Mereo BioPharma Group plc

1. Natureof business

Mereo BioPharma Group plc (the “Company” or “Mereo”) is a United Kingdom (“U.K.”) based biopharmaceutical company focused on the development of innovative therapeutics for rare diseases. The Company has developed a portfolio of late-stage clinical product candidates, and its two late-stage rare disease product candidates are setrusumab for the treatment of osteogenesis imperfecta and alvelestat primarily for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease. The Company also has an early-stage rare disease program, vantictumab, for the treatment of autosomal dominant osteopetrosis Type 2.

The Company is a public limited company incorporated and domiciled in the U.K., and registered in England, with shares publicly traded on the Nasdaq Capital Market via ADSs under the ticker symbol “MREO”. The Company’s registered office is located at 4th Floor, One Cavendish Place, London, W1G 0QF, United Kingdom.

2. Basis of presentation and summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC for annual financial reporting.

The consolidated financial statements are presented in U.S. dollars (“$”), which is the reporting currency of the Company. The functional currency of the Company is pound sterling (“£”). The functional currency of consolidated subsidiaries are mainly pound sterling and U.S. dollar. All amounts disclosed in the consolidated financial statements and notes have been rounded to the nearest thousand, unless otherwise stated.

Going concern

The Company has prepared its financial statements on the basis that it will continue as a going concern. In accordance with the Financial Accounting Standards Board (“FASB”), Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of delays in initiating or continuing research programs and clinical trials, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, if approved, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including pre-clinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The Company has historically been loss making, anticipates that it will continue to incur losses for the foreseeable future, and had an accumulated deficit of $501.0 million as of December 31, 2025. The Company has funded these losses through a combination of public equity financings, private equity and debt financings and various license and collaboration agreements, and it expects it will continue to do so until such time as it can generate significant revenue from product sales, or other commercial revenues, if ever, or through licensing and/or collaboration agreements for its rare disease or other product candidates. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

As of December 31, 2025, the Company had cash and cash equivalents of $41.0 million. The Company expects that its cash and cash equivalents as of December 31, 2025 will be sufficient to fund its operations and capital expenditure requirements for at least twelve months from the date of filing of this Annual Report on Form 10-K. In the longer term, the Company will need additional funding to support its continuing operations and pursue its business strategy.

Basis of consolidation

The consolidated financial information comprises the financial statements of Mereo BioPharma Group plc and its wholly owned subsidiaries. All intercompany balances and transactions between the Company and its subsidiaries have been eliminated on consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. There are no estimates and assumptions made in the consolidated financial statements that are considered to be critical. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Segmental information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manage its business as a single operating segment, which is the business of developing rare disease therapies; however, the Company operates in two geographic regions: the U.K. and the U.S. The Company’s long-lived assets are primarily located in the U.K. As of both December 31, 2025 and 2024, no property and equipment was located in the U.S.

Concentration of credit risk and significant counterparties

The Company is dependent on a number of third parties for the delivery of its programs and, where required, pays upfront deposits and fees in advance of the delivery of services. The Company considers all of its material counterparties to be creditworthy and the credit risk for each of its major counterparties to be low, but continues to assess credit risk as part of its management of these third-party relationships. Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents. The Company places cash and cash equivalents with established financial institutions with strong credit ratings. The Company’s maximum exposure to credit risk for the components of the balance sheet of December 31, 2025 are the carrying amounts. The Company has no significant off-balance sheet risk or concentration of credit risk, such as foreign exchange contracts, options contracts, or other foreign hedging arrangements.

Revenue

The Company’s ongoing major or central operations are the development of product candidates to key clinical milestones and either strategically partnering them or further developing such product candidates through potential regulatory approval and commercialization. The Company may enter into a range of different agreements with third parties, including but not limited to: (i) licensing agreements where the global rights to a product candidate are licensed to a partner; and (ii) collaboration agreements where rights to a product candidate are licensed to a partner but the Company retains certain rights, for example to further develop or commercialize the product candidate in specified geographical territories. Under both licensing and collaboration agreements, rights to product candidates are provided to a partner typically in exchange for consideration in the form of upfront payments and/or development, regulatory, commercial or other similar milestones, and royalties on commercial sales, should regulatory approval be obtained for the product candidates.

The terms of these arrangements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; payments for research and development services; fees upon the exercise of options to obtain additional services or licenses; payments based upon the achievement of defined collaboration objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.

Where the Company has performed significant development activities for its product candidates, including the leflutrozole partnership described in Note 13, receipts from agreements with third parties are considered to be proceeds derived from customers of the Company’s ongoing major or central operations and therefore the Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.

Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. The promised goods or services in the Company’s contracts with customers primarily consist of license rights to the Company’s intellectual property, research and development services and options to obtain additional licenses, such as a commercialization license for a potential product candidate. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources, and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the collaboration partner to develop the intellectual property on their own and whether the required expertise is readily available. In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises.

The Company estimates the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. The initial transaction price of a contract does not include amounts associated with customer option payments.

After the transaction price is determined, it is allocated to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Based on the current agreements in effect, there is limited judgment in determining the revenue and transaction price. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, the facts and circumstances of each respective contract will be used to determine the revenue recognition pattern. The Company currently does not have any revenue that is being recognized over a period of time.

Payments to third parties arising as a direct consequence of the revenue recognized are also recorded within cost of revenue in the Company’s consolidated statements of operations and comprehensive loss.

License revenue

The Company has no approved product candidates and accordingly has not generated any revenue from commercial product sales. Revenue to date has been generated principally from licensing arrangements and collaboration agreements with a small number of the Company's customers.

If a license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license at such time as the license is transferred to the licensee and the licensee is able to use, and benefit from, the license.

Contingent milestone payments

The Company's licensing arrangements and collaboration agreements may include development, regulatory and sales milestones. ASC 606 constrains the amount of variable consideration included in the transaction price in that either all, or a portion, of variable consideration should be included in the transaction price. The variable consideration should be included only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company evaluates the probability of the milestones being reached and estimates the amount to be included in the transaction price using the most likely amount method. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company's control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraints and, if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.

Research and development (“R&D”) expenses

R&D costs are expensed as incurred on an accruals basis in accordance with ASC Topic 730, Research and Development (“ASC 730”) because they have no alternative future uses. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and share-based compensation expense, contract services including external R&D expenses incurred under arrangements with third parties such as CROs, facilities costs, overhead costs and other related expenses. Intellectual property costs incurred on each drug candidate and costs associated with pre-commercial activities to support pricing and reimbursement by health technology assessment authorities and payor decision-makers in Europe are excluded from R&D expenses and are recognized within general and administrative expenses. R&D costs that are paid in advance of performance are recorded as a prepaid expense and expensed over the service period as the services are provided. Accruals and prepayments for R&D expenses typically include fees and costs to be paid to CROs in relation to clinical trials and CMOs in relation to the manufacture of drug substance and drug product. These accruals and prepayments are calculated each period based on regular review and challenge by the relevant program manager of the detailed activity analysis provided directly by CROs and CMOs to determine their completeness and accuracy.

Defined contribution postretirement plan

The Group operates a defined contribution postretirement plan in the U.K. The Group’s contributions to the defined contribution postretirement plan are charged to profit or loss as they are incurred. Defined contribution plan expenses were $0.3 million and $0.3 million for the year ended December 31, 2025 and 2024, respectively.

Income taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in its tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that deferred tax assets will be recovered in the future to the extent management believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. All deferred tax liabilities and assets, as well as any related valuation allowance, are offset and presented as a single noncurrent amount for a particular tax-paying component of the Company and within a particular tax jurisdiction.

The Company accounts for uncertainty in income taxes by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position is evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated financial statements. The amount of benefits that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties.

The Company recognizes interest related to unrecognized tax benefits within interest expense in the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2025 and 2024, no material accrued interest is included in the related tax liability line in the consolidated balance sheets.

U.K. R&D tax credit

The Company is subject to corporate taxation in the U.K. Due to the nature of the business, the Company has generated operating losses since inception. The benefit from R&D tax credits is recognized in the consolidated statements of operations and comprehensive loss, and represents R&D tax credits recoverable in the U.K. and recognized under the following schemes:

Year ended December 31, 2025

Pursuant to changes made by the Finance Act 2024, for accounting periods starting on or after April 1, 2024, a new, merged regime (the "Merged Scheme") came into effect for all companies, other than loss making R&D intensive small and medium sized enterprises ("SMEs").

Under the Merged Scheme, a headline credit rate of 20% on eligible R&D expenditure is available, and the credit is taxable at the applicable corporation tax rate. The amount of payable R&D tax credit that a business can receive in any one year is capped at £20,000 plus three times the Company’s total Pay As You Earn and National Insurance Contributions liability. Subcontracted expenditure in most cases is expected to be a qualifying cost (unless it relates to non-qualifying costs subcontracted overseas).

The U.K. R&D tax credit may either be offset against corporation tax liabilities, or paid net of tax as a cash credit where there is no liability in the future. As a result, the Company has recorded the entire benefit from the U.K. R&D tax credit as a benefit which is included in net loss before income tax and therefore it is not reflected as part of the income tax provision. If, in the future, any U.K. R&D tax credits generated are needed to offset a corporate income tax liability in the U.K., the relevant portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within the benefit from research and development tax credit in the consolidated statements of operations and comprehensive loss.

For loss making R&D intensive SMEs, the enhanced R&D intensive support regime will be available (for companies where at least 30% of their total expenditure including any connected companies is on qualifying R&D). The Company did not qualify as an R&D intensive company for 2025, nor does it expect to in the future, and therefore expects to claim under the merged regime from 2025 onward.

Year ended December 31, 2024

The Company historically benefited from the U.K. small and medium sized enterprises research and development relief, which provided relief against U.K. corporation tax and enabled it to surrender some of its trading losses that arise from its R&D activities for a cash credit. Pursuant to changes made by the Finance Act 2023, for expenditure incurred on or after April 1, 2023, a cash credit of up to 27% for R&D intensive companies where at least 40% of their total expenditure is on qualifying R&D, or for non-R&D intensive companies, a cash credit of up to 18.6% of eligible R&D expenditure is available. From April 1, 2023, certain subcontracted qualifying research expenditures were eligible for a cash credit of up to 17.53% for R&D intensive companies or 12.09% for other companies. The difference in cash credit for qualifying subcontracted expenditure vs. other qualifying expenditure is due to a statutory restriction of 65% being applied to unconnected qualifying subcontracted expenditure, thus restricting the benefit available.

U.K. "patent box" regime

In the event the Company generates revenues in the future, it may also benefit from the U.K. “patent box” regime that allows profits attributable to revenues from patents or patented product candidates to be taxed at an effective rate of 10%. This relief applies to profits earned following election into the regime. When taken in combination with the enhanced relief available on our R&D expenditures, the Company expects a long-term lower rate of corporation tax will apply. If, however, there are unexpected adverse changes to the U.K. R&D tax credit regime or the “patent box” regime, or for any reason it is unable to qualify for these regimes, or it is unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments, the Company's business, results of operations, and financial condition may be adversely affected.

Foreign currencies

The Company maintains its consolidated financial statements in its functional currency, which is pound sterling. This is also the functional currency of the wholly-owned subsidiaries which are consolidated, with the exceptions of Mereo BioPharma 5 Inc, and Mereo BioPharma Europe B.V., for which the functional currency is U.S. dollars and Euro, respectively. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the consolidated statements of operations and comprehensive loss.

For financial reporting purposes, the consolidated financial statements of the Company have been presented in U.S. dollars, the reporting currency. The financial statements of consolidated entities are translated from their functional currency into U.S. dollars as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates; revenue, operating expenses and other income/ (expense), net are translated at the average exchange rates for the periods presented; and shareholders’ equity is translated at the prevailing historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to other comprehensive income/(loss), a component of shareholders’ equity.

Property and equipment, net

Property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the equipment if the recognition criteria are met. All other repair and maintenance costs are recognized in profit or loss as incurred.

Depreciation is computed using thestraight-line method over the estimated useful lives of the related assets. Useful lives of various property and equipment are as follows:

Property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of operations and comprehensive loss when the asset is derecognized.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed annually and adjusted prospectively, if appropriate.

Leases

Leases are accounted for under ASC Topic 842, Leases (“ASC 842”). The Company only has operating leases. The Company assesses whether a contract is, or contains, a lease at inception of the contract and recognizes a right-of-use (“ROU”) asset and a corresponding liability with respect to all lease arrangements in which it is a lessee. ROU assets and liabilities are recognized at the commencement date based on the present value of the remaining lease payments. For this purpose, the Company considers only payments that are fixed and determinable at the time of lease commencement.

As the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate in calculating the present value of lease payments. The ROU assets also include any lease payments made prior to commencement and are recorded net of any lease incentives received.

The Company accounts for lease and non-lease components separately. Non-lease components include service and maintenance charges. There are no variable lease costs associated with the current leases.

Operating leases are included in right-of-use assets and in current and non-current operating lease liabilities on the Company's consolidated balance sheets.

Lease expense for lease payments is considered operating lease costs and is recognized on a straight-line basis over the lease term. The lease terms for the underlying assets is as follows:

Intangible assets

Identifiable intangible assets within the scope of ASC 730 that are purchased from others for a particular research and development project outside of a business combination, and that have no alternative future uses are expensed as incurred.

Intangible assets that have an alternative future use, or which are outside the scope of ASC 730, are accounted for under ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) and are initially recorded at cost, which is the fair value of the consideration paid on the acquisition date.

Consideration that is contingent on future events is included in the cost of the asset (irrespective of whether the asset is subsequently expensed under ASC 730) with a corresponding contingent consideration liability recorded if the contingency is both probable and estimable. However, where the liability is payable in a variable number of shares based on a fixed monetary amount known at the inception of an arrangement, it is initially recorded at fair value and presented as a liability under ASC Topic 480, Distinguishing Liabilities from Equity. The Company continues to reassess the fair value of such instruments each reporting period until the milestones are achieved, if ever, and the issuance of shares occurs.

Given the pervasive uncertainty involved in establishing the amounts, timing and likelihood of the future cash flows, including the Company’s ability to secure either a partnership or alternative forms of non-dilutive financing, the possible terms and rate of such a partnership or financing, the clinical and regulatory performance of the product candidate and the lack of comparable recent transactions, the Company has determined the fair value of the equity milestones to be paid in a variable number of shares pursuant to its Amended AstraZeneca License Agreement to be negligible and therefore assigned a nil value to the instrument as of December 31, 2025.

Intangible assets that have been acquired in a business combination are initially recorded at fair value.

Intangible assets are amortized over their estimated useful economic life from the date they are available for use and are recognized in general and administrative expenses. An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized within Net loss when the asset is derecognized.

Financial instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses, deferred consideration, warrant liabilities and the liability component of the convertible loan notes and other financing arrangements. Cash, cash equivalents (except for investments in money market funds), accounts payable and accrued expenses are initially recorded and subsequently measured at cost, which is considered to approximate their fair value due to the short-term nature of such financial instruments. The carrying value of investment warrant liabilities and convertible loan notes is explained in the sections below.

Embedded derivatives

The Company reviews the terms of convertible loan notes and other hybrid financing arrangements to determine whether there are embedded derivative instruments, including conversion options that are required to be bifurcated and accounted for separately either as a derivative financial instrument or an equity instrument.

Derivative financial instruments are initially measured at fair value, and then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations and comprehensive loss as a component of net income.

The discount from face value of the liability component remaining from allocating some or all of the proceeds of the hybrid instrument to the derivative, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to consolidated statements of operations and comprehensive loss, using the effective interest method. Embedded derivatives that are bifurcated and recognized as liability instruments are presented in a separate line in the consolidated balance sheets.

Embedded derivative instruments that meet the criteria of equity instruments under ASC Topic 815-40, Contracts in Entity’s Own Equity (Subtopic 815-40) are initially recognized within additional paid-in capital at an amount determined by allocating the proceeds between the debt and equity components based on their relative fair values.

Convertible loan notes

Convertible loan notes are accounted for in accordance with ASC Topic 470-20, Debt with Conversion and Other Options as amended by ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) which the Company early adopted on January 1, 2021 on a fully retrospective basis.

As described in Note 10, the Company issued the Novartis Loan Note in 2020, which included convertible loan notes and warrants. Pursuant to ASC Subtopic 470-20, the Company separately accounted for the liability component of the convertible loan notes, the embedded conversion option and the warrants. This Loan Note was fully converted in February 2025.

Both the conversion option and the warrants were separately accounted for as equity instruments upon issuance. The conversion option and warrants are accounted for as equity instruments as they met the requirements to be considered indexed to the Company's own shares under Subtopic 815-40.

Consideration received for hybrid financial instruments containing convertible debt is initially allocated to the fair value of separately recognized derivative instruments that will be subsequently remeasured at fair value under ASC 815. The remaining consideration is allocated to the liability portion of the convertible loan notes and any other separately recognized equity instruments, such as the embedded conversion option, based on the relative fair value of each instrument.

Where none of the embedded derivatives are required to be subsequently remeasured at fair value, the consideration is allocated to all elements based on the relative fair value of each instrument. As the conversion option in the Novartis Loan Note is classified as an equity instrument, it qualifies for the scope exception for contracts indexed to the Company's own equity and as such is allocated to additional paid-in capital and accounted for at the initial recognition amount.

Upon any conversion of the convertible loan notes in accordance with the conversion privileges provided in the terms of the instrument, the carrying value is adjusted for any unamortized capitalized transaction costs, which are recognized within interest expense. The carrying value is reduced by the cash consideration received and any excess or deficit after recognizing the nominal value of the ordinary shares issued is recognized within additional paid-in capital.

Warrant liabilities

The Company issued warrants to its previous lenders pursuant to the terms of its loan facility in August 2017 and October 2018. The warrants were classified as liabilities as they included provisions that could require cash settlement. The warrant instruments are recorded at fair value, with changes in the fair value recognized in the consolidated statements of operations and comprehensive loss as a component of net loss, where the terms of the warrant instruments allow for cashless exercise.

Equity classified warrants

The Company has issued the following equity classified warrants:

Warrants over 2,000,000 ordinary shares with a subscription price of £0.15 per ordinary share in conjunction with amendments made to the Novartis Loan Note in 2023 (the "2023 Novartis Warrants"). These warrants are exercisable until February 10, 2028 and the value allocated to them was recognized in additional paid-in capital at issuance as described above. Another tranche of warrants over 1,449,610 ordinary shares to Novartis at an exercise price of £0.265 per ordinary share issued in 2020 have been exercised on February 7, 2025 (see Note 10).

In October 2018, the Company entered into a funding agreement with The Alpha-1 Project (“TAP”), which provided for total payments of $0.4 million, of which the final installment of $0.1 million was received in May 2023. In exchange for funding, the Company issued warrants over a total of 1,551,699 ordinary shares (the "TAP Warrants"), allowing TAP to subscribe for ordinary shares in the Company. Under the agreement, TAP is potentially entitled to receive a payment equivalent to the amounts received by Mereo (up to a maximum of $0.4 million) conditional on and within thirty days of the first regulatory approval for alvelestat. The agreement was accounted for as a compound instrument that includes both debt and equity components with the carrying value of each component established based on the relative fair value of each component. The amount allocated to the liability component is accreted back to the face value over the period to the earliest reasonable repayment date using the effective interest method. The amount allocated to the warrants was recognized in additional paid-in capital and is not subsequently remeasured. In February 2026, the Company received an exercise notice from TAP and subsequently issued and allotted 1,551,695 shares (equivalent to 310,339 ADSs) on the non-cash exercise of the warrants.

Fair value measurement

The Company follows the guidance in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) which defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

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Level 1 — quoted (unadjusted) market prices in active markets for identical assets or liabilities.

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Level 2 — valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

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Level 3 — valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There were no transfers within the fair value hierarchy during the years ended December 31, 2025 and 2024.

Cash and cash equivalents

Cash and cash equivalents in the consolidated balance sheets comprise cash at banks, short-term deposits with a maturity of three months or less from placement and investments in money market funds.

Share-based compensation

Employees (including executives) and non-executive directors of the Company receive remuneration in the form of share-based compensation, whereby employees and non-executive directors render services as consideration for equity instruments (equity settled transactions). Incentives in the form of ADSs are provided to employees and non-executive directors under various plans.

In accordance with ASC Topic 718, Stock Compensation (“ASC 718”), the total amounts to be expensed for these incentives are expensed through the consolidated statements of operations and comprehensive loss and are measured based on the grant-date fair value of the awards and recognized over the period during which the employee or non-executive director is required to perform services in exchange for the award (generally the vesting period of the award).

In accordance with ASC 718, the cancellation of share options is accounted for as an acceleration of the vesting period and therefore any amount unrecognized that would otherwise have been recorded in future accounting periods is recognized immediately. The Company has elected to recognize the effect of forfeitures on share-based compensation when they occur. Any differences in compensation recognized at the time of forfeiture are recorded as a cumulative adjustment in the period in which the forfeiture occurs.

Treasury shares

Until it was terminated during the year ended December 31, 2024, an Employee Benefit Trust ("EBT") held ADSs as treasury shares to satisfy the exercise of options and the vesting of restricted stock units under the Company’s share-based incentive schemes. The EBT was a Jersey-based trust which was initially funded by a loan from the Company, which it utilized to purchase shares in sufficient quantity to fulfill the envisaged awards. In accordance with ASC Topic 505, Equity (“ASC 505”), these shares were deducted from ordinary shares on the consolidated balance sheet at their nominal value. Shares held by the EBT were included in the consolidated balance sheets as a reduction in additional paid-in capital.

Comprehensive income/(loss)

Comprehensive income/(loss) includes net income/(loss) as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation as a component of other comprehensive income/(loss) in the consolidated statements of operations and comprehensive loss.

Ordinary shares

Ordinary shares are classified in shareholders’ equity and represent issued share capital.

Additional paid-in capital

Additional paid-in capital is classified in shareholders’ equity and includes the difference between the price paid per share and the nominal value. The equity element of share-based compensation is also recognized in additional paid-in capital as are derivative instruments that meet the requirements for equity classification.

Incremental costs incurred and directly attributable to the offering of equity securities are deducted from the related proceeds of the offering. The net amount is recorded as additional paid-in capital in the period when such shares are issued. Where such expenses are incurred prior to the offering, they are recorded in prepayments until the offering completes. Other costs incurred in such offerings are expensed as incurred and included in general and administrative expenses.

Income/(loss) per share

Basic income/(loss) per share is computed by dividing the net income/(loss) attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding and contingently issuable shares that satisfied all necessary conditions for the reporting period without consideration for potentially dilutive securities. Net income/(loss) attributable to ordinary shareholders is computed as if all net income/(loss) for the period had been distributed. During periods in which the Company incurred a net loss, the Company allocates no net loss to participating securities because they do not have a contractual obligation to share in the net loss of the Company.

The Company computes diluted income/(loss) per ordinary share after giving consideration to all potentially dilutive ordinary share equivalents, including share options outstanding during the period, except where the effect of such non-participating securities would be antidilutive.

Diluted income/(loss) per share is computed by dividing the net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding for the period, determined using the treasury stock and if-converted methods.

3. Recent accounting pronouncements

Recently adopted accounting pronouncements

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The key provisions under effective tax rate reconciliations are as follows:

•

The ASU requires public business entities, on an annual basis, to provide a tabular rate reconciliation (using both percentages and reporting currency amounts) of the reported income tax expense (or benefit) from continuing operations, to the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate of the country of domicile using specific categories, and;

•

Separate disclosure for any reconciling items within certain categories that are equal to or greater than a specified quantitative threshold. The quantitative threshold for the designated categories requiring further disaggregation is 5%.

The key provisions under income taxes paid are as follows:

•

The ASU requires all reporting entities to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign; and

•

It also requires additional disaggregated information on income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5% of total income taxes paid (net of refunds received). An entity may identify a country, state, or local territory as an individual jurisdiction.

ASU 2023-09 is effective for fiscal periods beginning after December 15, 2024. The Company adopted this standard for the year ended December 31, 2025 on a retrospective basis by including within the consolidated financial statements the additional disclosures described above. The adoption of ASU 2023-09 did not have a material impact on the Company’s consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires more detailed disclosures about specified categories of expenses included in certain expense captions presented on the face of the consolidated statements of operations and comprehensive loss, including employee compensation, depreciation and amortization. ASU No. 2024-03 is effective in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively to financial statement issued for reporting periods after the effective date of the ASU or retrospectively to all prior periods presented. The Company is currently evaluating the impact of the adopting of ASU No. 2024-03 on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company's consolidated financial statements upon adoption.

4. Fair value measurement

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above:

There wereno transfers between any levels of the fair value hierarchy during the years ended December 31, 2025 and 2024.

Fair values of the investments in money market funds are determined based on the net asset value per share of each fund stated in the fund manager's statement.

As of December 31, 2025 and 2024, warrant liabilities solely related to warrants outstanding to the former lenders of the Company as described in Note 11.

5. Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

6. Property and equipment, net

Property and equipment, net consists of the following:

Depreciation expense was$0.2 million and$0.1 million for the year ended December 31, 2025 and 2024, respectively.

7. Leases

In August 2015, the Company entered into a lease agreement under which it leased office space located on the fourth floor of One Cavendish Place, London, with a lease term ending in August 2025. In June 2021, the Company entered into a new lease agreement to lease additional office space located on the fifth floor of that building for a lease period ending in June 2026. At the same time, the Company entered into a reversionary lease to extend the term for the original fourth floor lease to be coterminous with the fifth floor, ending in June 2026.

The total lease expense included in the statements of operations and comprehensive loss was $0.7 million and $0.7 million for the year ended December 31, 2025 and 2024, respectively. There wereno material variable lease costs.

The following table summarizes the maturities of the Company’s operating lease liabilities as of December 31, 2025:

8. Other current liabilities

Other current liabilities consists of the following:

9. Accrued expenses

Accrued expenses consist of the following:

10. Convertible loan notes and related warrants

Novartis Loan Note

On February 10, 2020, the Company entered into a convertible equity financing with Novartis Pharma (AG) (“Novartis”), which it amended in February 2023 to extend the maturity date and increase the interest rate, under which Novartis purchased a £3.8 million ($5.0 million) convertible loan note (the “Novartis Loan Note”). Following the 2023 amendment, the Novartis Loan Note was convertible at the discretion of the holder, at a fixed price of £0.265 per ordinary share and bore interest at 9% per annum with a maturity date of February 10, 2025.

On February 7, 2025, the Company received a conversion notice and subsequently issued and allotted 17,105,450 ordinary shares (equivalent to 3,421,090 ADSs) on the non-cash conversion of the outstanding principal and accrued interest of the Novartis Loan Note.

As of December 31, 2024, the net carrying amount of the liability component of the convertible debt instrument was $5.5 million. On conversion, the Company derecognized the carrying value of the Novartis Loan Note of $5.7 million and recognized the issuance of the shares at their par value within ordinary share capital and the excess amount of the conversion price over the par value within additional paid-in capital. In addition, the amount that represented the value of the conversion features of the Novartis Loan Note presented in additional paid-in capital at inception of $3.4 million was transferred to accumulated deficit upon conversion.

The Company recognized interest expense of $0.2 million and $1.2 million in relation to the Novartis Loan Note for the year ended December 31, 2025 and 2024, respectively. The effective interest rate applied to the liability portion of the Novartis Loan Note for the years ended December 31, 2025 and 2024 was 27.8%.

Related equity classified warrants

In connection with the Novartis Loan Note, the Company also issued warrants over 1,449,610 ordinary shares to Novartis which were exercisable until February 2025 at an exercise price of £0.265 per ordinary share (the "2020 Novartis Warrants"). In connection with the amendments to the Novartis Loan Note, in February 2023 the Company issued warrants over a further 2,000,000 ordinary shares (the "2023 Novartis Warrants"). The 2023 Novartis Warrants are exercisable until February 2028 at an exercise price of £0.15 per ordinary share. Both tranches of warrants were recognized separately as equity instruments.

On February 7, 2025, Novartis exercised the 2020 Novartis Warrants and the Company subsequently issued and allotted 1,449,610 ordinary shares (equivalent to 289,922 ADSs) upon receipt of $0.5 million in satisfaction of the subscription price of £0.265 per ordinary share. Additional paid-in capital of $0.3 million, representing the surplus of previously recognized amounts exceeding the par value of ordinary shares, was transferred to accumulated deficit.

11. Warrant liability

As of December 31, 2025, the former lenders of the Company have warrants outstanding to purchase a total of 1,243,908 ordinary shares at an exercise price of £2.95 per share, exercisable until August 2027 and a total of 1,243,908 ordinary shares at an exercise price of$0.4144 per share, exercisable until dates between August 2027 and October 2028. These warrants outstanding are equivalent to 0.3% and 0.3% of the issued ordinary share capital of the Company as of December 31, 2025 and 2024, respectively. There were no warrants classified as liabilities exercised during the years ended December 31, 2025 and 2024.

The fair value of each warrant is estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

12. Shareholders’ Equity

Ordinary Shares

In February 2025, the Company issued and allotted 17,105,450 ordinary shares (equivalent to 3,421,090 ADSs) on the non-cash conversion of the outstanding principal and accrued interest of the Novartis Loan Note.

In February 2025, the Company issued and allotted 1,449,610 ordinary shares (equivalent to 289,922 ADSs) upon exercise of the 2020 Novartis Warrants.

During the year ended December 31, 2025,1,375,410 ordinary shares were issued due to the vesting of RSUs and exercise of share options.

13. Revenue and Cost of revenue

ReproNovo Partnership

In December 2023, the Company and ReproNovo SA. (“ReproNovo”) entered into a global licensing agreement for the development and commercialization of leflutrozole (the “ReproNovo Licensing Agreement”). Under the terms of the ReproNovo Licensing Agreement, ReproNovo received an exclusive worldwide license and will be responsible for all future research, development and commercialization of leflutrozole. Additionally, the Company received an upfront payment of $1.0 million and will be eligible to receive up to $64.3 million in total in development, regulatory and commercial milestones and tiered royalties ranging from the low-to-mid-single digits on global annual net sales of leflutrozole.

A single performance obligation was identified in this agreement which is the promise to grant the license to develop and commercialize leflutrozole.

The Company recognized a milestone payment of $0.5 million as revenue under the terms of the ReproNovo Licensing Agreement during the year ended December 31, 2025 following confirmation by ReproNovo that the first participant had been included in a Phase 2 trial of leflutrozole. No revenue was recognized during the year ended December 31, 2024.

As a consequence of the milestone payment received, and in accordance with the terms of the 2015 asset purchase agreement with Novartis, the Company recognized $0.1 million as cost of revenue during the year ended December 31, 2025. No cost of revenue was recognized during the year ended December 31, 2024.

14. Income taxes

The Company operates in the U.K. and in the U.S. and is subject to income taxes in those countries. The U.K corporation tax rate applied for the years ended December 31, 2025 and 2024 was 25%. U.K. deferred tax assets and liabilities have been measured at the enacted rate of 25%. The U.S federal income tax rate for the year ended December 31, 2025 and 2024 was 21%. U.S. deferred tax assets and liabilities are calculated at the enacted rate of 21%.

The components of net loss before income tax are as follows:

Both current and deferred income tax benefits are $nil for the years ended December 31, 2025 and 2024.

A reconciliation of the U.K. statutory income tax rate to the effective tax rate is as follows:

Thecomparative information in the reconciliation above have been reclassified to conform with current year presentation following the adoption of ASU 2023-09.

Following the implementation of the Merged scheme effective for accounting period on or after April 1, 2024, the U.K. R&D tax credits are taxable at the applicable corporation tax rate (see Note 2) and therefore no longer result in a reconciling item in the table above. The corporation tax arising on these U.K. R&D tax credits (the "RDEC Step 2 restriction") has been recognized as a deferred tax asset in the table below.

Components of the Company’s deferred tax assets and liabilities are as follows:

Movements in deferred tax valuation allowance:

Following review of the cumulative tax losses and projections of future taxable losses, it was determined that it is not more likely than not that they will be realized. Accordingly, valuation allowances have been provided over deferred tax assets.

As of December 31, 2025, the Company had (i) U.K. net operating loss carryforwards of $64.1 million that can be carried forward indefinitely; (ii) U.S. federal tax losses to be carried forward of $67.0 million, of which $20.5 million can be carried forward indefinitely and $46.5 million begin to expire in 2026; (iii) U.S. federal R&D tax credits of $13.7 million that begin to expire in 2027 and less than $0.1 million of state R&D tax credits that do not expire; and (iv) U.S. state tax losses to be carried forward of less than $0.1 million which begin to expire in 2027.

As of December 31, 2024 the Company had (i) U.K. net operating loss carryforwards of $36.6 million that can be carried forward indefinitely; (ii) U.S. federal tax losses to be carried forward of $66.3 million, of which $19.5 million can be carried forward indefinitely and $46.8 million that began to expire in 2025; (iii) U.S. federal R&D tax credits of $13.9 million that began to expire in 2025 and less than $0.1 million of state R&D tax credits that do not expire; and (iv) U.S. state tax losses to be carried forward of less than $0.1 million which begin to expire in 2027.

The Company files separate income tax returns in the U.K. and the U.S. All necessary income tax filings have been completed for all years up to and including December 31, 2024, and there are no ongoing tax examinations in any jurisdiction. There were no federal (national), state or local income tax expense (or benefit) and no federal (national), state or local income tax has been paid in any jurisdiction for the years ended December 31, 2025 and 2024.

As of December 31, 2025, the Company has a cumulative uncertain tax position of $3.8 million. The uncertain tax position relates to U.S. R&D tax credits. The total amount of unrecognized tax benefits, if recognized, would affect the effective tax rate. As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.

The following table summarizes the activity related to unrecognized income tax benefits:

For Mereo BioPharma 5, Inc., with respect to accumulated tax losses carried forward prior to its acquisition by the Company of $18.2 million, there is a change of control restriction which will limit the amount available in any one year to$0.3 million per year.

15. Share-based compensation

The Company currently grants equity awards under the Mereo 2019 Equity Incentive Plan (the “2019 EIP”) and the 2019 Non-Employee Equity Incentive Plan (the “2019 NED EIP”). There are also still outstanding awards under two previous plans, the Mereo BioPharma Group Limited Share Option Plan and the Mereo Share Option Plan (together the "Previous Share Option Plans"), however no further grants are envisioned from these plans.

The 2019 EIP and 2019 NED EIP were adopted on April 4, 2019, and subsequently amended on February 3, 2020 and January 15, 2021. The 2019 EIP and 2019 NED EIP authorize the grant of a variety of types of share awards over the Company’s

ADSs to executives and employees, and non-executives, respectively. The total number of ADSs available for issue under the 2019 EIP and 2019 NED EIP was 14.2 million as of December 31, 2025.

The expense for share-based compensation arises solely in respect of awards made under these two active plans as follows:

As of December 31, 2025, the total unrecognized compensation cost related to outstanding share awards was $4.3 million, which the Company expects to recognize over a weighted-average period of 1.6 years.

Options exercised and RSUs vesting in the year ended December 31, 2025 were settled by the Company issuing new shares for the equivalent number of shares underlying the award. Options exercised between March 2024 and December 31, 2024 were net share settled such that the Company withheld shares with a value equivalent to the exercise price. In both cases, a portion of the shares issued were then sold on the employee's behalf for an amount sufficient to cover their obligation for the applicable income and other employment taxes, and the proceeds were remitted to the appropriate taxing authorities. RSUs vesting in the period were settled by the Company issuing new shares for the equivalent number of shares underlying the award and settling taxes in the same way.

Prior to March 2024, the remaining shares held in the EBT were used to satisfy the exercise of Options and vesting of RSUs to employees. The EBT was terminated during the year ended December 31, 2024.

2019 EIP

The Company has awarded the following instruments under the 2019 EIP:

Market Value Options (“Options”)

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the EIP have a contractual term of 10 years and vest over four years, with one-fourth of the award vesting on the first anniversary of the grant date and the remainder vesting in equal monthly installments over the three-year period thereafter. No performance conditions apply to such Options.

A summary of the Company’s Option activity and related information under the 2019 EIP for the years ended December 31, 2025 and 2024 is as follows; all outstanding Options are expected to vest:

The weighted average fair value per share of Options granted during the year ended December 31, 2025 and 2024 was $2.40 and$2.61, respectively.

The weighted average contractual life of Options outstanding as of December 31, 2025 and 2024 was 7.0 years and 7.6 years, respectively. The weighted average contractual life for vested Options as of December 31, 2025 and 2024 was 6.3 years and 6.8 years, respectively.

Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.

The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Expected volatility is calculated by reference to the historical volatility of the Company's ADSs for the year ended December 31, 2025 and an appropriate peer group of companies for the year ended December 31, 2024. The grant date fair value is recognized over the requisite service period using the accelerated graded-vesting attribution method.

Restricted Stock Units (“RSUs”)

Each RSU entitles the holder a conditional right to receive an ADS at no cost upon the completion of the applicable vesting period. RSUs granted under the EIP vest over three years with one-third of the awards vesting on the first anniversary of the grant date and the remainder vesting in four equal six-monthly installments thereafter. Upon vesting of the RSUs, the Company issues the requisite ADSs, a portion of which are sold to satisfy the resulting tax obligations, and the remaining ADSs are delivered to the holder. RSUs have a maximum contractual life of 3.0 years.

A summary of the Company’s RSU activity and related information under the 2019 EIP for the years ended December 31, 2025 and 2024 is as follows; all outstanding RSUs are expected to vest:

As of December 31, 2025 and 2024, the weighted average remaining period of RSUs outstanding was 2.0 years and 2.2 years, respectively. The total fair value of RSUs vested and delivered during the year ended December 31, 2025 and 2024 was $0.6 million and $0.9 million, respectively.

The fair value of each RSU is calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

2019 NED EIP

The Company has awarded the following instruments under the 2019 NED EIP:

Options

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the 2019 NED EIP have a contractual term of 10 years and vest in equal monthly installments over one year. There are no performance conditions.

A summary of the Company’s Option activity and related information under the 2019 NED EIP for the years ended December 31, 2025 and 2024 is as follows; all outstanding Options are expected to vest:

The weighted average fair value per share of Options granted during the year ended December 31, 2025 and 2024 was $2.51 and $2.83, respectively.

The weighted average contractual life of Options outstanding as of December 31, 2025 and 2024 was 7.0 years and 7.5 years, respectively. The weighted average contractual life for vested Options as of December 31, 2025 and 2024 was 7.0 years and 7.4 years, respectively.

Where presented, the aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money.

The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Expected volatility is calculated by reference to the historical volatility of the Company's ADSs for the year ended December 31, 2025 and an appropriate peer group of companies for the year ended December 31, 2024. The grant date fair value is recognized over the requisite service period using the accelerated graded-vesting attribution method.

Deferred Restricted Stock Units (“DRSUs”)

Non-executive directors may voluntarily elect to convert their annual cash fees for services on the board of directors to DRSUs which were granted to NEDs who made such elections. The number of DRSUs granted is determined by dividing the amount of the annual cash compensation by the average closing trading price of the Company's ADSs over the most recent 30 trading days as of the date of grant. Each DRSU entitles the holder to receive an ADS at no cost upon the completion of the vesting period. DRSUs granted under the 2019 NED EIP vest in substantially equal monthly installments over the plan year. Delivery of ADSs underlying DRSUs will generally be 180 days following separation of service but have no specified contractual term.

A summary of the Company’s DRSU activity and related information under the 2019 NED EIP for the years ended December 31, 2025 and 2024 is as follows; all outstanding DRSUs are expected to vest:

As of December 31, 2024, there were 20,903 DRSUs unvested with a weighted average grant date fair value of $3.87 per DRSU. The total fair value of DRSUs vested during the year ended December 31, 2025 and 2024 was $0.3 million and $0.4 million, respectively.

The fair value of each DRSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Previous Share Option Plans

Mereo previously granted Options to employees under the Previous Share Options Plans. No awards have been granted under either of these plans following the introduction of the 2019 EIP and the 2019 NED EIP and no further awards are envisioned.

A summary of the Company’s Options activity and related information under the Previous Share Options Plans for the year ended December 31, 2025 is as follows; all outstanding Options are vested:

The weighted average contractual life of Options outstanding and vested at December 31, 2025 and 2024 was 1.1 years and 0.8 years, respectively.

16. Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary equity holders of the Company for the year by the weighted average number of ordinary shares outstanding during the year. Diluted loss per share is based on dividing the loss attributable for the year, adjusted for the effect of diluted ordinary shares, by ordinary share equivalents, which includes the weighted average number of ordinary shares outstanding and the effect of dilutive ordinary share equivalents.

The Company’s potentially dilutive securities in the table below have been excluded from the computation of diluted loss per share as the effect for the years ended December 31, 2025 and 2024 would be to reduce the loss per share. Therefore, the weighted average number of ordinary shares outstanding used to calculate both basic and diluted loss per share is the same.

17. Commitments and contingencies

Indemnification agreements

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. In accordance with the Articles of Association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.

Novartis Asset Purchase Agreements

The Company has agreed to make future payments to Novartis comprising amounts equal to ascending specified percentages of tiered annual worldwide net sales (beginning at high single digits and reaching into double digits at higher sales) of products that include the assets acquired. The levels of ascending percentages of tiered annual worldwide net sales are stipulated under the respective Purchase Agreements.

The Company further agreed that in the event it transfers, licenses, assigns or leases all or substantially all of its assets, it will pay Novartis a percentage of the proceeds of such transaction, subject to certain deductions. The payment of a percentage of proceeds is not payable with respect to any transaction involving equity interests of Mereo BioPharma Group plc, a merger or consolidation of Mereo BioPharma Group plc, or a sale of any assets of Mereo BioPharma Group plc.

License agreement with AstraZeneca

In October 2017, the Company entered into an exclusive license and option agreement (“the AstraZeneca License Agreement”) and subscription deed (the “AstraZeneca Subscription Deed”), together (the "Original Agreements") with AstraZeneca AB ("AstraZeneca"). Each of these were amended on November 8, 2024, when the Company entered into an amendment and restatement agreement related to the AstraZeneca License Agreement (the "Amended AstraZeneca License Agreement") and a Deed of Amendment and Restatement related to the AstraZeneca Subscription Deed (the "Amended AstraZeneca Subscription Deed") together (the "Amended AstraZeneca Agreements").

Under the terms of the Original Agreements, the Company obtained from AstraZeneca an exclusive worldwide, sub-licensable license under AstraZeneca’s intellectual property rights relating to alvelestat, with an option to acquire such intellectual property rights following commencement of a pivotal trial and payment of related milestone payments, together with the acquisition of certain related assets. Upon entering into the Original Agreements, the Company made a payment of $3.0 million and issued 490,798 ordinary shares (equivalent to 98,159 ADSs) to AstraZeneca, for an aggregate upfront payment equal to $5.0 million. Upon execution of the Amended AstraZeneca License Agreement, the Company issued 2,044,390 ordinary shares and paid $0.5 million to AstraZeneca in respect of an agreed milestone.

Under the terms of the Amended AstraZeneca Agreements, the Company has agreed, in connection with certain further development and regulatory milestones, to make potential future payments both in cash and through the issue of a variable number of additional ADSs to AstraZeneca of up to $114.3 million in aggregate for products included in the Amended AstraZeneca License Agreement.

The number of ADSs to be issued to satisfy each equity milestone is determined by dividing a monetary amount by a defined subscription price based on the weighted average trading price of the Company's ADSs, and the obligation is presented as a liability under ASC Topic 480, Distinguishing Liabilities from Equity. The Company continues to reassess the fair value of such instruments in each reporting period until the milestones are achieved, if ever, and the issuance of shares occurs. Given the pervasive uncertainty involved in establishing the amounts, timing and likelihood of the future cash flows, including the Company’s ability to secure either a partnership or alternative forms of non-dilutive financing, the possible terms and rate of such a partnership or financing, the clinical and regulatory performance of the product candidate and the lack of comparable recent transactions, the Company has determined the fair value of the equity milestones to be paid in a variable number of shares pursuant to its Amended AstraZeneca License Agreement to be negligible and therefore assigned a nil value to the instrument as of December 31, 2025 and 2024.

In addition to the development and regulatory milestones, the Company has agreed to make payments to AstraZeneca based on specified commercial milestones of the product. The Company has also agreed to pay a specified percentage of sub-licensing revenue to AstraZeneca and to make royalty payments to AstraZeneca equal to ascending specified percentages of tiered annual worldwide net sales by the Company of licensed products (subject to certain reductions), ranging from the high single digits to low double digits. Royalties will be payable on a licensed-product-by-licensed-product and country-by-country basis until the later of ten years after the first commercial sale of such licensed product in such country and expiration of the last patent covering such licensed product in such country that would be sufficient to prevent generic entry. The Company has agreed to use commercially reasonable efforts to develop and commercialize at least one licensed product.

The Amended AstraZeneca License Agreement will expire on the expiration of the last-to-expire royalty term with respect to all licensed products. Upon the expiration of the royalty term for a licensed product in a particular country, the licenses to the Company for such product in such country will become fully paid and irrevocable. Prior to exercise of the Option, if at all, the Company may terminate the Amended AstraZeneca License Agreement upon prior written notice. Either party may terminate the agreement upon prior written notice for the other party’s material breach that remains uncured for a specified period of time or insolvency.

Research and development activities

The Company enters into contracts in the normal course of business with CROs, CMOs and other third parties to assist in the performance of research and development activities and other services and products for operating purposes. The contracts with CROs generally provide for termination on notice, and therefore, are cancellable contracts and not included herein. The Company hasno manufacturing commitments with CMOs as of December 31, 2025 and had $0.5 million as of December 31, 2024.

Manufacturing and supply agreement with Ultragenyx

In December 2024, the Company entered into a manufacturing and supply agreement with Ultragenyx under which Ultragenyx is responsible for the manufacture and supply of setrusumab to the Company in its territories. The Company is also required to reimburse Ultragenyx for a portion of the manufacturing process development costs, future commercial supply costs as well as a portion of costs in the event of cancellation of certain manufacturing slots. Pursuant to this agreement, the Company expects to recognize its share of the costs related to cancellation of certain manufacturing slots by Ultragenyx in the first half of 2026. The amount of these costs is currently subject to verification.

From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. The Company was not a party to any material litigation and did not have any material contingency reserves established for any liabilities as of December 31, 2025 and 2024.

18. Related party disclosures

In the years ended December 31, 2025 and 2024, there wereno reportable related party transactions.

19. Segment information

The Company has one operating segment focused on the business of developing rare disease therapies. The accounting policies of the single operating segment are described in Note 2. The chief operating decision maker, its Chief Executive Officer, assesses performance for the entity and decides how to allocate resources based on consolidated net loss before income tax, which is reported on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the balance sheet as total consolidated assets.

The chief operating decision maker uses consolidated net loss before income tax and budget-to-actual variances for consolidated net loss before income tax to assess the performance of the operating segment.

The following table presents certain financial data for the Company’s reportable segment, including significant segment expenses regularly provided to the chief operating decision maker to assess performance of the Company.

The revenue recognized by the Company during the year ended December 31, 2025 was attributable to its operations in the U.K.

Other segment expenses consist of interest income, interest expense, change in fair value of warrants, foreign currency transaction loss/(gain), benefit from research and development tax credit and other income. These are disclosed in the consolidated statements of operations and comprehensive loss.

20. Subsequent events

Putative Securities Class Action

On February 4, 2026, a putative class action complaint was filed in the United States District Court for the Southern District of New York against the Company, its Chief Executive Officer, Denise Scots-Knight, and its Chief Scientific Officer, John Lewicki (the “Defendants”). This action, captioned Dodge v. Mereo Biopharma Group PLC (No. 1:26-cv-988), alleges that the Defendants violated federal securities law by making false and misleading statements regarding the Company's business and operations. The Plaintiff seeks the payment of damages allegedly sustained by her and the putative class by reason of the allegations set forth in the complaint, plus interest, and legal and other costs and fees. The Company intends to vigorously defend against this action. Due to the nature of this matter and inherent uncertainties, it is not possible to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any.