MREO - Mereo BioPharma: Lagging Stock Despite Positive Data

2023-12-13 04:50:52 ET

Summary

• Mereo BioPharma has shifted its focus from developing anti-TIGIT molecules to rare disease programs.
• The company's current pipeline includes programs for Osteogenesis Imperfecta, Alpha-1 Antitrypsin Deficiency-associated Lung Disease, and anti-TIGIT molecule Etigilimab.
• MREO has a market cap of $276mn and a cash balance of £42.1 million, with a cash runway of 6-7 quarters.

I covered Mereo BioPharma ( MREO ) a few years ago. MREO used to focus on being a developer of anti-TIGIT molecules targeting various solid tumors. The TIGIT space is dominated by Roche’s tiragolumab, whose trials and fortunes shape the subsector. Earlier, tiragolumab’s failure to meet expectations hurt the stock; recently, its success as seen in an “unexpectedly released” dataset in NSCLC helped other TIGIT stocks climb higher. MREO’s TIGIT molecule was called Etigilimab, which in 2021 was in phase 1 trials targeting advanced solid tumors.

However, lately, MREO has moved away from the TIGIT focus - ostensibly because TIGIT is beset with problems - and rechristened itself as a rare disease company. As such, here’s the current pipeline:

They also have a few non-core programs now that are looking for partners. These are Navicixizumab (OMP305B83) for the potential treatment of platinum-resistant ovarian cancer, (already partnered with OncXerna), Acumapimod (BCT197) for the potential treatment of acute exacerbations of chronic obstructive pulmonary disease (“AECOPD”), and Leflutrozole (BGS649), for the potential treatment of male infertility associated with hypogonadotropic hypogonadism (“HH”).

As you can see, this is pretty much the same set of programs but with a different focus than in 2021. For reference, here’s the 2021 pipeline:

First on the current list is Setrusumab, a fully humanized monoclonal antibody that is being developed in partnership with Ultragenyx for the potential treatment of Osteogenesis Imperfecta ((OI)). OI is a debilitating disease of the bone that has no currently approved treatment in the US or EU. The two companies completed the phase 2b ASTEROID study in 2019, which demonstrated that setrusumab produces a dose-dependent and statistically significant effect on bone formation and bone density in adult patients. A phase 3 study had its first patient dosed in July 2023. In patients between 5 and 26 years of age, the phase 2/3 ORBIT study is being conducted. The phase 2 portion of ORBIT produced data in June 2023, showing that setrusumab rapidly induced bone production. 24 patients with OI. Another phase 3 COSMIC study, an open label, randomized, active controlled study in patients aged between 2 and 7 has also been started.

The second program is Alvelestat (MPH966), an oral drug being developed for the treatment of Alpha-1 Antitrypsin Deficiency-associated Lung Disease (AATD-LD). A pivotal phase 3 trial is being planned based on two completed phase 2 trials. The phase 2 ASTREUS study “demonstrated significant and consistent reductions versus placebo in all three primary biomarkers related to AATD-LD activity.”

These two are rare disease programs. The third program is in oncology. Earlier, this one used to top the list. This is the anti-TIGIT molecule Etigilimab, which “is an IgG1 monoclonal antibody which binds to the human TIGIT receptor on immune cells with a goal of improving the activation and effectiveness of T-cell and NK cell anti-tumor activity.”

The phase 1b/2 ACTIVATE study was begun in March 2021, investigating Etigilimab plus nivolumab in a basket of recurrent advanced/metastatic solid tumors. At ESMO this October, data shared showed an objective response rate ((ORR)) was 25% among 40 patients treated with the combined therapy, encompassing checkpoint-inhibitor-naïve endometrial cancer (n = 10), cervical cancer (n = 8), uveal melanoma (n = 8), de-differentiated liposarcoma (n = 10), and germ cell tumor (n = 4) cohorts.

Within the cervical cancer cohort, three patients achieved complete responses (CRs) after a median treatment duration of 12.5 months. Partial responses (PRs) were observed in the endometrial (n = 3), uveal melanoma (n = 2), de-differentiated liposarcoma (n = 1), and germ cell tumor (n = 1) cohorts, totaling seven PRs, with these patients undergoing treatment for a median of 12.0 months. Moreover, 11 patients maintained stable disease ((SD)) for more than 112 days (3.7 months). Notably, encouraging efficacy was demonstrated in PDL1 low patients, with six out of seven individuals on the study for ?335 days (11 months) being PDL1 negative or low, all exhibiting high PVR tumoral expression.

The study revealed robust target engagement, characterized by sustained activation of T-cell subsets and reductions in Tregs, while total CD8 T-cell frequencies remained stable. Exploratory biomarker data indicated a correlation between CD226- and CD8-positive co-expression in patients with objective responses, particularly evident in cervical cancer and uveal melanoma.

In 2021, I had noted:

Its lead candidate has some interesting data, but the company pipeline is all over the place at this time. I expect them to be able to do more partnership deals as they produce more proof of concept data. Then they will probably do the right thing and shell out most of their pipeline, keeping one or two key assets to themselves to develop.

This appears to be precisely what happened with the company. They were able to license out Etigilimab, Setrusumab is already outlicensed, and the only non-partnered asset still left is Alvelestat, which they are now developing. However, even for this molecule, MREO is looking for a partner.

Financials

MREO has a market cap of $276mn and a cash balance of £42.1 million ($53.1 million), to which must be added the $9.0 million (£7.1 million) milestone payment from its partner, Ultragenyx and gross proceeds of $12.0 million (£9.3 million) through an “at-the-market” offering that they received in July.

Research and development expenses were £7.9 million for the six months ended June 30, 2023, while administrative expenses were £9.5 million. At that rate, they have a cash runway of 6-7 quarters. The company, located in London, has a lower expense footfall than normal US-based companies.

Risks

Despite the seeming flow of good news, the company has been a laggard, cutting its valuation by half in the last 2-3 years. This is possibly due to the protracted battle it had to wage against some activist investors in the same period.

The other risk with this company is that despite having a lot of programs, it has not commercialized anything, so we don’t really know if the hype will hold water.

Bottom line

Purely from the point of view of data, MREO has done relatively well, with no major hiccups. However, like I said, it is something of a laggard, and while such companies could be opportunities, they also call for a lot of caution. Personally, I do not find anything overly attractive in the state that MREO is right now, so I will wait for sunnier days.

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