Company Number 09481161
MEREO BIOPHARMA GROUP PLC
Annual Report and Accounts
Year ended December 31, 2023
MEREO BIOPHARMA GROUP PLC
CONTENTS
Directors, secretary and advisors
Strategic Report
Directors' Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s report
Consolidated Statement of Comprehensive (Loss)/Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
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MEREO BIOPHARMA GROUP PLC
DIRECTORS, SECRETARY AND ADVISERS
Directors
Dr. Denise Scots-Knight (Chief Executive Officer)
Michael Wyzga (Chairman)
Dr. Jeremy Bender
Dr. Anders Ekblom
Dr. Pierre Jacquet
Dr. Annalisa Jenkins
Dr. Deepa Pakianathan
Justin Roberts
Dr. Daniel Shames
Marc Yoskowitz
Company Secretary
Charles Sermon
Registered Office
4th Floor, One Cavendish Place
London
W1G 0QF
Company Number
09481161
Independent Auditors
Solicitors
Registrars
PricewaterhouseCoopers LLP
3 Forbury Place
23 Forbury Road
Reading
RG1 3JH
Latham & Watkins LLP
99 Bishopsgate
London EC2M 3XF
Link Group
10th Floor, Central Square
29 Wellington Street
Leeds, LS1 4DL
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MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Introduction
Mereo BioPharma Group plc (the “Company”, “Mereo” or “Parent Company”) is a public limited company incorporated
under the laws of England and Wales and is listed on the Nasdaq Capital Market (“Nasdaq”). The Company is a “quoted
company” for the purposes of the Companies Act 2006 (the “Companies Act”).
The Directors present their strategic report together with the directors’ remuneration report, directors’ report, audited
consolidated financial statements of Mereo BioPharma Group plc and its subsidiaries (collectively, where the "Company"
is referred to throughout the consolidated financial statements, this refers to Mereo BioPharma Group plc and its
subsidiaries. Where the "Company" is referred to in the company only accounts, this refers to Mereo BioPharma Group
plc only), audited company financial statements and auditors’ report for the year ended December 31, 2023.
The Company has also filed with the U.S. Securities and Exchange Commission (the “SEC”) its Annual Report on Form
10-K for the year ended December 31, 2023, which contains additional disclosures regarding some of the matters
discussed in this report. In previous years, the Company filed its Annual Report on Form 20-F, as it qualified as a Foreign
Private Issuer ("FPI"). On June 30, 2023, the Company determined it would no longer qualify as an FPI and effective
January 1, 2024, the Company began complying with and reporting under the SEC rules and Nasdaq listing
requirements applicable to U.S. domestic filers.
Business overview and strategy
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 from the FDA. Alvelestat has received U.S.
Orphan Drug Designation for the treatment of AATD and Fast Track designation 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 on 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 the merger with OncoMed Pharmaceuticals in 2019 ("the Merger"). 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 involve 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.
Our Strategy
We intend to become a leading biopharmaceutical company developing innovative therapeutics that aim to improve
outcomes for patients with rare diseases. The key elements of our strategy to achieve this goal include:
•
Rapidly develop and potentially commercialize our rare disease product candidates. Our rare
disease product candidates setrusumab and alvelestat have been acquired or in-licensed from
pharmaceutical companies following strategic de-prioritization. Prior to this they have received significant
investment in preclinical, toxicology, clinical studies and CMC. We have built expertise in the areas of
patient identification, clinical study design and regulatory strategy. This combination of prior investment and
our expertise has allowed us to rapidly develop our two rare disease product candidates. For example,
setrusumab has completed a Phase 2 in adult OI patients and our partner Ultragenyx is now enrolling two
Phase 3 studies in pediatric and young adult OI patients, and alvelestat has completed two Phase 2 studies
and is now progressing into Phase 3. We may seek to partner our rare disease product candidates for
further development where it makes strategic sense to do so. However, as commercialization of rare
disease products requires a highly specialized and focused infrastructure, we may seek to commercialize
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STRATEGIC REPORT
•
•
•
our rare disease product candidates, once approved, in select markets. For example, as part of our
partnership with Ultragenyx, we have the retained the commercial rights to setrusumab in Europe and the
U.K.
Explore out-licensing or sale opportunities with third parties for further clinical development and/or
commercialization of our non-core and non-rare disease programs. Based on the results from the
Phase 1b portion of the Phase 1b/2 clinical trial for etigilimab in select solid tumor types and the Phase 2
clinical trial for acumapimod, we plan to enter into one or more strategic relationships with third parties for
etigilimab and acumapimod to undertake the next phase of clinical development and, if approved,
commercialization. Our second oncology product, navicixizumab, for the treatment of late line ovarian
cancer, has completed a Phase 1 study and has been partnered on a global basis with Feng Biosciences.
In March 2018, we reported top-line Phase 2b data for leflutrozole for the treatment of HH and in December
2018, we reported positive results from the safety extension study for leflutrozole. In December 2023 we
entered into an exclusive global license agreement with ReproNovo for the development and
commercialization of leflutrozole.
Continue to be a partner of choice for pharmaceutical and biotechnology companies. We believe
that we are a preferred partner for pharmaceutical and biotechnology companies as they seek to unlock the
potential in their development pipelines and deliver therapeutics to patients in areas of high unmet medical
need. We have strong relationships with these companies, as evidenced by our agreements with Novartis
and AstraZeneca, as well as our partnership with Ultragenyx, and a track record of structuring transactions
that enable us to leverage our core capabilities while creating value for all stakeholders. We intend to
continue to enter into strategic relationships that align our interests with those of pharmaceutical and
biotechnology companies and that we believe to be mutually beneficial.
Leverage our expertise in business development. Our senior management team has extensive
relationships with large pharmaceutical and biotechnology companies. These relationships are important to
us as we seek to form strategic partnerships on our product candidates and as appropriate, to grow our
pipeline of product candidates in rare diseases.
Our Pipeline
The following table summarizes our pipeline for our product candidates. We have global commercial rights to
alvelestat, etigilimab and acumapimod and commercial rights to setrusumab in Europe and the U.K. We granted
Ultragenyx an exclusive license to develop and commercialize setrusumab in the U.S. and rest of the world, and we
have licensed global rights for navicixizumab to Feng Biosciences (formerly OncXerna) and global rights for
leflutrozole to ReproNovo.
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Core Rare Disease Product Candidates
Setrusumab (BPS-804/UX143) for the Treatment of Osteogenesis Imperfecta
Overview
In collaboration with Ultragenyx, we are developing setrusumab for the treatment of OI, a rare genetic disease, which
is caused by variants in the COL1A1 or COL1A2 genes, which results in bones that can break easily and is commonly
known as brittle bone disease. Setrusumab is a novel, intravenously administered antibody that is designed to inhibit
sclerostin, a protein that inhibits the activity of bone-forming cells, known as osteoblasts. We believe that by blocking
sclerostin, setrusumab has the potential to induce or increase osteoblast function and maturation of these cells, and to
inhibit bone-resorption through osteoclasts, increasing overall bone mass and thereby reducing fractures in OI
patients.
Background of Osteogenesis Imperfecta
OI is a genetic disorder characterized by fragile bones and reduced bone mass, resulting in bones that break easily,
loose joints and weakened teeth. In severe cases, patients may experience hundreds of fractures in a lifetime. In
addition, people with OI often suffer from muscle weakness, early hearing loss, fatigue, curved bones, scoliosis
(curved spine), brittle teeth, respiratory problems and short stature. The disease can be extremely debilitating and
even fatal in newborn infants with a severe form of the disease. OI is a rare condition that affects an estimated 60,000
people in the U.S. and Europe, according to estimates by Orphanet.
There are eight recognized forms of OI, designated type I through type VIII. Type I is cited to be the least severe form,
although patients can still have many fractures and other physical manifestations of the disease, while Type II is the
most severe and frequently causes death at or shortly after birth. OI Type I is the most prevalent and estimated to
occur in approximately 50% to 60% of OI patients. Type III and Type IV patients may be wheelchair bound and
typically have many fractures through their lifetime. Type III and Type IV patients may also have short stature,
scoliosis and hearing loss by the time they are young adults. OI is typically diagnosed at birth with most patients being
born with a blue or gray tint to the sclera, the part of the eye that is usually white.
Current Treatment Landscape for Osteogenesis Imperfecta
There are no therapies approved by the FDA or EMA for the treatment of OI. The only treatments available to OI
patients are the acute management of fractures as they occur and drugs such as bisphosphonates which are typically
used to treat osteoporosis and are not approved for OI but are commonly used off-label in children. Bisphosphonates
slow down the rate at which osteoclasts resorb bone. These anti-resorptives include Aredia (pamidronate), Fosamax
(alendronate) and Reclast (zoledronic acid). Bisphosphonates have not consistently been shown to reduce fractures in
OI adult patients and the effect of long-term therapy with these drugs remains unclear in both adults and children.
Current treatment of OI is directed towards management of fractures with casting or surgical fixation. Following either
of these, physical therapy will often be required. Preventative surgeries, such as intramedullary, or in-bone, rodding
fixation are also undertaken. Supportive care for the disease involves surgery to correct deformities, internal splinting
of bones with metal rods, bracing to support weak limbs and decrease pain, physical therapy and muscle
strengthening and aerobic conditioning to improve bone mass and strength.
Our Approach
Our product for treating OI is setrusumab, a fully human monoclonal antibody that is designed to inhibit sclerostin.
Sclerostin is produced in osteocytes, which are mature bone cells that are thought to be the mechanoreceptor cells
that regulate the activity of bone-building osteoblasts and bone-resorbing osteoclasts. Sclerostin inhibits the activity of
osteoblasts. We believe that by blocking sclerostin, setrusumab has the potential to induce or increase osteoblast
activity and maturation of these cells, increasing overall bone mass, and thereby reducing fractures in OI patients.
In 2016, we obtained orphan drug designation in OI for setrusumab in the U.S. and the EU and, in November 2017,
the program was accepted into the Priority Medicines scheme (“PRIME”) of the EMA. In September 2020 we received
rare pediatric disease designation for setrusumab in OI from the FDA.
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Clinical Development of Setrusumab
Prior to our acquisition of setrusumab, Novartis conducted four clinical trials in 106 patients and healthy volunteers. In
2019 we completed a Phase 2b dose-finding study (ASTEROID) study of setrusumab in 112 adult patients with Type I,
III and IV OI. Following the 12-month dosing part of the trial, patients were followed for a further twelve months to
examine the off-effects of setrusumab. The results of this Phase 2b trial supported the progression of setrusumab into
a pivotal study in OI. Setrusumab was safe and well-tolerated in the study. There were no cardiac-related safety
concerns observed in the study.
Top-line Data from Setrusumab Phase 2 Portion of Phase 2/3 Orbit Study
In June 2023, we along with our partner, Ultragenyx, announced successful completion of the Phase 2 portion of the
pivotal Phase 2/3 Orbit study in 24 pediatric and young adult patients (5 to <26 years old) for setrusumab in OI, which
compared two different doses of setrusumab, 20 and 40 mg/kg, to determine the optimal dose for the Phase 3. The
primary endpoint of the Phase 2 study was circulating levels of P1NP, a biomarker reflective of bone formation. The
study also evaluated numerous other endpoints, including bone mineral density (“BMD”) and annualized fracture rates,
PK and safety. Across all patients evaluated at both doses, these data showed statistically significant increases in
levels of serum P1NP, a sensitive marker of bone formation, and substantial and significant improvement in BMD by
three months. An increase in lumbar spine BMD from baseline of 9.4% at 20 mg/kg (n=10) was observed, with a
substantial mean change in the Z-score of +0.65 from -2.12 (n=11) at baseline. There was no significant difference
between the two doses tested, accordingly, the 20 mg/kg was selected as the Phase 3 dose. The changes observed
in BMD in these younger patients at 3 months are equivalent to the changes following 12 months treatment with
setrusumab in adult patients reported from the Phase 2b ASTEROID study. The 24 patients from the Phase 2 portion
of the ORBIT study are continuing to receive setrusumab treatment in an open-label extension study.
Additional data from the Phase 2 portion of the Phase 2/3 Orbit study were reported at the annual ASBMR meeting in
October 2023 and demonstrated that treatment with setrusumab significantly reduced incidence of fractures in patients
with OI with at least 6 months of follow-up and continued to demonstrate ongoing and meaningful improvements in
lumbar spine bone BMD. As of the cut-off date and following at least six months of treatment with setrusumab, the
annualized fracture rate across all 24 patients in the Phase 2 portion of the study was reduced by 67%. The median
annualized fracture rate of 0.72 in the two years prior to treatment was reduced to 0.00 (n=24, p=0.042) during the
mean treatment duration period of nine months. These fractures excluded fractures of the fingers, toes, skull and face
consistent with the Phase 3 study design. In the two years prior to treatment with setrusumab all patients experienced
at least one fracture. Following initiation of treatment with setrusumab, 20 patients experienced no radiographic-
confirmed fractures, and 4 patients experienced 7 radiographic-confirmed fractures in 5 separate events. Two of these
fractures occurred within the first two months of treatment, a time in which setrusumab-induced increases in BMD may
have been suboptimal in reducing fractures.
At the six-month timepoint, treatment with setrusumab resulted in a mean increase in lumbar spine BMD from baseline
of 13% at 20 mg/kg (n=11) and 16% at 40 mg/kg (n=8), which represented the same substantial mean improvement in
Z-score of +0.85 for both dose groups at 6 months compared to a combined mean baseline Z-score of –1.68. The
small apparent difference in BMD change from baseline is likely related to differences in patients assigned to the two
treated groups. There was no statistically significant difference in BMD percent change or Z-score change from
baseline between the 20 and 40 mg/kg dosing cohorts. As of the data cut-off for our October 2023 announcement,
there were no treatment-related serious adverse events observed in the study.
The 24 patients from the Phase 2 portion of the Orbit study are continuing to receive setrusumab treatment at 20
mg/kg in an open label extension study. Additional longer-term Phase 2 data from the Orbit study are expected in the
second half of 2024.
Phase 3 Orbit and Cosmic Studies
The Phase 3 portion of the Orbit study is enrolling approximately 150 patients (aged 5 - <26 years old) at 50 sites
across 12 countries and is expected to complete enrollment around the end of the first quarter of 2024. Patients are
randomized 2:1 to receive setrusumab (20 mg/kg) or placebo, respectively, with a primary efficacy endpoint of a
reduction in annualized clinical fracture rate, excluding fingers, toes, skull and face.
A second study, Cosmic, a Phase 3 open-label study in younger children (aged 2 - < 7 years old) is enrolling
approximately 60 patients, with enrollment expected to complete around the end of the first quarter of 2024. The
Cosmic study is an active-controlled study evaluating the effect of setrusumab compared to intravenous
bisphosphonates (IV-BP) therapy (randomized 1:1) on annualized total fracture rate.
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We believe the Orbit and Cosmic trials, if successful, will support U.S. and European regulatory filings for the potential
approval of setrusumab for the treatment of osteogenesis imperfecta.
Alvelestat (MPH-966) for the Treatment of Severe Alpha-1 Antitrypsin Deficiency (AATD)-Associated Lung
Disease:
Overview
We are developing alvelestat for the treatment of severe AATD-associated Lung Disease (AATD-LD). AATD-LD is a
potentially life-threatening rare, genetic condition that results in severe debilitating diseases, including early-onset
pulmonary emphysema. Alvelestat is a novel, oral small molecule designed to inhibit neutrophil elastase (NE).
Scientific data indicate that the increased risk of lung tissue injury in patients with AATD may be due to inadequately
controlled NE caused by insufficient alpha-1 antitrypsin (AAT). We believe that by inhibiting NE, alvelestat has the
potential to reduce the destruction of lung tissue and stabilize clinical deterioration in patients with severe AATD-LD.
Background of Alpha-1-Antitrypsin Deficiency
AATD is a genetic disease. There are estimated to be 50,000 people in North America and 60,000 in Europe with
severe AATD, which we define as AATD in patients with serum AAT levels <11mM, (most commonly either a PiZZ
genotype or Null/Null genotype). although there are approximately only 10,000 people diagnosed in North America.
The major function of AAT in the lungs is to protect the connective tissue from NE released from triggered neutrophils.
The lungs are normally defended from NE attack by AAT, which is a highly effective inhibitor of NE. Severe AATD
patients produce ineffective or no AAT and are, therefore, unable to defend against NE attack. As a result, severe
AATD patients commonly experience degeneration of lung function, such as early-onset pulmonary emphysema,
which significantly affects quality of life and life expectancy. They may require oxygen therapy in order to continue
their daily lives and the most severe patients may require lung transplantation.
AATD is the result of a mutation of the SERPINA1 gene. Most people with severe AATD inherit two copies of the
defective PiZ allele, or gene variant, of the SERPINA1 gene, resulting in a PiZZ genotype. Patients with a PiZZ
genotype have approximately 15% of normal AAT levels. Individuals who inherit two copies of the Null allele, resulting
in a Null/Null genotype, do not produce any AAT. These two groups are at very high risk of developing lung disease.
AATD patients with the PiZZ genotype experience loss of lung tissue as measured by lung density on computed
tomographic (CT) scanning, a decline in FEV1, a standard measure of exhalation and poor quality of life. Respiratory
disease can progress to need for chronic oxygen therapy, lung transplant and death. The annual mortality rate in this
genotype estimated to be 4%. Given that individuals with the Null/Null genotype do not produce any AAT, we believe
that they are likely to experience an even greater annual decline in FEV1.
Current Treatment Landscape for Alpha-1 Antitrypsin Deficiency
AATD patients are monitored by pulmonary functions tests, including spirometry. Treatment involves bronchodilators
and inhaled corticosteroid medications and pulmonary rehabilitation, with increased intensity of therapy guided by
disease severity. Surgical options include lung volume reduction surgery and lung transplantation. Both are highly
invasive, and transplantation is only an option for a portion of patients with end-stage disease despite optimal therapy.
Augmentation therapy is available for AATD, using a partially purified plasma preparation highly enriched for AAT that
is administered weekly by intravenous infusion. This therapy was first approved by the FDA in the 1980s based on its
biochemical efficacy, meaning its ability to raise blood levels of AAT, but not based on clinical outcome data. Several
observational studies have suggested that AAT augmentation therapy may slow the rate of decline in lung function in
a subgroup of AATD patients with moderate-to-severe airflow obstruction, but not for those with earlier stages of lung
disease. In a randomized, controlled trial of augmentation therapy, patients had some reduction in the progression of
emphysema, as assessed by measuring lung density using computed tomography. The study did not show significant
slowing in the decline in FEV1.
We believe that current therapies for AATD are inadequate. Surgical options are limited to a few patients, are highly
invasive, have variable results, and do not address the underlying pathology of AATD. AAT augmentation therapy,
while FDA approved, was not approved on the basis of clinical outcome data. Benefit has not been demonstrated in
patients with earlier stages of lung disease where there is an unmet need to reduce progression of irreversible lung
tissue loss. In Europe Regulatory approval was on efficacy based on slowing of CT density decline, without effects on
other measures such as FEV1 or patient-reported outcomes. Further, AAT augmentation therapy is generally not
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STRATEGIC REPORT
reimbursed and thus is not currently available to patients in several jurisdictions, including some key European
markets. In addition, AAT augmentation therapy requires potentially inconvenient weekly intravenous infusions.
Our Approach
Our product candidate for treating severe AATD is alvelestat, a potent, specific oral small molecule that is designed to
inhibit NE. We believe that by inhibiting NE, alvelestat has the potential to reduce the enzymatic destruction of lung
tissue. Furthermore, we believe that convenient oral dosing of alvelestat could provide a significant advantage
compared to the current treatments for AATD of surgery or weekly intravenous AAT augmentation therapy. Alvelestat
is not being investigated for treatment of the hepatic disease which is due to the damaging effect of accumulated
abnormal ZZ protein in the liver, rather than the protein deficiency. Liver disease occurs in approximately 10% cases
of severe AATD, predominantly in children.
Alvelestat has received U.S. Orphan Drug Designation for the treatment of AATD and Fast Track designation in
AATD-LD.
Clinical Development of Alvelestat
Prior to our license of alvelestat, AstraZeneca conducted 12 clinical trials involving 1,776 subjects, including trials in
COPD, bronchiectasis and cystic fibrosis. Although these trials were conducted in diseases other than AATD, we
believe the data demonstrated potential clinical benefit and biomarker evidence of treatment effect for AATD patients.
These trials created a safety database of 1,149 subjects treated with alvelestat.
Phase 2 Clinical Trials in AATD
In May 2022, we successfully completed a Phase 2, placebo-controlled, 12-week, dose-ranging, proof-of-concept
clinical trial (ASTRAEUS) in 99 patients with AATD-LD in the U.S and the EU which demonstrated statistically
significant changes in neutrophil elastase activity and biomarkers of disease severity at different time points up to 12
weeks. We enrolled only adult patients with PiZZ or Null/Null genotypes or rare genotypes with severe deficiency of
alpha-1 antitrypsin (<11 microMolar) with confirmed emphysema, who had not received AAT augmentation therapy or
had undergone a wash-out period following AAT augmentation therapy. The study examined two doses of alvelestat
(120 mg and 240 mg) compared to placebo with three primary endpoints along the pathogenic pathway of lung
disease in AATD patients. These primary endpoints were plasma desmosine (a biomarker of protease-driven elastin
breakdown), Aα-Val360, a specific biomarker of NE proteolytic activity, and neutrophil elastase activity in blood.
Secondary endpoints were safety, exacerbation frequency, and pharmacokinetics. Exploratory endpoints were St.
Georges Respiratory Questionnaire (SGRQ) which is a patient-reported outcome of Respiratory Health Status and
lung function tests, including FEV1.
We subsequently announced additional Phase 2 data from this study in October 2022 demonstrating the association
of biomarker responders in alvelestat-treated patients to improvement in the activity domain of the St George’s
Respiratory Questionnaire, but not in patients treated with placebo.
No new safety signals were detected in patients with AATD-LD compared to the previous studies conducted by
AstraZeneca. The most frequent adverse event was headache which was more frequently observed at the higher
doses of alvelestat (120 mg and 240 mg) used in AATD-LD than at the lower doses used in previous studies in COPD,
bronchiectasis and cystic fibrosis. There was evidence of tolerance to headache being induced, and we intend to use
a dose-escalation regime for initiation of treatment in future trials. Monitoring for Adverse Events of Special Interest
(AESIs) documented a single treatment-emergent adverse event (TEAE) of liver function abnormality (raised hepatic
transaminases, without meeting Hy’s Law) and one AESI of prolonged QTc, in which study-drug stopping criteria were
met were reported in the ASTRAEUS trial. Both events fully resolved on study drug cessation.
In October 2023, the University of Alabama at Birmingham (UAB) and Mereo reported on the ATALANTa study, a
multi-center, double-blind, placebo-controlled, proof-of-concept investigator-led study run by Professor Mark
Dransfield, Director of the Division of Pulmonary, Allergy and Critical Care, UAB, in collaboration with Mereo.
ATALANTa investigated the safety and efficacy of alvelestat 120 mg, or matched placebo, twice daily, for 12 weeks in
a broad range of individuals with AATD-LD, including those with less severe phenotypes (Pi*SZ) and earlier stage
patients than were enrolled in the Company-sponsored ASTRAEUS Phase 2 study, and those receiving augmentation
therapy. The study randomized 63 patients, 32 in the 120 mg alvelestat arm (44% on augmentation therapy) and 31 in
the placebo arm (48% on augmentation therapy). The results demonstrated with the 120 mg dose of alvelestat (the
lower dose used in the Phase 2 ASTRAEUS study) are consistent with those observed in ASTRAEUS on blood
neutrophil elastase activity and changes in the disease-activity biomarkers, desmosine and Aα-val360. The data
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MEREO BIOPHARMA GROUP PLC
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demonstrate that the 120 mg dose of alvelestat is safe on top of augmentation and support Mereo’s selection of the
240 mg dose to be studied in the planned Phase 3 pivotal trial. Exploratory endpoints in ATALANTa demonstrated
statistically significant improvement in SGRQ Activity score (p=0.0106 versus placebo) and a trend to improvement in
SGRQ Total score at 12 weeks in patients not receiving augmentation therapy and having earlier stage lung disease
(based on their FEV1). The ATALANTa and ASTRAEUS data support the use of the SGRQ Total score in the planed
Phase 3 pivotal trial and inclusion of patients with earlier stages of lung disease. Safety in ATALANTa was consistent
with the known alvelestat profile and there were no liver or QTc AESIs documented.
Planned Phase 3 Clinical Trial in AATD
In March 2023, we announced the outcome of the end-of-Phase 2 discussions with the FDA and the EMA (Scientific
Advice) and the guidance on the Phase 3 endpoints received from both Regulatory Agencies. In the EU, the Company
received guidance that lung density by computed tomography (CT) scan with a relaxed p value (p<0.1) may be
sufficient for full regulatory approval. In the U.S., following additional FDA interactions in the second half of 2023, the
Company has aligned on St George’s Respiratory questionnaire Total score as the primary endpoint, with a functional
assessment as a key secondary endpoint, which, if successful, is expected to support submissions for full regulatory
approval in the U.S. Inclusion of patients with earlier and later stage lung disease progression in the planned
registrational study could increase the addressable patient population for alvelestat. Based on the guidance from the
FDA and the EMA, the Company is designing a single, global, Phase 3 study evaluating the 240 mg dose of alvelestat
versus placebo in approximately 220 patients with AATD-LD with two independent primary endpoints to support
applications for full marketing approvals in both the U.S. and EU.
The Company continues to evaluate non-dilutive financing options for the development and potential
commercialization of alvelestat in AATD-LD while continuing to progress the program to maintain the planned Phase 3
timelines.
Phase 1b/2 Clinical Trial in Bronchiolitis Obliterans Syndrome (“BOS”)
BOS is a rare progressive, fibrosing disease of the lungs affecting approximately 6% of the estimated 12,000 stem cell
transplants a year in the U.S., often as part of graft versus host disease. For lung transplants, approximately 50% of
the patients develop BOS by 5 years, which is the leading cause of retransplant and mortality. There are an estimated
10,000 people living with lung transplant and BOS in the U.S. and Europe. BOS is characterized by neutrophil
infiltration in the lung, excess neutrophil elastase and inflammation. The pathology of BOS in stem cell transplant and
lung transplant is overlapping.
As BOS is driven by elevated neutrophils in the lung and excess NE activity, leading to lung damage through elastin
breakdown in the tissue and progressive fibrosis, and ultimately respiratory failure we believe our approach using
alvelestat to inhibit NE has significant advantages. By inhibiting NE, we believe alvelestat will reduce the accelerating
effects of NE-driven inflammation on BOS leading to increased success rate of SCT and lung transplant. The
investigator-led clinical program is designed to generate data on clinical endpoints that would potentially support
registration and reimbursement in SCT.
An investigator-sponsored open-label Phase1b/2 study in Bronchiolitis Obliterans Syndrome (BOS) following
allogeneic stem cell transplant is being conducted. The study uses within patient dose escalation from 60 mg BID up
to 240 mg BID, over the initial 8 weeks of study, with treatment continued for up to 6 months. Interim results from 7
patients enrolled in the Phase 1b study were reported in December 2021 showing stabilization or improvement in lung
function measured by Forced Expiratory Volume in 1 second, (FEV1) in 6 of 7 patients, and supportive biomarker
responses. Evaluation of the clinical and safety data from 10 patients in the Phase 1b supported the dose to be
progressed and expansion into the Phase 2 portion of the study which was initiated in the second half of 2022. No
safety signals have been detected in this study.
Etigilimab (MPH-313) for the Treatment of Advanced Solid Tumors
Overview
Etigilimab is an antibody against TIGIT (T-cell immunoreceptor with Ig and ITIM domains). TIGIT is a next generation
checkpoint receptor shown to block T-cell activation and the body’s natural anti-cancer immune response. Etigilimab 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.
We acquired etigilimab in the Merger with Mereo BioPharma 5 (formerly OncoMed Pharmaceuticals, Inc.) in 2019.
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Clinical Development of Etigilimab
Our oncology product candidate, etigilimab (an anti-TIGIT antibody), has completed a Phase 1a dose escalation clinical
trial in 23 patients with advanced solid tumors and has been evaluated in a Phase 1b study in combination with
nivolumab in select tumor types.
In 2023, we completed the Phase 1b portion of an open label Phase1b/2 basket study (the ACTIVATE study) evaluating
etigilimab in combination with nivolumab in three rare tumors, two specific subtypes of soft-tissue sarcomas, uveal
melanoma and testicular germ cell cancer, three gynecological carcinomas, cervical, endometrial and ovarian
carcinomas and any solid tumor with high mutation burden, all in the recurrent/metastatic setting.
The Phase 1b portion of the ACTIVATE study enrolled 76 patients in total. Data from this study were presented at
several major medical conferences (ASCO, 2022; ESMO, 2023). The trial evaluated objective response rate as a primary
endpoint and safety, duration of response, pharmacokinetics, anti-drug antibodies, progression-free disease and other
endpoints as secondary endpoints. Objective responses were reported for patients with gynecological cancers, rare
tumors, and soft-tissue sarcoma with 7 patients remaining on study for at least 335 days. The combination of etigilimab
and nivolumab was generally well tolerated with a safety profile qualitatively similar to that of nivolumab alone. The main
drug-related safety findings included rash, pruritis, fatigue and headache and the number of Grade 3 events was seven.
No Grade 4 or Grade 5 events were reported. Additionally, we have found several intratumoral biomarkers (PVR, TIGIT,
and CD226+/CD8 T cells) that, with further testing, might be predictive of response to treatment. At this time, the
Company has no plans to conduct and directly fund further clinical studies of etigilimab.
In April 2021, the Company entered into partnership with Cancer Focus Fund for a Phase 1b/2 study of etigilimab in
Clear Cell Ovarian Cancer to be conducted at The University of Texas MD Anderson Cancer Center. The Phase 1b/2
study is being financed by Cancer Focus Fund. Clear cell ovarian cancer is a rare cancer that accounts for approximately
5 to 10% of all ovarian carcinomas in North America. Enrollment is continuing in this investigator-led Phase 1b/2 study
of etigilimab plus nivolumab (the EON study) and based on encouraging data from the first 10 patients enrolled, the
study has been expanded to enroll an additional 10 patients in the Phase 2 portion of the study.
Our Non-Core Partnered Programs
Following completion of successful Phase 1b or Phase 2 studies the products below are programs which we have
successfully partnered.
Navicixizumab (OMP-305B83) for Treatment of Ovarian Cancer
Navicixizumab (“Navi”) is a bispecific antibody that inhibits delta-like ligand 4 (DLL4) and vascular endothelial growth
factor (VEGF).
We acquired Navi in the Merger. In January 2020, we out-licensed Navi to Feng Biosciences (formerly OncXerna). In
addition, Navi is the subject of a contingent value rights agreement between us and Computershare from April 2019 (the
"Mereo CVR Agreement") which sets forth certain rights and obligations of us with respect to Navi.
Leflutrozole (BGS-649)
Leflutrozole is an oral inhibitor of aromatase. Excess aromatase in fat tissue reduces testosterone, LH and FSH, leading
to HH. In Phase 2 trials, leflutrozole normalized testosterone, increased LH and FSH, improved total sperm count, and
was reported to be well-tolerated.
In December 2023, we entered into an exclusive global license agreement with ReproNovo for the development and
commercialization of leflutrozole, a non-steroidal aromatase inhibitor. Under the terms of the License Agreement,
ReproNovo, a reproductive medicine company, is responsible for all future development and commercialization of
leflutrozole. Mereo received an upfront payment and will be eligible to receive up to $64.3 million in future clinical,
regulatory and commercial milestones as well as tiered mid-single digit royalties on global annual net sales of
leflutrozole.
10
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Our Non-Core Programs Available for Partnering
Following completion of a successful Phase 2 study, we intend to out-license or sell the following program.
Acumapimod (BCT-197) for the Treatment of AECOPD
Acumapimod is a p38 MAP kinase inhibitor therapy for treatment during severe acute exacerbations of COPD
(AECOPD). In a Phase 2 trial, acumapimod given over 5 days in patients hospitalized with AECOPD demonstrated a
statistically significant reduction in re-hospitalization for treatment failure and recurrent exacerbations. Acumapimod was
reported to be safe and well tolerated. Following meetings with FDA and EMA a global Phase 3 registrational program
has been designed.
We intend to out-license or sell acumapimod to third parties for the further development of acumapimod recognizing the
need for greater resources to take this product candidate to market.
Financial review
The following table sets forth Mereo’s results of operations for the years ended December 31, 2023 and 2022.
Year ended December 31,
2023
£'000s
2022
(Restated%)
£'000s
Change
£'000s
%
Revenue
Cost of revenue
Research and development expenses
Administrative expenses
Operating loss
Finance income
Finance costs
Changes in fair value of financial instruments
Net foreign exchange (loss)/gain
Other income and expenses
Loss before tax
Taxation
Loss attributable to equity holders of the parent
Currency translation of foreign operations
Total comprehensive loss attributable to equity
holders of the parent
* Percentage change not meaningful
% See Note 4 in the financial statements for details regarding the restatement as a result of a voluntary change in
accounting policy.
7,914
(11,935)
(15,445)
(13,502)
(32,968)
1,710
(1,642)
207
(2,000)
46
(34,647)
1,465
(33,182)
1,845
7,914
(12,871)
9,517
6,041
10,601
1,014
1,268
(7,598)
(4,033)
(765)
487
(432)
55
3,673
—
936
(24,962)
(19,543)
(43,569)
696
(2,910)
7,805
2,033
811
(35,134)
1,897
(33,237)
(1,828)
*
*
(38)%
(31)%
(24)%
146%
(44)%
(97)%
*
(94)%
(1)%
(23)%
(0)%
(201)%
(31,337)
(35,065)
(11)%
3,728
Comparison of Years Ended December 31, 2023 and 2022
Revenue
Revenue of £7.9 million for the year ended December 31, 2023 comprised a one-time milestone payment of £7.1 million
($9.0 million) resulting from the achievement of a clinical milestone on setrusumab by Ultragenyx and a £0.8 million
($1.0 million) up-front payment from our global license agreement with ReproNovo for the development and
commercialization of leflutrozole. No revenue was recognized in the year ended December 31, 2022.
Cost of revenue
Cost of revenue for the year ended December 31, 2023 was £11.9 million compared to a credit of £0.9 for the year
ended December 31, 2022.
Cost of revenue for 2023 was comprised of £9.9 million representing the carrying value of the leflutrozole rights granted
to ReproNovo under our global license agreement (see Note 13), and £2.0 million in relation to our 2015 agreement with
Novartis, under which we pay a percentage of proceeds resulting from milestone revenue received, subject to certain
deductions.
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
In 2021, we received a £36.5 million ($50 million) upfront payment from Ultragenyx and recognized cost of revenue of
£8.4 million reflecting the Company's obligation under our 2015 agreement with Novartis. Pursuant to this agreement,
£7.2 million was paid in cash, and £2.4 million was withheld and recognized as a deferred liability within other current
liabilities, reflecting anticipated future costs to be incurred which are allowable deductions from amounts owed under
the agreement. As these costs were subsequently incurred and recognized in research and development expenses or
general and administrative costs, the liability was discharged and released through cost of revenue. In 2022, £0.9 of this
liability was discharged and accordingly recognized as a credit to cost of revenue.
Research and development (“R&D”) Expenses
The following table sets forth our R&D expenses by product development program for the years ended December 31,
2023 and 2022.
Setrusumab (BPS-804/UX143)
Alvelestat (MPH-966)
Etigilimab (MPH-313)
Leflutrozole (BGS-649)
Acumapimod (BCT-197)
Other
Total R&D expenses
Year ended
December 31,
2023
£'000s
2022
£'000s
Change
£'000s
%
3,743
5,597
5,832
93
23
157
15,445
3,356
5,430
15,802
58
50
266
24,962
387
167
(9,970)
35
(27)
(109)
(9,517)
12%
3%
(63)%
60%
(54)%
(41)%
(38)%
Total R&D expenses decreased by £9.5 million, or 38%, from £25.0 million in 2022 to £15.4 million in 2023.
The decrease was primarily due to a £10.0 million reduction in R&D expenses for etigilimab, partially offset by an
increase of £0.4 million in expenses for setrusumab.
The reduction in etigilimab was primarily due to the winding down and completion of the open label Phase 1b/2 basket
study in combination with an anti-PD-1 in a range of tumor types. Program expenses for setrusumab are in relation to
ongoing activities in Europe, and input into development, regulatory and manufacturing plans with our partner,
Ultragenyx, as the global development of the program is funded by Ultragenyx pursuant to our license and collaboration
agreement. Program expenses for alvelestat primarily include the preparatory work for the Phase 3 study, including
CMC and drug formulation activities, SGRQ validation activities and regulatory interactions.
Administrative expenses
Administrative expenses decreased by £6.0 million, or 31%, from £19.5 million in 2022 to £13.5 million in 2023.
The decrease in the current year is primarily related to overall reductions in staff costs, professional fees and corporate
costs of £1.4 million, along with £2.9 million received from our depositary to reimburse certain expenses incurred by us
in respect of our ADR program in the current and prior years and £1.5 million received under a claim on our Directors
and Officers insurance policy to reimburse us for certain legal and professional costs incurred in prior years.
Finance income and costs
Total finance costs decreased from £2.9 million in 2022 to £1.6 million in 2023. This decrease is primarily due to the
significantly lower average balance of convertible loan notes outstanding in 2023 compared to 2022. This reduction
was due to the conversion and repayment of the Private Placement Loan Notes between June and August of 2023, as
well as a partial conversion in July 2022.
Total finance income increased £1.0 million from £0.7 million in 2022 to £1.7 million in 2023. The increase is related to
higher interest rates on cash and short term deposits.
Changes in fair value of financial instruments
The total change in fair value of financial instruments for 2023 was a gain of £0.2 million, a decrease of £7.6 million
compared to an unrealized gain of £7.8 million in 2022. The unrealized gain in 2023 was due to the expiry of the Private
Placement warrants, offset by an unrealized loss on the Bank loan warrants as a result of an increase in the market
price of our ADSs. The unrealized gain in 2022 primarily resulted from our Private Placement warrants driven by a
decline in the market price of our ADSs.
12
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Net foreign exchange (loss)/gain
The net foreign exchange loss for 2023 was £2.0 million compared to a gain of £2.0 million in 2022, a change of £4.0
million. The net foreign exchange loss is primarily related to the impact of the strengthening of the pound sterling on
translation of foreign currency balances primarily denominated in U.S. dollars.
Taxation
The income tax benefit for 2023 was £1.5 million compared to a benefit of £1.9 million in 2022, a change of £0.4 million.
The income tax benefit is comprised of a £0.4 million cash tax refund in respect of income taxes paid in 2021 and eligible
cash rebates of £1.1 million (2022: £1.3 million) 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”). The decrease in R&D tax credits is primarily driven by a decrease in total research and development
expenditure.
Currency translation of foreign operations
The currency translation of foreign operations for the year ended December 31, 2023 was a credit of £1.9 million
compared to an expense of £1.8 million for the year ended December 31, 2022. The £3.7 million change is primarily
related to the strengthening of the pound sterling to the U.S. dollar in 2023 compared to 2022.
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 2026. 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 financings 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. Through these offerings we raised $209 million (£165.3 million), including
$12.0 million (£9.3 million) raised in July 2023 through an "at-the-market" offering pursuant to our Open Market Sale
Agreement with Jefferies LLC.
We have also received payments under various license and collaboration agreements, including:
•
•
•
An upfront payment of $50 million (£36.5 million) under the license and collaboration agreement with
Ultragenyx for setrusumab in 2021 and a further milestone payment of $9.0 million (£7.1 million) in July 2023.
An upfront payment of $4.0 million (£3.1 million) under the license and collaboration agreement with Feng
Biosciences (formerly OncXerna) for navicixizumab in 2020 and a further milestone payment of $2.0 million
(£1.5 million) in 2022.
An upfront payment of $1.0 million (£0.8 million) under the global license agreement with ReproNovo for
leflutrozole in December 2023.
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Cash Flows
Comparison of Years Ended December 31, 2023 and 2022
The table below summarizes our cash flows (used in)/from operating, investing and financing activities for the years
ended December 31, 2023 and 2022.
Net cash used in operating activities
Net cash from investing activities
Net cash from/ (used in) financing activities
Net (decrease)/increase in cash and short-term deposits
Year Ended December 31,
2023
£'000s
2022
£'000s
(17,630)
1,291
5,092
(11,247)
(38,820)
1,497
(784)
(38,107)
Operating Activities
Net cash used in operating activities for the year ended December 31, 2023 was £17.6 million, a decrease of £21.2
million from £38.8 million in 2022. The decrease was primarily driven by net cash receipts of £6.1 million for payments
received from Ultragenyx and ReproNovo, reductions of £9.5 million in R&D expenses and £6.0 million in administrative
expenses, and R&D tax credits and income tax refunds received of £2.5 million compared to a payment made of £1.5
million in the year ended December 31, 2022.
Investing Activities
Net cash from investing activities for the year ended December 31, 2023 was £1.3 million, a decrease of £0.2 million
from £1.5 million in 2022. The decrease was primarily driven by payments to acquire intangible assets and receipt of a
non-recurring milestone payment from Feng Biosciences (formerly OncXerna) in 2022 under the licensing arrangement
for navicixizumab.
Financing Activities
Net cash from financing activities for the year ended December 31, 2023 was £5.1 million, an increase of £5.9 million,
compared to cash outflow of £0.8 million in 2022. This increase is primarily due to £8.9 million of net proceeds from a
share issuance through an "at-the-market" offering in July 2023, partially offset by payments of £2.6 million in principal
and £0.7 million in accrued interest following the modification and redemption of convertible loan notes.
Financial outlook
We expect that our existing cash and short-term deposits will enable us to fund our currently committed clinical trials
and operating expenses and capital expenditure requirements into 2026.
Principal risks and uncertainties
The risks described below are those that we currently believe may materially affect us. We may face additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial.
•
•
•
•
•
We have a limited operating history and have never generated any revenue from product sales.
We will need additional funding to complete the development of our current product candidates; to license,
acquire, and develop future product candidates; and to commercialize our product candidates, if approved.
If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate research
and development programs, any future commercialization efforts or acquisitions of potential product
candidates.
We depend heavily on the success of setrusumab, alvelestat and etigilimab. We cannot give any
assurance that any of these product candidates will receive regulatory approval, which is necessary before
they can be commercialized. If we are unable to commercialize setrusumab, alvelestat and etigilimab,
whether on our own or through agreements with third parties, or experience significant delays in doing so,
our ability to generate revenue and our financial condition will be adversely affected.
Our future growth and ability to compete depends on retaining our key personnel and recruiting additional
qualified personnel.
We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to
enroll patients in our clinical trials, or enrollment is slower than anticipated, in particular for our product
candidates with rare disease indications, our research and development efforts could be adversely
affected.
14
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
•
•
•
•
•
•
•
•
•
•
•
•
•
•
We may become exposed to costly and damaging liability claims, either when testing our product
candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all
damages from such claims.
Enacted and future healthcare legislation may increase the difficulty and cost for us to obtain marketing
approval of and commercialize our product candidates and may affect the prices we may set.
We operate in a highly competitive and rapidly changing industry, which may result in others acquiring,
developing, or commercializing competing product candidates before or more successfully than we do.
We intend to directly commercialize or co-commercialize our product candidates for rare diseases and to
out-license or sell our other product candidates for further development and/or commercialization. If we are
unable to develop our own sales, marketing, and distribution capabilities or enter into business
arrangements, we may not be successful in commercializing our product candidates.
The successful commercialization of our product candidates will depend in part on the extent to which
governmental authorities and health insurers establish adequate coverage, reimbursement levels, and
pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product
candidates, if approved, could limit our ability to market those product candidates and decrease our ability
to generate revenue.
Our existing and future product candidates may not gain market acceptance, in which case our ability to
generate revenues from product sales will be compromised.
We rely, and expect to continue to rely, on our partners to develop and commercialize our licensed or
partnered product candidates. If our partners do not secure adequate funding or satisfy their obligations
under our agreements with them, or if they terminate our licenses, partnerships or collaborations with them,
we may not be able to develop or commercialize our licensed or partnered product candidates as planned.
We rely, and expect to continue to rely, on third parties, including independent investigators and CROs, to
conduct our clinical trials. If these CROs do not successfully carry out their contractual duties or meet
expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product
candidates, or such approval or commercialization may be delayed, and our business could be
substantially harmed.
We currently rely on third-party CMOs for the production of clinical supply of our product candidates and
intend to rely on CMOs for the production of commercial supply of our product candidates, if approved. Our
dependence on CMOs may impair the development of our product candidates and may impair the
commercialization of our product candidates, which would adversely impact our business and financial
position.
We rely on patents and other intellectual property rights to protect our product candidates, the obtainment,
enforcement, defense and maintenance of which may be challenging and costly. Failure to enforce or
protect these rights adequately could harm our ability to compete and impair our business.
We may become subject to third parties’ claims alleging infringement of third-party patents and proprietary
rights, or we may be involved in lawsuits to protect or enforce our patents and other proprietary rights,
which could be costly and time consuming, delay or prevent the development and commercialization of our
product candidates, or put our patents and other proprietary rights at risk.
Our business and operations may suffer, and proprietary information may be lost, in the event of
information technology system failures, cyberattacks or deficiencies in our cybersecurity.
Unlike in prior years, as of January 1, 2024, we are required to comply with the domestic reporting regime
under the Securities and Exchange Act of 1934 and will incur significant legal, accounting and other
expenses, and our management will be required to devote substantial additional time to new compliance
initiatives and corporate governance matters.
Failure to establish and maintain effective internal controls could have a material adverse effect on our
business and stock price.
Risk Mitigations
The Board believes that it has taken all reasonable steps to satisfy itself that the risk management process is effective
and fit for purpose. Our control of risk is supported by an in-house quality team that has developed and implemented a
Good Practice ("GxP") compliant quality management system to mitigate risk. The Head of Quality and Compliance
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
reports to the General Counsel with appropriate escalation measures in place to review and control new and emerging
risks within the business. We set out below the key risk mitigations by area:
Clinical development and manufacturing: Our highly experienced in-house team manages the control over our
external vendors and partners that assist us as sponsor in managing our clinical trials under GxP. In addition to quality
audits of our CROs and clinical trial sites, we also undertake specialized data analytics that are designed to validate the
quality of data generated from our clinical trials. The Group also has an experienced in-house team that is working with
a number of specialist manufacturers in respect of its drug manufacturing capabilities.
Commercialization: For our rare disease programs, we engage with regulators, health technology assessment (“HTA”)
bodies, treating physicians and patient representative organizations at all stages of our development. We are also in
regular dialogue with the European payers through the Mechanism of Coordinated Access to Orphan Medicinal Products
(“MoCA”). Treating physicians, notably those in the lead centers of expertise are part of our development work on an
ongoing basis and we also consult regularly with the patient representative organizations from the therapeutic areas we
intend to address. Market research work, including pricing, has been initiated for our two rare disease candidate
products. We constantly monitor development programs from other companies in our target indications, to allow us to
effectively understand and evaluate the competitive landscape for setrusumab, alvelestat and etigilimab on an ongoing
basis.
Regulatory: We have an experienced in-house team that works with several specialized regulatory advisors to give
guidance on regulatory strategy for each of our product candidates. For certain of our product candidates (e.g.
setrusumab), our partners are leading the regulatory strategy, providing additional expertise and resource. As our
programs continue through their respective development plans, the relative risk that we fail to obtain regulatory approval
continues to decrease. Matters that remain outside our control, e.g., the scientific performance of a compound in a
clinical study, or the ultimate decision-making of a regulatory body, are mitigated by dialogue with decision-makers and
rigorous study preparation and design.
Compliance with laws and regulations: Following our U.S. listing of our American Depository Shares (“ADSs”) in
2019, we introduced new policies and procedures to ensure that our business practices are aligned with those expected
of a Nasdaq listed company. We cancelled admission of the Company’s ordinary shares to trading on the AIM market
of the London Stock Exchange in December 2020. Following the cancellation of AIM admission, many of our corporate
governance policies and procedures as well as the terms of reference for the Board Committees were updated to reflect
the Company’s sole listing on the Nasdaq, including most recently to comply with the rules and regulations of the SEC
applicable to U.S. domestic filers, which are available for inspection on our website. As a data controller, we are
accountable for any third-party data service providers we engage to process personal data on our behalf. We attempt
to address the associated risks by performing security assessments, detailed due diligence and regularly performing
privacy and security reviews of our vendors and requiring all such third-party providers with data access to sign
agreements, including business associate agreements, and where required under EU or UK law, obligating them to only
process data according to our instructions and to take sufficient security measures to protect such data. The Group’s
General Counsel and Company Secretary, who serves as an Executive Officer, is responsible for ensuring compliance
or compliance with laws and regulations. For certain matters, the Company will engage external counsel or regulatory
advisors. We continued to make progress during the year in refining our internal financial processes and controls to
support our attestation under Section 404(a) of the Sarbanes- Oxley Act of 2002 and involved our Audit and Risk
Committee (“ARC”) throughout the process.
Intellectual Property: We have an experienced IP advisor who has worked with the Company since 2015 and, in
addition, we utilize expert external counsel in the prosecution and maintenance of our global IP portfolio.
Funding: As at December 31, 2023 the Group had total cash resources (being cash and short-term deposits) of £45.1
million. The Directors have prepared detailed quarterly cashflow forecasts through December 31, 2025. These forecasts
indicate that the Group has a cash runway into 2026 and will have sufficient funds to meet its liabilities as they fall due
for at least the next 12 months.
16
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Key Performance Indicators
The Directors consider that our underlying cash burn, cash balances and future cash runway, and our committed and
planned expenditure on research and development (“R&D”) to be the Group’s key financial KPIs at its current stage of
development. Progress and performance against these key financial KPIs are discussed in the “Financial review” section
of the Strategic Report.
The Directors consider that the most important non-financial KPIs are:
•
•
•
Progress with our R&D pipeline including our clinical studies and related pre-clinical, regulatory and manufacturing
activities;
Business development including partnering, out-licensing and in-licensing activities; and
The development and prosecution of our patent portfolio.
These activities are discussed in the “Business overview and strategy” section of the Strategic Report.
Information about the Company’s employees
The Group’s future success depends on the ability to recruit and retain key employees. Our employee base includes
key people in strategic areas including in corporate development, patient access and commercial planning, as we move
our rare disease programs forward and seek to partner our specialty products. We have been fortunate to attract and
retain highly experienced individuals in clinical development, clinical operations, regulatory, finance, legal,
manufacturing, intellectual property and quality assurance, supporting them with strong leadership at the executive and
Board level.
Our internal expertise is leveraged with external organizations, including contract research organizations (“CROs”) and
contract manufacturing organizations (“CMOs”) as well as bespoke consulting agreements. This combination has
allowed the Group to initiate international clinical trial studies within a relatively short period of time since acquiring
products from large pharma, to progress these programs through the different stages of development and to plan for
commercialization, whilst also maintaining a lean internal infrastructure.
Across the U.K. and the U.S., we have 33 employees as of the date of this annual report. Mereo seeks to appoint
employees with appropriate skills, knowledge and experience for the roles they undertake and thereafter to develop,
incentivize and retain staff. The Board of Directors (“the Board”) recognizes its legal responsibility to ensure the well-
being, safety and welfare of the Group’s employees and maintain a safe and healthy working environment for them and
for our visitors. If an employee has a concern about unsafe conditions or tasks, they are encouraged to report their
concerns immediately to their manager, the Head of Human Resources or the General Counsel. Employees may also
contact a dedicated whistleblowing hotline, independent of the Group, if anonymity is sought.
The Group is fully committed to the elimination of unlawful and unfair discrimination and values the differences that a
diverse workforce brings to the organization. The Group endeavors to not discriminate because of age, disability, gender
reassignment, marriage and civil partnership, pregnancy and maternity, race (which includes color, nationality and ethnic
or national origins), religion or belief, sex or sexual orientation. This is captured in our Employee Handbook, which all
employees are required to read and acknowledge at least on an annual basis. The Group undertakes an annual review
of its policies and procedures to establish its position about compliance and best practice and monitor and promote a
healthy corporate culture.
A breakdown of Directors and employees by gender as at December 31, 2023 is as follows:
Position
Directors of the Company (CEO and Non-Executive)
Executive officers
Employees
Total
Male
Female
Total
7
2
12
21
3
2
15
20
10
4
27
41
Executive officers consist of senior managers, in addition to the CEO, who have responsibility for planning, directing or
controlling the activities of the Group. As at December 31, 2023, this includes the Chief Financial Officer, General
Counsel and Business Development, Chief Patient Access and Commercial Planning and the Chief Scientific Officer.
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Our Directors have significant operational experience in leadership positions in large and small pharmaceutical and
biotechnology companies. They provide valuable strategic input into our corporate development programs and our R&D
strategy, corporate and financing strategies.
Diversity and human rights
The Company recognizes the value in promoting a culture of diversity and inclusion and aims to both reflect the global
communities in which we operate and have a positive impact upon them. At present the Company does not have a
specific policy on human rights, however we have several policies that promote the principles of human rights. We
partner with our suppliers and external organizations to ensure long-term mutually beneficial relationships, and respect
for human rights is embedded throughout our global network.
Social and environmental matters
We currently outsource our research, development, testing and manufacturing activities. These activities are subject to
various environmental, health and safety laws and regulations, which govern, among other things, the controlled use,
handling, release and disposal of, including the maintenance of a registry for, hazardous materials and biological
materials. If we or our partners fail to comply with such laws and regulations, we could be subject to fines or other
sanctions.
As with other companies engaged in similar activities, we face a risk of environmental liability that is inherent in our
current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials.
Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur
substantial expenses in connection with future environmental compliance or remediation activities, in which case,
production and development efforts being carried out by our outsourced partners relating to our products may be
interrupted or delayed.
Quantification and reporting methodology
The 2019 UK Government Environmental Reporting Guidelines and the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition) were followed to ensure the Streamlined Energy and Carbon Reporting (“SECR”)
requirements were met. The SECR disclosures include the U.K. based subsidiaries only and exclude non-U.K. based
subsidiaries. Refer to Note 5 of the consolidated financial statements for information on subsidiaries.
The energy data was collated using existing reporting mechanisms. These methodologies provided continuous record
of electricity use.
The energy data was converted to carbon emissions using the 2023 UK Government GHG Conversion Factors for
Company Reporting. The associated emissions are divided into the combustion of fuels and the operation of facilities
(scope 1), purchased electricity, heating and cooling (scope 2) and in-direct emissions that occur as a consequence of
company activities (scope 3). During the year the Group only had emissions relating to scope 2.
Estimations
The electricity use was compiled from invoices and meter readings.
Energy used by the company (in KWH)
Emissions associated with the reported energy use (tCO2e)
2023
61,790
13
Intensity Ratio
The chosen primary intensity ratio is total gross emissions in metric tonnes CO2e (mandatory emissions)
per employee.
Tonnes of CO2e per employee
2023
0.51
2022
68,255
13
2022
0.46
Energy efficiency action during current financial year
The management of resources and the need to embed sustainability is an important issue for the Group and the
following actions related to reducing energy use have been implemented:
18
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
Energy consumption in 2023 was slightly lower than the prior year due to continued hybrid working and ongoing focus
on energy efficiency, while the metric tonnes CO2e per employee slightly increased due to the fewer number of
employees.
In addition, during the office refurbishment in 2021, we prioritized energy saving choices such as insulating floors,
motion-activated lighting, and operational changes to the heating system. As a company, we are also committed to
sourcing our electricity from fully renewable sources. We continue to invest in energy efficiency and are currently in the
process of migrating to more energy efficient IT storage solutions.
Section 172(1) Companies Act 2006
The Directors in line with their duties under section 172 of the Companies Act 2006, act in a way they consider, in good
faith to promote the success of the Group for the benefit of its members as a whole. As set out within the content of this
annual report, the Directors have considered the following matters throughout the year and in formulating the future
strategy of the business:
•
•
•
•
•
•
The likely long-term consequences of any decision;
The interests of the Group’s employees;
The need to foster the Group’s business relationships with suppliers, customers and others;
The impact of the Group’s operations on the community and the environment;
The desirability of the Group maintaining a reputation for high standards of business conduct; and
The need to act fairly between shareholders of the Group.
The Board of Directors meets regularly to discuss developments of the Group’s existing portfolio of product candidates,
strategic business development, ongoing operations and other relevant matters. The Board takes care to have
considered the likely consequences on all stakeholders of the decisions and actions which they take, and these are
discussed regularly in the Board meetings. The Group’s long-term strategy and the principal risks and uncertainties in
the view of the Board are set out in pages 14 to16.
As set out in greater detail above, the Board considers the Group’s future success to depend on our ability to recruit and
retain key employees. The Board maintains constructive dialogue with employees through the Chief Executive Officer
(“CEO”). The Company also holds regular “town hall” all-employee meetings and video conference calls where the
Executive Team provides updates on strategic progress and a forum for answering questions. We implemented a revised
long-term incentive plan in April 2019, which allows us to incentivize and retain employees across the Group and aligns
employees’ objectives with those of the Group. We granted share options under these schemes to all employees and
Non-Executive Directors in 2023 and 2022.
The Group endeavors to maintain good relationships with our suppliers by contracting, where possible, on their standard
business terms and paying them in accordance with the relevant terms agreed. We meet with our significant suppliers
regularly, using the meetings to ensure that our research programs are planned and delivered effectively and in a timely
and cost-efficient manner. This ensures that the Group’s and our significant suppliers’ interests are aligned. The Group
also maintains excellent working relationships with our partners in collaboration agreements, with regular meetings and
updates.
The Board understands the importance of environmental, social and governance matters, and it endeavors to consider
the impact on the community when operating its business. Our greenhouse gas emissions report which is in compliance
with streamlined energy and carbon reporting requirements is included on page 18. In 2023, there has been continued
use of video conferencing for a large portion of internal and external meetings, including board meetings, reducing the
need for travel. The emissions saving resulting from these activities has not been quantified, but this practice has
resulted in some behavior changes that are expected to continue for the foreseeable future. We continue to seek
opportunities to better utilize energy efficient and sustainable solutions wherever possible.
The Board recognizes the importance of maintaining high standards of business conduct. The Group operates a Code
of Business Conduct and Ethics, publicly available on our website, which contains general guidelines for conducting the
business of the Group consistent with the highest standard of business ethics. In addition, the Group has an Employee
Handbook that employees are required to read and acknowledge at least on an annual basis, and which also includes
details of the whistleblowing policy that allows all employees to raise concerns to senior management in strict confidence
about any unethical business practices, fraud, misconduct or wrongdoing.
MEREO BIOPHARMA GROUP PLC
STRATEGIC REPORT
In maintaining good corporate governance structures, the Board considers the need to act fairly to all shareholders of
the Group. The Group maintains a regular dialogue with our institutional investors. The Group’s website has a dedicated
investor section which provides useful information for our shareholders, including the latest announcements, press
releases, published financial information, details of our product candidates and our current development pipeline and
other information about the Company.
This strategic report, which has been prepared in accordance with Companies Act 2006, has been approved by the
Board and signed on behalf of the Board:
Michael Wyzga
Chairman
Dr. Denise Scots-Knight
Chief Executive Officer
April 25, 2024
April 25, 2024
20
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Annual Statement by Chair of Remuneration Committee
Introduction
Dear Shareholder,
As Chair of the Remuneration Committee (the “Committee”), I am pleased to present, on behalf of the Board of Directors
of Mereo BioPharma Group plc (the “Company”) the Directors’ Remuneration Report for the year ended December 31,
2023 (the “Report”). We are required to prepare this Report due to the Company’s listing in the U.S. on the Nasdaq
Capital Market and our UK incorporation.
This Directors' Remuneration Report includes this Annual Statement and the Annual Report on Remuneration for the
financial year ended December 31, 2023. The Directors’ Remuneration Report will be subject to an advisory shareholder
vote at the 2024 Annual General Meeting (“AGM”). The current Directors' Remuneration Policy ("Policy") was approved
by shareholders at the AGM on May 22, 2023. The Policy took formal effect from the date of approval and is intended
to apply until the 2026 AGM, unless a new version is presented to shareholders in the interim. The full shareholder
approved Policy can be found in the Annual Report and Accounts for the year ended December 31, 2022.
The Remuneration Committee has concluded that the current overarching remuneration framework continues to be
effective. As a reminder, we operate a simple and transparent structure comprising salary, benefits and pension and,
subject to stretch performance conditions, an annual bonus. In addition, we regularly make awards of equity incentives
to encourage longer-term commitment and sustainable performance. The Committee considers that the Policy provides
a fair basis for the remuneration of Executive Directors, rewarding performance against short-term objectives which
provide the foundations for the achievement of longer-term corporate goals, and making the enhancement of
shareholder value a critical success factor, both in the short and the long term.
In the year ended December 31, 2023, all decisions taken on remuneration were in accordance with the terms of
reference of the Remuneration Committee and involved the exercise of appropriate commercial judgment. No discretion
was exercised in relation to directors’ remuneration in the year beyond the exercise of the judgment of the Remuneration
Committee and to ensure the bonus objectives remained aligned to the Company strategy.
Yours sincerely,
Dr. Anders Ekblom
Chair of the Remuneration Committee
April 25, 2024
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Annual Report on Remuneration
2.1 Single total figure of remuneration of each Director (audited)
The Directors’ proportion of fixed and variable remuneration is shown in the below table for the years ended
December 31, 2023 and 2022. Fixed remuneration is the sum of salary, taxable benefits and pension (columns a, b and
e of the single total figure table). Variable remuneration is the sum of any annual bonus, share awards or other types of
remuneration (columns c, d and other of the single total figure table). Further information about share awards can be
found on page 26.
Year ended
December 31,2023 (in £)
(a)
Salary/fees
(i)
(b)
Benefits (ii)
(c)
Bonus
(d)
Long-term
incentives
(iii)
(e)
Pensions
Other
(iv)
2023 Total
Fixed
remuneration
(a, b and e)
Variable
remuneration
(c, d and other)
Executive
Dr. Denise
Scots-Knight (1)
Non-Executive
Dr. Jeremy Bender
Dr. Anders Ekblom
Dr. Pierre Jacquet
Dr. Annalisa Jenkins
Dr. Deepa Pakianathan
Justin Roberts (2)
Dr. Daniel Shames
Mike Wyzga
Marc Yoskowitz
443,872
15,504
199,742
47,184
60,233
44,854
43,872
52,900
—
41,286
88,776
36,116
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44,387
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
703,505
503,763
199,742
47,184
60,233
44,854
43,872
52,900
—
41,286
88,776
36,116
47,184
60,233
44,854
43,872
52,900
—
41,286
88,776
36,116
—
—
—
—
—
—
—
—
—
(1)
(2)
Pension figure included in the table above for Dr. Denise Scots-Knight includes payments in lieu of pension of £ 40,387.
Mr. Roberts has waived all remuneration in respect of his appointment as a Non-Executive Director.
Year ended
December 31,2022 (in £)
(a)
Salary/fees
(i)
(b)
Benefits (ii)
(c)
Bonus
(d)
Long-term
incentives
(iii)
(e)
Pensions
Other
(iv)
2022 Total
Fixed
remuneration
(a, b and e)
Variable
remuneration
(c, d and other)
Executive
Dr. Denise
Scots-Knight (1)
Non-Executive
Dr. Jeremy Bender
Dr. Anders Ekblom
Dr. Peter Fellner (2)
Anne Hyland (3)
Dr. Pierre Jacquet
Dr. Annalisa Jenkins (4)
Dr. Abdul Mullick (3)
Dr. Deepa Pakianathan
Justin Roberts (4)
Dr. Brian Schwartz (2)
Dr. Daniel Shames (4)
Mike Wyzga
Marc Yoskowitz (4)
418,747
14,490
251,248
47,368
55,912
54,342
30,634
39,107
6,839
14,916
45,686
—
36,350
6,839
80,035
6,839
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41,875
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
726,360
475,112
251,248
47,368
55,912
54,342
30,634
39,107
6,839
14,916
45,686
—
36,350
6,839
80,035
6,839
47,368
55,912
54,342
30,634
39,107
6,839
14,916
45,686
—
36,350
6,839
80,035
6,839
—
—
—
—
—
—
—
—
—
—
—
—
—
Pension figure included in the table above for Dr. Denise Scots-Knight includes payments in lieu of pension of £37,875.
Dr. Peter Fellner and Dr. Brian Schwartz resigned from the Board on November 10, 2022.
Anne Hyland was appointed to the Board on March 1, 2022 and resigned from the Board on November 10, 2022. Dr. Abdul Mullick was appointed to the Board
on May 17, 2022 and resigned from the Board on November 10, 2022.
Dr. Annalisa Jenkins, Justin Roberts, Dr. Daniel Shames and Marc Yoskowitz were appointed to the Board on November 10, 2022. Mr. Roberts has waived all
remuneration in respect of his appointment as a Non-Executive Director.
For non-executive directors who elected to receive Deferred RSUs in lieu of cash for their annual fees, the grant date fair value of Deferred RSUs are included
within salary/fees.
Benefits represent private medical insurance, life insurance, and income protection during the years ended December 31, 2023 and 2022.
During the year ended December 31, 2023 equity incentive awards with performance conditions or measures were granted as an equity incentive award to the
CEO. No amount has been included for 2023 because none of the performance conditions had been met during the year. In 2024, certain of the performance
conditions were met in respect of 282,090 ADSs. The value of PSUs vesting in 2024 will be included in the single total figure of remuneration for the CEO for the
year ended December 31, 2024.
During the years ended December 31, 2023 and 2022, market value options were granted as an equity incentive award to the CEO and to Non-Executive
Directors. The market value options do not have performance conditions and are therefore presented as other variable remuneration. The value of the market
value options granted included in the single figure table is the market value of the underlying shares at the date of grant, less the applicable exercise price. This
was nil because the exercise price is equal to the market value of the underlying shares on the date of grant.
(1)
(2)
(3)
(4)
(i)
(ii)
(iii)
(iv)
22
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Annual performance bonus
The Company has a discretionary bonus scheme for all employees and the Executive Director (CEO). Bonus payments
for employees are a percentage of base salary based on performance-based measures against personal and Company-
wide target objectives. Bonus payments for CEO are a percentage of base salary, based on performance-based
measures against Company-wide target objectives. The amount of bonus payable, including the weighting of
achievement of the Company-wide target objectives is at the discretion of the Committee and subject to its review of
performance against the short-term performance targets at the end of the performance period (which is aligned with the
financial year).
For the 2023 performance period, the CEO was entitled to an annual performance bonus of 60% of base salary for a
target level of performance, which could be increased with stretch performance up to a maximum of 75% of base salary.
The agreed Company-wide target objectives were met at 75% of target, meaning the bonus pay-out for the 2023
performance period is 45% of base salary for the CEO.
Specific details of the actual Company-wide target objectives are considered commercially sensitive and therefore not
disclosed in detail. However, the objectives used to measure the performance of the Chief Executive Officer for 2023
included the following:
•
•
•
•
•
•
On setrusumab, positive Phase 2 Orbit data and successful transition to the Phase 3 portion of the Orbit study,
along with initiation of the Phase 3 Cosmic study, leading to achievement of a $9 million milestone payment from
Ultragenyx. In addition, delivering the agreed key activities under Project SATURN, and in the ongoing activities
necessary to lay the groundwork for reimbursement in Europe and the UK;
On alvelestat, alignment on the design for a single, global Phase 3 study in AATD-LD and agreement on a patient-
reported outcomes ("PRO") validation plan following additional interactions with the U.S. FDA;
On etigilimab, results from the initial 10 patients of the investigator-led Phase 1b/2 study of etigilimab in combination
with nivolumab in clear cell ovarian cancer, conducted by a partner, support expansion to 20 patients in the study;
Successful achievement of a stretch goal of financial savings to budget;
In manufacturing, successful delivery of a Phase 3 higher dosage tablet and justification accepted by the regulators
for alvelestat and additional agreed milestones achieved for setrusumab and etigilimab;
Successful achievement of milestones on intellectual property.
Long-term incentive awards granted during the financial year (audited)
Directors may be granted long-term incentive awards at the discretion of the Committee. During the year ended
December 31, 2023:
–
–
Equity incentive awards were granted to the CEO under the 2019 EIP. These equity incentive awards included
market value options over ADSs and performance based restricted stock units (“PSUs”) over ADSs. The market
value options over ADSs have a vesting period over four years, with 25% of the award vesting on the first
anniversary of the grant date and the balance vesting in equal monthly installments over the following three
years; no performance conditions were attached to the awards. The PSUs vest upon satisfaction of four
escalating ADS price threshold performance targets over a two-year vesting period.
All Non-Executive Directors were awarded options under the Company’s 2019 Non-Executive Director Equity
Incentive Plan (“NED EIP”) to subscribe for share-based awards over a one-year vesting period. The awards vest
monthly over an annual period from the grant date. The share-based awards granted under the NED EIP were in
respect of ADSs and do not have performance conditions.
All awards granted under the EIP and NED EIP during the year ended December 31, 2023, are subject to a service
condition and may be exercised at any time between the relevant vesting date and the tenth anniversary of the date
of grant. PSUs that do not vest will lapse permanently at the end of the two-year performance period.
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Director
Dr. Denise Scots-Knight
Dr. Jeremy Bender
Dr. Anders Ekblom
Anne Hyland
Dr. Pierre Jacquet
Dr. Annalisa Jenkins
Dr. Deepa Pakianathan
Dr. Daniel Shames
Mike Wyzga
Marc Yoskowitz
Grant Date
January 25, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
February 1, 2023
ADSs
Underlying
Grant
Exercise
Price per ADS
($)
1,150,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
1.01
0.94
0.94
0.94
0.94
0.94
0.94
0.94
0.94
0.94
Face value
($)
1,161,500
51,700
51,700
51,700
51,700
51,700
51,700
51,700
51,700
51,700
Expiration
Date
January 25, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
February 1, 2033
The exercise price of all options granted during the year under the 2019 EIP and 2019 NED EIP was the market value
of the ADSs upon closing on the last business day before the grant. The face value of all options granted during the
year was determined based on the exercise price at the date of grant.
2.2 Payments to past Directors (audited)
There were no payments to past Directors made during the financial year ending December 31, 2023 that are required
to be disclosed.
2.3 Payments for loss of office (audited)
There were no payments made for loss of office to Directors during the financial year ending December 31, 2023 that
are required to be disclosed.
2.4 Directors’ service contracts and letters of appointment
Dr. Denise Scots-Knight joined the Company as an employee on July 29, 2015 and her current service contract is dated
September 3, 2021. She has a rolling service agreement with a notice period of twelve months from either party.
The dates of appointment of each of the Non-Executive Directors serving at December 31, 2023, are summarized in
the table below:
Date of appointment
July 29, 2015
April 23, 2019
April 23, 2019
October 1, 2020
September 20, 2021
November 10, 2022
November 10, 2022
November 10, 2022
November 10, 2022
Non-Executive Director
Dr. Anders Ekblom
Michael Wyzga
Dr. Deepa Pakianathan
Dr. Jeremy Bender
Dr. Pierre Jacquet
Dr. Annalisa Jenkins
Justin Roberts
Dr. Daniel Shames
Marc Yoskowitz
24
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
2.5 Statement of Directors’ Shareholding and Share Interests (audited)
The table below sets out, as at December 31, 2023, the beneficial interest in the Company’s shares of the Directors
(together with interests held by his or her connected persons). In addition, the table below also sets out the total
number of shares held by Directors which are unvested, the total number of options held by Directors which are vested
but not yet exercised and the total number of options held by Directors which are unvested.
The total number of shares which are unvested are disclosed by those with and without performance conditions. The
table below is presented in ADSs, with each ADS representing five ordinary shares. Ordinary shares held have been
converted into equivalent ADSs.
Awards
Vested
Awards
Vested
Awards
Unvested
with
performance
conditions
Awards
Unvested
without
performance
conditions
2015 Plan/
Share
Option Plan
(equivalent
ADS
vested
but not yet
exercised)
308,949
—
43,252
—
—
—
—
—
—
—
Beneficially
owned
560,414
—
37,940
—
—
—
—
—
—
19,942,997
Director
Dr. Denise Scots-Knight
Dr. Jeremy Bender
Dr. Anders Ekblom
Dr. Pierre Jacquet
Dr. Analisa Jenkins
Dr. Deepa Pakianathan
Dr. Daniel Shames
Mike Wyzga
Marc Yoskowitz
Justin Roberts(1)
2019
EIP/NED EIP
2019
2019
(ADSs vested,
EIP/NED EIP
EIP/NED EIP
not yet
(ADSs,
(ADSs,
exercised)
unvested)
unvested)
1,238,124
249,577
272,949
223,062
118,554
154,333
115,282
361,843
110,795
—
470,150
—
—
—
—
—
—
—
—
—
1,881,876
14,369
15,807
14,112
13,919
9,167
13,662
18,953
13,492
—
(1)
Mr. Roberts is a partner of Rubric Capital Management LP, which has ultimate voting and investment power over the ordinary shares and ADSs
held by Rubric Capital Management LP. He disclaims beneficial ownership of such shares except to the extent of any pecuniary interest
therein. Mr. Roberts has waived all remuneration in respect of his appointment as a non-executive director.
The Company does not have a formal policy on Executive or Non-Executive Director shareholdings in the Company.
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
As at December 31, 2023, the only unvested equity incentive awards subject to performance conditions are PSUs issued
to the CEO in 2023. The table below shows the interests of the Directors in the Company’s share options as at
December 31, 2023. The underlying grants for the 2015 Plan are in ordinary shares and have been presented here in
equivalent ADS.
Director
Executive
Dr. Denise
Scots-Knight
Non-Executive
Dr. Jeremy
Bender
Dr. Anders
Ekblom
Dr. Pierre
Jacquet
Dr. Annalisa
Jenkins
Dr. Deepa
Pakianathan
Dr. Daniel
Shames
Mike Wyzga
Marc
Yoskowitz
Equity
Award Plan
2015 Plan
2019 EIP
2019 EIP
2019 EIP
2019 EIP
2019 EIP
2019 EIP
2019 EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2015 Plan
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
2019 NED EIP
No. of ADSs
outstanding
as at
December 31,
2022
No. of
ADSs
granted
in the year
No. of
ADSs
lapsed
during the
year
No. of
ADSs
exercised
during
the year
No. of
ADSs
cancelled
during
the year
No. of ADSs
outstanding
as at
December 31,
2023
Exercise
Price
Per ADS ($)
(1)(2)
308,949
87,500
87,500
175,000
520,000
1,100,000
1,150,000
470,150
22,000
31,500
55,000
38,032
43,252
5,500
5,500
11,000
31,500
55,000
44,042
1,540
88,393
32,867
1,583
9,167
9,946
5,500
5,500
11,000
31,500
55,000
9,167
9,946
5,500
5,500
11,000
31,500
55,000
46,953
56,342
9,167
9,946
55,000
62,414
55,000
79,674
55,000
59,331
55,000
1,340
57,020
55,000
55,000
893
53,938
55,000
117,430
55,000
47,773
308,949
87,500
87,500
175,000
520,000
1,100,000
1,150,000
470,150
22,000
31,500
55,000
38,032
55,000
62,414
43,252
5,500
5,500
11,000
31,500
55,000
44,042
1,540
55,000
79,674
88,393
32,867
1,583
55,000
59,331
9,167
9,946
55,000
1,340
57,020
5,500
5,500
11,000
31,500
55,000
55,000
9,167
9,946
55,000
893
53,938
5,500
5,500
11,000
31,500
55,000
46,953
56,342
55,000
117,430
9,167
9,946
55,000
47,773
8.63
5.40
3.00
1.84
2.72
1.40
1.01
—
3.32
2.72
1.31
—
0.94
—
8.63
5
3.00
1.84
2.72
1.31
—
—
0.94
—
1.31
—
—
0.94
—
0.79
—
0.94
—
—
5.40
3.00
1.84
2.72
1.31
0.94
0.79
—
0.84
—
—
5.40
3.00
1.84
2.72
1.31
—
—
0.84
—
0.79
—
0.94
—
Grant Date Expiration Date (2)
September 25, 2015 September 25, 2025
May 20, 2029
July 23, 2029
February 20, 2030
February 1, 2031
January 14, 2032
January 25, 2033
January 25, 2025
May 20, 2019
July 23, 2019
February 20, 2020
February 1, 2021
January 14, 2022
January 25, 2023
January 25, 2023
January 19, 2021
February 1, 2021
January 19, 2031
February 1, 2031
February 1, 2022
February 1, 2032
February 1, 2022
February 1, 2023
February 1, 2023
—
February 1, 2033
—
September 29, 2015 September 29, 2025
May 20, 2029
May 20, 2019
July 23, 2019
July 23, 2029
February 20, 2020
February 1, 2021
February 1, 2022
February 1, 2022
December 1, 2022
February 1, 2023
February 1, 2023
February 1, 2022
February 1, 2022
December 1, 2022
February 1, 2023
February 1, 2023
December 1, 2022
December 1, 2022
February 20, 2030
February 1, 2031
February 1, 2032
—
—
February 1, 2033
—
February 1, 2032
—
—
February 1, 2033
—
December 1, 2032
—
February 1, 2023
February 1, 2033
January 3, 2023
February 1, 2023
May 20, 2019
July 23, 2019
—
—
May 20, 2029
July 23, 2029
February 20, 2020
February 20, 2030
February 1, 2021
February 1, 2022
February 1, 2023
December 1, 2022
December 1, 2022
February 1, 2031
February 1, 2032
February 1, 2033
December 1, 2032
—
February 1, 2023
February 1, 2033
January 3, 2023
February 1, 2023
May 20, 2019
July 23, 2019
February 20, 2020
February 1, 2021
February 1, 2022
February 1, 2022
June 1, 2022
February 1, 2023
February 1, 2023
December 1, 2022
December 1, 2022
—
—
May 20, 2029
July 23, 2029
February 20, 2030
February 1, 2031
February 1, 2032
—
—
February 1, 2033
—
December 1, 2032
—
February 1, 2023
February 1, 2033
February 1, 2023
—
(1)
(2)
PSUs do not have an exercise price.
Deferred RSUs do not have an exercise price and payment of Deferred RSUs will generally be made 180 days following separation of service.
26
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Executive Director (CEO)
–
Under the terms of the 2019 EIP, awards can be granted in respect of ordinary shares, ADSs, cash or a
combination thereof. All grants to our Executive Director since 2019 were in respect of ADSs.
Under the 2019 EIP, we have granted market value options and PSUs to our CEO, Dr. Denise Scots-Knight.
Market value options vest over four years with 25% vesting 12 months after the grant date and the balance
vesting equally over the next 36 months. There are no performance conditions attached to share options granted
under the 2019 EIP. The PSUs may vest at any point during a two year period upon satisfaction of four escalating
ADS price performance targets .
–
Under the 2015 Plan, we have granted market value options to our CEO. These market value options were
fully vested by January 1, 2022. There were no performance conditions attached to share options granted under
the 2015 Plan.
Non-Executive Directors
–
–
Under the 2015 Plan, we have granted share options to our Non-Executive Directors. These share options
vested over three years from grant date in three equal annual installments. There were no performance
conditions attached to share options granted under the 2015 Plan.
Under the 2019 NED EIP, we have granted market value options to all Non-Executive directors and Deferred
RSUs ("DRSUs") to directors who elect to receive them instead of cash fees. These other share-based awards
vest in equal monthly installments over the one-year period following their grant date. There are no performance
conditions attached to the other share-based awards granted under the 2019 NED EIP. Subject to the terms of
the grant, awards under the 2019 NED EIP can be granted in respect of ordinary shares, ADSs, cash or a
combination thereof. All grants to Non- Executive Directors since 2019 were in respect of ADSs.
2.6 Performance Graph and Table
The graph below shows the Company’s performance, measured by total shareholder return, relative to the Nasdaq US
Small Cap Biotechnology Index, which has been selected for this comparison because the Company has been trading
on the Nasdaq exchange since the date it became a quoted company for the purposes of the U.K. remuneration reporting
regulations (in April 2019) and is therefore considered to be the most suitable comparator index.
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Chief Executive Officer Total Remuneration History
The Chief Executive Officer’s remuneration over the period since the Company’s listing on Nasdaq in April 2019 is set
out below. This will eventually build up to cover a rolling ten-year remuneration history.
Total CEO remuneration (£)
2023
703,505
2022
726,360
2021
705,297
2020
867,888
2019
741,374
CEO bonus (as a % of maximum available)
CEO LTIP(1) vesting (as a % of maximum
available)
(1) Awards of market value options were granted under the 2019 EIP Plan as an equity incentive to the CEO in 2023, 2022, 2021, 2020 and 2019. As the options granted
in 2023, 2022, 2021, 2020 and 2019 are not subject to performance conditions the vesting percentage in respect of these awards has been recorded as 100%. In 2023,
PSUs were granted subject to performance conditions. These awards may vest at any point up to January 25, 2025, therefore their impact on the vesting percentage will
be calculated in 2025 when the vesting period is completed. The percentage for 2023 is therefore in respect of the market value options only.
100%
100%
100%
100%
100%
100%
81%
60%
75%
80%
2.7 Percentage Change in Remuneration of Directors and Employees
The following table shows the percentage change in each Executive and Non-Executive Directors’ remuneration
compared with the average change for all employees of the Company for the year ended December 31, 2023. Going
forward, this disclosure will build up over time to cover a rolling five-year period.
Salary/
fee (%)
2023
Benefits
(%)
Annual
bonus
(%)
Salary/
fee (%)
2022
Benefits
(%)
Annual
bonus
(%)
Salary/
fee (%)
2021
Benefits
(%)
Annual
bonus
(%)
Salary/
fee (%)
2020
Benefits
(%)
Annual
bonus
(%)
Dr. Denise Scots-Knight
Dr. Jeremy Bender
Dr. Anders Ekblom
Mike Wyzga
Dr. Pierre Jacquet
Dr. Annalisa Jenkins (1)
Dr. Deepa Pakianathan
Justin Roberts (1)
Dr. Daniel Shames (1)
Marc Yoskowitz (1)
Average of all
employees
(other than Directors)
6
(0)
8
11
15
541
16
—
504
428
7
(21)
5
17
19
62
293
—
3
—
—
—
3
36
2
5
—
1
(2)
24
—
3
(40)
2
—
—
—
—
(28)
(33)
(6)
29
(11)
—
1
30
8
2
6
(20)
(1)
Dr. Annalisa Jenkins, Justin Roberts, Dr. Daniel Shames and Marc Yoskowitz were appointed to the Board on November 10, 2022 – no prior year comparison
available. Mr. Roberts has waived all remuneration in respect of his appointment as a non-executive director.
2.8 Relative Importance of Spend on Pay
The Remuneration Committee considers the Company’s research and development (“R&D”) expenditure relative to
salary expenditure for all employees, to be the most appropriate metric for assessing overall spend on pay due to the
nature and stage of the Company’s business. Dividend distribution and share buy-back comparators have not been
included because the Company has no history of such transactions. The table below illustrates the gross pay to all
employees, per year, as compared to R&D expenditure and illustrates the year-on-year change.
Gross pay to all employees
R&D expenditure
2023
£’000s
12,191
15,445
2022
£’000s
14,195
24,962
% change
(14)
(38)
2.9 External appointments
Dr. Denise Scots-Knight (CEO) is currently a Non-Executive Director of Elanco Animal Health Incorporated (“Elanco”)
(NYSE: ELAN).
2.10 Membership of the Remuneration Committee and its Advisors
The Remuneration Committee is currently comprised of three independent Non-Executive Directors: Dr. Anders Ekblom
(Chair), Dr. Deepa Pakianathan, and Justin Roberts. The Chief Executive Officer, Chief Financial Officer and General
28
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
Counsel, as well as others, are invited to attend Remuneration Committee meetings as required to provide advice and
assistance. The terms of reference of the Committee can be found on our website at www.mereobiopharma.com.
During the year, the Committee was assisted in its work by FIT Remuneration Consultants LLP (“FIT”) and Compensia,
Inc. (“Compensia”). FIT was appointed in 2020 and has provided advice in relation to general remuneration matters.
Fees paid to FIT in relation to advice provided to the Committee during the year to December 31, 2023 were £6,456
(excluding VAT) (2022: £11,169), charged on a time/cost basis. FIT did not provide any other services to the Company.
FIT is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct
in relation to executive remuneration consulting in the U.K. Compensia was appointed in 2021 and has provided
advice in relation to general remuneration matters and did not provide any other services to the Company. Fees paid
to Compensia in relation to the advice provided to the Committee during the year were $67,606 (2022: $76,628). The
Committee is satisfied that the advice they received from FIT and Compensia was objective and independent.
The Committee met three times during the year and addressed the following main topics:
•
•
•
•
•
•
•
Reviewed and approved the remuneration package of our CEO and direct reports of the CEO;
Approved the annual bonus payments to the CEO in 2023 and the annual bonus plan for the 2023 financial
year;
Reviewed and approved the number of shares available for grant under the 2019 EIP plans;
Reviewed and approved the grant of market value options and PSUs to the CEO and to employees at
seniority level SVP and above under the Company's 2019 Equity Incentive Plan;
Approved the delegation of authority from the Committee to the CEO in respect of the grant of options and
RSUs to employees at seniority level of VP and below;
Reviewed and approved the grant of market value options and DRSUs under the Company’s 2019 Non-
Employee Equity Incentive Plan;
Reviewed and recommended the following policies for approval by the Board of Directors: i) the proposed
new Policy for Recovery of Erroneously Awarded Compensation (the “Clawback Policy”), intended to satisfy
the Nasdaq listing rules; ii) the amended Remuneration Committee Terms of Reference to comply with the
rules and regulations of the SEC applicable to U.S. domestic filers; and iii) the amended Deferred
Compensation Plan for Non-Employee Directors.
2.11 Statement of Voting at a general meeting of the Company
The shareholder votes on the non-binding approval of the Directors’ Remuneration Report and the binding approval of
the Directors’ Remuneration Policy at the Annual General Meeting which took place on May 22, 2023 was as follows:
Resolution
Approval of the Directors’
Remuneration Report
Approval of the Directors’
Remuneration Policy
Votes for
% for
Votes against
(excluding
withheld)
% against
Total
(excluding
withheld)
Withheld
288,674,726
87.48%
41,332,110
12.52% 330,006,836
668,420
276,586,051
83.81%
53,425,295
16.19% 330,011,346
653,910
2.12 Statement of Implementation of Remuneration Policy for the Year Ending December 31, 2024
Annual salary
For 2024, the CEO was granted a 4.5% increase in annual salary.
Benefits and pension
The CEO will continue to receive pension contributions (or cash payments in lieu) to the value of 10% of basic salary.
No changes will be made to the provision of other benefits.
Bonus
The CEO will be eligible for an annual bonus of 60% of basic salary for achievement of target level or no higher than
75% of basic salary for achievement of stretch goals for the 2024 financial year.
The bonus will be subject to the achievement of short-term performance targets which will be set by the Committee with
respect to the 2024 performance period. The performance targets will cover key objectives that relate to the achievement
MEREO BIOPHARMA GROUP PLC
DIRECTORS’ REMUNERATION REPORT
of the Group’s wider strategic goals including, for 2024, measures relating to clinical development, corporate
development, commercial planning, finance, manufacturing and intellectual property/legal.
The amount of bonus payable is at the discretion of the Committee subject to review of performance against the short-
term performance targets at the end of the performance period (which is aligned with the financial year).
The Committee has chosen not to disclose, in advance, the detailed performance targets for the forthcoming year as
these include matters which the Committee considers commercially sensitive. Retrospective disclosure of the
performance against the corporate objectives will be made in next year’s Annual Report on Remuneration to the extent
any such disclosure is considered not to be commercially sensitive at that time.
Long-term incentive plan
In line with the approved Policy, the Committee has issued market value options to the CEO during 2024.
On January 25, 2024, equity incentive awards were granted to the Chief Executive Officer under the 2019 EIP. These
equity incentive awards included market value options over ADSs. The market value options over ADSs have a vesting
period over four years, with 25% of the award vesting on the first anniversary of the grant date and the balance vesting
in equal monthly installments over the following three years; no performance conditions were attached to the awards.
Dr. Denise Scots-Knight
ADS options
granted
850,000
Exercise
Price
per ADS
($)
3.36
(a)
Face value
($)
2,856,000
(a)
Non-Executive Directors’ fees
Non-Executive Directors may voluntarily elect to convert their annual cash fees into DRSUs (over ADSs) that are then
held until settlement, generally 180 days following separation of service. This Deferred Compensation Plan is delivered
under the terms of the 2019 Non-Executive Equity Incentive Plan.
In addition to annual cash fees or DRSUs, as elected, on February 8, 2024, equity incentive awards were granted to
Non-Executive Directors in line with the 2019 NED EIP. A total of 45,000 equity incentive awards in the form of market
value options over ADSs, were granted to each Non-Executive Director at an exercise price of $3.87 per ADS, with a
vesting period of one year; vesting is in equal monthly installments over the plan year following grant date. No
performance conditions were attached to the awards.
Mr. Roberts has waived all remuneration in respect of his appointment as a Non-Executive Director.
This directors’ remuneration report has been approved by the Board and signed on behalf of the Board,
Dr. Anders Ekblom
Director
April 25, 2024
30
MEREO BIOPHARMA GROUP PLC
DIRECTORS' REPORT
The Directors present their report together with the audited financial statements for the year ended December 31, 2023.
Principal activities
The Strategic Report on pages 3 to 20 describes the Group’s principal development activities, strategy and future
developments.
Results and dividends
The Group recorded a total comprehensive loss for the year attributable to equity holders of the parent of £31.3 million
(2022: £35.0 million). Further details are given in the Strategic Report and in the consolidated financial statements.
The Directors do not recommend payment of a dividend.
Research and development
For the financial year ended December 31, 2023, the Group spent £15.4 million (2022: £25.0 million) on research and
development activity.
Research and development spend primarily reflects the underlying activity on clinical trials for our product candidates
as well as the manufacturing of drug products together with the internal costs, including payroll directly attributable to
these activities. Further details of our product programs and research and development spend can be found within the
Strategic Report.
Directors
The directors of the Company who held office during the year and up to the date of this report, unless otherwise noted,
were:
Executive directors
Dr. Denise Scots-Knight (Chief Executive Officer)
Non-executive directors
Michael Wyzga (Chairman)
Dr. Jeremy Bender
Dr. Anders Ekblom
Dr. Pierre Jacquet
Dr. Annalisa Jenkins
Dr. Deepa Pakianathan
Justin Roberts
Dr. Daniel Shames
Marc Yoskowitz
As at the date of this report, the Directors held shares representing 14.6% of the equity of the Company. Details of the
Directors’ shareholdings and their options over shares in the Company are disclosed in the Directors’ Remuneration
Report on pages 21 to 30.
Information on environmental matters
The Company is required to measure and report its greenhouse gas emissions. This information is outlined in the “Social
and environmental matters” section of the Strategic Report on page 18.
MEREO BIOPHARMA GROUP PLC
DIRECTORS' REPORT
Future developments
Details of future developments can be found in the Strategic Report on pages 3 to 20 and form part of this report by
cross-reference.
Post-balance sheet events
There are no post-balance sheet events to be reported.
Going concern
The going concern basis has been applied in these consolidated financial statements as the Company has adequate
resources to meet its liabilities as they fall due for the foreseeable future and at least 12 months from the date of approval
of these consolidated financial statements.
The Company expects to incur significant operating losses for the foreseeable future as it continues its research and
development efforts, seeks to obtain regulatory approval of its product candidates and pursues any future product
candidates the Company may develop.
Until such time as the Company can generate significant revenue from product sales, or other commercial revenues, if
ever, or through licensing and/or collaboration agreements for its rare disease and oncology product candidates, the
Company will seek to finance its operations through a combination of non-dilutive funding sources, public or private
equity or debt financings or other sources.
As of December 31, 2023, the Company has cash and short-term deposits available of £45.1 million.
The Directors have prepared detailed cash flow forecasts for the period from approval of these consolidated financial
statements to December 31, 2025. The Directors have considered the continuing economic uncertainty, rises in inflation,
and impacts on the labor market on these forecasts.
The Company’s existing funds provide the Company with sufficient cash resources to meet its liabilities as they fall due
and for the period through December 31, 2025. Therefore, although the Company continues to generate losses, the
Directors consider that there is sufficient headroom between the forecast expenditure and cash resources such that the
likelihood of the headroom being exhausted is remote. Therefore, the Directors determined that it is appropriate to adopt
the going concern basis of accounting in preparing these consolidated financial statements.
Financial risk management objectives and policies (including information on exposure to price risk, credit risk,
liquidity risk and cash flow risk)
Refer to Note 23 of the financial statements for further details on our financial risk management objectives and policies.
Health and safety
The Directors are committed to ensuring the highest standards of health and safety, both for their employees and for
the communities within which the Group operates.
Political contributions
Neither the Company nor any of its subsidiaries made any political donations or incurred any political expenditure during
the years ended December 31, 2023 and December 31, 2022.
Share capital
As at the date of this report, the Company had total issued and fully paid up share capital of £2,104,073 representing
701,357,759 ordinary shares of £0.003, all of which rank pari passu. Each share carries the right to one vote at general
meetings of the Company. No shareholder holds shares carrying special rights with regard to control of the Company.
The Company’s ADSs are traded on the Nasdaq Capital Market under the symbol “MREO”. Each ADS represents five
ordinary shares.
32
MEREO BIOPHARMA GROUP PLC
DIRECTORS' REPORT
Purchases of own shares during the year
The Company’s Employee Benefit Trust (“EBT”) was established for the purpose of holding ordinary shares
(subsequently ADSs) to satisfy the exercise of options for employees under the Company’s share-based incentive
schemes. There were no loans made to the EBT by the Company during the year ended December 31, 2023 (2022:
nil). During the year ended December 31, 2023, no ordinary shares were purchased by the EBT (2022: nil). A total of
15,926 ADSs held by the EBT were used in the year-ended December 31, 2023 to satisfy the exercise of options under
the Company’s share-based incentive schemes (2022: 15,645). As of December 31, 2023, the EBT holds 184,680 ADSs
(2022: 206,606) along with £17,241 in cash (2022: £17,741).
Branches outside the U.K.
As at December 31, 2023, the Group consists of certain subsidiaries which are incorporated outside the United Kingdom.
Further information can be found in Note 5 of the financial statements. There are no branches of the Company outside
the United Kingdom.
Annual general meeting (“AGM”)
The AGM of the Company is anticipated to be held on May 23, 2024. The notice of the meeting, together with an
explanation of the business to be dealt with including proposed resolutions, will be prepared as a separate document
and distributed to shareholders and posted on our website.
Disclosure of information to the Auditors
Each of the persons who is a director at the date of approval of this report confirms that:
•
•
So far as the director is aware, there is no relevant audit information of which the Group’s Auditors are unaware;
and
The director has taken all the steps that they ought to have taken as a director in order to make themselves aware
of any relevant audit information and to establish that the Group’s Auditors are aware of that information.
Independent auditors
On September 20, 2023, the Company's Board of Directors, following the recommendation of the Audit and Risk
Committee, dismissed BDO LLP (“BDO”) as its independent auditors and appointed PricewaterhouseCoopers LLP
(United Kingdom) (“PwC”) as its new independent auditors effective immediately. PwC have indicated their willingness
to continue in office and a resolution concerning their re-appointment will be proposed at the forthcoming AGM.
Directors’ and officers’ liability insurance
The Company has, as permitted by the Companies Act 2006, purchased and maintained throughout the financial year
suitable insurance cover on behalf of the directors, indemnifying them against certain liabilities which may be incurred
by them in relation to the Group. We have also entered into a deed of indemnity with each of our directors as permitted
by the Companies Act 2006 and with each of our executive officers.
Effective date
This report was approved by the Board of Directors on April 24, 2024 and signed on its behalf by:
Michael Wyzga
Chairman
April 25, 2024
Charles Sermon
General Counsel and Company Secretary
April 25, 2024
MEREO BIOPHARMA GROUP PLC
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable
law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors
have prepared the Group and the Company financial statements in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under
those standards. The directors have also chosen to prepare the parent company financial statements in accordance
with FRS 101 “Reduced Disclosure Framework".
Under company law, directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the group and company and of the profit or loss of the group for that period. In
preparing the financial statements, the directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
state whether applicable United Kingdom Accounting Standards, comprising FRS 101, have been followed,
subject to any material departures disclosed and explained in the financial statements;
make judgments and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
group and company will continue in business.
The directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the
Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors’ confirmations
In the case of each director in office at the date the directors’ report is approved:
•
•
so far as the director is aware, there is no relevant audit information of which the Group’s and Company’s
auditors are unaware; and
they have taken all the steps that they ought to have taken as a director in order to make themselves aware
of any relevant audit information and to establish that the Group’s and Company’s auditors are aware of that
information.
On behalf of the Board:
Charles Sermon
General Counsel and Company Secretary
April 25, 2024
34
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
Independent auditors’ report to the members of Mereo
BioPharma Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
•
•
•
•
Mereo BioPharma Group plc’s group financial statements and company financial statements (the “financial statements”) give a
true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2023 and of the group’s loss and
the group’s cash flows for the year then ended;
the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards
as applied in accordance with the provisions of the Companies Act 2006;
the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the
consolidated balance sheet and company balance sheet as at 31 December 2023; the consolidated statement of comprehensive
(loss)/income, the consolidated statement of cash flows, the consolidated statement of changes in equity, and the company statement of
changes in equity for the year then ended; and the notes to the financial statements, comprising material accounting policy information and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
Our audit approach
Context
Mereo BioPharma Group plc is a public listed company incorporated under the laws of England and Wales and listed on the NASDAQ.
Overview
Audit scope
•
•
•
•
The group's headquarters are in the United Kingdom which is also the location of management.
The company has six directly owned subsidiaries and two indirectly owned subsidiaries. Three subsidiaries are dormant entities.
We identified two significant components of the group: the company and its four UK based operating subsidiaries; and the US
based operating subsidiary. We performed a full scope audit of these two significant components due to their size and risk.
Taken together, these significant components and the consolidation adjustments, over which we performed audit procedures,
accounted for 100% of the loss before tax of the group. Our audit scope provided sufficient, appropriate, audit evidence as a
basis for our opinion on the group financial statements.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
Key audit matters
•
•
Materiality
•
•
•
Recoverability of intangible assets (group)
Recoverability of investments in subsidiaries (company)
Overall group materiality: £1,742,000 based on 5% of adjusted loss before tax.
Overall company materiality: £2,145,000 based on 1% of total assets.
Performance materiality: £1,306,000 (group) and £1,608,000 (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team.
These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter
Recoverability of intangible assets (group)
As disclosed in Notes 13 and 14 to the group financial statements, as at
31 December 2023, the group holds intangible assets for acquired
development programs with a net book value of £11.1m. Management
has forecast the cash flows for each acquired development program
which separately support each intangible asset.
Management's impairment assessments are performed through a
separate value in use model for each development program, which
contain certain key assumptions, such as: drug pricing, market
penetration and probability of success, which required significant
attention and, for drug pricing and market penetration the involvement
of specialists, as part of our audit.
Management has assessed the recoverability of each intangible asset
under IAS 36, Impairment of Assets, and concluded that the value in
use of each intangible was higher than its carrying amount, such that no
impairment of intangibles was required.
How our audit addressed the key audit matter
We performed the following procedures to address the key
audit matter:
- We assessed the design and implementation of
management's controls over impairment assessments;
- We evaluated the completeness and accuracy of
management's impairment calculations, including the
underlying data used;
- We obtained audit evidence for those assumptions we
identified as key assumptions in each model, such as: drug
pricing, market penetration and probability of success, and
assessed the reasonableness of management's
assumptions. Furthermore, we involved specialists in the
audit of drug pricing and market penetration assumptions;
and
- We evaluated the sufficiency of the disclosure in Notes 13
and 14 to the group's financial statements.
Based on the work performed, we conclude that
management's impairment assessments support the
carrying values of each intangible asset and are
appropriately disclosed.
36
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
Recoverability of investments in subsidiaries (company)
As disclosed in Note 4 to the company's financial statements, as at 31
December 2023, the company holds investments in its subsidiaries
which total £164.9 million. Each development program is held in an
individual subsidiary and the value of the company's investments is
therefore supported by the forecast cash flows of the development
program held in each subsidiary.
We performed the following procedures to address the key
audit matter:
- We assessed the design and implementation of
management's controls over impairment assessments;
In forming their assessment of impairment triggering events,
management considered: the progress of each drug program, external
market indicators (such as the group's market capitalisation), and any
contradictory evidence identified in the individual drug program value in
use calculations maintained by management. Management was
required to exercise judgement in concluding that no impairment
triggers were identified beyond the derecognition of Leflutrozole and
this therefore required significant attention as part of our audit.
Management has assessed the recoverability of each investment in
subsidiaries under IAS 36, Impairment of Assets, and having
derecognised the Leflutrozole development program asset in the year
due to its out-licensing, management concluded that a full impairment of
£14.3 million in the investment in the relevant subsidiary was required,
because the associated cash flows no longer supported the carrying
value of the subsidiary. Management identified no other impairment
triggering events in the period related to the other investments.
- We evaluated external factors which could be indicative of
an impairment such as: analyst expectations and the group's
market capitalisation, and also assessed based on our
knowledge of the business the progress of the drug
programs;
- We evaluated the completeness of management's
impairment trigger assessment; and
- We evaluated the sufficiency of the disclosure in Note 4 to
the company's financial statements.
Based on the work performed, we conclude that the carrying
values at which the investments in subsidiaries are
recognised are appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they
operate.
The group comprises nine companies, of which six are operational. We identified a UK component, comprising five of these companies,
including the parent company, and a US component comprising the remaining company. A full scope audit was performed over each
component, through which we obtained coverage over 100% of group balances.
We did not utilise component auditors in our audit of the group and our procedures were solely carried out at the group's head office.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s and
company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of climate
risk. Our procedures did not identify any material impact as a result of climate risk on the group’s and company’s financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark
applied
Financial statements - group
£1,742,000.
5% of adjusted loss before tax
Based on the benchmarks used in the Annual Report and
Accounts, adjusted loss before tax is the primary measure
used by the stakeholders of the group to measure its
financial performance and is a generally accepted
auditing benchmark. We have adjusted this to remove the
effect of fair value gains as they are not representative of
the group's underlying activities and can vary significantly
period over period.
Financial statements - company
£2,145,000.
1% of total assets
Based on the benchmarks used in the
Annual Report and Accounts, total assets is
the primary measure used by the
stakeholders of the company to measure its
financial performance and is a generally
accepted auditing benchmark for holding
companies.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £630,000 and £1,260,000. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our
performance materiality was 75% of overall materiality, amounting to £1,306,000 for the group financial statements and £1,608,000 for the
company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our audit above £87,000 (group
audit) and £107,000 (company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of accounting
included:
•
•
•
•
Testing the mathematical accuracy of the cash flow forecast and reconciling this to the Board approved budget;
Assessing the completeness and accuracy of the data used in the cash flow forecast, including whether any additional risks not
considered by management exist based on our understanding of the group, company and industry;
Evaluating management's assessment of key assumptions contained within the cash flow forecasts; and
Evaluating the sufficiency of the disclosure in Note 2 to the group's financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's
ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
38
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ Report for
the year ended 31 December 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors’ Report.
Directors' Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to tax legislation and the Companies Act 2006, and we considered the extent to which non-compliance might have a material effect
on the financial statements. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal risks were related to the misappropriation of cash and manipulation
of the cash runway disclosure contained within Note 2 of the group financial statements. Audit procedures performed by the engagement
team included:
•
•
•
•
•
Inquiries of management and the Audit and Risk Committee regarding their knowledge of actual or suspected fraud in the
business;
Identifying and testing journals based on our risk assessment and evaluating whether there was evidence of management bias
that represents a material misstatement due to fraud;
Post period end confirmation of a particular cash balance;
Consideration of assumptions and judgements made by management in their significant accounting estimates and judgements;
and
Incorporating elements of unpredictability into the audit procedures performed.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: INDEPENDENT AUDITORS’ REPORT
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
•
•
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Simon Ormiston (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
25 April 2024
40
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS)/INCOME
Revenue
Cost of revenue
Research and development expenses
Administrative expenses
Operating loss
Finance income
Finance costs
Changes in the fair value of financial instruments
Net foreign exchange (loss)/gain
Gain/(loss) on disposal of intangible assets
Other income and expenses
Loss before tax
Taxation
Loss for the year, attributable to equity holders of the parent
Items that may be reclassified subsequently to profit or loss:
Currency translation of foreign operations (net of tax)
Total comprehensive loss for the year, attributable to equity
holders of the parent
Basic loss per share for the year (in £)
Diluted loss per share for the year (in £)
Note
6
6
9
9
9
9
7
10
11
11
Year ended December 31,
2023
£'000s
7,914
(11,935)
(15,445)
(13,502)
(32,968)
1,710
(1,642)
207
(2,000)
—
46
(34,647)
1,465
(33,182)
2022
Restated*
£'000s
—
936
(24,962)
(19,543)
(43,569)
696
(2,910)
7,805
2,033
—
811
(35,134)
1,897
(33,237)
1,845
(1,828)
(31,337)
(0.05)
(0.05)
(35,065)
(0.06)
(0.06)
The accompanying notes form an integral part of these consolidated financial statements.
* See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEET
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Prepayments
R&D tax credits
Other taxes receivable
Other receivables
Trade receivables
Cash and short-term deposits
Total assets
Equity and liabilities
Non-current liabilities
Provisions
Convertible loan notes
Warrant liability
Lease liability
Other liabilities
Current liabilities
Trade and other payables
Accruals
Current tax liabilities
Provisions
Convertible loan notes
Warrant liability
Lease liability
Other liabilities
Note
12
13
10
10
15
16
18
20
19
12
17
18
20
19
12
6
2023
Year ended December 31,
2022
Restated*
£'000s
£'000s
1,295
11,126
12,421
1,440
929
—
2,609
—
45,102
50,080
62,501
—
3,916
324
711
599
5,550
1,831
20,156
21,987
3,125
1,296
614
762
—
56,334
62,131
84,118
—
—
129
1,222
—
1,351
January 1,
2021
Restated*
£'000s
2,530
20,156
22,686
2,799
—
809
1,419
—
94,296
99,323
122,009
—
14,384
8,336
1,754
80
24,554
2,084
4,292
—
196
—
—
512
560
7,644
13,194
49,307
3,078
4,491
—
188
11,085
402
466
515
20,225
21,576
62,542
2,499
3,826
1,522
—
—
—
622
1,269
9,738
34,292
87,717
Total liabilities
Net assets
Equity
Issued capital
Share premium
Other capital reserves
Employee Benefit Trust shares
Other reserves
Accumulated losses
Translation reserve
Total equity
The accompanying notes form an integral part of these consolidated financial statements.
* See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
The financial statements on pages 41 to 44 were approved by the Board of Directors on April 24, 2024 and signed on its behalf by:
Dr. Denise Scots-Knight (Director)
April 25, 2024
Company number: 09481161 (England and Wales)
1,875
254,303
131,348
(1,058)
7,401
(329,158)
(2,169)
62,542
2,104
267,770
135,670
(974)
7,401
(362,340)
(324)
49,307
21
21
21
21
1,755
247,460
128,503
(1,140)
7,401
(295,921)
(341)
87,717
42
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF CASH FLOWS
Operating activities
Loss before tax
Adjustments to reconcile (loss)/profit before tax to net cash flows:
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based payments expense
Change in fair value of warrants
Net foreign exchange loss/(gain)
Finance income
Finance costs
Other non-cash movements
Loss on out-license of intangible asset
Other income and expenses
Changes in operating assets and liabilities:
Decrease/(increase) in receivables and prepayments
Decrease/(increase) in trade and other payables and accruals
Increase/(decrease) in provisions and other liabilities
Taxation
Net cash flows used in operating activities
Investing activities
Purchase of property, plant and equipment
(Proceeds from out-license)/ Purchase of intangible assets
Payments to CVR holders
Interest earned
Net cash flows from investing activities
Financing activities
Proceeds from issuance of ordinary shares
Transaction costs on issuance of ordinary shares
Proceeds from financing agreements
Interest paid on convertible loan notes
Payment of lease liabilities
Transaction costs on conversion of convertible loan notes
Redemption of convertible loan notes
Net cash flows from/(used in) financing activities
Net decrease in cash and short-term deposits
Cash and short-term deposits at January 1
Effect of exchange rate changes
Cash and short-term deposits at December 31
Note
12
13
25
9
9
9
9
12
13
9
9
22
12
2023
Year ended December 31,
2022
Restated*
£’000s
£’000s
(34,647)
(35,134)
536
311
3,991
(207)
2,000
(1,710)
1,627
—
9,886
—
627
(1,095)
(24)
1,075
(17,630)
—
(337)
—
1,628
1,291
9,335
(411)
80
(711)
(611)
(26)
(2,564)
5,092
(11,247)
56,334
15
45,102
727
—
3,862
(7,805)
(2,033)
(696)
2,910
647
—
(811)
695
1,126
(779)
(1,529)
(38,820)
(10)
1,484
(673)
696
1,497
—
—
153
—
(937)
—
—
(784)
(38,107)
94,296
145
56,334
The accompanying notes form an integral part of these consolidated financial statements.
* See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes
4
25
20, 22
21
25
20, 22
21
Issued
capital
1,755
1,755
—
—
—
—
—
120
—
1,875
—
—
—
—
2
—
145
82
—
2,104
Other
capital
reserves
Share
premium (Restated*)
129,835
247,460
(1,332)
128,503
—
—
—
3,862
(82)
(1,005)
70
131,348
—
—
—
3,991
—
(84)
—
374
41
135,670
247,460
—
—
—
—
—
6,843
—
254,303
—
—
—
—
—
—
8,778
4,689
—
267,770
Employee
Benefit
Trust
shares
(1,140)
Other
reserves
7,401
(1,140)
—
—
—
—
82
—
—
(1,058)
—
—
—
—
—
84
—
—
—
(974)
7,401
—
—
—
—
—
—
—
7,401
—
—
—
—
—
—
—
—
—
7,401
Accumulated
losses
(Restated*)
(296,968)
1,047
(295,921)
(33,237)
—
(33,237)
—
—
—
—
(329,158)
(33,182)
—
(33,182)
—
—
—
—
—
—
(362,340)
Translation
reserves
(341)
(341)
—
(1,828)
(1,828)
—
—
—
—
(2,169)
—
1,845
1,845
—
—
—
—
—
—
(324)
Total
Total
88,002
(285)
87,717
(33,237)
(1,828)
(35,065)
3,862
—
5,958
70
62,542
(33,182)
1,845
(31,337)
3,991
2
—
8,923
5,145
41
49,307
At January 1,2022
Effect of change in accounting policy
At January 1, 2022 (Restated*)
Loss for the year (Restated*)
Other comprehensive loss
Total
Share-based payments
Exercise of share options
Convertible loan notes
Issuance of warrants
At December 31, 2022
Loss for the year
Other comprehensive loss
Total
Share-based payments
Deferred restricted stock units awarded
Exercise of share options
Issuance of ordinary shares
Convertible loan notes
Issuance of warrants
At December 31, 2023
The accompanying notes form an integral part of these consolidated financial statements.
* See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
44
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Corporate information
1.
Mereo BioPharma Group plc (the “Company” or “Mereo”) is a clinical-stage, United Kingdom (“UK”) based
biopharmaceutical company focused on rare diseases.
The Company is a public limited company incorporated and domiciled in the UK, 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.
The consolidated financial statements of Mereo BioPharma Group plc and its subsidiaries for the year ended
December 31, 2023 were authorized for issue in accordance with a resolution of the Directors on April 24, 2024. The
principal activities of the Company are the development and commercialization of innovative therapeutic pharmaceutical
products for rare diseases.
2. Material accounting policies
Basis of preparation
The Company’s consolidated financial statements have been prepared in accordance with UK-adopted International
Accounting Standards and the Companies Act 2006.
The consolidated financial statements are presented in pound sterling (“£”), which is the presentational currency of the
Company. The functional currencies of consolidated subsidiaries are pound sterling and US dollars (“$”). All amounts
disclosed in the consolidated financial statements and notes have been rounded to the nearest thousand, unless
otherwise stated. The financial statements have been prepared on the historical cost basis, except for the revaluation
of certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the
accounting policies below.
In the condensed consolidated statement of comprehensive loss for the six months ended June 30, 2023, the Company
included amounts received from its depositary within other operating income. These amounts are included within
administrative expenses for the year ended December 31, 2023.
Basis of consolidation
The consolidated financial information comprises the financial statements of Mereo BioPharma Group plc and its
subsidiaries as at December 31, 2023. Subsidiaries are all entities over which the Company has control. The Company
controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are
deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains on
transactions between subsidiaries are eliminated in preparing the consolidated financial statements. Accounting policies
of subsidiaries are consistent with the policies adopted by the Company.
The Company has an employee benefit trust ("EBT") to facilitate share transactions pursuant to employee share
schemes. Although the trust is a separate legal entity from the Company, its assets are considered to be part of the
Company’s assets in accordance with the IFRS 10 rules on special purpose vehicles. The Company is deemed to
control the trust principally because the trust cannot operate without the funding the Company provides.
Segmental information
The Company has one operating segment. The Chief Operating Decision Maker (“CODM”) is the Chief Executive
Officer. The Company has a single portfolio of product candidates, with only direct research and development expenses
monitored by product candidate. The CODM makes decisions over resource allocation at an overall portfolio level and
the Company’s financing is managed and monitored on a consolidated basis.
Non-current assets held by the Company are located in the United Kingdom and United States. As at December 31,
2023, less than £0.1 million (2022: £0.1 million) of non-current assets are located in the United States.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Going concern
The going concern basis has been applied in these consolidated financial statements as the Company has adequate
resources to meet its liabilities as they fall due for the foreseeable future and at least 12 months from the date of
approval of these consolidated financial statements.
The Company expects to incur significant operating losses for the foreseeable future as it continues its research and
development efforts, seeks to obtain regulatory approval of its product candidates and pursues any future product
candidates the Company may develop.
Until such time as the Company can generate significant revenue from product sales, or other commercial revenues, if
ever, or through licensing and/or collaboration agreements for its rare disease or oncology product candidates, the
Company will seek to finance its operations through a combination of non-dilutive funding sources, public or private
equity or debt financings or other sources.
As of December 31, 2023, the Company has cash and short-term deposits available of £45.1 million.
The Company has prepared detailed cash flow forecasts for the period from approval of these consolidated financial
statements to December 31, 2025. The Company has considered the continuing economic uncertainty, rises in inflation,
and impacts on the labor market on these forecasts.
The Company’s existing funds provide the Company with sufficient cash resources to meet its liabilities as they fall due
and for the period through December 31, 2025. Therefore, although the Company continues to generate losses, the
Company considers that there is sufficient headroom between the forecast expenditure and cash resources such that
the likelihood of the headroom being exhausted is remote. Therefore, the Company determined that it is appropriate to
adopt the going concern basis of accounting in preparing these consolidated financial statements.
Revenue
Summary of material accounting policies
a)
The Company’s ordinary business activities are the development of product candidates to key clinical milestones and
either strategically partnering them or further developing such product candidates through regulatory approval and
potentially commercialization. The Company may enter into a range of different agreements with third parties, including
but not limited to: (i) licensing agreements where the global rights to a product candidate are licensed to a partner; and
(ii) collaboration agreements where rights to a product candidate are licensed to a partner but the Company retains
certain rights, for example to further develop or commercialize the product candidate in specified geographical
territories. Under both licensing and collaboration agreements, rights to product candidates are provided to a partner
typically in exchange for consideration in the form of upfront payments and/or development, regulatory, commercial or
other similar milestones, and royalties on commercial sales, should regulatory approval be obtained for the product
candidates.
The terms of these arrangements typically include payment to the Company of one or more of the following:
nonrefundable, upfront license fees; payments for research and development services; fees upon the exercise of
options to obtain additional services or licenses; payments based upon the achievement of defined collaboration
objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.
Where the Company has performed significant development activities for its product candidates, including the
setrusumab and leflutrozole partnerships described in Note 6, receipts from agreements with third parties are
considered to be proceeds derived from customers of the Company’s ordinary activities and therefore represent revenue
within the scope of IFRS 15, Revenue from Contracts with Customers.
When this is not the case and the third parties are not receiving outputs from the Company's ordinary activities , such
as in the Navicixizumab ("Navi") partnership described in Note 9, the third parties are not considered to be customers
and the Company accounts for receipts from these agreements as other income.
To determine revenue recognition for arrangements that the Company determines are within the scope of IFRS 15, it
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in
the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the
contract; and (v) recognize revenue when, or as, the Company satisfies the performance obligations. The Company only
applies the five-step model to contracts when it is highly probable that the entity will collect substantially all of the
consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting
for these arrangements, the Company must make significant judgments, including identifying performance obligations
46
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the
transaction price to each performance obligation.
Once a contract is determined to be within the scope of IFRS 15, the Company assesses the goods or services promised
within the contract and determines those that are performance obligations. Arrangements that include rights to additional
goods or services that are exercisable at a customer’s discretion are generally considered options. The Company
assesses if these options provide a material right to the customer and if so, they are considered performance obligations.
Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the
customer. The promised goods or services in the Company’s contracts with customers primarily consist of license rights
to the Company’s intellectual property, research and development services and options to obtain additional licenses,
such as a commercialization license for a potential product candidate. Promised goods or services are considered
distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available
resources, and (ii) the promised good or service is separately identifiable from other promises in the contract. In
assessing whether promised goods or services are distinct, the Company considers factors such as the stage of
development of the underlying intellectual property, the capabilities of the collaboration partner to develop the intellectual
property on their own and whether the required expertise is readily available. In addition, the Company considers
whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promises,
whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could
provide the remaining promises, and whether it is separately identifiable from the remaining promises.
The Company estimates the transaction price based on the amount of consideration the Company expects to receive
for transferring the promised goods or services in the contract. The consideration may include both fixed consideration
and variable consideration. At the inception of each arrangement that includes variable consideration, the Company
evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company
utilizes either the most likely amount method or expected value method to estimate variable consideration to include in
the transaction price based on which method better predicts the amount of consideration expected to be received. The
amount included in the transaction price is constrained to the amount for which it is highly probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company
reevaluates the estimated variable consideration included in the transaction price and any related constraint, and if
necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative
catch-up basis in the period of adjustment. The initial transaction price of a contract does not include amounts associated
with customer option payments.
After the transaction price is determined, it is allocated to the identified performance obligations based on the estimated
standalone selling price. The Company must develop assumptions that require judgment to determine the standalone
selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to
determine the standalone selling price, which may include other comparable transactions, pricing considered in
negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Based on the
current agreements in effect, there is limited judgment in determining the revenue and transaction price. Certain variable
consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable
consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each
performance obligation are consistent with the amounts the Company would expect to receive for each performance
obligation.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective
performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over
time, the facts and circumstances of each respective contract will be used to determine the revenue recognitions
pattern. The Company currently does not have any revenue that is being recognized over a time period.
Payments to third parties arising as a direct consequence of revenue recognized are also recorded within cost of
revenue in the Company's consolidated statement of operations and comprehensive loss. Intangible assets out-
licensed under a license or collaboration agreement are recorded within cost of revenue in the Company’s
consolidated statement of comprehensive (loss)/income based on an allocation of cost or value of the rights that
have been out-licensed.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
License revenue
The Company has no approved product candidates and accordingly has not generated any revenue from commercial
product sales. Revenue to date has been generated principally from licensing arrangements and collaboration
agreements with a small number of the Company's customers.
If a license to the Company's intellectual property is determined to be distinct from the other performance obligations
identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the
license at such time as the license is transferred to the licensee and the licensee is able to use, and benefit from, the
license.
Contingent milestone payments
The Company's licensing arrangements and collaboration agreements may include development, regulatory and sales
milestones. IFRS 15 constrains the amount of variable consideration included in the transaction price in that either all,
or a portion, of variable consideration should be included in the transaction price. The variable consideration should be
included only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Company evaluates the probability of the milestones being reached and estimates the amount to be included in
the transaction price using the most likely amount method. The Company evaluates factors such as the scientific,
clinical, regulatory, commercial and other risks that much be overcome to achieve the particular milestone in making
this assessment. If it is highly probable that a significant revenue reversal would not occur, the associated milestone
value is included in the transaction price. Milestone payments that are not within the Company's control, such as
regulatory approvals, are not considered highly probable of being achieved until those approvals are received. At the
end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any
related constraints and, if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are
recorded on a cumulative catch up basis, which would affect revenue and net loss in the period of adjustment.
Research and development (R&D) expenses
b)
Expenditure on product development is capitalized as an intangible asset and amortized over the expected useful
economic life of the product candidate concerned. Capitalization commences from the point at which technical feasibility
and commercial viability of the product candidate can be demonstrated and the Company is satisfied that it is probable
that future economic benefits will result from the product candidate once completed. Capitalization ceases when the
product candidate receives regulatory approval for launch. No such costs have been capitalized to date.
Expenditure on R&D activities that do not meet the criteria for capitalization, including ongoing costs associated with
acquired intellectual property rights and intellectual property rights generated internally by the Company, is recognized
in the consolidated statement of comprehensive (loss)/income as incurred. Intellectual property and in-process R&D
from asset acquisitions are recognized as intangible assets at cost.
Taxation
c)
Tax expense recognized in the consolidated statement of comprehensive (loss)/income comprises the sum of deferred
tax and current tax not recognized in other comprehensive income or directly in equity.
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the
taxation authorities that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit
or loss in the consolidated financial statements. Calculation of current tax is based on tax rates and tax laws that have
been enacted, or substantively enacted, by the end of the reporting period in the jurisdictions in which the Company
operates.
Amounts receivable in respect of research and development tax credits are recognized in the consolidated financial
statements provided there is sufficient evidence that the amounts are recoverable. These credits are recognized within
income tax in the consolidated statement of comprehensive (loss)/income.
A provision is recognized for matters in which the tax determination is uncertain but it is considered probable that there
will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount
expected to become payable.
48
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes interest received on taxes repaid within finance income in the consolidated statement of
comprehensive (loss)/income. As of December 31, 2023 and 2022, no material accrued interest is included in the related
tax receivable recognized in the consolidated balance sheet.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits
and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. The carrying
amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset
to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are
recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be
recovered.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply in
the year when the asset or liability is realized, based on tax rates (and tax laws) enacted or substantively enacted at the
end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net basis.
Foreign currencies
d)
Items included in the consolidated financial statements are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in pound sterling (“£”), which is the presentational currency of the Company. The functional currencies of
consolidated subsidiaries are pound sterling and US dollars (“$”).
Transactions in foreign currencies are initially recorded by the Company at the rate prevailing on the date the transaction
first qualifies for recognition. Differences arising on settlement or translation of monetary items as well as gains or losses
on the retranslation of foreign currency balances at the year-end are recognized in the consolidated statement of
comprehensive (loss)/income.
The results and financial position of subsidiaries that have a functional currency different from the presentational
currency of the Company are translated into the presentational currency (pound sterling). The assets and liabilities of
such entities are translated into pound sterling at the rate of exchange prevailing at the balance sheet date. Income and
expenses are translated at the average rate for the year, which approximates the exchange rates at the dates of the
transactions. Fair value adjustments arising on acquisition of such entities are treated as assets and liabilities of the
relevant entity and translated into pound sterling at the closing rate. The exchange differences arising on translation for
consolidation are recognized in other comprehensive (loss)/income.
Property, plant and equipment
e)
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment
losses, if any. Such cost includes the cost of replacing part of the plant and equipment if the recognition criteria are
met. All other repair and maintenance costs are recognized in the consolidated statement of comprehensive loss as
incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Useful
lives of various property, plant and equipment are as follows:
•
•
•
Leasehold improvements
shorter of lease term or ten years
Office equipment
IT equipment
five years
three years
Property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of comprehensive
(loss)/income when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed annually
and adjusted prospectively, if appropriate.
Business combinations
f)
Business combinations are accounted for using the acquisition method of accounting. At the date of acquisition, the
Company initially recognizes the fair value of the identifiable assets acquired, the liabilities assumed and any non-
controlling interest in the acquired business.
The consideration transferred is measured at fair value at the date of acquisition. The excess of the consideration
transferred over the fair value of net identifiable assets of the business acquired is recorded as goodwill, unless the
amount of consideration transferred is less than the fair value of net identifiable assets of the business acquired in which
case the difference is recognized directly in the consolidated statement of comprehensive (loss)/income as a bargain
purchase. A valuation is performed of assets and liabilities assumed on each acquisition accounted for as a business
combination based on the best estimate of fair value.
Where the settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to
their present value. Contingent consideration is classified either as equity or a financial liability and is recognized at
fair value on the acquisition date. Amounts classified as a financial liability are subsequently remeasured to fair value
in accordance with IFRS 9 (Financial Instruments), with changes in fair value recognized in the consolidated statement
of comprehensive (loss)/income as an administrative expense. The only Contingent consideration liabilities are the
Company's obligations under the Contingent Value Rights Agreement (the “CVR Agreement”), dated April 23, 2019
which required the Company to make payments if specified milestones are achieved within agreed time periods on the
etigilimab and navicixizumab product candidates acquired in the acquisition of Oncomed in 2019. The CVR Agreement
expires on April 23, 2024 and the CVR liability was £nil in all periods presented.
Directly attributable acquisition-related costs are expensed as incurred within the consolidated statement of
comprehensive (loss)/income.
g)
Leases
The Company assesses whether a contract is, or contains, a lease at inception of the contract. The Company recognizes
a right-of-use asset and a corresponding liability with respect to all lease arrangements in which it is a lessee.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the rate implicit in the lease. If this rate cannot be readily determined, the
Company uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise of fixed lease payments, less any lease
incentives receivable.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The
Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset)
whenever there is a significant change in lease term, lease payments or if the lease contract is modified and the lease
modification is not accounted for as a separate lease.
The right-of-use assets comprise the initial measurement of the corresponding lease liability and lease payments made
at or before the commencement date, less any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment losses.
The right-of-use assets are presented within property, plant and equipment. Right-of-use assets are depreciated over
the shorter period of lease term and useful life of the underlying asset:
Right-of-use asset (building)
Right-of-use asset (equipment)
six to nine years
one to two years
•
•
50
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets
h)
Intangible assets acquired outside a business combination are initially recorded at cost, using the Cost accumulation
model. Under this model, the asset is initially recognized, at the date of acquisition, at the cost paid. Variable payments
are not included in the carrying amount of the asset at acquisition, and no liability is recognized for the contingent
consideration until the related uncertainty is substantially resolved. Subsequent payments made are capitalized as part
of the cost of the asset if they are paid as a consequence of the utility of the asset. This is a change in accounting policy
for the year ended December 31, 2023 as described in Note 4.
Intangible Assets that have been acquired through a business combination are initially recorded at fair value. The fair
value of any contingent consideration is regularly reviewed based on the probability of achieving contractual milestones.
Refer to the policy on business combinations above for more information.
Where the consideration paid or payable is in shares, the cost is measured in accordance with IFRS 2 (Share Based
Payments).
Intangible assets that are not yet available for use are reviewed for impairment at each reporting date by allocating
the assets to the cash-generating units to which they relate. The estimated useful life is the lower of the legal duration
and economic useful life. The estimated useful lives of intangible assets are reviewed at least annually.
Intangible assets are amortized from the date they are available for commercial use. The only intangible asset currently
amortized is the UCB/Amgen License, which is amortized using the straight-line method over its useful economic life
(see Note 13).
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal
proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.
Financial instruments
i)
Financial assets and liabilities are recognized in the consolidated balance sheet only when the Company becomes
party to the contractual provisions of the instrument.
Financial assets
On initial recognition, a financial asset is classified into one of three primary measurement categories:
•
•
•
Amortized cost;
Fair value through other comprehensive income (“FVOCI”); or
Fair value through profit or loss (“FVTPL”).
The initial classification into a primary measurement category depends on the nature and purpose of the financial
asset.
Interest income, impairment losses or gains from reversal of impairment, are recognized directly in the consolidated
statement of comprehensive income. Changes in the fair value of financial assets measured through profit or loss are
recognized within the consolidated statement of comprehensive (loss)/income upon each measurement date. Financial
assets measured at amortized cost are recognized in the consolidated balance sheet at the gross cost net of
accumulated amortization. For financial assets measured at FVOCI, the difference between cumulative fair value gains
or losses and the cumulative amounts recognized in the consolidated statement of comprehensive (loss)/income is
recognized in other comprehensive income until derecognition, when the amounts in other comprehensive income are
reclassified to the consolidated statement of comprehensive (loss)/income.
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of
the contractual arrangements and the definitions of a financial liability and an equity instrument.
Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host with the effect that
some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. Derivatives
embedded in hybrid contracts with hosts that are not financial assets within the scope of IFRS 9 (e.g. financial liabilities)
are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not
closely related to those of the host contracts and the host contracts are not measured at FVTPL.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Convertible loan notes
Convertible loan notes are regarded as compound instruments consisting of a liability component and an equity
component. At the date of issue, the fair value of the liability component is estimated using a discount rate for an
equivalent liability without the conversion feature. This amount is recorded as a liability on an amortized cost basis using
the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The difference
between the proceeds from the issue of the convertible loan note and the fair value assigned to the liability component
is included in equity and not subsequently remeasured. Upon conversion, the amount initially recognized in “Other
capital reserves” will be transferred to “Share premium.”
Financial liabilities
All financial liabilities are measured subsequently at amortized cost using the effective interest method or at FVTPL.
Borrowings (including interest-bearing loans) are initially recognized at fair value, net of transaction costs incurred.
Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective
interest method. Under the effective interest method, amortization is included as a finance cost in the consolidated
statement of comprehensive (loss)/income.
Non-substantial modifications to financial liabilities are measured at amortized cost with the associated gain or loss
recognized in the consolidated statement of comprehensive (loss)/income. The gain or loss is computed as the
difference between the original contractual cash flows and the modified cash flows, discounted at the original effective
interest rate. For substantial modifications, the existing financial liability is derecognized and a new financial liability is
established.
Borrowings are derecognized from the balance sheet when the obligation specified in the contract is discharged,
cancelled or expired.
The warrant instruments are recorded at fair value, with changes in the fair value recognized in the consolidated
statement of comprehensive (loss)/income, where the terms of the warrant instruments allow for cashless exercise.
Fair value measurement
j)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or
the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are
categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1 — quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 — valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable.
Level 3 — valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
•
•
•
52
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on
the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Impairment of non-financial assets
k)
Further disclosures relating to impairment of non-financial assets are also provided in the following notes:
•
•
•
Disclosures for significant assumptions
Property, plant and equipment
Note 3
Note 12
Intangible assets not yet available for use
Notes 13 and 14
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. If any
such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less
costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the
carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded companies or other available fair value indicators.
Impairment losses are recognized in the consolidated statement of comprehensive (loss)/income in expense categories
consistent with the function of the impaired asset.
An assessment is made at each reporting date to determine whether there is an indication that previously recognized
impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or
cash-generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been
a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of comprehensive
(loss)/income.
Cash and short-term deposits
l)
Cash and short-term deposits in the balance sheet comprise cash at banks and on hand along with short-term deposits
with an original maturity of three months or less from the date of deposit, which are subject to an insignificant risk of
changes in value.
m) Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a
provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate
asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the
consolidated statement of comprehensive (loss)/income net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share-based payments
n)
Employees (including executives) and non-executive directors of the Company receive remuneration in the form of
share-based payments, whereby employees and non-executive directors render services as consideration for equity
instruments (equity settled transactions).
Incentives in the form of shares are provided to employees and non-executive directors under various plans (see Note
25).
In accordance with IFRS 2 Share-based Payments (“IFRS 2”), charges for these incentives are expensed through the
consolidated statement of comprehensive (loss)/income using the accelerated graded-vesting attribution method over
their vesting period, based on the Company’s estimate of shares that will eventually vest. The total amount to be
expensed is determined by reference to the fair value of the options or awards at the date they were granted.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of
the goods or services received, except where that fair value cannot be estimated reliably, in which case they are
measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the
counterparty renders the service.
In accordance with IFRS 2, the cancellation of share options is accounted for as an acceleration of the vesting period
and therefore any amount unrecognized that would otherwise have been charged in future accounting periods is
recognized immediately. When options are forfeited, the accounting expense for any unvested awards is reversed.
Costs of issuing capital
o)
Incremental costs incurred and directly attributable to the offering of equity securities are deducted from the related
proceeds of the offering. The net amount is recorded as share premium in the period when such shares are issued.
Where such expenses are incurred prior to the offering they are recorded in prepayments until the offering completes.
Other costs incurred in such offerings are expensed as incurred and included in general and administrative expenses.
Employee Benefit Trust
p)
The Company operates an Employee Benefit Trust (“EBT”), the Mereo BioPharma Group plc Employee Benefit Trust.
The EBT holds ADSs to satisfy the exercise of options under the Company’s share-based incentive schemes (see Note
25). The EBT is a Jersey-based trust which was initially funded by a loan from the Company, which it utilized to purchase
shares in sufficient quantity to fulfill the envisaged awards. The Company will issue ordinary shares to a custodian for
conversion by a depositary bank to ADSs and delivery to the EBT. These ordinary shares will be presented as employee
benefit trust shares on the consolidated balance sheet at their nominal value.
Shares held by the EBT are included in the consolidated balance sheet as a reduction in equity.
Pension contribution costs
q)
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have
rendered service entitling them to the contributions.
Significant judgments, estimates and assumptions
3.
The preparation of these consolidated financial statements requires the management of the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its
estimates and judgments on historical experience and on various other assumptions that it considers to be reasonable.
Actual results may differ from these estimates under different assumptions or conditions.
Judgments
Change in accounting policy
During the year, the Company voluntarily changed its accounting policy for determining how the cost of an intangible
asset acquired outside a business combination should be determined where the acquirer may be required to make future
contingent payments. This change required the Company to make judgments about whether the new accounting policy
would provide reliable and more relevant information to users of the accounts. Details of this judgment and the impact
on the financial statements in the current and prior periods are provided in Note 4.
54
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue and cost of revenue
Judgment is required to determine the appropriate accounting for the $9 million (£7.1 million) milestone payment
received under the license and collaboration agreements with Ultragenyx Pharmaceutical, Inc. (“Ultragenyx”) and the
$1.0 million (£0.8 million) upfront payment received under the license agreement with ReproNovo SA ("ReproNovo").
Management has determined that the upfront proceeds from both agreements represent proceeds from the Company’s
ordinary business activities and, therefore, represent revenue within the scope of IFRS 15, Revenue from Contracts with
Customers.
Management has also made judgments related to the determination whether the performance obligation has been
satisfied on how much of each receipt should be recognized as revenue in the year based on what performance
obligations existed in the agreements and the extent to which they were satisfied during the year. Management
concluded that it was appropriate to recognize the full amount of both payments in the year These judgments, and the
reasons for Management's conclusions, are explained in more detail in Note 5.
Estimates and assumptions
Recoverable amounts of intangible assets
Acquired development programs not yet available for use are assessed annually for impairment. This involves
comparing the carrying value of each asset to its recoverable amount. Any excess of the asset’s carrying value over its
recoverable amount is recognized as an impairment in the consolidated statement of comprehensive (loss)/income. The
calculation of each asset's recoverable amount involves making a number of significant estimates and assumptions
about the cash flows to be generated by the asset including the likelihood of successful product approval, the costs of
attaining approval, the estimated useful life of intangible assets following commercialization and the subsequent
profitability of the product once approved. further information on the key inputs, valuation techniques and the sensitivity
of the balance to the key assumptions is provided in Note 14.
4.
Changes in accounting policies
Voluntary change in accounting policy
a)
Effective January 1, 2024, the Company began complying with and reporting under the U.S. Securities and Exchange
Commission rules and Nasdaq listing requirements applicable to U.S. domestic filers, including preparing financial
statements in compliance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In connection with preparing these financial statements for the first time, the Company reviewed all of its accounting
policies and noted that there is no IFRS standard that states how the cost of an intangible asset acquired outside a
business combination should be determined where the acquirer may be required to make future contingent payments
(“Variable Consideration”). Entities are therefore required to follow IAS 8, ‘Accounting policies, changes in accounting
estimates and errors’ (“IAS 8"), to develop an appropriate policy for such items and there is diversity in practice.
The Company historically recorded a liability for Variable Consideration to be paid in cash equal to the present value of
the probability-weighted future cash flows, with changes in this amount related to the probability or timing of those cash
flows recognized as a revision to the cost of the related intangible asset. Variable Consideration to be paid in equity
were recorded at fair value within the share based payment reserve accordance with IFRS 2.
The Company has concluded that a more relevant and reliable view of its financial position and performance would be
provided if Variable Consideration was instead recognized using the cost accumulation model as described in Note 2 h)
above. The Company believes this revised policy is preferable as it better reflects the way the liability will be discharged,
removes considerable estimation uncertainty, and more closely aligns the Company with industry practice.
The Company has therefore made a voluntary change in accounting policy. This involved de-recognizing a portion of
the alvelestat intangible asset together with a corresponding reduction of the liability for deferred cash consideration and
the share based payment reserve that reflected the deferred cash and deferred equity consideration. Accumulated
losses were also reduced to reflect the cumulative movements in the liability that had been recognized in the
consolidated statement of comprehensive (loss)/income. Had the accounting policy not been changed, a liability of £4.6
million would have been recorded on the balance sheet at December 31, 2023 related to probable near-term milestone
payments. See Note 24 for detail of the total potential commitments in relation to alvelestat.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Each of the affected financial statement line items for the prior periods are shown in the tables below:
Consolidated Balance sheet (extract)
31-Dec-22
Increase/ decrease
Intangible assets
Provisions (Non-current)
Net assets
Other capital reserves
Accumulated losses
Total equity
£'000s
24,116
4,822
61,868
132,680
(331,164)
61,868
£'000
(3,960)
(4,634)
674
(1,332)
2,006
674
Consolidated Balance sheet (extract)
1-Jan-22
Increase/ decrease
Intangible assets
Provisions (current)
Provisions (Non-current)
Net assets
Other capital reserves
Accumulated losses
Total equity
Consolidated Statement of Comprehensive
(Loss)/Income
Finance costs
Net foreign exchange (loss)/gain
Loss before tax
Loss for the year attributable to equity holders
of the parent
Total comprehensive loss for the year,
attributable to equity holders of the parent
£'000s
24,564
2,803
1,320
88,002
129,835
(296,968)
88,002
2022
£'000s
(3,361)
1,525
(36,093)
(34,196)
(36,024)
£'000
(4,408)
(2,803)
(1,320)
(285)
(1,332)
1,047
(285)
Increase/
decrease
£'000
451
508
959
959
959
31-Dec-22
(Restated)
£'000
20,156
188
62,542
131,348
(329,158)
62,542
1-Jan-22
(Restated)
£'000
20,156
-
-
87,717
128,503
(295,921)
87,717
2022
(Restated)
£'000
(2,910)
2,033
(35,134)
(33,237)
(35,065)
There was no impact on Net cash flows used in operating activities, nor any other caption in the Consolidated Statement
of Cash Flows or basic or diluted loss per share in any period presented.
New standards, interpretations and amendments adopted from January 1, 2023
b)
In the current year, the Company has applied the below amendments to IFRS issued by the IASB that are effective for
an annual period that begins on or after January 1, 2023. Their adoption has not had any material impact on the
disclosures or on the amounts reported in these consolidated financial statements:
IFRS 17 – Insurance Contracts
Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies
Amendments to IAS 8 – Definition of accounting estimates
Amendments to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction and
international tax reform - Pillar Two model rules
•
•
•
•
56
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
New standards, interpretations and amendments not yet effective
c)
At the date of authorization of these consolidated financial statements, the Company has not applied the following new
and revised IFRS that have been issued but are not yet effective, and in relation to those effective from January 1, 2025,
had not yet been endorsed by the UK Endorsement Board.
Effective January 1, 2024
•
•
•
•
Amendments to IFRS 16 – Lease liability in a sale-and-leaseback
Amendments to IAS 1 – Classification of liabilities as current or non-current
Amendments to IAS 1 – Non-current liabilities with covenants
Amendments to IAS 7 and IFRS 7 – Supplier finance arrangements
Effective January 1, 2025
•
Amendment to IAS 21 – Lack of exchangeability
The Company does not expect the adoption of these IFRS amendments will have a material impact on the Company in
the current or future reporting periods and on foreseeable future transactions.
5.
Group information
Information about subsidiaries
The consolidated financial statements of the Company include:
Name
Mereo BioPharma 1 Limited
Mereo BioPharma 2 Limited
Mereo BioPharma 3 Limited
Mereo BioPharma 4 Limited
Mereo BioPharma Ireland Limited
Mereo BioPharma 5, Inc.
Navi Subsidiary, Inc.
Mereo US Holdings Inc.
Mereo BioPharma Group plc
Employee Benefit Trust
Principal activities
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Holding Company
Employee share scheme
% Equity
% Equity
Country of
incorporation
interest
December 31,
2023
interest
December 31,
2022
UK
UK
UK
UK
Ireland
US
US
US
Jersey
100
100
100
100
100
100
100
100
—
100
100
100
100
100
100
100
100
—
The registered office of Mereo BioPharma 1 Limited, Mereo BioPharma 2 Limited, Mereo BioPharma 3 Limited and
Mereo BioPharma 4 Limited is located at Fourth Floor, 1 Cavendish Place, London W1G 0QF. The registered office of
Mereo BioPharma Ireland Limited is 6 Lapp's Quay, Cork, T12 TA48, Republic of Ireland.
Mereo US Holdings Inc. was incorporated on December 3, 2018 for the sole purpose of effecting the business
combination with Mereo BioPharma 5, Inc. (formerly OncoMed Pharmaceuticals, Inc.) on April 23, 2019. The registered
office of Mereo US Holdings Inc., Mereo BioPharma 5, Inc. and its wholly owned subsidiary, Navi Subsidiary, Inc., is
251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808, US.
6.
Revenue and Cost of Revenue
Ultragenyx Partnership
On January 25, 2021, the Company's license and collaboration agreement with Ultragenyx for the development and
commercialization of setrusumab for OI became effective. Under the terms of the agreement, the Company received an
upfront payment of $50.0 million (£36.5 million) and was eligible to receive up to $254 million (£200 million) in
development, regulatory and commercial milestones and tiered double digit percentage royalties on net sales outside
of Europe and pay a fixed double digit percentage royalty to Ultragenyx on net sales in Europe . The license and
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
collaboration agreement grants Ultragenyx an exclusive license to develop and commercialize setrusumab in the US
and rest of the world, excluding Europe where the Company retains commercial rights.
Two distinct performance obligations were identified as part of the license and collaboration agreement: (i) a promise to
grant the license to develop and commercialize setrusumab, and (ii) provision of subsequent clinical supply of
setrusumab.
In the year ended December 31, 2023, the Company recognized milestone proceeds of $9.0 million (£7.1 million) as
revenue under the license and collaboration agreement with Ultragenyx for setrusumab following achievement of a
development milestone. The milestone payments constitute a change in transaction price for the Ultragenyx agreement,
to which revenue was first recorded in the year ended December 31, 2021. Pursuant to the terms of the agreement, the
Company is entitled to receive milestone payments from Ultragenyx upon the achievement of certain development,
regulatory and sales based milestones. The variable consideration relating to future milestones and sales royalties are
recognized in the statement of comprehensive income when achievement of the milestones are probable or the
underlying commercial sales are made, in the event regulatory approval is achieved. No revenues were recognized in
respect of this agreement in the year ended December 31, 2022. proceeds were received in July 2023 and was indicative
of meeting the requirements of performance obligation (i) above. No revenue was recognized in respect of this
agreement in the year ended December 31, 2022.
As a consequence of the milestone received by the Company under the license and collaboration agreement with
Ultragenyx and in accordance with terms of the 2015 asset purchase with Novartis which requires payment of a
percentage of the proceeds received, the Company also recognized cost of revenue of £1.9 million in the year ended
December 31, 2023.
In 2021, the Company received a $50.0 million (£36.5 million) upfront payment from Ultragenyx which triggered a £9.5
million obligation to Novartis under our 2015 agreement with them. An amount of £2.4 million was deferred from this
obligation to reflect future costs that were expected to be incurred. Accordingly, the Company recognized cost of revenue
of £9.5 million to reflect both the £7.2 million payment made to Novartis and the recognition of a liability within current
other liabilities for this deferral. This liability was subsequently reduced through a credit to cost of revenue as the costs
were incurred. Cost of revenue for 2022 was a credit of £0.9 million.
ReproNovo Partnership
On December 13, 2023, the Company and ReproNovo SA. (“ReproNovo”) announced a global licensing agreement for
the development and commercialization of leflutrozole. Under the terms of the global licensing agreement, ReproNovo
will receive an exclusive worldwide license to develop and commercialize leflutrozole. The Company received an upfront
payment of $1.0 million (£0.8 million) in December 2023. ReproNovo will be responsible for all future research,
development and commercialization of leflutrozole. Additionally, the Company will be eligible to receive up to $64.3
million (£50.5 million) in future clinical, regulatory and commercial milestones, tiered royalties ranging from the low-to-
mid-single digits on global annual net sales of leflutrozole. A single performance obligation was identified in this
agreement which is the promise to grant the license to develop and commercialize leflutrozole. As the upfront payment
is fixed and non-refundable, and therefore does not represent variable consideration, the performance obligation is
satisfied and revenue of $1.0 million (£0.8 million) was recognized at the point in time that ReproNovo gained the right
to use the license. The additional potential future milestone and royalty payments represent variable consideration that
will be recognized when achievement is determined to be highly probable of not reversing.
As a consequence of the milestone proceeds paid to the Company under the license and collaboration agreement with
ReproNovo, and in accordance with the terms of the 2015 asset purchase agreement with Novartis, the Company is
also obligated to pay a proportion of cash milestone payments received. The Company therefore accrued for a payment
to Novartis of $0.1 million (£0.1 million) at December 31, 2023. No revenues were recognized in respect of this
agreement in the year ended December 31, 2022.
The Company's revenue is attributed to the operations of the Company in the U.K.
58
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Operating loss
7.
Operating loss is stated after charging:
Fees payable to the Company’s Auditors for the audit of the
consolidated financial statements - current auditor
Fees payable to the Company’s Auditors for the audit of the
consolidated financial statements - prior auditor
Fees payable to the Company’s Auditors for other services:
Audit of subsidiary financial statements - current auditor
Fees payable to the Company’s Auditors for other services:
Audit of subsidiary financial statements - prior auditor
Audit related assurance services - current auditor
Audit related assurance services - prior auditor
Other assurance services - current auditor
Depreciation of right-of-use assets
Depreciation (excluding right-of-use assets)
Amortization of intangible assets
Year ended December 31,
2022
2023
£'000s
£'000s
414
162
54
—
377
170
2
399
137
310
Employees
8.
The average monthly number of persons employed by the Company during the year was:
By activity:
Administrative
Research and development
Total
Year ended December 31,
2022
2023
£’000s
£’000s
18
16
34
—
371
—
49
—
59
—
583
144
—
29
20
49
Total compensation costs for persons employed by the Company (including Directors) during the year was:
Included in research and development expenses:
Salaries
Social security costs
Pension contributions
Share-based payment expenses
Included in administrative expenses:
Salaries
Social security costs
Pension contributions
Share-based payment expenses
Year ended December 31,
2022
2023
£’000s
£’000s
3,393
580
101
731
3,614
458
65
3,249
4,590
456
78
1,083
4,478
606
124
2,779
Total
12,191
14,194
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Total compensation costs for Directors during the year was:
Salaries and fees
Benefits in kind
Pension contributions
Share-based payment expenses
Bonus
Total
Year ended December 31,
2022
2023
£’000s
£’000s
497
16
44
1,765
200
2,522
534
9
42
1,812
226
2,623
During 2023, one Director was a member of a defined contribution pension scheme (2022: one). Further details
concerning the remuneration of key management personnel is included in Note 26. In respect of directors' remuneration,
amounts are included in the detailed disclosures in the audited section of the Directors' Remuneration report on page
26 , which are ascribed as forming part of these financial statements.
9.
Finance income, finance costs, changes in the fair value of financial instruments and other income and
expenses
Finance income
Interest income on short-term deposits
Gain from modification of private placement loan notes
Total
Finance costs
Interest on convertible loan notes
Interest on lease liabilities
Discounting of other liabilities
Other
Total
Changes in the fair value of financial instruments
Changes in the fair value of warrants – private placement
Changes in the fair value of warrants – bank loan
Total
Year ended December 31,
2022
2023
£'000s
£'000s
1,628
82
1,710
696
—
696
Year ended December 31,
2022
2023
£'000s
£'000s
(1,340)
(146)
(74)
(82)
(1,642)
(2,660)
(209)
—
(41)
(2,910)
Year ended December 31,
2022
2023
£'000s
£'000s
402
(195)
207
7,593
212
7,805
Other income and expenses
In February 2022, the Company received a milestone payment of $2.0 million (£1.5 million) under the Navi License
Agreement with OncXerna. An associated payment was made to the former shareholders of Mereo BioPharma 5
60
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(formerly OncoMed). under the Contingent Value Rights Agreement (“CVR”) of a total of $0.9 million (£0.7 million), after
deductions of costs, charges and expenditures, which resulted in other income, net of £0.8 million.
10. Taxation
UK corporation tax R&D credit
Tax credit
Total
Year ended December 31,
2022
2023
£'000s
£'000s
1,036
429
1,465
1,296
601
1,897
U.K. income tax
The Company is entitled to claim tax credits in the United Kingdom under the U.K. R&D small or medium- sized
enterprise (“SME”) scheme, which provides additional taxation relief for qualifying expenditure on R&D activities, and
includes an option to surrender a portion of tax losses arising from qualifying activities in return for a cash payment from
HM Revenue & Customs (“HMRC”). In addition, the U.K. government is currently consulting on the potential replacement
of the SME Program and RDEC Program with a single program, operating similarly to the RDEC Program, which may,
inter alia, change the present treatment of sub-contracted R&D work and introduce different thresholds and caps on
expenditure and relief. If enacted, the new program would be expected to have effect for expenditure incurred from April
2024 onwards, and could have a material impact on the quantum of R&D relief that we are eligible to claim. This
announcement also saw the introduction of a higher rate of relief for loss-making R&D-intensive small and medium
enterprises, the SME Intensive Scheme.
Companies claiming under the existing SME Intensive Scheme tax relief will be eligible for a higher payable credit rate
if they meet the definition for R&D intensity. We will assess if we can claim under the new loss-making R&D-intensive
SME Intensive Scheme for the accounting period ending December 31, 2024 and future periods, which will provide
benefits consistent with those claimed under the current SME Programs.
U.S. income tax
During the year-ended December 31, 2022, the Company received £0.8 million related to Alternative Minimum Tax
(“AMT”) credits, previously recognized as other taxes recoverable within the consolidated balance sheet. The Company
generates R&D tax credits for U.S. federal and state purposes. In respect of these R&D tax credits, no deferred tax
assets have been recognized in any years presented. As of December 31, 2023, the Company had an uncertain tax
position of £2.3 million, representing approximately 20% of these historic R&D tax losses claimed.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of effective tax rate
Loss before income tax
Tax on profit at standard U.K rate of 23.52% (19%)
Expenses not deductible for income tax purposes (permanent differences)
Income not taxable
Temporary timing differences
R&D relief uplift
Tax rate changes
Losses (unrecognized)
Foreign tax
Differences in overseas tax rates
Derecognition of deferred tax
Effects of carryback loss relief
Adjustments in respect of prior years
Other
Tax credit/(charge) for the year
Deferred tax
The analysis of unrecognized deferred tax is set out below:
Year ended December 31,
2022
(Restated*)
£'000s
2023
£'000s
(34,647)
8,149
(518)
—
—
247
(1)
(6,203)
(35)
(173)
—
—
538
(539)
1,465
(35,134)
6,675
(783)
12
—
558
—
(4,810)
422
323
—
(649)
612
(463)
1,897
Year ended December 31,
2022
(Restated*)
£'000s
2023
£'000s
Losses
Loan relationships
U.S tax credits
R&D capitalization
Fixed assets
Share options
Other
Temporary differences
Deferred tax asset (unrecognized)
51,817
443
11,715
3,568
14
1,039
19
10
68,625
The movement of recognized deferred tax is set out below:
Tax losses
£'000s
(60)
At January 1, 2023 (Restated*)
34
Recognized in income
(26)
Net deferred tax asset/(liability)
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
Intangible
assets and
right-of-use
asset
£'000s
60
(34)
26
47,321
443
12,206
3,001
—
434
—
51
63,456
Total
£'000s
—
—
—
A deferred tax asset on losses has been recognized up to the level of the deferred tax liability, resulting in a net deferred
tax liability of £nil.
The remaining deferred tax assets, as set out in the table above, have not been recognized as there is uncertainty
regarding when suitable future profits against which to offset the accumulated tax losses will arise.
62
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.K. deferred tax
The deferred tax assets have not been recognized as there is uncertainty regarding when suitable future taxable profits
against which to offset the accumulated tax losses will arise. There is no expiration date for the accumulated tax losses.
The standard rate of corporation tax applied to the reported profit/(loss) before tax is 23.52% (2022: 19%). The Finance
Act 2021, which was substantively enacted on May 24, 2021, included provisions to increase the standard rate of U.K.
corporation tax from 19% to 25%, effective from April 1, 2023. The standard rate of corporation tax 23.52% is the U.K.
corporation tax rate of 19% from January 1, 2023 through April 1, 2023, and U.K. corporation tax rate of 25% for the
remainder of 2023. U.K. deferred tax assets and liabilities have been measured at a rate of 25%.
At December 31, 2023, the Company had U.K. tax losses to be carried forward of approximately £51.7 million.
U.S. deferred tax
U.S. deferred tax assets and liabilities are calculated at a blended rate of approximately 21%.
For Mereo BioPharma 5 (formerly OncoMed), with respect to accumulated tax losses carried forward prior to its
acquisition by the Company, there is a change of control restriction which will limit the amount available in any one year.
At December 31, 2023, the Company had U.S. federal tax losses to be carried forward of approximately £52.0 million,
of which £14.3 million can be carried forward indefinitely and £37.7 million which will begin to expire in 2024. At
December 31, 2023, the Company had U.S. state tax losses to be carried forward of approximately £0.1 million which
begin to expire in 2027.
11. Loss per share
Basic loss per share is calculated by dividing the loss attributable for the year to ordinary equity holders of the Company
by the weighted average number of ordinary shares outstanding during the year. Diluted loss per share is based on
dividing the loss attributable for the year, adjusted for the effect of diluted ordinary shares, by ordinary share equivalents,
which includes the weighted average number of ordinary shares outstanding and the effect of dilutive ordinary share
equivalents.
Numerator – Basic earnings per share (£’000s):
Loss attributable to equity holders of the parent
Denominator – Basic earnings per share:
Weighted average number of ordinary shares
Loss per share – basic (£)
Numerator – Diluted earnings per share (£’000s):
Loss attributable to equity holders of the parent
Effect of dilutive ordinary shares
Numerator – Diluted earnings per share
Year ended December 31,
2022
2023
Restated*
(33,182)
(33,237)
659,453,921
(0.05)
603,196,403
(0.06)
(33,182)
—
(33,182)
(33,237)
—
(33,237)
Denominator – Diluted earnings per share:
Number of ordinary shares used for basic earnings per share
Weighted average effect of dilutive ordinary shares
Weighted average number of diluted ordinary shares outstanding
Loss per share – diluted (£)
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
659,453,921
—
659,453,921
(0.05)
603,196,403
—
603,196,403
(0.06)
For the years ended December 31, 2023 and 2022, share options, restricted stock units, performance stock units,
convertible loan notes and warrants were anti-dilutive as they would have decreased the loss per share and were
excluded from the calculation of diluted loss per share. Therefore, the weighted average shares outstanding used to
calculate both the basic and diluted loss per share was the same.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock options to purchase ordinary shares
Restricted stock units
Performance stock units
Convertible loan notes (as converted to ordinary shares)
Convertible loan notes - private placement (as converted to ordinary shares)
Warrants to purchase ordinary shares (as converted to ordinary shares)
12. Property, plant and equipment
Year ended December 31,
2022
2023
38,864,740
54,751,240
—
2,446,125
—
6,690,750
17,010,137
15,657,825
41,048,784
—
147,431,351
2,487,816
Cost
At January 1, 2023
Additions
Disposals
Currency translation effects
At December 31, 2023
Accumulated depreciation
At January 1, 2023
Disposals
Depreciation for the year
At December 31, 2023
Net book value
At December 31, 2022
At December 31, 2023
Cost
At January 1, 2022
Additions
Disposals
Currency translation effects
At December 31, 2022
Accumulated depreciation
At January 1, 2022
Disposals
Depreciation for the year
At December 31, 2022
Net book value
At December 31, 2021
At December 31, 2022
Right-of-use
asset
(buildings)
£'000s
Leasehold
improve-
ments
£'000s
Office
equipment
£'000s
IT
equipment
£'000s
2,465
—
—
—
2,465
(1,088)
—
(399)
(1,487)
1,377
978
557
—
—
—
557
(219)
—
(95)
(314)
338
243
164
—
—
—
164
(76)
—
(21)
(97)
88
67
173
—
—
—
173
(145)
—
(21)
(166)
28
7
Right-of-
use
asset
(buildings)
£'000s
2,903
—
(451)
13
2,465
(1,025)
451
(514)
(1,088)
1,878
1,377
Right-of-
asset
(equipment)
£'000s
use Leasehold
improve-
IT
Office
ments equipment equipment
£'000s
£'000s
£'000s
295
—
(300)
5
—
(231)
300
(69)
—
64
—
557
—
—
—
557
(124)
—
(95)
(219)
433
338
173
7
(16)
—
164
(69)
16
(23)
(76)
104
88
180
3
(10)
—
173
(129)
10
(26)
(145)
51
28
Total
£'000s
3,359
—
—
—
3,359
(1,528)
—
(536)
(2,064)
1,831
1,295
Total
£'000s
4,108
10
(777)
18
3,359
(1,578)
777
727
(1,528)
2,530
1,831
In August 2022, the Company’s lease for office space in Redwood City, California expired, and certain equipment was
disposed.
64
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company leases office space and equipment for use in administrative and research and development activities. In
the year-ended December 31, 2023, the Company made lease payments of £0.6 million (2022: £0.9 million). The
maturity of lease liabilities as of December 31, 2023 are as follows:
Within 1
year
£'000s
Between
1 and 3
years
£'000s
Between
3 and 5
years
£'000s
Over 5
years
£'000s
Total
£'000s
Maturity of lease liabilities
512
711
—
—
1,223
The maturity of lease liabilities as of December 31, 2022 are as follows:
Within 1
year
£'000s
Between
1 and 3
years
£'000s
Between
3 and 5
years
£'000s
Over 5
years
£'000s
Total
£'000s
Maturity of lease liabilities
466
1,072
150
—
1,688
Further details on the movements within lease liability are included in Note 22.
13.
Intangible assets
Cost
At January 1, 2022 (restated*)
At December 31, 2022 (restated*)
Additions
Disposals
At December 31, 2023
Accumulated amortization
At January 1, 2022
At December 31, 2022
Amortization charge in the year
At December 31, 2023
Net book value
At December 31, 2022 (restated*)
At December 31, 2023
Acquired
development
programs
£'000s
20,156
20,156
1,166
(9,886)
11,436
—
—
(310)
(310)
24,116
11,126
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
The Company’s strategy is to acquire and develop clinical-stage development programs for the treatment of rare
diseases.
An intangible asset of £1.2 million was recognized for the UCB/Amgen License in the year ended December 31, 2023
reflecting payments under the agreement that are not contingent. A corresponding liability of £1.2 million was also
recognized. The license is amortized on a straight-line basis over its useful economic life. During the year ended
December 31, 2023, amortization expense of £0.3 million (2022: £nil) has been recorded within administrative expenses
in the consolidated statement of comprehensive (loss)/income.
On December 13, 2023, the Company and ReproNovo announced a global licensing agreement for the development
and commercialization of leflutrozole. Under the terms of the global licensing agreement, ReproNovo will receive an
exclusive worldwide license to develop and commercialize leflutrozole. As a result of the agreement, the Company
derecognized the £9.9 million intangible asset related to leflutrozole, which was recorded as cost of revenue in the
consolidated statement of comprehensive (loss)/income.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
With the exception of the UCB/Amgen License which is amortized, the intangible assets remain under development and
no amortization charge has been recognized.
14.
Impairment testing of acquired development programs not yet available for use
Acquired development programs not yet available for use are assessed annually for impairment. The carrying amount
of acquired development programs is as follows:
December 31,
2023
£’000s
2022
Restated*
£’000s
BPS-804/UX143 (setrusumab)
MPH-966 (alvelestat)
BGS-649 (leflutrozole)
BCT-197 (acumapimod)
3,015
3,800
—
4,311
Total
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
11,126
2,159
3,800
9,886
4,311
20,156
The carrying amount of setrusumab intangible asset includes the UCB/Amgen License as described in Note 13.
The Company considers the future development costs, the probability of successfully progressing each program to
product approval and the likely commercial returns after product approval, among other factors, when reviewing for
indicators of impairment. The results of this testing did not indicate any impairment of the acquired products’ rights for
the year ended December 31, 2023. Management believes that the likelihood of a materially different outcome using
different reasonably possible assumptions for setrusumab and alvelestat is remote given the substantial headroom on
these assets.
The acquired development programs are assets which are not used in commercialized products. These assets have not
yet begun to be amortized but have been tested for impairment by assessing their value in use. Value in use calculations
for each program are utilized to calculate the recoverable amount. The calculations use post-tax cash flow projections
covering the period through product development to commercial sales up to the later of loss of patent protection or
market exclusivity, which extend beyond five years from the balance sheet date. Approved products are assumed to
be out-licensed such that the Company receives upfront payments, milestone receipts and royalties on commercial
sales; therefore, the Company does not incur any costs of commercialization after out-licensing except when such terms
are agreed.
Key assumptions for the value in use calculations are described as follows:
Development costs to obtain regulatory approval – costs are estimated net of any contributions expected from
collaborative arrangements with future partners. Management have developed cost estimates based on their
previous experience and in conjunction with the expertise of their clinical development partners;
Launch dates of products – these reflect management’s expected date of launch for products based on the timeline
of development programs required to obtain regulatory approval. The assumptions are based on management’s
and clinical development partners’ prior experience;
Probability of successful development – management estimates probabilities of success for each phase of
development based on industry averages and knowledge of specific programs;
Out-licensing signature fees, milestones and royalty rates on sales – management estimates these amounts based
on prior experience and access to values from similar transactions in the industry, which are collated and
accessible from specialist third-party sources;
Sales projections – these are based on management’s internal projections using external market data and market
research commissioned by the Company;
•
•
•
•
•
66
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•
•
•
Profit margins and other operational expenses – these are based on the Company’s internal projections of current
product manufacturing costings, with input from manufacturing partners where applicable, and estimates of
operating costs based on management’s prior industry experience;
Cash flow projections – for all assets, cash flows are assessed over an industry-standard asset life of 20 years;
and
Discount rates – the discount rate is estimated on a post-tax basis reflecting the estimated cost of capital of the
Company and is applied consistently across each of the acquired development programs. The cost of capital was
determined to be 15.0% (2022: 15.0%).
Where an out-licensing agreement has been reached with a third party, known and observable inputs replace
management assumptions if available.
At this stage of product development, the key sensitivity for all development programs is the probability of successful
completion of clinical trials in order to obtain regulatory approval necessary for commercial sales.
15. Other receivables
Lease deposits
Insurance claim receivable
VAT recoverable
Other
Total
16. Cash and short-term deposits
Cash
Short-term deposits
Total
December 31,
2023
£'000s
2022
£'000s
482
1,532
471
124
2,609
293
—
362
107
762
December 31,
2023
£’000s
2022
£’000s
2,741
42,361
45,102
5,230
51,104
56,334
Short-term deposits are available immediately or within 90 days at inception and earn interest at the respective short-
term deposit rates.
17. Trade and other payables
Trade payables
Social security and other taxes
Other payables
Total
December 31,
2023
£'000s
2022
£'000s
1,842
220
22
2,084
2,886
167
25
3,078
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Trade and other payables are non-interest bearing and have an average term of one month.
18. Provisions
December 31,
2023
£'000s
2022
(Restated*)
£'000s
Social security contribution on share options
Restructuring
Total
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
196
—
196
9
179
188
Social security
contribution on
vested share
options £'000s
Restructuring
£'000s
At January 1, 2022
Arising during the year, net
Increase in provisions due to the unwinding of the time value of money
Increase due to changes in foreign exchange rates
Decrease due to a change in estimates relating to timelines and probabilities of
contractual milestones being achieved (revision to intangible asset, see Note
13)
At December 31, 2022
Arising/(released) during the year, net
Utilized during the year, net
Increase in provisions due to the unwinding of the time value of money
Decrease due to changes in foreign exchange rates
Decrease due to a change in estimates relating to timeline and probabilities of
contractual milestones being achieved (revision to intangible asset, see Note
13)
At December 31, 2023
—
9
—
—
—
9
187
—
—
—
—
196
—
179
—
—
—
179
—
(179)
—
—
—
—
The provision for social security contributions on share options is calculated based on the number of vested options
outstanding at the balance sheet date. The timing of option exercises for vested options is at the discretion of the grantee.
Cash outflows related to the provision would occur in the same period that an option is exercised. As the Company does
not have an unconditional right to defer settlement of the liability, the provision has been classified as current. As the
timing of cash outflows is dependent on the period in which employees exercise vested options, there is a degree of
uncertainty as to when actual cash outflows will occur. The provision is based on the estimated taxable gain arising on
exercise of the share options, using the best estimate of the market price at the balance sheet date.
In October 2022, the Company announced an updated operating plan, including a targeted reduction in the employee
base of up to 40% and a significant reduction in other costs. In connection with the implementation of the operating plan,
restructuring costs primarily relating to employee severance and other termination benefits of £0.2 million were paid
during the year and as of December 31, 2022, the remaining provision of £0.2 million was paid in 2023. Actual and
expected timings of cash outflows were based on the details of the targeted reduction, with key assumptions consisting
of estimated percentage of the reduction of the employee base.
68
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Warrant liability
At January 1
Fair value changes during the year
At December 31
Current
Non-current
Total
December 31,
2023
£'000s
2022
£'000s
531
(207)
324
8,336
(7,805)
531
December 31,
2023
£'000s
2022
£'000s
—
324
324
402
129
531
The change in fair value of the warrant liability represents an unrealized gain in the years ended December 31, 2023
and 2022.
Warrants – private placement
On June 3, 2020, the Company completed a £56 million private placement transaction which involved the issuance of
ordinary shares, convertible loan notes and conditional warrants to subscribe for 161,048,366 ordinary shares (the
“Warrants”) at a price of £0.348 per ordinary share.
The ordinary shares, the convertible loan notes and the Warrants were recognized as separate financial instruments.
The warrants are classified as liabilities as the Company does not have an unconditional right to avoid redeeming the
instruments for cash. The fair value of the warrants at inception was £4.1 million. The Warrants allowed for the exercise
on a cash or cashless basis at the discretion of the warrant holder.
As the Warrants expired on June 30, 2023, the fair value of the warrant liability was £nil as of December 31, 2023 (£0.4
million as of December 31, 2022). The decrease in the fair value of £0.4 million was recognized as a gain in the
consolidated statement of comprehensive (loss)/income. During the year-ended December 31, 2023, no warrants were
exercised (2022: nil).
Warrants – bank loan
As of December 31, 2023 and 2022, the former lenders of the Company have warrants outstanding to purchase a total
of 1,243,908 ordinary shares at an exercise price of £2.95 per share exercisable until August 2027 and a total of
1,243,908 ordinary shares at an exercise price of $0.4144 per share exercisable until October 2028. The warrants can
be exercised on a cash or cashless basis at the discretion of the warrant holder; therefore the number of shares
purchased might vary if the cashless alternative is taken.
At December 31, 2023, the fair value of these warrants was £0.3 million (2022: £0.1 million). The increase in the fair
value of £0.2 million was recognized as a loss in the consolidated statement of comprehensive (loss)/income. During
the year ended December 31, 2023, no warrants were exercised (2022: nil).
Total outstanding warrants
At December 31, 2023, a total of 2,487,816 liability-classified warrants are outstanding (2022: 147,431,351). The
warrants outstanding are equivalent to 0.4% of the issued ordinary share capital of the Company (2022: 24%).
The following table lists the weighted average inputs to the models used for the fair value of warrants:
Expected volatility (%)
Risk-free interest rate (%)
Expected life of warrants (years)
Market price of ADS ($)
Model used
December 31,
2023
2022
95
3.99
0.5
0.75
Black-Scholes Black-Scholes
102
3.36
5.2
2.31
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Convertible loan notes
Novartis Loan Note
Loan Notes – private placement
Total
Current
Non-current
December 31,
2023
£'000s
2022
£'000s
3,916
—
3,916
—
3,916
4,449
6,636
11,085
11,085
—
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 £3.8 million convertible loan note (the “Novartis Loan Note”).
The Novartis Loan Note is convertible at a fixed price of £0.265 per ordinary share and originally bore an interest rate
of 6% per annum with a maturity date of February 2023. Effective February 10, 2023, the maturity date of the Novartis
Loan Note was extended to February 10, 2025 and the interest rate amended to 9%. The conversion feature was also
extended to February 10, 2025 on the same terms. Interest accrued to the amendment date of £0.7 million and was paid
in cash. In addition, warrants to purchase 2,000,000 ordinary shares were issued as additional consideration for
amending the terms of the convertible loan (see Note 21).
The amendments to the Novartis Loan Note have been treated as the extinguishment of the original instrument and the
issuance of a new instrument. On the extinguishment date, the carrying value of the liability component of the original
instrument of £3.8 million was derecognized. At the same time, a new liability of £3.5 million was recognized which
represents the fair value of the liability component of the new Novartis Loan Notes, net of fees and £0.3 million was
recorded in equity to reflect the warrants and the conversion option embedded in the new Novartis Loan Notes.
Loan Notes – private placement
Loan Notes in an aggregate principal amount of £40.5 million were issued on June 3, 2020 as part of the private
placement transaction (the "Private Placement Loan Notes") and became convertible upon the passing of the
Resolutions. The Private Placement Loan Notes were classified as a financial liability on initial recognition. Non-closely
related embedded derivatives relating to the conversion feature, a term-extension and change of control features were
bifurcated and accounted for at FVTPL, with the debt host contract being measured at amortized cost.
The Private Placement Loan Notes bore interest at a rate of 6% per annum and had an initial maturity date of June 30,
2023. The Private Placement Loan Notes were convertible into ordinary shares at the discretion of the holder at a fixed
price of £0.174 per ordinary share and, if not converted by the initial maturity date, could have been extended for an
additional seven years, but would have ceased to bear interest from any extension date. The Private Placement Loan
Notes were initially recognized at their fair value of £38.6 million (debt host instrument in the amount of £26.7 million
and the embedded derivative in the amount of £11.9 million, before transaction costs).
In 2020, between initial recognition and the passing of certain resolutions at the Company's General Meeting in 2020 ,
changes in the fair value of the embedded derivative totaling £63.2 million were recognized as an expense in the
consolidated statement of comprehensive (loss)/income.
The Private Placement Loan Notes were not convertible until these resolutions were passed. Following the passing of
the resolutions, Private Placement Loan Notes in an aggregate principal amount of £21.8 million (together with accrued
interest) were automatically converted into 125,061,475 ordinary shares. Accordingly, a reduction in interest bearing
loans of £13.3 million together with the derecognition of the embedded derivative relating to the conversion feature of
£41.6 million was recognized; no gain or loss was recognized on conversion. The remaining portion of the embedded
derivative relating to the conversion feature attributable to the Private Placement Loan Notes outstanding of £33.5 million
was reclassified to equity to reflect the effective change in the terms of the feature following the passing of the
Resolutions.
During the year ended December 31, 2022, the Company issued and allotted 40,020,280 ordinary shares at a price of
£0.174 per share on conversion of the Private Placement Loan Notes.
On May 31, 2023, the maturity date of the Private Placement Loan Notes was extended to August 3, 2023, with all other
terms remaining unchanged. The maturity date extension was treated as a modification with a modification gain
of £0.1 million recognized within finance income (see Note 3).
70
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31,2023, the Company issued and allotted 27,420,095 ordinary shares at a price of
£0.174 per share on conversion of the Private Placement Loan Notes. On the revised maturity date on August 3, 2023,
the Company paid £2.6 million to fully settle the outstanding principal and accrued interest balance on the Private
Placement Loan Notes.
The movements in the carrying value of the liability component of the Loan Notes is included in the table below. Refer
to Note 21 for details of Loan Notes converted to equity.
January 1
Interest charge
Converted to equity
Redeemed
Modification gain
Capitalization of fees
December 31
21.
Issued capital and reserves
At January 1, 2022
Issued during the year
At December 31, 2022
Issued during the year
At December 31, 2023
December 31,
2023
£'000s
2022
£'000s
6,636
826
(4,805)
(2,564)
(82)
(11)
(0)
Ordinary
shares
Number
Ordinary
share capital
£'000s
584,908,239
40,020,280
624,928,519
76,288,570
701,217,089
1,755
120
1,875
229
2,104
10,613
1,981
(5,958)
—
—
—
6,636
Share
premium
£'000s
247,460
6,843
254,303
13,467
267,770
Since January 1, 2022, the following alterations to the Company's share capital have been made. For each share
issuance, ordinary shares of £0.003 in nominal value in the capital of the Company were issued.
•
•
•
•
During the year ended December 31, 2022, the Company issued and allotted 40,020,280 ordinary shares of £0.003
in nominal value in the capital of the Company at an exercise price of £0.174 per share on non-cash conversion
of Loan Notes.
During the year ended December 31, 2023, the Company issued and allotted 501,380 ordinary shares upon the
vesting of equity awards.
During the year ended December 31, 2023, the Company issued and allotted 27,420,095 ordinary shares of
£0.003 in nominal value in the capital of the Company, at an exercise price of £0.174 per ordinary share on non-
cash conversion of Private Placement Loan Notes.
During the year ended December 31, 2023, the Company issued and allotted 48,367,095 ordinary shares of
£0.003 in nominal value in the capital of the Company for aggregate gross proceeds of $12.0 million (£9.3 million)
through an “at-the-market” offering pursuant to an Open Market Sale Agreement with Jefferies LLC.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other capital reserves
Equity
component
of
convertible
loan notes
£'000s
Share-
based
payments
£'000s
Other
warrants
issued
£'000s
Merger
reserve
£'000s
Other
reserves
£'000s
44
32,843
40,818
33,104
21,694
At January 1, 2022 (restated*)
Share-based payments expense during the
year
Share options exercised
Issuance of warrants
Convertible loan notes
At December 31, 2022 (restated*)
Share-based payments expense during the
3,991
year
(84)
Share options exercised
—
Issuance of warrants
—
Convertible loan notes
At December 31, 2023
29,381
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
3,862
(82)
—
—
25,474
—
—
—
(1,005)
31,838
—
—
—
374
32,212
—
—
—
—
40,818
—
—
—
—
40,818
—
—
41
—
155
—
—
70
—
114
—
—
—
—
33,104
—
—
—
—
33,104
Total
£'000s
128,503
3,862
(82)
70
(1,005)
131,348
3,991
(84)
41
374
135,670
Share-based payments
The Company has one principal share-based incentive scheme under which options at market value to subscribe for
the Company’s shares, restricted stock units ("RSUs") and performance share units ("PSUs") have been granted to
certain executives, non-executive directors (“NEDs”) and employees, including key management personnel, as part of
their remuneration.
The share-based payment reserve is used to recognize (i) the value of equity settled share-based payments provided
to employees, including key management personnel, as part of their remuneration and (ii) deferred equity consideration.
Refer to Note 25 for further details.
Equity component of convertible loan instrument
The convertible loan notes issued to Novartis are a compound instrument consisting of a liability and an equity
component. The value of the equity component (cost of the conversion option) as at December 31, 2023 is £1.4 million
(December 31, 2022: £1.1 million).
On June 30, 2020, the Private Placement Loan Notes in an aggregate principal amount of £21.8 million (together with
accrued interest) were automatically converted into 125,061,475 ordinary shares. This resulted in £33.5 million
recognized in other reserves in equity as a difference between the share capital and share premium recognized on
conversion and the carrying value of the embedded derivative financial liability extinguished (see Note 20).
Other warrants issued
On October 8, 2018, the Group entered into a funding agreement with The Alpha-1 Project (“TAP”), which provided total
payments of $0.4 million (£0.3 million), of which the final installment of $0.1million (less than £0.1 million) was received
in May 2023. In exchange for funding, the Company issued warrants allowing TAP to subscribe for ordinary shares in
the company. In 2023, the Company issued 408,730 warrants over ordinary shares and received funding of £0.1 million,
of which less than £0.1 million was allocated to the equity component. In 2022, the Company issued 1,101,683
warrants over ordinary shares and received funding of £0.2 million, of which less than £0.1 million was allocated to
the equity component. The total value of the equity component (consideration received for the warrants) as at
December 31, 2023 is £0.2 million (2022: £0.1 million).
Under the agreement, TAP is potentially entitled to receive a payment equivalent to amounts received by Mereo (up to
a maximum of $400,000) conditional on and within thirty days of the first regulatory approval for MPH-966. The
agreement is accounted for as a compound instrument that includes both debt and equity components. For each tranche
of funding received, the consideration was allocated by calculating the fair value of the liability component and allocating
the residual amount to the warrants . The amount allocated to the liability component is accreted back to the face value
72
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
over the period to the earliest reasonable repayments date using the effective interest method. The amount allocated to
the warrants was recognized in equity and is not subsequently remeasured.
Merger reserve
The consideration paid to acquire Mereo BioPharma 5, Inc. was 24,783,320 ordinary shares with an acquisition date
fair value of £40.9 million, based on the Company’s quoted share price. The nominal value of the issued capital was
£0.1 million with the excess, £40.8 million, classified within other capital reserves as a ‘Merger reserve’.
Other reserves
On June 30, 2020, the Company issued and allotted 125,061,475 ordinary shares of £0.003 in nominal value in the
capital of the Company at a price of £0.174 per share to investors following the partial conversion of the Loan Notes.
The legal proceeds were £21.8 million. This resulted in £33.1 million recognized in other reserves as a difference
between the carrying value of the financial liability extinguished and the legal proceeds.
Other reserves and accumulated losses
Year ended December 31,
2022
(Restated*)
£'000s
2023
£'000s
Other reserves
Accumulated losses
*See Note 4 for details regarding the restatement as a result of a voluntary change in accounting policy.
7,401
(362,340)
7,401
(329,158)
Other reserves represent a capital reduction undertaken in 2016 which created a reserve of £7.0 million. On June 3,
2020, the Company issued and allotted 89,144,630 ordinary shares to investors. The difference between the gross
proceeds, £15.5 million, and the fair value of the consideration of the ordinary shares, £13.4 million, of £2.1 million, was
recognized as a reduction to other reserves. During the year ended December 31, 2021, 15,414,626 private placement
warrants were exercised, resulting in a £2.4 million reduction in the warrant liability which was recognized as an addition
to “Other reserves.” There have been no further amounts recognized in other reserves in 2023 or 2022.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Changes in liabilities arising from financing activities
Carrying value at January 1, 2022
Financing cash flows
Non-cash changes
Converted during the year
Interest expense
Issuance of warrants
Changes in fair value
Changes in foreign exchange
Carrying value at December 31, 2022
Financing cash flows
Non-cash changes
Converted during the year
Interest expense
Issuance of warrants
Capitalization of fees
Modification gain
Changes in fair value
Changes in foreign exchange
Carrying value at December 31, 2023
Lease
liability
Novartis
loan
Note
Warrant
liability
Loan
notes –
private
placement
Other
Total
2,376
(937)
—
209
—
—
40
1,688
(611)
—
146
—
—
—
—
—
1,223
3,771
—
—
678
—
—
—
4,449
(711)
—
514
(336)
—
—
—
—
3,916
8,336
—
—
—
—
(7,805)
—
531
—
—
—
—
—
—
(207)
—
324
10,613
—
(5,958)
1,981
—
—
—
6,636
(2,564)
(4,805)
826
—
(11)
(82)
—
—
—
80
153
—
19
(70)
—
—
182
79
—
—
(40)
—
—
—
—
221
25,176
(784)
(5,958)
2,887
(70)
(7,805)
40
13,486
(3,807)
(4,805)
1,486
(376)
(11)
(82)
(207)
—
5,684
23. Financial and capital risk management and fair value measurement
Capital risk management
The Company’s objectives when managing capital are to safeguard the ability to continue as a going concern and
ensure that sufficient capital is in place to fund the Company’s R&D activities and operations. The Company’s principal
methods of adjusting the capital available are through issuing new shares, licensing and/or collaboration agreements or
arranging suitable debt financing. The Company’s share capital and share premium are disclosed in Note 21. The
Company’s convertible loans are disclosed in Note 20. The Company monitors the availability of capital with regards to
its committed and forecasted future expenditure on an ongoing basis.
The Company has an Employee Benefit Trust which holds ADSs to satisfy exercises of options under the Company’s
share option schemes (see Note 25).
Financial risk management objectives and policies
The Company seeks to maintain a balance between equity capital and convertible debt to provide sufficient cash
resources to execute the business plan. In addition, the Company maintains a balance between cash held on deposit
and short-term investments in pound sterling and other currencies to reduce its exposure to foreign exchange
fluctuations in respect of its planned expenditure.
Company’s principal financial instruments comprise warrants, convertible loan notes and trade payables which arise
directly from its operations. The Company has various financial assets, including receivables and cash and short-term
deposits.
Interest rate risk
The Company’s policy in relation to interest rate risk is to monitor short and medium-term interest rates and to place
cash on deposit for periods that optimize the amount of interest earned while maintaining access to sufficient funds to
meet the cost of is operating activities and future research and development activities.
74
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company’s interest payable on convertible loan notes is fixed. Consequently, there is no material exposure to
interest rate risk in respect of interest payable.
Credit risk
The Company is dependent on a number of third parties for the delivery of its programs and, where required, pays
upfront deposits and fees in advance of the delivery of services. The Company considers all of its material counterparties
to be creditworthy and the credit risk for each of its major counterparties to be low, but continues to assess credit risk
as part of its management of these third-party relationships. Financial instruments that subject the Company to credit
risk consists primarily of cash and cash equivalents. The Company places cash and cash equivalents with established
financial institutions with strong credit ratings The Company’s maximum exposure to credit risk for the components of
the balance sheet at December 31, 2023 are the carrying amounts.
Liquidity risk
The Company’s policy is to maintain adequate cash reserves at highly rated banks and financial institutions and also
seeks to invest in short-term deposits to achieve a competitive rate of return. The Company’s liquid resources are
invested with regard to the timing of payments to be made in the ordinary course of business, while monitoring its funding
requirements through preparation of short-term, mid-term and long-term forecasts.
The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted
payments at December 31, 2023:
Leases
Trade and other payables
Accruals
Other liabilities
Within 1
year
£’000s
611
2,084
4,292
560
Between
1 and 3
years
£’000s
Between
3 and 5
years
£’000s
764
—
—
599
—
—
—
—
Over 5
years
£’000s
—
—
—
—
Total
£’000s
1,375
2,084
4,292
1,159
The table below summarizes the maturity profile of the Company's financial liabilities based on contractual undiscounted
payments at December 31, 2022:
Within 1
year
£’000s
Between
1 and 3
years
£’000s
Between
3 and 5
years
£’000s
Leases
Trade and other payables
Accruals
Other liabilities
The Company does not face a significant liquidity risk with regards to its lease liabilities.
1,222
—
—
—
611
3,078
4,491
515
152
—
—
—
Over 5
years
£’000s
—
—
—
—
Total
£’000s
1,985
3,078
4,491
515
The Company may incur potential payments upon achievement of clinical, regulatory and commercial milestones, as
applicable, or royalty payments that may be required to be made under license agreements the Company entered into
with various entities pursuant to which the Company has in-licensed certain intellectual property, including license and
asset purchase agreements with Novartis, AstraZeneca, and UCB/Amgen. Due to the uncertainty of the achievement
and timing of the events requiring payment under these agreements, the amounts to be paid are contingent at this time
and no such amounts are included herein.
The contingent amounts included in the 2015 asset purchase with Novartis comprise 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 under the agreement. Additionally, the Company
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 Mereo BioPharma Group plc, a merger or consolidation of Mereo
BioPharma Group plc, or a sale of any assets of Mereo BioPharma Group plc.
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The contingent amounts included in the license agreement with AstraZeneca consist of up to $115.5 million and the
issuance of additional shares to AstraZeneca for licensed products containing alvelestat. In addition, the Company has
agreed to make payments to AstraZeneca based on specified commercial milestones of the product. The Company has
also agreed to pay a specified percentage of sub-licensing revenue to AstraZeneca and to make royalty payments to
AstraZeneca equal to ascending specified percentages of tiered annual worldwide net sales by the Company of licensed
products (subject to certain reductions), ranging from the high single digits to low double digits.
Foreign currency and market risk
Foreign currency risk arises from R&D activities, commercial transactions and recognized assets and liabilities in foreign
currencies, with the principal currency exposure being fluctuations in pound sterling, U.S. dollars and Euros.
The functional currency of the Company and all subsidiaries is pound sterling, except for Mereo BioPharma 5 (formerly
OncoMed). whose functional currency is U.S. dollars. The Company incurs expenditures in foreign currencies and is
exposed to the risks of foreign exchange rate movements, with the impact recognized in the consolidated statement of
comprehensive income/(loss).
Funding secured in 2023, 2021 and 2020 was principally in U.S dollars and, although the Company currently has no
revenue from product sales, proceeds received from upfront milestones under its licensing and collaboration agreements
are denominated in U.S. dollars, while the majority of operating costs are denominated in pound sterling, U.S. dollars
and Euros.
The Company seeks to minimize this exposure by passively maintaining foreign currency cash balances at levels
appropriate to meet foreseeable foreign currency expenditures. The Company does not hedge potential future cash
flows or income.
The table below shows analysis of the pound sterling equivalent of year-end cash and short-term deposits balances by
currency:
Pound sterling
U.S. dollars
Euro
Swiss francs
Total
December 31,
2023
£’000s
2022
£’000s
27,346
17,732
20
4
45,102
52,812
2,484
1,029
9
56,334
The table below shows those transactional exposures that give rise to net currency gains and losses recognized in the
consolidated statement of comprehensive income/(loss). Such exposures comprise the net monetary assets and
monetary liabilities of the Company that are not denominated in the functional currency of the relevant subsidiary. As
at December 31, these exposures were as follows:
Net foreign currency assets/(liabilities)
U.S. dollars
Euro
Swiss francs
Total
December 31,
2023
£’000s
2022
£’000s
16,914
(257)
(12)
16,645
872
768
(179)
1,461
The most significant currencies in which the Company transacts, other than pound sterling, are the U.S. dollar and the
Euro. The Company also transacts in other currencies as necessary.
76
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the sensitivity to a 10% weakening or strengthening, which the Company determined was
an appropriate reasonably possible movement, in the year-end rate in the U.S. dollar and the Euro against pound
sterling:
December 31, 2023
Loss before tax
Equity
December 31, 2022
Loss before tax
Equity
Financial instruments by category
Financial assets
Cash and short-term deposits
Other receivables
Total financial assets
Financial liabilities
Provisions
Other liabilities
Convertible loan notes
Warrant liability
Trade and other payables
Accruals
Lease liability
Total financial liabilities
U.S. dollar
£’000s
Euro
£’000s
(1,538)
(1,538)
U.S. dollar
£’000s
Euro
£’000s
(79)
(79)
23
23
(70)
(70)
Fair value through
profit or loss
December 31,
2023
£’000s
2022
Restated*
£’000s
Amortized cost
December 31,
2023
£’000s
2022
£’000s
—
—
—
—
—
—
324
—
—
—
324
—
—
—
—
—
—
531
—
—
—
531
45,102
606
45,708
196
611
—
—
1,864
4,292
1,223
8,186
56,334
400
56,734
187
—
11,085
—
2,911
4,491
1,688
20,362
The carrying values of financial assets and financial liabilities recorded at amortized cost in the consolidated financial
statements are approximately equal to their fair values.
Fair value hierarchy
Liabilities measured at fair value
Warrant liability (Note 19)
Date of
valuation
December 31,
2023
Quoted
prices
in active
markets
(Level 1)
Significant
Significant
observable unobservable
inputs
(Level 3)
inputs
(Level 2)
Total
£’000s
£’000s
£’000s
£’000s
324
—
324
—
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Liabilities measured at fair value
Warrant liability (Note 19)
Date of
valuation
December 31,
2022
Quoted
prices
in active
markets
(Level 1)
Significant
Significant
observable unobservable
inputs
(Level 3)
inputs
(Level 2)
Total
£’000s
£’000s
£’000s
£’000s
531
—
129
402
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2023 and 2022.
Management assessed that the fair values of cash and short-term deposits, other receivables, trade payables and
other current liabilities approximate their carrying amounts largely due to the short-term maturities of these
instruments.
The following table presents the changes in Level 3 items for the years ended December 31, 2023 and December 31,
2022.except for the CVR liability, which was £nil in all periods presented.
January 1, 2022
Change in fair value
December 31, 2022
Change in fair value
December 31, 2023
Warrant liabilities
Warrant
liability
£’000s
7,995
(7,593)
402
(402)
—
The fair value of the warrant liability is estimated using a Black-Scholes model, taking into account appropriate
amendments to inputs in respect of volatility, remaining expected life of the warrants and rates of interest at each
reporting date.
CVR liability
The fair value of the CVR liability is estimated by discounting the expected future cash flows under the agreement. At
December 31, 2023, the Company estimates the fair value of the CVR liability to be nil (2022: nil). CVR payments of
£0.7 million in 2022 and £0.4 million in 2020 were made relating to the Navi milestones received from OncXerna. The
fair value is based on a risk adjusted, probability-based scenario. Under this approach the likelihood of future payments
being made to the former shareholders of Mereo BioPharma 5 (formerly OncoMed) under the CVR arrangement is
considered. The estimate will not change over time as the agreement expires on April 23, 2024.
The significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value
hierarchy, together with a quantitative sensitivity analysis as at December 31, 2023 and 2022 are as follows:
Valuation
technique
Discounted
cash flow
Significant
unobservable
inputs
Input range
(weighted
average)
Ongoing
uncertainty in
the clinical
development
of the Navi
product
Sensitivity of the input to
fair value
Total potential future payments
relating to the contingent
consideration liability on a
gross, undiscounted basis are
approximately $80 million
CVR liability
78
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Regulatory
approval and
commercial-
ization risks
Warrant liability related to the
private placement
Black-Scholes
model
Expected
volatility
2023: n/a
2022: 95.5%
Sensitivity of the input to fair
value is primarily driven by
uncertainty in the clinical
development of the Navi
product. Future potential
payments under the CVR
arrangement are contingent on
i) future development
milestones and ii) future sales
of the Navi product, following
regulatory approval and
commercialization. In January
2020, the Company entered
into the license agreement as
detailed in Note 13. Although
pursuant to the license
agreement the Company is
entitled to additional payments
of up to $302 million, the CVR
arrangement is near expiry,
and therefore the probability in
respect of any milestone and
royalty payments under the
license agreement is assumed
to be zero.
The warrants expired during
2023, therefore the value was
£nil.
Volatility was estimated by
reference to the 0.4 years
historical volatility of the
historical share price of the
Company, matching the
maturity of the instrument. If
the volatility is decreased to
91.8% based on 3-month
historical volatility, the carrying
value of the warrants as of
December 31, 2022 would
decrease to £0.3 million.
24. Commitments and contingencies
Each of Mereo BioPharma 1 Limited, Mereo BioPharma 2 Limited and Mereo BioPharma 3 Limited (together, the
“Subsidiaries”) issued to Novartis loan notes (which were assigned by Novartis to the Company in exchange for ordinary
shares pursuant to the Subscription Agreement) and each of the Subsidiaries 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) by such Subsidiary of products that include the
assets acquired. The levels of ascending percentages of tiered annual worldwide net sales are the same for each
Subsidiary under the respective Purchase Agreements. In accordance with the accounting polices described in Note 2,
no liability is recognized within the consolidated balance sheet related to potential future payments to Novartis. If any
amounts become due in the future, they will be recognized as a liability within the consolidated balance sheet.
Each Subsidiary 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 Company will retain the majority of the
proceeds from such a transaction. Such percentage is the same for each Subsidiary under the respective Purchase
Agreements. The payment of a percentage of proceeds is not payable with respect to any transaction involving equity
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
interests of Mereo BioPharma Group plc, a merger or consolidation of Mereo BioPharma Group plc, or a sale of any
assets of Mereo BioPharma Group plc.
In October 2017, the Company’s wholly owned subsidiary Mereo BioPharma 4 Limited entered into an exclusive license
and option agreement (“the License Agreement”), to obtain 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 (“the Option”),
together with the acquisition of certain related assets. Upon entering into the License Agreement, the Company made a
payment of $3.0 million and issued 490,798 ordinary shares to AstraZeneca, for an aggregate upfront payment equal to
$5.0 million. In connection with certain development and regulatory milestones, the Company has agreed to make
payments of up to $115.5 million in the aggregate and issue additional shares to AstraZeneca for licensed products
containing alvelestat. In addition, the Company has agreed to make payments to AstraZeneca based on specified
commercial milestones of the product. The Company has also agreed to pay a specified percentage of sub-licensing
revenue to AstraZeneca and to make royalty payments to AstraZeneca equal to ascending specified percentages of
tiered annual worldwide net sales by the Company of licensed products (subject to certain reductions), ranging from the
high single digits to low double digits. Royalties will be payable on a licensed-product-by-licensed-product and country-
by-country basis until the later of ten years after the first commercial sale of such licensed product in such country and
expiration of the last patent covering such licensed product in such country that would be sufficient to prevent generic
entry. The Company has agreed to use commercially reasonable efforts to develop and commercialize at least one
licensed product.
The License Agreement will expire on the expiry 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 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.
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 £3.3 million as of December 31, 2023 (2022: £0.9 million).
25. Share-based payments
The Company makes share based compensation awards through two currently active approved plans, although fully
vested awards made under previous plans are still outstanding. Share-based compensation expense arises solely in
respect of awards made under these two active plans as follows:
2019 Equity Incentive Plan
2019 NED Equity Incentive Plan
Total
Year ended December 31,
2023
£’000s
2022
£’000s
3,295
696
3,991
3,149
713
3,862
The majority of awards that were exercised in 2023 and 2022 were net share settled such that the Company withheld
shares with a value equivalent to the exercise price and the employees’ obligation for the applicable income and other
employment taxes, and remitted these amounts to the appropriate tax authorities. The remaining shares delivered upon
exercise by employees were satisfied by delivering shares from the Employee Benefit Trust. Shares delivered upon
exercises by non-executive directors were satisfied by issuing new shares.
2019 Equity Incentive Plan (“EIP”)
The 2019 EIP was adopted on April 4, 2019, and subsequently amended on February 3, 2020 and January 15, 2021.
The EIP authorizes the grant of a variety of types of share awards over the Company’s ADSs to executives and
employees. The Company has chosen to award the following instruments under the EIP:
Market Value Options (“Options”)
Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs
80
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
on the date of grant. Options issued under the EIP have a contractual term of 10 years and vest over four years, with
one-fourth of the award vesting on the first anniversary of the grant date and the remainder vesting in equal monthly
installments over the three-year thereafter. No performance conditions apply to such Options.
A summary of the Company’s Options activity and related information under the EIP for 2023 and 2022 is as follows.
All outstanding Options are expected to vest:
At January 1
Granted
Forfeited
Expired
Exercised
At December 31
Exercisable at December 31
2023
2022
Number of
options
(ADSs)
Weighted
Average
Exercise Price
($)
Number of
options
(ADSs)
Weighted
Average
Exercise Price
($)
6,857,861
4,874,300
(1,324,809)
(751,672)
(60,519)
9,595,161
3,425,209
2.15
1.03
1.42
2.82
1.57
1.63
2.27
3,943,702
4,126,400
(1,164,197)
(48,044)
—
6,857,861
2,082,027
2.88
1.38
1.83
3.97
—
2.15
2.95
Options outstanding as of December 31, 2023 had an exercise price of between $0.51 and $5.40 per ADS.
At December 31, 2023, the weighted average contractual life of options outstanding was 8.1 years (2022: 7.9 years)
and for vested options was 7.1 years (2022: 6.2 years).
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model based on
the following weighted average assumptions:
Market price of ADSs ($)
Risk-free interest rate (%)
Expected life (years)
Expected volatility (%)
Expected dividends
2023
2022
1.03
3.48
10
98
—
1.38
1.83
10
96
—
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 a conditional right to receive an ADS at no cost
upon the completion of the applicable vesting period. RSUs granted under the 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 3.0 years.
A summary of the Company’s RSU activity and related information under the EIP for 2023 is as follows. As at
December 31, 2023 no RSUs were vested but all outstanding RSUs are expected to vest:
At January 1, 2023
Granted
Cancelled
At December 31, 2023
Number of RSUs
(ADSs)
Weighted Average
Grant Date Fair
Value ($)
—
679,225
(190,000)
489,225
—
1.03
1.01
1.03
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2023, the weighted average remaining period of RSUs outstanding was 2.1 years.
The fair value of each RSU was calculated by reference to the value of the shares awarded. The grant date fair value
is recognized over the vesting period using the accelerated graded-vesting attribution method.
Performance Share Units (PSUs)
PSUs were first awarded in 2023 and each PSU entitles the holder a conditional right to receive an ADS at no cost
upon satisfaction of four escalating ADS price performance targets over a two year performance period following the
date of grant. A summary of the Company’s PSU activity and related information under the EIP for 2023 is as follows.
At December 31, 2023 no PSUs were vested.
At January 1, 2023
Granted
Cancelled
At December 31, 2023
Number of PSUs
(ADSs)
Weighted Average
Grant Date Fair
Value ($)
—
1,543,150
(205,000)
1,338,150
—
0.61
0.61
0.61
At December 31, 2023, the weighted average contractual life of PSUs outstanding was 1.1 years. These awards were
valued using a Monte Carlo model with the following key inputs:
Market price of ADSs ($)
Risk-free interest rate (%)
Expected life (years)
Expected volatility (%)
Expected dividends
2023
1.01
4.14
1
106
—
The grant date fair value is recognized over the expected life using the straight-line attribution method.
2019 Non-Executive Director Equity Incentive Plan (“NED EIP”)
The 2019 NED EIP was adopted on April 4, 2019, and subsequently amended on February 3, 2020 and January 15,
2021. The NED EIP authorizes the grant of a variety of types of share awards over the Company’s ADSs to non-
executive directors. The Company has chosen to award the following instruments under the EIP:
Options
Options permit the recipient to purchase ADSs at an exercise price equal to the closing price of the Company’s ADSs
on the previous trading day. Options issued under the NED EIP have a contractual term of 10 years and vest monthly
over one year. There are no performance conditions. A summary of the Company’s Option activity and related
information under the NED EIP for 2023 and 2022 is as follows, all outstanding Options are expected to vest:
2023
2022
Number of
options
(ADSs)
Weighted
Average
Exercise Price
($)
Number of
options
(ADSs)
Weighted
Average
Exercise Price
($)
915,087
440,000
—
1,355,087
1,281,751
2.00
0.94
—
1.66
1.70
421,791
535,488
(42,192)
915,087
832,584
2.90
1.22
1.01
2.00
2.09
At January 1
Granted
Cancelled
At December 31
Exercisable at December 31
82
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Options outstanding as of December 31, 2023 had an exercise price of between $0.51 and $5.40 per ADS.
At December 31, 2023, the weighted average contractual life of options outstanding was 8.0 years (2022: 8.5 years)
and for vested Options was 7.9 years (2022: 8.4 years).
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model based on
the following weighted average assumptions:
2023
2022
1.22
Market price of ADSs ($)
1.96
Risk-free interest rate (%)
10
Expected life (years)
96
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.
0.94
3.36
10
98
—
Deferred Restricted Stock Units (“DRSUs”)
DRSUs were granted to NEDs who elected to receive them instead of annual cash compensation for the year. Each
DRSU entitles the holder to receive an ADS at no cost upon the completion of the vesting period. DRSUs granted
under the NED EIP vest in equal monthly installments over the plan year. Upon vesting, DRSUs may not be exercised
until 180 days after separation of service but have no specified contractual term.
A summary of the Company’s DRSU activity and related information under the EIP for 2023 and 2022 is as follows. At
December 31, 2023 all DRSUs are expected to vest:
At January 1, 2022
Granted
At December 31, 2022
Granted
Issued
At December 31, 2023
Issuable
Number of DRSUs
(ADSs)
—
348,044
348,044
482,214
(100,276)
729,982
689,837
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 straight-line 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 EIP and the NED EIP, no further
awards are envisaged.
All awards made under these plans became fully vested, with all compensation cost fully recognized, before
December 31, 2021. A summary of the awards still outstanding under the plans is as follows:
At January 1, 2021
Expired
At December 31, 2022
Expired
At December 31, 2023
Number of options
(ADSs)
Weighted Average
Exercise Price ($)
1,924,331
(240,776)
1,683,555
(111,197)
1,572,358
10.45
16.31
9.63
15.94
9.22
MEREO BIOPHARMA GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Options outstanding as of December 31, 2023 had an exercise price of between $8.63 and $21.75 per ADS.
At December 31, 2023, the weighted average contractual life of options outstanding and vested was 1.8 years (2022:
2.4 years).
26. Related party disclosures
Compensation of key management personnel of the Company
The remuneration of key management personnel of the Company is set out below in aggregate:
Short-term benefits
Post-employment benefits
Share-based payment charge
Total
Year ended December 31,
2022
2023
£’000s
£’000s
3,033
118
1,958
5,109
3,699
158
3,043
6,900
The amounts disclosed in the table above are the amounts recognized as an expense during each reporting period for
individuals who were deemed to be key management personnel for the period they were deemed to be key management
personnel.
During 2023, key management personnel included the executive director (the Chief Executive Officer), non-executive
directors, the Chief Financial Officer, the General Counsel, the Chief Business Officer, Chief Scientific Officer, the Chief
Patient Access and Commercial Planning, the Senior Vice President Clinical Development, and Senior Vice President
and Therapeutic Head.
As of December 31, 2023, the key management personnel of the Company consisted of the executive director (the Chief
Executive Officer), non-executive directors, the Chief Financial Officer, the General Counsel, the Chief Scientific Officer,
and the Chief Patient Access and Commercial Planning.
Employee Benefit Trust
In 2016 the Company set up an Employee Benefit Trust (“EBT”). The EBT holds ADSs' to satisfy the exercise of options
under the Company’s share-based incentive schemes (see Note 25).
No funding was loaned to the EBT by the Company during the year ended December 31, 2023 or 2022. During the
years ended December 31, 2023 and 2022, no ordinary shares were purchased by the EBT. A total of 15,926 ADSs
held by the EBT were used in the year-ended December 31, 2023 to satisfy the exercise of options under the Company’s
share-based incentive schemes (2022: 15,645). As of December 31, 2023, the EBT holds 184,680 ADSs (2022:
200,606) along with £17,241 in cash (2022: £17,741).
84
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: COMPANY BALANCE SHEET
Assets
Non-current assets
Property, plant and equipment
Investments
Current assets
Prepayments
Other receivables
Cash and short-term deposits
Current liabilities
Trade and other payables
Current tax liabilities
Intercompany payable
Accruals
Lease liability
Provisions
Convertible loan notes
Warrant liability
Other liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Convertible loan notes
Warrant liability
Lease liability
Provisions
Other liabilities
Net assets
Equity
Share capital
Share premium
Other capital reserves
Other reserves
Employee Benefit Trust shares
Accumulated losses
Total equity shareholders’ funds
Notes
6
4
5
8
7
9
7
9
10
10
10
10
12
As at December 31,
2023
£'000s
1,294
164,856
166,150
1,169
2,296
44,969
48,434
1,567
—
10,736
3,097
512
182
—
—
19
16,113
32,321
198,471
3,916
324
711
—
221
5,172
193,299
2022
£'000s
1,823
172,369
174,192
2,092
656
56,098
58,846
2,696
418
16,441
2,465
466
9
11,085
402
—
33,982
24,864
199,056
—
129
1,222
—
182
1,533
197,523
2,104
267,770
137,001
7,401
(974)
(220,003)
193,299
1,875
254,303
132,680
7,401
(1,058)
(197,678)
197,523
The accompanying notes form an integral part of these financial statements.
The Company has taken advantage of the exemption permitted by Section 408 of the Companies Act 2006 not to present an income statement for
the year. The Company’s loss for the financial year ended December 31, 2023 was £22.3 million (2022: loss of £38.0 million).
The financial statements on page 85 to 86 were approved by the Board of Directors on April 24, 2024 and signed on its behalf by:
Dr. Denise Scots-Knight
Director
April 25, 2024
Company number: 09481161 (England and Wales)
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: COMPANY STATEMENT OF CHANGES IN EQUITY
At December 31, 2021
Loss for the year
Share-based payments
Exercise of share options
Convertible loan notes
Issuance of warrants
At December 31, 2022
Loss for the year
Share-based payments
Vesting of deferred restricted stock units
Exercise of share options
Issuance of ordinary shares
Convertible loan notes
Issuance of warrants
Issued
capital
£'000s
Share
premium
£'000s
Other
capital
reserves
£'000s
Employee
Benefit
Trust
£'000s
Other
reserves
£'000s
Accum-
ulated
losses
£'000s
Total
equity
£'000s
1,755
247,460
129,835
(1,140)
7,401
(159,708)
225,603
—
—
—
120
—
—
—
—
6,843
—
—
3,862
(82)
(1,005)
70
—
—
82
—
—
—
—
—
—
—
(37,970)
—
—
—
—
(37,970)
3,862
—
5,958
70
1,875
254,303
132,680
(1,058)
7,401
(197,678)
197,523
—
—
2
—
145
82
—
—
—
—
—
8,778
4,689
—
—
3,991
—
(84)
—
373
41
—
—
—
84
—
—
—
—
—
—
—
—
—
—
(22,325)
—
—
—
—
—
—
(22,325)
3,991
2
—
8,923
5,144
41
At December 31, 2023
2,104
267,770
137,001
(974)
7,401
(220,003)
193,299
The accompanying notes form an integral part of these financial statements.
86
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. Material accounting policies
1.1 Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101) and the Companies Act 2006.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure
requirements of International Financial Reporting Standards but makes amendments where necessary in order to
comply with the Companies Act 2006 and set out below where FRS 101 disclosure exemptions has been taken.
Under Section 408(4) of the Companies Act 2006, the Company is exempt from the requirement to present its own profit
and loss account.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the
following disclosures:
•
•
•
•
•
•
Presentation of a cash flow statement and related notes;
Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
Transactions with wholly owned subsidiaries;
The effects of new but not yet effective IFRSs;
The compensation of key management personnel; and
Required disclosures relating to capital management.
As the consolidated financial statements of Mereo BioPharma Group plc include the equivalent disclosures, the
Company has also taken the exemptions under FRS 101 available in respect of the following disclosures:
•
•
•
•
IFRS 2 (Share-Based Payments) in respect of Group-settled share-based payments;
Certain disclosures required by IAS 36 (Impairment of Assets);
Certain disclosures required by IFRS 13 (Fair Value Measurement);
Certain disclosures required by IFRS 7 (Financial Instruments Disclosures).
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial
statements.
The financial information is presented in pound sterling and all amounts disclosed in the financial statements and notes
have been rounded off to the nearest thousand currency units, unless otherwise stated.
1.2 Changes of accounting policies
New standards, interpretations and amendments effective from January 1, 2023.
There were a number of narrow scope amendments to existing standards which were effective from January 1, 2023.
None of these had a material impact on the Company.
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS
1.3 Summary of material accounting policies
The Company’s accounting policies are consistent with those described in the consolidated financial statements of
Mereo BioPharma Group plc, within Note 2 of the consolidated financial statements. Below are accounting policies which
are specific to the Company.
a) Investment in subsidiaries
Investments in subsidiary undertakings are stated at cost less any provision for impairment. Amounts capitalized as
investments in subsidiary undertaking are reviewed for impairment at each year end in accordance with IAS 36
(Impairment of Assets).
2. Significant accounting judgments, estimates and assumptions
The preparation of the Company financial statements requires the management of the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its
estimates and judgments on historical experience and on various other assumptions that it considers to be reasonable.
Actual results may differ from these estimates under different assumptions or conditions.
Impairment of investments in subsidiaries
The Group’s investment in subsidiaries is correlated to the clinical assets which are recorded as intangible assets in the
consolidated financial statements as the subsidiaries hold the rights to the respective clinical assets.
An assessment was made in respect of indicators of impairment in the carrying value of the Group’s investment in
subsidiaries as at December 31, 2023. If such an indication exists, the recoverable amount of the asset, being the higher
of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the
asset’s carrying value over its recoverable amount is expensed to the income statement. The assessment of intangible
assets involves a number of significant judgments regarding the likelihood of successful product approval, the costs of
reaching approval, the estimated useful life of intangible assets following commercialization and the subsequent
commercial profitability of the product once approved.
As described in note 13 of the consolidated financial statements, in December 2023 the Group derecognized the £9.9
million intangible asset related to leflutrozole. The derecognition of this intangible asset served as an indicator of
impairment. Upon review of the recoverable amount of the investment in subsidiary associated with leflutrozole, it was
determined that the carrying amount was greater that the recoverable amount and as such an impairment loss was
recorded. The investment is fully written off (see Note 4).
3. Loss for the year
The Company’s loss for the year was £22.3 million (2022: loss of £38.0 million), which has been included in the
Company’s profit and loss account.
The auditor’s remuneration for audit and other services is disclosed in Note 6 of the consolidated financial statements.
The average number of employees employed by the Company (including Executive Directors) in the year was 27 (2022:
35). The average number of employees during the year by activity was 17 administrative employees (2022: 23) and 10
research and development employees (2022: 12). Total compensation costs for persons employed by the Company
(including Executive Directors) during the year was £6.5 million (2022: £6.3 million), comprised of salaries of £2.8 million
(2022: £3.3 million), social security costs of £0.5 million (2022: £0.5 million), pension contributions of £0.1 million (2022:
£0.1 million) and share-based payments expenses of £3.1 million (2022: £2.4 million). Further information about share-
based payment transactions is provided in Note 25 of the consolidated financial statements. In respect of directors’
remuneration, amounts are included in the detailed disclosures in the audited section of the Directors’ Remuneration
Report on page 28, which are ascribed as forming part of these financial statements.
88
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS
4. Investments
4.1 Investments in subsidiaries
Cost
At January 1, 2022
Additions in the year
At December 31, 2022
Additions in the year
At December 31, 2023
Provision for impairment at January 1, 2022
Charge during the year
At December 31, 2022
Charge during the year
Provision for impairment at December 31, 2023
At December 31, 2023
At December 31, 2022
£'000s
212,545
8,406
220,951
6,772
227,723
20,835
27,747
48,582
14,285
62,867
164,856
172,369
–––––––––
The Company grants rights to its own equity instruments to Group employees who are not employees of the Company.
For these grants, the Company recognizes in equity the equity-settled share-based payment with a corresponding
increase in the investment in the subsidiary in the separate financial statements.
In the year-ended December 31, 2023, an impairment loss of £14.3 million was recorded to fully impair the investment
in Mereo BioPharma 2 Limited (2022: £27.7 million). The impairment loss was due to the recoverable value of
investments in subsidiaries falling below the carrying amount (held at cost, in accordance with the Company’s accounting
policies). The recoverable value of the investments were measured based on the value in use, and the discount rate
used in the calculation of value in use was 15% (2022: 15%).
4.2 Information about subsidiaries
The following were subsidiary undertakings at the end of the year and have been included in the consolidated
financial statements of the Group:
Name
Mereo BioPharma 1 Limited
Mereo BioPharma 2 Limited
Mereo BioPharma 3 Limited
Mereo BioPharma 4 Limited
Mereo BioPharma Ireland Limited
Mereo BioPharma 5, Inc
Navi Subsidiary, Inc.
Mereo US Holdings Inc.
Employee Benefit Trust
*Indirect holdings
Principal activities
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Pharmaceutical R&D
Holding Company
Employee share
scheme
% equity
interest
Country of
incorporation
U.K.
U.K.
U.K.
U.K.
Ireland
U.S.
U.S.
U.S.
December 31,
2022
100
100
100
100
100
100*
100*
100
% equity
interest
December 31,
2021
100
100
100
100
100
100*
100*
100
Jersey
—
—
The registered office of Mereo BioPharma 1 Limited, Mereo BioPharma 2 Limited, Mereo BioPharma 3 Limited and
Mereo BioPharma 4 Limited is located at Fourth Floor, 1 Cavendish Place, London W1G 0QF. The registered office
of Mereo BioPharma Ireland Limited is 6 Lapp's Quay, Cork, T12 TA48, Republic of Ireland.
Mereo US Holdings Inc. was incorporated on December 3, 2018 for the sole purpose of effecting the business
combination with Mereo BioPharma 5, Inc. (formerly OncoMed Pharmaceuticals, Inc.) on April 23, 2019. The registered
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS
office of Mereo US Holdings Inc., Mereo BioPharma 5, Inc. and its wholly owned subsidiary, Navi Subsidiary, Inc., is
251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808, US.
A capital contribution of £6.8 million (2022: £8.4 million) by Mereo BioPharma Group plc to its subsidiaries was recorded
in the year ended December 31, 2023 for the granting of employees’ share options for services rendered by the
employees to the subsidiaries and the conversion of intercompany balances at original cost.
As at December 31, 2023, total capital contributions of £179.4 million (2022: £172.6 million) by Mereo BioPharma Group
plc to its subsidiaries has been recorded.
Intercompany payable
5.
As at December 31, 2023, amounts owed by the Company to Group undertakings is £10.7 million (2022: £16.4 million).
These amounts are repayable on demand and bear an interest rate between 0% and 5.30%.
6.
Property, plant and equipment
As at December 31, 2023, the net book value of right-of-use assets is £1.0 million which relates to a building.
Cost
At January 1, 2023
Additions
Disposals
Currency translation effects
At December 31, 2023
Accumulated Depreciation
At January 1, 2023
Disposals
Depreciation for the year
At December 31, 2023
Net book value
At December 31, 2022
At December 31, 2023
Right-of-
use asset
(building)
£'000s
2,464
—
—
—
2,464
(1,088)
—
(399)
(1,487)
1,376
977
Leasehold
IT
improvements equipment equipment
£'000s
£'000s
£'000s
Office
557
—
—
—
557
(219)
—
(96)
(315)
338
242
148
—
—
—
148
(59)
—
(22)
(81)
89
67
Total
£'000s
3,306
—
—
—
3,306
137
—
—
—
137
(117)
—
(12)
(1,483)
—
(529)
(129)
(2,012)
20
8
1,823
1,294
The Group’s lease liability resides in the Company. Details on the lease liability of the Company, including maturity
analysis, are provided in Note 12 of the consolidated financial statements.
7. Convertible loan notes
The Group’s interest-bearing loans and borrowings all reside in the Company. Details on the convertible loan notes of
the Company are provided in Note 20 of the consolidated financial statements.
90
MEREO BIOPHARMA GROUP PLC
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS
8. Provisions
At beginning of year
Arising during the year
Released
At ending of the year
Current
Non-current
Year ended
December 31,
2023
£’000s
2022
£’000s
9
173
—
182
182
—
—
9
—
9
9
—
The provision for social security contributions on share options is calculated based on the number of options outstanding
at the reporting date that are expected to be exercised. The provision is based on the estimated gain arising on exercise
of the share options, using the best estimate of the market price at the balance sheet date.
9. Warrant liability
The Group’s warrant liability resides in the Company. Details on the warrant liability of the Company are provided in
Note 19 of the consolidated financial statements.
10. Share capital, share premium and other reserves
The Group’s share capital all resides in the Company. Details on the share capital of the Company are provided in Note
21 of the consolidated financial statements.
11. Share-based payments
The charge for share-based payments arises across the following schemes:
2019 Equity Incentive Plan
2019 NED Equity Incentive Plan
Year ended December 31,
2023
£'000s
2022
£'000s
1,779
881
2,660
1,681
713
2,394
Details on the share-based payments of the Company, including deferred equity consideration, are provided in Note 25
of the consolidated financial statements.
12. Related party disclosures
Details on related parties are provided in Note 26 of the consolidated financial statements.
92