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Mereo BioPharma rises as AstraZeneca reportedly considers buying

Shares of Mereo BioPharma (MREO), a small biotech company focused on developing therapies for cancer and rare diseases surged 62.5% on Jun 17, following a report issued by the Times, which stated that AstraZeneca AZN is interested in acquiring the company.

Per the article, Mereo is in discussions with AstraZeneca to accept the bid at $5 per share, amounting to a total purchase price of nearly $500 million. In the year so far, shares of Mereo have fallen 18.8% compared with the industry’s decline of 28.1%.

Mereo has an existing partnership with AstraZeneca. AZN and MREO have a license agreement whereby the latter acquired exclusive worldwide rights for alvelestat, a rare-disease product candidate initially discovered by AstraZeneca. The candidate is currently being developed by Mereo for alpha-1-anti-trypsin deficiency (AATD) and bronchiolitis obliterans syndrome (BOS).

Per the terms of the agreement, Mereo has also been granted an option to acquire the candidate as well. In return, AstraZeneca is eligible to receive potential milestone payments. MREO is currently conducting clinical studies, evaluating alvelestat in separate mid-stage studies, across both AATD and BOS.

AstraZeneca is highly focused on strengthening its oncology business. In first-quarter 2022, AZN’s Oncology business generated $3.6 billion worth of total revenues, reflecting a 25% year-over-year rise at constant exchange rates, driven by the solid performance of newer medicines, such as Tagrisso, Lynparza, Imfinzi and Calquence. AZN is working to further strengthen its portfolio through label expansions and advancing oncology pipeline candidates.

The article also suggests that if AstraZeneca confirms this buyout offer, then it may face stiff competition from Mereo’s other partners who may also be interested in making an acquisition offer, including companies like Ultragenyx Pharmaceutical RARE and OncXerna.

Mereo has a partnership with Ultragenyx to develop setrusumab, another rare-disease product candidate, being developed as a potential treatment for Osteogenesis Imperfecta (“OI”). In April 2022, Ultragenyx dosed the first patient in a pivotal phase II/III study, evaluating setrusumab for treating OI in patients aged between five and less than 26 years. RARE expects to initiate a phase II study evaluating the drug in OI patients aged between 2 and 5 years later this year.

Mereo’s lead oncology candidate is etigilimab, a TIGIT inhibitor, being developed in a phase Ib/II study in combination with Bristol Myers‘ BMY PD-1 inhibitor, Opdivo (nivolumab), in a range of tumor types, including three rare tumors and three gynecological carcinomas, cervical, ovarian, and endometrial carcinomas.

Opdivo is one of the many blockbuster drugs marketed by Bristol Myers. The drug is approved for multiple oncology indications. The drug is a key top-line driver for BMY. In first-quarter 2022, Bristol Myers generated $1.9 billion from Opdivo sales.

On May 23, 2022, Mereo was notified by NASDAQ that it faces the risk of delisting of its ADRs, after it failed to maintain the minimum price of $1 over the previous 30 business days.

The stock exchange has requested MREO to resume compliance with this rule by Nov 21. A positive confirmation of this buyout offer is expected to not only benefit Mereo but also its current shareholder base. Mereo BioPharma currently carries a Zacks Rank #3 (Hold).


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