What risks should be considered if the Phase 3 data are delayed or do not meet endpoints?

Risk Overview

The market is pricing the “year‑end 2025” read‑out on a very tight timeline. If the Phase‑3 Orbit or Cosmic data are delayed or fail to meet pre‑specified endpoints, the most immediate risk is a sharp equity‑price correction driven by a sudden reassessment of the drug’s commercial upside. Because setrusumab is Mereo’s flagship asset and the company’s cash‑runway is largely tied to this trial, a miss can trigger a cash‑flow shortfall, forcing the firm to raise equity or debt at a discount (dilution risk) or to curtail the program, which would materially impair future revenue forecasts. Moreover, a failure would raise regulatory risk (FDA/EMA may demand additional studies) and competitive risk (other companies’ bone‑health pipelines could capture market share). Investors should also watch for covenant breaches on existing credit facilities: a delayed read‑out can push the company into covenant‑violation territory, prompting forced asset sales or covenant waivers at a cost.

Trading Implications & Actionable Steps

- Technical watch: The stock is currently hovering near its 50‑day moving average (≈$X) and has a tight 30‑day range. A break below the 20‑day SMA on volume would signal a quick‑sell trigger if the data miss. Conversely, a bounce above the 200‑day SMA (≈$Y) with rising volume could indicate a “buy‑the‑dip” opportunity, assuming you are comfortable with a high‑beta, trial‑risk profile.

- Position sizing: Keep exposure modest (≤5–10% of portfolio) given the binary nature of the outcome. Consider protective puts (e.g., 10‑month OTM contracts) to hedge downside if you stay long, or vertical spreads to capture upside while limiting loss.

- Fundamental watch: Monitor cash burn (Q2 showed $Z M net cash) and any upcoming financing milestones. If cash reserves dip below 12 months of runway post‑data, be prepared for a dilution event and price pressure.

- Catalyst timing: Set alerts for any press releases, conference‑call transcripts, or FDA/EMA meeting dates before year‑end 2025; these are the points where the market will re‑price risk. If the data are delayed, the “delay” announcement itself will be a catalyst – consider exiting or tightening risk controls at that moment.

In short, the key risks are timeline‑delay, efficacy‑failure, financing‑stress, and market‑liquidity. A disciplined, hedged position with clear stop‑losses, combined with close monitoring of cash‑runway and upcoming regulatory events, will help mitigate the upside‑down risk profile of MERE.