UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

(Mark One)

OR

For the fiscal year ended December 31, 20182019

OR

For the transition period from                    to                    .

OR

Date of event requiring this shell company report                    

For the transition period from                to.

Commission file number:001-38452

MEREO BIOPHARMA GROUP PLC

(Exact name of Registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

1 Cavendish Place

4th Floor

London, W1G 0QF

United Kingdom

Tel:+44-333-023-7300

(Address of principal executive offices)

Charles Sermon, General Counsel

Tel:+44-333-023-7300

Email: cs@mereobiopharma.com

1 Cavendish Place

4th Floor

London, W1G 0QF

United Kingdom

(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding shares as of December 31, 20182019 was:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☐☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or an emerging growth company (as defined in Rule12b-2 of the Act).

Large Accelerated Filer  ☐                  Accelerated Filer  ☐                   Non-accelerated Filer  ☒

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 standardsstandards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

TABLE OF CONTENTS

i

RELIANCE ON SEC ORDER

Mereo BioPharma Group plc, or the Company, is filing its Annual Report on Form20-F for the fiscal year ended December 31, 2019, or the 2019 Annual Report, pursuant to the Securities and Exchange Commission’s, or SEC, Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (ReleaseNo. 34-88465).

As set forth in the Company’s Form6-K furnished to the SEC on April 28, 2020, the Company was unable to file the 2019 Annual Report within the prescribed time period because, as a result of the outbreak of the novel coronavirus, orCOVID-19, the Company experienced disruptions to operations in terms of travel and limited access to the Company’s facilities resulting in an impact to staff’s ability to carry out some of their usual work. Potential investors and business partners also faced increased challenges resulting fromCOVID-19 which affected their ability to complete the processes necessary to move ahead with an investment or partnership decision becauseof COVID-19’s impact on their business. As a result of these factors, the 2019 Annual Report was not completed by the filing deadline.

CERTAIN DEFINITIONS

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form20-F to:

PRESENTATION OF FINANCIAL INFORMATION

This annual report contains our audited consolidated financial statements as of December 2016, 20172018 and 20182019 and for the years ended December 31, 2016, 2017, 2018 and 20182019 (our “audited consolidated financial statements”), prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). Our financial information is presented in pound sterling. None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States.

This annual report contains translations of certain pound sterling amounts into U.S. dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the pound sterling amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated from pound sterling at an exchange rate of £0.7853£0.7692 to US$1.00, the exchange rate for pound sterling on December 31, 2018. On April 23, 2019, this exchange rate was £0.7688 to US$1.00.2019.

USE OF TRADEMARKS, SERVICE MARKS AND TRADENAMES

“Mereo,” the Mereo logo and other trademarks, trade names or service marks of Mereo appearing in this annual report are the property of Mereo. This Form20-F also contains trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Our actual results or performance could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations, cash flows or financial condition. Except as required by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

Consolidated Statements of Comprehensive Loss Data

3.D. Risk Factors

You should carefully consider the risks and uncertainties described below, together with the other information contained in this annual report, before making any investment decision. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our ordinary shares and ADSs could decline due to any of these risks and uncertainties, and you could lose all or part of your investment. The risks described below are those that we currently believe may materially affect us. We may face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial.

Risks Related to Mereo’sOur Business and Industry

Mereo hasWe have a limited operating history and hashave never generated any product revenue.

Mereo isWe are a multi-product,multi-asset, clinical-stage biopharmaceutical company with a limited operating history, and hashave incurred significant operating losses since itsour formation. MereoWe had net losses of £28.4£34.8 million, £38.8£32.0 million and £32.0£38.8 million, in the years ended December 31, 2016,2019, 2018 and 2017, and 2018, respectively. As of December 31, 2018, Mereo2019, we had an accumulated net loss of £111.2 million. Mereo’s£146.1 million (£111.2 million as of December 31, 2018). Our losses have resulted principally from expenses incurred from the research and development of itsour product candidates and from general and administrative costs that it haswe have incurred while building itsour business infrastructure. Mereo expectsWe expect to continue to incur significant operating losses for the foreseeable future as it seeks to acquire new product candidates,we expand itsour research and development efforts, and seek to obtain regulatory approval and potentially commercialize itsour product candidates. Mereo anticipatesWe anticipate that itsour expenses will increase substantially as it:we:

To become and remain profitable, Mereowe must succeed in developing and commercializing productsproduct candidates that generate significant revenue. This will require Mereous to be successful in a range of challenging activities, including completing clinical trials of Mereo’sour current or any future product candidates, obtaining regulatory approval for Mereo’sour product candidates that successfully complete clinical trials, establishing manufacturing supplies and marketing capabilities, and ultimately commercializing or entering into strategic relationships for Mereo’sour current and future product candidates, if approved. Mereo isWe are only in the preliminary stages of many of these activities. MereoWe may never succeed in these activities and, even if it does, itwe do, we may never generate revenue that is significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with biopharmaceutical product development, Mereo iswe are unable to accurately predict the timing or amount of increased expenses or when, or if, itwe will be able to achieve profitability. MereoWe 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 itsour product candidates. If Mereo iswe are required by the Food and Drug Administration (“FDA”),FDA, the European Medicines Agency (“EMA”),EMA, or other regulatory authorities to perform studies in addition to those itwe currently anticipates,anticipate, or if there are any delays in completing itsour clinical trials or the development of itsour current product candidates, Mereo’sour expenses could increase and itsour ability to generate revenue could be further delayed. In addition, Mereowe may not be able to acquire new product candidates or may encounter unexpected difficulties or delays in such acquisitions, which would impair itsour business.

Furthermore, adoption by the medical community of Mereo’sour 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,our product candidates, which in turn would negatively affect the price that Mereowe will be able to charge for such products. Mereo isproduct candidates. We are unable to predict the coverage that will be provided by private or government payors for any product candidate Mereo haswe have in development. Any denial of private or government payor coverage, inadequate reimbursement for Mereo’s products,our product candidates, or delay in receipt of reimbursement payments could harm Mereo’sour business and, even if Mereo were towe do generate product royalties or product sales, itwe may never achieve or sustain profitability. Mereo’sOur failure to sustain profitability would depress the market price of theour ADSs and ordinary shares and could impair itsour ability to raise capital, acquire new product candidates, expand itsour business, or continue Mereo’sour operations. A decline in the market price of our ADSs or ordinary 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 developingBPS-804,MPH-966,BCT-197, andBGS-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

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

Any additional fundraising

Fundraising and business development efforts may divert Mereo’sour management from itstheirday-to-day activities, which may adversely affect Mereo’sour ability to develop and commercialize itsour product candidates. In addition, Mereowe cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to it,us, if at all. Moreover, the terms of any financing may adversely affect Mereo’sour business, the holdings or the rights of itsour shareholders, or the value of our ADSs orand ordinary shares.

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

Our limited operating history may make it difficult for you to evaluate the success of our business to date and potentially force it to discontinueassess our future viability.

Since our formation, we have devoted substantially all of our resources to acquiring our product candidates and developing setrusumab, alvelestat, acumapimod, leflutrozole; building our intellectual property portfolio; developing our supply chain; planning our business; raising capital; and providing general and administrative support for these operations. Additionally, prior to our acquisition of etigilimab and navicixizumab in the merger with OncoMed, OncoMed had invested significant resources to developing both product candidates. We have not yet demonstrated our ability to successfully complete any Phase 3 or other pivotal clinical trials, obtain regulatory approval, arrange for third parties to manufacture commercial-scale product candidates, or conduct or partner with others to conduct sales and marketing activities necessary for successful product commercialization. Additionally, although we have acquired product candidates from two large pharmaceutical companies, we have not demonstrated the sustainability of our business model of acquiring and developing product candidates from, and becoming a partner of choice for, large pharmaceutical companies, nor have we demonstrated our ability to obtain approvals for or to commercialize orco-commercialize these product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

We may not be successful in our efforts to identify and acquire additional product candidates.

Part of our strategy involves identifying and acquiring novel product candidates that have received significant investment from large pharmaceutical and biotechnology companies and that have substantialpre-clinical, clinical,

and manufacturing data packages. The process by which we identify product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:

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

Raising additional capital may cause dilution to, or adversely affect the rights of, Mereo’sour security holders;holders, restrict Mereo’sour operations; or require Mereous to relinquish rights to itsour technologies or product candidates.

Until such time, if ever, as Mereowe can generate substantial product revenues, itwe may seek to finance itsour cash needs through securities offerings, debt financings, license and collaboration agreements, or other capital raising transactions. If Mereo raiseswe raise capital through securities offerings, your ownership interest will be diluted, and the terms of the securities Mereo issueswe issue in such transaction may include liquidation or other preferences that adversely affect your rights as a holder of our ADSs. Debt financing, if available, could result in fixed payment obligations, and Mereowe may be required to agree to certain restrictive covenants, such as limitations on itsour 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’sour credit facility with Silicon Valley Bank and Kreos Capital V (UK) Limited or the credit facility,(the “credit facility”) requires Mereous to seek consent for certain corporate transactions, dispositions, or incurrences of certain debt. In addition, the credit facility is secured by substantially all of our assets, including intellectual property rights owned or controlled by us. In addition, if the resolutions relating to the June 2020 Private Placement (as described below) are not passed on or before August 7, 2020 the convertible notes will not convert into ordinary shares, the warrants will not become capable of exercise and the holders of the convertible notes and warrants will become entitled to certain amounts (up to $137.1 million) that will represent material liabilities for the Company. If Mereo raiseswe raise additional funds through collaboration or licensing agreements, itwe may have to relinquish valuable rights to itsour technologies, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to it.us. In addition, Mereowe 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’sour business and the holdings or rights of Mereo’sour security holders, and may cause the market price of our ADSs orand ordinary shares to decline.

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

We plan to seek regulatory approval to commercialize, itsorco-commercialize, our current rare disease product candidates both in the United States and the European Union (“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 Mereous 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 Mereowe cannot predict success in these jurisdictions.

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

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

The COVID-19  pandemic or any other similar pandemic may materially impact our business including planned clinical developmentsand our ongoing clinical studies.

The outbreakof COVID-19 has developed into a global pandemic, spreading to most regions of the world including the United States and the United Kingdom and to locations where we have facilities or ongoing clinical trials. The pandemic has resulted in impacts both direct and indirect to businesses including disruptions to resources, inability of workers to carry out their jobs effectively, disruptions to supply chains, inability to travel and increased pressure on health systems required totreat COVID-19.

As a result of government and local regulation we have been required to introduce a work from home policy for the large majority of our work force and our facilities remain open only for business critical activities. The requirement by governments to stay at home or to “social distance” limits normal communications and may also increase cyber security risk or create data accessibility concerns. It also significantly curtails the numbers of individuals who can work in our offices.

COVID-19 has created an unprecedented burden on health systems in impacted countries around the world. As a result, clinical centers have diverted resources away from the performance of clinical trials and because of that and the vulnerability of patients in the Company’s etigilimab development program for selected solid tumors, setrusumab clinical development program for osteogenesis imperfecta (OI) and its Phase 2 alvelestat program for patients withsevere alpha-1 antitrypsin deficiency (AATD), the Company’s clinical activities will face some delays. AATD patients, in particular, are at greater riskfrom COVID-19 given that the condition is a respiratory and lung condition, for this reason, our Phase 2 alvelestat trial will be delayed with topline data now expected in the second half of 2021. Subject to a partnership, we are also currently planning to initiate a Phase 3 study in children with OI in late 2020, however, the initiation of the study may also be delayed.

As a result ofthe COVID-19 pandemic and depending on the length of such pandemic, we may experience disruptions that would significantly impact our business including:

The COVID-19 pandemic continues to rapidly evolve and the extent to which it may impact our future business is highly uncertain and difficult to predict. In particular it is not currently known how long travel restrictions and social distancing/isolation requirements will continue to apply in the countries in which we operate and the impact on global health systems, financial markets or the economy as a whole is not yet known.

The United Kingdom’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and Mereo’s business,European Union could lead to increased market volatility, which could reduceadversely impact the market price of our ADSs.ADSs and make it more difficult for us to do business in Europe or have other adverse effects on our business.

The United Kingdom’s planned exit from membership inKingdom formally exited the EU (“Brexit”) could have a negative effectEuropean Union, commonly referred to as Brexit, on global economic conditions and financial markets. Economic and financial conditions, including currency exchange rates, in Europe andJanuary 31, 2020. Under the United Kingdom have been affected, and may be further adversely affected, by Brexit. The process of negotiation expected to determine the future terms of the United Kingdom’s relationship with the EU, including whetherits departure, the United Kingdom will be able toenter a transition period during which it will continue to benefit from the EU’s free trade and similar agreements, is still ongoing. A withdrawal agreement that was negotiated in 2018 between the EUfollow all European Union rules and the United Kingdom’s government was rejected bytrading relationship will remain the UK parliamentsame. The transition period is scheduled to end on three occasions in early 2019. In April 2019,December 31, 2020. The long term effects of Brexit will depend on the EUagreements and the UK government agreed, and the EU member states thereafter approved, to extendarrangements the United Kingdom’s departure date fromKingdom negotiates with the EU until October 31, 2019. FurtherEuropean Union, including whether and to what extent it will retain access to the European Union markets following the transition period. There will be a period of considerable uncertainty regardingparticularly in relation to United Kingdom financial and banking markets as well as on the timingregulatory process in Europe as these negotiations continue to unfold. As a result of the United Kingdom’s withdrawal from the EUthis uncertainty, financial markets could experience volatility which could adversely impact Mereo’s business, which could reduceaffect the market price of our ADSs.

Depending on the final terms of any agreements and arrangements negotiated with the European Union, we may also face new regulatory costs and challenges that could have a material adverse effect on our operations, including the potential for a delay in our clinical progress and approvals in Europe. Depending on the terms of Brexit, particularly after a possible transition period or as a result of ano-deal Brexit, economic conditions inany agreements and arrangements negotiated with the European Union, the United Kingdom could lose the EU andbenefits of global markets, including currency markets,trade agreements negotiated by the European Union on behalf of its members, which may be adversely affected by reduced growth and increased volatility, especially if Brexit resultsresult in increased trade barriers that could make our doing business worldwide more difficult. In addition, currency exchange rates in

To obtain the requisite regulatory approvals to market and sell any of Mereo’sour product candidates, Mereowe 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 ofpre-clinical studies and early-stage clinical trials of Mereo’sour 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 throughpre-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’sOur future clinical trial results may not be successful.

MereoWe may experience delays in itsour ongoing clinical trials and doeswe do 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’sOur clinical trials can be delayed, suspended, or terminated for a variety of reasons, including the following:

MereoWe could encounter delays if a clinical trial is suspended or terminated by it,us, 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’sour 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’sour clinical trials to demonstrate adequate efficacy and safety; changes in governmental regulations or administrative actions; or lack of adequate or timely funding to continue the clinical trial.

A number of academic institutions are currently conducting and sponsoring clinical trials relating to Mereo’sour product candidate,MPH-966, alvelestat, including a clinical trial in patients with type 2 diabetes and a clinical trial in patients with bronchiolitis obliterans. Mereo doesBOS. We do not control the design or administration of these investigator-sponsored trials, and such investigator-sponsored trials could identify significant concerns with respect toMPH-966 alvelestat that could impact Mereo’sour findings from itsour own clinical trials, and adversely affect Mereo’sour 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’sour company-sponsored trials or raise concerns regardingMPH-966, alvelestat, 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 Mereous to conduct additional clinical studies or submit additional clinical data, which could delay clinical development or marketing approval ofMPH-966. alvelestat.

Moreover, principal investigators for Mereo’sour clinical trials may serve as scientific advisors or consultants to Mereous from time to time and receive compensation in connection with such services. Under certain circumstances, Mereowe 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 Mereous 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’sour 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’sour product candidates.

significant time in the execution of trials, including achieving full enrollment, Mereowe 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 Mereous to further delays and expenses as a result of increased shipment costs, additional regulatory requirements, and the engagement ofnon-EU andnon-U.S. CROs, as well as expose Mereous 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’sour acquisition ofBPS-804,MPH-966,BCT-197,BGS-649,OMP-305B83 etigilimab, navicixizumab, setrusumab, alvelestat, acumapimod andOMP-313M32, Mereo was leflutrozole, we were not involved in the development of these product candidates and, as a result, Mereo iswe are dependent on Novartis, AstraZeneca and OncoMed having accurately reported the results and correctly collected and interpreted the data from all clinical trials conducted prior to Mereo’sour acquisition.

Mereo wasWe were not involved in the development of itsour current product candidates prior to itsour acquisition of such product candidates from Novartis, Pharma AG (“Novartis”), AstraZeneca AB (“AstraZeneca”) and OncoMed, respectively.OncoMed. For all of Mereo’sour current product candidates, Mereo haswe have had no involvement with or control over their manufacturing orpre-clinical and clinical development prior to itsour acquisition of them. Mereo isWe are dependent on Novartis, AstraZeneca and OncoMed having conducted itstheir 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’sour acquisition; and having correctly collected and interpreted the data from these trials. To the extent Novartis, AstraZeneca or AstraZeneca haveOncoMed has not complied,done this, the clinical development, regulatory approval, or commercialization of Mereo’sour product candidates may be adversely affected.

Interim“top-line” and preliminary data from Mereo’sour clinical trials that Mereo announceswe announce or publishespublish 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, Mereowe may publish interim“top-line” or preliminary data from itsour clinical trials. Interim data from clinical trials that Mereowe 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 Mereowe 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’sour business prospects.

severity and prevalence of adverse side effects. In such an event, Mereo’sour trials could be suspended or terminated and the FDA, EMA, or other comparable foreign regulatory authorities could order Mereous to cease further development of or deny approval of Mereo’sour product candidates for any or all targeted indications.

For example, the FDA approved the first sclerostin inhibitor for treatment of osteoporosis, Amgen Inc. (“Amgen”) and UCB S.A.’s (“UCB”) anti-sclerostin antibody, romosozumab (Evenity), in April 2019 following an18-1 favorable advisory committee vote. However, Evenity received a Black Box warning that there may be an increase in risk of myocardial infarction (“MI”), stroke or cardiovascular death and it should not be initiated in patients who have had an MI or stroke in the United States,last year. This was over a year after the FDA in the first quarter of 2018 denied Mereo’srejected our request for a Type C meeting to discuss the initiation of a pediatric Phase 3 study forBPS-804 setrusumab for the treatment of patients with severe OI. The FDA cited a serious cardiovascularBased on these events and with our setrusumab Phase 2b efficacy and safety concerndata 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 votedadult OI patients, we18-1 to approve another sclerostin inhibitor and in April 2019, the FDA approved this drug. Mereo believes the FDA now has fuller data on the cardiovascular safety issue and plans tore-engagere-engaged with the FDA inat the end of 2019 to discuss the expansion of the pediatric Phase 3 study forBPS-804pivotal trial of setrusumab for the treatment of patients with severe OI to include sites in the United States. Mereo does not believeIn February 2020, we announced the FDA’s previous concern was relatedsuccessful completion of a Type BEnd-of-phase 2 meeting with the FDA toBPS-804. In any case, discuss the FDA’s position does not impact Mereo’s ability to conduct its clinical development activitiesexpansion ofBPS-804 the pediatric Phase 3 study for setrusumab for the treatment of children and adolescents with severe OI or Mereo’s clinical development activities ofBPS-804in Europe, the United StatesStates. In June 2019, the EMA’s CHMP adopted a negative opinion recommending the refusal of a marketing authorization for Evenity. However, Amgen and CanadaUCB announced in October 2019 that following are-examination procedure the CHMP has adopted a positive opinion recommending marketing authorization for adults with OI.Evenity. In December 2019, the European Commission approved the MAA for Evenity.

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’sour product candidates receives marketing approval and Mereowe or others later identify undesirable or unacceptable side effects caused by these product candidates, a number of potentially significant negative consequences could result, including:

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

Successful and timely completion of clinical trials for Mereo’sour product candidates will require that Mereowe 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. We will compete with other companies in enrolling the same limited population of patients, which may further challenge our ability to timely enroll patients in our clinical trials as there are a significant number of studies ongoing in oncology in the United States and Europe. Due to the small number of patients for any rare disease, it may be difficult for Mereous to enroll a sufficient number of patients in itsour clinical trials for itsour 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.we anticipate. It is estimated that OI, the target indication forBPS-804, setrusumab, 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 intendswe intend to enroll in itsour clinical trials for AATD, the target indication forMPH-966. alvelestat. 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 Mereous to enroll enough patients to complete itsour clinical trials in a timely and cost-effective manner. For example, our Phase 2 alvelestat trial recruits individuals withalpha-1 antitrypsin deficiency-related lung disease, who are potentially at greater risk fromCOVID-19 exposure. As a consequence of theCOVID-19 pandemic, recruitment into our Phase 2alpha-1 antitrypsin deficiency study will be delayed, with topline data now expected in the second half of 2021. Subject to a partnership, we are also currently planning to initiate a Phase 3 study in children with OI in late 2020, however, the initiation of the study may also be delayed. Delays in the completion of any clinical trial of Mereo’sour product candidates will increase Mereo’sour costs, slow down itsour development and approval of Mereo’sour product candidates, and delay or potentially jeopardize Mereo’sour 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’sour product candidates.

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

Mereo isWe are exposed to potential product liability and professional indemnity risks that are inherent in the development, manufacturing, marketing, and use of pharmaceutical products.product candidates. Currently, Mereo haswe have no productsproduct candidates that have been approved for commercial sale; however, the current and future use of itsour product candidates by itus and any collaborators, in clinical trials, and the sale of these product candidates, if approved, in the future, may expose Mereous to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, Mereo’sour collaborators, or others selling these product candidates. Any claims against Mereo,us, regardless of

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’sour product candidates were to cause adverse side effects during clinical trials or after approval, Mereowe 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’sour product candidates.

Although Mereo maintainswe maintain product liability insurance for itsour product candidates, it is possible that itsour liabilities could exceed itsour insurance coverage. Mereo intendsWe intend to expand its insuranceour coverage to include the sale of commercial productsproduct candidates if it obtainswe obtain marketing approval for any of itsour product candidates. However, Mereowe 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 Mereous for uninsured liabilities or in excess of insured liabilities, Mereo’sour assets may not be sufficient to cover such claims and itsour 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 as they rely on third party decisions outside of our control, and if Mereo iswe are ultimately unable to obtain regulatory approval for itsour product candidates, itsour business will be substantially harmed.

The time required to obtain approval by the FDA, the EMA, and comparable foreign authorities is unpredictable and relies on third party decisions outside of our control, 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’sproduct’s clinical development and may vary among jurisdictions. Mereo hasWe have not obtained regulatory approval for any of itsour product candidates and it is possible that none of itsour product candidates will obtain regulatory approval.

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

In addition, even if Mereowe were to obtain approval for any jurisdiction, regulatory authorities may approve Mereo’sour product candidates for fewer or more limited indications than Mereowe 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.product. Any of the foregoing scenarios could materially harm Mereo’sour commercial prospects and business.

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

If the FDA, the EMA, or a comparable foreign regulatory authority approves any of Mereo’sour product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, 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, good distribution practice, (“GDP”), requirements for product distribution, and GCP requirements for any clinical trials that Mereo conductswe conduct post-approval, all of which may result in significant expense and limit Mereo’sour ability to commercialize, orco-commercialize,a product candidate. Mereoproduct. We and itsour 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 Mereowe may obtain. In addition, any regulatory approvals that Mereowe 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 Mereowe or one of itsour distributors, licensees, orco-marketers fails to comply with regulatory requirements, the regulatory authorities could take various actions. These include imposing fines on Mereo,us, imposing restrictions on Mereo’sour product or its manufacture, and requiring Mereous to recall or remove a product from the market. The regulatory authorities could also suspend or withdraw Mereo’sour marketing authorizations, or require itus to conduct additional clinical trials, change itsour product labeling, or submit additional MAAs. If any of these events occurs, Mereo’sour ability to sell itsour product may be impaired, and itwe may incur substantial additional expense to comply with regulatory requirements.

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’sour business may be negatively impacted. In addition, if Mereo iswe are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it iswe are not able to maintain regulatory compliance, Mereowe may lose any marketing approval that itwe may have obtained and we may not achieve or sustain profitability.

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

In order to market any productsproduct candidates in a country or territory, Mereowe 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 additionalpre-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’sour product candidates in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain, and may be subject to unanticipated delays. In addition, Mereo’sour failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. MereoWe currently doesdo not have any product candidates approved for sale in the United States, the EU, or any other markets, and Mereo’sour management team does not have experience in obtaining regulatory approval in markets outside of the United States and the EU. If Mereo seekswe seek regulatory approval in other markets and fail to obtain marketing approval in those markets or, if Mereo’sour product candidates are approved in such markets but Mereo failswe fail to maintain such approvals, itsour ability to realize the full market potential of itsour product candidates will be compromised.

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

Misconduct by Mereo’sour employees and independent contractors, including principal investigators, CROs, CMOs, consultants, vendors, and any other third parties Mereowe may engage in connection with the development and commercialization of Mereo’sour 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.

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 doeswe do not comply with itsour obligations under the EU privacy regime, itwe 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 itsour 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 Mereous to obtain marketing approval of and commercialize itsour product candidates and may affect the prices itwe may set.

In the United States, EU and other jurisdictions, there have been, and Mereo expectswe expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect Mereo’sour 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:

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”C-SR”) payments to insurance companies until Congress approves the appropriation of funds for the CSRC-SR payments. The loss of the CSRC-SR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSRC-SR 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 havehas 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 continuesWe continue to evaluate the effect that the ACA and its possible repeal and replacement has on itsour business. It is uncertain the extent to which any such changes may impact Mereo’sour 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’sour future customers and accordingly, Mereo’sour financial operations.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialtynon-rare drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient

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 productsproduct candidates 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,product candidates, this could prevent or delay marketing approval of Mereo’sour product candidates, restrict or regulate post-approval activities and affect Mereo’sour ability to commercialize, itsorco-commercialize, our 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 productsproduct candidates and therapies.

MereoWe 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 Mereowe or any third parties itwe may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Mereowe or such third parties are not able to maintain regulatory compliance, Mereo’sour product candidates may lose any regulatory approval that may have been obtained and Mereowe may not achieve or sustain profitability.

There have been, and likely will continue to be, additional legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop product candidates.

Mereo’sOur 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 Mereous to penalties.

MereoOur business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations, and customers, may expose Mereous 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 Mereowe conduct itsour operations, including how it researches, markets, sells,we research, market, sell, and distributes itsdistribute our product candidates, if approved. Such laws include:

individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if Mereo becomeswe become subject to a corporate integrity agreement or similar agreement to resolve allegations ofnon-compliance with these laws, and curtailment or restructuring of Mereo’sour operations, any of which could adversely affect Mereo’sour ability to operate itsour business and itsour results of operations. If any of the physicians or other providers or entities with whom Mereo expectswe expect to do business are found to not be in compliance with applicable laws, Mereothey may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect Mereo’sour ability to operate itsour business. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if Mereo iswe are successful in defending against any such actions that may be brought against it, itsus, our business may be impaired.

Mereo isWe are subject to governmental regulation and other legal obligations related to privacy, data protection and data security. Mereo’sOur actual or perceived failure to comply with such obligations could harm itsour business.

Mereo isWe are 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 isWe are 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 officersofficer 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 iswe are 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,us, or itsour 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 Euros20 million euros or up to 4% of Mereo’sour 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’sour business, reputation and financial condition.

As a data controller, Mereo iswe are accountable for any third-party data service providers it engageswe engage to process personal data on itsour behalf. Mereo attemptsWe attempt to address the associated risks by performing security assessments, detailed due diligence and regularly performing privacy and security reviews of itsour 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’sour instructions and to take sufficient security measures to protect such data. There is no assurance that these contractual measures and Mereo’sour own privacy and security-related safeguards will protect itus from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by Mereo’sour third-party processors could have a material adverse effect on Mereo’sour business and result in the fines and penalties outlined above.

Due to Mereo’sour international operations, it iswe are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing itsour operations. If Mereo failswe fail to comply with these laws, itwe could be subject to civil or criminal penalties, other remedial measures and legal expenses.

Mereo’sOur 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 doeswe do business and may do business in the future. The Bribery Act, FCPA, and these other laws generally prohibit Mereo, itsus, our officers and itsour 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. MereoWe may in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and itwe may participate in collaborations and relationships with third parties whose actions could potentially subject itus to liability under the Bribery Act, FCPA, or local anti-corruption laws. In addition, Mereowe cannot predict the nature, scope, or effect of future regulatory requirements to which any of itsour international operations might be subject or the manner in which existing laws might be administered or interpreted.

Mereo isWe are 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 Mereowe will be completely effective in ensuring itsour compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA, or other legal requirements, including Trade Control Laws. If Mereo iswe are not in compliance with the Bribery Act, the FCPA, and other anti-corruption laws or Trade Control Laws, itwe 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 Mereowe did not violate such laws, could be costly and time-consuming, require significant personnel resources, and harm Mereo’sour reputation.

MereoWe will seek to build and continuously improve itsour 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’sour employees, consultants, agents, or collaborators and, as a result, Mereowe could be subject to fines, penalties, or prosecution.

Risks Related to Commercialization

Mereo operatesWe operate in a highly competitive and rapidly changing industry, which may result in others acquiring, developing, or commercializing competing productsproduct candidates before or more successfully than Mereo does.we do.

The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Mereo’sOur success is highly dependent on itsour ability to acquire, develop, and obtain marketing approval for new productsproduct candidates on a cost-effective basis and to market them successfully. IfBPS-804,MPH-966,BCT-197,BGS-649,OMP-305B83 etigilimab, setrusumab, alvelestat, acumapimod orOMP-313M32 leflutrozole is approved, Mereowe will face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialtynon-rare pharmaceutical companies, and biopharmaceutical companies in the United States, Europe, and other jurisdictions. These organizations may have significantly greater resources than Mereo haswe have and conduct similar research; seek patent protection; and establish collaborative arrangements for research, development, manufacturing, and marketing of productsproduct candidates that may compete with Mereo’sour product candidates.

MereoWe also anticipatesanticipate that new companies will enter these markets in the future. If Mereowe successfully developsdevelop and commercializescommercialize any ofBPS-804,MPH-966,BCT-197,BGS-649,OMP-313M32 etigilimab, setrusumab, alvelestat, acumapimod orOMP-305B83, leflutrozole, they will

rapid technological changes in the biopharmaceutical and pharmaceutical industries could render Mereo’sour product candidates obsolete, less competitive, or uneconomical. Mereo’sOur competitors may, among other things:

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 Mereous 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’sour programs. Mereo’sOur commercial opportunity could be reduced or eliminated if itsour competitors develop and commercialize productsproduct candidates that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than Mereo’sour product candidates. Mereo’sOur competitors may also obtain FDA, EMA, or other regulatory approval for itstheir product candidates more rapidly than Mereowe may obtain approval for itsour own product candidates, which could result in Mereo’sour competitors establishing or strengthening itsa strong market position before Mereo iswe are able to enter the market. In addition, existing products approved for other indications could be usedoff-label and may compete with our products. For example, the only treatments available to OI patients are drugs such as bisphosphonates, which are not approved for this indication but are commonly usedoff-label in children.

Mereo hasWe have obtained orphan drug designation forBPS-804 setrusumab for the treatment of OI in the United States and EU, but Mereowe may be unable to obtain orphan drug designation forMPH-966 alvelestat or any future product candidates, and Mereowe may be unable to obtain or maintain the benefits associated with orphan drug designation, including the potential for orphan drug exclusivity, forBPS-804 setrusumab or any other product candidate for which Mereo obtainswe obtain orphan drug designation.

Under the Orphan Drug Act of 1983 (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 (“COMP”) grantsrecommends to the European Commission the granting of orphan drug designation to promote the development of medicinal 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 medicinal 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, where the medicine must becan demonstrate that it is 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, anduser-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 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

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

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 our product candidates. If we are not successful in commercializing our product candidates, either on our own or through strategic relationships with third parties, our future product revenue will suffer and we may incur significant losses.

The successful commercialization of Mereo’sour 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’sour product candidates, if approved, could limit itsour ability to market those productsproduct candidates and decrease itsour 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’sour product candidates, assuming approval. Mereo’sOur ability to achieve acceptable levels of coverage and reimbursement for productsproduct candidates by governmental authorities, private health insurers, and other organizations will have an effect on Mereo’sour ability to successfully commercialize itsour product candidates. Assuming Mereo obtainswe obtain coverage for itsour product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may requireco-payments that patients find unacceptably high. MereoThird party payors may also elect to restrict coverage to a subset of patients that could potentially be treated with our products, if approved. We cannot be sure that coverage and reimbursement in the United States, the EU, or elsewhere will be available for itsour product candidates or any product that Mereowe 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 productsproduct candidates 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’sour product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if Mereo showswe show improved efficacy or improved convenience of administration with itsour product candidates, pricing of existing drugs may limit the amount Mereowe will be able to charge for itsour product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed productsproduct candidates at levels that are too low to enable Mereous to realize an appropriate return on itsour investment in itsour product candidates. If reimbursement is not available or is available only at limited levels, Mereowe may not be able to successfully commercialize itsour product candidates, and may not be able to obtain a satisfactory financial return on Mereo’sour product candidates.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products.product candidates. 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 requirepre-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’sour product candidates.

same disease, if they exist. Health technology assessments, including cost-effectiveness evaluations, may be conducted in order to assess the medical value or added clinical benefit of a therapy. Countries may also conduct budget-impact assessments for a new therapy. In some cases, tendering is used to decide which therapy will be reimbursed and made available for a group of patients where more than one treatment exists. Countries might also require further studies orin-use evidence to be developed, or create coverage with evidence generation under some form ofso-called managed access agreements. Some countries allow for a company to set the price, which is then agreed in negotiation with the country authorities, who might then monitor sales for that product andre-assess orre-evaluate when a certain statutory health insurance expenditure threshold is reached. Other countries allow companies to fix its ownmight set their price based on prices for medical products, but monitorin a selected country or group of countries under international or external reference pricing systems. If an agreement cannot be reached, confidential discounts might be negotiated between the manufacturer and control company profits.the healthcare system authorities. Additional foreign price controls or other changes in pricing regulation could restrict the amount that Mereo iswe are able to charge for Mereo’sour product candidates. Accordingly, in markets outside the United States, the reimbursement for Mereo’sour product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

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 productsproduct candidates and, as a result, they may not cover or provide adequate payment for Mereo’sour product candidates. Mereo expectsWe expect to experience pricing pressures in connection with the sale of itsour 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.product candidates.

Mereo’sOur existing and future product candidates may not gain market acceptance, in which case Mereo’sour ability to generate product revenues will be compromised.

Even if the FDA, the EMA, or any other regulatory authority approves the marketing of Mereo’sour product candidates, whether developed on Mereo’sour own or with a collaborator, physicians, healthcare providers, patients, or the medical community may not accept or use Mereo’sour product candidates. If Mereo’sour product candidates do not achieve an adequate level of acceptance, itwe may not generate significant product revenue or any profits from operations. The degree of market acceptance of Mereo’sour product candidates will depend on a variety of factors, including:

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 this12-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 ownpre-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.product candidates.

Mereo believesWe believe that if any product candidate is approved as a biological product under a BLA, it should qualify for the12-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 Mereoour product candidates to be reference productsproduct candidates for competing products,product candidates, 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 fornon-biological productsproduct candidates is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

performance is substandard, it may delay or compromise the prospects for approval and commercialization of Mereo’sour product candidates. In addition, the use of third-party service providers requires Mereous to disclose itsour proprietary information to these parties, which could increase the risk that this information is misappropriated.

If any of Mereo’sour relationships with itsour independent investigators or CROs terminate, itwe 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’sour 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’sour ability to meet itsour desired clinical development timelines.

If Mereo’sour independent investigators or CROs do not successfully carry out itstheir 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’sour clinical protocols, regulatory requirements, or for other reasons, Mereo’sour clinical trials may be extended, delayed, or terminated and Mereowe may not be able to obtain regulatory approval for or successfully commercialize itsour product candidates. As a result, Mereo’sour results of operations and the commercial prospects for itsour product candidates would be harmed, itsour costs could increase and itsour ability to generate revenue could be delayed.

We rely on and will continue to rely on CMOs to purchase from third-party suppliers the raw materials necessary to produce Mereo’sour product candidates. Mereo doesWe do not and will not have control over the process or timing of the acquisition of these raw materials by Mereo’sour CMOs. Moreover, Mereowe currently doesdo not have any agreements for the production of these raw materials. Supplies of raw material could be interrupted from time to time and Mereowe cannot be certain that alternative 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’sour product candidates, if approved, or result in a shortage in supply, which would impair Mereo’sour ability to generate revenues from the sale of itsour product candidates. Growth in the costs and expenses of raw materials may also impair Mereo’sour ability to cost effectively manufacture itsour product candidates. There are a limited number of suppliers for the raw materials that Mereowe may use to manufacture itsour product candidates and Mereowe may need to assess alternate suppliers to prevent a possible disruption of the manufacture of itsour product candidates.

Finding new CMOs or third-party suppliers involves additional cost and requires Mereo’sour management’s time and focus. In addition, there is typically a transition period when a new CMO commences work. Although Mereowe generally doesdo not begin a clinical trial unless it believes it haswe believe we have on hand, or will be able to obtain, a sufficient supply of Mereo’sour product candidates to complete the clinical trial, any significant delay in the supply of itsour product candidates or the raw materials needed to produce itsour product candidates, could considerably delay conducting itsour clinical trials and potential regulatory approval of itsour product candidates.

As part of itstheir manufacture of Mereo’sour product candidates, itsour 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

Risks Related to Intellectual Property and Data Protection

Mereo reliesWe rely on patents and other intellectual property rights to protect itsour 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’sour ability to compete and impair itsour business.

Mereo’sOur commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property protection, for example, forcompositions-of-matter of itsour product candidates, formulations of itsour product candidates, polymorphs, salts and analogs of itsour product candidates, methods used to manufacture itsour product candidates, methods for manufacturing of the final drug products,product candidates, and methods of using itsour product candidates for the treatment of the indications Mereo iswe are developing or plansplan to develop, or onin-licensing such rights. Mereo’sOur patent portfolio comprises patents and patent applications which cover itsBPS-804,BCT-197,Navi (which was licensed to Oncologie, Inc. in January 2020) andBGS-649 our etigilimab product candidate (solely owned by OncoMed), patents and patent applications which cover our setrusumab, acumapimod, and leflutrozole product candidates acquired or exclusively licensed from Novartis and patents and patent applications which cover Mereo’sMPH-966our alvelestat product candidate exclusively licensed (with the option to purchase) from AstraZeneca, and patents and patent applications which cover Mereo’sOMP-305B83 andOMP-313M32 (solely owned by OncoMed).AstraZeneca. The assignments of those patents and patent applications which Mereowe 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’sour pending patent applications will result in issued patents, or if issued as patents, will include claims with sufficient scope of coverage to protect Mereo’sour 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’sour ability to develop and market itsour product candidates, resulting in harm to itsour business.

The patent prosecution process is expensive and time-consuming. MereoWe or itsour 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 Mereowe or itsour 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 futurein-licenses to which Mereowe may become a party, Mereowe may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technologyin-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’sour business.

March 15, 2013, a derivation proceeding can be initiated by such third parties to determine whether Mereo’sour invention was derived from such third parties’ product candidates. Even where Mereo haswe have a valid and enforceable patent, Mereowe may not be able to exclude others from practicing itsour invention where the other party can show that they used the invention in commerce before Mereo’sour filing date or the other party benefits from a compulsory license.

Mereo enjoysWe enjoy only limited geographical protection with respect to certain patents and may not be able to protect itsour intellectual property rights throughout the world.

Filing and prosecuting patent applications and maintaining and defending patents covering Mereoour product candidates in all countries throughout the world would be prohibitively expensive. Competitors may use Mereo’sour and itsour licensors’ technologies in jurisdictions where Mereo haswe have not obtained patent protection to develop thetheir competitor’s own productsproduct candidates and, further, may export otherwise infringing productsproduct candidates to territories where Mereowe and itsour licensors have patent protection, but enforcement rights are not as strong as that in the United States or Europe. These productsproduct candidates may compete with Mereo’sour product candidates, and Mereo’sour and itsour licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, Mereowe 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 Mereous to stop the infringement of itsour patents or marketing of competing productsproduct candidates in violation of Mereo’sour proprietary rights generally. Proceedings to enforce Mereo’sour patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert Mereo’sour efforts and attention from other aspects of itsour business, could put itsour patents at risk of being invalidated or interpreted narrowly and itsour patent applications at risk of not issuing as patents, and could provoke third parties to assert claims against Mereo. Mereous. We may not prevail in any lawsuits that it initiateswe initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

MereoOur patents and other proprietary rights may not adequately protect Mereo’sour technologies and product candidates, and may not necessarily address all potential threats to Mereo’sour competitive advantage.

The degree of protection afforded by Mereo’sour intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Mereo’sour business, or permit itus to maintain itsour competitive advantage. The following examples are illustrative:

We may be subject to third-party claims including infringement, interference or derivation proceedings, post-grant review and inter partes review before the USPTO, or similar adversarial proceedings or litigation in the U.S. and other jurisdictions. Even if Mereo believeswe believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block Mereo’sour ability to commercialize the applicable product candidate unless Mereowe obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of Mereo’sour compositions, formulations, or methods of treatment, prevention, or use, the holders of any such patents may be able to block Mereo’sour ability to develop and commercialize the applicable product candidate unless Mereowe obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In addition, defending such claims would cause Mereous to incur substantial expenses and could cause itus to pay substantial damages, if it iswe are found to be infringing a third party’s patent rights. These damages potentially include increased damages and attorneys’ fees if Mereo iswe are found to have infringed such rights willfully. As an example of the foregoing risks, Mereo iswe are aware of a third-party patent family which currently includes a patent granted by the European Patent Office (“EPO”), containing claims that appear to cover the use ofBPS-804 setrusumab in the treatment of OI. The patent owner could assert such patent against Mereo,us, which could present the foregoing risks and impose limitations in Mereo’sour ability to develop, manufacture or sellBPS-804 setrusumab for such use in the EU, unless Mereo obtainswe obtain a license under such patent, such patent is determined to be invalid or unenforceable by the EPO or a national court in one or more relevant territories, or such patent is revoked or otherwise limited by the EPO. This patent is currently the subject of ongoing opposition proceedings before the EPO, but there can be no assurance as to the outcome of such proceedings.

Any of our patents may be challenged, narrowed, circumvented, or invalidated by third parties. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party preissuance submission of prior art to the USPTO or become involved in opposition, derivation, revocation, reexamination, post-grant andinter partes review, or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of invention or other features of patentability. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. Such proceedings also may result in substantial cost and require significant time from us, even if the eventual outcome is favorable to us.

Further, if a patent infringement suit is brought against Mereous or itsour third-party service providers, Mereo’sour development, manufacturing or sales activities relating to the product or product candidate that is the subject of the suit may be delayed or terminated. As a result of patent infringement claims, or in order to avoid potential infringement claims, Mereowe may choose to seek, or be required to seek, a license from the third party, which would be likely to include a requirement to pay license fees or royalties or both. These licenses may not be available on acceptable terms or at all. Even if a license can be obtained on acceptable terms, the rights may be nonexclusive, which would give Mereo’sour competitors access to the same intellectual property rights. If Mereo iswe are unable to enter into a license on acceptable terms, itwe could be prevented from commercializing one or more of itsour product candidates, or forced to

If Mereowe were to initiate legal proceedings against a third party to enforce a patent covering one of itsour product candidates, the defendant could counterclaim that Mereo’sour patent is invalid or unenforceable. In patent litigation in the United States and in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness, ornon-enablement. Third parties might allege unenforceability of Mereo’sour patents because someone connected with prosecution of the patent withheld relevant information, or made a misleading statement, during prosecution. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, Mereowe cannot be certain that there is no invalidating prior art of which Mereowe and the patent examiner were unaware during prosecution. There is a risk that in connection with such proceedings, a court will decide that a Mereo patent of ours is invalid or unenforceable, in whole or in part, and that Mereo doeswe do not have the right to stop the other party from using the invention at issue. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, Mereowe would lose at least part, and perhaps all, of the patent protection on Mereo’sour product candidates. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that Mereo doeswe do not have the right to stop the other party from using the invention at issue on the grounds that Mereo’sour patent claims do not cover the invention. Even if Mereo establisheswe establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. An adverse outcome in a litigation or proceeding involving one or more of Mereo’sour patents could limit itsour ability to assert those patents against those parties or other competitors, and may curtail or preclude Mereo’sour ability to exclude third parties from making and selling similar or competitive products.competing product candidates. In addition, if the breadth or strength of protection provided by Mereo’sour patents is threatened, it could dissuade companies from collaborating with Mereous to license, develop, or commercialize itsour current or future product candidates.

Furthermore, Mereo’sour patents and other intellectual property rights also will not protect itsour technology if competitors and other third parties design around Mereo’sour protected technology without infringing itsour patents or other intellectual property rights. For example, a third party may develop a competitive product that provides benefits similar to our product candidates but that uses a technology that falls outside the scope of our patent protection. Our competitors may also seek approval to market generic versions of any approved products and in connection with seeking such approval may claim that our patents are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in anon-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Mereo’sour confidential information could be compromised by disclosure during this type of litigation. Even if resolved in Mereo’sour favor, litigation or other legal proceedings relating to intellectual property claims may cause Mereous to incur significant expenses and could distract Mereo’sour technical and management personnel from itstheir normal responsibilities. Such litigation or proceedings could substantially increase Mereo’sour operating losses and reduce itsour resources available for development activities. MereoWe may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of Mereo’sour competitors may be able to sustain the costs of such litigation or proceedings more effectively than Mereowe can because of itstheir substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on Mereo’sour ability to compete in the marketplace. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors view these announcements in a negative light, the price of our ADSs could be adversely affected.

MereoWe may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect Mereo’sour ability to develop, manufacture and market itsour product candidates.

MereoWe cannot guarantee that any of its, itsour, our licensors’, or the previous owners’ patent searches or analyses, including but not limited to the identification of relevant patents, the scope of patent claims, or the expiration of relevant patent applications or patents, are complete or thorough, nor can Mereowe be certain that it haswe have identified each

and every third-party patent and patent application in the United States, Europe and elsewhere that is relevant to or necessary for the commercialization of Mereo’sour product candidates in any jurisdiction. For example, in the United States, patent applications filed before November 29, 2000 and, upon request, certain patent applications filed after that date that will not be filed outside the United States, remain confidential until those patent applications issue as patents. Patent applications in the United States, EU, and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority

same rights and compete with Mereo.us. If Mereo iswe are unable to successfully obtain a license to third-party intellectual property rights necessary for the development of itsour product candidates or a development program on acceptable terms, itwe may have to abandon development of itsour product candidates or that development program.

Among some of the other changes introduced by the AIA are changes to the limitation where a patent may be challenged, thus providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of Mereo’sour U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action.

If Mereo iswe are unable to protect the confidentiality of itsour trade secrets andknow-how, itsour business and competitive position would be harmed.

Mereo considersWe consider proprietary trade secrets and confidentialknow-how and unpatentedknow-how to be important to itsour business. In addition to seeking patents for some of Mereo’sour technology and product candidates, Mereowe also may also rely on trade secrets or confidentialknow-how to protect itsour technology, especially where patent protection is believed to be of limited value. However, trade secrets and confidentialknow-how are difficult to maintain as confidential.

clinical trial subjects and employees, in Mereo’sour data centers and on Mereo’sour networks. The secure processing, maintenance and transmission of this information is critical to Mereo’sour operations. Despite Mereo’sour security measures, itsour information technology and infrastructure and those of itsour CROs or other contractors or consultants may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. The loss of clinical trial data from completed, ongoing, or planned trials could result in delays in Mereo’sour regulatory approval efforts and significantly increase itsour costs to recover or reproduce the data. Although, to Mereo’sour knowledge, it haswe have not experienced any such material security breach to date, any such breach could compromise itsour networks and the

These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate substantially, regardless of Mereo’sour actual operating performance, which may limit or prevent investors from readily selling ADSs or ordinary shares and may otherwise negatively affect the liquidity of ADSs and ordinary 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 ADSs and ordinary shares, regardless of Mereo’sour operating performance. Furthermore, the trading prices for our ADSs and the underlying ordinary shares as well as the ordinary shares of our competitors have been highly volatile as a result of theCOVID-19 pandemic. In addition, a recession, depression or other sustained adverse market event resulting from the spread ofCOVID-19 could materially and adversely affect our business and the market price of our ADSs and ordinary shares.

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 ADSs or ordinary shares were to bring such a lawsuit against Mereo, Mereous, we could incur substantial costs defending the lawsuit and the attention of Mereo’sour senior management would be diverted from the operation of Mereo’sour business. Any adverse determination in litigation could also subject Mereous to significant liabilities.

Future sales of ordinary shares or ADSs could depress the market price of ADSs.

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

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

Our ADSs are listed for trading on Nasdaq and our ordinary shares trade on AIM. As ofSince April 24, 2019 we have maintained a dual listing, which has generated and will continue to generate additional costs, including significant legal, accounting, investor relations, and other expenses that Mereowe did not incur prior to April 24, 2019, in addition to the costs associated with the additional reporting requirements described elsewhere in this annual report. MereoWe cannot predict the effect of this dual listing on the value of our ADSs and ordinary shares. However, the dual listing of ADSs and ordinary 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 our ADSs. The price of our ADSs could also be adversely affected by trading in ordinary shares on AIM. In addition, the dual listing of ordinary shares and ADSs

may cause the market price for ADSs and the underlying ordinary shares to fluctuate and decline regardless of our operating performance. See “—The market price for ADSs and the underlying ordinary shares may be volatile and may decline regardless of our operating performance, and the value of your investment could materially decline.”

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

The share price of ordinary shares is quoted on AIM in pence sterling, while our ADSs 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 our ADSs and the value of ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, 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 our ADSs would receive upon the sale in the United Kingdom of any ordinary shares withdrawn from the depositary, and the U.S. dollar equivalent of any cash dividends paid in pound sterling on ordinary shares represented by our ADSs, could also decline.

You may be subject to limitations on the transfer of ADSs and the withdrawal of the underlying ordinary shares.

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 ADSs generally when our books or the books of the depositary are closed, or at any time if we 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 ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or because we are paying a dividend on our ordinary shares.

In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges to the depositary and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to our ADSs or to the withdrawal of our ordinary shares or other deposited securities.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the U.K. Companies Act 2006, and by our Articles of Association (our “Articles”). These rights differ in certain respects from the rights of shareholders in typical U.S. corporations.

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

The depositary for ADSs is entitled to charge holders fees for various services including for the issuance of ADSs upon deposit of ordinary shares, cancellation of ADSs, distributions of cash dividends or other cash distributions, distributions of ADSs pursuant to share dividends or other free share distributions, distributions of securities other than ADSs and annual service fees. In the case of 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. The depositary for ADSs will not generally be responsible for any United Kingdom stamp duty or stamp duty reserve tax arising upon the issuance or transfer of ADSs. For a discussion of the United Kingdom stamp duty and stamp duty reserve tax consequences of the issuance and transfer of ADSs, see “Item 10. Additional Information—E. Taxation—Stamp Duty and Stamp Duty Reserve Tax.Taxation.”

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

The trading market for our ordinary shares and ADSs depends in part on the research and reports that securities or industry analysts publish about Mereous or itsour business. If one or more of the analysts who covers Mereous downgrades our ordinary shares or ADSs or publishes incorrect or unfavorable research about Mereo’sour business, the price of our ordinary shares and/or ADSs would likely decline. If one or more of these analysts ceases coverage of Mereous or fails to publish reports on itus regularly, or downgrades our ordinary shares or ADSs, demand for ADSs or ordinary shares could decrease, which could cause the price of ADSs and/or ordinary shares and/or trading volume to decline.

You may be subject to limitations on the transfer of ADSs and the withdrawal of the underlying ordinary shares.

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 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 ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or Mereo has closed its transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or because Mereo is paying a dividend on its ordinary shares.

In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary 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 our ADSs or to the withdrawal of our ordinary shares or other deposited securities.

Our 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 our 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 our ADSs, including claims under U.S. federal securities laws, against Mereous 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

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

Mereo isWe are incorporated as a public limited company in England and Wales, and the majority of Mereo’sour assets are located outside the United States. In addition, the majority of the members of theour board of directors of Mereo (the “Mereo Board”(our “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 Mereous 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 Mereous 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 Mereous or itsour 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 preemptivepre-emptive equity offerings.

Under English law, shareholders (being those shareholders that are included in a company’s register of members as holders of the legal title to that company’s shares) usually have preemptivepre-emptive rights to subscribe on a pro rata basis in the issuance of new shares for cash. The exercise of preemptivethosepre-emptive 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 preemptivepre-emptive rights by U.S.United States shareholders would be prohibited unless that rightsan offering is registered under the Securities Act or an exemption from the registration requirements of the Securities Act applies. Furthermore,

rules under the Exchange Act that would otherwise apply if Mereowe were a company incorporated in the United States, including:

In addition, Mereo’sour officers, directors and principal shareholders are 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 our ADSs and ordinary shares.

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

The MereoOur Board is 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

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make the ADSs less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to, and intend to, take advantage, for up to five years, of certain exemptions from various reporting requirements applicable to other public companies that are not Emerging Growth Companies, such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. These exemptions include:

We expect to continue to take advantage of some or all of the available exemptions. We cannot predict whether investors will find the ADSs less attractive if we rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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

Pursuant to Section 404, Mereo iswe are required to furnish a report by itsour senior management on itsour internal control over financial reporting.reporting beginning with this annual report. However, while Mereo remainswe remain an Emerging Growth Company, itemerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by itsour independent registered public accounting firm. To prepare for eventualachieve compliance with Section 404, once Mereo no longer qualifies as an Emerging Growth Company, Mereo will bewe have been engaged in a process to document and evaluate itsour internal control over financial reporting, which is both costly and challenging. In this regard, Mereowe 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’sour efforts, there is a risk that itwe will not be able to conclude, within the prescribed timeframe or at all, that itsour internal control over financial reporting is effective as required by Section 404. If Mereo identifieswe identify 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’sour financial statements.

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’sour general meetings of shareholders may control any shareholder resolution requiring a simple majority, including the appointment of board members, certain decisions relating to Mereo’sour 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’sour general meetings of shareholders may control any shareholder resolution amending Mereo’s articles of association (the “Articles”).our Articles. These shareholders may have interests that differ from yoursours and may vote in a way with which youwe 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 our ADSs and ordinary shares.

If Mereo isWe may be a passive foreign investment company (“PFIC”), you for any taxable year, which could be subject toresult in material adverse U.S. federal income tax consequences if you are a U.S. investor.

In general, anon-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 (the “income test”) or (ii) 50% or more of the average quarterly value of its assets consists of assets (generally determined on a quarterly average basis) that produce, or are held for the production of, passive income (the “asset test”). For purposes of the above calculations, anon-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.

Following the Merger with OncoMed, the assets shown on Mereo’s consolidated balance sheet are expected to contain a significant amount of cash and cash equivalents in the current taxable year and for the foreseeable future (taking into account OncoMed assets acquired as a result of the Merger). Therefore, whether Mereo will satisfy the asset test for the current or any future taxable year generally will depend largely on the quarterly(the value of its goodwill, and on how quickly it utilizes the cash in its business. Because (i) the value of its goodwillwhich may be determined by reference to the company’s market pricecapitalization) is treated as an active asset to the extent attributable to activities intended to produce active income.

Based on our gross income, the average value of its shares or ADSs, which may be volatile givenour assets, including goodwill, and the nature and early stage of its