OncoMed Pharmaceuticals attracted hundreds of millions of dollars from investors and pharmaceutical partners with compounds it developed to target cells that drive cancer growth. But after a series of clinical trial stumbles and the dissolution of its drug development alliances over the last two years, OncoMed is now serving as a vehicle for a UK-based company to gain a public listing in the U.S.
Redwood City, CA-based OncoMed (NASDAQ: OMED) announced Wednesday an agreement to merge with rare disease drug developer Mereo BioPharma. Though Mereo (AIM: MPH) is already publicly traded in London where it is based, the reverse merger would give the company an additional listing on the Nasdaq, as well as Oncomed’s remaining cancer drugs, which are in early clinical development. One of those drugs could be licensed for further development under an agreement with Celgene (NASDAQ: CELG).
Under the deal, Mereo will issue 23.7 million American depository shares—shares that a non-U.S. company makes available for purchase on an American stock exchange. Mereo said those shares will have an approximate value of $57.4 million, representing a 34 percent premium over OncoMed’s $42.9 million market capitalization on Tuesday before the deal was announced. OncoMed shareholders could also gain cash payments and additional Mereo shares, pegged to the progress of its cancer drugs.
The boards of directors of both companies have approved the merger. Upon closing, Mereo shareholders will hold approximately 75 percent of the combined company.
Founded in 2004, OncoMed focused on developing antibody drugs that target cancer stem cells, also called tumor-initiating cells. OncoMed says these cells are a subset of tumor cells that renew themselves and cause tumors to regrow despite cancer treatment. The company’s approach attracted partners including Celgene, GlaxoSmithKline (NYSE: GSK), Bayer. Prior to its 2013 IPO, OncoMed had raised $325 million in financing, including both equity investments and funding through partnerships with pharmaceutical companies.
When OncoMed went public, it raised $81 million by pricing its shares at $17 apiece. The company’s shares haven’t traded anywhere near that price since 2016, and the steepest price drops followed clinical trial setbacks in the past two years. In 2016, the company disclosed safety concerns in a mid-stage study testing its pancreatic cancer drug candidate tarextumab, which was partnered with GSK. Last year, OncoMed announced that demcizumab, a pancreatic cancer drug that was being developed in partnership with Celgene, failed a Phase 2 study. Separately, OncoMed announced in 2017 that Bayer had declined its option to license two of its cancer drugs.
On the heels of the 2017 setbacks OncoMed slashed its workforce in half and focused its remaining resources on cancer drugs in earlier stages of development. Navicixzumab has completed a Phase 1a study in patients with advanced solid tumors and is in a Phase 1b study testing it in combination with chemotherapy in ovarian cancer. A second compound, etigilimab, is in early stage clinical studies as a potential treatment for advanced solid tumors. Celgene holds an option to license the drug. The third OncoMed drug, OMP-336B11, is being studied in a Phase 1a study in patients with advanced solid tumors. A fourth program, rosmantuzumab, failed to show benefit in an early-stage clinical trial; in October, Celgene notified OncoMed that it would not license that drug and will terminate its collaboration on that program.
Mereo says that the combined company will have approximately $115 million in cash. A “select number of OncoMed employees” will join the combined company, which will have its U.S. presence in Redwood City. The companies expect to close the deal in the second half of next year.