-use assets |
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Change in fair value of warrants |
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( |
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Non-cash interest expense |
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Non-cash interest income |
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( |
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Foreign currency transaction loss/(gain) |
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( |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Research and development incentives receivable |
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( |
) |
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( |
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Accounts payable |
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( |
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( |
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Accrued expenses and other liabilities |
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( |
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Operating lease liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
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( |
) |
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Cash flows from investing activities |
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Purchase of intangible assets |
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( |
) |
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( |
) |
Net cash used in investing activities |
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( |
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( |
) |
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Cash flows from financing activities |
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Proceeds from financing agreement with TAP |
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Proceeds from issuance of ordinary shares |
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Transaction costs on issuance of ordinary shares |
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( |
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( |
) |
Transaction costs on convertible loan notes |
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( |
) |
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Redemption of convertible loan notes |
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( |
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Net cash provided by financing activities |
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Effect of exchange rate changes |
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Increase/(decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at January 1, |
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Cash and cash equivalents at September 30, |
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$ |
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$ |
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Supplemental disclosure |
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Cash paid for interest |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
4
MEREO BIOPHARMA GROUP PLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share amounts)
(Unaudited)
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Ordinary shares |
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Treasury shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Cost |
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Shares |
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Cost |
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capital |
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(loss)/income |
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deficit |
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equity |
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Balance, December 31, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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( |
) |
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( |
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Foreign currency translation adjustments |
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( |
) |
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( |
) |
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Share-based compensation |
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Exercise of share options |
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- |
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( |
) |
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( |
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— |
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Delivery of shares on vesting of restricted stock units |
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( |
) |
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( |
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— |
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Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net loss |
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( |
) |
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( |
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Foreign currency translation adjustments |
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Share-based compensation |
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Exercise of share options |
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( |
) |
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( |
) |
||||||
Delivery of shares on vesting of performance based restricted stock units |
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( |
) |
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( |
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Issuance of shares, net of discount |
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||||||||
Transaction costs on issuance of shares |
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( |
) |
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( |
) |
||||||
Balance, June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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||||||
Net loss |
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( |
) |
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( |
) |
||||||
Foreign currency translation adjustments |
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||||||||
Share-based compensation |
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||||||||
Exercise of share options |
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( |
) |
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( |
) |
||||||
Delivery of shares on vesting of restricted stock units |
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( |
) |
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( |
) |
||||||
Delivery of shares on vesting of performance based restricted stock units |
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( |
) |
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( |
) |
||||||
Balance, September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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||||||
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||||||||
Balance, December 31, 2022 |
|
|
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|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
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$ |
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|||||
Net loss |
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|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Extinguishment and reissuance of convertible loan note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Delivery of shares on vesting of deferred restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Conversion of convertible loan note |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||||
Issuance of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance, June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Issuance of shares, net of discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Conversion of convertible loan note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||||
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
5
MEREO BIOPHARMA GROUP PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of business
Mereo BioPharma Group plc (the “Company” or “Mereo”) is a United Kingdom (“U.K.”) based biopharmaceutical company focused on the development of innovative therapeutics for rare diseases. The Company has developed a portfolio of late-stage clinical product candidates, and its two rare disease product candidates are setrusumab for the treatment of osteogenesis imperfecta (“OI”) and alvelestat primarily for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease (“AATD-LD”).
The Company is a public limited company incorporated and domiciled in the U.K., and registered in England, with shares publicly traded on the Nasdaq Capital Market via American Depositary Shares (“ADSs”) under the ticker symbol “MREO”. The Company’s registered office is located at Fourth Floor, 1 Cavendish Place, London, W1G 0QF, United Kingdom.
2. Basis of presentation and summary of significant accounting policies
Basis of presentation
The condensed consolidated financial statements of the Company and its subsidiaries and other financial information included in this Quarterly Report are unaudited, have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars. All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.
The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2024 (the “2023 Annual Report”). The condensed consolidated balance sheet as of December 31, 2023 was derived from audited consolidated financial statements included in the 2023 Annual Report but does not include all disclosures required by U.S. GAAP. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments which are, in the opinion of management, necessary to fairly state the Company's financial position as of September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. The interim results are not necessarily indicative of results to be expected for the full year.
Going concern
The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of delays in initiating or continuing research programs and clinical trials, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, if approved, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including pre-clinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The Company has historically been loss making, anticipates that it will continue to incur losses for the foreseeable future, and had an accumulated deficit of $
6
As of September 30, 2024, the Company had cash and cash equivalents of $
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. While there are no estimates and assumptions made in the consolidated financial statements that are considered to be critical, the Company's unaudited condensed consolidated financial statements include, among others, estimates about revenue recognition on contracts with customers and convertible loan notes. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
3. Recent accounting pronouncements
There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance other than those previously included in the 2023 Annual Report that are of significance or potential significance to the Company. The Company is continuing to evaluate the impact of the recently issued pronouncements that are effective in future periods that were discussed in its 2023 Annual Report.
4. Fair value measurement
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, certain accrued expenses, deferred consideration, contingent consideration, warrant liabilities and convertible loan notes. The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses approximate their fair value due to the short-term nature of those financial instruments.
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy:
|
|
As of September 30, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2024.
Warrant liabilities
At September 30, 2024 and December 31, 2023, warrant liabilities solely related to those warrants outstanding to the former lenders of the Company as described in Note 11.
7
5. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
VAT receivable |
|
$ |
|
|
$ |
|
||
Prepaid research and development services |
|
|
|
|
|
|
||
Insurance claim receivable |
|
|
|
|
|
|
||
Security deposits |
|
|
|
|
|
|
||
Prepaid insurance premiums |
|
|
|
|
|
|
||
Other prepaid expenses and current assets |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
6. Property and equipment, net
Property and equipment, net consists of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
Leasehold improvements |
|
$ |
|
|
$ |
|
||
Office equipment |
|
|
|
|
|
|
||
IT equipment |
|
|
|
|
|
|
||
Property and equipment, at cost |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was less than $
7. Leases
In August 2015, the Company entered into a lease agreement under which it leased office space located on the fourth floor of One Cavendish Place, London, with a lease term ending in August 2025. In June 2021, the Company entered into a new lease agreement to lease additional office space located on the fifth floor of that building for a lease period ending in . At the same time, the Company entered into a revisionary lease to extend the term for the original fourth floor lease to be coterminous with the fifth floor, ending in .
The total lease expense included in the statements of operations and comprehensive loss was $
|
|
As of September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating leases |
|
|
|
|
|
|
||
Weighted-average remaining contractual lease term (years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
8
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the maturities of the Company’s operating lease liabilities as of September 30, 2024:
|
|
As of September 30, 2024 |
|
|
|
|
($'000) |
|
|
Maturity analysis of the operating lease liabilities for the years ending December 31, |
|
|
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total undiscounted payments |
|
|
|
|
Less: Present value discount |
|
|
( |
) |
Lease liability |
|
$ |
|
|
Lease liability – current |
|
$ |
|
|
Lease liability – non-current |
|
$ |
|
|
8. Other current liabilities
Other current liabilities consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
Social security and other taxes |
|
$ |
|
|
$ |
|
||
Employee taxes on PSU vesting to be remitted |
|
|
|
|
|
|
||
Deferred consideration liability |
|
|
|
|
|
|
||
Equity issuance costs payable |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Employee taxes on Performance Based Restricted Stock Units ("PSU") vesting to be remitted represents the proceeds from the sale of ADSs required to be sold to cover employee tax withholding obligations in connection with the vesting of PSUs in September 2024.
9
9. Accrued expenses
Accrued expenses consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
Accrued research and development costs |
|
$ |
|
|
$ |
|
||
Accrued legal fees |
|
|
|
|
|
|
||
Accrued bonus |
|
|
|
|
|
|
||
Accrued audit fees |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Accrued local taxes |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
10. Convertible loan notes
Novartis Loan Note
On February 10, 2020, the Company entered into a convertible equity financing with Novartis Pharma (AG) (“Novartis”) under which Novartis purchased a £
Effective February 10, 2023, the maturity date of the Novartis Loan Note was extended to
The amendments to the Novartis Loan Note were an extinguishment of the original instrument and the issuance of a new instrument. Accordingly, on the extinguishment date, the carrying value of $
As of September 30, 2024 and December 31, 2023, the net carrying amount of the liability component of the convertible debt instrument was $
Private Placement Loan Notes
The Private Placement Loan Notes were issued in 2020 as part of a $
10
In May 2023, the maturity date of the Private Placement Loan Notes was extended to
In 2023, the Company received conversion notices and subsequently issued and allotted
The Company recognized $
11. Warrant liability
|
|
Warrant liabilities |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
At January 1 |
|
|
|
|
|
|
||
Changes in fair value during the period |
|
|
|
|
|
( |
) |
|
Foreign exchange |
|
|
( |
) |
|
|
|
|
At March 31 |
|
|
|
|
|
|
||
Changes in fair value during the period |
|
|
|
|
|
|
||
Foreign exchange |
|
|
|
|
|
|
||
At June 30 |
|
|
|
|
|
|
||
Changes in fair value during the period |
|
|
|
|
|
|
||
Foreign exchange |
|
|
|
|
|
( |
) |
|
At September 30 |
|
|
|
|
|
|
||
Warrant liability – private placement
As a part of a private placement transaction on June 3, 2020, the participating investors received conditional warrants entitling them to subscribe for an aggregate of
Warrant liability – bank loan
As of September 30, 2024, the former lenders of the Company have warrants outstanding to purchase a total of
11
Total outstanding warrants
As of September 30, 2024 and December 31, 2023, a total of
The fair value of each warrant is estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Market value of ADSs ($) |
|
$ |
|
|
$ |
|
||
Risk-free interest rate (%) |
|
|
% |
|
|
% |
||
Expected life (years) |
|
|
|
|
|
|
||
Expected volatility (%) |
|
|
|
|
|
|
||
Expected dividends (%) |
|
|
% |
|
|
% |
||
12. Shareholders’ Equity
Ordinary Shares
|
|
Number of |
|
|
Cost |
|
||
At January 1, 2023 and March 31, 2023 |
|
|
|
|
|
|
||
Vesting of DRSUs |
|
|
|
|
|
|
||
Conversion of convertible loan notes |
|
|
|
|
|
|
||
At June 30, 2023 |
|
|
|
|
|
|
||
Issuance of ordinary shares |
|
|
|
|
|
|
||
Conversion of convertible loan notes |
|
|
|
|
|
|
||
At September 30, 2023 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
At December 31, 2023 |
|
|
|
|
|
|
||
Exercise of share options |
|
|
|
|
|
|
||
At March 31, 2024 |
|
|
|
|
|
|
||
Exercise of share options |
|
|
|
|
|
|
||
Vesting of PSUs |
|
|
|
|
|
|
||
Issuance of shares |
|
|
|
|
|
|
||
At June 30, 2024 |
|
|
|
|
|
|
||
Exercise of share options |
|
|
|
|
|
|
||
Vesting of RSUs |
|
|
|
|
|
|
||
Vesting of PSUs |
|
|
|
|
|
|
||
At September 30, 2024 |
|
|
|
|
|
|
||
During the three months ended March 31, 2024, the exercise of employee share options and the vesting of restricted stock units ("RSUs") were satisfied by delivering shares from the Employee Benefit Trust until all of the shares in the Employee Benefit Trust were used and it was terminated. Subsequently,
During the three months ended June 30, 2024,
Additionally, on June 17, 2024, the Company issued
12
$
During the three months ended September 30, 2024,
13. Revenue and cost of revenue
There was
In June 2023, the Company recognized milestone proceeds of $
14. Share based compensation
The Company currently grants equity awards under the Mereo 2019 Equity Incentive Plan (the “2019 EIP”) and the 2019 Non-Employee Equity Incentive Plan (the “2019 NED EIP”). There are also still outstanding awards under two previous plans, the 2015 Plan and the Mereo Share Option Plan (together the “Previous Share Option Plans”), however no awards have been granted under these plans since 2016 and no further grants are envisioned.
The total number of ADSs available for issue under the 2019 EIP and 2019 NED EIP was
The expense for share-based compensation arises solely in respect of awards made under these two active plans as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
||||
2019 EIP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2019 NED EIP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of September 30, 2024, the total unrecognized compensation cost related to outstanding share awards was $
2019 EIP
The Company has awarded the following instruments under the 2019 EIP:
Market Value Options (“Options”)
A summary of the Company’s Option activity and related information under the 2019 EIP for the nine months ended September 30, 2024 is as follows:
13
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2023,
The weighted average contractual life of Options outstanding at September 30, 2024 and December 31, 2023 was
Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.
The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Market value of ADSs ($) |
|
$ |
|
|
$ |
|
||
Risk-free interest rate (%) |
|
|
% |
|
|
% |
||
Expected life (years) |
|
|
|
|
|
|
||
Expected volatility (%) |
|
|
% |
|
|
% |
||
Expected dividends (%) |
|
|
% |
|
|
% |
||
The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the requisite service period using the accelerated graded-vesting attribution method.
Restricted Stock Units (“RSUs”)
RSUs were first awarded in 2023 and each RSU entitles the holder to a conditional right to receive an ADS at no cost upon the completion of the applicable vesting period. RSUs granted under the 2019 EIP vest over three years with one-third of the awards vesting on the first anniversary of the grant date and the remainder vesting in four equal six-monthly installments thereafter. Upon vesting of the RSUs, the Company issues the requisite ADSs, a portion of which are sold to satisfy the resulting withholding tax obligations, and the remaining ADSs are delivered to the holder. RSUs have a maximum contractual life of
14
A summary of the Company’s RSU activity and related information under the 2019 EIP is as follows. As of September 30, 2024 all outstanding RSUs are expected to vest:
|
|
Number of |
|
|
Weighted |
|
|
Aggregate |
|
|||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024, the weighted average remaining period of RSUs outstanding was
Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. The fair value of each RSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.
Performance Based Restricted Stock Units (“PSUs”)
PSUs were first awarded in 2023 and each PSU entitles the holder to a conditional right to receive an ADS at no cost upon satisfaction of four escalating ADS price performance targets over a two year performance period following the date of grant.
|
|
Number of |
|
|
Weighted |
|
|
Aggregate |
|
|||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
The grant date fair value was recognized over the expected life using the straight-line attribution method.
2019 NED EIP
The Company has awarded the following instruments under the 2019 NED EIP:
Options
Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the 2019 NED EIP have a contractual term of
15
one year. There are no performance conditions.
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
At December 31, 2023,
The weighted average contractual life of Options outstanding at September 30, 2024 and December 31, 2023 was
Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.
The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Market value of ADSs ($) |
|
$ |
|
|
$ |
|
||
Risk-free interest rate (%) |
|
|
% |
|
|
% |
||
Expected life (years) |
|
|
|
|
|
|
||
Expected volatility (%) |
|
|
% |
|
|
% |
||
Expected dividends (%) |
|
|
% |
|
|
% |
||
The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.
Deferred Restricted Stock Units (“DRSUs”)
Non-executive directors may voluntarily elect to convert their annual cash fees for services on the board of directors and DRSUs were granted to those who made such elections. The number of DRSUs granted is determined by dividing the amount of the annual cash compensation by the average closing trading price of the Company's ADSs over the most recent 30 trading days as of the date of grant. Each DRSU entitles the holder to receive an ADS at no cost upon the completion of the vesting period. DRSUs granted under the 2019 NED EIP vest in substantially equal monthly installments over the plan year. Payment of DRSUs in ADSs will generally be
16
A summary of the Company’s DRSU activity and related information under the 2019 NED EIP for the nine months ended September 30, 2024 is as follows; all outstanding DRSUs are expected to vest:
|
|
Number of |
|
|
Weighted |
|
|
Aggregate |
|
|||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
|
|
|
|
|
|
|
|||
Unvested |
|
|
|
|
|
|
|
|
|
|||
Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. The fair value of each DRSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.
Previous Share Option Plans
Mereo previously granted options to employees under two separate plans, the Mereo BioPharma Group Limited Share Option Plan (the “2015 Plan”) and the Mereo Share Option Plan (the “Share Option Plan”). No awards have been granted under either of these plans since 2017 and following the introduction of the 2019 EIP and the 2019 NED EIP, no further awards are envisioned.
All awards made under these plans became fully vested, with all compensation costs fully recognized, before December 31, 2021.
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
At December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The weighted average contractual life of Options outstanding and vested at September 30, 2024 and December 31, 2023 was
17
15. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary equity holders of the Company for the period by the weighted average number of ordinary shares outstanding.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
($'000, except share and per share |
|
|
($'000, except share and per share |
|
|
($'000, except share and per share |
|
|
($'000, except share and per share |
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share - basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average number of shares used in computing net loss per share - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect for the three and nine months ended September 30, 2024 and 2023 would be to reduce the net loss per share. Therefore, the weighted average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share is the same.
The Company excluded the following potentially dilutive ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Options |
|
|
|
|
|
|
||
RSUs |
|
|
|
|
|
|
||
PSUs |
|
|
|
|
|
|
||
DRSUs |
|
|
|
|
|
|
||
Convertible loan notes – Novartis |
|
|
|
|
|
|
||
Warrants to purchase ordinary shares |
|
|
|
|
|
|
||
AstraZeneca milestones potentially payable in equity |
|
|
|
|
|
|
||
16. Commitments and contingencies
Indemnification agreements
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In accordance with the Articles of Association in force on September 30, 2024, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
18
Novartis agreements
The Company issued to Novartis Loan Notes and agreed to make future payments to Novartis comprising amounts equal to ascending specified percentages of tiered annual worldwide net sales (beginning at high single digits and reaching into double digits at higher sales) of products that include the assets acquired. The levels of ascending percentages of tiered annual worldwide net sales are stipulated under the respective Purchase Agreements.
The Company further agreed that in the event it transfers, licenses, assigns or leases all or substantially all of its assets, it will pay Novartis a percentage of the proceeds of such transaction. The payment of a percentage of proceeds is not payable with respect to any transaction involving equity interests of the Company, a merger or consolidation of the Company, or a sale of any assets of the Company.
AstraZeneca agreements
In October 2017, the Company entered into an exclusive license and option agreement (“the AstraZeneca License Agreement”) and subscription deed (the “AstraZeneca Subscription Deed”), together (the "Original Agreements") with AstraZeneca AB ("AstraZeneca"). Each of these were amended on November 8, 2024, when the Company entered into an amendment and restatement agreement related to the AstraZeneca License Agreement (the "Amended AstraZeneca License Agreement") and a Deed of Amendment and Restatement related to the AstraZeneca Subscription Deed (the "Amended AstraZeneca Subscription Deed") together (the "Amended AstraZeneca Agreements").
Under the terms of the Original Agreements, the Company obtained from AstraZeneca an exclusive worldwide, sub-licensable license under AstraZeneca’s intellectual property rights relating to alvelestat, with an option to acquire such intellectual property rights following commencement of a pivotal trial and payment of related milestone payments, together with the acquisition of certain related assets. Upon entering into the Original Agreements, the Company made a payment of $
Under the terms of the Amended AstraZeneca Agreements, the Company has agreed, in connection with certain further development and regulatory milestones, to make potential future payments both in cash and through the issue of a variable number of additional ADSs to AstraZeneca of up to $
The Amended AstraZeneca License Agreement will expire on the expiration of the last-to-expire royalty term with respect to all licensed products. Upon the expiration of the royalty term for a licensed product in a particular country, the licenses to the Company for such product in such country will become fully paid and irrevocable. Prior to exercise of the Option, if at all, the Company may terminate the Amended AstraZeneca License Agreement upon prior written notice. Either party may terminate the agreement upon prior written notice for the other party’s material breach that remains uncured for a specified period of time or insolvency.
Research and development activities
The Company enters into contracts in the normal course of business with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”) and other third parties to assist in the performance of research and development activities and other services and products for operating purposes. The contracts with CROs generally provide for termination on notice, and therefore, are cancellable contracts and not included herein. The Company has manufacturing commitments with CMOs of $
19
Legal proceedings
From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. The Company was not a party to any material litigation and did not have any material contingency reserves established for any liabilities as of September 30, 2024 and December 31, 2023.
17. Related party disclosures
In the three and nine months ended September 30, 2024 and 2023, there were
18. Subsequent Events
On November 8, 2024, the Company signed the Amended AstraZeneca Agreements and, on execution, committed to issue
The Amended AstraZeneca Agreements modified the amount of certain existing development milestones and added new development milestones, with the Company agreeing to make potential future payments both in cash and through the issuance of a variable number of additional ADSs to AstraZeneca worth up to $
The Amended AstraZeneca Agreements also clarify that the Subscription Price is the price per ordinary share, calculated by dividing the volume weighted average price per ADS during the thirty (30) trading day period immediately preceding the applicable milestone trigger event day by the number of ordinary shares represented by each ADS on the last trading day of such period, rounded to the nearest $0.001.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023, included in our 2023 Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of our 2023 Annual Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
Overview
We are a biopharmaceutical company focused on the development of innovative therapeutics for rare diseases. We have developed a portfolio of late-stage clinical product candidates. Our two rare disease product candidates are setrusumab for the treatment of osteogenesis imperfecta (OI) and alvelestat primarily for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease (AATD-LD). Setrusumab has received orphan designation for OI from the European Medicines Agency (EMA) and the U.S. Food and Drug Administration (FDA), PRIME designation from the EMA and has rare pediatric disease designation and breakthrough therapy designation from the FDA. 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.
Our strategy is to selectively acquire and develop product candidates for rare diseases that have already received significant investment from large pharmaceutical and biotechnology companies and that have substantial pre-clinical, clinical and manufacturing data packages. Since our formation in March 2015, we have successfully executed this strategy by acquiring six clinical-stage product candidates of which four were in rare diseases and oncology. Four of our six clinical-stage product candidates were acquired from large pharmaceutical companies and two were acquired in our merger with OncoMed Pharmaceuticals Inc in 2019. We have successfully completed large, randomized Phase 2 clinical trials for four of our product candidates and the Phase 1b portion of a Phase 1b/2 for a fifth product candidate.
Rare diseases represent an attractive development and, in some cases, commercialization opportunity for us since they typically have high unmet medical need and can utilize regulatory pathways that facilitate acceleration to approval and to the potential market. Development of products for rare diseases involves close collaboration with key opinion leaders and investigators, and close coordination with patient organizations. Rare disease patients are typically treated at a limited number of specialized sites which helps identification of the patient population and enables a small, targeted sales infrastructure to commercialize the products in key markets.
21
Results of Operations
Comparison of three months ended September 30, 2024 and 2023
The following table sets forth Mereo’s results of operations for the three months ended September 30, 2024 and 2023.
|
|
Three months ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
% |
|
||||
Revenue |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
* |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
- |
|
|
|
235 |
|
|
|
(235 |
) |
|
* |
|
|
Research and development |
|
|
(3,170 |
) |
|
|
(3,594 |
) |
|
|
424 |
|
|
|
12 |
% |
General and administrative |
|
|
(6,203 |
) |
|
|
(5,708 |
) |
|
|
(495 |
) |
|
|
(9 |
%) |
Loss from operations |
|
|
(9,373 |
) |
|
|
(9,067 |
) |
|
|
(306 |
) |
|
* |
|
|
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
983 |
|
|
|
689 |
|
|
|
294 |
|
|
|
43 |
% |
Interest expense |
|
|
(353 |
) |
|
|
(700 |
) |
|
|
(347 |
) |
|
|
(50 |
%) |
Changes in the fair value of warrants |
|
|
(59 |
) |
|
|
- |
|
|
|
(59 |
) |
|
* |
|
|
Foreign currency transaction (loss)/gain, net |
|
|
(6,425 |
) |
|
|
2,465 |
|
|
|
(8,890 |
) |
|
* |
|
|
Benefit from research and development tax credit |
|
|
226 |
|
|
|
82 |
|
|
|
144 |
|
|
|
176 |
% |
Net loss before income tax |
|
|
(15,001 |
) |
|
|
(6,531 |
) |
|
|
(9,164 |
) |
|
* |
|
|
Income tax benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss |
|
|
(15,001 |
) |
|
|
(6,531 |
) |
|
|
(9,164 |
) |
|
* |
|
|
Other comprehensive income/(loss) – Foreign currency translation adjustments, net of tax |
|
|
7,174 |
|
|
|
(3,579 |
) |
|
|
10,753 |
|
|
* |
|
|
Total comprehensive loss |
|
|
(7,827 |
) |
|
|
(10,110 |
) |
|
|
1,589 |
|
|
* |
|
|
* Percentage change not meaningful
Research and development (“R&D”) expenses
The following table sets forth our R&D expenses by product development program for the three months ended September 30, 2024 and 2023.
|
|
Three months ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
% |
|
||||
Setrusumab (BPS-804/UX143) |
|
|
1,441 |
|
|
|
1,086 |
|
|
|
355 |
|
|
|
33 |
% |
Alvelestat (MPH-966) |
|
|
1,206 |
|
|
|
1,581 |
|
|
|
(375 |
) |
|
|
(24 |
)% |
Etigilimab (MPH-313) |
|
|
410 |
|
|
|
1,057 |
|
|
|
(647 |
) |
|
|
(61 |
)% |
Leflutrozole (BGS-649) |
|
|
15 |
|
|
|
(34 |
) |
|
|
49 |
|
|
* |
|
|
Acumapimod (BCT-197) |
|
|
23 |
|
|
|
(18 |
) |
|
|
40 |
|
|
* |
|
|
Other |
|
|
74 |
|
|
|
(78 |
) |
|
|
153 |
|
|
* |
|
|
Total R&D expenses |
|
|
3,170 |
|
|
|
3,594 |
|
|
|
(424 |
) |
|
|
(12 |
)% |
Total R&D expenses decreased by $0.4 million, or 12%, from $3.6 million in the three months ended September 30, 2023 to $3.2 million in the three months ended September 30, 2024.
The decrease was primarily due to reductions in R&D expenses of $0.6 million and $0.4 million for etigilimab and alvelestat, respectively, partially offset by an increase of $0.4 million for setrusumab.
22
The reduction in program expenses for etigilimab 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 in a range of tumor types.
The reduction in the program expenses for alvelestat primarily relates to lower levels of preparatory activity undertaken in respect of the Phase 3 study in the three months ended September 30, 2024 compared to 2023, particularly including manufacturing and drug formulation activities and regulatory interactions.
The increase in program expenses for setrusumab was driven by additional activities in Europe and resources for input into development, regulatory and manufacturing plans with our partner, Ultragenyx, as the global development program is funded by Ultragenyx pursuant to our license and collaboration agreement.
General and administrative expenses
General and administrative expenses increased by $0.5 million, or 9%, from $5.7 million in the three months ended September 30, 2023 to $6.2 million in the three months ended September 30, 2024. The increase primarily reflects $0.2 million higher pre-commercial activities to lay the foundation for the commercial launch of setrusumab in Europe, including those to support pricing and reimbursement by HTA authorities and payor decision-makers in Europe. The remaining increase represents increases in various corporate expenses.
Interest income and expense
Interest income increased $0.3 million, or 43%, from $0.7 million in the three months ended September 30, 2023 to $1.0 million in the three months ended September 30, 2024. The increase was principally due to a higher cash and cash equivalents balance in the quarter from the proceeds of the underwritten registered direct offering in June 2024.
Interest expense decreased $0.3 million, or 49%, from $0.7 million in the three months ended September 30, 2023 to $0.4 million in the three months ended September 30, 2024. The decrease was principally due to the lower balance in the quarter of convertible loan notes as the private placement loan notes were fully converted and redeemed in August 2023.
Foreign currency transaction gain/(loss)
The net foreign exchange loss for the three months ended September 30, 2024 was $6.4 million, compared to a gain of $2.5 million for the three months ended September 30, 2023. This change primarily reflects (i) the impact of a weakening in the value of U.S. dollars when translating U.S. dollar balances into our functional currency of pound sterling in the three months ended September 30, 2024, compared to a strengthening of U.S. dollars in the three months ended September 30, 2023, and (ii) higher U.S. dollar balances following the underwritten registered direct offering in June 2024.
Other comprehensive income – Foreign currency translation adjustments
The foreign currency translation adjustment for the three months ended September 30, 2024 was a gain of $7.2 million, compared to a loss of $3.6 million in the three months ended September 30, 2023. The change primarily reflects the impact of the significant weakening of U.S. dollars when translating the net assets of the Company from its functional currency (pound sterling) into its presentational currency (U.S. dollars).
23
Comparison of the nine months ended September 30, 2024 and 2023
The following table sets forth Mereo’s results of operations for the nine months ended September 30, 2024 and 2023.
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
% |
|
||||
Revenue |
|
|
- |
|
|
|
9,000 |
|
|
|
(9,000 |
) |
|
* |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
- |
|
|
|
(2,847 |
) |
|
|
2,847 |
|
|
* |
|
|
Research and development |
|
|
(12,109 |
) |
|
|
(12,614 |
) |
|
|
505 |
|
|
|
4 |
% |
General and administrative |
|
|
(19,980 |
) |
|
|
(14,827 |
) |
|
|
(5,153 |
) |
|
|
(35 |
)% |
Loss from operations |
|
|
(32,089 |
) |
|
|
(21,288 |
) |
|
|
(10,801 |
) |
|
* |
|
|
Other income/(expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
2,160 |
|
|
|
1,368 |
|
|
|
792 |
|
|
|
58 |
% |
Interest expense |
|
|
(995 |
) |
|
|
(2,528 |
) |
|
|
1,533 |
|
|
|
61 |
% |
Changes in the fair value of warrants |
|
|
(576 |
) |
|
|
440 |
|
|
|
(1,016 |
) |
|
* |
|
|
Foreign currency transaction (loss)/gain, net |
|
|
(5,780 |
) |
|
|
455 |
|
|
|
(6,235 |
) |
|
* |
|
|
Other expenses, net |
|
|
- |
|
|
|
(6 |
) |
|
|
6 |
|
|
* |
|
|
Benefit from research and development tax credit |
|
|
1,073 |
|
|
|
1,202 |
|
|
|
(129 |
) |
|
|
(11 |
)% |
Net loss before income tax |
|
|
(36,207 |
) |
|
|
(20,357 |
) |
|
|
(15,850 |
) |
|
* |
|
|
Income tax benefit |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net loss |
|
|
(36,207 |
) |
|
|
(20,357 |
) |
|
|
(15,850 |
) |
|
* |
|
|
Other comprehensive income/(loss) – Foreign currency translation adjustments, net of tax |
|
|
6,381 |
|
|
|
99 |
|
|
|
6,282 |
|
|
* |
|
|
Total comprehensive loss |
|
|
(29,826 |
) |
|
|
(20,258 |
) |
|
|
(9,568 |
) |
|
* |
|
|
Revenue
No revenue was recognized in the nine months ended September 30, 2024. Revenue of $9.0 million for the nine months ended September 30, 2023 comprised a one-time milestone payment of $9.0 million resulting from the achievement of a clinical milestone on setrusumab by Ultragenyx.
Cost of revenue
No cost of revenue was recognized in the nine months ended September 30, 2024. Cost of revenue of $2.8 million for the nine months ended September 30, 2023 primarily represents amounts payable pursuant to our 2015 agreement with Novartis, under which the Company pays a percentage of proceeds resulting from milestone revenue received, subject to certain deductions and other amounts, on the achievement of clinical milestones.
24
R&D expenses
The following table sets forth our R&D expenses by product development program for the nine months ended September 30, 2024 and 2023.
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||||||
|
|
($'000) |
|
|
($'000) |
|
|
($'000) |
|
|
% |
|
||||
Setrusumab (BPS-804/UX143) |
|
|
3,798 |
|
|
|
2,246 |
|
|
|
1,552 |
|
|
|
69 |
% |
Alvelestat (MPH-966) |
|
|
6,721 |
|
|
|
4,943 |
|
|
|
1,778 |
|
|
|
36 |
% |
Etigilimab (MPH-313) |
|
|
1,228 |
|
|
|
5,173 |
|
|
|
(3,944 |
) |
|
|
(76 |
)% |
Leflutrozole (BGS-649) |
|
|
67 |
|
|
|
160 |
|
|
|
(93 |
) |
|
* |
|
|
Acumapimod (BCT-197) |
|
|
50 |
|
|
|
25 |
|
|
|
24 |
|
|
* |
|
|
Other |
|
|
244 |
|
|
|
67 |
|
|
|
178 |
|
|
* |
|
|
Total R&D expenses |
|
|
12,109 |
|
|
|
12,614 |
|
|
|
(505 |
) |
|
|
(4 |
)% |
Total R&D expenses decreased by $0.5 million, or 4%, from $12.6 million in the nine months ended September 30, 2023 to $12.1 million in the nine months ended September 30, 2024.
The decrease was primarily due to a $3.9 million reduction in R&D expenses for etigilimab, partially offset by increases of $1.8 million and $1.6 million for alvelestat and setrusumab, respectively.
The decrease in program expenses for etigilimab 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 in a range of tumor types.
The increase in program expenses for alvelestat primarily relates to preparatory work for the Phase 3 study, including manufacturing and drug formulation activities, St. Georges Respiratory Questionnaire (SGRQ) validation activities and regulatory interactions.
The increase in program expenses for setrusumab was driven by additional activities in Europe, and resources for the input into development, regulatory and manufacturing plans with our partner, Ultragenyx, as the global development program is funded by Ultragenyx pursuant to our license and collaboration agreement.
General and administrative expenses
General and administrative expenses increased by $5.2 million, or 35%, from $14.8 million in the nine months ended September 30, 2023 to $20.0 million in the nine months ended September 30, 2024.
The increase was primarily due to:
Interest income and expense
Interest income increased $0.8 million, or 58%, from $1.4 million in the nine months ended September 30, 2023 to $2.2 million in the nine months ended September 30, 2024. The increase was principally due to higher cash and cash equivalents balances from the proceeds of the underwritten registered direct offering in June 2024.
25
Interest expense decreased $1.5 million, or 61%, from $2.5 million in the nine months ended September 30, 2023 to $1.0 million in the nine months ended September 30, 2024. This decrease was principally due to the lower balance of convertible loan notes in the period as the private placement loan notes were fully converted and redeemed in August 2023.
Changes in the fair value of financial instruments
Changes in the fair value of financial instruments were an unrealized loss of $0.6 million in the nine months ended September 30, 2024, compared to an unrealized gain of $0.4 million in the nine months ended September 30, 2023. The unrealized loss in the nine months ended September 30, 2024 was primarily due to the impact of the increase in the price of the Company's ADSs on the value of the warrant liabilities, whereas in the nine months ended September 30, 2023, the unrealized gain was primarily due to the expiry of the Private Placement warrants in June 2023.
Foreign currency transaction gain/(loss)
The net foreign exchange loss for the nine months ended September 30, 2024 was $5.8 million, compared to a gain of $0.5 million in the nine months ended September 30, 2023. This change primarily reflects (i) the impact of a significant weakening in the value of U.S. dollars when translating U.S. dollar balances into our functional currency of pound sterling in the nine months ended September 30, 2024, compared to a slight strengthening of U.S. dollars in the nine months ended September 30, 2023, and (ii) higher U.S. dollar cash and cash equivalent balances following the underwritten registered direct offering in June 2024.
Benefit from research and development tax credit
The benefit from research and development tax credit decreased by $0.1 million, from $1.2 million in the nine months ended September 30, 2023 to $1.1 million in the nine months ended September 30, 2024. This decrease reflects a combination of a lower level of qualifying expenditure in the nine months ended September 30, 2024 and a reduction in the proportion of qualifying expenditure that can be reclaimed under the scheme rules. The tax credits represent eligible cash rebates paid or receivable from the tax authorities in the jurisdictions within which we operate for eligible types of research and development activities and associated expenditure (the “R&D tax credit”).
Other comprehensive loss – Foreign currency translation adjustments
The foreign currency translation adjustment for the nine months ended September 30, 2024 was a gain of $6.4 million, compared to a gain of $0.1 million in the nine months ended September 30, 2023. The change primarily reflects the impact of the significant weakening of U.S. dollars when translating the net assets of the Company from its functional currency (pound sterling) into its presentational currency (U.S. dollars).
Liquidity and Capital Resources
Overview
Under the current business plan and cash flow forecasts, and in consideration of our ongoing research and development efforts and our general corporate funding requirements, we anticipate that our current on-hand cash resources will extend into 2027. However, we will need additional external funding to complete our development plans and potentially commercialize selected rare disease products. We plan to fund our operations through cash on hand and a combination of non-dilutive funding sources, public or private equity or debt financing or other sources.
We do not currently have any approved product candidates and as a result, have not generated any revenue from product sales. As a result, to date, we have financed our operations primarily through the issuances of our equity securities, convertible debt and warrants. These offerings have raised approximately $259.0 million, including through the $50.0 million underwritten registered direct offering in June 2024 and the $12.0 million “at-the-market” offering pursuant to our Open Market Sale Agreement with Jefferies LLC in July 2023 (all amounts are gross proceeds before fees and discounts).
26
We have also received payments under various license and collaboration agreements, including payments of:
Contractual Obligations
As further described in our 2023 Annual Report, under “Item 1. Business—Material Agreements—Novartis Agreements” (as updated in note 16 to the condensed consolidated financial statements included in this Quarterly Report) and “Item 1. Business—Material Agreements—Licensing Agreement with AstraZeneca,” under various agreements with Novartis and AstraZeneca, we have agreed to make milestone payments and pay royalties on potential future commercial sales. The amount, timing, and likelihood of such payments are not known and will remain uncertain for the foreseeable future.
In addition, we enter into contracts in the ordinary course of business with CROs, CMOs, and other vendors to assist in the performance of its research and development activities and other services and products for operating purposes. The contracts with CROs generally provide for termination on notice, and therefore are cancelable contracts. We have manufacturing commitments with CMOs of $2.4 million as of September 30, 2024.
Cash Flows
Comparison of the nine months ended September 30, 2024 and 2023
The table below summarizes our cash flows (used in) from operating, investing and financing activities for the nine months ended September 30, 2024 and 2023.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
($'000) |
|
|
($'000) |
|
||
Net cash used in operating activities |
|
|
(23,414 |
) |
|
|
(14,343 |
) |
Net cash used in investing activities |
|
|
(699 |
) |
|
|
(419 |
) |
Net cash provided by financing activities |
|
|
46,187 |
|
|
|
7,973 |
|
Effect of exchange rate changes |
|
|
1,027 |
|
|
|
1,136 |
|
Increase/(decrease) in cash and cash equivalents |
|
|
23,101 |
|
|
|
(5,653 |
) |
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was $23.4 million, an increase of $9.1 million from $14.3 million in the nine months ended September 30, 2023. The most significant items driving this increase were:
(i) a one-time milestone payment of $9.0 million being received in the three months ended September 30, 2023 resulting from the achievement of a clinical milestone on setrusumab from Ultragenyx;
(ii) receipt of $1.8 million in research and development tax credits in the nine months ended September 30, 2023 with no similar amounts received in the nine months ended September 30, 2024;
(iii) receipt of $1.7 million less from our depository to reimburse certain expenses incurred by us in respect of our ADR program in the nine months ended September 30, 2024 than the nine months ended September 30, 2023; and
(iv) approximately $0.6 million higher other net cash operating expenses.
These increases were partially offset by the receipt of $2.0 million from a claim on our Directors and Officers insurance policy to reimburse us for certain legal and professional costs incurred in prior years and $1.8 million higher net interest inflows.
27
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 was $0.7 million, an increase of $0.3 million from $0.4 million in the nine months ended September 30, 2023. The increase is due to additional payments to acquire intangible assets in the nine months ended September 30, 2024 compared to 2023.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $46.2 million, an increase of $38.2 million from $8.0 million in the nine months ended September 30, 2023. The increase represents the difference between the net proceeds received from the underwritten registered direct offering in June 2024 of $46.2 million in the nine months ended September 30, 2024 and the net proceeds of an “at-the-market” offering of $11.1 million, offset by $3.2 million paid to redeem the Private Placement loan notes in the nine months ended September 30, 2023.
Operating and Capital Expenditure Requirements
As of September 30, 2024, we had an accumulated deficit of $455.8 million. We expect to continue to report significant operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval of our product candidates and any future product we develop.
We expect to continue to incur expenses in connection with our ongoing development activities related to our product candidates, our outsourced manufacturing activities and other associated costs including the management of our intellectual property portfolio. We also expect to continue to incur costs associated with operating as a U.S. public company listed on Nasdaq and as a domestic registrant.
These costs will increase further if we:
We expect that our existing cash and cash equivalents will enable us to fund our currently committed clinical trials, operating expenses and capital expenditure requirements into 2027. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our product candidates and any future product candidates and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
28
Our revenues, if any, will be derived from development milestones or sales of any product candidates that we are able to successfully develop, receive regulatory approval for, and commercialize in future years. In the meantime, we will need to obtain substantial additional funds to achieve our business objective.
Adequate additional funds may not be available to us on acceptable terms, or at all. If we raised additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.
Any future debt financing or preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interests.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders' ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. If we are unable to raise additional funds through partnerships, debt or equity financings when needed, we may be required to delay, limit, reduce, or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our accounting estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The actual impact on our financial performance could differ from these estimates under different assumptions or conditions.
An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our unaudited condensed consolidated financial statements. We believe that there are no estimates and assumptions made in our unaudited condensed consolidated financial statements that rise to this level. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting
29
Estimates” in our 2023 Annual Report, which was filed with the SEC on March 27, 2024. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting estimates from those described in our 2023 Annual Report.
Safe Harbor
See the section titled “Information Regarding Forward-Looking Statements” at the beginning of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company’s exposure to market risk during the three months ended September 30, 2024. For a discussion of the Company’s exposure to market risk, please refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2023 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a 15(e) and 15d 15(e)) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”) as of September 30, 2024.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at September 30, 2024.
Changes in Internal Control over Financial Reporting.
No changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d – 15(e)) under the Exchange Act) occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 2024, we were not a party to any material legal proceedings.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the Company’s 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three-month period ended September 30, 2024, none of our directors or officers
31
Item 6. Exhibits
The following exhibits are either provided with this Quarterly Report on Form 10-Q or are incorporated herein by reference:
Exhibit Number |
|
Description of Exhibit |
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
104 |
|
The cover page for the Company's Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
* Filed herewith.
** Furnished herewith.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, on November 12, 2024.
|
|
|
MEREO BIOPHARMA GROUP PLC |
|
|
|
|
Date: November 12, 2024 |
/s/ Denise Scots-Knight |
|
Denise Scots-Knight |
|
Chief Executive Officer |
|
|
|
|
Date: November 12, 2024 |
/s/ Christine Fox |
|
Christine Fox |
|
Chief Financial Officer |
33