Mereo Makes It Stateside With OncoMed Merger
Executive Summary
The UK company, which postponed plans for a US offering in April, has taken the M&A route to secure a Nasdaq listing by combining with OncoMed.
The UK's Mereo BioPharma Group PLC is to get the US listing it had been seeking by merging with troubled California-based Oncomed Pharmaceuticals Inc., adding cash and a couple of investigational cancer drugs.
In an interview with Scrip just after the deal was announced (Dec. 5), Mereo CEO Denise Scots-Knight noted that after postponing plans for a US offering in April, which would have raised in the region of $80m, the company decided late in the third quarter of this year to appoint Evercore as an advisor to look for US firms listed on NASDAQ which were doing strategic reviews. One of the options they came up with was OncoMed, a firm which itself had hired Leerink to look at its options after a series of setbacks.
The latest of those came in September when Celgene Corp. decided against taking up an option on OncoMed’s cancer drug navicixizumab, a move which battered its share price. The drug, an anti-DLL4/VEGF bispecific antibody, has shown promise in a Phase Ib trial in combination with paclitaxel in patients with platinum-resistant late-stage ovarian cancer, but pipeline prioritization at Celgene led to the rights being returned.
At the beginning of 2018, another Celgene-partnered drug, the anti-RSPO3 antibody rosmantuzumab, was discontinued after disappointing interim Phase I data. 2017 also saw the failure of a Phase II trial of Celgene-partnered demcizumab fail in pancreatic cancer, while Bayer AG declined to license the Wnt pathway inhibitors vantictumab and ipafricept. (Also see "OncoMed Loses Another Asset – Rosmantuzumab – And CEO Paul Hastings" - Scrip, 5 Jan, 2018.)
Nevertheless, Scots-Knight is enthusiastic about the prospects for navicixizumab, but acknowledged that "it needs significant investment to advance it so we are looking to partner that or do some sort of transaction." OncoMed also has the anti-TIGIT candidate etigilimab which is in Phase I and Celgene has an option to acquire the drug.
The all-equity reverse merger will see Mereo own 75% of the combined entity and issue new American Depositary Receipts (ADRs) to OncoMed investors, rather than shares from its present listing on London's AIM, giving them 25% of the company. In addition, the latter will also get contingent value rights (CVRs) based on what happens to navicixizumab and etigilimab.
Based on Mereo's closing share price of 190 pence on Dec. 4, the shares underlying the ADRs represent an aggregate value of $57.4m, a premium of 34% over OncoMed's market capitalization of $42.9 million the day before the deal was unveiled. As of September 30, the proforma cash resources of the combined business were $115.5m, including $70.9m from OncoMed, which extends Mereo's runway into 2020.
Scots-Knight noted that the deal broadened the firm's asset base and strengthened Mereo's cash position. The plan to initiate the ADR program on NASDAQ, in addition to the continued listing on the AIM "will facilitate a deep engagement with the broadest range of appropriate investors."
The companies noted that the Redwood City-based firm's workforce will be cut back to just "a core employee base to meet the obligations for the ongoing OncoMed operations." CEO John Lewicki will stay on as an advisor as partnership opportunities for the navicixizumab program are explored and Mereo's eight-member board will be expanded to include "two new biopharmaceutical industry-experienced OncoMed independent non-executive directors," They are Michael Wyzga, currently chief financial officer of Aura Biosciences Inc. and Deepa Pakianathan of Delphi Ventures.
As well as finalizing the merger, which is due to complete in the first half of next year, Scots-Knight told Scrip that 2019 would be a busy one for Mereo's own pipeline when the company expects "several value inflection points." Much of the focus will be on its anti-sclerostin antibody acquired from Novartis AG called BPS-804 (setrusumab), which is in Phase IIb for osteogenesis imperfecta (OI), or brittle bone disease.
Scots-Knight noted that six-month data from an open-label high-dose arm should be available in the first half of 2019, with 12-month dose ranging data expected in the second half. A Phase II study is also running in the US and Europe on MPH-966 (alvelestat), licensed from AstraZeneca PLC last October for the treatment of severe alpha-1 antitrypsin deficiency and top-line data are expected late in the second half of 2019.
She added that after the successful completion of Phase II studies "we are in the midst of partnering discussions" for BCT-197 (acumapimod) for acute exacerbations of chronic obstructive pulmonary disease, which was licensed from AstraZeneca in October last year. Scots-Knight said the firm was talking to regulators about the future clinical program which needs to be finalized before any partnering deal can be confirmed. Mereo is also looking to partner BGS-649 (leflutrozole), which licensed from Novartis, for hypogonadotropic hypogonadism in obese men.