Act Now: MREO Investors Targeted in Class Action!

Mereo BioPharma Group plc (NASDAQ: MREO) – a UK-based biotech focused on rare diseases – is facing a securities class action lawsuit in the wake of a major clinical trial failure. The class action, filed in early 2026, covers investors who bought Mereo’s American Depositary Shares (ADS) from June 5, 2023 through December 26, 2025 (bergermontague.com). The complaint alleges that Mereo made overly positive statements about its lead programs while hiding adverse facts – specifically that its two Phase 3 trials (named ORBIT and COSMIC) for osteogenesis imperfecta (OI, a brittle bone disease) were not meeting key goals (www.globenewswire.com). On December 29, 2025, Mereo announced that neither the ORBIT nor COSMIC Phase 3 study of its drug setrusumab achieved the primary endpoint of reducing annualized fracture rates versus placebo or standard care (www.mereobiopharma.com). This bombshell news sent Mereo’s stock into a tailspin – plunging from a $2.31 closing price on Dec 26 to about $0.29, an 87.7% collapse in one session (www.globenewswire.com). Shareholders who suffered steep losses are now “reminded” to act by the April 6, 2026 lead plaintiff deadline (www.globenewswire.com), as law firms urge them to join the case. The class action underscores a dramatic change in fortune for Mereo investors and sets the stage for a closer examination of the company’s fundamentals and outlook.

Dividend Policy and Lack of Yield

Mereo BioPharma has never paid any cash dividends on its shares and does not anticipate doing so in the foreseeable future (www.sec.gov). This is typical for a clinical-stage biotech with no approved products or earnings – all available capital is reinvested into R&D and operations. As a result, MREO carries a dividend yield of 0%, offering no income to shareholders. Metrics like Funds From Operations (FFO) or Adjusted FFO – relevant for REITs or income-producing firms – do not apply here, since Mereo generates negative operating cash flow and has no recurring profits. In fact, the company’s revenues have been essentially zero during development (e.g. reported revenue of $0.0 in recent periods (seekingalpha.com)), and net losses are the norm. Investors in MREO have been relying on potential capital gains (from successful drug development or partnerships) rather than dividends for any return. Given management’s no-dividend stance and ongoing cash burn, an income-oriented strategy is off the table. This dividend policy is unlikely to change unless Mereo evolves into a profitable, commercial-stage company – a scenario that, at present, remains uncertain.

Financial Position and Leverage

Mereo’s balance sheet reflects a typical biotech funding model, with a substantial cash reserve and minimal traditional debt. As of year-end 2025, the company reported cash and equivalents of approximately $41 million, which management expects can fund operations into mid-2027 (www.biospace.com). This runway has actually been extended following the halted OI program – since costly Phase 3 trials won’t continue, Mereo can conserve cash (www.biospace.com). A year prior, at December 2024, cash stood higher at $69.8 million (www.biospace.com), boosted by financing activities. The decline in 2025 cash partly reflects ongoing R&D spending and possibly the payoff or conversion of a convertible note obligation.

Notably, Mereo’s only significant debt has been in the form of convertible loan notes. In past filings, the company listed about $13.3 million of current convertible notes due (as of end-2023) (www.mereobiopharma.com). These notes trace back to financing deals (for example, a $5 million convert with Novartis in 2020 and other tranches) and can convert to equity under certain conditions. By 2024–2025, Mereo likely addressed these maturities – either through conversion to shares or cash repayment – since no large debt appears in the latest update. The use of equity financing has been frequent: Mereo maintained an ATM (at-the-market) stock issuance program, and in mid-2023 it drew on this facility alongside receiving a partner milestone (rss.globenewswire.com). Specifically, when the Phase 3 trials began dosing, partner Ultragenyx paid Mereo a $9 million milestone (rss.globenewswire.com), and the company also sold some stock via the ATM. These inflows helped pad cash to $53.1 million by mid-2023 (rss.globenewswire.com) and supported its capital needs.

With essentially no long-term bank debt and interest expense, leverage is low – Mereo’s debt-to-equity is negligible apart from the convertible notes. Standard coverage ratios (like interest coverage) are not meaningful, since Mereo has no earnings and only minimal interest on its notes (which may have been accruing or paid by issuing shares). Instead, the key financing concern is whether the company’s cash can cover its R&D and administrative expenses until the next value inflection point. As of early 2026, management asserts a runway into 2027 at the current burn rate (www.biospace.com), but this assumes streamlined spending after the OI trial failure. If Mereo embarks on new trials (detailed below), additional funding or partnerships will be needed. Overall, the balance sheet is solid for the near term – with tens of millions in cash and no crushing debt – but dilution risk remains if more capital must be raised to advance the pipeline.

Pipeline Status and Developments

Mereo’s investment case has centered on a handful of rare-disease drug candidates, now in various stages of uncertainty after the recent setback:

– Setrusumab (UX143) for Osteogenesis Imperfecta (OI): This monoclonal antibody was Mereo’s flagship program, developed in partnership with Ultragenyx. It had shown promise in earlier trials (a Phase 2b “ASTEROID” study in adults indicated increased bone density and hinted at fracture reduction (www.fiercebiotech.com)). Mereo and Ultragenyx launched two late-stage studies – ORBIT, a Phase 2/3 trial in 159 pediatric OI patients, and COSMIC, a Phase 3 trial vs. bisphosphonate therapy in young children (www.biospace.com). Throughout 2023 and 2024, management confidence was high: they highlighted “positive data” from the Phase 2 dose-selection portion of ORBIT (rss.globenewswire.com) and noted that both Phase 3 studies were progressing on track. In mid-2025, an interim analysis of ORBIT did not meet the threshold for early success, yet the data monitoring committee recommended continuing to final analysis (www.fiercebiotech.com). At that time, partner Ultragenyx’s CEO publicly voiced optimism, saying “we are confident that increasing bone mass leads to stronger bone, fewer fractures…” even though the trial couldn’t be stopped early (www.fiercebiotech.com). Unfortunately, the final results defied those hopes – despite significant gains in bone mineral density, neither study showed a statistically significant reduction in fracture rate (www.mereobiopharma.com). This outcome fundamentally undermined the efficacy of setrusumab for OI, triggering the collapse in MREO’s stock. Mereo has stated that additional data analyses are ongoing to determine if any path forward remains for setrusumab (www.biospace.com), but the likelihood of salvaging this program appears low. Ultragenyx, which paid $50 million upfront for rights outside Europe (www.fiercebiotech.com), has taken a major hit (its own stock dropped ~44% on the news (fintool.com)) and is now aggressively cutting costs (www.fiercebiotech.com). Unless post-hoc analyses find a niche benefit (for example, a subset of patients or a different endpoint), setrusumab’s development is effectively halted.

– Alvelestat for Alpha-1 Antitrypsin Deficiency (AATD) Lung Disease: With setrusumab’s future bleak, Mereo’s next lead asset is alvelestat – an oral neutrophil elastase inhibitor aimed at treating AATD-related lung damage. Alvelestat has shown encouraging Phase 2 results (the ASTRAEUS study met an inflammatory biomarker endpoint in AATD patients), and it has received orphan and Fast Track designations (www.biospace.com). During 2023, Mereo obtained regulatory feedback from FDA and EMA on a Phase 3 trial design (rss.globenewswire.com). The pivotal Phase 3 is expected to enroll ~220 patients over 18 months, with primary endpoints agreed upon for U.S. and EU approvals (www.biospace.com) (www.biospace.com). However, Mereo has not started this Phase 3 yet, as it has been seeking a development/commercial partner to shoulder the cost. The company signaled it aimed to initiate Phase 3 around end of 2024 with a partner (www.mereobiopharma.com), but as of the latest update (Jan 2026) no partner deal has been announced – it’s simply noted that partnering discussions are “advancing” (www.biospace.com). Alvelestat’s future thus hinges on securing a collaboration or other funding. The drug’s competitive landscape is also a consideration: other companies (including much larger players) are pursuing gene therapies or RNA-based treatments for AATD, which could impact the perceived value of Mereo’s small-molecule approach.

– Other Pipeline Assets: Mereo has a couple of legacy programs from prior acquisitions. One is Etigilimab, an anti-TIGIT immunotherapy for cancer, which had an early-stage trial in ovarian cancer. This has largely been deprioritized – the Phase 1b/2 study was wound down in 2023 (www.sec.gov), and there’s no active development by Mereo currently, aside from an investigator-sponsored trial. Another asset is Vantictumab (OMP-18R5), an anti-Wnt pathway antibody inherited from Mereo’s 2019 merger with OncoMed. In August 2025, Mereo licensed vantictumab to a partner for a rare bone disorder (osteopetrosis type 2, or ADO2) (www.stocktitan.net), possibly extracting some upfront or milestone value. However, that deal did not significantly move the stock, suggesting it was not financially large (www.stocktitan.net). These non-core assets could represent optional value if external partners advance them, but Mereo’s main focus remains on rare disease areas like OI and AATD.

In summary, Mereo’s pipeline has narrowed considerably. The crown jewel, setrusumab, has faltered at Phase 3, erasing what was once seen as a “bedrock asset” (pharmaphorum.com). Alvelestat offers a second chance, but it is still Phase 3-ready with substantial execution risk ahead. The company’s ability to rebound will depend on moving alvelestat into late-stage trials (through partnership or self-funding) and on any creative repurposing or monetization of its remaining assets. Until then, Mereo is essentially a one-active-candidate biotech.

Valuation and Market Impact

The dramatic OI trial failure has fundamentally altered Mereo’s valuation. Prior to the December 2025 news, MREO’s ADS traded around the mid-$2 range – reflecting a market capitalization near $370 million (based on roughly 160 million shares outstanding) (www.stocktitan.net) (www.stocktitan.net). After the 87% single-day plunge, the stock has been languishing well below $1.00. In early 2026, shares have hovered around 30–50 cents, implying a market cap on the order of ~$50–$75 million. This is roughly on par with the company’s cash on hand, meaning the enterprise value (EV) is nearly zero or even negative once cash is accounted (www.globenewswire.com) (www.biospace.com). In other words, the market is assigning virtually no value to Mereo’s pipeline in the aftermath of setrusumab’s failure – a harsh assessment that the remaining assets might argue against, but one common when a small biotech loses its lead program.

Traditional valuation metrics like price-to-earnings or EV/EBITDA are not meaningful for Mereo (it has no earnings or product revenue). Even price-to-book is of limited use given the book assets are mostly cash and some IP. Instead, investors often look at Mereo on a “runway value” or liquidation value basis now. With ~$41 M in cash and no debt, that sets a floor, while the upside (or lack thereof) depends on pipeline progress. The stock’s collapse also reflects a crisis of confidence – management’s credibility took a hit, and many investors who bought into the OI story have exited. Notably, large biotech partners and analysts were also caught off guard: Ultragenyx’s stock lost over 40% on the OI trial news (intellectia.ai), and some analysts covering Mereo/Ultragenyx had maintained faith up until the end (www.fiercebiotech.com) (www.fiercebiotech.com). The repricing suggests that Mereo’s remaining pipeline (chiefly alvelestat) is viewed as highly speculative. Any future positive developments – for instance, a lucrative partnership for alvelestat or unexpectedly favorable data – could lift the stock from its depressed level. Conversely, absent new catalysts, MREO may continue trading near cash value, as the market waits for evidence that the company can create value post-setrusumab.

Risks and Red Flags

Clinical and Regulatory Risks: As a biotech without approved products, Mereo is inherently high-risk. The failure of setrusumab underscores how binary outcomes can demolish shareholder value. Alvelestat, the next lead, faces its own clinical risk – there is no guarantee a Phase 3 will succeed (AATD is a challenging disease, and endpoints like lung function or quality of life could be hard to meet). Any further trial setbacks would likely be devastating. Moreover, Mereo will need regulatory approvals to commercialize alvelestat if successful; the path could be complicated if standards of care evolve (e.g. if a gene therapy emerges, regulators might scrutinize small-molecule efficacy more stringently).

Financial and Dilution Risk: While Mereo has a solid cash cushion for now, it has no recurring revenue. The company will burn cash on R&D and overhead, especially if it initiates a Phase 3 trial. Without a partner, the cost of a multi-year global trial in AATD could rapidly deplete the treasury. This could force Mereo to raise capital again by 2026/27 – likely via equity, given the lack of debt capacity – which would dilute existing shareholders. The history shows steady dilution (shares outstanding rose from ~68 million in 2020 to ~148 million in 2024 (www.macrotrends.net) as the company issued stock to fund operations). If the stock price remains low, any new equity raise (or conversion of notes at low prices) would be highly dilutive. Additionally, Mereo’s Nasdaq listing requires the stock price to stay above certain thresholds – prolonged trading under $1 could trigger a delisting warning and pressure the company to do a reverse stock split, an event that sometimes precedes further declines.

Legal and Management Red Flags: The current class action lawsuit is a red flag highlighting potential management missteps. Shareholders allege that Mereo’s management misled investors about the OI trials’ prospects (www.globenewswire.com). If evidence shows that executives knew the trials were unlikely to hit endpoints (for example, if interim data or scientific advice was pessimistic) but failed to disclose it, that’s a serious governance breach. Even if the case is settled or dismissed eventually, it creates an overhang of uncertainty and could distract management or result in reputational damage. Separately, Mereo’s management and board already had run-ins with shareholders: in 2022, its largest investor, Rubric Capital (holding ~14%), attempted a boardroom coup (pharmaphorum.com) (pharmaphorum.com). Rubric accused the board of overseeing “enormous value destruction” and pushed for new directors and a strategic refocus on monetizing assets (pharmaphorum.com). Although a compromise was reached (averting a full proxy fight), the episode highlighted governance concerns and dissatisfaction with how management was allocating capital. The fact that Mereo’s CEO and team remained optimistic publicly even as critical trial data failed to materialize may further erode investor trust. All told, there’s a risk that management’s credibility is impaired – making it harder to attract new investors or partners without changes at the top.

Pipeline Concentration and Competition: Mereo is now essentially a one-drug company (alvelestat). This concentration means the firm’s fate in the medium term is tied to a single program. Any hiccup in alvelestat’s development (delays in trial start, difficulty enrolling patients, safety issues, etc.) could leave Mereo with no other value driver. Furthermore, even if alvelestat succeeds clinically, the competitive landscape for AATD therapy is heating up. Other biotechs are developing novel treatments (gene therapies, RNAi therapies) targeting the root cause of AATD. These approaches might prove more curative than a chronic oral drug. If a competitor’s solution reaches the market first or shows superior efficacy, it could sharply limit alvelestat’s market opportunity. Thus, Mereo faces not only scientific risk but also the risk of obsolescence if it lags behind innovation.

In summary, investors should be aware that Mereo carries elevated risk on multiple fronts: clinical failure, funding needs, potential management misalignment, legal battles, and competitive threats. The recent implosion of its lead program and the ensuing class action are stark reminders of these challenges.

Outlook and Open Questions

Looking ahead, Mereo BioPharma’s story will depend on how a few key questions are resolved:

– Can the setrusumab OI program be salvaged or monetized at all? Mereo and Ultragenyx are sifting through the Phase 3 data for any silver linings (e.g. did certain subgroups benefit, or was there a trend in vertebral fracture reduction or patient-reported outcomes?) (www.biospace.com) (www.biospace.com). They plan to present detailed data at an upcoming medical meeting (www.biospace.com). However, unless they can devise a new endpoint or trial with a plausible path to approval, the program is likely dead. An open question is whether either company might repurpose setrusumab for a different bone indication or perhaps sell the rights for a nominal sum. Given the current data, any monetization of setrusumab or its OI franchise seems unlikely – but investors will watch for management’s final decision on whether to formally terminate the program or attempt some niche indication.

– Will Mereo secure a partner for alvelestat, or attempt to go it alone? The absence of a partnership for alvelestat so far is notable. It raises the question of whether potential partners are hesitant (perhaps due to competitive concerns or doubts about the Phase 2 data). If a partnership deal materializes in 2026, it could be a salvation for Mereo – ideally providing cash upfront and shared development costs. If not, Mereo faces a tough choice: delay the Phase 3 further (losing precious time and possibly patent life) or proceed solo by dipping into its cash reserves. Management claims it can fund operations into 2027 with current cash (www.biospace.com), but a Phase 3 trial could quickly burn tens of millions, shortening the runway. How Mereo navigates this will be crucial. Investors will be looking for an update on partnering discussions or other strategic moves for alvelestat in the coming quarters.

– What strategic options might unlock shareholder value now? In the wake of the stock crash, Mereo’s board may explore strategic alternatives. One possibility is leveraging its public listing and cash for a reverse merger – for example, merging with a private biotech that has a more promising pipeline. Mereo could thereby pivot to a new focus (and the current management might take a back seat if that happens). Activist shareholders like Rubric previously urged Mereo to consider monetizing assets or even returning cash to investors if the pipeline didn’t pan out (www.snowballresearch.com) (pharmaphorum.com). Now that setrusumab failed, will there be pressure to liquidate or distribute remaining cash rather than risking it on a long-shot? So far, management seems intent on continuing with alvelestat, but this could evolve if the share price remains depressed. M&A is another angle – could a larger company acquire Mereo outright? Given Mereo’s low EV (essentially its cash balance), a buyer could be interested in alvelestat plus the NASDAQ listing. However, any acquirer would likely wait to see more clarity on alvelestat’s prospects first.

– How will the class action resolve, and could it spur changes? The shareholder lawsuit will play out over 2026. While such cases often end in a settlement (with insurance covering much of the cost), the discovery process might reveal internal communications around the trial. This could either vindicate management or expose that red flags were known internally. If severe damning evidence emerges, there could be calls for management or board changes. At minimum, Mereo may adopt a more cautious tone in communications to avoid future liability. Investors will keenly watch if any corporate governance changes or shareholder actions come as a result of the legal proceedings. The outcome of the case (even if just a financial settlement) is an open item that could modestly affect the company’s finances and reputation.

In conclusion, Mereo BioPharma is at a crossroads. The “Act Now” urgency implied in class action notices reflects the sudden collapse in investor confidence. To regain any momentum, Mereo must execute flawlessly on its remaining opportunities. That means either resurrecting value from alvelestat via partnership and progressing it in clinical trials, or pursuing strategic deals that make the most of its assets (including its cash). Until there are clear catalysts on the horizon, many investors may stay on the sidelines – burned by the recent debacle and awaiting proof that Mereo can turn the page. The coming year should bring answers to these open questions, determining whether MREO remains a cautionary tale or can script a turnaround chapter for shareholders.

Sources: Recent SEC filings and official press releases were used to verify Mereo’s financials and policies (www.sec.gov) (www.biospace.com). Company updates and news reports provided details on the clinical programs and their outcomes (www.mereobiopharma.com) (www.fiercebiotech.com). The class action allegations and stock impact are drawn from legal notices and market data (www.globenewswire.com) (www.globenewswire.com). Additional context on shareholder activism and management’s statements was gathered from credible industry media (FierceBiotech, pharmaphorum) and partnership disclosures (pharmaphorum.com) (rss.globenewswire.com). These sources collectively underpin the analysis of Mereo’s current situation, ensuring a factual and grounded perspective for investors.

For informational purposes only; not investment advice.