Friday, March 31, 2023

Clark Road Worth: Mereo BioPharma: Activist Proxy Combat

Again within the March 2019, I wrote up the merger between U.Ok. primarily based Mereo BioPharma (MREO) (~$100MM present market cap) and OncoMed Prescription drugs (previously traded as OMED) as a approach to play the contingent worth rights that have been issued to OMED shareholders.  The CVR a part of the thesis hasn’t labored out, at the least but, there are nonetheless potential milestones on Navicixizumab in play earlier than the CVR expire on 4/23/24.  Since closing out that commerce (I obtained MREO shares within the merger however offered instantly at $5.30, shares commerce for $0.95 at this time), I’ve checked in on the corporate sometimes because the CVRs naturally have Mereo counterparty danger.  On the newest of these examine ins, I got here throughout two Searching for Alpha write-ups (here and here) by Dalius Taurus of SSI that piqued my curiosity.

Mereo BioPharma has six product candidates, 4 bought from bigger biopharmaceutical firms (Novartis and AstraZenca) that beforehand obtained appreciable funding within the pre-clinical stage however have been now not strategic priorities and two product candidates inherited from the OncoMed acquisition.  MREO’s market cap is roughly $100MM (MREO trades as an ADR, every MREO share equals 5 peculiar shares) and final reported a money stability of $105MM (present conversion price, MREO stories in GBP) as of 2021 yr finish, after some money burn, it possible has a small constructive enterprise worth.  

Much like most pre-revenue biotechs as of late, Mereo’s buyers have misplaced their endurance funding growth pipelines, Rubric Capital (~14% proprietor) has stepped up as an activist to cease the money burn by making an attempt to reconstitute the board of administrators.  Rubric has its eyes on gaining management of the board, then monetizing property and returning money to shareholders in what quantities to a liquidation.  Rubric is run by David Rosen, who was a portfolio supervisor at SAC Capital (now Point72) earlier than happening his personal in 2016.  It simply so occurs that the second largest MREO shareholder is Point72 with 8.6%, possible pleasant to Rubric, additional rising the chance that Rubric positive aspects board seats within the proxy marketing campaign as the present board/administration owns an insignificant quantity.

Under is the again of the envelope valuation math offered by Rubric in their 6/9/22 letter:

I’ve little means of confirming or refuting their valuation, however even when they’re unsuitable by half the inventory is roughly a double from right here.  Mereo’s most precious asset in keeping with Rubric is their partnership with Ultragenyx (RARE) on Setrusumab (initially bought from Novartis) which is a remedy for a uncommon bone illness, osteogenesis imperfecta (“OI”), that at present has no accepted therapies.  Mereo retained the industrial rights for Setrusumab within the UK and Europe, in any other case Rubric is ascribing no worth to Mereo’s different product candidates, together with Alvelestat which is a remedy for a uncommon lung illness present process scientific trials.

Alvelestat is the one product candidate that got here from AstraZenenca (AZN). In June, which to be honest is a lifetime in the past on this market, The Times of London reported that AZN was contemplating a bid for MREO:

Phrase is that it’s contemplating a bid for Mereo Biopharma, a specialist in most cancers and uncommon ailments.

Mereo, which has developed a portfolio of six clinical-stage product candidates, is predicated in London however listed on the Nasdaq change in New York and lists AstraZeneca amongst its companions alongside Novartis, OncXerna and Ultragenyx. There are recommendations that at the least one different suitor, presumably one other accomplice, might also be on the prowl.

Shares in Mereo have been a stinker, shedding nearly 80 per cent of their worth previously yr, though they jumped by 8.5 per cent to 69 cents on Wednesday, valuing the corporate at $81 million. Analysts have a median goal value of $7 and the discuss is that Mereo would settle for $5, equating to $500 million together with American depositary receipts or ADRs. Evercore and Citigroup are stated to be concerned as advisers.

This text got here out across the identical time because the Rubric letter, they is likely to be associated, or it is likely to be coincidence.  Even when the Setrusumab valuation is overstated, there is likely to be different property price one thing right here.  Rubric and Mereo’s administration have been going again forth on Rubric’s request for a particular assembly, Mereo seemingly was citing each technicality why Rubric’s request was ineligible but eventually relented and the particular assembly is now set to occur someday in November.  It seems that a brand new board will likely be put in place shortly, we’ll see what occurs from there.  I purchased a small place.

Disclosure: I personal shares of MREO and a few non-tradable OMED CVRs

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