F-4 1 d680874df4.htm F-4 F-4
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As filed with the Securities and Exchange Commission on January 24, 2019

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MEREO BIOPHARMA GROUP PLC

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

 

England and Wales   2834   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

4th Floor

One Cavendish Place

London W1G 0QF

United Kingdom

+44 33 3023 7300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Cogency Global Inc.

10 E. 40th Street, 10th floor

New York, New York 10016

Telephone No.: +1 800 221 0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Leo Borchardt

Michael Davis

Davis Polk & Wardwell London LLP
5 Aldermanbury Square
London EC2V 7HR

United Kingdom

+44 20 7418 1300

 

Alan C. Mendelson

Chad G. Rolston

Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

United States of America

+1 650 463 2600

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class Of Securities

To Be Registered(1)

  Amount To Be
Registered(2)
  Proposed Maximum
Offering Price Per
Share
  Proposed Maximum
Aggregate Offering
Price(3)
  Amount Of
Registration Fee(4)

Ordinary shares, nominal value £0.003 per share

  $47,495,889   Not applicable   $110,665,421.37   $13,412.65

 

 

(1)

These ordinary shares will be represented by American Depositary Shares of the Registrant, each of which represents five ordinary shares. The American Depositary Shares of the Registrant issuable on deposit of the ordinary shares registered hereby are being registered under a separate Registration Statement on Form F-6 (Reg. No.: 333-223890).

(2)

Represents the estimated maximum number of ordinary shares of the Registrant expected to be issued in connection with the merger agreement, the contingent value rights agreement and the transactions contemplated by each of the merger agreement and the contingent value rights agreement as described herein, calculated as the product obtained by multiplying (i) 71,240,272, the total number of ordinary shares of the Registrant issued and outstanding on January 24, 2019 and (ii) 0.6667, the share consideration cap. Pursuant to the terms of the merger agreement and the contingent value rights agreement described herein, the maximum number of ordinary shares of the Registrant to be issued pursuant to the contingent value rights agreement, when aggregated with the number of ordinary shares of the Registrant to be issued in exchange for shares of OncoMed common stock in the merger, cannot exceed the share consideration cap. Pursuant to Rule 416(a) under the Securities Act of 1933, as amended, there are also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions prior to the completion of the merger transaction described herein.

(3)

Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as amended, and solely for the purpose of computing the amount of the registration fee, the proposed maximum aggregate offering price is the product obtained by multiplying (i) 47,495,889, the estimated maximum number of ordinary shares of the Registrant expected to be issued in connection with the merger transaction described herein by (ii) $2.33, which is 180.50 pence, the average of the high and low prices of the ordinary shares of the Registrant on January 18, 2019, as reported on the Alternative Investment Market operated by the London Stock Exchange, converted into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on such date of £1.00 to $1.2887.

(4)

Determined in accordance with Section 6(b) of the Securities Act and SEC Fee Advisory #1 for Fiscal Year 2019 at a rate equal to the proposed maximum aggregate offering price of $110,665,421.37 multiplied by 0.0001212.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information herein is subject to completion or amendment. The registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED JANUARY 24, 2019

 

LOGO

[], 2019

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

Dear OncoMed Pharmaceuticals, Inc. Stockholders:

Mereo BioPharma Group plc (“Mereo”) and OncoMed Pharmaceuticals, Inc. (“OncoMed”) have entered into an Agreement and Plan of Merger and Reorganization, dated as of December 5, 2018 (the “Merger Agreement”), under which an indirect, wholly-owned subsidiary of Mereo will be merged with and into OncoMed (the “Merger”), and OncoMed will continue as the surviving corporation in the Merger and an indirect, wholly-owned subsidiary of Mereo. If the Merger is completed, OncoMed stockholders will receive, in exchange for each share of OncoMed common stock owned immediately prior to the Merger (1) a number of American Depositary Shares (the “Mereo ADSs”), each representing five Mereo ordinary shares, determined by reference to the exchange ratio set forth in the Merger Agreement, and (2) one contingent value right, representing the right to receive contingent consideration upon the achievement of certain milestones relating to certain OncoMed products. Under the exchange ratio formula set forth in the Merger Agreement, as of immediately following the effective time of the Merger, former OncoMed stockholders are expected to own approximately 25% of Mereo and its subsidiaries (including OncoMed) on an undiluted basis following the Merger, subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger.

OncoMed common stock trades on The Nasdaq Stock Market (“Nasdaq”) under the ticker symbol “OMED.” As of [], 2019, the last trading day before the date of this proxy statement/prospectus, the last reported sales price of OncoMed common stock at the end of regular trading hours, as reported on Nasdaq, was $[].

Mereo ordinary shares trade on the Alternative Investment Market operated by the London Stock Exchange (“AIM”) under the ticker symbol “MPH.” Prior to consummation of the Merger, Mereo intends to file an initial listing application for the Mereo ADSs with Nasdaq. After completion of the Merger, Mereo ADSs are expected to be listed for trading on Nasdaq under the symbol “MREO.” As of [], 2019, the last trading day before the date of this proxy statement/prospectus, the last reported sales price of Mereo ordinary shares at the end of regular trading hours, as reported on AIM, was £[].

OncoMed stockholders are cordially invited to attend the special meeting of OncoMed stockholders. The special meeting will be held at [] local time, on [], 2019, at OncoMed’s headquarters located at 800 Chesapeake Drive, Redwood City, California 94063. At the special meeting, OncoMed stockholders will be asked to vote on the approval and adoption of the Merger Agreement, the approval, on a non-binding, advisory basis, of the transaction-related named executive officer compensation and the approval of the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Merger Agreement.

The exchange of OncoMed common stock for merger consideration in the Merger is expected to be a taxable transaction for U.S. federal income tax purposes to U.S. Holders (as defined in “Material U.S. Federal Income Tax Considerations”). We encourage OncoMed stockholders to carefully review the information under “Material U.S. Federal Income Tax Considerations” beginning on page 283 of the accompanying proxy statement/prospectus for a description of material U.S. federal income tax consequences of the Merger.

We cannot complete the Merger without the approval and adoption of the Merger Agreement by OncoMed stockholders. It is important that your shares of OncoMed common stock be represented and voted regardless of the size of your holdings. Whether or not you plan to attend the special meeting, we urge you to submit a proxy to have your shares of OncoMed common stock voted in advance of the special meeting by using one of the methods described in the accompanying proxy statement/prospectus.

The OncoMed board of directors recommends that OncoMed stockholders vote “FOR” the approval and adoption of the Merger Agreement, “FOR” the approval, on a non-binding, advisory basis, of the transaction-related named executive officer compensation and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Merger Agreement.


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The accompanying proxy statement/prospectus provides important information regarding the special meeting and a detailed description of the Merger Agreement, the Merger and the matters to be presented at the special meeting. We urge you to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety. Please pay particular attention to “Risk Factors” beginning on page 41 of the accompanying proxy statement/prospectus.

We hope to see you at the special meeting and look forward to the successful completion of the Merger.

Sincerely,

 

 

Perry Karsen  
Chairman of the Board of Directors  
OncoMed Pharmaceuticals, Inc.  

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger or the securities to be issued in connection with the Merger as described in the accompanying proxy statement/prospectus, passed upon the merits or fairness of the Merger or determined that the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated [], 2019, and is first being mailed to OncoMed stockholders on or about [], 2019.


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LOGO

800 Chesapeake Drive

Redwood City, California 94063

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [], 2019

[], 2019

To the Stockholders of OncoMed Pharmaceuticals, Inc.:

A special meeting of stockholders of OncoMed Pharmaceuticals, Inc., a Delaware corporation (“OncoMed”), will be held at [] local time, on [], 2019, at OncoMed’s headquarters located at 800 Chesapeake Drive, Redwood City, California 94063. At the special meeting, OncoMed stockholders will be asked to take action:

 

   

to approve and adopt the Agreement and Plan of Merger and Reorganization, dated as of December 5, 2018 (a copy of which is attached as Annex A to the accompanying proxy statement/prospectus) (the “Merger Agreement”), by and among OncoMed, Mereo BioPharma Group plc, a public limited company incorporated under the laws of England and Wales (“Mereo”), Mereo US Holdings Inc., a Delaware corporation and direct, wholly-owned subsidiary of Mereo, and Mereo MergerCo One Inc., a Delaware corporation and direct, wholly-owned subsidiary of HoldCo, pursuant to which Merger Sub will be merged with and into OncoMed (the “Merger”), and OncoMed will continue as the surviving corporation in the Merger and an indirect, wholly-owned subsidiary of Mereo (the “Merger Proposal”);

 

   

to approve, on a non-binding, advisory basis, the compensation payments that will or may be paid by OncoMed or Mereo to OncoMed’s named executive officers and that are based on or otherwise related to the Merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, referred to as the transaction-related named executive officer compensation (the “Advisory Vote Proposal”); and

 

   

to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Merger Agreement (the “Adjournment Proposal”).

OncoMed will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof. Please refer to the accompanying proxy statement/prospectus for further information with respect to the business to be transacted at the special meeting.

The OncoMed board of directors (the “OncoMed Board”) has fixed the close of business on [], 2019 as the record date for the special meeting, referred to as the record date. Only holders of OncoMed common stock as of the record date are entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof.

After careful consideration, the OncoMed Board unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of OncoMed stockholders and has unanimously approved the Merger Agreement.

 


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The OncoMed Board unanimously recommends that OncoMed stockholders vote “FOR” the Merger Proposal, “FOR” the Advisory Vote Proposal and “FOR” the Adjournment Proposal. The approval of the Merger Proposal by OncoMed stockholders is a condition to the obligations of OncoMed and Mereo to complete the Merger. Neither the approval of the Advisory Vote Proposal nor the approval of the Adjournment Proposal is a condition to the obligations of OncoMed or Mereo to complete the Merger.

Your vote is very important. Whether or not you expect to attend the special meeting in person, we urge you to submit a proxy as promptly as possible by (1) accessing the Internet website specified on your proxy card, (2) calling the toll-free number specified on the enclosed proxy card or (3) marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the special meeting. If your shares are held in the name of a broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder. For participants in OncoMed’s benefit plans, the proxy card will serve as voting instructions for the trustee or custodian of the relevant benefit plan.

We urge you to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety. In particular, see “Risk Factors” beginning on page 41 of the accompanying proxy statement/prospectus. If you have any questions concerning the Merger, the Merger Agreement, the non-binding, advisory vote on the transaction-related named executive officer compensation, the vote to adjourn the special meeting, if necessary or appropriate, the special meeting or the accompanying proxy statement/prospectus, or if you would like additional copies of the accompanying proxy statement/prospectus (at no charge) or need help submitting a proxy to have your shares of OncoMed common stock voted, please contact OncoMed’s proxy solicitor, MacKenzie Partners, Inc., at the following address and telephone number:

 

LOGO

1407 Broadway, 27th Floor

New York, New York 10018

Call Collect: (212) 929-5500

or

Call Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

 

By Order of the Board of Directors,

 

John Lewicki, Ph.D.  
President and Chief Executive Officer  

Redwood City, California

[], 2019


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Mereo BioPharma Group plc (“Mereo”), constitutes a prospectus of Mereo under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the ordinary shares, each of £0.003 nominal value, in the share capital of Mereo (the “Mereo Shares” and each a “Mereo Share”), which will be represented by American Depositary Shares of Mereo (the “Mereo ADSs”) to be issued to stockholders of OncoMed Pharmaceuticals, Inc. (“OncoMed”) pursuant to the merger of a wholly-owned indirect subsidiary of Mereo with and into OncoMed, with OncoMed continuing as the surviving corporation in the merger and a wholly-owned indirect subsidiary of Mereo (the “Merger”). This proxy statement/prospectus also constitutes a proxy statement of OncoMed under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and constitutes a notice of meeting with respect to a special meeting of OncoMed stockholders (the “OncoMed Special Meeting”).

No person has been authorized to provide you with information that is different from that which is contained in, or incorporated by reference into, this proxy statement/prospectus. Mereo and OncoMed take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you and, if given, such information must not be relied upon as having been authorized. This proxy statement/prospectus is dated [], 2019. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of such information. Neither the mailing of this proxy statement/prospectus to OncoMed stockholders nor the issuance by Mereo of Mereo ADSs in connection with the Merger will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this proxy statement/prospectus regarding Mereo has been provided by Mereo and information contained in this proxy statement/prospectus regarding OncoMed has been provided by OncoMed.

Neither Mereo shareholders nor OncoMed stockholders should construe the contents of this proxy statement/prospectus as legal, tax or financial advice. Mereo shareholders and OncoMed stockholders should consult with their own legal, tax, financial or other professional advisors. All summaries of, and references to, the agreements governing the terms of the transactions described in this proxy statement/prospectus are qualified by the full copies of and complete text of such agreements in the forms attached hereto as annexes.

Neither the SEC nor any state securities commission, nor any securities regulatory authority in any other jurisdiction, has approved or disapproved of the securities to be issued in connection with the Merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense. For the avoidance of doubt, this proxy statement/prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy or sell any securities in the United Kingdom or any other state in the European Economic Area or a solicitation of a proxy under the laws of England and Wales, and it is not intended to be, and is not, a prospectus or an offer document for the purposes of the prospectus rules made under Part VI of the United Kingdom Financial Services and Markets Act 2000 (as set out in the Financial Conduct Authority Handbook).


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THIS PROXY STATEMENT/PROSPECTUS INCORPORATES ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about OncoMed from documents that OncoMed has filed with or furnished to the SEC, but that have not been included in this proxy statement/prospectus. Please see “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by OncoMed at no cost from the SEC’s website at www.sec.gov. You may also request copies of these documents, including documents incorporated by reference into this proxy statement/prospectus (other than certain exhibits or schedules to these documents), at no cost by requesting them in writing or by telephone from OncoMed at the following address and telephone number:

OncoMed Pharmaceuticals, Inc.

Attention: Alicia Hager

800 Chesapeake Drive

Redwood City, California 94063

Telephone number: (650) 995-8200

In addition, if you have questions about the Merger, the OncoMed Special Meeting, or the proposals to be considered at the OncoMed Special Meeting, need additional copies of this document and the annexes to this document or need to obtain proxy cards or other information related to the proxy solicitation, you may contact OncoMed’s proxy solicitor, MacKenzie Partners, Inc., at the following address and telephone number:

 

LOGO

1407 Broadway, 27th Floor

New York, New York 10018

Call Collect: (212) 929-5500

or

Call Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

In order for OncoMed stockholders to receive timely delivery of the documents in advance of the OncoMed Special Meeting, OncoMed stockholders must request the documents no later than [], 2019.

CURRENCIES

In this proxy statement/prospectus, unless otherwise specified or the context otherwise requires:

 

   

“$,” “USD,” “US$” and “U.S. dollar” each refer to the United States dollar; and

 

   

“£,” “GBP,” “pound sterling,” “pence” and “p” each refer to the British pound sterling (or units thereof).

INDUSTRY AND MARKET DATA

In this proxy statement/prospectus, Mereo relies on and refers to information and statistics regarding market shares in the sectors in which it competes and other industry data. Mereo obtained this information and statistics from third-party sources, such as independent industry publications,


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government publications or reports by market research firms, which information Mereo has supplemented where necessary with information from various other third party sources, discussions with Mereo customers and its own internal estimates taking into account publicly available information about other industry participants and Mereo management’s best view as to information that is not publicly available. Mereo believes that these sources and estimates are reliable, but it has not independently verified the information and statistics obtained from them.

PRESENTATION OF FINANCIAL INFORMATION

This proxy statement/prospectus includes Mereo’s audited consolidated financial statements as of and for the years ended December 31, 2016 and 2017, and Mereo’s unaudited consolidated interim financial statements for the six months ended June 30, 2017 and 2018, in each case, prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). None of Mereo’s financial statements were prepared in accordance with U.S. GAAP.

Mereo’s financial information is presented in pound sterling. For the convenience of the reader, Mereo has translated pound sterling amounts included in such financial information into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on June 29, 2018, which was £1.00 to $1.3197. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of pound sterling at the dates indicated as of that or any other date, and such translations should not be considered representations that any such amounts have been, could have been, or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

Mereo has made rounding adjustments to some of the figures included in this proxy statement/prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

Solely for convenience, the trademarks, service marks, logos and trade names referred to in this proxy statement/prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that Mereo will not assert, to the fullest extent under applicable law, its rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This proxy statement/prospectus contains additional trademarks, service marks, and trade names of others, which are the property of their respective owners. All trademarks, service marks, and trade names appearing in this proxy statement/prospectus are, to Mereo’s knowledge, the property of their respective owners. Mereo does not intend its use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of Mereo by, any other companies.


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TABLE OF CONTENTS

 

 

 

    Page  

Questions and Answers about the Merger and the OncoMed Special Meeting

    iv  

Summary

    1  

Information about the Companies

    1  

Summary of the Merger

    2  

Merger Consideration

    2  

The CVRs

    3  

Treatment of OncoMed Options and OncoMed Units

    4  

Comparative per Share Market Price and Dividend Information

    5  

Risk Factors

    6  

The OncoMed Special Meeting

    6  

Share Ownership and Voting by OncoMed Directors and Executive Officers

    7  

Recommendation of the OncoMed Board and its Reasons for the Merger

    7  

Opinion of OncoMed’s Financial Advisor

    7  

Accounting Treatment

    8  

Interests of OncoMed’s Directors and Executive Officers in the Merger

    8  

Board of Directors and Senior Management of the Combined Company

    9  

Mereo’s Reasons for the Merger

    9  

Appraisal Rights

    9  

Listing of the Mereo ADSs and Mereo Shares

    10  

Delisting and Deregistration of OncoMed Common Stock

    10  

Litigation Related to the Merger

    10  

The Merger Agreement

    10  

No Solicitation of Offers

    10  

Change of Recommendation

    11  

Indemnification and Insurance

    12  

Conditions to Closing

    13  

Termination Events

    15  

Termination Fees

    16  

Material U.S. Federal Income Tax Considerations

    19  

Material U.K. Tax Considerations

    19  

Comparison of Shareholder Rights

    19  

Selected Consolidated Financial Information of Mereo

    20  

Selected Financial Information of OncoMed

    22  

Unaudited Pro Forma Condensed Combined Financial Information

    24  

Unaudited Comparative Historical and Pro Forma per Share Data

    35  

Comparative per Share Market Price and Dividend Information

    37  

Cautionary Statement Regarding Forward-Looking Statements

    39  

Risk Factors

    41  

Risk Factors Related to the Merger

    41  

Risk Factors Related to the CVRs

    47  

Risk Factors Related to the Combined Company

    48  

Risk Factors Related to the Mereo ADSs

    53  

Risk Factors Related to Mereo’s Business

    59  

Risk Factors Related to OncoMed’s Business

    104  

The OncoMed Special Meeting

    105  

Date, Time and Place of OncoMed Special Meeting

    105  

Purpose of OncoMed Special Meeting

    105  

 

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Recommendation of the OncoMed Board of Directors

    105  

Who Can Vote at the OncoMed Special Meeting

    105  

Vote Required for Approval

    106  

Adjournments

    107  

Share Ownership of Directors and Executive Officers of OncoMed

    107  

Voting Procedures

    107  

Revoking Proxies or Voting Instructions

    109  

Shares Held in “Street Name”

    109  

Tabulation of Votes

    109  

How You Can Reduce the Number of Copies of OncoMed’s Proxy Materials You Receive

    109  

Cost of Proxy Distribution and Solicitation

    110  

Other Matters

    110  

Proposal 1—The Merger Agreement and the Merger

    111  

Proposal 2—Non-Binding, Advisory Vote on Transaction-related Named Executive Officer Compensation

    112  

Proposal 3—Possible Adjournment to Solicit Additional Proxies, if Necessary or Appropriate

    113  

The Merger

    114  

Summary of the Merger

    114  

OncoMed’s Reasons for the Merger

    126  

Opinion of OncoMed’s Financial Advisor

    129  

Board of Directors and Senior Management of the Combined Company

    138  

Accounting Treatment

    138  

Interests of OncoMed’s Directors and Executive Officers in the Merger

    138  

Treatment of OncoMed Options and OncoMed Units

    142  

Mereo’s Reasons for the Merger

    142  

Appraisal Rights

    144  

Listing of the Mereo ADSs and Mereo Shares

    148  

Delisting and Deregistration of OncoMed Common Stock

    149  

Restrictions on Sales of Mereo ADSs Received in the Merger

    149  

Litigation Related to the Merger

    149  

The Merger Agreement

    150  

The Merger

    150  

Merger Consideration

    151  

Treatment of OncoMed Options and OncoMed Units

    154  

Closing and Effective Time

    155  

Conversion of Shares

    155  

Exchange Agent; Letter of Transmittal

    156  

Appraisal Rights

    156  

Withholding

    157  

Dividends and Distributions

    157  

Representations and Warranties of Mereo, Merger Sub and OncoMed

    157  

Material Adverse Effect

    159  

Restrictions on OncoMed’s Business Pending the Closing

    159  

Restrictions on Mereo’s Business Pending the Closing

    161  

Agreement Not to Solicit Other Offers

    162  

OncoMed’s Board Recommendation

    163  

Mereo’s Board Recommendation

    164  

Preparation of the Form F-4 and the Proxy Statement/Prospectus; OncoMed Special Meeting

    164  

Mereo Shareholder Meeting

    165  

Board of Directors of Combined Company

    165  

 

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Indemnification and Insurance

    165  

Regulatory Filings

    166  

Establishment of ADS Facility; Nasdaq Listing

    166  

Net Cash and Management Accounts

    167  

Other Agreements

    167  

Conditions to Closing

    167  

Termination Events

    169  

Termination Fees

    171  

Effect of Termination

    173  

Expenses

    173  

Amendment

    173  

Governing Law; Jurisdiction; Waiver of Trial by Jury

    174  

Specific Performance

    174  

The CVR Agreement

    175  

The Support Agreements

    181  

OncoMed Support Agreements

    181  

Mereo Support Agreements

    182  

Business of Mereo and Certain Information About Mereo

    184  

Mereo Management

    234  

Beneficial Ownership of Certain Shareholders of Mereo and the Mereo Board

    253  

Related Party Transactions

    256  

Mereo’s Management’s Discussion and Analysis of Financial Condition and Results of Operations of Mereo

    258  

OncoMed Security Ownership of Certain Beneficial Owners and Management

    279  

Material U.S. Federal Income Tax Considerations

    283  

Material U.K. Tax Considerations

    290  

Description of the Mereo Shares And Articles of Association

    292  

Description of the Mereo ADSs

    303  

Comparison of Shareholder Rights

    315  

Exchange Controls

    331  

Submission of Stockholder Proposals

    332  

Stockholder Proposals to Be Presented at Next Annual Meeting

    332  

Other Business at the OncoMed Special Meeting

    332  

Legal Matters

    333  

Experts

    333  

Service of Process and Enforcement of Judgments

    333  

Where You Can Find More Information

    335  

Incorporation of Certain Documents by Reference

    335  

Index to Financial Statements

    F-1  

 

ANNEX A

  Agreement and Plan of Merger and Reorganization     A-1  

ANNEX B

  Form of Contingent Value Rights Agreement     B-1  

ANNEX C

  Opinion of OncoMed’s Financial Advisor     C-1  

ANNEX D

  Section 262 of the General Corporation Law of the State of Delaware     D-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ONCOMED SPECIAL MEETING

The following questions and answers address briefly some questions you may have regarding the proposed merger and the OncoMed Special Meeting. These questions and answers may not address all questions that may be important to you. Please refer to the more detailed information contained elsewhere in this proxy statement/prospectus, as well as the additional documents referred to in, or incorporated by reference into, this proxy statement/prospectus.

General Questions and Answers about the Merger

What is the proposed transaction on which I am being asked to vote?

You are being asked to vote to approve and adopt the Agreement and Plan of Merger and Reorganization, dated as of December 5, 2018 (as may be further amended from time to time, the “Merger Agreement”), entered into by and among Mereo BioPharma Group plc, a public limited company organized under the laws of England and Wales (“Mereo”), Mereo US Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of Mereo (“HoldCo”), Mereo MergerCo One Inc., a Delaware corporation and a wholly-owned subsidiary of HoldCo (“Merger Sub”), and OncoMed Pharmaceuticals, Inc., a Delaware corporation (“OncoMed”). A copy of the Merger Agreement is included as Annex A to this proxy statement/prospectus. Pursuant to the Merger Agreement, Merger Sub will merge with and into OncoMed, with OncoMed surviving the merger as a wholly-owned subsidiary of HoldCo, and an indirect wholly-owned subsidiary of Mereo (the “Merger”). Following the Merger, OncoMed will no longer be a publicly traded corporation. Mereo and its subsidiaries following the Merger, including OncoMed, are referred to in this proxy statement/prospectus as the “Combined Company.”

Why am I receiving this document and why am I being asked to vote on the Merger Agreement?

OncoMed is holding a special meeting of stockholders, which is referred to in this proxy statement/prospectus as the “OncoMed Special Meeting,” in order to obtain the stockholder approval necessary to approve and adopt the Merger Agreement. Approval and adoption of the Merger Agreement requires the affirmative vote of holders of at least a majority of the outstanding shares of OncoMed common stock entitled to vote thereon. OncoMed stockholders will also be asked to approve, on a non-binding, advisory basis, the compensation payments that will or may be paid by OncoMed or Mereo to OncoMed’s named executive officers and that are based on or otherwise related to the Merger and the agreements and understandings pursuant to which such compensation may be paid or become payable, and to approve the adjournment from time to time of the OncoMed Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Merger Agreement at the time of the OncoMed Special Meeting or any adjournment or postponement thereof, as further described in the section entitled “—What are the proposals on which the OncoMed stockholders are being asked to vote?” elsewhere in this proxy statement/prospectus. It is important that OncoMed’s stockholders vote their shares of OncoMed common stock on each of these matters, regardless of the number of shares owned. The adoption of the Merger Agreement by OncoMed’s stockholders is a condition to the completion of the Merger. See the section entitled “The Merger Agreement—Conditions to Closing” elsewhere in this proxy statement/prospectus.

This document serves as the proxy statement by which OncoMed is soliciting proxies to obtain the necessary approvals from its stockholders for the Merger. It also serves as the prospectus by which Mereo will offer and issue the ordinary shares, with a nominal value of £0.003 per ordinary share, of Mereo (the “Mereo Shares”) underlying the American Depositary Shares (the “Mereo ADSs”) that will be issued to OncoMed stockholders as a part of the Merger Consideration. It provides OncoMed stockholders with important details about Mereo and their rights as potential equityholders of Mereo.

 

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Is my vote important?

Yes, your vote is very important. For OncoMed stockholders, an abstention from voting or a failure to vote will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement, assuming a quorum is present. If you hold your OncoMed common stock through a broker, bank or other nominee holder of record and you do not give voting instructions to that broker, bank or other nominee holder of record, that broker, bank or other nominee holder of record will not be able to vote your shares on the approval and adoption of the Merger Agreement, and your failure to give those instructions will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement, assuming a quorum is present. OncoMed’s board of directors (the “OncoMed Board”) unanimously recommends that OncoMed stockholders vote “FOR” the approval and adoption of the Merger Agreement.

The enclosed proxy materials allow you to grant a proxy or vote your shares by telephone or Internet without attending the OncoMed Special Meeting. You are encouraged to submit your proxy or vote your shares by telephone or Internet as soon as possible, even if you plan to attend the OncoMed Special Meeting.

What will OncoMed stockholders receive in the Merger?

If the Merger is completed, OncoMed stockholders will receive, in exchange for each outstanding share of OncoMed common stock owned immediately prior to completion of the Merger (except for any dissenting shares): (1) a number of Mereo ADSs determined by reference to the exchange ratio described below (the “Share Consideration”), and (2) one contingent value right (a “CVR”), representing the right to receive contingent payments if specified milestones are achieved within agreed time periods, subject to and in accordance with the terms and conditions of the Contingent Value Rights Agreement, in substantially the form included as Annex B to this proxy statement/prospectus (the “CVR Agreement”), to be entered into at or prior to the effective time of the Merger (the “Effective Time”) by and among Computershare Inc., as rights agent, and Mereo (together with the Share Consideration, the “Merger Consideration”).

Under the exchange ratio formula set forth in the Merger Agreement (the “Exchange Ratio”), as of immediately following the Effective Time, former OncoMed stockholders are expected to own approximately 25% of the outstanding equity interests in the Combined Company on an undiluted basis (the “Implied OncoMed Ownership”), subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger (the “Closing”). The number of Mereo Shares underlying Mereo ADSs issuable to former OncoMed stockholders in the Merger is also subject to the limitation that the number of Mereo Shares to be allotted and issued by Mereo (and the corresponding number of Mereo ADSs to be issued to holders of OncoMed common stock) as Share Consideration or pursuant to the CVR Agreement will not, in the aggregate, exceed 66.67% of the Mereo Shares issued and outstanding immediately prior to the Effective Time (approximately 40% of the share capital of the Combined Company) (the “Share Consideration Cap”), as described further in “The Merger Agreement—Merger Consideration.” No fractional Mereo ADSs or CVRs will be issued in connection with the Merger. Any fractional Mereo ADSs or CVRs will be rounded down to the nearest whole Mereo ADS or CVR, as applicable, with no cash being paid to compensate for such rounding. Mereo intends to apply to list the Mereo ADSs on The Nasdaq Stock Market (“Nasdaq”).

Based on the closing price per Mereo Share of £1.90 as of December 4, 2018, which was the last trading day of Mereo Shares on the Alternative Investment Market operated by London Stock Exchange plc (“AIM”) before the announcement of the Merger, the Federal Reserve Bank of New York’s reported U.S. dollar to pound sterling exchange rate on such date of £1.00 to $1.2719, and assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger, the Share Consideration implied a value of $1.49 per share of OncoMed common stock. This represented a premium to OncoMed stockholders of approximately 33.8% over OncoMed’s closing stock price on December 4, 2018.

 

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Based on the closing price per Mereo Share of £[] as of [], 2019, which was the latest practicable trading day of Mereo Shares on AIM before the publication of this proxy statement/prospectus, the Federal Reserve Bank of New York’s reported U.S. dollar to pound sterling exchange rate on such date of £1.00 to $[], and assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger , the Share Consideration would imply a value of $[] per share of OncoMed common stock.

The Implied OncoMed Ownership referenced above is an estimate only and the actual percentage of outstanding equity interests in the Combined Company to be held by former OncoMed stockholders immediately following the closing of the Merger will be determined by the final Exchange Ratio, calculated pursuant to a formula described in more detail in the Merger Agreement and elsewhere in this proxy statement/prospectus. In particular, if OncoMed’s net cash at the time of the closing of the Merger is less than $36.5 million, the Exchange Ratio will be reduced by an amount that is greater than the amount that would otherwise reflect the difference between the target closing net cash and actual closing net cash on a dollar-for-dollar basis. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the date of the closing of the Merger cannot be determined with precision in advance of the Effective Time.

What are the CVRs?

The CVRs represent the non-transferable contractual right to receive certain stock and cash payments from Mereo if specified milestones are achieved within agreed time periods. Each share of OncoMed common stock outstanding immediately prior to the Effective Time shall be converted into the right to receive one CVR, in addition to the Share Consideration. A copy of the form of the CVR Agreement is included as Annex B to this proxy statement/prospectus.

The CVR milestones relate to OncoMed’s etigilimab (anti-TIGIT, OMP-313M32) and navicixizumab (anti-DLL4/VEGF, OMP-305B83) therapeutic candidates. The contingent payments become payable to the rights agent, for subsequent distribution to the holders of the CVRs, upon the achievement of the milestones as follows:

The TIGIT Milestone

A payment, in the form of Mereo ADSs, will be made to CVR holders if, following the Effective Time but prior to December 31, 2019, the following milestone (the “TIGIT Milestone”) is achieved:

 

   

Celgene Corporation or certain affiliates thereof (collectively, “Celgene”) exercise the exclusive option granted by OncoMed to Celgene in relation to OncoMed’s etigilimab product pursuant to the Master Research and Collaboration Agreement by and among Celgene and OncoMed, dated December 2, 2013 (the “Celgene Option Exercise”); and

 

   

OncoMed actually receives the cash payment payable by Celgene pursuant to such Celgene Option Exercise.

If the TIGIT Milestone is achieved, holders of CVRs would be entitled to receive a number of Mereo ADSs equal to (x) the amount of the cash payment actually received by OncoMed upon the Celgene Option Exercise, net of any tax and other reasonable expenses, divided by (y) the volume-weighted average price per Mereo ADS for the ten trading day period immediately following the date of the announcement by Mereo of the receipt of such cash payment. The TIGIT Milestone payment is subject to the Share Consideration Cap, such that the number of Mereo Shares underlying the Mereo ADSs to be issued pursuant to the CVR Agreement, when aggregated with the number of Mereo Shares underlying the Mereo ADSs issued as Share Consideration pursuant to the Merger Agreement, cannot exceed the Share Consideration Cap.

 

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In the event that the cash payment payable by Celgene pursuant to the Celgene Option Exercise is actually received by OncoMed prior to the Effective Time, OncoMed stockholders will receive value for such cash payment in the form of additional Mereo ADSs issued at the Effective Time pursuant to the application of the Exchange Ratio set forth in the Merger Agreement. In such event, the CVR Agreement will be amended to delete the TIGIT Milestone and all related payment mechanics.

The NAVI Milestones

A cash payment will be made to CVR holders if, within eighteen months following the closing of the Merger, Mereo or any of its subsidiaries enters into a definitive agreement with one or more third parties regarding the navicixizumab products and, within five years of the closing of the Merger, Mereo or any of its subsidiaries actually receives certain eligible cash milestone payments (each, a “NAVI Milestone”).

If a NAVI Milestone is achieved, holders of CVRs would be entitled to receive an amount in cash equal to 70% of the amount of such eligible cash milestone payment, net of any tax and other reasonable expenses. The NAVI milestone payments are subject to a cash consideration cap, pursuant to which the aggregate principal amount of all cash payments made to holders of CVRs by Mereo shall in no case exceed $79.7 million.

The CVRs may not be sold, assigned, transferred, pledged or disposed of in any other manner, in whole or in part, other than in the limited circumstances specified in the CVR Agreement. In addition, the CVRs (i) will not be evidenced by a certificate or other instrument, (ii) will not have any voting or dividend rights and (iii) will not represent any equity or ownership interest in Mereo or any of its subsidiaries or in the surviving corporation. No interest will accrue on any amounts payable in respect of the CVRs.

Mereo’s obligation to make the CVR payment, if any becomes due, is neither secured nor guaranteed. Mereo’s obligation to make the CVR payment, if any becomes due, is an unsecured general obligation of Mereo and is not guaranteed by Mereo or any of its affiliates.

For a more detailed description of the CVRs and the CVR Agreement, see “Description of the CVRs” elsewhere in this proxy statement/prospectus.

After the Merger, how much of the Combined Company will OncoMed stockholders own?

Under the exchange ratio formula set forth in the Merger Agreement, as of immediately following the Effective Time, former OncoMed stockholders are expected to own approximately 25% of the outstanding equity interests in the Combined Company on an undiluted basis, subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger, the percentage of outstanding Mereo Shares actually held by former OncoMed stockholders after the Merger may be greater or less than 25%. The number of Mereo Shares to be allotted and issued by Mereo (and the corresponding number of Mereo ADSs to be issued to holders of OncoMed common stock) as Merger Consideration or pursuant to the CVR Agreement will not, in the aggregate, exceed 66.67% of the Mereo Shares issued and outstanding immediately prior to the Effective Time (approximately 40% of the share capital of the Combined Company).

Can the value of the Merger Consideration change between now and the time the Merger is consummated?

Yes, the value of the Merger Consideration can change. The Exchange Ratio that applies to the Share Consideration is subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger and to the Share Consideration Cap, meaning that former OncoMed stockholders

 

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may be entitled to receive Mereo ADSs representing more or less than 25% of the outstanding equity interests in the Combined Company immediately following the Effective Time, regardless of the trading price of Mereo Shares on AIM or currency exchange rates on the effective date of the Merger. The actual market value of the Mereo ADSs that OncoMed stockholders will receive in the Merger may increase or decrease as the trading price of Mereo Shares increases or decreases, or as currency rates fluctuate, and may be different at the time the OncoMed Special Meeting is held or the Merger is consummated than it was as of the last trading day before the Merger Agreement was signed. The market price of Mereo Shares could be higher or lower at any time prior to the consummation of the Merger than the price of Mereo Shares as of the last trading day before the Merger Agreement was signed. Additionally, fluctuations in the currency exchange rate between the U.S. dollar and the pound sterling could affect the value of the Merger Consideration. OncoMed stockholders are urged to obtain current trading prices for Mereo Shares on AIM and current exchange rates between the U.S. dollar and the pound sterling. You should obtain current trading prices of Mereo Shares and OncoMed common stock, and currency exchange rates, before deciding how to vote on the approval and adoption of the Merger Agreement.

What will happen to my OncoMed options or OncoMed restricted stock units in the Merger?

OncoMed Options

At or immediately prior to the Effective Time, each outstanding and unexercised option to acquire OncoMed common stock pursuant to OncoMed’s 2004 Stock Incentive Plan, as amended, or OncoMed’s 2013 Equity Incentive Award Plan, as applicable, whether or not vested (each, an “OncoMed Option”) will be automatically canceled and converted into the right to receive (i) the excess, if any, of the Merger Consideration over the applicable exercise price of such canceled OncoMed Option, multiplied by (ii) the number of shares of OncoMed common stock subject to such OncoMed Option immediately prior to the Effective Time, provided that no fractional Mereo ADSs or CVRs will be issued. Each OncoMed Option that has a per-share exercise price that is higher than the Merger Consideration shall be canceled at the Effective Time for no consideration. No OncoMed Options will remain outstanding following the consummation of the Merger.

OncoMed Restricted Stock Units

Immediately prior to the Effective Time and contingent on the occurrence of the Closing, each outstanding restricted stock unit, representing the right to receive shares of OncoMed common stock in the future pursuant to OncoMed’s 2013 Equity Incentive Award Plan (each, an “OncoMed Unit”) will be canceled and the holders thereof will be entitled to receive, immediately prior to the Effective Time, the number of shares of OncoMed common stock that were subject to such OncoMed Unit (with the tax withholding obligations of each holder of such OncoMed Units being satisfied by OncoMed withholding from issuance that number of shares of OncoMed common stock calculated by multiplying the maximum statutory withholding rate for such holder in connection with such issuance by the number of shares of OncoMed common stock to be issued, rounding up to the nearest whole share, and remitting such withholding in cash to the appropriate tax authority) and such stockholders will thereafter be entitled to receive the Merger Consideration in respect of these shares of OncoMed common stock. No OncoMed Units will remain outstanding following the consummation of the Merger.

What is a Mereo ADS?

A Mereo ADS is an American Depositary Share, which is a security that allows persons in the United States to more easily hold and trade interests in companies incorporated or organized outside of the United States. Mereo is a public limited company organized under the laws of England and Wales that issues ordinary shares that are equivalent in many respects to the common stock of a U.S. company. See “Comparison of Shareholder Rights” for a discussion of the differences between OncoMed common stock and Mereo Shares. Each Mereo ADS represents five Mereo Shares. Mereo

 

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intends to apply to list the Mereo ADSs on Nasdaq, under the symbol “MREO.” Citibank, N.A. is the depositary of the Mereo Shares underlying the Mereo ADSs and will be responsible for issuing Mereo ADSs to OncoMed stockholders in the Merger.

Will OncoMed stockholders be able to trade the Mereo ADSs that they receive in the transaction?

Yes. Mereo intends to apply to list the Mereo ADSs on Nasdaq under the symbol “MREO.” Mereo ADSs received in exchange for shares of OncoMed common stock in the transaction will be freely transferable under United States federal securities laws. Mereo ADSs will be listed for trading, and be quoted, in U.S. dollars.

Can I receive Mereo Shares in the Merger instead of Mereo ADSs?

No. However, you may turn in your Mereo ADSs at the depositary’s corporate office or by providing appropriate instructions to your broker. Upon payment of the fees provided in the deposit agreement and any applicable taxes, the depositary will deliver to you the Mereo Shares underlying your Mereo ADSs held on deposit by the custodian.

What are the material U.S. federal income tax considerations of the Merger for me?

The exchange of OncoMed common stock for merger consideration in the Merger is expected to be a taxable transaction for U.S. federal income tax purposes to U.S. Holders (as defined in “Material U.S. Federal Income Tax Considerations”). Please carefully review the information under “Material U.S. Federal Income Tax Considerations” beginning on page 283 of this proxy statement/prospectus for a description of material U.S. federal income tax consequences of the merger to U.S. Holders. The tax consequences to you will depend on your own situation. You are urged to consult your tax advisors as to the specific tax consequences to you of the Merger and your receipt of the Merger Consideration, including the applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.

What are the material U.K. tax considerations of owning Mereo ADSs for me?

You are referred to the section of this proxy statement/prospectus entitled “Material U.K. Tax Considerations” for a summary of the anticipated material U.K. tax considerations of ownership of Mereo ADSs. You are urged to consult with your own tax advisor for a full understanding of the U.K. tax considerations to you of owning Mereo ADSs.

When is the Merger expected to be completed?

Mereo and OncoMed expect to complete the Merger promptly after OncoMed receives, at the OncoMed Special Meeting, an affirmative vote in favor of the approval and adoption of the Merger Agreement by holders of a majority of the shares of OncoMed’s common stock entitled to vote at the OncoMed Special Meeting (the “OncoMed Stockholder Approval”). Mereo and OncoMed currently anticipate that the Merger will occur in the first half of 2019. However, neither Mereo nor OncoMed can predict the exact timing of the completion of the Merger because the Merger is subject to certain other conditions to closing as set forth in the Merger Agreement. See the section entitled “The Merger Agreement—Conditions to Closing” elsewhere in this proxy statement/prospectus.

What is required to complete the Merger?

Each of Mereo’s and OncoMed’s obligation to consummate the Merger is subject to a number of conditions specified in the Merger Agreement, including (i) the approval and adoption of the Merger Agreement by OncoMed’s stockholders and, if necessary, Mereo’s shareholders (the “Mereo Shareholder Approval”); (ii) the absence of any temporary restraining order, preliminary or permanent

 

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injunction or any other order preventing the consummation of the Merger and any law that makes illegal the consummation of the Merger; (iii) the SEC having declared effective this registration statement on Form F-4 (the “Form F-4”) and the registration statement on Form F-6 relating to the registration under the Securities Act of the issuance of the Mereo ADSs (the “Form F-6”) to be filed with the SEC; (iv) Mereo having obtained all required shareholder approvals in connection with the issuance of Mereo ADSs and the allotment and issuance of the Mereo Shares underlying the Mereo ADSs to be issued in the Merger and the grant of the CVRs to the stockholders of OncoMed pursuant to the Merger Agreement; (v) the approval for listing on Nasdaq, subject to official notice of issuance, of the Mereo ADSs to be issued in the Merger and the approval for admission to trading on AIM of the Mereo Shares underlying the Mereo ADSs to be issued in the Merger pursuant to the Merger Agreement, and the satisfaction of any other requirements of London Stock Exchange plc; (vi) subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of OncoMed and Mereo contained in the Merger Agreement and the compliance by each party with the covenants contained in the Merger Agreement; and (vii) the absence of a material adverse effect with respect to each of OncoMed and Mereo. The parties expect the Merger will be completed in the first half of calendar year 2019. See “The Merger Agreement—Conditions to Closing” located elsewhere in this proxy statement/prospectus.

On June 2, 2016, holders of Mereo Shares granted authority to the board of directors of Mereo (the “Mereo Board”) to issue and allot the Mereo Shares underlying the Mereo ADSs.

What happens if the Merger is not completed?

If the Merger Agreement is not adopted by OncoMed stockholders or if the Merger is not completed for any other reason, OncoMed stockholders will not receive the Merger Consideration in exchange for their shares of OncoMed common stock. Instead, OncoMed will remain an independent public company and OncoMed common stock will continue to be listed and traded on Nasdaq. Under specified circumstances, OncoMed may be required to pay Mereo a termination fee and reimburse Mereo’s transaction expenses, or Mereo may be required to pay OncoMed a termination fee and reimburse OncoMed’s transaction expenses, as described in “The Merger Agreement—Termination Fees” located elsewhere in this proxy statement/prospectus.

If, for any reason, the Merger does not close, the OncoMed Board may elect to, among other things, attempt to complete another strategic transaction similar to the Merger, attempt to sell or otherwise dispose of the various assets of OncoMed or continue to operate the business of OncoMed. If OncoMed decides to dissolve and liquidate its assets, OncoMed would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash, if any, left to distribute to OncoMed stockholders after paying the debts and other obligations of OncoMed and setting aside funds for reserves.

What do I need to do?

After you have carefully read and considered the information contained in, or incorporated by reference into, this proxy statement/prospectus, please vote by submitting your proxy card or voting instruction form by following the instructions set forth below under “Questions and Answers about the OncoMed Special Meeting—How do I vote?”

Questions and Answers about the OncoMed Special Meeting

When and where is the OncoMed Special Meeting?

The OncoMed Special Meeting will be held at [], local time, on [], 2019 at OncoMed’s headquarters located at 800 Chesapeake Drive, Redwood City, California 94063. Check-in will begin at [], local time. Please allow ample time for the check-in procedures.

 

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How can I attend the OncoMed Special Meeting?

OncoMed stockholders as of the close of business on [], 2019, the record date, and those who hold a valid proxy for the special meeting are entitled to notice of, to attend and to vote at the OncoMed Special Meeting. OncoMed stockholders should be prepared to present photo identification for admittance. In addition, names of record holders will be verified against the list of record holders at the close of business on the record date prior to being admitted to the meeting. OncoMed stockholders who are not record holders but who hold shares through a broker or other nominee (i.e., in “street name”) should provide proof of beneficial ownership at the close of business on the record date, such as a letter from their broker reflecting their stock ownership as of the record date, which is [], 2019. If OncoMed stockholders do not provide photo identification or comply with the other procedures outlined above upon request, they will not be admitted to the OncoMed Special Meeting.

What matters will OncoMed stockholders vote on at the special meeting?

OncoMed stockholders will vote on the Merger Proposal, the Advisory Vote Proposal and the Adjournment Proposal, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve and adopt the Merger Agreement.

How many votes are needed for the proposals considered by OncoMed stockholders at the OncoMed Special Meeting?

Approval of the Merger Proposal requires the affirmative vote of the holders of at least a majority of the shares of OncoMed common stock outstanding at the close of business on the record date. Approval of Advisory Vote Proposal and the Adjournment Proposal each requires the affirmative vote of a majority of the votes cast affirmatively or negatively by holders of shares of OncoMed common stock present in person or represented by proxy at the OncoMed Special Meeting.

What is the quorum requirement for the OncoMed Special Meeting?

A quorum of OncoMed stockholders will be present if at least a majority in voting power of the stock issued and outstanding and entitled to vote as of the record date is present in person, or by remote communication, if applicable, or represented by proxy at the OncoMed Special Meeting. Your shares will be counted towards such quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker or other nominee) or if you vote in person at the OncoMed Special Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairperson of the special meeting or a majority in voting power of the stockholders entitled to vote at the meeting, present in person, or by remote communication, if applicable, or represented by proxy may adjourn the OncoMed Special Meeting to another time or date. If you do not vote, it will be more difficult for OncoMed to obtain the necessary quorum to approve the proposals to be considered by OncoMed stockholders at the OncoMed Special Meeting.

As an OncoMed stockholder, how can I vote?

Stockholders of record as of the record date may vote in person by attending the OncoMed Special Meeting or by mail by completing, signing and dating a proxy card or, if you hold your shares in “street name,” a voting instruction form. Proxies and voting instruction forms submitted by mail must be received no later than [], 2019 at 11:59 p.m. Eastern Time to be voted at the OncoMed Special Meeting.

Most stockholders can also vote over the Internet or by telephone. The availability of Internet and telephone voting for shares held in “street name” will depend on the voting processes of your broker or other nominee. If Internet and telephone voting are available, OncoMed stockholders can find voting instructions in the materials accompanying this proxy statement/prospectus. The Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on [], 2019. Please be aware that OncoMed stockholders who vote by telephone or over the Internet may incur costs such as telephone and Internet access charges for which they will be responsible.

 

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The method by which OncoMed stockholders vote will in no way limit the right to vote at the meeting if you later decide to attend in person. If shares are held in “street name,” OncoMed stockholders must obtain a proxy, executed in their favor, from their broker or other nominee, to be able to vote at the meeting.

Failure by an OncoMed stockholder to submit a proxy, or instruct a broker or other nominee to vote, as the case may be, will have the effect of a vote “AGAINST” the Merger Proposal, assuming a quorum is present, but it will have no effect on the Advisory Vote Proposal or the Adjournment Proposal.

All shares entitled to vote and represented by properly completed proxies received prior to the OncoMed Special Meeting and not revoked will be voted at the meeting in accordance with your instructions. If a signed proxy card is returned without indicating how shares should be voted on a matter and the proxy is not revoked, the shares represented by such proxy will be voted as the OncoMed Board unanimously recommends and therefore “FOR” the Merger Proposal, the Advisory Vote Proposal and the Adjournment Proposal.

For a more detailed explanation of the voting procedures, please see the section entitled “The OncoMed Special Meeting—Voting Procedures” beginning on page 107 of this proxy statement/prospectus.

As an OncoMed stockholder, what happens if I do not vote?

Your vote is very important. For OncoMed stockholders, a failure to vote will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement, assuming a quorum is present. If you hold your OncoMed common stock through a broker, bank or other nominee holder of record and you do not give voting instructions to that broker, bank or other nominee holder of record, that broker, bank or other nominee holder of record will not be able to vote your shares on the approval and adoption of the Merger Agreement, and your failure to give those instructions will have the same effect as a vote “AGAINST” the approval and adoption of the Merger Agreement, assuming a quorum is present. Therefore, OncoMed urges OncoMed stockholders to vote. The OncoMed Board unanimously recommends that OncoMed stockholders vote “FOR” the approval and adoption of the Merger Agreement.

As an OncoMed stockholder, may I change my vote after I have submitted a proxy card or voting instruction card?

Yes. OncoMed stockholders may revoke a previously granted proxy or voting instruction at any time prior to the closing of the polls at the special meeting by:

 

   

filing another duly executed proxy bearing a later date with OncoMed’s Secretary before the vote is counted or by voting again using the telephone or internet before the cutoff time (your latest telephone or internet proxy is the one that will be counted);

 

   

filing an instrument in writing revoking the proxy, or

 

   

attending the OncoMed Special Meeting and voting in person, as described in the section entitled “The OncoMed Special Meeting” beginning on page 105 of this proxy statement/prospectus.

If your shares are held in a brokerage account or another nominee, you may change your vote by submitting new voting instructions to your broker or other nominee, or, if you have obtained a legal proxy from your broker, trustee or nominee that holds your shares, by attending the OncoMed Special Meeting and voting in person.

Only the last submitted proxy or voting instruction card will be considered. Please submit a proxy or voting instruction card for the OncoMed Special Meeting as soon as possible.

 

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Should OncoMed stock certificates be sent in now?

No. If the Merger is completed, OncoMed stockholders will receive written instructions for sending in any stock certificates they may have.

What do OncoMed stockholders need to do now?

Carefully read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes. In order for OncoMed shares to be represented at the OncoMed Special Meeting, OncoMed stockholders can (1) vote through the Internet or by telephone by following the instructions included on their proxy card, (2) indicate on the enclosed proxy card how they would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope, or (3) attend the OncoMed Special Meeting in person.

Who can answer questions?

OncoMed stockholders with questions about the Merger or the other matters to be voted on at the OncoMed Special Meeting or who desire additional copies of this proxy statement/prospectus or additional proxy cards should contact:

 

LOGO

1407 Broadway, 27th Floor

New York, New York 10018

Call Collect: (212) 929-5500

or

Call Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

If you need additional copies of this proxy statement/prospectus or voting materials, contact MacKenzie Partners, Inc. as described above or OncoMed Investor Relations at the following address and telephone number:

OncoMed Pharmaceuticals, Inc.

Attention: Investor Relations

800 Chesapeake Drive

Redwood City, California 94063

Telephone number: (650) 995-8200

 

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SUMMARY

This summary highlights information contained elsewhere in this proxy statement/prospectus. This summary may not contain all the information that may be important to you, and you are urged to read this entire proxy statement/prospectus carefully, including the attached annexes, and the other documents to which this proxy statement/prospectus refers or which are incorporated by reference herein in order for you to fully understand the proposed Merger. See also the sections entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”

Information about the Companies

Mereo BioPharma Group plc

Mereo is a biopharmaceutical company focused on the development and commercialization of innovative therapeutics that aim to improve outcomes for patients with rare diseases. Mereo’s portfolio consists of four clinical-stage product candidates, each of which Mereo acquired from large pharmaceutical companies. Mereo is developing BPS-804 for the treatment of osteogenesis imperfecta (“OI”), MPH-966 for the treatment of severe alpha-1 antitrypsin deficiency (“AATD”), BCT-197 for the treatment of acute exacerbations of chronic obstructive pulmonary disease (“AECOPD”), and BGS-649 for the treatment of hypogonadotropic hypogonadism (“HH”) in obese men. Each of Mereo’s product candidates has generated positive clinical data for such product candidate’s target indication or for a related indication. Mereo believes its portfolio is well diversified because each of its product candidates employs a different mechanism of action and targets a separate indication. Mereo intends to develop and directly commercialize its rare disease product candidates. For its specialty disease product candidates, Mereo intends to seek strategic relationships for further clinical development and commercialization.

Mereo’s strategy is to selectively acquire product candidates that have already received significant investment from pharmaceutical companies and that have substantial pre-clinical, clinical, and manufacturing data packages. Since Mereo’s formation in March 2015, it has successfully executed on this strategy by acquiring product candidates from Novartis Pharma AG (“Novartis”) and AstraZeneca AB (“AstraZeneca”). Mereo has commenced or completed large, randomized, placebo-controlled Phase 2 clinical trials for all of its product candidates.

The principal executive offices of Mereo are located at 4th Floor, 1 Cavendish Place, London, W1G 0QF, United Kingdom; its telephone number is +44 333 023 7300; and its website is www.mereobiopharma.com. Information on Mereo’s website is not incorporated by reference into or otherwise part of this proxy statement/prospectus.

Mereo MergerCo One Inc.

Merger Sub is a wholly-owned indirect subsidiary of Mereo and was formed on December 3, 2018 exclusively for the purpose of effecting the Merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the Merger. Merger Sub’s separate corporate existence will cease upon the consummation of the Merger and OncoMed will continue as the surviving corporation.

The address and telephone number for Merger Sub’s principal executive offices are the same as Mereo’s.



 

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OncoMed Pharmaceuticals, Inc.

OncoMed is a clinical-stage biopharmaceutical company focused on discovering and developing novel therapeutics that address the fundamental biology driving cancer’s growth, resistance, recurrence and metastasis. OncoMed has three anti-cancer therapeutic candidates currently in clinical development, navicixizumab (anti-DLL4/VEGF, OMP-305B83), etigilimab (anti-TIGIT, OMP-313M32), and GITRL-Fc (OMP-336B11). Each of these therapeutic candidates was discovered by OncoMed scientists. OncoMed is currently conducting a Phase 1b clinical trial of its first therapeutic candidate, navicixizumab, in combination with standard chemotherapy regimens in patients with platinum-resistant ovarian cancer. OncoMed is also conducting a Phase 1a/b clinical trial of its second therapeutic candidate, etigilimab. Etigilimab is being tested as a single agent in patients with advanced or metastatic solid tumors in the Phase 1a portion of the Phase 1a/b trial and in combination with nivolumab (anti-PD1) in the Phase 1b portion of the trial. OncoMed has a strategic collaboration with Celgene Corporation regarding the etigilimab program. GITRL-Fc, OncoMed’s third therapeutic candidate, is currently in a Phase 1a clinical trial in patients with advanced or metastatic solid tumors, although OncoMed does not plan to advance GITRL-Fc beyond Phase 1a. Data for OncoMed’s two lead therapeutic candidates, navicixizumab and etigilimab, are being gathered to inform the advancement of these therapeutic candidates into later stage clinical trials independently or with potential or existing partners, with the goal of ultimately obtaining regulatory approvals and improving patient outcomes.

The principal trading market for shares of OncoMed common stock (Nasdaq: OMED) is Nasdaq. The principal executive offices of OncoMed are located at 800 Chesapeake Drive, Redwood City, California 94063; its telephone number is (650) 995-8200; and its website is www.oncomed.com. Information on OncoMed’s website is not incorporated by reference into or otherwise part of this proxy statement/prospectus.

Summary of the Merger (page 114)

Subject to the terms and conditions of the Merger Agreement, Merger Sub, a wholly-owned indirect subsidiary of Mereo, will be merged with and into OncoMed, and OncoMed will continue as the surviving corporation in the Merger and a wholly-owned indirect subsidiary of Mereo. At the Effective Time, OncoMed’s restated certificate of incorporation will be amended and restated in the form prescribed in the Merger Agreement, and will be the certificate of incorporation of the surviving corporation from and after the Effective Time.

Merger Consideration (page 151)

Subject to the terms and conditions of the Merger Agreement, at the Effective Time, OncoMed stockholders will receive, in exchange for each outstanding share of OncoMed common stock owned immediately prior to completion of the Merger (except for any dissenting shares): (1) a number of Mereo ADSs determined by reference to the Exchange Ratio described below, and (2) one CVR, representing the right to receive contingent payments if specified milestones are achieved within agreed time periods, subject to and in accordance with the terms and conditions of the CVR Agreement, to be entered into at or prior to the Effective Time by and among Computershare Inc., as rights agent, and Mereo.

Under the exchange ratio formula set forth in the Merger Agreement, as of immediately following the Effective Time, former OncoMed stockholders are expected to own approximately 25% of the outstanding equity interests in the Combined Company on an undiluted basis, subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger. The number of Mereo Shares underlying Mereo ADSs issuable to former OncoMed stockholders in the Merger is also subject to the



 

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limitation that the number of Mereo Shares to be allotted and issued by Mereo (and the corresponding number of Mereo ADSs to be issued to holders of OncoMed common stock) as Share Consideration or pursuant to the CVR Agreement will not, in the aggregate, exceed 66.67% of the Mereo Shares issued and outstanding immediately prior to the Effective Time (approximately 40% of the share capital of the Combined Company), as described further in “The Merger Agreement—Merger Consideration.” No fractional Mereo ADSs or CVRs will be issued in connection with the Merger. Any fractional Mereo ADSs or CVRs will be rounded down to the nearest whole Mereo ADS or CVR, as applicable, with no cash being paid to compensate for such rounding. Mereo intends to apply to list the Mereo ADSs on Nasdaq.

Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the date of the closing of the Merger cannot be determined with precision in advance of the Effective Time.

The CVRs (page 175)

The CVRs will be governed by the terms of the CVR Agreement, which will be entered into at or prior to the Effective Time by Mereo and Computershare, Inc., as rights agent.

The CVRs represent the non-transferable contractual right to receive certain stock and cash payments from Mereo if specified milestones are achieved within agreed time periods. Each share of OncoMed common stock outstanding immediately prior to the Effective Time shall be converted into the right to receive one CVR, in addition to the Share Consideration.

The CVR milestones relate to OncoMed’s etigilimab (anti-TIGIT, OMP-313M32) and navicixizumab (anti-DLL4/VEGF, OMP-305B83) therapeutic candidates. The contingent payments become payable to the rights agent, for subsequent distribution to the holders of the CVRs, upon the achievement of the milestones as follows:

The TIGIT Milestone

A payment, in the form of Mereo ADSs, will be made to CVR holders if, following the Effective Time but prior to December 31, 2019, the following milestone is achieved:

 

   

Celgene exercises the exclusive option granted by OncoMed to Celgene in relation to OncoMed’s etigilimab product pursuant to the Master Research and Collaboration Agreement by and among Celgene and OncoMed, dated December 2, 2013; and

 

   

OncoMed actually receives the cash payment payable by Celgene pursuant to such Celgene Option Exercise.

If the TIGIT Milestone is achieved, holders of CVRs would be entitled to receive a number of Mereo ADSs equal to (x) the amount of the cash payment actually received by OncoMed upon the Celgene Option Exercise, net of any tax and other reasonable expenses, divided by (y) the volume-weighted average price per Mereo ADS for the ten trading day period immediately following the date of the announcement by Mereo of the receipt of such cash payment. The TIGIT Milestone payment is subject to the Share Consideration Cap, such that the number of Mereo Shares underlying the Mereo ADSs to be issued pursuant to the CVR Agreement, when aggregated with the number of Mereo Shares underlying the Mereo ADSs issued as Share Consideration pursuant to the Merger Agreement, cannot exceed the Share Consideration Cap.



 

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In the event that the cash payment payable by Celgene pursuant to the Celgene Option Exercise is actually received by OncoMed prior to the Effective Time, OncoMed stockholders will receive value for such cash payment in the form of additional Mereo ADSs issued at the Effective Time pursuant to the application of the Exchange Ratio set forth in the Merger Agreement. In such event, the CVR Agreement will be amended to delete the TIGIT Milestone and all related payment mechanics.

The NAVI Milestones

A cash payment will be made to CVR holders if, within eighteen months following the closing of the Merger, Mereo or any of its subsidiaries enters into a definitive agreement with one or more third parties regarding the navicixizumab products and, within five years of the closing of the Merger, Mereo or any of its subsidiaries actually receives certain eligible cash milestone payments.

If a NAVI Milestone is achieved, holders of CVRs would be entitled to receive an amount in cash equal to 70% of the amount of such eligible cash milestone payment, net of any tax and other reasonable expenses. The NAVI milestone payments are subject to a cash consideration cap, pursuant to which the aggregate principal amount of all cash payments made to holders of CVRs by Mereo shall in no case exceed $79.7 million.

The CVRs may not be sold, assigned, transferred, pledged or disposed of in any other manner, in whole or in part, other than in the limited circumstances specified in the CVR Agreement. In addition, the CVRs (i) will not be evidenced by a certificate or other instrument, (ii) will not have any voting or dividend rights and (iii) will not represent any equity or ownership interest in Mereo or any of its subsidiaries or in the surviving corporation. No interest will accrue on any amounts payable in respect of the CVRs.

Mereo’s obligation to make the CVR payment, if any becomes due, is neither secured nor guaranteed. Mereo’s obligation to make the CVR payment, if any becomes due, is an unsecured general obligation of Mereo and is not guaranteed by Mereo or any of its affiliates.

Treatment of OncoMed Options and OncoMed Units (page 154)

OncoMed Options

At or immediately prior to the Effective Time, each outstanding and unexercised OncoMed Option will be automatically canceled and converted into the right to receive (i) the excess, if any, of the Merger Consideration over the applicable exercise price of such canceled OncoMed Option, multiplied by (ii) the number of shares of OncoMed common stock subject to such OncoMed Option immediately prior to the Effective Time, provided that no fractional Mereo ADSs or CVRs will be issued. Each OncoMed Option that has a per-share exercise price that is higher than the Merger Consideration shall be canceled at the Effective Time for no consideration. No OncoMed Options will remain outstanding following the consummation of the Merger.

OncoMed Units

Immediately prior to the Effective Time and contingent on the occurrence of the Closing, each OncoMed Unit will be canceled and the holders thereof will be entitled to receive, immediately prior to the Effective Time, the number of shares of OncoMed common stock that were subject to such OncoMed Units (with the tax withholding obligations of each holder of such OncoMed Units being satisfied by OncoMed withholding from issuance that number of shares of OncoMed common stock calculated by multiplying the maximum statutory withholding rate for such holder in connection with such issuance by the number of shares of OncoMed common stock to be issued, rounding up to the



 

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nearest whole share, and remitting such withholding in cash to the appropriate tax authority) and such stockholders will thereafter be entitled to receive the Merger Consideration in respect of these shares of OncoMed common stock. No OncoMed Units will remain outstanding following the consummation of the Merger.

Comparative per Share Market Price and Dividend Information (page 37)

Mereo Shares are quoted in pence on AIM under the symbol “MPH.” Shares of OncoMed’s common stock are listed for trading in U.S. dollars on Nasdaq under the symbol “OMED.” The following table sets forth the closing sales prices of a Mereo Share (as reported on AIM in pence) and of OncoMed common stock (as reported on Nasdaq in U.S. dollars), each on December 4, 2018, the last trading day before the day on which Mereo and OncoMed announced the execution of the Merger Agreement, and on [], 2019, the last practicable trading day before the date of this proxy statement/prospectus. This table also shows the equivalent value of the Share Consideration to be received by OncoMed stockholders in the Merger per share of OncoMed common stock, which was calculated by multiplying the closing price of a Mereo Share on AIM as of the dates specified (converted into U.S. dollars at the Federal Reserve Bank of New York’s reported U.S. dollar to pound sterling exchange rate on such dates) by the Implied OncoMed Ownership, assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger.

 

    Mereo Share
Price per Share
    OncoMed
Common Stock
Price per Share
    Equivalent Value of the
Share Consideration
per Share of OncoMed
Common stock
 
    (pence)     (US$)              

December 4, 2018

    190       1.11       1.49  

[], 2019

    [     [     [

The market prices of Mereo Shares and shares of OncoMed common stock, and the currency exchange rates, will fluctuate before the OncoMed Special Meeting and before the Merger is consummated. You should obtain current stock or currency rate quotations from a newspaper, the Internet or your broker or banker.

The Implied OncoMed Ownership referenced above is an estimate only and the actual percentage of outstanding equity interests in the Combined Company to be held by former OncoMed stockholders immediately following the closing of the Merger will be determined by the final Exchange Ratio, calculated pursuant to a formula described in more detail in the Merger Agreement and elsewhere in this proxy statement/prospectus. In particular, if OncoMed’s net cash at the time of the closing of the Merger is less than $36.5 million, the Exchange Ratio will be reduced by an amount that is greater than the amount that would otherwise reflect the difference between the target closing net cash and actual closing net cash on a dollar-for-dollar basis. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the date of the closing of the Merger cannot be determined with precision in advance of the Effective Time.

Mereo’s Dividend Policy.    Mereo has never paid or declared any cash dividends on its ordinary shares, and does not anticipate paying any cash dividends on its ordinary shares in the foreseeable future. Mereo intends to retain all available funds and any future earnings to fund the development and expansion of its business. Under English law, among other things, Mereo may only pay dividends if it has sufficient distributable reserves (on a non-consolidated basis), which are calculated as Mereo’s accumulated realized profits that have not been previously distributed or capitalized less its



 

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accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital.

In addition, the terms of Mereo’s existing loan agreement with Silicon Valley Bank and Kreos Capital V (UK) Limited (“Kreos”), preclude Mereo from paying cash dividends without Kreos’s consent.

OncoMed’s Dividend Policy.    OncoMed has never declared or paid cash dividends on its capital stock. OncoMed intends to retain all available funds and any future earnings to fund the development and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.

Risk Factors (page 41)

You should carefully read this proxy statement/prospectus and especially consider the factors discussed in “Risk Factors” in connection with your consideration of the Merger before deciding whether to vote for approval of the Merger Agreement and the Merger.

The OncoMed Special Meeting (page 105)

Date, Time and Place of the OncoMed Special Meeting

The OncoMed Special Meeting is scheduled to be held at OncoMed’s headquarters located at 800 Chesapeake Drive, Redwood City, California 94063, on [], 2019, at [], local time.

Purpose

At the OncoMed Special Meeting, OncoMed stockholders will be asked to approve the Merger Proposal, the Advisory Vote Proposal and the Adjournment Proposal.

The OncoMed Board unanimously recommends a vote “FOR” the Merger Proposal, “FOR” the Advisory Vote Proposal and “FOR” the Adjournment Proposal.

Who Can Vote at the OncoMed Special Meeting

Only OncoMed stockholders of record at the close of business on [], 2019, the record date for the OncoMed Special Meeting, and other persons holding valid proxies for the special meeting will be entitled to attend the OncoMed Special Meeting. As of the record date, there were [] shares of OncoMed common stock, par value $0.001 per share, issued and outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the OncoMed Special Meeting.

As of the close of business on the record date, approximately []% of the outstanding shares of OncoMed common stock were held by OncoMed’s directors and executive officers and their affiliates, including Delphi Ventures and The Vertical Group. In accordance with the support agreements, such OncoMed directors and executive officers granted an irrevocable proxy to Mereo to vote such individual’s shares in favor of the adoption of the Merger Agreement, and against any alternative proposal and against any action or agreement that would frustrate the purposes, or prevent, delay or otherwise adversely affect the consummation, of the transactions contemplated by the Merger Agreement.

Voting Procedures

Record holders of shares of OncoMed common stock may submit proxies by completing, signing and dating their proxy cards for the OncoMed Special Meeting and mailing them in the accompanying pre-addressed envelopes. OncoMed stockholders who hold shares in “street name” may vote by mail



 

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by completing, signing and dating the voting instruction cards for the OncoMed Special Meeting provided by their brokers or other nominees and mailing them in the accompanying pre-addressed envelopes. Proxies and voting instruction forms submitted by mail must be received no later than [], 2019 at 11:59 p.m. Eastern Time to be voted at the OncoMed Special Meeting. OncoMed stockholders may also submit proxies over the Internet at the web address shown on the proxy card or by calling the telephone number shown on the proxy card. The Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on [], 2019. The availability of Internet and telephone voting for shares held in “street name” will depend on the voting processes of your broker or other nominee.

Share Ownership and Voting by OncoMed Directors and Executive Officers (page 107)

At the close of business on the record date for the OncoMed Special Meeting, directors and executive officers of OncoMed (together with certain of their respective affiliates, including Delphi Ventures and The Vertical Group) beneficially owned and were entitled to vote approximately []% of the shares of OncoMed common stock outstanding on that date. Simultaneously with the execution and delivery of the Merger Agreement, each of the directors and executive officers of OncoMed, in their respective capacities as stockholders of OncoMed (together with certain of their respective affiliates, including Delphi Ventures and The Vertical Group), entered into support agreements with Mereo pursuant to which such individuals granted an irrevocable proxy to Mereo, among other things, to vote their respective shares of OncoMed common stock in favor of the adoption of the Merger Agreement.

Recommendation of the OncoMed Board and its Reasons for the Merger (pages 105 and 126)

After careful consideration, at a meeting of the OncoMed Board held on December 4, 2018, the OncoMed Board unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of OncoMed stockholders and unanimously approved the Merger Agreement.

The OncoMed Board unanimously recommends that OncoMed stockholders vote “FOR” the Merger Proposal, “FOR” the Advisory Vote Proposal and “FOR” the Adjournment Proposal.

Opinion of OncoMed’s Financial Advisor (page 129 and Annex C)

OncoMed retained Leerink Partners LLC (now known as SVB Leerink LLC, and referred to in this proxy statement/prospectus as “Leerink Partners”) as its financial advisor in connection with this transaction. The OncoMed Board selected Leerink Partners to act as OncoMed’s financial advisor based on Leerink Partners’ qualifications, reputation, experience and expertise in the biopharmaceuticals industry, its knowledge of and involvement in recent transactions in the biopharmaceutical industry, and its longstanding relationship and familiarity with OncoMed and its business. Leerink Partners is an internationally recognized investment banking firm that has substantial experience in transactions similar to this transaction. In connection with this engagement, OncoMed requested that Leerink Partners evaluate the fairness, from a financial point of view, to the holders of the outstanding shares of OncoMed common stock (other than (i) shares held as treasury stock immediately prior to the effective time of the Merger and (ii) shares that are outstanding immediately prior to the effective time of the Merger and which are held by stockholders who have exercised and perfected appraisal rights for such shares in accordance with the General Corporation Law of the State of Delaware (the “DGCL”) (collectively, the “Excluded Shares”)) of the Merger Consideration proposed to be paid to such holders pursuant to the Merger Agreement. On December 4, 2018, Leerink Partners rendered to the OncoMed Board its oral opinion, which was subsequently confirmed by delivery of a written opinion dated December 4, 2018, that, as of such date and based upon and subject to the assumptions made and limitations upon the review undertaken by Leerink Partners in preparing its opinion, the merger consideration to be paid to the holders of the outstanding shares of OncoMed common stock (other than Excluded Shares) pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to such holders.



 

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Leerink Partners’ financial advisory services and opinion were provided for the information and assistance of the members of the OncoMed Board (in their capacity as directors and not in any other capacity) in connection with and for purposes of the OncoMed Board’s consideration of this transaction and the Leerink Partners opinion addressed only the fairness, from a financial point of view, as of the date thereof, to the holders of the outstanding shares of OncoMed common stock (other than Excluded Shares) of the Merger Consideration to be paid to such holders pursuant to the terms of the Merger Agreement. The Leerink Partners opinion did not address any other term or aspect of the Merger Agreement or this transaction and does not constitute a recommendation to any stockholder of OncoMed as to whether or how such holder should vote with respect to the Merger or otherwise act with respect to this transaction or any other matter. Leerink Partners has provided its written consent to the reproduction of its opinion in this proxy statement/prospectus.

The full text of the Leerink Partners written opinion, dated December 4, 2018, which describes the assumptions made and limitations upon the review undertaken by Leerink Partners in preparing its opinion, is attached hereto as Annex C and is incorporated by reference herein. You should read the opinion carefully in its entirety.

Accounting Treatment (page 138)

The merger will be accounted for in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and in particular, with IFRS 3, Business Combinations (“IFRS 3”), under which the Merger qualifies as the acquisition of OncoMed by Mereo. On the date of the acquisition, the identifiable assets and liabilities of OncoMed will be recorded by Mereo at their respective fair values. Any excess of the purchase price over the net fair value at date of the acquisition of the identifiable assets acquired and liabilities assumed will be recognized as goodwill. Should the fair value of the assets and liabilities at the date of acquisition exceed the value of the consideration, a gain will be recognized on acquisition in accordance with IFRS 3 and recorded in the statement of operations of the Combined Company.

Interests of OncoMed’s Directors and Executive Officers in the Merger (page 138)

In considering the recommendation of the OncoMed Board to adopt the Merger Agreement and approve the transactions contemplated by the Merger Agreement, OncoMed stockholders should be aware that some of the OncoMed directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of OncoMed stockholders generally, including, but not limited to, the following:

 

   

OncoMed has entered into change in control and severance agreements with certain employees, including its executive officers, entitling them to certain payments and benefits in connection with a termination of employment following a change of control of OncoMed;

 

   

non-employee directors of OncoMed are entitled to vesting acceleration upon a change of control under various equity awards and agreements;

 

   

the executive officers of OncoMed are entitled to accelerated vesting of their equity awards upon the closing of the Merger pursuant to the terms of the Merger Agreement;

 

   

Dr. Lewicki is entitled to receive a performance bonus of $50,000 upon the closing of the Merger to the extent the Final Net Cash (as defined in the Merger Agreement) exceeds $37 million;

 

   

directors and officers have continuing rights to indemnification and directors’ and officers’ liability insurance; and

 

   

under the terms of the Merger Agreement, two OncoMed directors will be designated to serve on the Mereo Board as of the Effective Time.



 

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These interests and arrangements may create potential conflicts of interest. The OncoMed Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the transactions contemplated by the Merger Agreement.

Board of Directors and Senior Management of the Combined Company (page 138)

Immediately following the Effective Time, two members of the existing OncoMed Board, Michael Wyzga and Dr. Deepika Pakianathan, will be appointed to the Mereo Board. Dr. Denise Scots-Knight will continue as Chief Executive Officer of the Combined Company and Richard Jones will continue as the Chief Financial Officer of the Combined Company. Dr. Peter Fellner will continue in his role as Chairman of the Mereo Board.

Mereo’s Reasons for the Merger (page 142)

At its meeting on December 5, 2018, the Mereo Board unanimously (1) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and are fair to and in the best interests of Mereo and its shareholders as a whole, (2) approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and (3) resolved to recommend to Mereo’s shareholders that they should approve the transactions contemplated by the Merger Agreement, should such approval be required.

The Mereo Board believes (1) that the combination of Mereo’s biopharmaceutical portfolio of four assets with OncoMed’s two lead assets will create a diversified combined portfolio, resulting in an increased number of potential near-term catalysts with a core focus remaining on Mereo’s strategy to target rare diseases, (2) that the cash position of the Combined Company will provide an extended operational runway, with the potential for such runway to be extended significantly through partnering deals, and (3) that a Nasdaq listing, in addition to Mereo’s existing AIM listing, will provide a diversified international shareholder base for the Combined Company. The Mereo Board considered a variety of other factors in favor of the Merger, which are discussed further in the section entitled “The Merger—Mereo’s Reasons for the Merger” located elsewhere in this proxy statement/prospectus.

Appraisal Rights (page 144 and Annex D)

Record holders of OncoMed common stock who do not vote in favor of the Merger Proposal and otherwise comply with the requirements and procedures of Section 262 of the DGCL are entitled to exercise appraisal rights, which generally entitle stockholders to receive in lieu of the Merger Consideration a cash payment of an amount determined by the Court of Chancery of the State of Delaware (the “Court of Chancery”) to be equal to the fair value of their OncoMed common stock as of the Effective Time. The fair value of OncoMed common stock as of the Effective Time could be less than, more than or the same as the Merger Consideration. Stockholders will not know the appraised fair value at the time such holders must elect whether to seek appraisal.

To seek appraisal, you must deliver a written demand for appraisal to OncoMed before the vote on the adoption of the Merger Agreement at the OncoMed Special Meeting, and you must not vote in favor of the adoption of the Merger Agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights.

A summary description of the appraisal rights available to holders of OncoMed common stock under the DGCL and the procedures required to exercise statutory appraisal rights is included in “The Merger—Appraisal Rights.” The full text of Section 262 of the DGCL is attached as Annex D to this proxy statement/prospectus.



 

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Due to the complexity of the procedures described above, OncoMed stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel.

Listing of the Mereo ADSs and Mereo Shares (page 148)

The approval for listing of the Mereo ADSs on Nasdaq and the confirmation by AIM that it will admit the Mereo Shares underlying the Mereo ADSs to trading, in each case subject only to official notice of issuance, are each a condition to the obligations of Mereo and OncoMed to consummate the Merger. Mereo intends to apply to list the Mereo ADSs on Nasdaq and to list the Mereo Shares underlying the Mereo ADSs on AIM. Mereo expects that the Mereo ADSs will trade on Nasdaq under the symbol “MREO.”

Delisting and Deregistration of OncoMed Common Stock (page 149)

If the Merger is completed, OncoMed’s common stock will be deregistered under the Exchange Act and will cease to be listed for trading on Nasdaq.

Litigation Related to the Merger (page 149)

It is a condition to the Merger that no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger Agreement or the transactions contemplated thereby shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect. Neither OncoMed nor Mereo is aware of any lawsuit or proceeding specific to the Merger having been filed to date. If such a lawsuit or other proceeding is commenced and if in any such litigation or proceeding a plaintiff is successful in obtaining a restraining order or injunction prohibiting the consummation of the Merger Agreement or the transactions contemplated thereby, then the closing of the Merger may be delayed or may never occur. Even if the Merger is permitted to occur, the parties may be required to pay damages, fees or expenses in respect of claims related to the Merger or the transactions contemplated thereby.

The Merger Agreement (page 150 and Annex A)

A copy of the Agreement and Plan of Merger and Reorganization is attached as Annex A to this proxy statement/prospectus. You should read the entire Merger Agreement carefully because it is the principal document governing the Merger. For a further discussion of the Merger Agreement, see the section entitled “The Merger Agreement” located elsewhere in this proxy statement/prospectus.

No Solicitation of Offers (page 162)

As more fully described in this proxy statement/prospectus and in the Merger Agreement, and subject to the exceptions described below and in the Merger Agreement, each of OncoMed and Mereo has agreed, among other things, that it will not, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of any proposal or offer that constitutes, or would reasonably be expected to result in, an acquisition proposal or acquisition inquiry from any third party;

 

   

furnish any non-public information regarding the other party to any person in connection with or in response to, or engage in discussions or negotiations with any person with respect to, any proposal or offer that constitutes, or would reasonably be expected to result in, any acquisition proposal or acquisition inquiry;

 

   

approve, endorse or recommend any acquisition proposal; or



 

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execute or enter into any letter of intent or any acquisition agreement, merger agreement or similar definitive agreement (other than a confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to such party as those contained in the existing confidentiality agreement between OncoMed and Mereo) relating to an acquisition proposal.

Each party has further agreed (1) subject to any regulatory obligations of such party under applicable law, to promptly advise the other party orally and in writing upon receipt of any acquisition proposal or acquisition inquiry, and (2) to cease any discussions, negotiations or communications with any person with respect to any acquisition proposal as of the date of the Merger Agreement.

However, at any time prior to the approval and adoption of the Merger Agreement by OncoMed stockholders, in the case of OncoMed, or Mereo shareholders, in the case of Mereo, each party may furnish non-public information regarding such party and its subsidiaries to, and enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal which such party’s board of directors determines in good faith, after consultation with such party’s financial advisors and outside legal counsel, constitutes or is reasonably likely to result in a superior offer, provided that:

 

   

neither party nor any representative of such party has breached the obligations outlined above;

 

   

the board of directors of such party concludes in good faith having consulted with its outside legal counsel that the failure to take such action is reasonably likely to be inconsistent with the duties or obligations of the board of directors of such party under applicable law; and

 

   

such party receives from such third party an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to such party as those contained in the existing confidentiality agreement between OncoMed and Mereo.

In addition, (1) Mereo’s obligation not to solicit offers shall not require Mereo to take any action, or prevent Mereo from taking any action, which Mereo reasonably determines, having consulted with its outside legal counsel, would be inconsistent with or in breach of the U.K. City Code on Takeovers and Mergers (the “U.K. City Code”), and (2) OncoMed’s obligation not to solicit offers shall not require OncoMed to take any action, or prevent OncoMed from taking any action, which OncoMed reasonably determines, having consulted with its outside legal counsel, would be inconsistent with or in breach of OncoMed’s obligations under the DGCL.

Change of Recommendation (page 163)

OncoMed’s Board Recommendation

Subject to the exceptions described below and in the Merger Agreement, OncoMed has agreed:

 

   

that the OncoMed Board will recommend that OncoMed’s stockholders vote to approve and adopt the Merger Agreement and the transactions contemplated thereby (the “OncoMed Board Recommendation”);

 

   

that the OncoMed Board will not withdraw or modify the OncoMed Board Recommendation in any manner adverse to Mereo; and

 

   

that no resolution by the OncoMed Board or any committee thereof to withdraw or modify the OncoMed Board Recommendation in any manner adverse to Mereo or to adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any acquisition proposal shall be adopted or proposed.



 

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Notwithstanding the above, the OncoMed Board may withhold, amend, withdraw or modify the OncoMed Board Recommendation in a manner adverse to Mereo (an “OncoMed Adverse Recommendation Change”) (so long as OncoMed has provided prior written notice to Mereo of the OncoMed Board’s intention to make an OncoMed Adverse Recommendation Change at least four business days in advance of taking such action (the “Notice Period”)) if, and only if, following receipt of a superior offer:

 

   

OncoMed has, and has caused its financial advisors and outside legal counsel to, during the Notice Period, negotiate with Mereo in good faith to make such adjustments to the terms and conditions of the Merger Agreement so that such acquisition proposal ceases to constitute a superior offer; and

 

   

the OncoMed Board shall have determined in good faith, having consulted with its outside legal counsel, that the failure to withhold, amend, withdraw or modify the OncoMed Board Recommendation would result in a breach of its fiduciary duties under applicable law.

Mereo’s Board Recommendation

Subject to the exceptions described below and in the Merger Agreement, Mereo has agreed:

 

   

that, if a vote of Mereo’s shareholders is required, the Mereo Board will recommend that Mereo’s shareholders vote to approve and adopt the Merger Agreement and the transactions contemplated thereby (the “Mereo Board Recommendation”);

 

   

that the Mereo Board will not withdraw or modify the Mereo Board Recommendation in any manner adverse to OncoMed; and

 

   

that no resolution by the Mereo Board or any committee thereof to withdraw or modify the Mereo Board Recommendation in any manner adverse to OncoMed or to adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any acquisition proposal shall be adopted or proposed.

Notwithstanding the above, the Mereo Board may withhold, amend, withdraw or modify the Mereo Board Recommendation in a manner adverse to OncoMed (a “Mereo Adverse Recommendation Change”) (so long as Mereo has provided prior written notice to OncoMed of the Mereo Board’s intention to make a Mereo Adverse Recommendation Change at least four business days in advance of taking such action) if, and only if, following receipt of a superior offer:

 

   

Mereo has, and has requested its financial advisors and outside legal counsel to, during the Notice Period, negotiate with OncoMed in good faith to make such adjustments to the terms and conditions of the Merger Agreement so that such acquisition proposal ceases to constitute a superior offer; and

 

   

the Mereo Board shall have determined in good faith, having consulted with its outside legal counsel, that the failure to withhold, amend, withdraw or modify the Mereo Board Recommendation would result in a breach of its fiduciary duties under applicable law.

Indemnification and Insurance (page 165)

Pursuant to the terms of the Merger Agreement, OncoMed’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies of, and the organizational documents of, OncoMed and Mereo. See the section entitled “The Merger Agreement—Indemnification and Insurance” located elsewhere in this proxy statement/prospectus.



 

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Conditions to Closing (page 167)

Each party’s obligation to effect the Merger is subject to satisfaction or, to the extent permitted by applicable law, mutual written waiver by each of the parties of the following conditions:

 

   

the OncoMed Stockholder Approval and, if necessary, the Mereo Shareholder Approval shall have been obtained;

 

   

no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger Agreement or the transactions contemplated thereby shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect and there shall not be any law which has the effect of making the consummation of the Merger Agreement or the transactions contemplated thereby illegal;

 

   

the Form F-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceeding (or threatened proceeding by the SEC);

 

   

the Mereo ADSs issuable to the OncoMed stockholders as contemplated by the Merger Agreement shall have been approved for listing on Nasdaq, subject to official notice of issuance, and the Mereo Shares underlying the Mereo ADSs issuable to the OncoMed stockholders pursuant to the Merger Agreement shall have been approved for admission to trading on AIM and any other requirements of London Stock Exchange plc in respect of the Merger Agreement or the transactions contemplated thereby shall have been satisfied.

The obligations of Mereo, HoldCo and Merger Sub to effect the Merger is further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of OncoMed contained in the Merger Agreement relating to corporate organization, subsidiaries, organizational documents, corporate authority and approvals, required vote, and brokers and finders (the “OncoMed Specified Representations”), will be true and correct on and as of the closing date of the Merger with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date);

 

   

the representations and warranties of OncoMed relating to capital structure will be true and correct on and as of the closing date of the Merger, except, in each case, (x) for such inaccuracies which are de minimis, individually or in the aggregate, (y) for those representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as of such particular date) or (z) as expressly required or permitted by the Merger Agreement;

 

   

the representations and warranties of OncoMed contained in the Merger Agreement (other than with respect to capital structure and the OncoMed Specified Representations) will be true and correct on and as of the closing date of the Merger except (a) in each case, or in the aggregate, where the failure to be so true and correct would not reasonably be expected to have a material adverse effect on OncoMed (without giving effect to any references therein to any material adverse effect or other materiality qualifications), or (b) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date);

 

   

OncoMed shall have performed in all material respects its covenants required to be performed by it under the Merger Agreement at or prior to the closing date of the Merger;



 

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Mereo shall have received a certificate signed on behalf of OncoMed by the chief executive officer and chief financial officer (or if there is no chief financial officer at such time, the principal financial and accounting officer) of OncoMed to the effect that the conditions related to OncoMed’s representations, warranties and covenants described above have been satisfied;

 

   

Mereo shall have received from OncoMed a form of notice to the IRS in accordance with the requirements of Treasury Regulation Section 1.897-2(h) and in form and substance reasonably acceptable to Mereo;

 

   

since December 5, 2018, a Material Adverse Effect with respect to OncoMed shall not have occurred; and

 

   

the calculation of OncoMed’s net cash as of the closing date of the Merger shall have been finally determined.

OncoMed’s obligation to effect the Merger is further subject to the satisfaction or waiver of the following conditions:

 

   

the representations and warranties of Mereo and Merger Sub contained in the Merger Agreement relating to corporate organization, subsidiaries, organizational documents, corporate authority and approvals, required vote, and brokers and finders (the “Mereo Specified Representations”), will be true and correct on and as of the closing date of the Merger with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date);

 

   

the representations and warranties of Mereo and Merger Sub relating to capital structure will be true and correct on and as of the closing date of the Merger, except, in each case, (x) for such inaccuracies which are de minimis, individually or in the aggregate, (y) for those representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as of such particular date) or (z) as expressly required or permitted by the Merger Agreement;

 

   

the representations and warranties of Mereo and Merger Sub contained in the Merger Agreement (other than with respect to capital structure and the Mereo Specified Representations) will be true and correct on and as of the closing date of the Merger except (a) in each case, or in the aggregate, where the failure to be so true and correct would not reasonably be expected to have a material adverse effect on Mereo (without giving effect to any references therein to any material adverse effect or other materiality qualifications), or (b) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date);

 

   

each of Mereo and Merger Sub shall have performed in all material respects their respective covenants required to be performed by each under the Merger Agreement at or prior to the closing date of the Merger;

 

   

OncoMed shall have received a certificate signed on behalf of Mereo by the chief executive office and chief financial officer of Mereo to the effect that the conditions related to Mereo’s and Merger Sub’s representations, warranties and covenants described above have been satisfied; and

 

   

since December 5, 2018, a Material Adverse Effect with respect to Mereo shall not have occurred.



 

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Termination Events (page 169)

The Merger Agreement may be terminated at any time prior to the Effective Time by mutual written consent of Mereo and OncoMed, and either party may terminate the Merger Agreement in the following circumstances:

 

   

if the Merger shall not have been consummated by September 4, 2019 (the “End Date”), except that the right to terminate the Merger Agreement on this basis shall not be available to OncoMed or Mereo if such party’s action or failure to act has been a principal cause of the failure of the Merger to occur on or before the End Date and such action or failure to act constitutes a breach of the Merger Agreement and except that, in the event that the SEC has not declared this Form F-4 effective under the Securities Act by the date which is sixty days prior to the End Date, then either OncoMed or Mereo shall be entitled to extend the End Date for an additional sixty days;

 

   

if a court of competent jurisdiction or other governmental authority shall have issued a final and nonappealable order, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger Agreement or the transactions contemplated thereby;

 

   

if (i) the OncoMed Special Meeting shall have been held and completed and OncoMed’s stockholders shall have taken a final vote on the Merger Agreement and (ii) the Merger Agreement shall not have been adopted and approved at the OncoMed Special Meeting, except that the right to terminate the Merger Agreement on this basis shall not be available to OncoMed where the failure to obtain the approval of OncoMed’s stockholders shall have been caused by the action or failure to act of OncoMed and such action or failure to act constitutes a material breach by OncoMed of the Merger Agreement; and

 

   

if (i) the Mereo Shareholder Meeting, if necessary, shall have been held and completed and Mereo’s shareholders shall have taken a final vote on the matters requiring such shareholders’ approval and (ii) such matters shall not have been approved at the Mereo Shareholder Meeting, except that the right to terminate the Merger Agreement on this basis shall not be available to Mereo where the failure to obtain the approval of Mereo’s shareholders shall have been caused by the action or failure to act of Mereo and such action or failure to act constitutes a material breach by Mereo of the Merger Agreement.

OncoMed may terminate the Merger Agreement at any time prior to the Effective Time as follows:

 

   

if the Mereo Board or any committee thereof shall have made a Mereo Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal;

 

   

if (a) Mereo shall have failed to include in this proxy statement/prospectus the Mereo Board Recommendation, (b) the Mereo Board or any committee thereof shall have made a Mereo Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) Mereo shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to Mereo as those contained in the existing confidentiality agreement between OncoMed and Mereo or any action required to be taken by Mereo pursuant to the UK City Code); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by Mereo or Merger Sub, or if any representation or warranty of Mereo or Merger Sub becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) OncoMed is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy



 

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in Mereo’s or Merger Sub’s representations and warranties or breach by Mereo or Merger Sub is curable by Mereo or Merger Sub, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) Mereo or Merger Sub (as applicable) ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate.

Mereo may terminate the Merger Agreement at any time prior to the Effective Time as follows:

 

   

if the OncoMed Board or any committee thereof shall have made an OncoMed Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal;

 

   

if (a) OncoMed shall have failed to include in this proxy statement/prospectus the OncoMed Board Recommendation, (b) the OncoMed Board or any committee thereof shall have made an OncoMed Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) OncoMed shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to OncoMed as those contained in the existing confidentiality agreement between OncoMed and Mereo or any action required to be taken by OncoMed pursuant to the DGCL); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by OncoMed, or if any representation or warranty of OncoMed becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) Mereo is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy in OncoMed’s representations and warranties or breach by OncoMed is curable by OncoMed, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) OncoMed ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate.

Termination Fees (page 171)

OncoMed will be required to pay to Mereo a termination fee of $1,721,193 (subject to any adjustments for VAT) in cash if the Merger Agreement is terminated by Mereo in the event that:

 

   

the OncoMed Stockholder Approval was not obtained after OncoMed stockholders voted at the OncoMed Special Meeting, where the failure to obtain the OncoMed Stockholder Approval was not caused by the action or failure to act of OncoMed and such action or failure to act did not constitute a material breach by OncoMed of the Merger Agreement, and within twelve months after the date of such termination, OncoMed enters into a definitive agreement with respect to a subsequent transaction or consummates a subsequent transaction;

 

   

at any time prior to obtaining OncoMed Stockholder Approval, an acquisition proposal with respect to OncoMed has been publicly announced, disclosed or otherwise communicated to the OncoMed Board (and has not been withdrawn), and if (a) OncoMed shall have failed to include in this proxy statement/prospectus the OncoMed Board Recommendation, (b) the OncoMed Board or any committee thereof shall have made an OncoMed Board Adverse



 

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Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) OncoMed shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement permitted by the Merger Agreement or any action required to be taken by OncoMed pursuant to the DGCL); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by OncoMed, or if any representation or warranty of OncoMed becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) Mereo is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy in OncoMed’s representations and warranties or breach by OncoMed is curable by OncoMed, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) OncoMed ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate.

In addition to the payment of the termination fee, OncoMed shall reimburse Mereo for all reasonable out-of-pocket fees and expenses incurred by Mereo in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement up to a maximum of $750,000 (subject to any adjustments for VAT) if the Merger Agreement is terminated by Mereo in the event that:

 

   

(a) OncoMed shall have failed to include in this proxy statement/prospectus the OncoMed Board Recommendation, (b) the OncoMed Board or any committee thereof shall have made an OncoMed Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) OncoMed shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to OncoMed as those contained in the existing confidentiality agreement between OncoMed and Mereo or any action required to be taken by OncoMed pursuant to the DGCL); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by OncoMed, or if any representation or warranty of OncoMed becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) Mereo is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy in OncoMed’s representations and warranties or breach by OncoMed is curable by OncoMed, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) OncoMed ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from Mereo to OncoMed of such breach or inaccuracy and its intention to terminate.

Mereo will be required to pay to OncoMed a termination fee of $1,721,193 (subject to any adjustments for VAT) in cash if the Merger Agreement is terminated by Mereo or OncoMed in the event that:

 

   

the Mereo Shareholder Approval, if necessary, was not obtained after Mereo shareholders voted at the Mereo Shareholder Meeting, where the failure to obtain the Mereo Shareholder



 

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Approval was not caused by the action or failure to act of Mereo and such action or failure to act did not constitute a material breach by Mereo of the Merger Agreement, and within twelve months after the date of such termination, Mereo enters into a definitive agreement with respect to a subsequent transaction or consummates a subsequent transaction.

Mereo will be required to pay to OncoMed a termination fee of $1,721,193 (subject to any adjustments for VAT) in cash if the Merger Agreement is terminated by OncoMed in the event that:

 

   

at any time prior to obtaining Mereo Shareholder Approval, an acquisition proposal with respect to Mereo has been publicly announced, disclosed or otherwise communicated to the Mereo Board (and has not been withdrawn), and if (a) Mereo shall have failed to include in this proxy statement/prospectus the Mereo Board Recommendation, (b) the Mereo Board or any committee thereof shall have made a Mereo Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) Mereo shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement permitted by the Merger Agreement or any action required to be taken by Mereo pursuant to the UK City Code); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by Mereo or Merger Sub, or if any representation or warranty of Mereo or Merger Sub becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) OncoMed is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy in Mereo’s or Merger Sub’s representations and warranties or breach by Mereo or Merger Sub is curable by Mereo or Merger Sub, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) Mereo or Merger Sub (as applicable) ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate.

In addition to the payment of the termination fee, Mereo shall reimburse OncoMed for all reasonable out-of-pocket fees and expenses incurred by OncoMed in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement up to a maximum of $750,000 (subject to any adjustments for VAT) if the Merger Agreement is terminated by OncoMed in the event that:

 

   

(a) Mereo shall have failed to include in this proxy statement/prospectus the Mereo Board Recommendation, (b) the Mereo Board or any committee thereof shall have made a Mereo Board Adverse Recommendation Change or approved, endorsed or recommended any acquisition proposal, or (c) Mereo shall have entered into any letter of intent or similar document or any contract relating to any acquisition proposal (other than a confidentiality agreement permitted by the Merger Agreement or any action required to be taken by Mereo pursuant to the UK City Code); or

 

   

upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by Mereo or Merger Sub, or if any representation or warranty of Mereo or Merger Sub becomes inaccurate such that the conditions to closing of the Merger would not be satisfied, provided that (1) OncoMed is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement and (2) that if such inaccurancy in Mereo’s or Merger Sub’s representations and warranties or breach by Mereo or Merger Sub



 

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is curable by Mereo or Merger Sub, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate the Merger Agreement and (ii) Mereo or Merger Sub (as applicable) ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from OncoMed to Mereo or Merger Sub of such breach or inaccuracy and its intention to terminate.

Material U.S. Federal Income Tax Considerations (page 283)

The exchange of OncoMed common stock for merger consideration in the Merger is expected to be a taxable transaction for U.S. federal income tax purposes to U.S. Holders (as defined in “Material U.S. Federal Income Tax Considerations”). Please carefully review the information under “Material U.S. Federal Income Tax Considerations” beginning on page 283 of this proxy statement/prospectus for a description of material U.S. federal income tax consequences of the Merger to U.S. Holders. The tax consequences to you will depend on your own situation. You are urged to consult your tax advisors as to the specific tax consequences to you of the Merger and your receipt of the Merger Consideration, including the applicability and effect of U.S. federal, state, local and non-U.S. income and other tax laws in light of your particular circumstances.

Material U.K. Tax Considerations (page 290)

For a summary of the anticipated material U.K. tax considerations of ownership of Mereo ADSs, please see the section of this proxy statement/prospectus entitled “Material U.K. Tax Considerations.”

Comparison of Shareholder Rights (page 315)

As a result of the Merger, OncoMed stockholders will become holders of Mereo ADSs, and will have different rights as holders of Mereo ADSs than they had as holders of OncoMed common stock. The differences between the rights of these respective holders result from the differences among (1) English and Delaware law, (2) the respective governing documents of Mereo and OncoMed, and (3) the terms of the deposit agreement among Citibank, Mereo and the holders and beneficial owners of Mereo ADSs. For additional information, see “Comparison of Shareholder Rights” and “Description of the Mereo ADSs.” For a copy of OncoMed’s current certificate of incorporation or bylaws, see “Where You Can Find More Information.” Mereo’s articles of association as of the date hereof are included as an exhibit to the registration statement of which this proxy statement/prospectus is a part.



 

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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF MEREO

You should read the following selected consolidated financial data together with the audited consolidated financial statements and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Mereo derived the consolidated statement of comprehensive loss data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 from its consolidated financial statements included elsewhere in this proxy statement/prospectus. Mereo derived the unaudited consolidated interim statement of comprehensive loss data for the periods ended June 30, 2017 and 2018 and the unaudited consolidated interim balance sheet data as of June 30, 2018 from its unaudited consolidated interim financial statements included elsewhere in this proxy statement/prospectus, which have been prepared on the same basis as the audited financial statements. In the opinion of Mereo’s management, the unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements. Mereo’s historical results are not necessarily indicative of the results that should be expected in any future period, and results for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018 or any other future period.

Mereo maintains its books and records in pound sterling, and prepares its financial statements in accordance with IFRS as issued by the IASB. Mereo reports its financial results in pound sterling. For the convenience of the reader, Mereo has translated pound sterling amounts in the tables below into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on June 29, 2018, which was £1.00 to $1.3197. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of pound sterling at the dates indicated as of that or any other date, and such translations should not be considered representations that any such amounts have been, could have been, or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

 

    Year Ended December 31,     Six Months Ended June 30,  
    2016     2017     2017     2018  
    (£)     ($)     (£)     ($)     (£)     ($)     (£)     ($)  
    (in thousands, except per ordinary share data)  

Consolidated Statement of Comprehensive Loss Data:

               

Research and development expenses

    (24,563     (32,415     (34,607     (45,670     (21,407     (28,250     (10,864     (14,338

General and administrative expenses

    (11,617     (15,331     (10,697     (14,117     (5,041     (6,652     (7,102     (9,372
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (36,180     (47,746     (45,304     (59,787     (26,448     (34,902     (17,966     (23,710

Finance income

    375       495       827       1,091       269       355       151       200  

Finance charge

    (180     (237     (1,090     (1,438     (69     (92     (1,587     (2,095

Net foreign exchange gain/(loss)

    2,263       2,986       (1,384     (1,827     (1,040     (1,373     49       65  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before tax

    (33,722     (44,502     (46,951     (61,961     (27,288     (36,012     (19,353     (25,540

Taxation

    5,331       7,036       8,152       10,758       4,546       5,999       2,365       3,121  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Year Ended December 31,     Six Months Ended June 30,  
    2016     2017     2017     2018  
    (£)     ($)     (£)     ($)     (£)     ($)     (£)     ($)  
    (in thousands, except per ordinary share data)  

Loss attributable to equity holders of Mereo

    (28,391     (37,466     (38,799     (51,203     (22,742     (30,013     (16,988     (22,419
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to equity holders of Mereo

    (28,391     (37,466     (38,799     (51,203     (22,742     (30,013     (16,988     (22,419
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

    (0.63     (0.83     (0.56     (0.74     (0.34     (0.45     (0.24     (0.32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    As of December 31,     As of June 30,  
    2016     2017     2018  
    (£)     ($)     (£)     ($)     (£)     ($)  
    (in thousands)  

Consolidated Balance Sheets Data:

           

Cash and short-term deposits and short-term investments

    53,578       70,706       52,545       69,343       36,912       48,713  

Total assets

    86,765       114,504       96,335       127,133       82,082       108,324  

Issued capital

    193       255       213       281       213       282  

Share premium

    99,975       131,938       118,227       156,024       118,370       156,212  

Accumulated loss

    (40,579     (53,552     (79,316     (104,673     (96,180     (126,928

Total equity

    79,257       104,595       62,483       82,459       47,149       62,223  

Total liabilities

    86,765 (1)      114,504 (1)      96,335 (2)      127,134 (2)      34,933 (2)      46,102 (2) 

 

(1)

Includes £3.1 million ($4.1 million) aggregate principal amount of, and accrued interest on, the Novartis Notes. See “Related Party Transactions—Other Transactions with Novartis—Novartis Notes.”

 

(2)

Includes £2.0 million ($2.6 million) aggregate principal amount of, and accrued interest on, the Novartis Notes. See “Related Party Transactions—Other Transactions with Novartis—Novartis Notes.”

 

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SELECTED FINANCIAL INFORMATION OF ONCOMED

The following table sets forth OncoMed’s selected historical financial data for the periods ended and as of the dates indicated. The statements of operations data for the fiscal years ended December 31, 2017, 2016 and 2015 and the balance sheet data as of December 31, 2017 and 2016 have been derived from OncoMed’s audited financial statements and related notes which are incorporated by reference into this proxy statement/prospectus. The statements of operations data for the fiscal years ended December 31, 2014 and 2013 and the balance sheet data as of December 31, 2015, 2014 and 2013 have been derived from OncoMed’s audited financial statements and related notes which are not incorporated by reference into this proxy statement/prospectus. The statements of operations data for the nine months ended September 30, 2018 and 2017 and the balance sheet data as of September 30, 2018 have been derived from OncoMed’s unaudited condensed financial statements and related notes that are incorporated by reference into this proxy statement/prospectus. The selected balance sheet data as of September 30, 2017 has been derived from OncoMed’s unaudited financial statements and related notes which are not incorporated by reference into this proxy statement/prospectus.

The data presented below is only a summary and it is not necessarily indicative of future results, nor does it include the effects of the Merger. Interim results for the nine months ended and as of September 30, 2018 are not necessarily indicative of, and are not projections for, the results to be expected for the fiscal year ended December 31, 2018. The selected historical financial statement data provided below is only a summary, and you should read it in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements of OncoMed and the related notes contained in its Annual Report on Form 10-K for the year ended December 31, 2017, the unaudited financial statements and related notes contained in the Quarterly Report on Form 10-Q for the period ended September 30, 2018, and the other information that OncoMed has previously filed with the SEC and which is incorporated into this proxy statement/prospectus by reference. See the section entitled “Where You Can Find More Information” beginning on page 335 of this proxy statement/prospectus.

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands, except share and per share data)  

Statements of Operations Data:

             

Revenue:

             

Collaboration revenue

  $ 34,237     $ 15,467     $ 36,016     $ 21,277     $ 25,216     $ 39,559     $ 37,779  

Other revenue

          2,048       2,138       3,876       683              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    34,237       17,515       38,154       25,153       25,899       39,559       37,779  

Operating expenses:

             

Research and development

    26,466       51,268       59,839       109,713       92,873       76,430       50,048  

General and administrative

    12,800       12,952       16,761       18,827       18,583       13,753       11,630  

Restructuring charges

          2,513       2,527                          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    39,266       66,733       79,127       128,540       111,456       90,183       61,678  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (5,029     (49,218     (40,973     (103,387     (85,557     (50,624     (23,899

Interest and other income (expense), net

    1,211       705       828       299       170       105       (228
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Nine Months Ended
September 30,
    Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands, except share and per share data)  

Loss before income taxes

    (3,818     (48,513     (40,145     (103,088     (85,387     (50,519     (24,127

Income tax provision (benefit)

    (383     12       (1,083     14       20       (509     1,944  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (3,435     (48,525   $ (39,062   $ (103,102   $ (85,407   $ (50,010   $ (26,071
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted

    (0.09     (1.29   $ (1.04   $ (3.14   $ (2.84   $ (1.69   $ (1.93
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used to compute net loss per common share, basic and diluted

    38,381,374       37,520,608       37,631,348       32,859,554       30,028,684       29,664,326       13,530,239  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Nine Months Ended
September 30,
    As of December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands)  

Balance Sheet Data:

             

Cash and short-term investments

  $ 70,856       113,587     $ 103,091     $ 184,573     $ 157,279     $ 231,966     $ 316,194  

Working capital

    51,846       82,019       12,073       133,730       178,614       202,264       256,727  

Total assets

    77,153       120,481       110,322       195,482       237,887       247,842       333,685  

Accumulated deficit

    (357,120     (461,470     (452,007     (412,945     (309,843     (224,436     (174,426

Total stockholders’ equity (deficit)

    51,724       (62,155     (48,603     (23,028     3,551       76,367       118,122  

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information is comprised of (i) the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017, after giving effect to the Merger as if it had occurred on January 1, 2017, (ii) the unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2018, after giving effect to the Merger as if it had occurred on January 1, 2017, and (iii) the unaudited pro forma condensed consolidated balance sheet as of June 30, 2018 as if the Merger had occurred on June 30, 2018 (together, the “Unaudited Pro Forma Condensed Consolidated Financial Information”).

The Unaudited Pro Forma Condensed Consolidated Financial Information has been prepared using the principles of the acquisition method of accounting in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and in particular IFRS 3 Business Combinations (“IFRS 3”), under which the Merger qualifies as the acquisition of OncoMed by Mereo. On the date of the acquisition, the identifiable assets and liabilities of OncoMed, will be recorded by Mereo at their respective fair values. Any excess of the purchase price over the net fair value at date of the acquisition of the identifiable assets acquired and liabilities assumed will be recognized as goodwill. Should the fair value of the assets and liabilities at the date of acquisition exceed the value of the consideration, a gain will be recognized on acquisition in accordance with IFRS 3 and recorded in the statement of operations of the Combined Company.

Pro forma adjustments reflected in the pro forma financial information are based on items that are factually supportable and directly attributable to the Merger; and with regards to the unaudited pro forma condensed consolidated statement of operations only, are expected to have a continuing impact on the consolidated entity.

The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017 has been prepared based on (i) the audited consolidated financial statements of Mereo as of and for the year ended December 31, 2017 and (ii) the audited consolidated financial statements of OncoMed as of and for year ended December 31, 2017 incorporated by reference in this prospectus.

The unaudited pro forma condensed consolidated financial information as of and for the six months ended June 30, 2018 has been prepared based on (i) the unaudited condensed consolidated financial statements of Mereo as of and for the six months ended June 30, 2018 and (ii) the unaudited condensed consolidated financial statements of OncoMed as of and for the six months ended June 30, 2018 incorporated by reference in this prospectus.

The audited consolidated financial statements of Mereo as of and for the year ended December 31, 2017 were prepared in accordance with IFRS as issued by the IASB. The audited consolidated statement of operations for OncoMed for the year ended December 31, 2017 was prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and for the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information, has been converted to IFRS as issued by the IASB on a basis consistent with the accounting policies and presentation adopted by Mereo.

The unaudited condensed consolidated financial statements for Mereo as of and for the six months ended June 30, 2018 were prepared in accordance with International Accounting Standards 34—Interim Financial Reporting (“IAS 34”). The unaudited condensed consolidated financial statements for OncoMed as of and for the six months ended June 30, 2018 were prepared in accordance with

 

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US GAAP and for the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information, have been converted to a basis consistent with the accounting policies and presentation adopted by Mereo as of and for the six months ended June 30, 2018 under IAS 34.

As noted above, the Unaudited Pro Forma Condensed Consolidated Financial Information has been prepared using the acquisition method of accounting in accordance with IFRS 3, the accounting for the acquisition is dependent upon certain valuations that are preliminary and subject to change. Mereo will finalize amounts as it obtains the information necessary to complete the measurement processes. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying Unaudited Pro Forma Condensed Consolidated Financial Information and Mereo’s future results of operations and financial position.

The Unaudited Pro Forma Condensed Consolidated Financial Information has been prepared by Mereo’s management in accordance with SEC Regulation S-X Article 11 for illustrative purposes only. The Unaudited Pro Forma Condensed Consolidated Financial Information does not purport to represent what the actual results of operations of Mereo would have been had the Merger occurred on the respective dates assumed, nor is it indicative of the future results of the consolidated company. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017 and the unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2018 do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Merger. The pro forma adjustments reflected in the accompanying Unaudited Pro Forma Condensed Consolidated Financial Information reflect estimates and assumptions made by Mereo’s management that Mereo believes to be reasonable.

The Unaudited Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the information contained in “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” “Selected Consolidated Financial Information of Mereo,” “Selected Consolidated Financial Information of OncoMed,” “Business of Mereo and Certain Information about Mereo,” and the consolidated financial statements of Mereo and OncoMed included elsewhere in this proxy statement/prospectus or incorporated by reference into this proxy statement/prospectus from OncoMed’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

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Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2018

 

    Historical financial
information
    Pro forma adjustment  
    Mereo     OncoMed
(Note 2)
    IFRS
Conversion
(Note 3)
    Pro forma
condensed
consolidated
statement of
operations
 
    (GBP thousands, except for share information)  

Collaboration and Other revenue

          10,694             10,694  

Research and development expenses

    (10,864     (11,945     (238     (23,047

Administrative expenses

    (7,102     (6,610     (270     (13,982
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

    (17,966     (7,861     (508     (26,335

Finance income

    151       644             795  

Finance charge

    (1,587                 (1,587

Net foreign exchange gain

    49                   49  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before tax

    (19,353     (7,217     (508     (27,078

Taxation

    2,365       278             2,643  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to equity holders of the parent

    (16,988     (6,939     (508     (24,435
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

    (0.24     (0.18       (0.26
 

 

 

   

 

 

   

 

 

   

 

 

 

Shares used to compute net loss per common share, basic and diluted

    71,103,042       38,316,914         94,849,799  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2017

 

    Historical financial
information
     Pro forma adjustment  
    Mereo      OncoMed
(Note 2)
     IFRS
Reclassification
and Conversion
(Note 3)
    Pro forma
condensed
consolidated
statement of
operations
 
    (GBP thousands, except for share information)  

Collaboration and Other revenue

           29,599              29,599  

Research and development expenses

    (34,607      (46,422      (2,890     (83,919

Administrative expenses

    (10,697      (13,003      (2,678     (26,378

Restructuring charges

           (1,960      1,960        
 

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit/(loss)

    (45,304      (31,786      (3,608     (80,698

Finance income

    827        642              1,469  

Finance charge

    (1,090                   (1,090

Net foreign exchange loss

    (1,384                   (1,384
 

 

 

    

 

 

    

 

 

   

 

 

 

Loss before tax

    (46,951      (31,144      (3,608     (81,703

Taxation

    8,152        840              8,992  
 

 

 

    

 

 

    

 

 

   

 

 

 

Loss attributable to equity holders of the parent

    (38,799      (30,304      (3,608     (72,711
 

 

 

    

 

 

    

 

 

   

 

 

 

Basic and diluted loss per share

    (0.56      (0.81        (0.78
 

 

 

    

 

 

    

 

 

   

 

 

 

Shares used to compute net loss per common share, basic and diluted

    69,012,348        37,631,348          92,759,105  

 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2018

 

    Historical financial
information
    Pro forma adjustments        
    Mereo     OncoMed
(Note 2)
    IFRS
Conversion
(Note 3)
    Purchase
Price
Adjustements
(Note 4)
    Other
(Note
5)
    Total  
    (GBP thousands)  

Assets

           

Non-current assets

           

Property, plant and equipment

    152       1,919             (439           1,632  

Intangible assets

    32,690                   14,481             47,171  

Other Assets

          1,446                         1,446  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    32,842       3,365             14,042             50,249  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current assets

           

Prepayments

    1,226       1,131                         2,357  

R&D tax credits

    10,517                               10,517  

Other receivables

    585       83                         668  

Short-term investments

    2,500       52,516                         55,016  

Cash and short-term deposits

    34,412       8,003                         42,415  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    49,240       61,733                         110,973  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    82,082       65,098             14,042             161,222  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity and liabilities

           

Equity

           

Issued capital

    213       29             42             284  

Additional paid-in capital

          308,577       4,115       (312,692            

Share premium

    118,370                   42,792             161,162  

Other capital reserves

    17,746                               17,746  

Other reserves

    7,000                               7,000  

Accumulated deficit

          (275,241     (4,115     279,356              

Accumulated profit/(loss)

    (96,180     (43           19,695       (4,167     (80,695
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    47,149       33,322             29,193       (4,167     105,497  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current liabilities

           

Provisions

    3,993                               3,993  

Interest bearing loans and borrowings

    15,261                               15,261  

Deferred revenue less current portion

          3,704             (3,704            

Deferred rent

          2,895             (2,895            

Warrant liability

    1,535                               1,535  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    20,789       6,599             (6,599           20,789  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

           

Current Portion of Deferred Revenue

          19,632             (8,552           11,080  

Trade and other payables

    4,984       743                         5,727  

Accruals

    3,223       4,802                   4,167       12,192  

Provisions

    293                               293  

Interest bearing loans and borrowings

    5,644                               5,644  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    34,933       31,776             (15,151     4,167       55,725  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity and liabilities

    82,082       65,098             14,042             161,222  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

 

1.

Basis of presentation

This Unaudited Pro Forma Condensed Consolidated Financial Information is based on Mereo’s and OncoMed’s historical financial information as adjusted to give effect to the Merger, which will be accounted for under the acquisition method of accounting, and the alignment of OncoMed’s accounting policies to those of Mereo, the accounting acquirer. The unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2018 and the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017 give effect to the Merger as if it had occurred on January 1, 2017. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2018 gives effect to the Merger as if it had occurred on June 30, 2018.

 

2.

OncoMed’s financial information—Currency Adjustment

The consolidated financial statements of OncoMed were presented in U.S. dollars. For purposes of preparing the Unaudited Pro Forma Condensed Consolidated Financial Information, the consolidated financial statements were translated from U.S. dollars to pound sterling, Mereo’s presentation currency, using the following exchange rates for the periods below, calculated from data obtained from the United States Federal Reserve.

 

   Average Exchange Rate from January 1, 2018 to June 30, 2018

  

1.37635

   Average Exchange Rate from January 1, 2017 to December 31, 2017

  

1.28903

   Exchange Rate on June 30, 2018

  

1.31970

 

3.

OncoMed financial information—US GAAP to IFRS Adjustment and Reclassifications

The consolidated financial statements of OncoMed were prepared in accordance with US GAAP. For the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information, certain adjustments have been made to (i) reclassify the respective line items and financial captions of OncoMed to align with those used by Mereo (“Reclassifications”) and (ii) convert the financial information of OncoMed from US GAAP to IFRS (“IFRS Conversion Adjustments”). Reclassifications were identified in relation to restructuring expense to align to Mereo’s financial statement presentation and IFRS Conversion Adjustments were identified in relation to share-based payment accounting (as further explained below).

Reclassifications

OncoMed recorded restructuring costs for the year-ended December 31, 2017 as a single line in its statement of operations, however, to align to the functional presentation of Mereo’s statement of operations, an adjustment has been made to reclassify OncoMed’s £2.0 million total expense from “Restructuring charges” to “Research and development” and “Administrative expenses” expense of £1.0 million and £1.0 million, respectively.

IFRS Conversion Adjustments

OncoMed has issued a number of share-based payment awards with graded vesting features that contain only a service condition. As permitted under US GAAP, OncoMed made an accounting policy election to record compensation expense for these awards on a straight-line basis over the entire vesting term of the grant, however IFRS requires that compensation expense be recorded to reflect the vesting as it occurs for each tranche/installment within the grant over the vesting period of that tranche/installment.

Accordingly, £0.2 million of additional expense has been reflected in “Research and development expenses” and £0.3 million has been reflected in “Administrative expenses” in the unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2018. £1.9 million has been reflected in “Research and development expenses” and £1.7 million has been reflected in

 

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“Administrative expenses” the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2017. A corresponding adjustment of £4.1 million has been reflected in “Additional paid in capital” and “Accumulated deficit” within the unaudited pro forma condensed consolidated balance sheet as of June 30, 2018.

 

4.

Acquisition Accounting

The unaudited pro forma financial information for the six months ended June 30, 2018 has been prepared on the basis that the Merger will be treated as a business combination in accordance with IFRS, under which the assets and liabilities of OncoMed will be recognized by Mereo at their respective fair values determined on a provisional basis as of the date the Merger is completed. The fair value adjustments, when finalized, may be material.

(a) Estimate of Consideration Expected to be Transferred in Connection with the Proposed Merger

The following is a preliminary estimate of the consideration expected to be paid to effect the merger with OncoMed:

 

Existing Mereo Share Capital on January 4, 2019 (75% ownership of the Combined Company)

    71,240,272  

Shares Expected to be Issued to OncoMed Stockholders (25%(1) ownership of the Combined Company)

    23,746,757  
 

 

 

 

Total Expected Post Merger Shares

    94,987,029  

Mereo Share Price on January 4, 2019

  £ 1.81  

Shares Expected to be Issued to OncoMed Stockholders (as above)

    23,746,757  
 

 

 

 

Expected Purchase Price

  £ 42,862,896  

 

(1)

Assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger.

 

  (i)

For the purposes of the Unaudited Pro forma Condensed Consolidated Financial Information, the fair value of share consideration to be transferred is estimated based on the Implied OncoMed Ownership and the closing price of Mereo of £1.81 per share (equivalent to £9.03 per Mereo ADS), as of January 4, 2019, the latest practicable date before the date of this proxy statement/prospectus.

 

    

The estimated consideration for Mereo’s merger with OncoMed reflected in these Unaudited Pro Forma Condensed Consolidated Financial Information does not purport to represent the actual consideration when the proposed merger with OncoMed is consummated. As described beginning on page 151 of this proxy statement/prospectus, the Exchange Ratio will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger. Therefore, the actual number of Mereo ADSs to be received by OncoMed common stockholders will be unaffected by any increase or decrease in the share price of Mereo Shares between now and the closing of the Merger but instead, will be impacted by movements in net cash as at the closing date. An increase in OncoMed’s net cash balance by $2 million will result in an estimated purchase price of £44.0 million. A decrease in OncoMed’s net cash balance by $2 million will result in an estimated purchase price of £41.5 million. An increase or decrease in the estimated purchase price would result in an increase or decrease in the gain on acquisition reflected in this Unaudited Pro Forma Condensed Consolidated Financial Information.

 

    

Further, in accordance with IFRS 3, the fair value of equity securities issued as part of the consideration paid will be measured on the closing date of the combination at the then-current market price. This requirement will likely result in a per share equity component different from the £1.81 assumed in these Unaudited Pro Forma Condensed Consolidated Financial Information, and that difference may be material. An increase or decrease in the price per

 

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  Mereo Share assumed in these Unaudited Pro Forma Condensed Consolidated Financial Information by 10% will increase or decrease the estimated purchase price by approximately £4.3 million, which would be reflected in these Unaudited Pro Forma Condensed Consolidated Financial Information as an increase or decrease in the gain on acquisition.

 

  (ii)

OncoMed Options: As described beginning on page 154 of this proxy statement/prospectus, pursuant to the terms of the Merger Agreement, to the extent that an OncoMed Option is not exercised voluntarily through the day immediately preceding the Effective Time, such OncoMed Option will be automatically “net-exercised” immediately prior to the Effective Time. Further, each OncoMed Option that has a per-share exercise price that is higher than the Merger Consideration shall be cancelled at the Effective Time for no consideration. The estimate of Merger Consideration included in the Unaudited Pro Forma Condensed Consolidated Financial Information does not reflect the impact of any “net exercised” OncoMed options as the per-share exercise prices of such options are expected to be higher than the Merger Consideration, and thus expected to be cancelled at the Effective Time for no consideration and therefore no impact to the estimated purchase price.

 

  (iii)

OncoMed Units: Further, immediately prior to the Effective Time, each outstanding OncoMed Unit will be cancelled and the holders thereof will be entitled to receive, immediately prior to the Effective Time, the number of shares of OncoMed common stock that were subject to such OncoMed Units (with certain adjustments as described further beginning on page 155 of this proxy statement/prospectus) and such stockholders will thereafter be entitled to receive the Merger Consideration in respect of these shares of OncoMed common stock.

 

  (iv)

Fair value of CVRs: In addition to the Mereo ADSs consideration, each OncoMed shareholder will receive one contingent value right, as described beginning on page 175 of this proxy statement/prospectus.

After consideration of the significant inherent uncertaintes related to such milestones, the preliminary fair value of the CVRs is expected to be minimal. Therefore, for the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information, the fair value of the CVRs is assumed to be £nil. In determining that the preliminary CVR fair value approximates nil, the following information and factors were considered: (i) the likelihood of Celgene exercising the exclusive option granted by OncoMed to Celgene in relation to OncoMed’s etigilimab product, particularly given Bristol-Myers Squibb’s proposed acquisition of Celgene, (ii) the uncertain outcomes of current clinical studies, (iii) the level of uncertainty regarding the availability of future funding partners, (iv) the level of uncertainty relating to the success of future development of such products, and (v) the dependency of the CVR milestones on the occurrence of events that are outside of the control of Mereo.

 

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(b) Preliminary Purchase Price Allocation

The following table sets forth a preliminary estimate of the fair value of the assets acquired and liabilities assumed by Mereo, reconciled to the total estimated consideration transferred, assuming the Merger occurred on June 30, 2018. Adjustments are recorded in the unaudited pro forma condensed consolidated balance sheet to record the assets acquired and liabilities assumed at their fair value as well as recognize a gain of £19.7 million in accordance with IFRS 3 (see Note 4(c) below for further information).

 

Preliminary Purchase Price Allocation

  £ ‘000s  

Property, plant and equipment(ii)

    1,480  

Intangible assets(i)

    14,481  

Other Assets

    1,446  

Prepayments

    1,131  

Other receivables

    83  

Short-term investments

    52,516  

Cash and short-term deposits

    8,003  

Deferred revenue(iv)

    (11,080

Deferred rent

     

Deferred income tax liability(iii)

     

Trade and other payables

    (743

Accruals

    (4,802
 

 

 

 

Net Assets Acquired

    62,515  

Consideration Paid

    42,863  
 

 

 

 

Gain on Acquisition

    19,652  

However, as described in 4(a) above, the Exchange Ratio used in computing the total expected purchase price is determined based on net cash of $38 million (representing the amount estimated to be outstanding at closing of the Merger). Accordingly, the table below provides supplemental information on the purchase price allocation based on an assumption of total net cash of $38 million (£28.8 million, translated at the June 30, 2018 spot rate in Note 2), consistent with the computation of the purchase price.

 

    £ ‘000s  

Assumed Net Cash

    28,794  

Intangible assets(i)

    14,481  

Property, plant and equipment(ii)

    1,480  

Deferred revenue(iv)

    (11,080

Deferred rent

     

Deferred income tax liability(iii)

     
 

 

 

 

Net Assets Acquired

    33,675  

Consideration Paid

    42,863  
 

 

 

 

Goodwill on Acquisition

    9,188  

 

(i)

A preliminary fair value estimate of £14.5 million has been assigned to in-process research and development (“IPR&D”) projects acquired. The preliminary fair value of IPR&D assets was determined primarily using the “income approach” and “market approach.” In assessing fair value, Mereo considered a potential market participant’s assessment of the highest and best use of the asset including whether the value would be derived through commercialization or sale.

For the IPR&D assets valued using the income approach, which includes the programs under development, the methodology applied considers the fair value of an IPR&D asset by reference to the present value of the probability-weighted expected cash flows arising under certain sale, out-licensing or commercialization scenarios, with a discount rate selected to appropriately consider the time value of money and the risks inherent in those forecasts. The income approach

 

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is based on the premise that the value of an asset is the present value of the future earning capacity that is available for distribution to investors in that asset.

For the IPR&D assets valued using the market approach, in particular those where OncoMed has received an offer to purchase such assets, it has used the market price of those offers as a basis for determining the fair value of those IPR&D assets. The market approach is based on the market price attainable for selling an asset to another market participant.

Acquired IPR&D assets are classified as indefinite lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the closing date of the Merger, the IPR&D assets will not be amortized; instead they will be subject to periodic impairment testing. Upon successful completion of the development process for acquired IPR&D projects, determination as to the useful life of the specific asset will be made; at that point in time, the asset will then be considered a finite lived intangible asset and Mereo will begin to amortize the asset into earnings.

These preliminary estimates of fair value of the IPR&D assets could potentially be different from those determined through the final acquisition accounting, and the difference could potentially have a material impact on the accompanying Unaudited Pro Forma Condensed Consolidated Financial Information. As Mereo obtains additional information in respect of the OncoMed intangible assets, additional insight could be gained which could impact (A) the estimated total value assigned to intangible assets, and/or (B) the estimated allocation of value between finite lived and indefinite lived intangible assets. The estimated intangible asset fair values and their useful lives could be impacted by a variety of factors that may become known to us only upon access to additional information and/or by changes in such factors that may occur prior to the effective time of the Merger. These factors include but are not limited to the regulatory, legislative, legal, technological and competitive environments. Increased knowledge about these and/or other elements could result in a change to the estimated fair value of the OncoMed’s intangible assets and/or to the estimated weighted average useful lives from that assumed by Mereo in these Unaudited Pro Forma Condensed Consolidated Financial Information.

 

(ii)

A preliminary fair value estimate of £1.5 million has been assigned to property, plant and equipment to be acquired, primarily consisting of computer and lab equipment and furniture and fixtures. At the date of consummation of the Merger, property, plant and equipment is required to be measured at fair value, unless those assets are classified as held-for-sale on the closing date of the Merger. The acquired assets can include assets that are not intended to be used or sold, or that are intended to be used in a manner other than their highest and best use. Mereo has only limited information at this time as to the specific nature, age, condition or location of the property, plant and equipment. All of these factors can cause differences between the fair value and net book value, and such differences could be material.

 

(iii)

The preliminary estimate of deferred income tax liabilities primarily results from the fair value adjustments for identifiable intangible assets and is estimated to be £3.7 million. This estimate was determined based on the excess book basis over the tax basis of the assets acquired at an estimated 29.84% weighted average statutory tax rate. However, such deferred income tax liabilities have been offset by OncoMed’s unused tax losses available, resulting in a net £nil deferred income tax liability. This estimate of deferred income tax impact is preliminary and is subject to change based upon Mereo’s final determination of the fair values of assets acquired and liabilities assumed, further assessment of the availability of tax losses (including upon a change of control) and the statutory tax rates in the jurisdictions where the fair values are expected to occur.

 

(iv)

The preliminary fair value estimate of deferred revenue represents the fair value of future obligations under OncoMed’s collaboration agreements. The fair value is based on estimated cost remaining to fulfil the R&D related obligations under the collaboration agreements and has been determined on a fully-costed basis (which is deemed to approximate market rates). Deferred revenue is expected to be largely recognized by the time the Merger is consummated and

 

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  accordingly will differ from the fair value disclosed in this Unaudited Pro Forma Condensed Consolidated Financial Information. Accordingly, there will be a corresponding impact on the gain on acquisition presented herein.

 

 

Further, as the collaboration revenue is not anticipated to have a continuing impact, a corresponding adjustment was not made to “Collaboration and other revenue” in the pro forma unaudited condensed consolidated statement of operations.

The accounting for the combination with OncoMed is dependent upon certain valuations that are provisional and are subject to change. Mereo will finalize these amounts as it obtains the information necessary to complete the measurement processes. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing these Unaudited Pro Forma Condensed Consolidated Financial Information. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying Unaudited Pro Forma Condensed Consolidated Financial Information and Mereo’s future results of operations and financial position

(c) Retained Earnings Adjustment for Gain on Acquisition

Because the underlying carrying amount and fair value of the assets and liabilities of OncoMed at June 30, 2018 exceeds the value of the consideration expected to be paid by Mereo, a gain is recognized on acquisition in accordance with IFRS 3. For the purposes of the Unaudited Pro Forma Condensed Consolidated Financial Information, while the gain is directly attributable to the transaction and factually supportable, it has no continuing impact on the entity and thus an adjustment is recorded within the unaudited pro forma condensed consolidated balance sheet but not the unaudited pro forma condensed consolidated statement of operations. However, as described in 4(b) above, due to the difference between the net cash balance at June 30, 2018 and the expected net cash balance at closing (along with other adjustments to the expected fair value of the assets and liabilities of OncoMed), the gain on acquisition associated with the purchase price allocation is expected to materially change when the Merger is consummated, and the preliminary purchase price allocation may result in goodwill.

 

5.

Other Pro Forma Adjustments

(a) Transaction costs

£4.2 million has been reflected in “Accumulated profit/loss” and “Accruals” on the unaudited pro forma condensed consolidated balance sheet as of June 30, 2018, representing estimated transaction costs to be incurred in relation to the Merger.

 

 

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6.

Pro Forma 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 pro forma 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 diluted loss per share calculation. The weighted average number of common shares was determined by taking the historical weighted average number of common shares outstanding and adjusting for the shares issued under the Merger as follows:

 

    For the
Six Months
Ended June 30,
2018
     For the Year
Ended
December 31,
2017
 

Numerator

    

Numerator for basic and diluted loss per common share—
Pro forma loss attributable to equity holders of the parent

  £ (24,434,000    £ (72,710,000

Denominator

    

Denominator for basic and diluted loss per common share—weighted average number of Mereo Shares

    71,103,042        69,012,348  

Pro forma adjustment for newly-issued shares related to the Merger

    23,746,757        23,746,757  
 

 

 

    

 

 

 

Pro forma denominator for basic and diluted loss per common share—weighted average number of common shares

    94,849,799        92,759,105  

Pro forma basic and diluted loss per Mereo Share

  £ (0.26    £ (0.78

 

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UNAUDITED COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The table set forth below contains selected unaudited historical, pro forma and pro forma equivalent per share information for Mereo Shares and shares of OncoMed common stock.

Historical Per Share Data for Mereo Shares and OncoMed Common Stock

The historical per share data for Mereo Shares and OncoMed common stock below is derived from the audited consolidated financial statements of each of Mereo and OncoMed as of and for the year ended December 31, 2017, and the unaudited condensed consolidated financial statements of each of Mereo and OncoMed as of and for the six months ended June 30, 2018, respectively. For Mereo, this information is under IFRS. For OncoMed, this information is under U.S. GAAP.

Combined Unaudited Pro Forma Per Share Data for Mereo Shares

The combined unaudited pro forma per share data for Mereo Shares is extracted from the pro forma financial statements appearing elsewhere in this proxy statement/prospectus. The pro forma financial statements are based on, and should be read in conjunction with, the historical consolidated financial statements and accompanying notes of each of Mereo and OncoMed for the applicable periods, which are included elsewhere in, or incorporated by reference into, this proxy statement/prospectus. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for additional information.

The combined unaudited pro forma per share data for Mereo Shares does not purport to represent what the Combined Company’s actual results of operations or financial condition would have been had the acquisition occurred on the dates assumed, nor is it necessarily indicative of the Combined Company’s future results of operations or financial condition. In particular, the unaudited pro forma combined financial information does not reflect the effect of anticipated cost and revenue synergies associated with the combination of Mereo and OncoMed.

Combined Unaudited Pro Forma Per OncoMed Equivalent Share Data

The combined unaudited pro forma per OncoMed equivalent share data set forth below shows the effect of the Merger from the perspective of an owner of OncoMed common stock. The information was calculated by multiplying the unaudited pro forma combined per share data for Mereo Shares by the exchange rate at the end of the applicable period, assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger.

The final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and elsewhere in this proxy statement/prospectus. If OncoMed’s net cash at the time of the closing of the Merger is less than $36.5 million, the Exchange Ratio will be reduced by an amount that is greater than the amount that would otherwise reflect the difference between the target closing net cash and actual closing net cash on a dollar-for-dollar basis. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the closing date of the Merger cannot be determined with precision in advance of the Effective Time.

 

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Generally

You should read the below information in conjunction with the selected consolidated financial information of Mereo and OncoMed included elsewhere in this proxy statement/prospectus, the historical consolidated financial statements of Mereo and related notes included elsewhere in this proxy statement/prospectus and the historical consolidated financial statements of OncoMed and related notes that have been filed with the SEC, certain of which are incorporated by reference into this proxy statement/prospectus. See the sections entitled “Selected Consolidated Financial Information of Mereo,” “Selected Consolidated Financial Information of OncoMed,” “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” included elsewhere in this proxy statement/prospectus.

 

    As of and for
the Year
Ended
December 31,
2017
     As of and for the
Six Months
Ended
June 30,
2018
 

Mereo Historical Data (£):

    

Basic income from continuing operations per share

    (0.56      (0.24

Diluted income from continuing operations per share

    (0.56      (0.24

Book value per share

    0.90        0.66  

Cash dividends declared per share

            

OncoMed Historical Data (US$):

    

Basic income from continuing operations per share

    (1.04      (0,25

Diluted income from continuing operations per share

    (1.04      (0.25

Book value per share

    (1.29      (1.15

Cash dividends declared per share

            

Combined Unaudited Pro Forma per Mereo Share Data (£):

    

Basic income from continuing operations per share

    (1.05      (0.34

Diluted income from continuing operations per share

    (1.05      (0.34

Book value per share

    N/A        1.48  

Cash dividends declared per share

            

Combined Unaudited Pro Forma per OncoMed Equivalent Share Data (£):

    

Basic income from continuing operations per share

    (1.93      (0.64

Diluted income from continuing operations per share

    (1.93      (0.64

Book value per share

    N/A        2.75  

Cash dividends declared per share

            

 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Mereo Shares are quoted on AIM under the symbol “MPH.” Shares of OncoMed’s common stock are listed for trading on Nasdaq under the symbol “OMED.”

On [], 2019, the last practicable trading day prior to the date of this proxy statement/prospectus, there were 71,240,272 Mereo Shares outstanding and [] shares of OncoMed common stock outstanding. As of such date, Mereo had [] holders of record of the Mereo Shares and OncoMed had [] holders of record of its common stock.

Recent Closing Prices and Comparative Market Price Information

The following table sets forth the closing sales prices of a Mereo Share (as reported on AIM in pence) and of OncoMed common stock (as reported on Nasdaq in U.S. dollars), each on December 4, 2018, the last trading day before the day on which Mereo and OncoMed announced the execution of the Merger Agreement, and on [], 2019, the last practicable trading day before the date of this proxy statement/prospectus. This table also shows the equivalent value of the Share Consideration to be received by OncoMed stockholders in the Merger per share of OncoMed common stock, which was calculated by multiplying the closing price of a Mereo Share on AIM as of the dates specified by (converted into U.S. dollars at the Federal Reserve Bank of New York’s reported U.S. dollar to pound sterling exchange rate on such dates) by the Implied OncoMed Ownership, assuming no adjustment to the Exchange Ratio for the net cash held by OncoMed at the time of the closing of the Merger.

 

    Mereo Share
Price per Share
    OncoMed
Common Stock
Price per Share
    Equivalent Value of the
Share Consideration
per Share of OncoMed
Common stock
 
    (pence)     (US$)  

December 4, 2018

    190       1.11       1.49  

[], 2019

    [     [     [

The market prices of Mereo Shares and shares of OncoMed common stock, and the currency exchange rates, will fluctuate before the OncoMed Special Meeting and before the Merger is consummated. You should obtain current stock or currency rate quotations from a newspaper, the Internet or your broker or banker.

The Implied OncoMed Ownership referenced above is an estimate only and the actual percentage of of outstanding equity interests in the Combined Company to be held by former OncoMed stockholders immediately following the closing of the Merger will be determined by the final Exchange Ratio, calculated pursuant to a formula described in more detail in the Merger Agreement and elsewhere in this proxy statement/prospectus. In particular, if OncoMed’s net cash at the time of the closing of the Merger is less than $36.5 million, the Exchange Ratio will be reduced by an amount that is greater than the amount that would otherwise reflect the difference between the target closing net cash and actual closing net cash on a dollar-for-dollar basis. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the closing date of the Merger cannot be determined with precision in advance of the Effective Time.

Dividend Policy

Mereo’s Dividend Policy.    Mereo has never paid or declared any cash dividends on its ordinary shares, and does not anticipate paying any cash dividends on its ordinary shares in the foreseeable future. Mereo intends to retain all available funds and any future earnings to fund the development and

 

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expansion of its business. Under English law, among other things, Mereo may only pay dividends if it has sufficient distributable reserves (on a non-consolidated basis), which are calculated as Mereo’s accumulated realized profits that have not been previously distributed or capitalized less its accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital.

In addition, the terms of Mereo’s existing loan agreement with Silicon Valley Bank and Kreos Capital V (UK) Limited (“Kreos”), preclude Mereo from paying cash dividends without Kreos’s consent.

OncoMed’s Dividend Policy.    OncoMed has never declared or paid cash dividends on its capital stock. OncoMed intends to retain all available funds and any future earnings to fund the development and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus including the documents incorporated by reference herein contains statements that constitute forward-looking statements (including within the meaning of the U.S. Private Securities Litigation Reform Act of 1995). Many of the forward-looking statements contained in this proxy statement/prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “foresee,” “should,” “plan,” “intend,” “estimate,” “would,” “may,” “outlook,” and “potential,” among others. The absence of these words, however, does not mean that the statements are not forward-looking.

Forward-looking statements appear in a number of places in this proxy statement/prospectus and include, but are not limited to, statements regarding intent, belief or current expectations. Forward-looking statements are based on the current beliefs and assumptions of the management of Mereo and OncoMed and on information currently available to such management. While the management of Mereo and OncoMed believe that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments will be as anticipated. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to of various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this proxy statement/prospectus. These risks and uncertainties include factors relating to:

 

   

the ability to satisfy the conditions to the Merger, including the ability to obtain the OncoMed Stockholder Approval, on the proposed terms and timeframe;

 

   

the possibility that the Merger does not close when expected or at all, or that the companies may determine to or be required by governmental authorities to modify aspects of the Merger or to accept conditions that could adversely affect the Combined Company or the expected benefits of the Merger;

 

   

risks related to changes in the market price of shares of OncoMed common stock or Mereo Shares relative to the Exchange Ratio;

 

   

the risk of unanticipated costs, liabilities or delays relating to the Merger, including the outcome of any legal proceedings relating to the Merger;

 

   

the risk that competing offers or acquisition proposals will be made;

 

   

the inherent uncertainty associated with financial projections, including projections relating to the future cash utilization and reserves needed for contingent future liabilities and business operations;

 

   

the potential harm to customer, supplier, employee and other relationships caused by the announcement or the closing of the Merger;

 

   

changes in law or regulations, or international, national, or local economic, social or political conditions that could adversely affect the parties to the Merger or the Combined Company and their respective businesses, including the United Kingdom’s withdrawal from the EU and the future relationship between the United Kingdom and the EU;

 

   

the ability to develop and commercialize, or enter into strategic relationships with third parties to commercialize, product candidates in a timely and cost-effective manner, and risks relating to research and development programs;

 

   

the ability to hire and retain key personnel;

 

   

the ability to realize the anticipated benefits of transactions related to the Merger and other acquisitions, restructuring activities, including in connection with the Merger, or other initiatives in a timely manner or at all;

 

   

risks relating to expectations regarding the capitalization, resources and ownership of the Combined Company;

 

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estimates regarding expenses, future revenues, capital requirements, and the Combined Company’s need for additional financing in the future, including the availability of sufficient resources to conduct or continue planned clinical development programs;

 

   

the ability to acquire or in-license new product candidates; and

 

   

the duration of each company’s respective patent portfolio.

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the parties’ businesses, including those described in this proxy statement/prospectus, as well as in OncoMed’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the SEC and incorporated by reference herein.

Forward-looking statements speak only as of the date they are made, and neither Mereo nor OncoMed undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risk factors in connection with your consideration of the Merger before deciding whether to vote for approval of the Merger Agreement and the Merger. In addition, you should read and consider the risks associated with each of the businesses of Mereo and OncoMed because these risks will relate to the Combined Company. The risks and uncertainties described below are not the only risks and uncertainties the parties may face. Additional risks and uncertainties not presently known to the parties, or that the parties currently consider immaterial, could also negatively affect the business, financial condition, results of operations, prospects, profits and stock prices of Mereo, OncoMed or the Combined Company. If any of the risks described below or incorporated by reference herein actually occur, the business, financial condition, results of operations, prospects, profits and stock prices of Mereo, OncoMed or the Combined Company could be materially adversely affected, as could the likelihood and magnitude of any payments being made under the CVRs. You should also consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference” located elsewhere in this proxy statement/prospectus.

Risk Factors Related to the Merger

The Merger is subject to a number of conditions, some of which are outside of the parties’ control, and, if these conditions are not satisfied, the Merger Agreement may be terminated and the Merger may not be completed.

The Merger Agreement contains a number of conditions that must be fulfilled to complete the Merger. These conditions include, among other customary conditions, (i) the approval and adoption of the Merger Agreement by OncoMed’s stockholders and, if necessary, Mereo’s shareholders, (ii) the absence of any temporary restraining order, preliminary or permanent injunction or any other order preventing the consummation of the Merger and any law that makes illegal the consummation of the Merger, (iii) the SEC having declared effective this registration statement on Form F-4 and the registration statement on Form F-6 to be filed with the SEC, (iv) Mereo having obtained all required shareholder approvals in connection with the issuance of Mereo ADSs and the allotment and issuance of the Mereo Shares underlying the Mereo ADSs to be issued in the Merger and the grant of the CVRs to the stockholders of OncoMed pursuant to the Merger Agreement, (v) the approval for listing on Nasdaq, subject to official notice of issuance, of the Mereo ADSs to be issued in the Merger and the approval for admission to trading on AIM of the Mereo Shares underlying the Mereo ADSs to be issued in the Merger pursuant to the Merger Agreement, and the satisfaction of any other requirements of London Stock Exchange plc, (vi) subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of OncoMed and Mereo contained in the Merger Agreement and the compliance by each party with the covenants contained in the Merger Agreement, and (vii) the absence of a material adverse effect with respect to each of OncoMed and Mereo.

The required satisfaction of the foregoing conditions could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause the Combined Company not to realize some or all of the benefits that the parties expect the Combined Company to achieve. Further, there can be no assurance that the conditions to the closing of the Merger will be satisfied or waived or that the Merger will be completed.

In addition, if the Merger is not completed by September 4, 2019 (subject to potential extensions), either Mereo or OncoMed may choose to terminate the Merger Agreement. Mereo or OncoMed may also elect to terminate the Merger Agreement in certain other circumstances, and the parties can

 

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mutually decide to terminate the Merger Agreement at any time prior to the closing of the Merger, before or after shareholder approval, as applicable. See “The Merger Agreement—Termination Events” for a more detailed description of these circumstances.

Failure to complete the Merger could negatively affect the share prices and the future business and financial results of either or both of Mereo and OncoMed.

If the Merger is not completed, the ongoing businesses of either or both of Mereo and OncoMed may be adversely affected. Additionally, if the Merger is not completed and the Merger Agreement is terminated, in certain circumstances either party may be required to pay the other a termination fee of $1,721,193 (subject to any adjustments for VAT). Additionally, in certain circumstances, Mereo or OncoMed, as the case may be, must reimburse the other party for reasonable out-of-pocket fees and expenses incurred in connection with the Merger up to $750,000 (subject to any adjustments for VAT). See “The Merger Agreement—Termination Events” and “The Merger Agreement—Termination Fees” for a more detailed description of these circumstances. In addition, Mereo and OncoMed have incurred and will continue to incur significant transaction expenses in connection with the Merger regardless of whether the Merger is completed. Furthermore, Mereo or OncoMed may experience negative reactions from the financial markets, including negative impacts on their stock prices, or negative reactions from their suppliers or other business partners, should the Merger not be completed.

The foregoing risks, or other risks arising in connection with the failure to consummate the Merger, including the diversion of management attention from conducting the business of the respective companies and pursuing other opportunities during the pendency of the Merger, may have a material adverse effect on the businesses, operations, financial results and share and stock prices of Mereo and OncoMed. Either or both of Mereo or OncoMed could also be subject to litigation related to any failure to consummate the Merger or any related action that could be brought to enforce a party’s obligations under the Merger Agreement.

Because the portion of the Merger Consideration payable in Mereo ADSs is subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger, and will be unaffected by any changes in exchange rates or in the market value of Mereo Shares or OncoMed common stock before the completion of the Merger, OncoMed stockholders cannot be sure of the market value of the Mereo ADSs they will receive.

Under the exchange ratio formula set forth in the Merger Agreement, as of immediately following the Effective Time, former OncoMed stockholders are expected to own approximately 25% of the outstanding equity interests in the Combined Company on an undiluted basis, subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger. The final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and elsewhere in this proxy statement/prospectus. In particular, if OncoMed’s net cash at the time of the closing of the Merger is less than $36.5 million, the Exchange Ratio will be reduced by an amount that is greater than the amount that would otherwise reflect the difference between the target closing net cash and actual closing net cash on a dollar-for-dollar basis. Because the number of Mereo ADSs to be exchanged for each share of OncoMed common stock will be adjusted based on the net cash held by OncoMed at the time of the closing of the Merger and will be unaffected by any increase or decrease in exchange rates or in the share price of Mereo Shares between now and the closing of the Merger, the notional value of the Merger Consideration and the exact number of Mereo ADSs that will be issued to OncoMed stockholders as of the date of the OncoMed Special Meeting and as of the closing date of the Merger cannot be determined with precision in advance of the Effective Time.

The number of Mereo ADSs that will be issued to OncoMed stockholders as a result of the Merger will not be adjusted in the event of any increase or decrease in currency exchange rates or in the share price of either Mereo Shares or OncoMed common stock between the date of execution of the Merger

 

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Agreement and the completion of the Merger, and the parties do not have a right to terminate the Merger Agreement based upon changes in currency exchange rates or in the market price of Mereo Shares or OncoMed common stock.

The dollar value of the Mereo ADSs that OncoMed stockholders will receive upon completion of the Merger will depend upon the net cash held by OncoMed and the market value of Mereo Shares at the time of completion of the Merger. In addition, Mereo ADSs will be denominated in U.S. dollars and will each represent five Mereo Shares, which are denominated in pence. Both the market price of Mereo Shares and the U.S. dollar-pound sterling exchange rate fluctuate continuously. Accordingly, each may be different from the closing price and exchange rate on each of the last full trading day preceding public announcement that Mereo and OncoMed entered into the Merger Agreement, the last full trading day prior to the date of this proxy statement/prospectus or the dates of the Mereo and OncoMed stockholder meetings. Moreover, completion of the Merger will occur, if at all, sometime after the requisite shareholder approvals have been obtained. The market value of Mereo Shares and the U.S. dollar-pound sterling exchange rate have varied since Mereo and OncoMed entered into the Merger Agreement and will continue to vary in the future due to changes in the business, operations and prospects of Mereo and OncoMed, market assessments of the Merger, third-party acquisition proposals and regulatory considerations, in the case of the share price, and market and economic considerations and other factors both within and beyond the control of Mereo and OncoMed, in the case of both the share price and the exchange rate. See the section entitled “Comparative Per Share Market Price Data and Dividend Information” included in this proxy statement/prospectus for additional information on the market value of Mereo Shares and OncoMed common stock.

Litigation against Mereo and OncoMed, or the members of the OncoMed Board, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.

It is a condition to the Merger that no temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger Agreement or the transactions contemplated thereby shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect. Neither OncoMed nor Mereo is aware of any lawsuit or proceeding specific to the Merger having been filed to date. If such a lawsuit or other proceeding is commenced and if in any such litigation or proceeding a plaintiff is successful in obtaining a restraining order or injunction prohibiting the consummation of the Merger Agreement or the transactions contemplated thereby, then the closing of the Merger may be delayed or may never occur. Even if the Merger is permitted to occur, the parties may be required to pay damages, fees or expenses in respect of claims related to the Merger or the transactions contemplated thereby.

Some of the directors and executive officers of OncoMed have interests in the Merger that may be different from, or in addition to, the interests of OncoMed stockholders generally.

OncoMed’s directors and executive officers may have interests in the Merger that are different from, or in addition to or may be deemed to conflict with, the interests of OncoMed stockholders generally. These interests include, but are not limited to, the continued employment of certain members of OncoMed’s management team, the continued positions of certain OncoMed directors as directors of the Combined Company, potential payments to certain executive officers pursuant to change in control and severance agreements, accelerated vesting of stock options pursuant to the terms of the Merger Agreement, accelerated vesting of restricted stock units pursuant to the terms of the Merger Agreement, a performance bonus of $50,000 that may be earned by Dr. Lewicki in connection with the Merger, and other rights held by these directors and executive officers. In particular, it is anticipated that certain individuals currently associated with OncoMed’s navicixizumab products will, for a period of 18 months following the closing of the Merger, be permitted to solicit third party interest with respect to the navicixizumab products and to recommend, by written notice to the

 

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chief executive officer of Mereo, that Mereo enter into discussions with one or more such third parties that have expressed interest with respect to the navicixizumab program. See “The CVR Agreement—Milestone Events and Payments—The Navi Milestones” elsewhere in this proxy statement/prospectus.

OncoMed stockholders should be aware of these interests when they consider the recommendations of the OncoMed Board with respect to the Merger. For a discussion of the interests of OncoMed’s directors and executive officers in the Merger, see “The Merger—Interests of OncoMed’s Directors and Executive Officers in the Merger.”

Uncertainty about the Merger may adversely affect the relationships of Mereo and OncoMed with their respective suppliers and employees, whether or not the Merger is completed.

In response to the announcement of the Merger, existing or prospective suppliers of Mereo or OncoMed may:

 

   

delay, defer or cease providing goods or services to Mereo, OncoMed or the Combined Company;

 

   

delay or defer other decisions concerning Mereo, OncoMed or the Combined Company, or refuse to extend credit to Mereo, OncoMed or the Combined Company; or

 

   

otherwise seek to change the terms on which they do business with Mereo, OncoMed or the Combined Company.

Any such delays or changes to terms could seriously harm the business of each company or, if the Merger is completed, the Combined Company. These disruptions could also have an adverse effect on the ability of Mereo to achieve the milestones specified in the CVR Agreement.

In addition, as a result of the Merger, current and prospective employees could experience uncertainty about their future with Mereo, OncoMed or the Combined Company. These uncertainties may impair the Combined Company’s ability to retain, recruit or motivate key management, technical and other personnel.

The Merger Agreement contains provisions that limit each party’s ability to pursue alternatives to the Merger, could discourage a potential competing acquiror of either Mereo or OncoMed from making an alternative transaction proposal and, in specified circumstances, could require either party to pay a termination fee to the other party.

The Merger Agreement provides that Mereo and OncoMed shall not, and requires each of Mereo and OncoMed to refrain from authorizing, directing or permitting its representatives to, solicit, participate in negotiations with respect to or approve or recommend any third-party proposal for an alternative transaction, subject to exceptions set forth in the Merger Agreement relating to the receipt of certain unsolicited offers. If the Merger Agreement is terminated by either party after the other party’s board of directors has changed its recommendation regarding the Merger or due to the other party’s material breach of its non-solicitation obligations, then the terminating party may be required to pay a termination fee of $1,721,193.

These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of Mereo or OncoMed or pursuing an alternative transaction from considering or proposing such a transaction, even if it were prepared to pay consideration with a higher per share cash or market value than the consideration in the Merger, or might result in a potential third-party acquiror or merger partner proposing to pay a lower price to Mereo shareholders or OncoMed stockholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

 

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If the Merger Agreement is terminated and either Mereo or OncoMed determines to seek another business combination, Mereo or OncoMed, as applicable, may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

Any delay in completing the Merger may significantly reduce the benefits expected to be obtained from the Merger.

The Merger is subject to a number of conditions that are beyond the control of Mereo and OncoMed and that may prevent, delay or otherwise materially adversely affect completion of the Merger. Mereo and OncoMed cannot predict whether and when these conditions will be satisfied. See “The Merger Agreement—Conditions to the Closing” elsewhere in this proxy statement/prospectus.

Any delay in completing the Merger may significantly reduce the benefits that Mereo and OncoMed expect to achieve if they successfully complete the Merger within the expected timeframe. In particular, any delay is likely to reduce the net cash held by OncoMed at the time of the closing of the Merger, which, under the net cash adjustment mechanism in the exchange ratio formula set forth in the Merger Agreement, will reduce the number of Mereo ADSs payable by Mereo to holders of OncoMed common stock as Share Consideration. See “The Merger Agreement—Merger Consideration” elsewhere in this proxy statement/prospectus.

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, in consideration of the agreements made by the parties in the Merger Agreement, Mereo and OncoMed are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Mereo or OncoMed and their respective shareholders.

Until the Merger is completed, the Merger Agreement restricts Mereo and OncoMed from taking specified actions without the consent of the other party, and requires each of Mereo and OncoMed to operate in the ordinary course of business consistent with past practices. These restrictions may prevent Mereo and OncoMed from making appropriate changes to their respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the Merger. See the sections entitled “The Merger Agreement—Restrictions on OncoMed’s Business Pending the Closing” and “—Restrictions on Mereo’s Business Pending the Closing” elsewhere in this proxy statement/prospectus for a description of the restrictive covenants applicable to each of Mereo and OncoMed.

After the Merger, OncoMed stockholders will have a significantly lower ownership and voting interest in the Combined Company than they currently have in OncoMed, and will exercise less influence over management.

Under the exchange ratio formula set forth in the Merger Agreement, as of immediately following the Effective Time, former OncoMed stockholders are expected to own approximately 25% of the outstanding equity interests in the Combined Company on an undiluted basis, subject to adjustment for the net cash held by OncoMed at the time of the closing of the Merger. In addition, the number of Mereo Shares to be allotted and issued by Mereo (and the corresponding number of Mereo ADSs to be issued to holders of OncoMed common stock) as Share Consideration or pursuant to the CVR Agreement will not, in the aggregate, exceed 66.67% of the Mereo Shares issued and outstanding immediately prior to the Effective Time (approximately 40% of the share capital of the Combined Company). Consequently, OncoMed stockholders will have less influence over the management and policies of the Combined Company than they currently have over OncoMed. In addition, only two directors serving on the existing OncoMed Board will continue as directors of the Combined Company immediately following the closing of the Merger.

 

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The opinion of OncoMed’s financial advisor does not reflect changes in circumstances that may occur between the original signing of the Merger Agreement and the completion of the Merger.

Consistent with market practices, the OncoMed Board has not obtained an updated opinion from its financial advisor as of the date of this proxy statement/prospectus and does not expect to receive an updated, revised or reaffirmed opinion prior to the completion of the Merger. Changes in the operations and prospects of OncoMed, general market and economic conditions and other factors that may be beyond the control of OncoMed, and on which OncoMed’s financial advisor’s opinion was based, may significantly alter the value of OncoMed or the price of shares or OncoMed’s common stock by the time the Merger is completed. The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. Because OncoMed’s financial advisor will not be updating its opinion, the opinion will not address the fairness of the Merger Consideration from a financial point of view at the time the Merger is completed. The OncoMed Board’s recommendation that OncoMed stockholders vote “FOR” the Merger Proposal, however, is made as of the date of this proxy statement/prospectus. For a description of the opinion that the OncoMed Board received from its financial advisor, please refer to the section entitled “The Merger—Opinion of OncoMed’s Financial Advisor” located elsewhere in this proxy statement/prospectus.

OncoMed stockholders have appraisal rights under Delaware law.

Under Delaware law, OncoMed stockholders who do not vote in favor of adoption of the Merger Agreement and otherwise properly perfect their rights will be entitled to “appraisal rights” in connection with the Merger, which generally entitle stockholders to receive in lieu of the Merger Consideration a cash payment of an amount determined by the Court of Chancery equal to be the fair value of their OncoMed common stock as of the Effective Time. The appraised value would be determined by the Court of Chancery and could be less than, the same as or more than the Merger Consideration. Under Delaware law, stockholders are generally entitled to statutory interest on an appraisal award at a rate equal to 5% above the Federal Reserve discount rate compounded quarterly from the closing date of the Merger until the award is actually paid. Stockholders who have properly demanded appraisal rights must file a petition for appraisal with the Court of Chancery within 120 days after the effective date of the Merger. Should a material number of OncoMed’s stockholders exercise appraisal rights and should the Court determine that the fair value of such shares of OncoMed common stock is materially greater than the Merger Consideration, it could have a material adverse effect on the financial condition and results of operation of the Combined Company. For a more detailed description of the appraisal rights available to OncoMed stockholders, see “The Merger—Appraisal Rights” elsewhere in this proxy statement/prospectus.

The Merger is expected to be a taxable transaction for U.S. federal income tax purposes.

The exchange of OncoMed common stock for Merger Consideration in the Merger is expected to be a taxable transaction for U.S. federal income tax purposes. However, no opinion of counsel or ruling from the IRS with respect to the tax treatment of the Merger has or will be sought, and there can be no assurance that the IRS will not assert a contrary position. Assuming the Merger will be a taxable transaction for U.S. federal income tax purposes, the amount of gain or loss a holder of OncoMed common stock recognizes, and the timing and potentially the character of a portion of such gain or loss, depends in part on the U.S. federal income tax treatment of the CVRs, with respect to which there is substantial uncertainty. For further discussion, see “Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Considerations of the Merger for OncoMed Stockholders” elsewhere in this proxy statement/prospectus. OncoMed stockholders should be aware that the Merger Consideration they will be entitled to receive upon the completion of the Merger does not include a cash component to pay any taxes that may be due as a result of the Merger.

 

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The U.S. federal income tax treatment of the CVRs is unclear.

There is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs or the treatment of payments (including Mereo ADSs) that may be received pursuant to the CVRs. Accordingly, the amount, timing and character of any gain, income or loss with respect to the CVRs are uncertain. In addition, there is no legal authority directly addressing the U.S. federal income tax treatment of the expiration of any rights to receive a payment of cash or Mereo ADSs with respect to the CVRs. Any change in the value of the CVRs will affect the amount of any gain or loss recognized with respect to the receipt of the CVRs. For further discussion, see “Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Considerations of the Merger for OncoMed Stockholders” elsewhere in this proxy statement/prospectus.

Risk Factors Related to the CVRs

You may not receive any payment on the CVRs.

Your right to receive any future payment on the CVRs will be contingent upon the achievement by Mereo and its subsidiaries of certain milestones within agreed time periods, as specified in the CVR Agreement. If the milestones specified in the CVR Agreement are not achieved for any reason within the time periods specified in such agreement, no payment will be made under the CVRs and the CVRs will expire valueless. Additionally, Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) and Celgene announced on January 3, 2019 that they have entered into a definitive merger agreement under which Bristol-Myers Squibb will acquire Celgene in a cash and stock transaction. Such transaction may limit the likelihood that the TIGIT Milestone will be achieved due to the uncertainty of Celgene’s business operations pending consummation of its proposed merger with Bristol-Myers Squibb and the uncertainty of the attractiveness of OncoMed’s etigilimab product to Bristol-Myers Squibb. Accordingly, the value, if any, of the CVRs is speculative, and the CVRs may ultimately have no value. See “Description of the CVRs” elsewhere in this proxy statement/prospectus.

You will not be able to determine the amount of stock or cash to be received under the CVRs until the achievement of certain agreed upon milestones, which makes it difficult to value the CVRs.

If any payment is made on the CVRs, it will not be made until the achievement of certain agreed upon milestones. As such, you will not know the value, if any, of your CVRs until certain sales milestones occur, or until the CVRs expire.

The CVRs are nontransferable.

The CVRs are nontransferable, meaning that they may not be sold, assigned, transferred, pledged, encumbered or in any other manner transferred or disposed of either in whole or in part, other than in certain limited circumstances. The CVRs will not be registered as securities and they will not be listed or traded on any stock exchange in the United States or elsewhere. Therefore, the CVRs are not liquid and you will not be permitted to sell or transfer them, except for in certain limited circumstances. See “Description of the CVRs” elsewhere in this proxy statement/prospectus.

Mereo and its subsidiaries are required to use “diligent efforts” to achieve the CVR milestones, which allows for consideration of a variety of factors to determine the efforts Mereo and its subsidiaries are required to take; accordingly, under certain circumstances, Mereo and its subsidiaries may not be required to take certain actions to achieve the CVR milestones, or may allocate resources to other projects, which would have an adverse effect on the value, if any, of the CVRs.

Mereo has agreed to use “diligent efforts,” as defined in the CVR Agreement, to achieve each of the CVR milestones in the applicable agreed time period. However, under the CVR Agreement, the

 

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definition of “diligent efforts” allows for the consideration of a variety of factors in determining the efforts Mereo is required to use to achieve the relevant milestones, including issues of safety and efficacy, market potential, anticipated pricing and reimbursement rates, costs, labeling, pricing reimbursement, the competitiveness of alternative products, the patent and other proprietary position of the relevant product, and the likelihood of regulatory approval for the relevant product given the relevant regulatory structure involved. The CVR Agreement does not require Mereo to take all possible actions to achieve each milestone. As a result, factors and events may come to pass that result in Mereo permissibly devoting less effort to the achievement of each milestone than OncoMed would have devoted had OncoMed remained a stand-alone company.

The CVR Agreement expressly states that Mereo will have no obligation or liability to (i) fund or otherwise support or incur any cost or expense relating to the relevant products (except, in each case, in respect of clinical trials commenced prior to the Effective Time) in excess of the commitments provided for the applicable budget for each product set forth as schedules to the CVR Agreement, (ii) enroll any additional subjects in any currently ongoing trial of the relevant products or (iii) commit to any additional development activities of the relevant products not provided for in the applicable budget.

Any payments in respect of the CVRs will rank at parity with Mereo’s other unsecured and unsubordinated indebtedness.

The CVRs will rank equal in right of payment to all existing and future unsecured unsubordinated indebtedness of Mereo. The CVRs, however, will be effectively subordinated in right of payment to all of Mereo’s secured obligations to the extent of the collateral securing such obligations. Additionally, the CVRs will be effectively subordinated to all existing and future indebtedness, claims of holders of capital stock and other liabilities, including trade payables, of Mereo’s subsidiaries.

Risk Factors Related to the Combined Company

The Combined Company may not fully realize the anticipated benefits of the Merger or realize such benefits within the timing anticipated.

Mereo and OncoMed entered into the Merger Agreement because each company believes that the Merger will be beneficial to each of Mereo, the Mereo shareholders, OncoMed and the OncoMed stockholders. The Combined Company may not be able to achieve the anticipated long-term strategic benefits of the Merger within the timing anticipated or at all. For example, the benefits from the Merger will be partially offset by the costs incurred in completing the transaction. In addition, if the net cash held by OncoMed at the closing of the Merger is lower than each party currently anticipates, the cash position of the Combined Company will be weaker than expected. Any delays and challenges that may be encountered in completing the Merger or in the post-Merger process of consolidation could have an adverse effect on the business and results of operations of the Combined Company, and may affect the value of the Mereo ADSs and Mereo Shares after the completion of the Merger.

The Combined Company will incur significant transaction-related costs in connection with the Merger.

Mereo and OncoMed expect to incur significant costs associated with the Merger. The amount of these costs may not be determined as of the Effective Time and may be material to the financial position and results of operations of the Combined Company. Mereo expects that the substantial majority of expenses resulting from the Merger will be comprised of transaction costs related to the Merger and employee-related costs. Mereo and OncoMed will also incur fees and costs related to integration and systems consolidation. The elimination of duplicative costs may not offset incremental transaction-related and other integration costs in the near term.

 

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Mereo may have failed to discover undisclosed liabilities of OncoMed.

Mereo’s investigations and due diligence review of OncoMed may have failed to discover undisclosed liabilities of OncoMed. If OncoMed has undisclosed liabilities, Mereo as a successor owner may be responsible for such undisclosed liabilities. Mereo has tried to minimize its exposure to undisclosed liabilities, for example by obtaining certain protections under the Merger Agreement, including representations and warranties from OncoMed regarding undisclosed liabilities, which expire by their terms on the completion of the Merger. There can be no assurance that such provisions in the Merger Agreement will protect Mereo against any undisclosed liabilities being discovered or provide an adequate remedy for any undisclosed liabilities that are discovered. Such undisclosed liabilities could have an adverse effect on the business and results of operations of Mereo and its subsidiaries and may adversely affect the value of the Mereo ADSs and Mereo Shares after the consummation of the Merger.

The Combined Company’s goodwill or other intangible assets may become impaired, which could result in material non-cash charges to its results of operations.

The Combined Company will have a substantial amount of goodwill and other intangible assets resulting from the Merger. At least annually, or whenever events or changes in circumstances indicate a potential impairment in the carrying value as defined by IFRS, the Combined Company will evaluate this goodwill for impairment based on the recoverable value, being the higher of fair value less costs to sell and value in use, of the cash generating units to which goodwill has been allocated. Estimated fair values could change if there are changes in the Combined Company’s capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows or market capitalization. Impairments of goodwill or other intangible assets could require material non-cash charges to the Combined Company’s results of operations.

Future results of the Combined Company may differ materially from the unaudited pro forma financial information included in this proxy statement/prospectus.

The Combined Company’s future results may be materially different from those shown in the unaudited pro forma financial information presented in this proxy statement/prospectus that show only a combination of Mereo’s and OncoMed’s historical results. Mereo expects to incur significant costs associated with completing the Merger and combining the operations of the two companies, and the exact magnitude of these costs is not yet known. Furthermore, these costs may decrease capital that could be used by Mereo for future income-earning investments.

The financial analyses and forecasts considered by Mereo, OncoMed and their respective financial advisors may not be realized.

While the financial projections utilized by Mereo, OncoMed and their respective advisors in connection with the Merger were prepared in good faith based on information available at the time of preparation, no assurances can be made regarding future events or that the assumptions made in preparing such projections will accurately reflect future conditions. In preparing such projections, the management of Mereo and OncoMed made assumptions regarding, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant uncertainties and contingencies, including, among others, risks and uncertainties described or incorporated by reference in this section and the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond the control of Mereo and OncoMed and will be beyond the control of the Combined Company. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results will likely differ, and may differ materially, from such projections, which could result in a material adverse effect on the Combined Company’s business, financial condition, results of operations and prospects.

 

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After the Merger, Mereo will be a “foreign private issuer” under the rules and regulations of the SEC and, as a result, will be exempt from a number of rules under the Exchange Act and will be permitted to file less information with the SEC than a company incorporated in the United States.

Following completion of the Merger, Mereo will continue to be incorporated as a public limited company in England and Wales and will be deemed to be a “foreign private issuer” under the rules and regulations of the SEC. As a foreign private issuer, Mereo will be exempt from certain rules under the Exchange Act that would otherwise apply if Mereo were a company incorporated in the United States, including:

 

   

the requirement to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies with securities registered under the Exchange Act;

 

   

the requirement to file financial statements prepared in accordance with U.S. GAAP;

 

   

the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations; and

 

   

the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information.

In addition, Mereo’s officers, directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the related rules with respect to their purchases and sales of Mereo ADS and Mereo Shares. Accordingly, after the completion of the Merger, if you hold Mereo ADSs, you may receive less information about the Combined Company than you currently receive about OncoMed and be afforded less protection under the United States federal securities laws than you are entitled to currently.

As a foreign private issuer, Mereo will not be required to comply with some of the corporate governance standards of Nasdaq applicable to companies incorporated in the United States.

Following completion of the Merger, the Mereo Board will be required to meet certain corporate governance standards under Nasdaq Listing Rules, including the requirement to maintain an audit committee comprised of three or more directors satisfying the independence standards of Nasdaq applicable to audit committee members. While foreign private issuers are not required to comply with most of the other corporate governance rules of Nasdaq, Mereo believes it currently complies with, and intends to continue to comply with, the majority of such requirements, including the requirements to maintain a majority of independent directors and nominating and compensation committees of its board of directors comprised solely of independent directors. Mereo will be required to continue to follow the AIM rules and Corporate Governance Code published by the Quoted Companies Alliance. As a result, holders of Mereo ADSs may not be afforded the benefits of the corporate governance standards of Nasdaq to the same extent applicable to companies incorporated in the United States. See “Management—Foreign Private Issuer Exemption” elsewhere in this proxy statement/prospectus.

Additional reporting requirements may apply if Mereo loses its status as a foreign private issuer.

If Mereo loses its status as a foreign private issuer at some future time, then it will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated in the United States. The costs incurred in fulfilling these additional regulatory requirements could be substantial.

 

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Although Mereo’s reporting obligations as a foreign private issuer will be fewer than those of a public company incorporated in the United States, Mereo’s costs of complying with its SEC reporting requirements will be significant, and its management will be required to devote substantial time to complying with SEC regulations.

Mereo is not currently subject to SEC rules. However, following the completion of the Merger, Mereo will be a foreign private issuer and subject to certain SEC reporting requirements. As such, and particularly after Mereo no longer qualifies as an emerging growth company, Mereo expects to incur significant legal, accounting, and other expenses that it did not incur previously, including costs associated with its SEC reporting requirements under the Exchange Act and compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Mereo’s senior management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase Mereo’s legal and financial compliance costs and will make some activities more time-consuming and costly. For example, Mereo expects that these rules and regulations may make it more expensive for Mereo to obtain director and officer liability insurance, which in turn could make it more difficult for Mereo to attract and retain qualified senior management personnel or members for the Mereo Board. In addition, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Failure to establish and maintain effective internal controls could have a material adverse effect on Mereo’s business and stock price.

Pursuant to Section 404, Mereo will be required to furnish a report by its senior management on its internal control over financial reporting. However, while Mereo remains an emerging growth company, it will not be required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. To prepare for eventual compliance with Section 404, once Mereo no longer qualifies as an emerging growth company, Mereo will be engaged in a process to document and evaluate its internal control over financial reporting, which is both costly and challenging. In this regard, Mereo will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite Mereo’s efforts, there is a risk that it will not be able to conclude, within the prescribed timeframe or at all, that its internal control over financial reporting is effective as required by Section 404. If Mereo identifies one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of Mereo’s financial statements.

Future acquisitions may result in unanticipated accounting charges or may otherwise adversely affect the Combined Company’s results of operations and result in difficulties in integrating purchased assets, products or technologies, or be dilutive to existing stockholders.

A key element of the Combined Company’s business strategy will include expansion through the acquisition of assets, products or technologies that complement its existing product candidates in the field of rare and specialty diseases. The Combined Company will continually evaluate and explore strategic opportunities as they arise, including strategic partnerships or co-development agreements and the purchase or sale of assets, including tangible and intangible assets such as intellectual property.

Acquisitions may require significant capital, typically entail many risks and could result in difficulties in assimilating and integrating the purchased assets, products or technologies. The Combined

 

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Company may experience unanticipated costs and expenditures, changing relationships with suppliers and strategic partners, difficulties developing product development plans, or contractual, intellectual property or employment issues. These challenges could disrupt the Combined Company’s ongoing business, distract its management and employees, harm its reputation and increase its expenses. These challenges would be even greater if the Combined Company acquired a business or entered into a business combination transaction.

Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional share-based compensation expense and the recording and later amortization of amounts related to certain purchased intangible assets, any of which could adversely affect the Combined Company’s results of operations. Any of these charges could cause the value of Mereo Shares to decline.

Acquisitions or asset purchases made entirely or partially for cash may reduce the Combined Company’s cash reserves. The Combined Company may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to holders of Mereo ADSs or Mereo Shares.

The Combined Company may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if it does find suitable acquisition opportunities, it may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of Mereo ADSs or Mereo Shares may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.

The Combined Company’s consolidated financial statements will be prepared in accordance with IFRS. OncoMed prepares its consolidated financial statements in accordance with U.S. GAAP. The conversion of OncoMed’s historical consolidated financial statements into IFRS and the preparation of the Combined Company’s future consolidated financial statements in accordance with IFRS could result in material changes in the reported results of operations, financial position and cash flows of the OncoMed business compared with amounts that it had previously reported (or would have reported in the future) as a stand-alone business in accordance with U.S. GAAP.

The Combined Company’s consolidated financial statements will be prepared in accordance with IFRS. OncoMed prepares its consolidated financial statements in accordance with U.S. GAAP. Significant differences exist between IFRS and U.S. GAAP that may be relevant to OncoMed. Furthermore, significant adjustments may be made to the carrying amounts of the assets and liabilities of OncoMed at the date of completion of the Merger in accordance with business combination accounting under IFRS. Such adjustments may include the recognition of identifiable intangible assets, the remeasurement of property, plant and equipment, the recognition of certain contingent liabilities, deferred revenues and related income tax effects. Accordingly, the conversion of OncoMed’s historical consolidated financial statements into IFRS and the preparation of the Combined Company’s future consolidated financial statements in accordance with IFRS could result in material changes in the reported results of operations, financial position and cash flows of the OncoMed business compared with amounts that it previously reported (or would have reported in the future) as a stand-alone business in accordance with U.S. GAAP.

Following the Merger, the executive officers, board of directors and certain of Mereo’s existing shareholders will continue to own a majority or a significant portion of the Combined Company and, as a result, will continue to have control or significant influence over the Combined Company and your interests may conflict with the interests of these shareholders.

After giving effect to the Merger, Mereo’s executive officers, board of directors and significant shareholders and their respective affiliates, in the aggregate, will own approximately 11.3% of Mereo’s

 

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outstanding ordinary shares (including ordinary shares in the form of Mereo ADSs). Depending on the level of attendance at Mereo’s general meetings of shareholders, these shareholders either alone or voting together as a group may be in a position to control or significantly influence the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50% of the share capital present and voting at Mereo’s general meetings of shareholders may control any shareholder resolution requiring a simple majority, including the appointment of board members, certain decisions relating to Mereo’s capital structure and the approval of certain significant corporate transactions. Any shareholder or group of shareholders controlling more than 75% of the share capital present and voting at Mereo’s general meetings of shareholders may control any shareholder resolution amending Mereo’s articles of association. These shareholders may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect the market price of the Mereo ADSs and Mereo Shares.

Risk Factors Related to the Mereo ADSs

There will be no public market for Mereo ADSs prior to the Merger, and an active trading market may not develop.

While the existing Mereo Shares have been traded on AIM since 2016, there will be no public market for Mereo ADSs or Mereo Shares in the United States prior to the completion of the Merger. Although Mereo expects that the Mereo ADSs will be approved for listing on Nasdaq, Mereo cannot predict the extent to which investor interest in the Mereo ADSs will lead to the development of an active trading market or how liquid that market might become. An active public market for Mereo ADSs may not develop or be sustained after the completion of the Merger. If an active public market does not develop or is not sustained, it may be difficult for you to sell your Mereo ADSs at a price that is attractive to you, or at all.

The market price for Mereo ADSs and the underlying Mereo Shares may be volatile and may decline regardless of Mereo’s operating performance, and the value of your investment could materially decline.

Investors who hold Mereo ADSs may not be able to resell those Mereo ADSs at or above the value of such Mereo ADSs at the Effective Time. The trading price of Mereo ADSs may fluctuate, and the trading price of Mereo Shares on AIM is likely to continue to fluctuate, substantially.

The market price of Mereo ADSs and Mereo Shares may fluctuate significantly in response to numerous factors, many of which are beyond Mereo’s control, including:

 

   

positive or negative results from, or delays in, testing or clinical trials conducted by Mereo or its competitors;

 

   

delays in entering into strategic relationships with respect to development or commercialization of Mereo’s product candidates or entry into strategic relationships on terms that are not deemed to be favorable to Mereo;

 

   

technological innovations or commercial product introductions by Mereo or competitors;

 

   

changes in government regulations;

 

   

developments concerning proprietary rights, including patents and litigation matters;

 

   

public concern relating to the commercial value or safety of Mereo’s product candidates;

 

   

financing or other corporate transactions;

 

   

publication of research reports or comments by securities or industry analysts, and variances in Mereo’s periodic results of operations from securities analysts’ estimates;

 

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general market conditions in the biopharmaceutical and pharmaceutical industries or in the economy as a whole;

 

   

the loss of any of Mereo’s key scientific or senior management personnel;

 

   

sales of the Mereo ADSs or Mereo Shares by Mereo, its senior management and board members, holders of Mereo ADSs or Mereo’s other security holders in the future;

 

   

actions by institutional shareholders;

 

   

speculation in the press or the investment community; or

 

   

other events and factors, many of which are beyond Mereo’s control.

These and other market and industry factors may cause the market price and demand for the Mereo ADSs to fluctuate substantially, regardless of Mereo’s actual operating performance, which may limit or prevent investors from readily selling Mereo ADSs or Mereo Shares and may otherwise negatively affect the liquidity of Mereo ADSs and Mereo Shares.

In addition, the stock market in general, and emerging companies in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the companies affected by these fluctuations. These broad market fluctuations may adversely affect the trading price of Mereo ADSs and Mereo Shares, regardless of Mereo’s operating performance. In the past in the United States, when the market price of a security has been volatile, holders of that security have often instituted securities class action litigation against the issuer of such securities. If any of the holders of Mereo ADSs or Mereo Shares were to bring such a lawsuit against Mereo, Mereo could incur substantial costs defending the lawsuit and the attention of Mereo’s senior management would be diverted from the operation of Mereo’s business. Any adverse determination in litigation could also subject Mereo to significant liabilities.

Future sales of Mereo Shares or Mereo ADSs could depress the market price of Mereo ADSs.

If holders of Mereo Shares or Mereo ADSs sell, or indicate an intent to sell, substantial amounts of Mereo Shares or Mereo ADSs in the public markets, the trading price of Mereo ADSs or Mereo Shares could decline significantly. These sales might also make it more difficult for Mereo to sell equity or equity-related securities at a time and price that it otherwise would deem appropriate.

The dual listing of Mereo Shares and Mereo ADSs is costly to maintain and may adversely affect the liquidity and value of Mereo Shares and Mereo ADSs.

Following the Merger and after Mereo ADSs are listed for trading on Nasdaq, Mereo Shares will continue to trade on AIM. Maintaining a dual listing will generate additional costs, including significant legal, accounting, investor relations, and other expenses that Mereo did not previously incur, in addition to the costs associated with the additional reporting requirements described elsewhere in this proxy statement/prospectus. Mereo cannot predict the effect of this dual listing on the value of the Mereo ADSs and Mereo Shares. However, the dual listing of Mereo ADSs and Mereo Shares may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the Mereo ADSs. The price of the Mereo ADSs could also be adversely affected by trading in Mereo Shares on AIM.

Fluctuations in the exchange rate between the U.S. dollar and the pound sterling may increase the risk of holding Mereo ADSs.

The share price of Mereo Shares is quoted on AIM in pence sterling, while the Mereo ADSs will trade on Nasdaq in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the pound sterling may result in differences between the value of the Mereo ADSs and the value of Mereo Shares, which may result in heavy trading by investors seeking to exploit such differences. In addition,

 

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as a result of fluctuations in the exchange rate between the U.S. dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the Mereo ADSs would receive upon the sale in the United Kingdom of any Mereo Shares withdrawn from the depositary, and the U.S. dollar equivalent of any cash dividends paid in pound sterling on Mereo Shares represented by the Mereo ADSs, could also decline.

The depositary for Mereo ADSs is entitled to charge holders fees for various services, including annual service fees.

The depositary for Mereo ADSs is entitled to charge holders fees for various services including for the issuance of Mereo ADSs upon deposit of Mereo Shares, cancellation of Mereo ADSs, distributions of cash dividends or other cash distributions, distributions of Mereo ADSs pursuant to share dividends or other free share distributions, distributions of securities other than Mereo ADSs and annual service fees. In the case of Mereo ADSs issued by the depositary into The Depository Trust Company (“DTC”), the fees will be charged by the DTC participant to the account of the applicable beneficial owner in accordance with the procedures and practices of the DTC participant as in effect at the time. For further information, see “Description of the Mereo ADSs—Fees and Expenses.” The depositary for Mereo ADSs will not generally be responsible for any United Kingdom stamp duty or stamp duty reserve tax arising upon the issuance or transfer of Mereo ADSs. For a discussion of the United Kingdom stamp duty and stamp duty reserve tax consequences of the issuance and transfer of Mereo ADSs, see “Material U.K. Tax Considerations—Stamp Duty and Stamp Duty Reserve Tax.”

If securities or industry analysts do not publish research or publish inaccurate research or unfavorable research about Mereo’s business, the price and trading volume of Mereo Shares and Mereo ADSs could decline.

The trading market for Mereo Shares and Mereo ADSs will depend in part on the research and reports that securities or industry analysts publish about Mereo or its business. If one or more of the analysts who covers Mereo downgrades the Mereo Shares or Mereo ADSs or publishes incorrect or unfavorable research about its business, the price of the Mereo Shares and/or Mereo ADSs would likely decline. If one or more of these analysts ceases coverage of Mereo or fails to publish reports on it regularly, or downgrades the Mereo Shares or Mereo ADSs, demand for Mereo ADSs or Mereo Shares could decrease, which could cause the price of Mereo ADSs and/or Mereo Shares and/or trading volume to decline.

You may be subject to limitations on the transfer of Mereo ADSs and the withdrawal of the underlying Mereo Shares.

Mereo ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when the depositary, in good faith, determines such action is necessary or advisable pursuant to the deposit agreement. The depositary may refuse to deliver, transfer or register transfers of Mereo ADSs generally when Mereo’s books or the books of the depositary are closed, or at any time if Mereo or the depositary thinks it is necessary or advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to your right to cancel your Mereo ADSs and withdraw the underlying Mereo Shares. Temporary delays in the cancellation of your Mereo ADSs and withdrawal of the underlying Mereo Shares may arise because the depositary has closed its transfer books or Mereo has closed its transfer books, the transfer of Mereo Shares is blocked to permit voting at a shareholders’ meeting or because Mereo is paying a dividend on the Mereo Shares.

In addition, you may not be able to cancel your Mereo ADSs and withdraw the underlying Mereo Shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to the Mereo ADSs or to the withdrawal of the Mereo Shares or other deposited securities. See “Description of the Mereo ADSs—Withdrawal of Mereo Shares Upon Cancellation of Mereo ADSs.”

 

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Mereo ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable results to the plaintiff(s) in any such action.

The deposit agreement governing the Mereo ADSs provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under U.S. federal securities laws, against Mereo or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. Although Mereo is not aware of a specific federal decision that addresses the enforceability of a jury trial waiver in the context of U.S. federal securities laws, it is Mereo’s understanding that jury trial waivers are generally enforceable. Moreover, insofar as the deposit agreement is governed by the laws of the State of New York, New York laws similarly recognize the validity of jury trial waivers in appropriate circumstances. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. Mereo believes that this is the case with respect to the deposit agreement and the Mereo ADSs.

In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute). No condition, stipulation or provision of the deposit agreement or Mereo ADSs serves as a waiver by any holder or beneficial owner of Mereo ADSs or by Mereo or the depositary of compliance with any provision of U.S. federal securities laws and the rules and regulations promulgated thereunder.

If any holder or beneficial owner of Mereo ADSs brings a claim against Mereo or the depositary in connection with matters arising under the deposit agreement or the Mereo ADSs, including claims under U.S. federal securities laws, such holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against Mereo or the depositary. If a lawsuit is brought against Mereo or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.

The rights of OncoMed’s stockholders who become holders of Mereo ADSs in the Merger will not be the same as the rights of holders of Mereo Shares or OncoMed common stock.

OncoMed is a corporation organized under the laws of the State of Delaware. The rights of holders of OncoMed common stock are governed by the DGCL, the certificate of incorporation and bylaws of OncoMed and the listing rules of Nasdaq. Mereo is a public limited company organized under the laws of England and Wales. Upon completion of the Merger, the former holders of OncoMed common stock will receive Mereo ADSs, which represent a beneficial ownership interest in Mereo Shares. The rights of holders of Mereo ADSs will be governed by English law, Mereo’s constitutional documents, the AIM rules, United Kingdom and EEA capital markets laws and regulations and the deposit agreement pursuant to which the Mereo ADSs will be issued. There are differences between the rights presently enjoyed by holders of OncoMed common stock and the rights to which the holders of Mereo ADSs will be entitled following the Merger. In addition, the corporate governance practices of Mereo differ in various respects from the corporate governance practices with which OncoMed stockholders may be familiar as a result of their ownership of OncoMed common stock. In some cases, the holders of Mereo

 

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ADSs to be issued in the Merger may not be entitled to important rights to which they would have been entitled as holders of OncoMed common stock. However, because of aspects of English law, Mereo’s constitutional documents and the terms of the deposit agreement, the rights of holders of Mereo ADSs will not be identical to and, in some respects, may be less favorable than, the rights of holders of Mereo Shares. For more information regarding the characteristics of, and differences between OncoMed common stock, Mereo Shares and Mereo ADSs, please refer to “Description of the Mereo Shares,” “Description of the Mereo ADSs” and “Comparison of Shareholder Rights.”

You may not receive distributions on Mereo Shares represented by Mereo ADSs or any value for them if it is unlawful or impractical to make them available to holders of Mereo ADSs.

Mereo expects that the depositary for Mereo ADSs will agree to pay to you or distribute the cash dividends or other distributions it or the custodian receives on Mereo Shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Mereo Shares your Mereo ADSs represent. However, in accordance with the limitations that Mereo expects will be set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of Mereo ADSs. Mereo has no obligation to take any other action to permit the distribution of Mereo ADSs, Mereo Shares, rights or anything else to holders of Mereo ADSs. This means that you may not receive the distributions Mereo makes on the Mereo Shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of Mereo ADSs.

It may be difficult for you to bring any action or enforce any judgment obtained in the United States against Mereo or members of the Mereo Board, which may limit the remedies otherwise available to you.

Mereo is incorporated as a public limited company in England and Wales, and the majority of Mereo’s assets are located outside the United States. In addition, the majority of the members of the Mereo Board are nationals and residents of countries, including the United Kingdom, outside of the United States. Most or all of the assets of these individuals are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against Mereo or against these individuals in the United States if you believe your rights have been infringed under the securities laws or otherwise. In addition, a United Kingdom court may prevent you from enforcing a judgment of a U.S. court against Mereo or these individuals based on the securities laws of the United States or any state thereof. A United Kingdom court may not allow you to bring an action against Mereo or its directors based on the securities laws of the United States or any state thereof.

Shareholders in countries other than the United Kingdom will suffer dilution if they are unable to participate in future preemptive equity offerings.

Under English law, shareholders usually have preemptive rights to subscribe on a pro rata basis in the issuance of new shares for cash. The exercise of preemptive rights by certain shareholders not resident in the United Kingdom may be restricted by applicable law or practice in the United Kingdom and overseas jurisdictions. In particular, the exercise of preemptive rights by U.S. shareholders would be prohibited unless that rights offering is registered under the Securities Act or an exemption from the registration requirements of the Securities Act applies. Furthermore, under the deposit agreement for the Mereo ADSs, the depositary generally will not offer those rights to holders of Mereo ADSs unless both the rights and the underlying securities to be distributed to holders of Mereo ADSs are either registered under the Securities Act, or exempt from registration under the Securities Act with respect to all holders of Mereo ADSs. If no exemption applies and the Combined Company determines not to register the rights offering, shareholders in the United States may not be able or permitted to exercise their preemptive rights. Mereo is also permitted under English law to disapply preemptive rights (subject to the approval of its shareholders by special resolution) and thereby exclude certain shareholders, such as overseas shareholders, from participating in a rights offering (usually to avoid a breach of local securities laws).

 

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Holders of Mereo ADSs may not have the same voting rights as holders of Mereo Shares and may not receive voting materials in time to be able to exercise their right to vote.

Except as described in this proxy statement/prospectus and as provided in the deposit agreement, holders of Mereo ADSs will not be able to exercise voting rights attaching to Mereo Shares underlying the Mereo ADSs issued pursuant to the Merger on an individual basis. Each holder of Mereo ADSs will appoint the depositary or its nominee as the holder’s representative to exercise, pursuant to the instructions of the holder, the voting rights attaching to the Mereo Shares underlying the Mereo ADSs issued pursuant to the Merger. Holders of Mereo ADSs may not receive voting materials in time to instruct the depositary to vote, and it is possible that they, or persons who hold their Mereo ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. See “Description of the Mereo ADSs—Voting Rights.”

Because Mereo does not anticipate paying any cash dividends on Mereo ADSs or Mereo Shares in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

Under English law, a company’s accumulated realized profits must exceed its accumulated realized losses on a non-consolidated basis before dividends can be paid. Therefore, Mereo must have distributable profits before issuing a dividend. Mereo has not paid dividends in the past on its ordinary shares. Further, Mereo intends to retain future earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future. In addition, Mereo’s credit facility prohibits it from paying dividends on its equity securities, and any future debt agreements may likewise preclude Mereo from paying dividends. As a result, capital appreciation, if any, on Mereo ADSs or Mereo Shares will be your sole source of gains for the foreseeable future.

If Mereo is a passive foreign investment company (“PFIC”), you could be subject to adverse U.S. federal income tax consequences if you are a U.S. investor.

In general, a non-U.S. corporation will be a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income (the “asset test”). For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Passive income generally includes interest, dividends, gains from certain property transactions, rents and royalties (other than certain rents or royalties derived in the active conduct of a trade or business). Cash is a passive asset for PFIC purposes. Goodwill is an active asset under the PFIC rules to the extent attributable to activities that produce active income.

The assets shown on Mereo’s consolidated balance sheet (taking into account OncoMed assets acquired as a result of the Merger) are expected to include a significant amount of cash and cash equivalents for the foreseeable future. Therefore, whether Mereo will satisfy the assets test for the current or any future taxable year generally will depend largely on the quarterly value of Mereo’s goodwill, and on how quickly Mereo utilizes the cash in its business. Because (i) the value of Mereo’s goodwill may be determined by reference to the market price of the Mereo Shares or the Mereo ADSs, which may be volatile given the nature and early stage of its business, (ii) Mereo expects to continue to hold a significant amount of cash, and (iii) a company’s PFIC status is an annual determination that can be made only after the end of each taxable year, Mereo cannot express a view as to whether it will be a PFIC for the current or any future taxable year. For the reasons described above, it is possible that Mereo may be a PFIC for its current or any future taxable year.

If Mereo were a PFIC for any taxable year during which a U.S. investor holds Mereo ADSs or Mereo Shares, certain adverse U.S. federal income tax consequences could apply to such U.S.

 

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investor. See “U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Considerations of Owning Mereo ADSs or Mereo Shares—Passive Foreign Investment Company Rules.”

Risk Factors Related to Mereo’s Business

Risks Relating to Mereo’s Business and Industry

Mereo has a limited operating history and has never generated any product revenue.

Mereo is a multi-asset, clinical-stage biopharmaceutical company with a limited operating history, and has incurred significant operating losses since its formation. Mereo had net losses of £28.4 million and £38.8 million in the years ended December 31, 2016 and 2017, respectively, and £22.7 million and £17.0 million for the six months ended June 30, 2017 and 2018, respectively. As of June 30, 2018, Mereo had an accumulated loss of £96.2 million. Mereo’s losses have resulted principally from expenses incurred from the research and development of its product candidates and from general and administrative costs that it has incurred while building its business infrastructure. Mereo expects to continue to incur significant operating losses for the foreseeable future as it seeks to acquire new product candidates, expand its research and development efforts, and seek to obtain regulatory approval and potentially commercialize its product candidates. Mereo anticipates that its expenses will increase substantially as it:

 

   

continues to conduct its ongoing Phase 2b clinical trial of BPS-804 for the treatment of OI in adults and its ongoing Phase 2 clinical trial of MPH-966 for the treatment of severe AATD;

 

   

commences its planned pediatric Phase 3 clinical trial of BPS-804 for the treatment of OI in Europe and Canada;

 

   

seeks to acquire additional novel product candidates to treat rare and specialty diseases;

 

   

seeks regulatory approvals for its product candidates;

 

   

potentially establishes a commercial infrastructure and works with CMOs to scale up manufacturing processes to commercialize selected product candidates, if approved;

 

   

maintains, expands, and protects Mereo’s intellectual property portfolio;

 

   

secures, maintains, or obtains freedom to operate for its technologies and products;

 

   

adds clinical, scientific, operational, financial, and management personnel, including personnel to support the development of its product candidates and potential future commercialization efforts; and

 

   

expands its operations in the United Kingdom and potentially hires employees in the United States.

Mereo’s expenses may also increase substantially if it experiences any delays or encounter any issues with any of the above, including, but not limited to, failed clinical trials, complex results, safety issues, or unforeseen regulatory challenges.

Mereo has devoted substantially all of its financial resources and efforts to the acquisition and clinical development of BPS-804, MPH-966, BCT-197, and BGS-649. Mereo has not completed the clinical development of any product candidate through approval.

To become and remain profitable, Mereo must succeed in developing and commercializing products that generate significant revenue. This will require Mereo to be successful in a range of challenging activities, including completing clinical trials of Mereo’s current or any future product candidates, obtaining regulatory approval for Mereo’s product candidates that successfully complete clinical trials, establishing manufacturing supplies and marketing capabilities, and ultimately

 

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commercializing or entering into strategic relationships for Mereo’s current and future product candidates, if approved. Mereo is only in the preliminary stages of many of these activities. Mereo may never succeed in these activities and, even if it does, it may never generate revenue that is significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with biopharmaceutical product development, Mereo is unable to accurately predict the timing or amount of increased expenses or when, or if, it will be able to achieve profitability. Mereo may be subject to different or contradictory regulatory requirements in different countries, and different regulatory authorities may not be aligned on the clinical trials necessary to support approval of its product candidates. If Mereo is required by the FDA, the EMA, or other regulatory authorities to perform studies in addition to those it currently anticipates, or if there are any delays in completing its clinical trials or the development of its current product candidates, Mereo’s expenses could increase and its ability to generate revenue could be further delayed. In addition, Mereo may not be able to acquire new product candidates or may encounter unexpected difficulties or delays in such acquisitions, which would impair its business.

Furthermore, adoption by the medical community of Mereo’s product candidates, if approved, may be limited if third-party payors offer inadequate reimbursement coverage. Cost control initiatives may decrease coverage and payment levels for Mereo’s products, which in turn would negatively affect the price that Mereo will be able to charge for such products. Mereo is unable to predict the coverage that will be provided by private or government payors for any product candidate Mereo has in development. Any denial of private or government payor coverage, inadequate reimbursement for Mereo’s products, or delay in receipt of reimbursement payments could harm Mereo’s business and, even if Mereo were to generate product royalties or product sales, it may never achieve or sustain profitability. Mereo’s failure to sustain profitability would depress the market price of the Mereo ADSs and Mereo Shares and could impair its ability to raise capital, acquire new product candidates, expand its business, or continue Mereo’s operations. A decline in the market price of the Mereo ADSs or Mereo Shares also could cause you to lose all or a part of your investment.

Mereo’s limited operating history may make it difficult for you to evaluate the success of its business to date and to assess its future viability.

Since Mereo’s formation, it has devoted substantially all of its resources to acquiring and developing BPS-804, MPH-966, BCT-197, and BGS-649; building its intellectual property portfolio; developing its supply chain; planning its business; raising capital; and providing general and administrative support for these operations. Mereo has not yet demonstrated its ability to successfully complete any Phase 3 or other pivotal clinical trials, obtain regulatory approval, arrange for third parties to manufacture commercial-scale products, or conduct or partner with others to conduct sales and marketing activities necessary for successful product commercialization. Additionally, although Mereo has acquired product candidates from two large pharmaceutical companies, it has not demonstrated the sustainability of its business model of acquiring and developing product candidates for rare and specialty diseases from, and becoming a partner of choice for, large pharmaceutical companies, nor has it demonstrated its ability to obtain approvals for or to commercialize these product candidates. Consequently, any predictions you make about Mereo’s future success or viability may not be as accurate as they could be if Mereo had a longer operating history.

Mereo may not be successful in its efforts to identify and acquire additional product candidates.

Part of Mereo’s strategy involves identifying and acquiring novel product candidates that have received significant investment from large pharmaceutical companies and that have substantial pre-clinical, clinical, and manufacturing data packages. The process by which Mereo identify product

 

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candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:

 

   

any product candidates Mereo acquires that have generated positive clinical data for Mereo’s target indication or in diseases other than Mereo’s target indications may not prove to be effective in treating Mereo’s target indications;

 

   

potential product candidates may, with further studies, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance;

 

   

the regulatory pathway for a potential product candidate may be too complex and difficult to navigate successfully or economically; and

 

   

there may be competitive bids for potential product candidates which Mereo does not seek to or is unable to match.

In addition, Mereo may choose to focus its efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. Further, time and resources spent searching for, identifying, acquiring, and developing potential product candidates may distract Mereo’s management’s attention from Mereo’s primary business or other development programs. If Mereo is unable to identify and acquire additional suitable product candidates for clinical development, this would adversely impact its business strategy and its financial position and share price.

Mereo will need additional funding to complete the development of its current product candidates; to license, acquire, and develop future product candidates; and to commercialize its product candidates, if approved. If Mereo is unable to raise capital when needed, it could be forced to delay, reduce, or eliminate its product development programs or any future commercialization efforts.

Mereo expects its expenses to increase in connection with its ongoing activities, particularly as it conducts its ongoing Phase 2b clinical trial for BPS-804, its planned pediatric Phase 3 study for BPS-804 and its ongoing Phase 2 clinical trial for MPH-966. Mereo also expects its expenses to rise as it seeks to acquire and develop new product candidates. In addition, if Mereo obtains regulatory approval for any of its product candidates, it expects to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution for any products it commercializes directly. Furthermore, upon the closing of the Merger, Mereo expects to incur additional costs associated with operating as a public company in the United Kingdom and the United States and maintaining listings on both AIM and Nasdaq. Accordingly, Mereo will need to obtain substantial additional funding in connection with its continuing operations. If Mereo is unable to raise capital when needed or on attractive terms, it could be forced to delay, reduce, or eliminate its research and development programs, any future commercialization efforts, or acquisitions of potential product candidates.

Mereo expects that its existing cash resources, together with the anticipated net cash to be held by OncoMed at the time of the closing of the Merger, will enable it to fund its operating expenses and capital expenditure requirements into early 2020. Mereo has based this estimate on assumptions that may prove to be wrong, and Mereo could use its capital resources sooner than it currently expects, or its operating plan may change as a result of many factors unknown to it. These factors, among others, may necessitate that Mereo seek additional capital sooner than currently planned. In addition, Mereo may seek additional capital due to favorable market conditions or strategic considerations, even if it believes that it has sufficient funds for its current or future operating plans.

 

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Mereo’s future capital requirements will depend on many factors, including:

 

   

the costs, timing, and results of its ongoing Phase 2b clinical trial for BPS-804; its planned pediatric Phase 3 study for BPS-804; and its ongoing Phase 2 clinical trial for MPH-966;

 

   

the costs and timing of manufacturing clinical supplies of its product candidates;

 

   

the costs, timing, and outcome of regulatory review of its product candidates, including post-marketing studies that could be required by regulatory authorities;

 

   

the costs, timing, and outcome of potential future commercialization activities, including manufacturing, marketing, sales, and distribution, for its product candidates that it commercializes directly;

 

   

the timing and amount of revenue, if any, received from commercial sales of its product candidates;

 

   

the costs and timing of preparing, filing, and prosecuting patent applications; maintaining and enforcing its intellectual property rights; and defending any intellectual property-related claims, including any claims by third parties that Mereo is infringing upon the third party’s intellectual property rights;

 

   

the sales price and availability of adequate third-party coverage and reimbursement for its product candidates;

 

   

the effect of competitors and market developments; and

 

   

the extent to which Mereo is able to acquire new product candidates or enter into licensing or collaboration arrangements for its product candidates, although Mereo currently has no commitments or agreements to complete any such transactions other than the Merger Agreement and the transactions contemplated thereby.

Any additional fundraising efforts may divert Mereo’s management from its day-to-day activities, which may adversely affect Mereo’s ability to develop and commercialize its product candidates. In addition, Mereo cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to it, if at all. Moreover, the terms of any financing may adversely affect Mereo’s business, the holdings or the rights of its shareholders, or the value of the Mereo ADSs or Mereo Shares.

If Mereo is unable to obtain funding on a timely basis, it may be required to significantly curtail, delay, or discontinue its research and development programs or any commercialization efforts; be unable to expand its operations or acquire product candidates; or be unable to otherwise capitalize on its business opportunities, as desired, which could harm its business and potentially force it to discontinue operations.

Raising additional capital may cause dilution to, or adversely affect the rights of, Mereo’s security holders, including holders of Mereo ADSs received in the Merger; restrict Mereo’s operations; or require Mereo to relinquish rights to its technologies or product candidates.

Until such time, if ever, as Mereo can generate substantial product revenues, it may finance its cash needs through securities offerings, debt financings, license and collaboration agreements, or other capital raising transactions. If Mereo raises capital through securities offerings, your ownership interest will be diluted, and the terms of the securities Mereo issues in such transaction may include liquidation or other preferences that adversely affect your rights as a holder of Mereo ADSs. Debt financing, if available, could result in fixed payment obligations, and Mereo may be required to agree to certain restrictive covenants, such as limitations on its ability to incur additional debt, to acquire, sell or license intellectual property rights, to make capital expenditures, to declare dividends, or other operating restrictions. For example, Mereo’s credit facility with Silicon Valley Bank and Kreos Capital V (UK) Limited, or the credit facility, requires Mereo to seek consent for certain corporate transactions,

 

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dispositions, or incurrences of certain debt. If Mereo raises additional funds through collaboration or licensing agreements, it may have to relinquish valuable rights to its technologies, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to it. In addition, Mereo could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. Raising additional capital through any of these or other means could adversely affect Mereo’s business and the holdings or rights of Mereo’s security holders, and may cause the market price of the Mereo ADSs or the Mereo Shares to decline.

Mereo depends heavily on the success of BPS-804, MPH-966, BCT-197, and BGS-649. Mereo cannot give any assurance that any of these product candidates will receive regulatory approval, which is necessary before they can be commercialized. If Mereo is unable to commercialize, whether on its own or through agreements with third parties, BPS-804, MPH-966, BCT-197, or BGS-649, or experience significant delays in doing so, Mereo’s ability to generate revenue and Mereo’s financial condition will be adversely affected.

Mereo does not currently generate any revenue from sales of any products, and it may never be able to develop or commercialize a marketable product. Mereo has invested substantially all of its efforts and financial resources in the acquisition and development of BPS-804, MPH-966, BCT-197, and BGS-649, and it does not have any other product candidates currently under development. Mereo’s ability to generate royalty and product revenues, which it does not expect will occur for at least the next several years, if ever, will depend heavily on the successful development and eventual commercialization of its current product candidates, if approved, which may never occur. Mereo’s current product candidates will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions, procurement of manufacturing supply, commercialization, substantial additional investment, and significant marketing efforts before Mereo generates any revenue from product sales. For example, Mereo intends to commence a Phase 3 clinical trial of BPS-804, its most advanced product candidate, in children with OI in 2019 in Europe and Canada. Mereo plans to engage with the FDA in 2019 to discuss the expansion of Mereo’s pediatric Phase 3 study to include sites in the United States. However, the FDA may not approve Mereo’s pediatric trial for BPS-804, which would adversely affect the clinical development of BPS-804 in the United States and adversely affect Mereo’s commercialization plans in the United States.

Mereo is not permitted to market or promote any product candidates in the United States, Europe, or other countries before it receives regulatory approval from the FDA, the EMA, or comparable foreign regulatory authorities, and it may never receive such regulatory approval for its current product candidates. Mereo has not submitted a Biologics License Application (“BLA”) or a New Drug Application (“NDA”), to the FDA; a Marketing Authorization Application (“MAA”) to the EMA; or comparable applications to other regulatory authorities, and does not expect to be in a position to do so in the foreseeable future. The success of Mereo’s current product candidates will depend on many factors, including the following:

 

   

Mereo may not be able to demonstrate that any of its current product candidates is safe and effective as a treatment for the targeted indications to the satisfaction of the applicable regulatory authorities;

 

   

the applicable regulatory authorities may require additional clinical trials of its current product candidates, which would increase its costs and prolong development;

 

   

the results of clinical trials of Mereo’s current product candidates may not meet the level of statistical or clinical significance required by the applicable regulatory authorities for marketing approval;

 

   

the applicable regulatory authorities may disagree with the number, design, size, conduct, or implementation of Mereo’s planned and future clinical trials for its current product candidates;

 

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the contract research organizations (“CROs”), that Mereo retains to conduct clinical trials may take actions outside of its control that materially adversely impact clinical trials for its current product candidates;

 

   

the applicable regulatory authorities may not find the data from clinical trials sufficient to demonstrate that the clinical and other benefits of Mereo’s current product candidates outweigh its safety risks;

 

   

the applicable regulatory authorities may disagree with Mereo’s interpretation of data from its clinical trials or may require that Mereo conduct additional trials;

 

   

the applicable regulatory authorities may not accept data generated at Mereo’s clinical trial sites;

 

   

if Mereo submits a BLA or NDA to the FDA, and it is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of Mereo’s application or may recommend that the FDA require, as a condition of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling, or distribution and use restrictions;

 

   

the applicable regulatory authorities may require development of a risk evaluation and mitigation strategy (a “REMS”) as a condition of approval;

 

   

the applicable regulatory authorities may identify deficiencies in the manufacturing processes or facilities of Mereo’s third-party manufacturers;

 

   

the applicable regulatory authorities may change its approval policies or adopt new regulations;

 

   

through Mereo’s clinical trials, Mereo may discover factors that limit the commercial viability of its current product candidates or make the commercialization of any of its current product candidates unfeasible; and

 

   

if approved, acceptance of Mereo’s current product candidates by patients, the medical community, and third-party payors; Mereo’s ability to compete with other therapies to treat OI, AATD, AECOPD, or HH; continued acceptable safety profiles following approval of its current product candidates; and Mereo’s ability to qualify for, maintain, enforce, and defend Mereo’s intellectual property rights and claims.

If Mereo does not achieve one or more of these factors in a timely manner or at all, it could experience significant delays or may not be able to successfully commercialize its current rare disease product candidates.

Mereo cannot be certain that its current product candidates will be successful in clinical trials or receive regulatory approval. Further, Mereo’s current product candidates may not receive regulatory approval even if they are successful in clinical trials. If Mereo does not receive regulatory approvals for its current product candidates, it may not be able to continue its operations. Even if Mereo successfully obtains regulatory approvals to manufacture and market its current product candidates, its revenues will be dependent, in part, upon the size of the markets in the territories for which Mereo gains regulatory approval and has commercial rights. If the markets for patient subsets that Mereo is targeting are not as significant as it estimates, Mereo may not generate significant revenues from sales of such products, if approved.

Mereo plans to seek regulatory approval to commercialize its current rare disease product candidates both in the United States and the EU, and potentially in additional foreign countries. While the scope of regulatory approval is similar in many countries, to obtain separate regulatory approval in multiple countries requires Mereo to comply with the numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution, and Mereo cannot predict success in these jurisdictions.

 

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Mereo’s business is subject to economic, political, regulatory and other risks associated with international operations.

Mereo’s business is subject to risks associated with conducting business internationally. Mereo sources research and development, manufacturing, consulting, and other services from companies based throughout the United States, the EU, and Switzerland, and Mereo conducts its clinical trials in the United States, Canada, certain European countries, and other countries. Accordingly, Mereo’s future results could be harmed by a variety of factors, including:

 

   

economic weakness, including inflation, or political instability in particular non-U.K. economies and markets;

 

   

differing regulatory requirements for drug approvals in non-U.K. countries;

 

   

differing jurisdictions could present different issues for securing, maintaining, or obtaining freedom to operate for Mereo’s intellectual property in such jurisdictions;

 

   

potentially reduced protection for intellectual property rights;

 

   

difficulties in compliance with non-U.K. laws and regulations;

 

   

changes in non-U.K. regulations and customs, tariffs, and trade barriers;

 

   

changes in non-U.K. currency exchange rates of the pound sterling and currency controls;

 

   

changes in a specific country’s or region’s political or economic environment, including the implications of the United Kingdom’s withdrawal from the EU;

 

   

trade protection measures, import or export licensing requirements or other restrictive actions by U.K. or non-U.K. governments;

 

   

differing reimbursement regimes and price controls in certain non-U.K. markets;

 

   

negative consequences from changes in tax laws;

 

   

compliance with tax, employment, immigration, and labor laws for employees living or traveling outside of the United Kingdom;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United Kingdom;

 

   

difficulties associated with staffing and managing international operations, including differing labor relations;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, hurricanes, floods, and fires.

Exchange rate fluctuations may materially affect Mereo’s results of operations and financial condition.

Owing to the international scope of Mereo’s operations, fluctuations in exchange rates, particularly between the pound sterling and the U.S. dollar, the euro, or the Swiss Franc, may adversely affect Mereo. Further, potential future revenue may be derived from multiple jurisdictions and in multiple currencies. As a result, Mereo’s business and the price of the Mereo ADSs and Mereo Shares may be affected by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the currencies of other countries, which may have a significant impact on its results of operations and cash flows from period to period. Currently, Mereo does not have any exchange rate hedging arrangements in place.

The United Kingdom’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and Mereo’s business, which could reduce the price of the Mereo ADSs.

Following the vote of a majority of the eligible members of the electorate in the United Kingdom to withdraw from the EU in a national referendum held on June 23, 2016, the U.K. government served

 

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notice under Article 50 of the Treaty of the European Union on March 29, 2017 to formally initiate a withdrawal process. The United Kingdom and the EU have a two-year period under Article 50 to negotiate the terms for withdrawal, which two-year period will, unless extended, expire on March 29, 2019. Following extensive negotiations, a draft withdrawal agreement (the “18 November Agreement”) was approved by each EU member other than the United Kingdom in November 2018. The 18 November Agreement proposed a transition period which would end on 31 December 2020, with the possibility of an extended transitionary period thereafter. The 18 November Agreement was, however, rejected by a vote of the U.K. parliament on January 15, 2019. The U.K. government is understood to be exploring various options, including a re-negotiation of the 18 November Agreement, but a “no-deal Brexit” or a second referendum in the United Kingdom cannot be entirely ruled out.

The referendum and withdrawal process have created significant uncertainty about the future relationship between the United Kingdom and the EU. Lack of clarity about future U.K. laws and regulations as the United Kingdom determines which EU-derived laws and regulations to replace or replicate as part of a withdrawal, including healthcare and pharmaceutical regulations; financial laws and regulations; tax and free trade agreements; intellectual property rights; supply chain logistics; environmental, health, and safety laws and regulations; immigration laws; and employment laws, could decrease foreign direct investment in the United Kingdom, increase costs, depress economic activity, and restrict Mereo’s access to capital. If the United Kingdom and the EU are unable to negotiate acceptable withdrawal terms or if other EU member states pursue withdrawal, barrier-free and frictionless access between the United Kingdom and other EU member states or among the European economic area overall could be diminished or eliminated. These developments, or the perception that any of them could occur, have had and may continue to have a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates, and credit ratings may be especially subject to increased market volatility. In addition, changes to U.K. border and immigration policy could occur as a result of the United Kingdom’s withdrawal from the EU, affecting Mereo’s ability to recruit and retain employees from outside the United Kingdom. Any of these factors could have a significant adverse effect on Mereo’s business, financial condition, results of operations, and prospects.

Risks Related to Development, Clinical Testing, Manufacturing and Regulatory Approval

BPS-804, MPH-966, BCT-197, and BGS-649 are in clinical development. Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results. If clinical trials of Mereo’s product candidates are prolonged or delayed, or if Mereo’s product candidates fail to show the desired safety and efficacy in later stage clinical trials, Mereo may be unable to obtain required regulatory approvals and be unable to commercialize its product candidates on a timely basis, or at all.

To obtain the requisite regulatory approvals to market and sell any of Mereo’s product candidates, Mereo must demonstrate through extensive clinical trials that such product candidates are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early-stage clinical trials of Mereo’s product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Mereo’s future clinical trial results may not be successful.

 

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Mereo may experience delays in its ongoing clinical trials and does not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Mereo’s clinical trials can be delayed, suspended, or terminated for a variety of reasons, including the following:

 

   

delays in or failure to obtain regulatory or ethics committee approval to commence a trial, for example, if Mereo is unable to submit its proposed protocol to the FDA for a pediatric clinical trial for BPS-804;

 

   

delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

failure of Mereo’s CROs to execute its trials in accordance with the clinical trial protocol; good laboratory, clinical, and manufacturing practices (“GxP”); or other regulatory or contractual obligations;

 

   

delays in or failure to obtain institutional review board (“IRB”) approval, centrally or at each site;

 

   

delays in or failure to recruit suitable patients to participate in a trial;

 

   

failure to have patients complete a trial or return for post-treatment follow-up;

 

   

for Mereo’s rare disease product candidates, failure to enroll a sufficient number of patients with the rare disease and clinical trial design challenges such as, but not limited to, the off-label use of drugs to treat rare disease or where the most common treatment method has not been clinically tested or has been approved on the basis of a different endpoint and not directly tied to a clinical outcome study, for example, augmentation therapy for AATD;

 

   

clinical sites deviating from trial protocol or dropping out of a trial or committing gross misconduct or fraud;

 

   

adding new clinical trial sites;

 

   

unexpected technical issues during manufacture, storage, or transport of Mereo’s product candidates and the corresponding drug product;

 

   

inability to manufacture sufficient quantities of Mereo’s product candidates for use in clinical trials;

 

   

third-party actions claiming infringement by Mereo’s product candidates in clinical trials inside or outside of the United States and obtaining injunctions interfering with Mereo’s progress;

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, hurricanes, floods, and fires;

 

   

safety or tolerability concerns causing Mereo or its collaborators, as applicable, to suspend or terminate a trial if Mereo or its collaborators find that the participants are being exposed to unacceptable health risks;

 

   

changes in regulatory requirements, policies, and guidelines;

 

   

lower than anticipated retention rates of patients and healthy volunteers in clinical trials;

 

   

unexpected technical issues with the equipment used to conduct clinical trials or analyze the results;

 

   

Mereo’s third-party research contractors failing to comply with regulatory requirements or to meet its contractual obligations to Mereo in a timely manner, or at all;

 

   

delays in establishing the appropriate dosage levels or frequency of dosing or treatment in clinical trials;

 

   

difficulty in identifying the populations that Mereo is trying to treat in a particular trial, which may delay enrollment and reduce the power of a clinical trial to detect statistically significant results;

 

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the quality or stability of Mereo’s product candidates falling below acceptable standards for either safety or efficacy; and

 

   

discoveries that may reduce the commercial viability of Mereo’s product candidates.

Mereo could encounter delays if a clinical trial is suspended or terminated by it, by the IRBs, centrally or at the institutions in which such trials are being conducted, by the Data Monitoring Committee or Data Safety Monitoring Board for such trial or by the FDA, the EMA, or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or Mereo’s clinical protocols; inspection of the clinical trial operations or trial site by the FDA, the EMA, or other regulatory authorities resulting in the imposition of a clinical hold; unforeseen safety issues or adverse side effects; failure to demonstrate a benefit from using a drug; failure of Mereo’s clinical trials to demonstrate adequate efficacy and safety; changes in governmental regulations or administrative actions; or lack of adequate funding to continue the clinical trial.

A number of academic institutions are currently conducting and sponsoring clinical trials relating to Mereo’s product candidate, MPH-966, including a clinical trial in patients with Type 2 diabetes and a clinical trial in patients with bronchiolitis obliterans. Mereo does not control the design or administration of these investigator-sponsored trials, and such investigator-sponsored trials could identify significant concerns with respect to MPH-966 that could impact Mereo’s findings from its own clinical trials, and adversely affect Mereo’s ability to obtain marketing approval from the FDA or other applicable authorities. To the extent the results of these or other investigator-sponsored trials are inconsistent with, or different from, the results of Mereo’s company-sponsored trials or raise concerns regarding MPH-966, the FDA or a foreign regulatory authority may question the results of a company-sponsored trial, or subject such results to greater scrutiny than it otherwise would. In these circumstances, the FDA or such foreign regulatory authorities may require Mereo to conduct additional clinical studies or submit additional clinical data, which could delay clinical development or marketing approval of MPH-966.

Moreover, principal investigators for Mereo’s clinical trials may serve as scientific advisors or consultants to Mereo from time to time and receive compensation in connection with such services. Under certain circumstances, Mereo may be required to report some of these relationships to the FDA, the EMA, or another regulatory authority. The FDA, the EMA, or such other regulatory authority may conclude that a financial relationship between Mereo and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA, the EMA, or such other regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of Mereo’s marketing applications by the FDA, the EMA, or the other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of Mereo’s product candidates.

If Mereo experiences delays in the completion of any clinical trial of its product candidates or any clinical trial of its product candidates is terminated, the commercial prospects of its product candidates may be harmed, and its ability to generate product revenues from its product candidates, if any, will be delayed. Moreover, any delays in completing Mereo’s clinical trials will increase its costs, slow down the development and approval process of its product candidates, and jeopardize its ability to commence product sales and generate revenue, if any. Significant clinical trial delays could also allow Mereo’s competitors to bring products to market before Mereo does or shorten any periods during which Mereo has the exclusive right to commercialize its product candidates and could impair Mereo’s ability to commercialize its product candidates. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of Mereo’s product candidates.

 

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Clinical trials must be conducted in accordance with the laws and regulations of the FDA, EU rules and regulations and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and IRBs, centrally or at the institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of Mereo’s product candidates produced in compliance with the requirements of current good manufacturing practice (“cGMP”) and other regulations. Furthermore, Mereo relies on CROs and clinical trial sites to ensure the proper and timely conduct of its clinical trials and while Mereo has agreements governing the CROs’ committed activities, Mereo has limited influence over the CROs’ actual performance. Mereo depends on its collaborators and on medical institutions and CROs to conduct its clinical trials in compliance with good clinical practice (“GCP”) requirements. To the extent Mereo’s collaborators or the CROs fail to enroll participants for Mereo’s clinical trials, fail to conduct the study to GCP standards, or are delayed for a significant time in the execution of trials, including achieving full enrollment, Mereo may be affected by increased costs, program delays, or both. In addition, clinical trials that are conducted in countries outside the EU and the United States may subject Mereo to further delays and expenses as a result of increased shipment costs, additional regulatory requirements, and the engagement of non-EU and non-U.S. CROs, as well as expose Mereo to risks associated with clinical investigators who are unknown to the FDA or the EMA, and different standards of diagnosis, screening, and medical care.

Prior to Mereo’s acquisition of BPS-804, MPH-966, BCT-197, and BGS-649, Mereo was not involved in the development of these product candidates and, as a result, Mereo is dependent on Novartis and AstraZeneca having accurately reported the results and correctly collected and interpreted the data from all clinical trials conducted prior to Mereo’s acquisition.

Mereo was not involved in the development of its current product candidates prior to its acquisition of such product candidates from Novartis and AstraZeneca, respectively. For all of Mereo’s current product candidates, Mereo has had no involvement with or control over its pre-clinical and clinical development prior to its acquisition of them. Mereo is dependent on Novartis and AstraZeneca having conducted its research and development in accordance with the applicable protocols and legal, regulatory, and scientific standards; having accurately reported the results of all clinical trials conducted prior to Mereo’s acquisition; and having correctly collected and interpreted the data from these trials. To the extent Novartis or AstraZeneca have not complied, the clinical development, regulatory approval, or commercialization of Mereo’s product candidates may be adversely affected.

Interim “top-line” and preliminary data from Mereo’s clinical trials that Mereo announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Mereo may publish interim “top-line” or preliminary data from its clinical trials. Interim data from clinical trials that Mereo may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Mereo previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm Mereo’s business prospects.

 

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Mereo’s product candidates may have serious adverse, undesirable, or unacceptable side effects which may delay or prevent marketing approval or lead to the withdrawal of approval after it has been granted. If such side effects are identified during the development of these product candidates or following approval, if any, Mereo may need to abandon its development of these product candidates, the commercial profile of any approved label may be limited, or Mereo may be subject to other significant negative consequences following marketing approval, if any.

Undesirable side effects that may be caused by BPS-804, MPH-966, BCT-197, and BGS-649 could cause Mereo or regulatory authorities to interrupt, delay or halt clinical trials, and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA, or other comparable foreign authorities. Each of Mereo’s product candidates has completed one or more Phase 2 clinical trials. In the trials conducted prior to Mereo’s ownership and following Mereo’s ownership, the most common adverse events observed have been the following:

 

   

for BPS-804, headache, influenza, arthralgia, and fatigue;

 

   

for MPH-966, headache, nasopharyngitis, and elevated levels of the liver enzymes aspartate aminotransferase and alanine aminotransferase;

 

   

for BCT-197, a mild acne-like rash, tachycardia, dizziness, and headache; and

 

   

for BGS-649, headache, increased hematocrit, and small increases in blood pressure.

Clinical development for all of these product candidates is ongoing. Results of Mereo’s ongoing and future clinical trials, or results from clinical trials for other similar product candidates, could reveal a high and unacceptable severity and prevalence of adverse side effects. In such an event, Mereo’s trials could be suspended or terminated and the FDA, EMA, or other comparable foreign regulatory authorities could order Mereo to cease further development of or deny approval of Mereo’s product candidates for any or all targeted indications.

For example, in the United States, the FDA in the first quarter of 2018 denied Mereo’s request for a Type C meeting to discuss the initiation of a pediatric Phase 3 study for BPS-804 for the treatment of patients with severe OI. The FDA cited a serious cardiovascular safety concern in adults treated with sclerostin inhibitors that had yet to be resolved and informed Mereo that a risk/benefit assessment for sclerostin inhibitors could not be completed at that time. The FDA further recommended that Mereo not submit its proposed pediatric protocol until the cardiovascular safety issue had been adequately addressed and favorably resolved. In January 2019 the FDA held an Advisory Committee meeting, which voted 18-1 to approve another sclerostin inhibitor. Mereo believes the FDA now has fuller data on the cardiovascular safety issue and plans to re-engage with the FDA in 2019 to discuss the expansion of the pediatric Phase 3 study for BPS-804 for the treatment of patients with severe OI to include sites in the United States.

Drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. Additionally, if any of Mereo’s product candidates receives marketing approval and Mereo or others later identify undesirable or unacceptable side effects caused by these product candidates, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw approvals of any such product and require Mereo to take it off the market;

 

   

regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians and pharmacies;

 

 

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regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that Mereo implement a REMS plan to ensure that the benefits of the product outweigh its risks;

 

   

Mereo may be required to change the way a product is administered, conduct additional clinical trials, or change the labeling of a product;

 

   

Mereo may be subject to limitations on how it may promote the product;

 

   

sales of the product may decrease significantly;

 

   

third-party private or government payors may not offer, or may offer inadequate, reimbursement coverage for, Mereo’s products, or reimbursement payments may be delayed;

 

   

Mereo may be subject to litigation or product liability claims; and

 

   

Mereo’s reputation may suffer.

Any of these events could prevent Mereo or any collaborators from achieving or maintaining market acceptance of Mereo’s product candidates or could substantially increase commercialization costs and expenses, which in turn could delay or prevent Mereo from generating significant revenue from the sale of its product candidates.

Mereo depends on enrollment of patients in its clinical trials for its product candidates. If Mereo is unable to enroll patients in its clinical trials, or enrollment is slower than anticipated, in particular for its product candidates with rare disease indications, its research and development efforts could be adversely affected.

Successful and timely completion of clinical trials for Mereo’s product candidates will require that Mereo enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of the limited number of patients with the diseases that these product candidates target, patient enrollment taking longer than anticipated, or patient withdrawal. Due to the small number of patients for any rare disease, it may be difficult for Mereo to enroll a sufficient number of patients in its clinical trials for its product candidates with indications in rare diseases or enrollment for these product candidates may take significantly longer than Mereo anticipates. In addition, Mereo will compete with other companies in enrolling the same limited population of patients, which may further challenge Mereo’s ability to timely enroll patients in its clinical trials. It is estimated that OI, the target indication for BPS-804, affects a minimum of 20,000 people in the United States and approximately 32,000 people in Germany, Spain, France, Italy, and the United Kingdom, collectively. There are an estimated 50,000 and 60,000 persons in North America and Europe, respectively, with the genotypes that Mereo intends to enroll in its clinical trials for AATD, the target indication for MPH-966. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs or biologics approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies. These factors may make it difficult for Mereo to enroll enough patients to complete its clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of Mereo’s product candidates will increase Mereo’s costs, slow down its development and approval of Mereo’s product candidates, and delay or potentially jeopardize Mereo’s ability to commence product sales and generate revenue. In addition, some of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of Mereo’s product candidates.

 

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Mereo may become exposed to costly and damaging liability claims, either when testing its product candidates in the clinic or at the commercial stage, and its product liability insurance may not cover all damages from such claims.

Mereo is exposed to potential product liability and professional indemnity risks that are inherent in the development, manufacturing, marketing, and use of pharmaceutical products. Currently, Mereo has no products that have been approved for commercial sale; however, the current and future use of its product candidates by it and any collaborators, in clinical trials, and the sale of these product candidates, if approved, in the future, may expose Mereo to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, Mereo’s collaborators, or others selling these product candidates. Any claims against Mereo, regardless of its merit, could be difficult and costly to defend and could adversely affect the market for its product candidates or any prospects for commercialization of Mereo’s product candidates. In addition, regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for Mereo’s product candidates;

 

   

injury to Mereo’s reputation;

 

   

withdrawal of clinical trial participants;

 

   

costs to defend related litigation;

 

   

diversion of management’s time and Mereo’s resources;

 

   

substantial monetary awards to trial participants or patients;

 

   

regulatory investigation, product recalls or withdrawals, or labeling, marketing or promotional restrictions;

 

   

loss of revenue; and

 

   

the inability to commercialize or promote Mereo’s product candidates.

Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If Mereo’s product candidates were to cause adverse side effects during clinical trials or after approval, Mereo may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use Mereo’s product candidates.

Although Mereo maintains product liability insurance for its product candidates, it is possible that its liabilities could exceed its insurance coverage. Mereo intends to expand its insurance coverage to include the sale of commercial products if it obtains marketing approval for any of its product candidates. However, Mereo may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against Mereo for uninsured liabilities or in excess of insured liabilities, Mereo’s assets may not be sufficient to cover such claims and its business operations could be impaired.

The regulatory approval processes of the FDA, the EMA, and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable, and if Mereo is ultimately unable to obtain regulatory approval for its product candidates, its business will be substantially harmed.

The time required to obtain approval by the FDA, the EMA, and comparable foreign authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary

 

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among jurisdictions. Mereo has not obtained regulatory approval for any of its product candidates and it is possible that none of its product candidates will obtain regulatory approval.

Mereo’s product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

the FDA, the EMA, or comparable foreign regulatory authorities may disagree with the design or implementation of Mereo’s clinical trials;

 

   

Mereo may be unable to demonstrate to the satisfaction of the FDA, the EMA, or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA, or comparable foreign regulatory authorities for approval;

 

   

Mereo may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the FDA, the EMA, or comparable foreign regulatory authorities may disagree with Mereo’s interpretation of data from pre-clinical studies or clinical trials or may find the data to be unacceptable;

 

   

the data collected from clinical trials may not be sufficient to support the submission of a BLA or NDA in the United States, an MAA in the EU, or other comparable submission to obtain regulatory approval in other countries;

 

   

the FDA, the EMA, or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which Mereo contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA, the EMA, or comparable foreign regulatory authorities may significantly change in a manner rendering Mereo’s clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in Mereo’s failing to obtain regulatory approval to market any product candidates. The FDA, the EMA, and other regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for a product candidate. Even if Mereo believes the data collected from clinical trials are promising, such data may not be sufficient to support approval by the FDA, the EMA, or any other regulatory authority.

In addition, even if Mereo were to obtain approval for any jurisdiction, regulatory authorities may approve Mereo’s product candidates for fewer or more limited indications than Mereo request, may not approve the price Mereo intends to charge for its product candidates, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of such product candidate. Any of the foregoing scenarios could materially harm Mereo’s commercial prospects and business.

Even if any of Mereo’s product candidates obtains regulatory approval, Mereo will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, any of Mereo’s product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and Mereo may be subject to penalties if Mereo fails to comply with regulatory requirements or experience unanticipated problems with such product candidate.

If the FDA, the EMA, or a comparable foreign regulatory authority approves any of Mereo’s product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting,

 

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storage, advertising, promotion, and recordkeeping for such product candidate will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, facility registration, and drug listing, as well as continued compliance with cGMP requirements for manufacturing, GDP, or good distribution practice, requirements for product distribution, and GCP requirements for any clinical trials that Mereo conducts post-approval, all of which may result in significant expense and limit Mereo’s ability to commercialize a product candidate. Mereo and its contract manufacturers will also be subject to user fees and periodic inspection by the FDA, the EMA, and other regulatory authorities to monitor compliance with these requirements and the terms of any product approval Mereo may obtain. In addition, any regulatory approvals that Mereo receive for a product candidate may also be subject to limitations on the approved indicated uses for which such product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of such product.

If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or the manufacture of a product, or if Mereo or one of its distributors, licensees, or co-marketers fails to comply with regulatory requirements, the regulatory authorities could take various actions. These include imposing fines on Mereo, imposing restrictions on Mereo’s product or its manufacture, and requiring Mereo to recall or remove a product from the market. The regulatory authorities could also suspend or withdraw Mereo’s marketing authorizations, or require it to conduct additional clinical trials, change its product labeling, or submit additional MAAs. If any of these events occurs, Mereo’s ability to sell its product may be impaired, and it may incur substantial additional expense to comply with regulatory requirements.

The policies of the FDA, the EMA, and other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of Mereo’s product candidates. Mereo cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States, the United Kingdom, Europe, or other jurisdictions. For example, the current U.S. presidential administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. Notably, in January 2017, an Executive Order was issued directing all executive agencies, including the FDA, that, for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information and Regulatory Affairs in February 2017, the administration indicated that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents, and in September 2017, the FDA published notices in the Federal Register soliciting broad public comment to identify regulations that could be modified in compliance with these Executive Orders. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, Mereo’s business may be negatively impacted. In addition, if Mereo is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it is not able to maintain regulatory compliance, Mereo may lose any marketing approval that it may have obtained and may not achieve or sustain profitability.

 

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Even if Mereo obtains marketing approval of any of its product candidates in a major pharmaceutical market such as the United States or the EU, it may not be able to obtain approval or commercialize that product candidate in other markets, which would limit its ability to realize its full market potential.

In order to market any products in a country or territory, Mereo must establish and comply with numerous and varying regulatory requirements of such country or territory regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking regulatory approvals in multiple markets may require additional pre-clinical studies or clinical trials, which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of Mereo’s product candidates in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. In addition, Mereo’s failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. Mereo currently does not have any product candidates approved for sale in the United States, the EU, or any other markets, and Mereo’s management team does not have experience in obtaining regulatory approval in markets outside of the United States and the EU. If Mereo seeks regulatory approval in other markets and fail to obtain marketing approval in those markets or, if Mereo’s product candidates are approved in such markets but Mereo fails to maintain such approvals, its ability to realize the full market potential of its product candidates will be compromised.

Mereo’s employees and independent contractors, including principal investigators, CROs, CMOs, consultants, vendors, and any other third parties Mereo may engage in connection with the development and commercialization of its product candidates may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could adversely affect Mereo’s business.

Misconduct by Mereo’s employees and independent contractors, including principal investigators, CROs, CMOs, consultants, vendors, and any other third parties Mereo may engage in connection with the development and commercialization of Mereo’s product candidates, could include intentional, reckless, or negligent conduct or unauthorized activities that violate: (i) the laws and regulations of the FDA, the EMA and other similar regulatory authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) data privacy, security, fraud and abuse, and other healthcare laws and regulations; or (iv) laws that require the reporting of true, complete, and accurate financial information and data. Specifically, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in pre-clinical studies or clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to Mereo’s reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions Mereo take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Mereo from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, Mereo is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against Mereo, and it is not successful in defending itself or asserting its rights, those actions could have a

 

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significant impact on its business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other U.S. federal healthcare programs or healthcare programs in other jurisdictions, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of Mereo’s operations. Mereo is also subject to the data privacy regime in the EU, which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the EU and includes the General Data Protection Regulation (“the GDPR”) and any national laws implementing or supplementing the GDPR. If Mereo does not comply with its obligations under the EU privacy regime, it could be exposed to significant fines and may be the subject of litigation and/or adverse publicity, which could have a material adverse effect on its reputation and business.

Risks Related to Healthcare Laws and Other Legal Compliance Matters

Enacted and future healthcare legislation may increase the difficulty and cost for Mereo to obtain marketing approval of and commercialize its product candidates and may affect the prices it may set.

In the United States, EU and other jurisdictions, there have been, and Mereo expects there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect Mereo’s future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (as so amended, the “ACA”) was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include the following:

 

   

an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to its market share in certain government healthcare programs;

 

   

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during its coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

   

new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and its immediate family members;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price (“AMP”);

 

   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and biologics, including Mereo’s product candidates, that are inhaled, infused, instilled, implanted, or injected;

 

   

extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

   

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

 

   

creation of the Independent Payment Advisory Board, which, once empaneled, will have the authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law unless overruled by a supermajority vote of the U.S. Congress (“Congress”);

 

   

establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services (“CMS”), to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending;

 

   

expansion of the entities eligible for discounts under the Public Health Service program; and

 

   

a licensure framework for follow on biologic products.

Since its enactment, there have been judicial and congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of any certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. The Trump administration has also announced that it will discontinue the payment of cost-sharing reduction (“CSR”) payments to insurance companies until Congress approves the appropriation of funds for the CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Further, each chamber of Congress have put forth multiple bills this year designed to repeal or repeal and replace portions of the ACA. Although none of these measures have been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA. Congress will likely consider other legislation to replace elements of the ACA. Mereo continues to evaluate the effect that the ACA and its possible repeal and replacement has on its business. It is uncertain the extent to which any such changes may impact Mereo’s business or financial condition.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws or any other similar laws introduced in the future may result in additional reductions in Medicare and other health care funding, which could negatively affect Mereo’s customers and accordingly, Mereo’s financial operations.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things,

 

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bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. Mereo expects that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for Mereo’s product candidates or additional pricing pressures.

Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm Mereo’s business, results of operations, financial condition, and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in its prescription drug and other healthcare programs. This could reduce the ultimate demand for Mereo’s product candidates or put pressure on Mereo’s product pricing.

In the EU, similar political, economic and regulatory developments may affect Mereo’s ability to profitably commercialize its product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase Mereo’s operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of Mereo’s product candidates, restrict or regulate post-approval activities and affect Mereo’s ability to commercialize its product candidates, if approved.

In markets outside of the United States and EU, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

Mereo cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action in the United States, the EU, or any other jurisdiction. If Mereo or any third parties it may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Mereo or such third parties are not able to maintain regulatory compliance, Mereo’s product candidates may lose any regulatory approval that may have been obtained and Mereo may not achieve or sustain profitability.

Mereo’s business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers will be subject to applicable healthcare regulatory laws, which could expose Mereo to penalties.

Mereo business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers, may expose

 

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Mereo to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which Mereo conduct its operations, including how it researches, markets, sells, and distributes its product candidates, if approved. Such laws include:

 

   

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving, or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, any good, facility, item, or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. The U.S. federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other hand;

 

   

the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act (“FCA”) which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the federal government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims;

 

   

the U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and its respective implementing regulations, which impose, among other things, specified requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and healthcare providers as well as its business associates that perform certain services involving the use or disclosure of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

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the U.S. federal Food, Drug and Cosmetic Act (“FDCA”), which prohibits, among other things, the adulteration or misbranding of drugs, biologics, and medical devices;

 

   

the U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a biological product unless a biologics license is in effect for that product;

 

   

the U.S. federal legislation commonly referred to as the Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics, and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the government information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by the physicians described above and its immediate family members;

 

   

analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to Mereo’s business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

   

similar healthcare laws and regulations in the EU and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of Mereo’s business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Ensuring that Mereo’s current and future internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Mereo’s business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.

If Mereo’s operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to it, Mereo may be subject to the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if Mereo becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment or restructuring of Mereo’s operations, any of which could adversely affect Mereo’s ability to operate its business and its results of operations. If any of the physicians or other providers or entities with whom Mereo expects to do business are found to not be in compliance with applicable laws, Mereo may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect Mereo’s ability to operate its business. Further, defending

 

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against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if Mereo is successful in defending against any such actions that may be brought against it, its business may be impaired.

Mereo is subject to governmental regulation and other legal obligations related to privacy, data protection and data security. Mereo’s actual or perceived failure to comply with such obligations could harm its business.

Mereo is subject to diverse laws and regulations relating to data privacy and security in the EU, and in the future in the European Economic Area, including the GDPR. New global privacy rules are being enacted and existing ones are being updated and strengthened. Mereo is likely to be required to expend capital and other resources to ensure ongoing compliance with these laws and regulations.

The GDPR applies extraterritorially and implements stringent operational requirements for controllers and processors of personal data. For example, the GDPR: (i) requires detailed disclosures to data subjects; (ii) requires disclosure of the legal basis on which personal data is processed; (iii) makes it harder to obtain valid consent for processing; (iv) requires the appointment of a data protection officers where sensitive personal data (i.e. health data) is processed on a large scale; (v) provides more robust rights for data subjects; (vi) introduces mandatory data breach notification through the EU; (vii) imposes additional obligations when contracting with service providers; and (viii) requires an appropriate privacy governance framework to be implemented including policies, procedures, training and data audit. The GDPR permits member state derogations for certain issues and, accordingly, Mereo is also subject to EU national laws relating to the processing of certain data such as genetic data, biometric data and data concerning health. Complying with these numerous, complex and often changing regulations is expensive and difficult. Failure by Mereo, or its partners or service providers, to comply with the GDPR could result in regulatory investigations, enforcement notices and/or fines of up to the higher of 20,000,000 Euros or up to 4% of Mereo’s total worldwide annual turnover. In addition to the foregoing, any breach of privacy laws or data security laws, particularly those resulting in any security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of sensitive or confidential patient or consumer information, could have a material adverse effect on Mereo’s business, reputation and financial condition.

As a data controller, Mereo is accountable for any third-party data service providers it engages to process personal data on its behalf. Mereo attempts to address the associated risks by performing security assessments, detailed due diligence and regularly performing privacy and security reviews of its vendors and requiring all such third-party providers with data access to sign agreements, including business associate agreements, and where required under EU law, obligating them to only process data according to Mereo’s instructions and to take sufficient security measures to protect such data. There is no assurance that these contractual measures and Mereo’s own privacy and security-related safeguards will protect it from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by Mereo’s third-party processors could have a material adverse effect on Mereo’s business and result in the fines and penalties outlined above.

Mereo is also subject to evolving European privacy laws on electronic marketing and cookies. The EU is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each European member state. The draft e-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons and similar technology and significantly increases fining powers to the same levels as GDPR (i.e. the greater of 20,000,000 Euros or 4% of total global annual revenue). While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European

 

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legislative process and commentators now expect it to be adopted during the second half of 2020 or during 2021 following a transition period.

Due to Mereo’s international operations, it is subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing its operations. If Mereo fails to comply with these laws, it could be subject to civil or criminal penalties, other remedial measures and legal expenses.

Mereo’s operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010 (the “Bribery Act”); the U.S. Foreign Corrupt Practices Act (the “FCPA”); and other anti-corruption laws that apply in countries where Mereo does business and may do business in the future. The Bribery Act, FCPA, and these other laws generally prohibit Mereo, its officers and its employees and intermediaries from bribing, being bribed by, or providing prohibited payments or anything else of value to government officials or other persons to obtain or retain business or gain some other business advantage. Mereo may in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and it may participate in collaborations and relationships with third parties whose actions could potentially subject it to liability under the Bribery Act, FCPA, or local anti-corruption laws. In addition, Mereo cannot predict the nature, scope, or effect of future regulatory requirements to which any of its international operations might be subject or the manner in which existing laws might be administered or interpreted.

Mereo is also subject to other laws and regulations governing any international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations (collectively, the “Trade Control Laws”).

There is no assurance that Mereo will be completely effective in ensuring its compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA, or other legal requirements, including Trade Control Laws. If Mereo is not in compliance with the Bribery Act, the FCPA, and other anti-corruption laws or Trade Control Laws, it may be subject to criminal and civil penalties, disgorgement, and other sanctions and remedial measures and legal expenses. Any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws, or Trade Control Laws by U.K., U.S., or other authorities, even if it is ultimately determined that Mereo did not violate such laws, could be costly and time-consuming, require significant personnel resources, and harm Mereo’s reputation.

Mereo will seek to build and continuously improve its systems of internal controls and to remedy any weaknesses identified. There can be no assurance, however, that the policies and procedures will be followed at all times or effectively detect and prevent violations of the applicable laws by one or more of Mereo’s employees, consultants, agents, or collaborators and, as a result, Mereo could be subject to fines, penalties, or prosecution.

Risks Related to Commercialization

Mereo operates in a highly competitive and rapidly changing industry, which may result in others acquiring, developing, or commercializing competing products before or more successfully than Mereo does.

The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Mereo’s success is highly dependent on its ability to acquire, develop, and obtain marketing approval for new products on a cost-effective basis and to market them successfully. If BPS-804, MPH-966, BCT-197, or BGS-649 is approved, Mereo will face

 

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intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies, and biopharmaceutical companies in the United States, Europe, and other jurisdictions. These organizations may have significantly greater resources than Mereo has and conduct similar research; seek patent protection; and establish collaborative arrangements for research, development, manufacturing, and marketing of products that may compete with Mereo’s product candidates.

Mereo expects to face competition for each of its current product candidates, including specifically:

 

   

Mereo considers BPS-804’s current closest potential competitors in development for the treatment of OI to be denosumab (Prolia) from Amgen Inc. (“Amgen”), an anti-resorptive agent, and UCB S.A. (“UCB”), and Amgen’s anti-sclerostin antibody, romosozumab. Blosozumab, an anti-sclerostin antibody, was in Phase 1 development for osteoporosis by Eli Lilly and Company (“Eli Lilly”); however, Mereo is not aware of any ongoing clinical trials for this product candidate and does not believe this product candidate remains under active development. Additionally, Bone Therapeutics SA (“Bone Therapeutics”), is developing osteoblastic cell therapy products. Baylor College of Medicine is also conducting a Phase 1 open label trial of fresolimumab, a TGF-B inhibitor, in adult OI patients.

 

   

Mereo considers MPH-966’s current closest potential competitors for the treatment of severe AATD to be alpha1-proteinase inhibitors that are administered intravenously in AAT augmentation therapy. Currently, there are four inhibitors on the market in the United States: Prolastin-C from Grifols, S.A. (“Grifols”), Aralast from Shire plc, now a subsidiary of Takeda Pharmaceutical Company Ltd (“Shire”), Zemaira from CSL Limited (“CSL”), and Glassia from Kamada Ltd. (“Kamada”). Kamada is also investigating an inhaled version of augmentation therapy, Apic Bio, Inc. (“Apic Bio”) is in the early stages of developing gene-therapy approaches for AATD and Vertex Pharmaceuticals Inc. (“Vertex”) has an early-stage small molecule corrector program for AATD. Santhera Pharmaceuticals (“Santhera”), has in-licensed an inhaled neutrophil elastase inhibitor and is planning a multiple ascending dose study, with the initial indication targeted being cystic fibrosis.

 

   

For BCT-197, although Mereo is not aware of any approved therapies for the treatment of AECOPD, there are a wide range of established therapies available for COPD as well as a number of products in development, with Verona Pharma plc (“Verona Pharma”), GlaxoSmithKline plc. (“GlaxoSmithKline”), and AstraZeneca each conducting Phase 2 trials on drugs for the treatment of COPD.

 

   

Mereo considers BGS-649’s current closest potential competitors for the treatment of HH to be testosterone replacement therapies (“TRT”). These include Androgel from AbbVie Inc. (“Abbvie”), and Eli Lilly’s Axiron, both administered transdermally by applying a gel formulation, which are approved in the United States and Europe, and Andriol from Merck & Co., Inc. (“Merck”), an oral testosterone therapy, which is approved in Europe but not in the United States. There are also other approved TRT products that are administered via injection and other oral TRTs that are still in the development or registration stages, such as JATENZO from Clarus Therapeutics, Inc. (“Clarus”), and TLANDO from Lipocine, Inc. (“Lipocine”). The FDA held advisory committee meetings in January 2018 for JATENZO and TLANDO. On May 9, 2018, Lipocine announced that it had received a Complete Response Letter from the FDA and is in the process of addressing the issues identified in the letter.

Mereo also anticipates that new companies will enter these markets in the future. If Mereo successfully develops and commercializes any of BPS-804, MPH-966, BCT-197, or BGS-649, they will compete with existing therapies and new therapies that may become available in the future. The highly competitive nature of and rapid technological changes in the biopharmaceutical and pharmaceutical

 

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industries could render Mereo’s product candidates obsolete, less competitive, or uneconomical. Mereo’s competitors may, among other things:

 

   

have significantly greater name recognition, financial, manufacturing, marketing, drug development, technical, and human resources than Mereo does, and future mergers and acquisitions in the biopharmaceutical and pharmaceutical industries may result in even more resources being concentrated in Mereo’s competitors;

 

   

develop and commercialize products that are safer, more effective, less expensive, more convenient, or easier to administer, or have fewer or less severe effects, or in certain cases could be curative for the condition;

 

   

obtain quicker regulatory approval;

 

   

establish superior proprietary positions covering Mereo’s products and technologies;

 

   

implement more effective approaches to sales and marketing; or

 

   

form more advantageous strategic alliances.

Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Mereo in recruiting and retaining qualified scientific and management personnel; establishing clinical trial sites and patient registration; and in acquiring technologies complementary to, or necessary for, Mereo’s programs. Mereo’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than Mereo’s product candidates. Mereo’s competitors may also obtain FDA, EMA, or other regulatory approval for its product candidates more rapidly than Mereo may obtain approval for its own product candidates, which could result in Mereo’s competitors establishing or strengthening its market position before Mereo is able to enter the market.

Mereo has obtained orphan drug designation for BPS-804 for the treatment of OI in the United States and EU, but Mereo may be unable to obtain orphan drug designation for MPH-966 or any future product candidates, and Mereo may be unable to obtain or maintain the benefits associated with orphan drug designation, including the potential for orphan drug exclusivity, for BPS-804 or any other product candidate for which Mereo obtains orphan drug designation.

Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the EU, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the EU. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating, or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax credits for qualified clinical testing, and user-fee waivers. In addition, if a product receives the first FDA approval of that drug for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a

 

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period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the rare disease or condition. Under the FDA’s regulations, the FDA will deny orphan drug exclusivity to a designated drug upon approval if the FDA has already approved another drug with the same active ingredient for the same indication, unless the drug is demonstrated to be clinically superior to the previously approved drug. In the EU, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the drug is sufficiently profitable not to justify maintenance of market exclusivity. In the EU, a marketing authorization for an orphan designated product will not be granted if a similar drug has been approved in the EU for the same therapeutic indication, unless the applicant can establish that its product is safer, more effective or otherwise clinically superior. A similar drug is a product containing a similar active substance or substances as those contained in an already authorized product. Similar active substance is defined as an identical active substance, or an active substance with the same principal molecular structural features (but not necessarily all of the same molecular features) and which acts via the same mechanism.

Mereo has obtained orphan drug designation from the FDA and EMA for BPS-804 for the treatment of OI, and plans to seek orphan drug designation for MPH-966 and future product candidates. Even with orphan drug designation, Mereo may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products, which could prevent Mereo from marketing its product candidates if another company is able to obtain orphan drug exclusivity before Mereo does. In addition, exclusive marketing rights in the United States may be unavailable if Mereo seeks approval for an indication broader than the orphan-designated indication or may be lost in the United States if the FDA later determines that the request for designation was materially defective or if Mereo is unable to assure sufficient quantities of the drug to meet the needs of patients with the rare disease or condition following approval. Further, even if Mereo obtains orphan drug exclusivity, that exclusivity may not effectively protect Mereo’s product candidates from competition because different drugs with different active moieties can be approved for the same condition. In addition, the FDA and the EMA can subsequently approve products with the same active moiety for the same condition if the FDA or the EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while Mereo intends to seek orphan drug designation for other existing and future product candidates, including MPH-966, Mereo may never receive such designations.

There have been legal challenges to aspects of the FDA’s regulations and policies concerning the exclusivity provisions of the Orphan Drug Act, and future challenges could lead to changes that affect the protections afforded Mereo’s product candidates in ways that are difficult to predict. In 2014, a U.S. district court invalidated the FDA’s denial of orphan exclusivity to an orphan designated drug, which the FDA had based on its determination that the drug was not proven to be clinically superior to a previously approved “same drug.” In response to the decision, the FDA released a policy statement stating that the court’s decision is limited to the facts of that particular case and that the FDA will continue to deny orphan drug exclusivity to a designated drug upon approval if the drug is the “same” as a previously approved drug, unless the drug is demonstrated to be clinically superior to that previously approved drug. Since then, similar legal challenges have been initiated against the FDA for its denial of orphan drug exclusivity to other designated drugs, and in 2017, Congress amended the Orphan Drug Act to require a demonstration of clinical superiority upon approval as a condition of receiving orphan drug exclusivity when another “same drug” has already been approved for the same indication. In the future, there is the potential for additional legal challenges to the FDA’s orphan drug

 

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regulations and policies, and it is uncertain how ongoing and future challenges might affect Mereo’s business.

Mereo may seek and fail to obtain breakthrough therapy designation by the FDA for BPS-804 or MPH-966, or any future product candidates or access to the PRIME scheme by the EMA for MPH-966 or any future product candidates. Even if Mereo obtains such designation or access, the designation or access may not lead to faster development or regulatory review or approval, and it does not increase the likelihood that Mereo’s product candidates will receive marketing approval.

In 2012, the FDA established a breakthrough therapy designation which is intended to expedite the development and review of product candidates that treat serious or life-threatening diseases where preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically-significant endpoints, such as substantial treatment effects observed early in clinical development. The designation of a product candidate as a breakthrough therapy provides potential benefits that include but are not limited to more frequent meetings with the FDA to discuss the development plan for the product candidate and ensure collection of appropriate data needed to support approval; more frequent written correspondence from the FDA about such things as the design of the proposed clinical trials and use of biomarkers; intensive guidance on an efficient drug development program, beginning as early as Phase 1; organizational commitment involving senior managers; and eligibility for rolling review and priority review. Drugs and biologics designated as breakthrough therapies by the FDA are also eligible for accelerated approval. Similarly, the EMA has established the PRIME scheme to expedite the development and review of product candidates that show a potential to address to a significant extent an unmet medical need, based on early clinical data. In November 2017, BPS-804 was admitted to the PRIME scheme of the EMA.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if Mereo believes one of its product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. Mereo cannot be sure that its evaluation of its product candidates as qualifying for breakthrough therapy designation will meet the FDA’s expectations. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review, or approval compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of Mereo’s product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Similarly, access to the PRIME scheme is at the discretion of the EMA, and Mereo cannot be sure that MPH-966 or any future product candidates will be granted access to the scheme; that participation in the scheme will result in expedited regulatory review or approval of Mereo’s product candidates; or that access to the scheme, once granted, will not be revoked.

The successful commercialization of Mereo’s product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels, and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for Mereo’s product candidates, if approved, could limit its ability to market those products and decrease its ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers, and other third-party payors are essential for most patients to be able to afford prescription medications such as Mereo’s product candidates, assuming approval. Mereo’s ability to achieve acceptable levels of coverage and

 

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reimbursement for products by governmental authorities, private health insurers, and other organizations will have an effect on Mereo’s ability to successfully commercialize its product candidates. Assuming Mereo obtains coverage for its product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Mereo cannot be sure that coverage and reimbursement in the United States, the EU, or elsewhere will be available for its product candidates or any product that Mereo may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar, or a less expensive therapy is available. It is possible that a third-party payor may consider Mereo’s product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if Mereo shows improved efficacy or improved convenience of administration with its product candidates, pricing of existing drugs may limit the amount Mereo will be able to charge for its product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable Mereo to realize an appropriate return on its investment in its product candidates. If reimbursement is not available or is available only at limited levels, Mereo may not be able to successfully commercialize its product candidates, and may not be able to obtain a satisfactory financial return on Mereo’s product candidates.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors develop its coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for Mereo’s product candidates.

No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require Mereo to provide scientific and clinical support for the use of its product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and Mereo believes that changes in these rules and regulations are likely.

Mereo’s operations are also subject to extensive governmental price controls and other market regulations in the United Kingdom and other countries outside of the United States, and Mereo believes the increasing emphasis on cost-containment initiatives in European and other countries have and will continue to put pressure on the pricing and usage of its product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix its own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that Mereo is able to charge for Mereo’s product candidates. Accordingly, in markets outside the United States, the reimbursement for Mereo’s product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

 

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Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for Mereo’s product candidates. Mereo expects to experience pricing pressures in connection with the sale of its product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

Mereo’s existing and future product candidates may not gain market acceptance, in which case Mereo’s ability to generate product revenues will be compromised.

Even if the FDA, the EMA, or any other regulatory authority approves the marketing of Mereo’s product candidates, whether developed on Mereo’s own or with a collaborator, physicians, healthcare providers, patients, or the medical community may not accept or use Mereo’s product candidates. If Mereo’s product candidates do not achieve an adequate level of acceptance, it may not generate significant product revenue or any profits from operations. The degree of market acceptance of Mereo’s product candidates will depend on a variety of factors, including:

 

   

the timing of market introduction;

 

   

the number and clinical profile of competing products;

 

   

the clinical indications for which Mereo’s product candidates are approved;

 

   

Mereo’s ability to provide acceptable evidence of safety and efficacy;

 

   

the prevalence and severity of any side effects;

 

   

relative convenience and ease of administration;

 

   

cost-effectiveness;

 

   

marketing and distribution support;

 

   

availability of adequate coverage, reimbursement, and adequate payment from health maintenance organizations and other insurers, both public and private; and

 

   

other potential advantages over alternative treatment methods.

If Mereo’s product candidates fail to gain market acceptance, Mereo’s ability to generate revenues will be adversely affected. Even if Mereo’s product candidates achieve market acceptance, the market may prove not to be large enough to allow Mereo to generate significant revenues.

Mereo intends to directly commercialize its product candidates for rare diseases and to seek strategic relationships with third parties for the commercialization of Mereo’s product candidates for specialty diseases. If Mereo is unable to develop its own sales, marketing, and distribution capabilities or enter into business arrangements, it may not be successful in commercializing its product candidates.

Mereo has no marketing, sales, or distribution capabilities and it currently has no experience with marketing, selling or distributing pharmaceutical products. Mereo also has no strategic relationships in place for the commercialization of its product candidates. For BPS-804 and MPH-966, if approved, and for any future product candidates for rare diseases, Mereo intends either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize these product candidates in major markets or potentially to outsource aspects of these functions to third parties. Mereo may not be able to hire a sales force that is sufficient in size or has adequate expertise in OI, AATD, or other relevant rare diseases. Any failure or delay in the development of Mereo’s internal sales, marketing, and distribution capabilities would adversely impact the commercialization of these product candidates.

 

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For BCT-197 and BGS-649, and for any future product candidates for specialty diseases, Mereo intends to enter into strategic relationships for the commercialization of these product candidates. These arrangements may also include the late-stage clinical development of a product candidate. As a result, Mereo’s revenue from product sales may be lower than if Mereo directly marketed or sold these product candidates. In addition, any revenue Mereo receive will depend upon the terms of such arrangement, which may not be as favorable to Mereo as possible, and the efforts of the other party, which may not be adequate or successful and are likely to be beyond Mereo’s control. If Mereo is unable to enter into these arrangements on acceptable terms or at all, it may not be able to successfully commercialize these product candidates.

These commercialization approaches are expensive and time consuming, and some or all of the costs associated with such efforts may be incurred in advance of any approval of Mereo’s product candidates. If Mereo is not successful in commercializing its product candidates, either on its own or through strategic relationships with third parties, Mereo’s future product revenue will suffer and it may incur significant losses.

Any product candidates for which Mereo intends to seek approval as biologic products in the United States may face competition sooner than anticipated.

In the United States, the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”) created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of its product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could adversely affect the future commercial prospects for any biological products.

Mereo believes that if any product candidate is approved as a biological product under a BLA, it should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider Mereo product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for a reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

In the EU, MAAs for products that are biosimilar to an already authorized biological product, the so-called reference product, can rely on the safety and efficacy data contained in the dossier of the reference product. To qualify as a biosimilar product the marketing authorization applicant must demonstrate, through comprehensive comparability studies with the reference product, that its product is: (i) highly similar to the reference product notwithstanding the natural variability inherent to all biological medicines, and (ii) that there are no clinically meaningful differences between the biosimilar and the reference product in terms of safety, quality, and efficacy. Biosimilars can only be authorized for use after the period of exclusivity of the reference biological medicine has expired. In general, this

 

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means that the biological reference product must have been authorized for at least 10 years before a biosimilar can be made available by another company.

Risks Related to Mereo’s Dependence on Third Parties

Mereo relies, and expect to continue to rely, on third parties, including independent investigators and CROs, to conduct its clinical trials. If these CROs do not successfully carry out its contractual duties or meet expected deadlines, Mereo may not be able to obtain regulatory approval for or commercialize its product candidates, or such approval or commercialization may be delayed, and its business could be substantially harmed.

Mereo has relied upon and plans to continue to rely upon independent clinical investigators and CROs to conduct its clinical trials and to monitor and manage data for its ongoing clinical programs. Mereo relies on these parties for the execution of Mereo’s clinical trials and control only certain aspects of these parties’ activities. Nevertheless, Mereo is responsible for ensuring that each of its studies and trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and its reliance on these third parties does not relieve Mereo of its regulatory responsibilities. Mereo and its independent investigators and CROs are required to comply with GxP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of Mereo’s product candidates in clinical development. Regulatory authorities enforce these GxP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If Mereo fails to exercise adequate oversight over any of its independent investigators or CROs or if Mereo or any of its independent investigators or CROs fail to comply with applicable GxP requirements, the clinical data generated in Mereo’s clinical trials may be deemed unreliable and the FDA, the EMA, or comparable foreign regulatory authorities may require Mereo to perform additional clinical trials before approving its marketing applications. Mereo cannot assure you that upon a regulatory inspection of Mereo or its independent investigators or CROs, such regulatory authority will determine that any of Mereo’s clinical trials complies with GxP requirements. Mereo’s failure to comply with these regulations may require it to repeat clinical trials, which would delay the regulatory approval process.

Further, these independent investigators and CROs are not Mereo’s employees and Mereo is not able to control, other than by contract, the amount of resources, including time, which they devote to Mereo’s clinical trials. If Mereo’s independent investigators or CROs fail to devote sufficient resources to the development of Mereo’s product candidates, or if its performance is substandard, it may delay or compromise the prospects for approval and commercialization of Mereo’s product candidates. In addition, the use of third-party service providers requires Mereo to disclose its proprietary information to these parties, which could increase the risk that this information is misappropriated.

If any of Mereo’s relationships with its independent investigators or CROs terminate, it may not be able to enter into arrangements with alternative independent investigators or CROs or to do so on commercially reasonable terms. Switching or adding additional investigators or CROs involves additional cost and potential delays and requires Mereo’s management’s time and focus. In addition, there is a natural transition period when a new independent investigator or CRO commences work. As a result, delays could occur, which could materially impact Mereo’s ability to meet its desired clinical development timelines.

If Mereo’s independent investigators or CROs do not successfully carry out its contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to a failure to adhere to Mereo’s clinical protocols, regulatory requirements, or for other reasons, Mereo’s clinical trials may be extended, delayed, or terminated and Mereo may not be able to obtain regulatory approval for or successfully commercialize

 

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its product candidates. As a result, Mereo’s results of operations and the commercial prospects for its product candidates would be harmed, its costs could increase and its ability to generate revenue could be delayed.

Mereo currently relies on third-party contract manufacturing organizations (“CMOs”) for the production of clinical supply of Mereo’s product candidates and intend to rely on CMOs for the production of commercial supply of Mereo’s product candidates, if approved. Mereo’s dependence on CMOs may impair the development of Mereo’s product candidates and may impair the commercialization of its product candidates, which would adversely impact its business and financial position.

Mereo has limited personnel with experience in manufacturing, and does not own facilities for manufacturing its product candidates. Instead, Mereo relies on and expect to continue to rely on CMOs for the supply of cGMP grade clinical trial materials and commercial quantities of Mereo’s product candidates, if approved. Reliance on CMOs may expose Mereo to more risk than if it were to manufacture its own product candidates. Novartis previously provided clinical supplies for BPS-804, BCT-197, and BGS-649 and certain transitional services. Mereo has moved the clinical supply manufacture for these product candidates to CMOs. Mereo also intends to contract with CMOs for the clinical supply of MPH-966.

The facilities used to manufacture Mereo’s product candidates must be approved by the FDA, the EMA, and comparable foreign authorities pursuant to inspections. While Mereo provides oversight of manufacturing activities, it does not and will not control the execution of its manufacturing activities by, and is or will be essentially dependent on, its CMOs for compliance with cGMP requirements for the manufacture of its product candidates. As a result, Mereo is subject to the risk that its product candidates may have manufacturing defects that Mereo has limited ability to prevent. If a CMO cannot successfully manufacture material that conforms to Mereo’s specifications and the regulatory requirements, Mereo may not be able to secure or maintain regulatory approval for the use of its investigational medicinal products in clinical trials, or for commercial distribution of its product candidates, if approved. In addition, Mereo has limited control over the ability of its CMOs to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, the EMA or comparable foreign regulatory authority does not approve these facilities for the manufacture of Mereo’s product candidates or if it withdraws any such approval in the future, Mereo may need to find alternative manufacturing facilities, which would delay its development program and significantly impact its ability to develop, obtain regulatory approval for or commercialize its product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject Mereo to the risk that it may have to suspend the manufacturing of its product candidates or that obtained approvals could be revoked. Furthermore, CMOs may breach existing agreements they have with Mereo because of factors beyond Mereo’s control. CMOs may also terminate or refuse to renew its agreement at a time that is costly or otherwise inconvenient for Mereo. In addition, the manufacture of biologics involves expensive and complex processes and worldwide capacity at CMOs for the manufacture of biologics is currently limited. In addition, Novartis has a contractual right to approve or reject any additional CMO Mereo wishes to engage for the manufacture of BPS-804, other than those CMOs that Mereo and Novartis have already agreed upon. If Mereo were to be unable to find an adequate CMO or another acceptable solution in time, Mereo’s clinical trials could be delayed or its commercial activities could be harmed.

Mereo relies on and will continue to rely on CMOs to purchase from third-party suppliers the raw materials necessary to produce Mereo’s product candidates. Mereo does not and will not have control over the process or timing of the acquisition of these raw materials by Mereo’s CMOs. Moreover, Mereo currently does not have any agreements for the production of these raw materials. Supplies of raw material could be interrupted from time to time and Mereo cannot be certain that alternative

 

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supplies could be obtained within a reasonable timeframe, at an acceptable cost, or at all. In addition, a disruption in the supply of raw materials could delay the commercial launch of Mereo’s product candidates, if approved, or result in a shortage in supply, which would impair Mereo’s ability to generate revenues from the sale of its product candidates. Growth in the costs and expenses of raw materials may also impair Mereo’s ability to cost effectively manufacture its product candidates. There are a limited number of suppliers for the raw materials that Mereo may use to manufacture its product candidates and Mereo may need to assess alternate suppliers to prevent a possible disruption of the manufacture of its product candidates.

Finding new CMOs or third-party suppliers involves additional cost and requires Mereo’s management’s time and focus. In addition, there is typically a transition period when a new CMO commences work. Although Mereo generally does not begin a clinical trial unless it believes it has on hand, or will be able to obtain, a sufficient supply of Mereo’s product candidates to complete the clinical trial, any significant delay in the supply of its product candidates or the raw materials needed to produce its product candidates, could considerably delay conducting its clinical trials and potential regulatory approval of its product candidates.

As part of its manufacture of Mereo’s product candidates, its CMOs and third-party suppliers are expected to comply with and respect the proprietary rights of others. If a CMO or third-party supplier fails to acquire the proper licenses or otherwise infringes the proprietary rights of others in the course of providing services to Mereo, Mereo may have to find alternative CMOs or third-party suppliers or defend against claims of infringement, either of which would significantly impact Mereo’s ability to develop, obtain regulatory approval for or commercialize its product candidates, if approved.

Mereo intends to enter into strategic relationships with third parties, based on a product-by-product assessment, for the development of some of its product candidates. If Mereo fails to enter into these arrangements, its business, development and commercialization prospects could be adversely affected.

Mereo’s development program for its product candidates, particularly as they enter late-stage development, will require substantial additional funds. Mereo currently intends to enter into a strategic relationship with a pharmaceutical or biopharmaceutical company for the continued development of BCT-197 and for BGS-649, and Mereo may take the same approach for other product candidates.

These types of development arrangements are complex and time-consuming to negotiate and document, and Mereo may not be able to enter into these arrangements on favorable terms or at all. In addition, Mereo faces significant competition from other companies in seeking out these types of development arrangements. If Mereo is successful in entering into such an arrangement, it will be subject to other risks, including its inability to control the amount of time and resources the third party will dedicate to its product candidates, financial or other difficulties experienced by such third party, relinquishing important rights to such third party, and the arrangement failing to be profitable to Mereo.

If Mereo is unable to enter into an appropriate arrangement for the development of BCT-197 and potentially for BGS-649 or other product candidates, Mereo may have to reduce, delay, or terminate the development of such product candidates. If Mereo, instead, decides to increase its expenditures to fund development activities on its own, it will need to obtain additional capital, which may not be available to it on acceptable terms or at all. As a result, Mereo’s business may be substantially harmed.

 

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Risks Related to Intellectual Property and Data Protection

Mereo relies on patents and other intellectual property rights to protect its product candidates, the obtainment, enforcement, defense and maintenance of which may be challenging and costly. Failure to enforce or protect these rights adequately could harm Mereo’s ability to compete and impair its business.

Mereo’s commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property protection, for example, for compositions-of-matter of its product candidates, formulations of its product candidates, polymorphs, salts and analogs of its product candidates, methods used to manufacture its product candidates, methods for manufacturing of the final drug products, and methods of using its product candidates for the treatment of the indications Mereo is developing or plans to develop, or on in-licensing such rights. Mereo’s patent portfolio comprises patents and patent applications which cover its BPS-804, BCT-197, and BGS-649 product candidates acquired or exclusively licensed from Novartis, and patents and patent applications which cover Mereo’s MPH-966 product candidate exclusively licensed (with the option to purchase) from AstraZeneca. The assignments of those patents and patent applications which Mereo acquired from Novartis have been registered with the relevant authorities in key territories and the exclusive licenses from AstraZeneca have also been registered with the relevant authorities in key territories. There is no assurance that Mereo’s pending patent applications will result in issued patents, or if issued as patents, will include claims with sufficient scope of coverage to protect Mereo’s product candidates, or that any pending patent applications will be issued as patents in a timely manner. Failure to obtain, maintain or extend adequate patent and other intellectual property rights could adversely affect Mereo’s ability to develop and market its product candidates, resulting in harm to its business.

The patent prosecution process is expensive and time-consuming. Mereo or its licensors may not be able to prepare, file and prosecute all necessary or desirable patent applications for a commercially reasonable cost or in a timely manner or in all jurisdictions. It is also possible that Mereo or its licensors may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection for them. Moreover, depending on the terms of any future in-licenses to which Mereo may become a party, Mereo may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology in-licensed from third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of Mereo’s business.

Further, the issuance, scope, validity, enforceability, and commercial value of Mereo’s and its current or future licensors’ patent rights are highly uncertain. Mereo’s and its licensors’ pending and future patent applications may not result in issued patents that protect Mereo’s technology or product candidates, in whole or in part, or that effectively prevent others from commercializing competitive technologies and products. The patent examination process may require Mereo or its licensors to narrow the scope of the claims of Mereo’s or its licensors’ pending and future patent applications, which may limit the scope of patent protection that may be obtained. Mereo cannot assure that all of the potentially relevant prior art relating to Mereo’s patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent application from being issued as a patent. Even if patent applications do successfully issue as patents and even if such patents cover Mereo’s product candidates, third parties may initiate an opposition, interference, reexamination, post grant review, inter partes review, nullification or derivation action in courts or before patent offices, or similar proceedings challenging the validity, enforceability, or scope of such patents, which may result in the patent claims being narrowed or invalidated. Mereo’s and its licensors’ patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such patent applications, and then only to the extent the issued claims cover the technology.

 

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Because patent applications are confidential for a period of time after filing, and some remain so until issued, Mereo cannot be certain that Mereo or its licensors were the first to file any patent application related to Mereo’s product candidates. Furthermore, in the United States, if third parties have filed such patent applications on or before March 15, 2013, the date on which the United States changed from a first to invent to a first to file patent system, an interference proceeding can be initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent claims of Mereo’s applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding can be initiated by such third parties to determine whether Mereo’s invention was derived from such third parties’ product candidates. Even where Mereo has a valid and enforceable patent, Mereo may not be able to exclude others from practicing its invention where the other party can show that they used the invention in commerce before Mereo’s filing date or the other party benefits from a compulsory license.

Mereo enjoys only limited geographical protection with respect to certain patents and may not be able to protect its intellectual property rights throughout the world.

Filing and prosecuting patent applications and defending patents covering Mereo product candidates in all countries throughout the world would be prohibitively expensive. Competitors may use Mereo’s and its licensors’ technologies in jurisdictions where Mereo has not obtained patent protection to develop the competitor’s own products and, further, may export otherwise infringing products to territories where Mereo and its licensors have patent protection, but enforcement rights are not as strong as that in the United States or Europe. These products may compete with Mereo’s product candidates, and Mereo’s and its licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, Mereo may decide to abandon national and regional patent applications before grant. The examination of each national or regional patent application is an independent proceeding. As a result, patent applications in the same family may issue as patents in some jurisdictions, such as in the United States, but may issue as patents with claims of different scope or may even be refused in other jurisdictions, such as in China, which has different requirements for patentability, including a stringent requirement for a detailed description of medical uses of a claimed drug. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in the United States and Europe, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for Mereo to stop the infringement of its patents or marketing of competing products in violation of Mereo’s proprietary rights generally. Proceedings to enforce Mereo’s patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert Mereo’s efforts and attention from other aspects of its business, could put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing as patents, and could provoke third parties to assert claims against Mereo. Mereo may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Mereo’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Mereo develops or licenses. Furthermore, while Mereo intends to protect its intellectual property rights in its expected significant markets, it cannot ensure that it will be able to initiate or maintain similar efforts in all jurisdictions in which Mereo may wish to market its product candidates. Accordingly, Mereo’s efforts to protect its intellectual property rights in such countries may be inadequate, which may have an adverse effect on Mereo’s ability to successfully

 

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commercialize its product candidates in all of its expected significant foreign markets. If Mereo or its licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for Mereo’s business in such jurisdictions, the value of these rights may be diminished and Mereo may face additional competition from others in those jurisdictions.

Some countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In those countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. If Mereo or any of its licensors is forced to grant a license to third parties with respect to any patents relevant to Mereo’s business, its competitive position may be impaired.

Mereo patents and other proprietary rights may not adequately protect Mereo’s technologies and product candidates, and may not necessarily address all potential threats to Mereo’s competitive advantage.

The degree of protection afforded by Mereo’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Mereo’s business, or permit it to maintain its competitive advantage. The following examples are illustrative:

 

   

others may be able to make compounds that are the same as or similar to Mereo’s product candidates but that are not covered by the claims of the patents that Mereo owns or has exclusively licensed;

 

   

the patents of third parties may impair Mereo’s ability to develop or commercialize its product candidates;

 

   

the patents of third parties may be extended beyond the expected patent term and thus may impair Mereo’s ability to develop or commercialize its product candidates;

 

   

Mereo or its licensors or any future strategic collaborators might not have been the first to conceive or reduce to practice the inventions covered by the issued patents or pending patent applications that Mereo owns or has exclusively licensed;

 

   

Mereo or Mereo’s licensors or any future strategic collaborators might not have been the first to file patent applications covering Mereo’s inventions, its product candidates, or uses of the product candidates in the indications under Mereo’s development or to be developed;

 

   

it is possible that the pending patent applications that Mereo owns or has exclusively licensed may not lead to issued patents;

 

   

issued patents that Mereo owns or has exclusively licensed may not provide it with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by Mereo’s competitors;

 

   

issued patents that Mereo own or have exclusively licensed may not provide coverage for all aspects of Mereo’s product candidates in all countries, such as for uses of Mereo’s product candidates in the indications under Mereo’s development or to be developed;

 

   

others may independently develop similar or alternative technologies or duplicate any of Mereo’s technologies without infringing Mereo’s intellectual property rights;