TIDMMPH
RNS Number : 0046K
Mereo BioPharma Group plc
16 September 2016
Mereo BioPharma Group plc
("Mereo" or the "Company" or the "Group")
Interim results for the six months ended 30 June 2016
Significant progress against all key strategic priorities; well
positioned and financed to deliver key value inflection points
London, 16 September 2016 - Mereo BioPharma Group plc (AIM:
MPH), a clinical stage, UK-based, biopharmaceutical company focused
on rare and specialty diseases, today announces its interim results
for the six months ended 30 June 2016.
Operational highlights
-- Commenced a Phase 2 dose-ranging study with BCT-197 for
treatment of the underlying inflammation in patients with acute
exacerbation of COPD (AECOPD) in Q1 2016, in line with
expectations, with data expected in H2 2017
o Opened a US Investigational New Drug (IND) application for
AECOPD
-- Initiated a global Phase 2b dose-confirmation study with its
once-weekly aromatase inhibitor BGS-649 for the treatment of
hypogonadal hypogonadism (HH) in obese men in Q2 2016, with data
expected in H2 2017
-- Progressed the orphan disease treatment BPS-804 towards a
Phase 2b/3 study in patients with osteogenesis imperfecta (OI, also
known as brittle bone disease)
o Obtained Orphan Drug Designation in the US and EU for BPS-804
as a treatment for OI
o Following our submission to the regulator in H1 2016 we expect
to begin the trial during H1 2017, pending feedback from the
regulator
-- Strengthened intellectual property protection across the
portfolio, with new patent applications being pursued, and
allowance and grant of additional patents for BPS-804, BCT-197 and
BGS-649 in the US, EU and elsewhere
-- Shares admitted to the AIM market of the London Stock Exchange on 9 June 2016
Financial highlights
-- Raised a further GBP14.8 million of capital through a private
placement of new ordinary shares raising gross proceeds of GBP11.3
million and a cash investment by existing shareholder Novartis by
way of a convertible loan in the amount of GBP3.5 million
o Supplements the GBP76.5 million private placement completed in
July 2015
-- Loss after tax for the period of GBP14.7 million (2015:
GBPnil) or 59 pence per ordinary share (2015: nil pence per
ordinary share)
-- Net cash inflow from financing activities during the period
of GBP68.5 million and net cash outflow from operating activities
during the period of GBP10.5 million (2015: GBPnil), with cash and
cash equivalents as at 30 June 2016 of GBP70.2 million (2015:
GBPnil)
Denise Scots-Knight, CEO of Mereo, commented: "We have made
significant progress during the first half of 2016, delivering
against all our key strategic priorities set in July 2015 at the
time of the GBP76.5 million private financing when we acquired the
initial product portfolio from Novartis. The successful admission
of Mereo shares to the AIM market of the London Stock Exchange in
June 2016 allowed us to raise a further GBP14.8 million bringing
the total capital raised in just under 12 months to over GBP90
million. Operationally, these funds have allowed us, during the
period, to quickly progress two of our innovative products into
dose optimisation Phase 2 clinical trials. We have also received
Orphan Drug Designation in the US and EU for our most advanced
product, BPS-804 and submitted our Phase 2b/3 pivotal clinical
trial package design to the regulator, which we anticipate will
allow us to commence patient recruitment in H1 2017. Additionally,
we continue to search for additional innovative clinical stage
products for rare and speciality diseases to expand our
pipeline."
Conference call
Mereo will host a conference call and webcast to discuss the
financial results for the six months ended 30 June 2016 today at
13:00 BST. To participate in the conference call please dial 0808
2370 030 and use the conference confirmation code 93807491#.
Investors may also view the presentation via the Company's website,
http://mereobiopharma.com/news-media/#reports using the event
password 676349. A replay of the webcast will be available shortly
after the presentation finishes.
Enquiries
For further information please contact
Mereo BioPharma Group
plc +44 (0)333 023 7319
Denise Scots-Knight, Chief
Executive Officer
Richard Bungay, Chief
Financial Officer & COO
Nominated Adviser and
Joint Broker
Cantor Fitzgerald Europe +44 (0)20 7894 7000
Phil Davies
Will Goode
Rick Thompson
Callum Butterfield
Joint Broker
RBC Capital Markets +44 (0)20 7653 4000
Paul Tomasic
Rupert Walford
Thomas Stockman
Laura White
Public Relations Adviser
to Mereo Biopharma
FTI Consulting +44 (0)20 3727 1000
Ben Atwell
Simon Conway
Brett Pollard
About Mereo
Mereo is a UK-based biopharmaceutical company focused on the
development of innovative medicines that aim to address unmet
medical needs in rare and specialty disease areas and improve
patient quality of life. The Company seeks to selectively acquire
development-stage product candidates with demonstrated clinically
meaningful data from large pharmaceutical companies and to rapidly
progress these product candidates to subsequent value inflection
points.
Mereo combines the operational discipline and efficiency of a
small company with the financial resources to conduct comprehensive
clinical studies. The Company has the option to directly
commercialise products, for example in orphan diseases, in addition
to partnering or divesting its products.
Mereo's initial portfolio consists of three mid-late stage
clinical assets that were acquired from Novartis in July 2015.
BPS-804 is being developed for the prevention of fractures
resulting from osteogenesis imperfecta (brittle bone disease);
BCT-197, is being developed to treat inflammation in patients with
an acute exacerbation of chronic obstructive pulmonary disease; and
BGS-649 is a once-weekly pill to restore normal testosterone levels
in men with hypogonadal hypogonadism.
In H1 2016 the Company initiated a Phase 2 study with BCT-197
and a Phase 2b study with BGS-649. Mereo submitted its proposed
Phase 2b/3 pivotal study design package for BPS-804 to the
regulator in H1 2016 and expects to commence the trial during H1
2017 , pending feedback from the regulator. Additional product
opportunities, from a range of large pharmaceutical companies, are
under active evaluation.
BUSINESS OVERVIEW
Laying the Foundations for Success
Mereo was founded in early 2015 to finance and develop
clinical-stage products which pharmaceutical companies cannot
resource due to prioritisation of their rich development pipelines
and P&L pressures. Although this is a recognised opportunity
within the pharmaceutical industry, it has often proven challenging
for companies to agree and establish an appropriate business
structure once such assets have been identified. With a focus on
rare and speciality diseases and a clear set of product selection
criteria, Mereo was able to identify three Phase 2 programmes from
Novartis appropriate for external financing and development. In
parallel, we negotiated a transaction structure with an
equity-for-product swap that aligns the interests of both companies
based on success of the pipeline products.
In July 2015 we completed a GBP76.5m private financing round and
secured our initial product portfolio from Novartis. In June 2016,
with the continued support of Invesco, Woodford Investment
Management and Novartis, we completed a private placement, raising
an additional GBP14.8 million through the issue of new equity and a
convertible loan, and completed our admission to the AIM market of
the London Stock Exchange.
We believe we are now well positioned to leverage our early
mover advantage with a novel business model that aligns our
interests with the drug development needs of pharmaceutical
companies. Our long-term goal is to increase the number of products
in the portfolio and we are confident that we possess the right
ingredients and experience to build a scalable and sustainable
speciality pharmaceutical business.
The Initial Portfolio
The selection of product candidates from Novartis was based on
strong scientific rationale, clinically meaningful data and a clear
path to significant value-generating inflection points through
further clinical development or commercialisation.
BCT-197 is being developed to treat the inflammation in patients
experiencing an acute exacerbation of chronic obstructive pulmonary
disease (AECOPD). COPD patients are currently treated with
corticosteroids to control inflammation. Despite this treatment
AECOPDs still occur frequently. As no therapies treating the
underlying AECOPD itself have been approved for use in the US or
EU, we believe that novel therapeutics to treat and reduce
exacerbations have the potential to improve quality of life, slow
the progression of the disease and significantly reduce direct
healthcare costs. BCT-197 aims to increase lung function and
quality of life for patients, and reduce hospital stays.
Furthermore, it offers the possibility of reducing the risk of
re-exacerbations and re-hospitalisations.
BCT-197 has been studied in 260 individuals and has already
demonstrated a therapeutically meaningful increase in the amount of
air forcibly exhaled by an AECOPD patient in one second (forced
expiratory volume in one second, or FEV1), a clinically relevant
endpoint in COPD. BCT-197 has also demonstrated a statistically
significant reduction in the inflammatory marker TNF<ALPHA>
in clinical studies. In studies to date, BCT-197 has been shown to
be safe and well tolerated in the target patient population.
We commenced a Phase 2 dose-ranging study in 255 AECOPD patients
during the first half of 2016 assessing the impact of two different
dose levels versus placebo on top of existing standard of care and
expect data from this study in the second half of 2017. The aim of
the study is to demonstrate the most biologically active dose
regimen of BCT-197 based on a primary endpoint of FEV1. Patients
will be followed for 26 weeks to explore recurrence rates of AECOPD
and number of hospitalisations.
We have filed a number of new patent applications relating to
BCT-197 and a patent application covering the use of BCT-197 in the
treatment of AECOPD has recently been granted in the US and allowed
in Europe and other territories where it will shortly proceed to
grant.
BGS-649 is being developed for hypogonadal hypogonadism (HH) in
obese men, a clinical syndrome that results from inadequate levels
of testosterone. Symptoms that are most commonly associated with
testosterone deficiency include impaired libido and sexual
dysfunction (including infertility) as well as tiredness, fatigue
and mood disturbance. Current treatment for HH is testosterone
replacement therapy by intramuscular injection, gel or patches.
Testosterone replacement is associated with significant side
effects, including excessively high levels of testosterone, which
the FDA and health professionals associate with a possible higher
risk of stroke and heart attack. We believe that there is a
significant market opportunity for a treatment of HH that can be
administered in a convenient manner and that restores normal levels
of testosterone without causing excessively high testosterone
levels.
BGS-649 is a once-weekly pill that is designed to be more
convenient, and have additional therapeutic benefits and potential
safety advantages, compared to testosterone replacement therapies.
BGS-649 has been received by 130 individuals in Novartis' clinical
studies. Novartis' Phase 2 data established proof of concept in
obese men with HH because it restored testosterone levels to a
normal range without causing excessively high levels, and boosted
luteinising hormone (LH) and follicle stimulating hormone (FSH)
implying maintenance of the normal negative feedback loop, which
controls the normal testosterone level. BGS-649 was well tolerated
in all clinical studies with no BGS-649-related serious adverse
events.
We commenced a Phase 2b study with BGS-649 in 260 patients with
HH during the first half of 2016, assessing three different dose
levels compared to placebo, and expect data from this study in the
second half of 2017. The primary objective of this trial will be to
demonstrate the normalisation of testosterone in a significantly
greater percentage of patients receiving BGS-649 (compared to those
receiving placebo) and to establish the lowest effective dose of
BGS-649. Further endpoints will include assessment of
patient-reported outcomes and the impact on fertility. There will
be an interim analysis, expected before the end of 2016, that aims
to identify any dose that has not normalised testosterone and this
dosing arm will then be stopped. A subset of patients will be
offered to enter into a six-month extension study, to gain
long-term data on both efficacy and safety.
We have significantly extended the patent coverage for BGS-649:
notably, following an accelerated prosecution, we have patent
applications covering the dosing regimen and formulation that have
been granted in the US and other territories in 2016 and have been
allowed and will shortly proceed to grant in Europe.
BPS-804 is being developed for osteogenesis imperfecta (OI, also
known as brittle bone disease), a rare genetic condition that
results in bones that can break easily. In severe cases, patients
may experience hundreds of fractures in a lifetime. Current
treatment of OI focuses on treatment of fractures as they occur,
maintaining mobility and managing pain. There are no currently
available treatments that address the underlying bone weakness.
BPS-804 is a fully human antibody that blocks the action of the
protein sclerostin, which inhibits the activity of bone-forming
cells. By blocking sclerostin, BPS-804 is therefore expected to
increase bone formation and reduce bone resorption, thereby
reducing fractures in OI patients. There is a significant unmet
need for drugs to treat OI, as there is no pharmacological agent
approved for the reduction in fractures for children or adults with
OI and no treatment or cure is available. We received Orphan Drug
Designation for BPS-804 in the US in March 2016 and in the EU in
June 2016, which provides significant benefits including a period
of market exclusivity and eligibility for incentives.
Novartis' Phase 2 data in osteogenesis imperfecta patients has
demonstrated statistically significant proof of concept data in
bone biomarkers and bone mineral density. In total, 83 patients and
volunteers have received BPS-804 in the clinical studies undertaken
by Novartis; in these studies BPS-804 has been shown to be safe and
well tolerated.
In our proposed placebo-controlled Phase 2b/3 pivotal study,
which is the first major placebo-controlled study to be conducted
in OI, we are aiming to demonstrate a benefit in terms of a
reduction in the incidence of fractures, since recurrent fractures
are the key clinical issue in these patients. We expect the study
to be in two parts. The initial part will deliver interim data
based on an imaging biomarker and bone mineral density (BMD) in 120
patients following twelve months of treatment and will be used to
confirm the dose for the second part of the study. The second part
of the study will be event driven, with time to first fracture
(TTFF) as the primary endpoint. TTFF is inversely related to
incidence of fractures. Approximately 300 patients will be treated
with BPS-804 or placebo for the greater of one year or TTFF.
Patients on placebo will then be converted to active treatment.
Patients in the study will be followed for a total of three years.
We believe this innovative design has the benefits of being a
scientifically robust placebo-controlled study that is attractive
to patients as they are likely to receive therapy, and having the
potential for early data at an interim analysis. Following our
submission to the regulator in H1 2016, we anticipate beginning the
trial during H1 2017, pending detailed feedback from the regulator
arising from their ongoing multidisciplinary review of our
submission.
BPS-804 has strong patent protection through granted composition
of matter claims. New patent applications are being pursued and a
divisional patent application in Europe has recently been allowed
and will shortly proceed to grant.
Building the Infrastructure
We are fortunate to have had an experienced Board in place from
the early stages of Mereo, comprising individuals with significant
operating and clinical development experience in successful
pharmaceutical and biotechnology companies. Since completion of the
private financing in July 2015 we have built the Company
infrastructure and added resources for effective execution of the
clinical development plans for the initial three products, and for
the future acquisition of additional products. We have attracted
highly talented individuals in clinical development, clinical
operations, manufacturing and intellectual property to support the
high calibre and experienced management team and Board of
Directors. In the short term we plan to execute on the clinical
studies which represent the next value inflection points for each
of the three pipeline products. In the longer term our goal is to
have between five and seven products under development. To achieve
this we are planning to leverage our internal resource with
appropriate and selective use of external resource, such as
clinical research organisations, in such a way that we will only
need to minimally increase internal personnel for each additional
product.
Development of our Portfolio
Our portfolio is designed to have diversified risk as each
product has a different mechanism of action, involves different
regulatory frameworks, and has different pricing and reimbursement
considerations.
We will continue to review opportunities to expand our initial
portfolio by acquiring additional product candidates with strong
scientific rationale and a clear path to significant value
generating inflection points. We are actively developing a deal
pipeline with large pharmaceutical companies with a history of
robust product development and a reputation for product data
quality. We believe that our scalable business model allows Mereo
to be involved in a range of different therapeutic areas, enabling
further diversification of our product portfolio and successfully
creating sustainable value through intelligent growth with a
preference for rare and specialist diseases with high unmet medical
need that may be developed through to product approval.
Another key feature of our business model is that Mereo has
complete commercial flexibility. As we consider the strategic
options for each of our pipeline products we are now in a position
to dictate the balance between out-licensing products at the stage
which it is appropriate to do so and retaining the commercial
rights to select products where we believe Mereo can best manage
the value creation.
FINANCIAL REVIEW
Following the formation of the Company on 10 March 2015 there
were minimal financial transactions prior to the private financing
that completed on 29 July 2015 other than the issuance of founders'
equity. Accordingly, there is no relevant comparative information
for the consolidated financial statements.
On 9 June 2016 the Company's shares were admitted to the AIM
market of the London Stock Exchange under the symbol "MPH".
Immediately prior to this, the Company was re-registered as a
public limited company.
The loss for the six-month period ended 30 June 2016 (the
"Period") was GBP14.7 million (2015: GBPnil). The reported loss
includes a non-cash share-based payment charge and associated
provision for social security payments totalling GBP5.3 million
(2015: GBPnil) and a tax credit of GBP2.2 million, representing the
estimated amount receivable under the UK Research & Development
SME scheme in respect of the activities conducted during the
Period.
Research and development expenses for the Period were GBP11.1
million (2015: GBPnil), including a non-cash share-based payment
charge and associated provision for social security payments
totalling GBP1.1 million. The majority of these expenses comprise
payments to contract research organisations (CROs) in respect of
the set up and running of the clinical trials for the Group's three
programmes, along with payments to contract manufacturing
organisations (CMOs) relating to manufacturing and distribution of
clinical trial materials.
General and administrative expenses for the Period were GBP5.8
million (2015: GBPnil), including a non-cash share-based payment
charge and associated provision for social security payments
totalling GBP4.2 million and an exchange gain of GBP1.2 million
(see below). General and administrative expenses include staff
costs for executive management and administration functions,
facilities costs and professional advisors as well as the costs of
filing and maintaining the Group's intellectual property.
The Group strengthened its balance sheet significantly during
the Period. At completion of the GBP76.5 million private financing
in July 2015 the Group drew down an initial GBP20.0 million. During
June 2016 the Group drew down the remaining GBP56.5 million gross
proceeds and, in addition, completed a further private placement
raising total gross proceeds of GBP14.8 million, comprising GBP11.3
million through the issue of new ordinary shares and GBP3.5 million
through the issue of a convertible loan note to Novartis. The net
cash inflow from financing activities during the period was GBP68.5
million and the net cash outflow from operating activities during
the period was GBP10.5 million (2015: GBPnil), resulting in cash
and short-term deposits as at 30 June 2016 of GBP70.2 million
(2015: GBPnil).
A significant component of the Group's current clinical trial
expenditure is denominated in US Dollars. In the period before the
vote in the UK to leave the European Union on 23 June 2016
("Brexit") the Group purchased sufficient US Dollars to meet its
near-term commitments, providing a hedge against a potential vote
to leave the European Union. Following the vote to leave the
European Union, Sterling weakened significantly against both the US
Dollar and the Euro. Accordingly, administrative expenses for the
Period include a GBP1.2 million exchange gain on the US Dollar
deposits. In addition, the Group has reviewed the assumptions
underlying its valuation of the intangible assets and has concluded
that there is no impairment as a result of the economic
consequences of the Brexit vote or other internal and external
factors since the last impairment review as at 31 December
2015.
OUTLOOK
Following the recent private placement and admission of its
shares to AIM, the Group believes it is well positioned to deliver
key value inflection points on all three of its initial portfolio
programmes. The Group will seek further opportunities to accelerate
growth and development with the aim of becoming a leading player in
the development and commercialisation of novel therapies for rare
and speciality diseases with a high unmet medical need.
Independent review report to Mereo BioPharma Group plc
Introduction
We have been engaged by the company to review the condensed set
of consolidated financial statements in the half-yearly financial
report for the six months ended 30 June 2016 which comprises the
consolidated statement of comprehensive loss, consolidated balance
sheet, consolidated statement of cash flows, consolidated statement
of changes in equity and the related notes 1 to 10. We have read
the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of consolidated financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
International Accounting Standards 34, "Interim Financial
Reporting," as adopted by the European Union.
As disclosed in note 1, the annual consolidated financial
statements of the company are prepared in accordance with IFRSs as
adopted by the European Union. The condensed set of consolidated
financial statements included in this half-yearly financial report
has been prepared in accordance with International Accounting
Standards 34, "Interim Financial Reporting," as adopted by the
European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of consolidated financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union.
Ernst & Young LLP
Reading, 16 September 2016
Consolidated statement of comprehensive loss
for the six months ended 30 June 2016
Six months 10 March 10 March
ended 2015 2015
30 June to 30 to 31
2016 June December
Unaudited 2015 2015
GBP Unaudited Audited
Notes GBP GBP
------------- ----------- -------------
Research and development
expenses (11,121,516) - (5,445,015)
Administrative expenses (5,784,548) (2) (7,716,344)
------------- ----------- -------------
Operating loss (16,906,064) (2) (13,161,359)
Net finance income 8,794 - 25,717
-------------
Loss before tax (16,897,270) (2) (13,135,642)
Taxation 5 2,170,849 - 946,681
----------- -------------
Loss for the period,
attributable to equity
holders of the parent (14,726,421) (2) (12,188,961)
============= =========== =============
Other comprehensive income/(loss) - - -
for the period, net of
tax
============= =========== =============
Total comprehensive (loss)
for the period, net of
tax and attributable
to the equity holders
of the parent (14,726,421) (2) (12,188,961)
============= =========== =============
Basic and diluted loss 6 (GBP0.59) (GBP0.00) (GBP1.01)
per share for the period
========== ========== ==========
Consolidated balance sheet
as at 30 June 2016
30 June 30 June 31 December
2016 2015 2015
Unaudited Unaudited Audited
Notes GBP GBP GBP
------------ ---------- ------------
Assets
Non-current assets
Property, plant and equipment 189,191 - 204,517
Intangible assets 25,812,941 - 25,812,941
------------
26,002,132 - 26,017,458
Current assets
Prepayments 749,377 - 253,926
R&D tax credits 5 3,117,530 - 946,681
Other receivables 713,791 - 396,022
Cash and short-term deposits 70,177,639 4,998 12,247,986
------------ ---------- ------------
74,758,337 4,998 13,844,615
------------
Total assets 100,760,469 4,998 39,862,073
============ ========== ============
Equity and liabilities
Equity
Issued capital 9 193,022 5,000 59,221
Share premium 9 100,073,792 - 26,212,880
Other capital reserves 9 10,534,362 - 21,660,105
Accumulated losses (19,915,382) (2) (12,188,961)
------------
Total equity 90,885,794 4,998 35,743,245
------------ ---------- ------------
Non-current liabilities
Provisions 1,102,836 - 141,311
Convertible loan 7 2,957,009 - -
------------
4,059,845 - 141,311
Current liabilities
Trade and other payables 5,814,830 - 3,977,517
------------
Total liabilities 9,874,675 - 4,118,828
------------ ---------- ------------
Total equity and liabilities 100,760,469 4,998 39,862,073
============ ========== ============
Consolidated statement of cash flows
for the six months ended 30 June 2016
10 March 10 March
Six months 2015 2015 to
Ended to 31 December
30 June 30 June 2015
2016 2015 Audited
Unaudited Unaudited GBP
Notes GBP GBP
------------- ----------- -------------
Operating activities
Loss before tax (16,897,270) (2) (13,135,642)
Adjustments to reconcile
loss before tax to net
cash flows:
* Depreciation and impairment of property, plant and
equipment 16,651 - 11,361
* Share-based payment expense 4,360,818 - 2,982,265
* Provision for social security contributions on
employee share options 961,525 - 141,311
* Finance income (19,042) - (25,717)
10,248 - -
* Interest on convertible loan
Working capital adjustments:
* Increase in receivables (813,220) - (649,948)
* Increase in payables 1,837,313 - 3,977,517
Net cash flows from operating
activities (10,542,977) (2) (6,698,853)
------------- ----------- -------------
Investing activities
Purchase of property, plant
and equipment (1,325) - (215,878)
Interest received 19,042 - 25,717
Net cash flows received/(used)
in investing activities 17,717 - (190,161)
------------- ----------- -------------
Financing activities
Proceeds from issue of
ordinary shares 9 67,888,820 5,000 20,005,000
Transaction costs on issue
of shares (2,897,470) - (868,000)
Proceeds from issue of
convertible loan 7 3,463,563 - -
Net cash flows from financing
activities 68,454,913 5,000 19,137,000
------------- ----------- -------------
Net increase in cash and
cash equivalents 57,929,653 4,998 12,247,986
Cash and cash equivalents 12,247,986 - -
at the beginning of the
period
------------- ----------- -------------
Cash and cash equivalents
at the end of the period 70,177,639 4,998 12,247,986
============= =========== =============
Consolidated statement of changes in equity
for the period ended 30 June 2016
Other
Issued Share capital
capital premium reserves
(note (note (note Accumulated Total
9) 9) 9) losses equity
GBP GBP GBP GBP GBP
-------- ----------- ------------ ------------ ------------
As at 10 March 2015 - - - - -
Loss for the period - - - (2) (2)
Issue of share capital 5,000 - - - 5,000
-------- ----------- ------------ ------------ ------------
At 30 June 2015 5,000 - - (2) 4,998
======== =========== ============ ============ ============
Loss for the period - - - (12,188,959) (12,188,959)
Issue of share capital 14,740 27,067,420 - - 27,082,160
Issue of bonus share
capital 39,481 (39,481) - - -
Share-based payments - - 2,982,265 - 2,982,265
Shares to be issued - - 18,677,840 - 18,677,840
Profit on transfer
of loan notes for
equity - 52,941 - - 52,941
Transaction costs
on issuance of share
capital - (868,000) - - (868,000)
-------- ----------- ------------ ------------ ------------
At 31 December 2015
- audited 59,221 26,212,880 21,660,105 (12,188,961) 35,743,245
======== =========== ============ ============ ============
Loss for the period - - - (14,726,421) (14,726,421)
Issue of share capital
(note 9) 133,801 83,758,382 - - 83,892,183
Share-based payments - - 4,360,818 - 4,360,818
Redemption of shares
to be issued - - (16,003,363) - (16,003,363)
Equity element of
convertible loan
(note 7) - - 516,802 - 516,802
Share capital reduction
(note 9) - (7,000,000) - 7,000,000 -
Transaction costs
on issuance of share
capital (note 3) - (2,897,470) - - (2,897,470)
At 30 June 2016
- unaudited 193,022 100,073,792 10,534,362 (19,915,382) 90,885,794
======== =========== ============ ============ ============
Notes to the interim report
1. Corporate information
The interim condensed consolidated financial statements of Mereo
BioPharma Group plc and its subsidiaries (collectively, the
"Group") for the six months ended 30 June 2016 were authorised for
issue in accordance with a resolution of the directors on 14
September 2016. Mereo BioPharma Group plc (the "Company" or the
"parent") is a public limited company incorporated and domiciled in
United Kingdom and whose shares are publically traded on the AIM
Market of the London Stock Exchange. The registered office is
located at Fourth Floor, 1 Cavendish Place, London, W1G 0QF.
The Group is principally engaged in the research and development
of novel pharmaceuticals.
2. Basis of preparation
The interim condensed consolidated financial statements for the
six month period ended 30 June 2016 have been prepared in
accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statements do not
include all the information and disclosures required in the
statutory financial statements, and should be read in conjunction
with the Group's financial statements as at 31 December 2015.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's consolidated
financial statements for the period ended 31 December 2015, except
for the new accounting policies described in note 3 below. The
financial information is presented in Sterling.
These condensed half-yearly financial statements are unaudited
and do not constitute statutory accounts of the Group as defined in
section 434 of the Companies Act 2006. The auditor, Ernst &
Young LLP, has carried out a review of the financial information in
accordance with the guidance contained in International Standard on
Review Engagements (UK and Ireland) 2410 - Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity, and their review report is set out at the beginning of this
report.
The financial information for the period ended 31 December 2015
has been extracted from the Group's published financial statements
for that year, and a copy of the statutory accounts for that
financial year has been delivered to the Registrar of Companies.
The auditors reported on those accounts and their report was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Companies Act 2006.
3. Summary of changes or new significant accounting policies
3.1 Costs of issuing capital
The Group deducts directly attributable costs of issuing capital
from the proceeds in accordance with IAS39 Financial Instruments:
Recognition and Measurement.
3.2 Long term incentive plan
In accordance with IFRS2 Share Based Payment, employee services
received in exchange for the grant of any share based compensation
are measured at their fair values. These are indirectly determined
by reference to the share option or shares awarded. Their value is
appraised at the grant date and excludes the impact of any
non-market vesting conditions. The fair value of LTIP shares, which
have market conditions attached, includes an adjustment based on
the probability of the shares vesting at the end of the vesting
period.
Details of the LTIP scheme and the conditions applying to each
scheme are disclosed in Note 8.
Notes to the interim report (continued)
3.3 Convertible loan instrument
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. The difference between the proceeds of
issue of the convertible loan note and the fair value assigned to
liability component, representing the embedded option to convert
the liability into equity of the Group, is included in equity.
3.4 Share-based compensation - cancellation of options
In accordance with IFRS2 Share Based Payment, the cancellation
of share options is accounted for as an acceleration of the vesting
period and therefore any amount unrecognised that would otherwise
have been charged in future accounting periods is recognised
immediately.
4. Segment information
For management purposes, the Group is organised into business
units based on its products and has three reportable segments, as
follows:
- Respiratory Unit, which develops drugs to treat respiratory diseases
- Endocrinology Disorders Unit, which develops drugs to treat endocrine disorders
- Orphan Diseases Unit, which develops drugs to treat various orphan diseases
Period Endocrinology Orphan
ended Respiratory Disorders Diseases Total
30 June Unit Unit Unit segments Unallocated Consolidated
2016 GBP GBP GBP GBP GBP GBP
------------ -------------- ------------ ------------- ------------ -------------
Expenses
Research
and development (4,241,623) (4,116,677) (2,449,412) (10,807,712) (313,804) (11,121,516)
Administrative (1,543,854) (1,591,431) (1,656,843) (4,792,128) (992,420) (5,784,548)
------------ -------------- ------------ ------------- ------------ -------------
Segment
operating
loss (5,785,477) (5,708,108) (4,106,255) (15,599,840) (1,306,224) (16,906,064)
============ ============== ============ ============= ============ =============
Assets
Tax Credit 867,486 844,539 814,516 2,170,849 - 2,170,849
Intangible
assets 4,310,761 9,886,356 11,615,824 25,812,941 - 25,812,941
============ ============== ============ ============= ============ =============
Notes to the interim report (continued)
5. Income tax
The Group is entitled to claim tax credits in the United Kingdom
under the UK research and development (R&D) small or
medium-sized enterprise 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"). The amount included in the
statement of comprehensive loss for the period ended 30 June 2016
represents the credit receivable by the Group for the six months to
30 June 2016. The amounts have not yet been agreed with HMRC.
Six months
ended 30
June 2016
GBP
Group
United Kingdom corporation tax R&D
credit 2,170,849
-----------
Income Tax Credit 2,170,849
-----------
6. Loss per share
Basic loss per share is calculated by dividing the loss
attributable for the period to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the period.
As net losses from continuing operations were recorded in the
period, the dilutive potential shares are anti-dilutive for the
earnings per share calculation.
Six months
ended
30 June
2016
----------------
Group
Loss from continuing operations attributable
to ordinary equity holders of the parent (GBP14,726,421)
Weighted average number of ordinary
shares in issue 24,914,940
Basic and diluted loss per share (GBP0.59)
================
The Company operates share option schemes which could
potentially dilute basic earnings per share in future. In addition
there exist within equity 10,151,000 shares to be issued which also
have the potential to dilute basic earnings per share in future
(see note 9). There have been no other transactions involving
ordinary shares or potential ordinary shares between the reporting
date and the date of this interim report.
Notes to the interim report (continued)
7. Convertible loan note
On 3 June 2016, the Company created 3,463,563 GBP1 unsecured
convertible loan notes ("Notes"). The Notes attract an interest
rate of 4% per annum payable annually and accruing daily and
constitute direct, unsecured obligations of the Company ranking
ahead of any other unsecured obligations of the Company.
The noteholder shall be entitled, at any time within 36 months
of the date of the instrument ("Maturity Date"), to serve a
conversion notice on the Company to convert all or some only of the
outstanding Notes into fully paid Ordinary Shares at a conversion
price of GBP2.21 per share. To the extent the Notes are not
converted at the Maturity Date, the outstanding principal amount of
the Notes, together with any accrued interest, is redeemable. Upon
conversion of any Notes, in addition to the relevant number of
conversion shares, the noteholder is entitled to receive an
additional number of Ordinary Shares in the Company equal to the
number of conversion shares into which such Notes are to convert,
multiplied by 0.93, up to a maximum aggregate number of 1,453,520
such bonus shares.
The value of the debt component of the Notes at 30 June 2016 was
calculated as GBP2,946,761. The cash flows attached to the Note up
to the Maturity Date were calculated and discounted at an
appropriate venture debt rate of 10%.
The value of the equity component of the Notes at 30 June 2016
was calculated as GBP516,802.
8. Long term incentive plan
Incentive Plan
Under the Mereo BioPharma Group plc Long Term Incentive Plan
(the "LTIP Plan"), the Group, at its discretion, may grant nil cost
options to acquire shares to employees. Under the LTIP Plan rules,
vesting of 75% of the options issued to employees is subject to a
share price performance condition (the "Share Price Element") and
vesting of 25% of the options is subject to achievement of
strategic operational targets (the "Strategic Element"). Share
options vest over a maximum of five years, dependent upon
achievement of these targets.
The fair value of the LTIP Share Price Element is estimated at
the date of grant using a Monte Carlo pricing model, taking into
account the terms and conditions upon which the share options were
granted.
The fair value of the LTIP Strategic Element is estimated at the
date of grant using a Black-Scholes pricing model, taking into
account the terms and conditions upon which the share options were
granted, and the expected level of achievement of strategic
targets.
The fair value calculations do not include any allowance for
dividends as the Company has no available profits for
distribution.
The contractual term of the LTIP options is five years.
The expense recognised for employee services received during the
period to 30 June 2016 was GBP17,728 (30 June 2015: GBPnil).
There were no cancellations or modifications to the awards in
the period to 30 June 2016.
Notes to the interim report (continued)
Movements during the period
The following table illustrates the number of, and movements in,
LTIP options during the period:
Awards
----------
Granted during the period 1,199,658
Outstanding at 30 June 1,199,658
==========
Exercisable at 30 June -
==========
The weighted average remaining contractual life for the LTIP
options outstanding as at 30 June 2016 was 4.1 years.
The weighted average fair value of options granted during the
period was GBP1.21.
The following tables list the weighted average inputs to the
models used for the fair value of LTIP options granted during the
period ended 30 June 2016:
LTIP share price element
Period ended 30
June 2016
----------------
Expected volatility (%) 48.9%
Risk-free interest rate (%) 0.48-0.74%
Expected life of share options (years) 3-5 years
Market price of ordinary shares (GBP) 2.21
Model used Monte Carlo
LTIP strategic element
Period ended 30
June 2016
----------------
Expected volatility (%) 48.9%
Risk-free interest rate (%) 0.74%
Expected life of share options (years) 5
Market price of ordinary shares (GBP) 2.21
Model used Black-Scholes
Since there is no historical data in relation to the expected
life of the LTIP options the contractual life of the options has
been used in calculating the expense for the period.
Volatility is estimated by reference to the share price
volatility of a group of comparable companies over a retrospective
period equal to the expected life of the LTIP options.
Notes to the interim report (continued)
9. Issued capital and reserves
30 June 2016
GBP
-------------
Ordinary share capital
Ordinary share capital at 1 January 2016 59,221
Issuances in the period 133,801
Nominal share capital as at 30 June 2016 193,022
=============
Ordinary shares issued and fully paid (post ordinary share split)
At 1 January 2016 19,740,296
Issued on 9 June 2016 for private financing round 39,464,540
Issued on 9 June for private placement 5,135,962
-------------
At 30 June 2016 64,340,798
=============
Nominal value at 30 June 2016 0.003
=============
Issued capital at 30 June 2016 193,022
=============
Since 1 January 2016, the following alterations to the Company's
share capital have been made:
- Under the subscription agreement dated 28 July 2015, as
amended by an agreement dated 1 June 2016, the issue and allotment
of 39,464,540 ordinary shares of GBP0.003 in nominal value in the
capital of the Company on 9 June 2016 at a price of GBP1.84 per
share. 39,699 of these ordinary shares were issued to WG Partners
LLP, for no cash consideration, as payment for financial advisory
services;
- On 21 March 2016 the Directors of the Company signed a
solvency statement with the agreement of all shareholders and
undertook a capital reduction, reducing the share premium account
by GBP7,000,000 and reducing the accumulated losses by the same
amount;
- Under a private placement dated 9 June 2016, the issue and
allotment of 5,135,962 ordinary shares of GBP0.003 in nominal value
in the capital of the Company on 9 June 2016 at a price of GBP2.21
per share; and
- On 9 June 2016, the Company's ordinary shares were admitted to
trading on the AIM market of the London Stock Exchange.
30 June 2016
GBP
-------------
Share premium
At 1 January 2016 26,212,880
Issuance of share capital for private financing round on 9 June 2016 72,423,314
Issuance of share capital for private placement on 9 June 2016 11,335,068
Transaction costs for issued share capital (2,897,470)
Share capital reduction on 21 March 2016 (7,000,000)
At 30 June 2016 100,073,792
=============
Share option schemes
The Group has a share option scheme under which options to
subscribe for the Company's shares have been granted to certain
Executives, Non-Executive Directors and employees.
Notes to the interim report (continued)
Other capital reserves
30 June
2016
GBP
-------------
At 1 January 2016 21,660,105
Share-based payments expense during the
period 4,360,818
Shares to be issued - reduction due to
shares released on 9 June 2016 (16,003,363)
Equity component of convertible loan instrument 516,802
At 30 June 2016 10,534,362
=============
Share-based payments
The share-based payment reserve is used to recognise the value
of equity-settled share-based payments provided to employees,
including key management personnel, as part of their remuneration.
Of the GBP4,360,818 share-based payment expense in the period,
GBP298,836 is an accelerated charge relating to 500,000 share
options which were cancelled on 9 June 2016.
Shares to be issued
Of the 44,600,502 ordinary shares issued on 9 June 2016,
8,697,480 shares were issued to Novartis Pharma AG
("Novartis").
10. Related party disclosures
Transactions between the parent and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Novartis holds shares in the Company at 30 June 2016. On 3 June
2016, the Group issued 3,463,563 GBP1 unsecured convertible loan
notes ("Notes") to Novartis and received GBP3,463,563 from Novartis
in consideration (note 7).
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DELFFQKFXBBE
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