Mereo BioPharma Group plc (MREO): A Bull Case Theory

We came across a bullish thesis on Mereo BioPharma Group plc (MREO) on Raging Bull Investments’ Substack by Jake LaMotta. In this article we will summarize the bulls’ thesis on MREO. Mereo BioPharma Group plc (MREO) share was trading at $3.95 as of Sept 17th.

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Mereo BioPharma is positioning itself as a key player in rare diseases, with Ultragenyx recently providing a highly optimistic update on setrusumab’s phase 3 trials for osteogenesis imperfecta (OI). The updated 14-month phase 2 data revealed significant progress, with patients showing a consistent reduction in fractures, reflected in a declining p-value. This indicates that the treatment is having a strong effect across all patient groups, with continued improvements over a 17-24 month period. These ongoing advancements suggest that setrusumab is not only strengthening bones but also reducing fractures with long-term use. Importantly, the placebo group in these trials is not expected to experience an increase in bone marrow density, eliminating the risk of a placebo effect.

Ultragenyx believes the drug will work across Type 1, 3, and 4 OI patients, representing 80-90% of the OI population. The phase 3 trial is particularly focused on more severe Type 3 and 4 patients, which could lead to a higher annualized fracture rate (AFR) in the placebo group, enhancing the statistical power of the study. Despite reducing enrollment from 195 to 150 patients, the trial's AFR of 67% is already far above what is needed to demonstrate efficacy, reinforcing confidence in the drug's success. Ultragenyx maintained the larger sample size to include more severe cases, which could further strengthen the results.

These developments point to a roughly 90% probability of success for setrusumab. Interim results may arrive by year-end, although they will only be shared if the necessary efficacy threshold is met. Investors may have the opportunity to capitalize on both the early potential readout and Mereo’s alvelestat program, which is anticipated to provide major news in the coming months. With Mereo shares recently hitting a new high of $4.50, investor interest is surging, as evidenced by significant 13F activity and large after-hours trades.

While there has been no concrete update on an alvelestat deal, speculation is growing, and any positive news could trigger a sharp rise in the stock, especially considering the limited share float. With these multiple catalysts on the horizon, Mereo appears well-positioned for substantial upside, offering investors an exciting opportunity in the rare disease space.

Mereo BioPharma Group plc (MREO) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held MREO at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of MREO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MREO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.