UK-based biotech Mereo BioPharma is facing some heat from one of its principal shareholders as it looks to make several changes to the biotech’s board amid some recent roadblocks for the company.
On Monday, the biotech announced that it responded to a letter from Rubric Capital Management, a New York-based capital firm, calling for a general meeting of Mereo shareholders to remove four of its directors and replace them with directors named by Rubric.
Rubric’s initial letter, which was sent on Friday, said that under the Companies Act 2006, the equity firm is requiring Mereo to convene a general meeting in the next 21 days to remove Peter Fellner, Anders Ekblom, Deepika Pakianathan and Michael Wyzga as directors of the company. Mereo, meanwhile, responded Monday morning saying Rubric’s ask for a general meeting does not satisfy the requirements listed under that law.
“The Act applies equally to all of our shareholders and any requisition of a general meeting must comply with the requirements of the Act,” Mereo’s response letter said.
Rubric, which is the largest shareholder in the company with an 14%-plus stake, alleged that the current Mereo board had not only failed to respond to its letter, but has failed to engage with Rubric over the past two months, and that Mereo has forced their hand. Rubric accuses the board of watching over a period of “value destruction” for its shareholders and feels that under their watch, it oversaw a huge drop in Mereo’s share price without taking any course corrections.
“For the three years ending on May 26th, when Rubric filed its 13D, Mereo shares had declined by 90%. Since filing our 13D, Mereo shares have outperformed the Nasdaq Biotech Index. We are convinced that, with the direct involvement of our nominees in Mereo’s governance, Mereo can dramatically improve shareholder value,” Rubric’s letter alleged.
Mereo’s price $MREO had been relegated to the penny stock zone in the spring, but it has since picked its head up and now sits around $1.20. However, this still marks a greater than 50% drop from where it was in August 2021.
Rubric’s letter also stated that it has backed Mereo over the last two years, due to the setrusumab partnership signed with Ultragenyx and opportunities in the TIGIT and AATD space. However, Rubric feels that Mereo has failed to deliver due to the biotech not partnering on its TIGIT program and less-than-stellar Phase II results earlier this year.
“Continued cash burn in pursuit of those programs could jeopardize the per-share value of the setrusumab partnership,” Rubric’s letter said.
In 2020, Ultragenyx and Mereo shook hands on a deal that gives the former rights to develop and commercialize the drug, a monoclonal antibody for the rare genetic disorder osteogenesis imperfecta (OI). Ultragenyx put down $50 million upfront and has promised up to $254 million in milestones.
If Rubric gets its way, the new cohort will look to make several changes. This includes exploring alternatives for the pertuzumab royalty and the European rights held by Mereo. It will also evaluate feedback from the FDA on the Phase II. The new members will also explore other opportunities for etigilimab and other Mereo assets as well as clamp down on the cash burn and return excess cash to its shareholders.
This move comes as pharma giant AstraZeneca was rumored to be buying out the biotech in June, which helped garner some much-needed buzz for the company.
Read More: Mereo’s biggest shareholder eyes major changes amid stock falloff