UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 or 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of September, 2020

Commission File Number: 001-38452

MEREO BIOPHARMA GROUP PLC

(Translation of registrant’s name into English)

4^th Floor, One Cavendish Place,

London, W1G 0QF, United Kingdom

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F   ☒             Form 40-F   ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

On September 29, 2020, Mereo BioPharma Group plc (the “Company”) issued a press release announcing the Company’s financial results for the six months ended June 30, 2020. In addition, the Company is submitting with this Form 6-K its unaudited condensed consolidated financial statements as of June 30, 2020 and for the six months then ended.

Exhibit Index

Exhibits

The XBRL related information in Exhibit 101 to this Form 6-K shall not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

The contents of this Report of Foreign Private Issuer on Form 6-K are incorporated by reference in the Company’s registration statements on Form F-3 (File No. 333-239708), filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2020, and on Form S-8 (File Nos. 333-236498 and 333-231636), filed with the SEC on February 18, 2020 and May 21, 2019, respectively.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: September 29, 2020

Exhibit 99.1

Mereo BioPharma Announces Interim Financial Results for the Six Months Ended June 30, 2020 and Provides Corporate Update

On track to initiate Phase 1b/2 etigilimab (Anti-TIGIT) combination study in Q4 2020

Enrolment resumed in Phase 2 study of alvelestat in Alpha-1 Antitrypsin Deficiency and initiated placebo-controlled Phase 1b/2 clinical trial in COVID-19 respiratory disease

Partnering discussions continue for portfolio of clinical-stage programs including setrusumab for osteogenesis imperfecta

PIPE Financing of $70 million (£56 million) completed in June 2020, cash runway into 2022

Conference Call Today at 8:00 a.m. EDT / 1:00 p.m. BST

London and Redwood City, Calif., September 29, 2020 - Mereo BioPharma Group plc (NASDAQ: MREO, AIM: MPH), “Mereo” or “the Company”, a clinical stage biopharmaceutical company focused on oncology and rare diseases, today announces unaudited interim financial results for the six months ended June 30, 2020 and provides a corporate update.

Denise Scots-Knight, Chief Executive of Mereo, said: “Following the closing of our $70 million financing in the first half of 2020 we have focussed on executing our strategy, advancing etigilimab (“Anti-TIGIT”) for the treatment of solid tumors alongside developing our rare disease portfolio. We remain on track to initiate a Phase 1b/2 study of etigilimab (Anti-TIGIT) in combination with an anti-PD-1 in a range of solid tumor types in Q4 2020. Our rare disease portfolio includes setrusumab for osteogenesis imperfecta which we plan to partner prior to the initiation of a pivotal Phase 3 study, and alvelestat which is being investigated in an ongoing Phase 2 proof-of-concept study for alpha-1 anti-trypsin deficiency. We were also pleased to have recently announced the initiation of a Phase 1b/2 placebo-controlled study of alvelestat in COVID-19 infected patients following the scientific publications demonstrating the involvement of neutrophil elastase in COVID-19 infection pathways. We also continue to advance other discussions with potential partners to optimize the value of our broader product portfolio.”

Recent Highlights and Upcoming Milestones

Etigilimab (Anti-TIGIT) for Solid Tumors

Setrusumab for Osteogenesis Imperfecta (OI)

Alvelestat for Severe Alpha-1 Antitrypsin Deficiency (AATD)

Partnering Discussions Continue for Portfolio of Other Clinical-Stage Programs

Corporate

Financial Highlights

Conference Call Information

Mereo will host a live conference call and webcast today at 8:00 a.m. EDT / 1:00 p.m. BST to discuss the Company’s financial results and provide a corporate update.

Dial-in numbers: (866) 688-2942 (U.S.) or +1 (561) 569-9224 (U.K./International)

Conference ID number: 9572439

A live and archived webcast may be accessed by visiting the Investors sections of the Company’s website at https://www.mereobiopharma.com/investors/results-reports-and-presentations/. The archived webcast will remain available on the Company’s website following the live call.

About Mereo BioPharma

Mereo BioPharma is a biopharmaceutical company focused on the development and commercialization of innovative therapeutics that aim to improve outcomes for oncology and rare diseases. Mereo’s lead oncology product candidate, etigilimab (“Anti-TIGIT”), has completed a Phase 1a dose escalation clinical trial in patients with advanced solid tumors and has been evaluated in a Phase 1b study in combination with nivolumab in select tumor types. Mereo’s rare disease product portfolio consists of setrusumab, which has completed a Phase 2b dose-ranging study in adults with osteogenesis imperfecta (“OI”), as well as alvelestat, which is being investigated in a Phase 2 proof-of-concept clinical trial in patients with alpha-1 antitrypsin deficiency (“AATD”) and in a Phase 1b/2 clinical trial in COVID-19 respiratory disease.

Additional Information

The person responsible for arranging the release of this information on behalf of the Company is Charles Sermon, General Counsel.

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Forward-Looking Statements

This Announcement contains “forward-looking statements.” All statements other than statements of historical fact contained in this Announcement are forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended and Section 21E of the United States Securities Exchange Act of 1934, as amended. Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on the Company’s current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on the Company. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company will be those that it anticipates.

All of the Company’s forward-looking statements involve known and unknown risks and uncertainties (some of which are significant or beyond its control) and assumptions that could cause actual results to differ materially from the Company’s historical experience and its present expectations or projections. The foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in its Annual Report on Form 20-F, Reports on Form 6-K and other documents filed from time to time by the Company with the United States Securities and Exchange Commission. The Company wishes to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required by law.

Mereo BioPharma Contacts:

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Consolidated statement of comprehensive loss

for the six months ended June 30, 2020

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Consolidated balance sheet

as at June 30, 2020

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Exhibit 99.2

Mereo BioPharma Announces Interim Financial Results for the Six Months Ended June 30, 2020 and Provides Corporate Update

On track to initiate Phase 1b/2 etigilimab (Anti-TIGIT) combination study in Q4 2020

Enrolment resumed in Phase 2 study of alvelestat in Alpha-1 Antitrypsin Deficiency and initiated placebo-controlled Phase 1b/2 clinical trial in COVID-19 respiratory disease

Partnering discussions continue for portfolio of clinical-stage programs including setrusumab for osteogenesis imperfecta    

PIPE Financing of $70 million (£56 million) completed in June 2020, cash runway into 2022

Conference Call Today at 8:00 a.m. EDT / 1:00 p.m. BST

London and Redwood City, Calif., September 29, 2020 - Mereo BioPharma Group plc (NASDAQ: MREO, AIM: MPH), “Mereo” or “the Company”, a clinical stage biopharmaceutical company focused on oncology and rare diseases, today announces unaudited interim financial results for the six months ended June 30, 2020 and provides a corporate update.

Denise Scots-Knight, Chief Executive of Mereo, said: “Following the closing of our $70 million financing in the first half of 2020 we have focussed on executing our strategy, advancing etigilimab (“Anti-TIGIT”) for the treatment of solid tumors alongside developing our rare disease portfolio. We remain on track to initiate a Phase 1b/2 study of etigilimab (Anti-TIGIT) in combination with an anti-PD-1 in a range of solid tumor types in Q4 2020. Our rare disease portfolio includes setrusumab for osteogenesis imperfecta which we plan to partner prior to the initiation of a pivotal Phase 3 study, and alvelestat which is being investigated in an ongoing Phase 2 proof-of-concept study for alpha-1 anti-trypsin deficiency. We were also pleased to have recently announced the initiation of a Phase 1b/2 placebo-controlled study of alvelestat in COVID-19 infected patients following the scientific publications demonstrating the involvement of neutrophil elastase in COVID-19 infection pathways. We also continue to advance other discussions with potential partners to optimize the value of our broader product portfolio.”

Recent Highlights and Upcoming Milestones

Etigilimab (Anti-TIGIT) for Solid Tumors

Setrusumab for Osteogenesis Imperfecta (OI)

Alvelestat for Severe Alpha-1 Antitrypsin Deficiency (AATD)

Partnering Discussions Continue for Portfolio of Other Clinical-Stage Programs

Corporate

Financial Highlights

Conference Call Information

Mereo will host a live conference call and webcast today at 8:00 a.m. EDT / 1:00 p.m. BST to discuss the Company’s financial results and provide a corporate update.

Dial-in numbers: (866) 688-2942 (U.S.) or +1 (561) 569-9224 (U.K./International)

Conference ID number: 9572439

A live and archived webcast may be accessed by visiting the Investors sections of the Company’s website at https://www.mereobiopharma.com/investors/results-reports-and-presentations/. The archived webcast will remain available on the Company’s website following the live call.

About Mereo BioPharma

Mereo BioPharma is a biopharmaceutical company focused on the development and commercialization of innovative therapeutics that aim to improve outcomes for oncology and rare diseases. Mereo’s lead oncology product candidate, etigilimab (“Anti-TIGIT”), has completed a Phase 1a dose escalation clinical trial in patients with advanced solid tumors and has been evaluated in a Phase 1b study in combination with nivolumab in select tumor types. Mereo’s rare disease product portfolio consists of setrusumab, which has completed a Phase 2b dose-ranging study in adults with osteogenesis imperfecta (“OI”), as well as alvelestat, which is being investigated in a Phase 2 proof-of-concept clinical trial in patients with alpha-1 antitrypsin deficiency (“AATD”) and in a Phase 1b/2 clinical trial in COVID-19 respiratory disease.

Additional Information

The person responsible for arranging the release of this information on behalf of the Company is Charles Sermon, General Counsel.

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Forward-Looking Statements

This Announcement contains “forward-looking statements.” All statements other than statements of historical fact contained in this Announcement are forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended and Section 21E of the United States Securities Exchange Act of 1934, as amended. Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on the Company’s current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on the Company. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company will be those that it anticipates.

All of the Company’s forward-looking statements involve known and unknown risks and uncertainties (some of which are significant or beyond its control) and assumptions that could cause actual results to differ materially from the Company’s historical experience and its present expectations or projections. The foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in its Annual Report on Form 20-F, Reports on Form 6-K and other documents filed from time to time by the Company with the United States Securities and Exchange Commission. The Company wishes to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required by law.

Mereo BioPharma Contacts:

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Chairman and CEO’s statement

Introduction

The Company’s strategy is to build a portfolio of oncology and rare disease products acquired from pharmaceutical and biotechnology companies and to develop these through regulatory approval and subsequent commercialization in certain indications and regions and to work alongside partners as appropriate for the broader therapeutic indications and regions where more substantial resources are required.

Products for use in oncology and rare (including orphan) indications represent an attractive development and commercialization opportunity for the Company, since the target patient population typically has a high unmet medical need, the compounds require more targeted clinical trials and these programmes can often utilise regulatory pathways that facilitate acceleration to the potential market. Development of oncology and rare disease therapies generally involves close co-ordination with regulators, healthcare authorities, patient organizations, key opinion leaders (KOLs) and a limited number of specialized treatment sites, which helps identification of the patient population and allows for a smaller, more targeted sales infrastructure for commercialization in key markets.

For our two speciality programs, leflutrozole and acumapimod, the Company plans to partner or sell the products recognising the need for a larger sales infrastructure and greater resources to take these products successfully to market.

We have made significant progress across all our programs in the first half of 2020 and were pleased to announce the £56 million ($70 million) financing with a group of US investors in June 2020. We are funded into early 2022 providing the Company sufficient balance sheet strength and runway to deliver on our clinical and business development milestones.

Business Overview

Oncology Product Candidate

23 patients were treated in the Phase 1a dose escalation study with doses up to 20mg/kg Q2W. Tumor types included colorectal cancer, endometrial cancer, pancreatic cancer and other tumor types. No dose limiting toxicities were observed. In the Phase 1b combination study, a total of ten patients, nine of whom had progressed on prior anti-PD1/PD-L1 therapies were enrolled at doses of 3, 10, and 20 mg/kg. Tumor types included gastric cancer and six other tumor types. Eight patients were evaluable for tumor growth assessment, and all of these patients had progressed on PD1/PD-L1 therapies with best responses including two patients with a partial response and stable disease. Patients remained on study for up to 224 days. No dose limiting toxicities (DLTs) were observed.

The only treatment-related adverse event in the Phase 1a portion of the study with an incidence rate greater than 20 per cent. was rash (35 per cent.), and the most common treatment-related adverse events in the Phase 1b portion of the study were rash (40 per cent.), fatigue (30 per cent.) and pruritus (20 per cent.) There was only one treatment-related serious adverse event in the Phase 1a portion (autoimmune hepatitis) and there were no treatment-related serious adverse events in the Phase 1b portion of the study. The Phase 1b study has now completed.

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We are on track to initiate a Phase 1b/2 combination study of etigilimab in combination with a anti-PD-1 in a range of tumor types in 75-100 patients in Q4 2020.

Rare Disease Product Candidates

In 2016, we obtained orphan drug designation in OI for setrusumab in the United States and the EU and, in November 2017, it was accepted into the Priority Medicines scheme (“PRIME”) of the EMA. Prior to our acquisition of setrusumab, Novartis conducted four clinical trials in 106 patients and healthy volunteers. A Phase 2 clinical trial of setrusumab in OI showed statistically significant improvements in bone formation biomarkers and bone mineral density. In April 2017, we initiated a Phase 2b clinical trial for setrusumab in adults in the United States, Europe and Canada. The trial was randomized with three blinded arms at high, medium and low doses to establish the dose response curve and an open label arm at the top dose. We reported top-line data on the three blinded dose ranging arms in November 2019 with the results supporting progression of setrusumab into a pediatric pivotal study in OI.

Following the completion of the dosing part of the study, patients are continuing to be followed for a further twelve months to examine the off-effects of setrusumab. We have agreed a PIP for setrusumab with the EMA and in February 2020, we announced the successful completion of a Type B End-of-Phase 2 meeting with the FDA to discuss the development of setrusumab for the treatment of children with OI in the United States. We intend to partner setrusumab prior to conducting a pivotal trial of setrusumab in children with severe OI with fracture rate as the primary endpoint. We believe that the results from this trial, if favorable, will be sufficient to support the submission of an MAA to the EMA for setrusumab for the treatment of children with severe OI and a CMA for the treatment of OI in adults in the EU. The partnering discussions are well underway with a range of potential structures including options for Mereo to retain commercial rights in certain regions.

On September 23 2020 we announced that the FDA has granted Rare Pediatric Disease designation to setrusumab for the treatment of osteogenesis imperfecta (OI). The FDA grants Rare Pediatric Disease Designation for serious and life-threatening diseases that primarily affect children ages 18 years or younger and fewer than 200,000 people in the United States. If a Biologics License Application (“BLA”) in the United States for setrusumab is approved, Mereo may be eligible to receive a priority review voucher from the FDA, which can be redeemed to obtain priority review for any subsequent marketing application and may be sold or transferred to other companies for their programs, such as has recently been done by other voucher recipients.

We continue to develop, build and maintain close relationships with OI patient representative groups in the EU and US, systematically involving them in our interactions with authorities. We maintain close relationships with the OI Federation (OIF), representing the OI community in North America and also remain close to the KOLs and treating community in the USA, as in the EU. We recently participated in the ASBMR conference (American Society for Bone and Mineral Research).

Prior to our license of alvelestat, AstraZeneca conducted 12 clinical trials involving 1,776 subjects, including trials in bronchiectasis and CF. 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. We have initiated a Phase 2 proof-of-concept clinical trial in patients with severe AATD in the United States and the EU and as previously announced, currently expect to report top-line data from this trial in the second half of 2021.

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We continue to develop, build and maintain close relationships with the KOLs, treating community and the AATD patient representative organisations in both the EU and North America. The Company participated in the recent International Research Conference on Alpha-1 Antitrypsin and Alpha-1 Global Patient Congress in April as part of advancing these efforts. Close collaboration continues with the treating and diagnosing community in support of the alvelestat development program.

We recently announced the initiation of a Phase 1b/2 placebo-controlled clinical trial to evaluate the safety and efficacy of alvelestat in hospitalized, adult patients with moderate to severe COVID-19 respiratory disease.

Acute Lung Injury (ALI) is a manifestation of systemic inflammation in the lungs that can result from SARS-CoV-2 infection. Neutrophil extracellular traps (NETs), involving the enzyme neutrophil elastase (NE), may contribute to the pathogenesis of ALI via cytokine and neutrophil activation. NET formation (NETosis) also plays an important role in arterial and venous thrombosis, which have been shown to be common complications of COVID-19. By inhibiting NE, alvelestat demonstrated efficacy in preclinical models of treating ALI driven by NETosis.

The Phase 1b/2 trial is a randomized, double-blind, placebo-controlled study to assess the safety and efficacy of alvelestat in adult patients hospitalized with moderate to severe COVID-19 respiratory disease not yet receiving mechanical ventilation. The trial is led by Dr. J. Michael Wells and will be conducted at the University of Alabama. Approximately 15 patients will be randomized (2:1) to receive either alvelestat plus standard of care or placebo plus standard of care for 10 days. The primary endpoint of the trial is safety and tolerability of alvelestat at day 10, with a safety follow up to day 90. Additional endpoints include blood biomarkers (NETosis, inflammation and hypercoagulation) and oxygen deficit (as measured by the ratio of oxygen saturation to the fraction of inspired oxygen, SaO2/FiO2) at day 10. The trial will also assess clinical outcomes, including effect on disease progression measured by need for respiratory support and disease severity using the WHO 9-point ordinal scale at day 29.

As part of our development plans for alvelestat we are continuing to support certain investigator-led studies including the ATALANTA study into AATD led by Mark T. Dransfield and his team, supported, as previously announced, by an NCATS grant and also a study into bronchiolitis obliterans syndrome (BOS) associated with graft-versus-host disease (GvHD) in patients receiving hematopoietic stem cell transplantation (HSCT) led by Steven Z Pavletic at the NIH.

Other Product Candidates for Partnering

Our portfolio of products also consists of the following product candidates:

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Organizational Change and Changes to the Board of Directors

On March 27, 2020, we announced that Michael Wyzga who, at the time, served as a Non-Executive Director, would become the Interim Chief Financial Officer following the announced departure of Richard Jones, the Company’s previous Chief Financial Officer (“CFO”). Richard Jones left the Company on 31 July 2020 and Michael Wyzga currently serves as the Interim Chief Financial Officer as we continue the search for a new full time CFO.

On September 28, 2020, we announced that Dr. Brian Schwartz, former Chief Medical Officer of Arqule, Inc. and Dr. Jeremy Bender, former Vice President of Corporate Development at Gilead Sciences, Inc. and recently appointed Chief Executive Officer of Day One BioPharmacueticals, Inc. will join Mereo’s Board of Directors. Drs. Schwartz and Bender, respectively, bring significant oncology and rare disease drug development and corporate development experience to Mereo. In order to maintain the number of board members at a maximum of nine, Paul Blackburn will be leaving Mereo’s Board of Directors after a five year tenure as a Non-Executive Director. The changes to the Mereo Board will be effective from October 1, 2020.

Update on impact of COVID-19

Coronavirus disease 2019 (“COVID-19”) is an infectious respiratory disease that was first identified in 2019 in Wuhan, China and has since spread globally. The impact COVID-19 is evolving rapidly and its future effects are uncertain.

We are actively monitoring how the effects and risks of COVID-19 impact our day-to-day operations, including our ongoing clinical trial activities:

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Financial Review

During the period, the Company completed multiple transactions to allow for the continued development of our product candidates as well to meet its liabilities. On 3 June 2020 the Company completed a $70 million (£56 million) private placement. The transaction comprised of the issue of 89.1 million new ordinary shares of £0.003 each in the Company at a price of 17.4 pence per share for total proceeds of $19.4 million (£15.5 million) and the issue of convertible notes (the “Loan Notes”) for total proceeds of $50.6 million (£40.5 million). The investors also received conditional warrants to subscribe for further ordinary shares (the “Warrants”). The terms of the Loan Notes and Warrants, and, in particular, their ability to be converted into ordinary shares was conditional on the passing of certain resolutions (the “Resolutions”) at a general meeting of shareholders on June 30, 2020 (the “General Meeting”).

On February 10, 2020, the Company entered into a Securities Purchase Agreement (the “Agreement”) to issue up to $28 million of the Company’s ordinary shares exchangeable for American Depositary Shares (“ADSs”), with Aspire Capital Fund, LLC (“Aspire Capital”), a Chicago-based institutional investor. Under the terms of the Agreement, Aspire Capital made an initial investment of $3 million to purchase 11,432,925 of the Company’s ordinary shares (equivalent to 2,286,585 ADSs) at a price equivalent to $1.31 per ADS, which represents a 16% discount over Mereo’s ADS closing stock price of $1.56 on February 8, 2020.

On February 10, 2020, the Company entered into a £3.8 million convertible equity financing with Novartis Pharma (AG) (“Novartis”). Under the terms of the convertible equity financing, Novartis purchased £3.8 million in a convertible loan note (“Loan Note”). The maturity of the Loan Note is three years from issuance, and it bears an interest rate of 6% per annum.

On January 13, 2020, the Company entered into a License Agreement with OncXerna Therapeutics, Inc. (“OncXerna”) (formerly Oncologie Inc.) for the development and commercialisation of Navi. Under the terms of the License Agreement, with OncXerna the Company received an upfront payment of £3.2 million ($4 million). Additionally, the Company will be eligible to receive up to $302 million in future milestones and royalties.

During the period, R&D expenditures fell by £3.4 million to £8.5 million from £11.9 million in the period to June 30, 2019. We are on track to initiate a Phase 1b/2 combination study of etigilimab in combination with an anti-PD-1 in a range of tumor types in Q4 2020. We continued the development of our two rare disease assets setrusumab and alvelestat with R&D expenditure relating to the adult Phase 2b study with less manufacturing costs for setrusumab and the Proof of Concept Phase 2 study in alvelestat. In the same period last year our R&D spend was focused again on the setrusumab adult Phase 2b study and the completion of the Phase 2 studies for our specialty products Acumapimod and Leflutrozole.

Our administrative expenses increased by £1.3 million to £8.2 million from £6.9 million in 2019. This increase was predominantly due to one-off legal and professional fees which increased by £0.9 million to £2.4 million. Excluding these amounts administrative expenses in the period were £4.9 million compared to £5.3 million in 2019.

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Finance charges of £97.6 million mainly relate to changes in fair value of embedded derivatives of £63.2 million due to the re-measurement of the conversion feature of the loan notes issued as part of the private placement, changes in the fair value of warrants in connection to private placement £31.5 million, interest accrued and paid in respect of the bank debt of £1.3 million together with non-cash finance charges under IFRS 16 of £0.9 million together with £0.4 million in respect of the interest accrued on the loan instruments between issue and conversion and £0.2 million interest on convertible loan notes.

Income tax benefit represents the estimate of R&D tax credit accrued during the period. Tax credits for the FY 2019 are expected to be received in Q4 2020.

The weighted average loss per share for the six-month period was 105 pence (2019: 22 pence) due to a £94.6 million non-cash accounting adjustment for fair value movement of financial instrument.

Cashflow

We started the year with £16.3 million in cash and short-term deposits. On June 4, 2020 the Company announced the completion of a £56 million ($70 million) fundraising, or £51.4 million ($64.2 million) net from the issue of equity, loan notes and warrants to new and existing shareholders. The net cash inflow in H1 2020 was £40.6 million with cash and short-term deposits at the period end of £56.8 million.

The loss before tax for the period was £126.1 million but after adjusting for non-cash items (namely the fair value movement on financial instruments of £94.7 million and loss on disposal of intangible fixed assets of £11.3 million), net cash outflows from operating activities were £11.2 million (2019: £27.6 million). Net cash inflows from investing activities were £1.7 million in the period (2019: £34.0m) reflecting the disposal of Navicixizumab. Net cash inflows from financing activities were £49.6 million (2019: £(3.4 million)), relating to various transactions described further in the equity section below.

Significant transactions during the period

On January 13, 2020, the Company announced the License Agreement with OncXerna for the development and commercialization of Navicixizumab (or “Navi”). Under the terms of the License Agreement, the Company received an upfront payment of £3.2 million ($4 million) with an additional payment of £1.6 million ($2 million) to be received conditional on a Chemistry, Manufacturing and Controls (“CMC”) milestone. Additionally, the Company will be eligible to receive up to $302 million in future milestones and royalties.

On February 10, 2020, the Company entered into a £3.8m million convertible equity financing with Novartis Pharma AG (“Novartis”). Under the terms of the convertible equity financing, Novartis purchased £3.8 million in a convertible loan note. The loan note is convertible at any time at a fixed price of £0.265 per ordinary share. In connection with the loan note, the Company issued a warrant instrument to Novartis to purchase up to 1,449,614 of the Company’s ordinary shares.

On February 10, 2020, the Company entered into a Securities Purchase Agreement to issue up to £22.4 million ($28 million) of the Company’s ordinary shares exchangeable for American Depositary Shares (“ADSs”), including a £2.4 million ($3 million) initial purchase, with Aspire Capital Fund, LLC. In exchange for the £2.4 million ($3 million) initial purchase the Company issued 11,432,925 ordinary shares (equivalent to 2,286,585 ADSs). In addition, the Company issued Aspire Capital Fund, LLC £0.2 million ($0.3 million) in the form of 2,862,595 commission ordinary shares (equivalent to 572,519 ADSs).

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On February 19, 2020, the Company entered into a Securities Purchase Agreement with Boxer Capital, LLC to make an investment of £2.4 million ($3 million) to purchase 12,252,715 of the Company’s ordinary shares (equivalent to 2,450,543 ADSs).

On June 4, 2020 the Company announced the completion of a £56 million ($70 million) financing, or approximately £51.4 million ($64.2 million) net from the issue of equity, loan notes and warrants to new and existing shareholders. This is detailed further in note 5.

In prior periods

In April 2019 the Company agreed an amendment to the terms of its bank loan. The interest only-period was extended to December 31, 2019 followed by a 15-month capital and interest repayment period. Also, in June 2019, shortly after completion of the merger, the balance of the Novartis Loan Notes together with accumulated interest plus the balance of bonus shares due under the Loan Note agreement with Novartis were converted into ordinary shares in Mereo.

Going Concern

As part of the going concern review, the Directors have considered the funding requirements of the Company through consideration of the Company’s current business plan and the preparation of detailed cash flow forecasts. The going concern review prepared by the Directors extends through to 2022 from the date of approval of these consolidated interim financial statements.

Based on delivering the business plan objectives set out in the strategic report of the 2019 Annual Report which include:

These forecasts indicate that the Company has a total cash runway into early 2022 and will have sufficient funds to meet its liabilities as they fall due for at least the next 12 months.

Further funding to continue to develop our rare disease products is most likely to come from a mix of additional equity funding and partnering transactions with third parties, where discussions are in advanced stages with potential partners. The Directors remain confident of raising additional funding through either or both of these routes

In preparing these forecasts the Directors have considered the impact of COVID-19 and in particular the unprecedented burden on health systems in impacted countries around the world. As a result, clinical centres have diverted resources away from the performance of clinical trials and because of that and the vulnerability of patients in the Company’s setrusumab clinical development program for osteogenesis imperfecta (OI)and its Phase 2 alvelestat program for patients with alpha-1 antitrypsin deficiency (AATD), the Company’s clinical activities will face some delays. AATD patients, in particular, are at greater risk from COVID-19 given that the condition is a respiratory and lung condition, for this reason, our Phase 2 alvelestat trial will be delayed with topline data now expected in the second half of 2021. We plan to initiate a Phase 3 study in children with OI following completion of a partnership.

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In conclusion, although the Group continues to make losses, the Directors believe it is appropriate to prepare the financial information on the going concern basis.

Outlook

The second half of 2020 is set to be a pivotal period for Mereo. We are on track to initiate a Phase 1b/2 combination study of etigilimab in combination with an anti-PD-1 in a range of tumor types in 75-100 patients in Q4 2020 and look forward to partnering our setrusumab program prior to initiating the pivotal pediatric study in OI patients in the US, EU and Canada.

We have re-initiated enrolment in our Phase 2 proof-of-concept clinical trial in patients with severe AATD in the United States and the EU and now expect to report top-line data from this trial in the second half of 2021. We recently announced the initiation of a Phase 1b/2 placebo-controlled clinical trial to evaluate the safety and efficacy of alvelestat in hospitalized, adult patients with moderate to severe COVID-19 respiratory disease and look forward to reporting data from this study in mid-2021.

Alongside these developments we continue to focus on partnering opportunities for our broader product pipeline.

We are very pleased to have Dr Brian Schwartz and Dr Jeremy Bender joining our board and the Company has sufficient balance sheet strength and runway to deliver on our clinical and business development milestones.

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Consolidated statement of comprehensive loss

for the six months ended June 30, 2020

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Consolidated balance sheet

as at June 30, 2020

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Consolidated statement of cash flows

for the six months ended June 30, 2020

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Consolidated statement of changes in equity

for the six months ended June 30, 2020

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Notes to the interim report

1. Corporate information

These financial statements are the unaudited condensed interim consolidated financial statements of Mereo BioPharma Group plc and its subsidiaries (collectively, the “Group”) for the six months ended June 30, 2020 were authorised for issue by the Directors on September 28, 2020. Mereo BioPharma Group plc (the “Company” or the “parent”) is a public limited company incorporated and domiciled in the United Kingdom and whose shares are publicly traded on the AIM Market of the London Stock Exchange with a secondary listing of its American Depositary Receipts (ADR’s) on the Nasdaq Global Market.

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 June 30, 2020 have been prepared in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group since the most recent annual financial statements (December 31, 2019). For comparative purposes a consolidated balance sheet as at June 30, 2019 has also been presented. The financial information is presented in Sterling.

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 year ended December 31, 2019. As a result of a new transaction during the period additional accounting policies have been applied and are disclosed below.

These condensed interim financial statements are unaudited and do not constitute statutory accounts of the Group as defined in section 434 of the Companies Act 2006.

The financial information for the year ended December 31, 2019 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.

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.    

Revision of previously issued financial statements

We have identified a classification error in our unaudited interim statement of comprehensive loss for the period ended June 30, 2019 related to loan modification gain. In correcting the error, administrative expenses increased by £0.5 million and finance charges decreased by an equivalent amount. There was no impact on net loss. We evaluated the materiality of the error quantitatively and qualitatively and concluded it was not material to our previously issued interim condensed consolidated financial statements as a whole for the period ended and as of June 30, 2019. Please refer to Financial statement note 6b.

Segmental information

Management views the business as a single portfolio of product candidates. Only R&D expenses are monitored at a product candidate level, however, the Chief Operating Decision Maker (CODM) makes decisions over resource allocation at an overall portfolio level. The Group’s financing is managed and monitored on a consolidated basis. All non-current assets held by the Group are located in the U.K. and U.S.

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The Group’s CODM is the executive management team (comprised of the Chief Executive Officer, Interim Chief Financial Officer, Chief Medical Officer, General Counsel, the Head of Corporate Development and the Head of Patient Access and Commercial Planning) which manages the operating results of the business.

The operations of the Group are not prone to seasonal or cyclical variations. The operations of the Group are mostly influenced by the timing of progression on underlying clinical development programmes across product candidates which remain under development.

Going Concern

These consolidated condensed interim financial statements have been prepared on a going concern basis, which contemplates the realisation of assets and the payment of liabilities in the ordinary course of business. The Group incurred net losses of £124.6 million and £16.2 million for the six month period ended 30 June 2020 and 30 June 2019 respectively. As at 30 June 2020, the Group had total cash resources of £56.8 million and net current assets of £44.4 million.

As part of the going concern review, the Directors have considered the funding requirements of the Group through consideration of the Group’s current business plan and the preparation of detailed cash flow forecasts. The going concern review prepared by the Directors extends through to 2022 from the date of approval of these consolidated interim financial statements.

In preparing these forecasts the Directors have considered the impact of COVID-19 and in particular the unprecedented burden on health systems in impacted countries around the world. As a result, clinical centres have diverted resources away from the performance of clinical trials and because of that and the vulnerability of patients in the Company’s setrusumab clinical development program for osteogenesis imperfecta (OI) and its Phase 2 alvelestat program for patients with alpha-1 antitrypsin deficiency (AATD), the Company’s clinical activities will face some delays. AATD patients, in particular, are at greater risk from COVID-19 given that the condition is a respiratory and lung condition, for this reason, our Phase 2 alvelestat trial will be delayed with topline data now expected in the second half of 2021. We are also currently planning to initiate a Phase 3 study in children with OI once a partnership has been concluded.

In addition, the Directors have considered a downside scenario involving an increase in operating overheads, an increase in the costs of setting up and running the planned Phase 1b study for etiligimab when this study is contracted out to third parties and increased investment in manufacturing development costs for setrusumab. In addition, in this scenario the forecasts also indicate that the Group will have sufficient funds to meet its liabilities as they fall due for at least the next 12 months.

In both scenarios the Directors have not taken into account potential income from partnering one or more of its assets which would increase the cash resources available to the Group.

In conclusion, although the Group continues to make losses, the directors believe it is appropriate to prepare the financial information on the going concern basis. This is because the Group’s development into new products continues to progress according to plan and the funding secured to date will allow it to meet its liabilities as they fall due for at least 12 months from the date of authorization for the issue of these consolidated condensed interim financial statements.

Significant accounting estimates and judgments

The preparation of these 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.

The significant accounting estimates and judgments adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2019, with the addition of those disclosed below as a result of the private placement detailed in Note 5.

Judgments

Identification and classification of financial instruments from the private placement

On June 3, 2020 (the transaction date), the Company completed a private placement (Note 5) which comprised the issue of Ordinary Shares, Loan Notes and Warrants. Judgment is applied under IAS 32 (Financial instruments: Presentation) in determining the features of the identified financial instruments on both the transaction date and the date of the General Meeting at which Resolutions relating to the private placement were voted on by the Shareholders, to determine the appropriate recognition in accordance with IAS 32. In applying this judgment, Management considered the probability of passing the Resolutions at the General Meeting and the likelihood of a change of control prior to the passing of the Resolutions, which impact the settlement terms of the financial instruments, and the classification of the financial instruments as liabilities or equity. Management concluded that a change of control event is uncertain and outside of the Company’s control, and therefore the conversion feature on the Loan Notes at transaction date represents a financial liability with an embedded derivative for the conversion option. On the passing of the Resolutions, judgment was applied to determine that the effective terms of the Loans Notes changed, and Management elected to reclassify the embedded derivative financial liability representing the conversion option to equity at its fair value, with no gain or loss in profit or loss at the date of reclassification.

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Estimates

Fair value of private placement financial instruments

As part of the private placement (Note 5) the Group performed a valuation of the fair value of the identified financial instruments on the transaction date and the General Meeting date. For qualifying instruments, the fair value is reassessed at each balance sheet date. Specific consideration was applied to the estimation of implied share price on the transaction date, the volatility, credit spread and discount rate.

3. Finance charges and fair value movement on financial instruments

Finance charges