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Spending doubles at Mereo BioPharma

Slow drug development has had a big impact on the bottom line
August 9, 2017

The decision to target areas of unmet medical need has proven sensible for Mereo BioPharma (MPH). The group’s new therapy for brittle bone disease – one of three drug programmes – was recently accepted onto the European Medicine Agency’s Adaptive Pathway, which means it is likely to be accelerated towards commercial launch if it achieves positive clinical results. The market for this illness may be small, but patients currently have no treatment option which means demand should be high.

IC TIP: Sell at 305p

But that launch is still a long way off. The brittle bone disease treatment is still only in the second phase of clinical trials (out of three), with results not expected for another year. The other two programmes are even further behind.

Even so, Mereo spent £21.4m on research and development in the six months to 30 June 2017, nearly twice as high as the comparable period last year. This high level of expenditure seems to be taking its toll on the balance sheet – the £15m of cash raised in the period may have offset the £11.6m of operating cash outflows, but management will soon have to dip into its £20m debt facility. The high-single-digit interest costs due to be paid on that debt are sure to weigh further on the bottom line.

MEREO BIOPHARMA (MPH)  
ORD PRICE:305pMARKET VALUE:£215m
TOUCH:300-310p12-MONTH HIGH:330pLOW: 248p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:105p*NET CASH:

£56.6m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016nil-16.9-59.0nil
2017nil-27.3-34.0nil
% change-+61-42-
Ex-div:na   
Payment:na   
*Includes intangible assets of £25.8m, or 37p a share