Recycling pays off for Mereo

Mereo Biopharma’s business model – buying in pharma’s castoffs, polishing them up, and licensing them on at a profit – has delivered the first substantial evidence that it could work.

A deal with Ultragenyx over the osteogenesis imperfecta project setrusumab has brought Mereo $50m of immediate cash and the possibility of lots more to come. True, Mereo did have to pay for and run a phase II study, and the Ultragenyx deal has several complexities, but investors can take comfort that setrusumab had come from Novartis in return for equity alone.

That Novartis deal had been done back in 2015, as part of a three-project transaction that launched Mereo on its asset-recycling journey (Trio of Novartis castoffs is just the beginning for Mereo, July 29, 2015).

Private cash was raised, additional assets were bought in, and a stock market listing followed, first in London and then last year on Nasdaq. But, barring a tiny deal under which the Oncomed-derived navicixizumab was sold to Oncologie for $4m up front, Mereo investors had yet to see substantial evidence that their company had the Midas touch.

Validation

The Ultragenyx deal, announced yesterday evening, brings validation. In return for ex-Europe rights Ultragenyx is paying Mereo $50m and future milestones and royalties, and is undertaking to fund global development.

Ultragenyx will be due a royalty from Mereo on sales in Europe, presumably in return for funding development there. However, not all proceeds will flow to Mereo: under the 2015 deal Novartis gets a cut. A final twist is that setrusumab derives from an earlier Novartis/Morphosys tie-up, and Morphosys is entitled to a share of the Swiss firm’s proceeds.

To crystallise added value in setrusumab, on which Novartis had given up in osteogenesis imperfecta (OI) and in general bone disorders alike, Mereo ran the phase II Asteroid trial in OI, a rare genetic disorder. This failed its primary endpoint, but Mereo argued that secondary measures demonstrated setrusumab’s bone-building ability, and Ultragenyx has seemingly bought into this.

It is important to remember that Asteroid was a trial in adults, and the greatest unmet need in OI lies at the disease’s most severe end, in children. A pivotal, 12-month, paediatric fracture study is planned for 2021, but at present it is unknown how setrusumab behaves in patients whose bones are still growing.

Not alone

Moreover, the project, an anti-sclerostin MAb, is not the industry’s only asset with this mechanism. The most prominent anti-sclerostin MAb is Amgen’s romosozumab, which is launched as Evenity for osteoporosis and set to begin phase I in children with OI. Amgen is also studying its blockbuster Prolia in OI.

Sanofi’s anti-TGF beta MAb fresolimumab is in a small, academic trial in OI. Another anti-sclerostin MAb, Lilly’s blosozumab, has never been studied in OI, and indeed seems no longer to be in development.

Liisa Bayko, an analyst at Evercore ISI, reckons that it will be vital for setrusumab to beat romosozumab on efficacy, if only because Evenity is priced for osteoporosis, and if such a cheap therapy became available for a rare disease it could wipe out setrusumab’s economics.

Still, with no therapies specifically indicated for OI setrusumab looks to have a good shot at approval, and its US rare paediatric disease designation backs up the opportunity. No doubt the possibility of a priority review voucher on approval played a part in persuading Ultragenyx to sign.

The bigger validation of Mereo’s business model will come if Ultragenyx pays it significant milestones and royalties, and if the licensing trick can be repeated, but the Ultragenyx deal is a good start.