MREO US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A. “Risk Factors.”

Overview

We are a biopharmaceutical company focused on the development of innovative therapeutics for rare diseases. We have developed a portfolio of late-stage clinical product candidates. Our late-stage rare disease product candidates are setrusumab for the treatment of osteogenesis imperfecta (OI) and alvelestat for the treatment of severe alpha-1 antitrypsin deficiency-associated lung disease (AATD-LD). Setrusumab has received orphan designation for OI from the EC and the FDA, PRIME designation from the EMA and has Breakthrough Therapy designation and rare pediatric disease designation from the FDA. Alvelestat has received orphan designation for AATD from the EC and the FDA, and Fast Track designation for the treatment of AATD-LD from the FDA. We also have an early-stage rare disease program, vantictumab, for the treatment of a second bone disease, autosomal dominant osteopetrosis Type 2 (ADO2). The global development of vantictumab is being funded and led by our partner, āshibio, and we retain the European commercial rights.

On December 29, 2025, we announced the results from the Phase 3 Orbit and Cosmic studies evaluating setrusumab in pediatric and young adult patients with OI. For further information see “Item 1. Business—Core Rare Disease Product Candidates—Setrusumab (BPS-804/UX143) for the Treatment of Osteogenesis Imperfecta—Top-line Data from Setrusumab Phase 3 Orbit and Cosmic Studies.”

Our strategy is to selectively acquire and develop product candidates for rare diseases that have already received significant investment from large pharmaceutical and biotechnology companies and that have substantial pre-clinical, clinical and manufacturing data packages. Since our formation in March 2015, we have successfully executed this strategy by acquiring all of our clinical-stage product candidates of which three were in rare diseases. We have successfully completed large, randomized Phase 2 clinical trials for four of our product candidates and the Phase 1b portion of a Phase 1b/2 for a fifth product candidate, and we and our partner Ultragenyx recently announced the results from two Phase 3 studies for our lead program setrusumab in OI.

Rare diseases represent an attractive development and, in some cases, commercialization opportunity for us since they typically have high unmet medical need and can utilize regulatory pathways that facilitate acceleration to approval and to the potential market. Development of products for rare diseases involves close collaboration with key opinion leaders and investigators, and close coordination with patient organizations. Rare disease patients are typically treated at a limited number of specialized sites which helps identification of the patient population and enables a small, targeted sales infrastructure to commercialize the products in key markets.

Financial Operations Overview

Revenue and Cost of revenue

The Company’s ordinary business activities are the development of product candidates to key clinical milestones and either strategically partnering them or further developing such product candidates through regulatory approval and potentially 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. Where the Company has performed significant development activities for its product candidates, income from agreements with third parties are considered to be proceeds derived from the Company’s ordinary activities and therefore represent revenue.

Revenue has included income from licensing and collaboration agreements. Consideration received up front is recognized at the point in time in which the right to use a license or intellectual property is transferred. Income from development, regulatory, commercial or similar milestones is recognized when considered probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the milestone is subsequently resolved.

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We do not currently have any approved product candidates. Accordingly, we have not generated any commercial sales revenue during the period. In the future, we expect to be able to generate commercial sales revenue if we are able to obtain regulatory approval and commercialize one or more of our product candidates.

Payments to third parties arising as a direct consequence of the revenue recognized are recorded within cost of revenue in the Company’s consolidated statements of operations and comprehensive loss. For the year ended December 31, 2025, cost of revenue included amounts that we were obligated to pay to Novartis under the 2015 asset purchase agreements. In 2015, when we purchased acumapimod, leflutrozole and setrusumab from Novartis, we agreed to pay Novartis if certain events occurred in relation to these compounds. The events that warrant a payment to Novartis are sales related or when a change in control occurs. When it is probable that either of these events will occur, revenue is recognized, and the corresponding payment obligation to Novartis is recognized within cost of revenue.

Research and development expenses (“R&D expenses”)

R&D expenses include:

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employee-related expenses, such as salaries, share-based compensation, and other benefits, for Mereo’s research and development personnel;

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costs for production of drug substance and drug product and development of Mereo’s manufacturing processes by CMOs;

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fees and other costs paid to CROs, consultants, and other suppliers to conduct Mereo’s clinical trials and pre-clinical and non-clinical studies; and

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costs of facilities, materials, and equipment related to drug production and Mereo’s clinical trials and pre-clinical and non-clinical studies.

Intellectual property costs incurred on each drug candidate and costs associated with pre-commercial activities to support pricing and reimbursement by health technology assessment (“HTA”) authorities and payor decision-makers in Europe are excluded from R&D expenses and are recognized within general and administrative expenses. Our direct R&D expenses are allocated on a product-candidate-by-product-candidate basis. We allocate employee-related expenses for our R&D personnel and other related expenses to specific product candidate development programs.

Product candidates in a later stage of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials as well as preparation for potential specific post-authorization evidence generation that might be demanded by regulatory authorities. As we advance the clinical development of our product candidates, we expect that our R&D expense will continue to include costs of inputting into development, regulatory and manufacturing plans with our partner, Ultragenyx, for setrusumab; and activities associated with preparation of alvelestat for the Phase 3 study, including CMC, regulatory and other activities required to initiate the study.

The successful development, approval, and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from any of our product candidates.

Our future expenditure on developing our product candidates is therefore highly uncertain. This is due to numerous risks and uncertainties associated with developing our product candidates, including the uncertainty of:

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the scope, rate of progress, and expense of our R&D activities;

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the progress and results of our clinical trials and our pre-clinical and non-clinical studies;

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the terms and timing of regulatory approvals, if any;

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establishment of arrangements with our third-party manufacturers to obtain manufacturing supply;

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protection of our rights in its intellectual property portfolio;

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•

launch of commercial sales of any of our product candidates, if approved, whether alone or in collaboration with others;

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third party strategic relationships for clinical development and/or commercialization of our non-core product candidates and performance of our strategic partners under these arrangements;

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the sale, if any, of one or more of our non-core disease product candidates;

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acceptance of any of our product candidates, if approved, by patients, the medical community and payors at our desired pricing levels;

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competition with other therapies; and

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continued acceptable safety profile of any of our product candidates following approval.

Any of these variables with respect to the development of our product candidates or any other future candidate that we may develop could result in a significant change in the costs and timing associated with their development. For example, if the FDA, the EMA, or another regulatory authority were to require us to conduct pre-clinical studies and clinical trials beyond those that we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and administrative expenses

Our general and administrative expenses principally consist of salaries and related benefits, including share-based compensation, for personnel in our executive, finance and other administrative functions as well as certain pre-commercial activities, including those to support pricing and reimbursement by HTA authorities and payor decision-makers in Europe, particularly in relation to setrusumab. Other general and administrative costs include facility-related costs, professional services fees for auditing, tax and general legal services, intellectual property costs, costs related to our requirements of being a public company listed on Nasdaq, and costs incurred relating to the issue of equity to the extent not capitalized.

Other income

Other income consists of income that is derived from a third party which is not a customer and does not fall under the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Interest income

Interest income comprises interest received on cash and cash equivalents.

Interest expense

Interest expense principally comprises interest on convertible loan notes prior to their conversion in February 2025, deferred consideration and bank charges. For further information on the terms of our convertible loan notes see “—Liquidity and Capital Resources—Indebtedness.”

Changes in the fair value of financial instruments/warrants

The fair value changes in financial instruments principally comprises warrant liabilities, which are recognized in the statement of comprehensive loss.

Foreign currency transaction gain/(loss)

Our consolidated financial statements are presented in U.S. dollars. We initially record transactions in foreign currencies at the rate prevailing on the date the transaction first qualifies for recognition. Foreign currency transaction gain/(loss) consists of the difference arising on settlement or translation of transactions denominated in currencies other than the functional currency of the transacting foreign entity, which are primarily between U.S. dollars and British pound sterling.

Benefit from research and development tax credits

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As a U.K. resident trading entity, we are subject to U.K. corporate taxation. Due to the nature of our business, we have generated operating losses since formation. As of December 31, 2025 and 2024, we had cumulative carry-forward U.K. tax losses of $64.1 million and $36.6 million, respectively. Subject to any relevant restrictions, we expect these to be available to carry forward and offset against future operating profits. The benefit from R&D tax credits 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, the Merged Scheme came into effect for all companies, other than loss making R&D intensive 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 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 PAYE and NIC 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 ERIS regime will be available (for companies where at least 30% of their total expenditure including any connected companies is on qualifying R&D). We did not qualify as an R&D intensive company for 2025, nor do we expect to in the future, and therefore we expect to claim under the Merged Scheme from 2025 onward.

Year ended December 31, 2024

We historically benefited from the U.K. SME R&D Relief, which provided relief against U.K. corporation tax and enabled us to surrender some of our trading losses that arose from our 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 we generate revenues in the future, we may 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, we expect a long-term lower rate of corporation tax to apply to us. 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 we are unable to qualify for these regimes, or we are unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments, our business, results of operations, and financial condition may be adversely affected.

Income tax benefit

We operate in the U.K. and in the U.S. and are subject to corporate taxation in those countries. We have generated losses since inception and have therefore not paid U.K. corporation tax, except in 2021.

The U.K. corporation tax rate applied for 2025 was 25% (2024: 25%). U.K. deferred tax assets and liabilities have been measured at a rate of 25%. The U.S federal income tax rate is 21%.

As of December 31, 2025, the Company had U.K. net tax losses carried forward of $64.1 million, that can be carried forward indefinitely, subject to certain restrictions in usage. The Company hadU.S. federal tax losses to be carried forward of approximately $67.0 million of which $20.5 million can be carried forward indefinitely and $46.5 million which will begin to expire in 2026. The

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Company also had $13.7 million of U.S. federal R&D tax credits that begin to expire in 2027 and U.S. state tax losses to be carried forward of less than $0.1 million which begin to expire in 2027. The Company also had less than $0.1 million of state R&D tax credits that do not have an expiration date.

Results of Operations

The following table sets forth Mereo’s results of operations for the years ended December 31, 2025 and 2024.

Year endedDecember 31,

Operating expenses

Cost of revenue (133 ) — (133 )

Other income/(expenses)

Changes in the fair value of warrants 805 (419 ) 1,224

Foreign currency transaction (loss)/gain, net (6,344 ) 1,210 (7,554 )

Benefit from research and development tax credit 1,850 1,649 201

Income tax benefit — — —

Comparison of Years Ended December 31, 2025 and 2024

Revenue

Revenue of $0.5 million was recognized in the year ended December 31, 2025, which comprised a one-time milestone payment of $0.5 million resulting from the achievement of a clinical milestone on leflutrozole received from ReproNovo pursuant to the ReproNovo licensing Agreement. No revenue was recognized in the year ended December 31, 2024.

Cost of revenue

Cost of revenue of $0.1 million was recognized in the year ended December 31, 2025, which comprised amounts paid pursuant to the 2015 asset purchase agreement with Novartis for leflutrozole, under which the Company pays a percentage of proceeds resulting from milestone revenue received, subject to certain deductions and other amounts. No cost of revenue was recognized in the year ended December 31, 2024.

R&D expenses

The following table sets forth our R&D expenses by product development program for the years ended December 31, 2025 and 2024.

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Year ended December 31,

Total R&D expenses decreased by $3.2 million, from $20.9 million in the year ended December 31, 2024 to $17.8 million in the year ended December 31, 2025.

The decrease was primarily due to reductions in R&D expenses for alvelestat and etigilimab of $7.7 million and $1.0 million, respectively, partially offset by an increase of $5.7 million in R&D expenses for setrusumab.

The reductions in program expenses for alvelestat was primarily due to the completion of the activities undertaken in preparation for the potential Phase 3 study, including drug formulation and manufacturing, in the year ended December 31, 2024.

The increase in program expenses for setrusumab was primarily driven by amounts due under the manufacturing and supply agreement with our partner, Ultragenyx, as well as ongoing activities we undertake related to real-world evidence programs and medical affairs activities in Europe. These are in addition to costs we incur in relation to our collaboration with Ultragenyx, who fund the global development of the program, including input into development, regulatory and manufacturing plans.

General and administrative expenses

General and administrative expenses decreased by $3.4 million, from $26.4 million in the year ended December 31, 2024 to $23.0 million in the year ended December 31, 2025. The decrease was due to a lower accrual for annual cash bonuses of $1.2 million, along with a reduction in professional fees.

General and administrative expenses also includes $3.8 million in the year ended December 31, 2025 of pre-commercial activities to lay the foundation for the potential commercial launch of setrusumab in Europe, if approved, including those to support pricing and reimbursement by HTA authorities and payor decision-makers in Europe.

Other income

Other income of $0.3 million for the year ended December 31, 2025 comprised amounts received from āshibio in connection with the out-licensing of vantictumab, which was acquired in connection with the merger between the Company and Mereo BioPharma 5, Inc (formerly OncoMed).

Interest income and expense

Interest income decreased by $0.9 million, from $3.0 million in the year ended December 31, 2024 to $2.2 million in the year ended December 31, 2025, principally due to a combination of lower interest rates earned and lower average cash and cash equivalents balances in the year ended December 31, 2025 compared to the year ended December 31, 2024. These lower balances were the result of the utilization of the net proceeds of $46.2 million received from the underwritten registered direct offering in June 2024.

Interest expense decreased by $1.1 million, from $1.4 million in the year ended December 31, 2024 to $0.3 million in the year ended December 31, 2025. The decrease was principally due to the conversion of convertible loan notes in February 2025, following which the Company had no significant remaining interest-bearing liabilities.

Changes in the fair value of warrants

The total change in fair value of warrants in the year ended December 31, 2025 was an unrealized gain of $0.8 million, compared to an unrealized loss of $0.4 million in the year ended December 31, 2024. The unrealized gain in the year ended December 31, 2025 was primarily due to the impact of decreases in the price of the Company’s ADSs on the value of the warrant liabilities, while the unrealized loss in the year ended December 31, 2024 was primarily due to increases in the price of the Company's ADSs.

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Foreign currency transaction gain/(loss), net

The net foreign exchange loss for the year ended December 31, 2025 was $6.3 million, compared to a gain of $1.2 million in the year ended December 31, 2024. This change primarily reflects the impact of a weakening in the value of U.S. dollars when translating U.S. dollar balances into our functional currency of pound sterling in the year ended December 31, 2025, compared to a strengthening of U.S. dollars in the year ended December 31, 2024.

Benefit from research and development tax credit

The benefit from research and development tax credit increased by $0.2 million, from $1.6 million in the year ended December 31, 2024 to $1.9 million in the year ended December 31, 2025. This increase reflects a higher level of qualifying expenditure in the year ended December 31, 2025.

Other comprehensive loss – Foreign currency translation adjustments

The foreign currency translation adjustment for the year ended December 31, 2025 was a gain of $8.0 million, compared to a loss of $1.4 million in the year ended December 31, 2024. This change primarily reflects the impact of a weakening in the value of U.S. dollars when translating pound sterling functional currency balances into our presentational currency of U.S. dollars in the year ended December 31, 2025, compared to a strengthening of U.S. dollars in the year ended December 31, 2024.

Liquidity and Capital Resources

Overview

Under the current business plan and cash flow forecasts, and in consideration of our ongoing research and development efforts and our general corporate funding requirements, we anticipate that our current on-hand cash resources will extend into mid-2027. However, we will need additional external funding to complete our development plans and potentially commercialize selected rare disease products. We plan to fund our operations through cash on hand and a combination of non-dilutive funding sources, public or private equity or debt financings or other sources.

We do not currently have any approved product candidates and as a result, have not generated any revenue from product sales. As a result, to date, we have financed our operations primarily through the issuances of our equity securities, convertible debt and warrants. These offerings have raised approximately $259 million, including through the $50.0 million underwritten registered direct offering in June 2024 and the $12.0 million “at-the-market” offering pursuant to our Open Market Sale Agreement with Jefferies LLC in July 2023 (all amounts are gross proceeds before fees and discounts).

We have also received payments under various license and collaboration agreements, including payments of:

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$50.0 million under the license and collaboration agreement with Ultragenyx for setrusumab in 2021 and a further milestone payment of $9.0 million in 2023;

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$4.0 million under the license and collaboration agreement with Feng Biosciences (formerly OncXerna) for navicixizumab in 2020 and a further milestone payment of $2.0 million in 2022; and

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$1.0 million under the global license agreement with ReproNovo for leflutrozole in December 2023 and a further milestone payment of $0.5 million in 2025.

Contractual Obligations

As further described under “Item 1. Business—Material Agreements—Novartis Agreements” and “Item 1. Business—Material Agreements—Licensing Agreement with AstraZeneca,” under various agreements with Novartis and AstraZeneca, Mereo has agreed to make milestone payments and pay royalties. The amount, timing, and likelihood of such payments are not known and will remain uncertain for the foreseeable future.

In addition, Mereo enters into contracts in the ordinary course of business with CROs, CMOs, and other vendors, including with Ultragenyx for the manufacture of setrusumab as described in “Item 1. Business—Material Agreements—Agreements with Ultragenyx for Setrusumab,” to assist in the performance of its 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 cancelable contracts. We have manufacturing commitments with CMOs of $0.0 million and $0.5 million as of December 31, 2025 and 2024, respectively.

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Cash Flows

Comparison of Years Ended December 31, 2025 and 2024

The table below summarizes our cash flows (used in)/provided by operating, investing and financing activities for the years endedDecember 31, 2025 and 2024.

Year Ended December 31,

Net cash used in operating activities $ (30,971 ) $ (32,834 )

Net cash used in investing activities (20 ) (699 )

Net cash provided by financing activities 327 46,147

Effect of exchange rate changes 1,854 (233 )

(Decrease)/increase in cash and cash equivalents $ (28,810 ) $ 12,381

Operating Activities

Net cash used in operating activities for the year ended December 31, 2025 was $31.0 million, a decrease of $1.9 million from $32.8 million in the year ended December 31, 2024.This decrease is principally due to:

a)

receipt of $3.3 million in the year ended December 31, 2025 reflecting R&D tax credits received in respect of both the 2023 and 2024 financial years; and

b)

receipt of a $0.5 million one-time milestone payment resulting from the achievement of a clinical milestone on leflutrozole, net of $0.1 million paid to Novartis pursuant to the 2015 asset purchase agreement for leflutrozole in the year ended December 31, 2025.

These decreases were offset by:

c)

a receipt of $2.0 million in the year ended December 31, 2024 from a claim on our Directors and Officers insurance policy to reimburse us for certain legal and professional costs incurred in prior years with no similar amounts recognized in the year ended December 31, 2025; and

d)

lower net cash operating payments of approximately $0.1 million.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 was less than $0.1 million, a decrease of $0.7 million from $0.7 million in the year ended December 31, 2024. The decrease is principally due to lower payments to acquire intangible assets and proceeds from out-licensing of vantictumab in the year ended December 31, 2025.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 was $0.3 million, a decrease of $45.8 million from $46.1 million in the year ended December 31, 2024. The decrease primarily represents the net proceeds of $46.2 million from the underwritten registered direct offering in the year ended December 31, 2024 with no similar financing activities in the year ended December 31, 2025.

Operating and Capital Expenditure Requirements

As of December 31, 2025, we had an accumulated deficit of $501.0 million. We expect to continue to report significant operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval of our product candidates and any future product candidates we develop. See also “Item 1A. Risk Factors—Risks Related to Our Business and Industry—We will need additional funding to complete the development of our current product candidates; to license, acquire, and develop future product candidates; and to commercialize our product candidates, if approved."

We expect to continue to incur expenses in connection with our ongoing development activities related to our product candidates, our outsourced manufacturing activities and other associated costs including the management of our intellectual property

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portfolio. We also expect to continue to incur costs associated with operating as a U.S. public company listed on Nasdaq and as a domestic registrant.

These costs will increase further if we:

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seek to develop additional product candidates;

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seek regulatory approvals for any of our product candidates that successfully completes clinical trials;

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potentially establish a sales, marketing, and distribution infrastructure and scale-up manufacturing capabilities to commercialize or co-commercialize any product candidates for which we may obtain regulatory approval and chose to commercialize directly;

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expand our intellectual property portfolio;

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add further clinical, scientific, operational, financial, legal and management information systems, and personnel, including personnel to support our development and to support our operations as a U.S. public company listed on Nasdaq; or

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experience any delays or encounter any issues from any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges.

We expect that our existing cash and cash equivalents will enable us to fund our currently committed clinical trials, operating expenses and capital expenditure requirements into mid-2027. We have based these estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of our product candidates and any future product candidates and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:

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The costs for our activities related to our ongoing collaboration with Ultragenyx for setrusumab for the treatment of children and adults with OI, including the costs for our preparation for the potential commercialization of setrusumab, if approved, in Europe and the U.K; and costs for potential future clinical trials for alvelestat in AATD;

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the costs and timing of manufacturing clinical or commercial supplies of our product candidates;

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the costs, timing, and outcome of regulatory review of our product candidates, including post-marketing studies that could be required by regulatory authorities;

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the costs, timing, and outcome of potential future commercialization activities, including manufacturing, marketing, sales, life cycle management and distribution, for our product candidates that we commercialize directly;

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the timing and amount of revenue, if any, received from commercial sales of our product candidates;

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the costs and timing of preparing, filing, and prosecuting patent applications; maintaining and enforcing our intellectual property rights; and defending any intellectual property-related claims, including any claims by third parties that we are infringing, misappropriating or otherwise violating their intellectual property rights;

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the sales price and availability of adequate third-party coverage and reimbursement for our product candidates;

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the effect of competitors and market developments;

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the performance of our collaborators and partners under the existing agreements on setrusumab, vantictumab, leflutrozole and navicixizumab;

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the extent to which we are able to acquire new product candidates or enter into licensing or collaboration arrangements for our product candidates, although we currently have no commitments or agreements to complete any such transactions;

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milestone and deferred payments under the Amended AstraZeneca Agreements; and

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tax liabilities or other assessments and our ability to claim R&D tax credits or other reliefs.

Our revenues, if any, will be derived from development milestones or sales of any product candidates that we are able to successfully develop, receive regulatory approval for, and commercialize in future years. In the meantime, we will need to obtain substantial additional funds to achieve our business objective.

Adequate additional funds may not be available to us on acceptable terms, or at all. If we raised additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

Any future debt financing or preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interests.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders' ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. If we are unable to raise additional funds through partnerships, debt or equity financings when needed, we may be required to delay, limit, reduce, or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Indebtedness

Warrants Related to Former Credit Facility

As of December 31, 2025, the former lenders 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 the period August 2027 to October 2028.

Novartis Loan Note and Warrants

On February 10, 2020, we entered into a $4.9 million (£3.8 million) convertible loan note instrument relating to the issue of 3,841,479 Novartis Loan Note. The Novartis Loan Note was convertible at any time at a fixed price of £0.265 per ordinary share until February 10, 2023. In addition, on February 10, 2020, in connection with the Novartis Loan Note, we entered into a warrant instrument with Novartis to issue 1,449,614 ordinary shares at an exercise price of £0.265 per ordinary share (the "2020 Novartis Warrants"). These warrants were exercisable until February 10, 2025.

On February 10, 2023, we amended the Novartis Loan Note, extending the maturity date to February 10, 2025 and increasing the interest rate to 9%, with all other terms remaining unchanged. Pursuant to the amendment, interest accrued to the amendment date was paid in cash, and additional warrants to purchase 2,000,000 ordinary shares at an exercise price of £0.150 per ordinary share were issued and are exercisable until February 10, 2028.

On February 7, 2025, the Company received a conversion notice and 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.

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.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our accounting estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The actual impact on our financial performance could differ from these estimates under different assumptions or conditions.

99

An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our consolidated financial statements. We believe that there are no estimates and assumptions made in our consolidated financial statements that rise to this level. For further information on all of our significant accounting policies, see Note 2 — Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of financial risks. Our overall risk management program seeks to minimize potential adverse effects of these financial risks on our financial performance.

Interest Rate Risk

As of December 31, 2025, we held cash and cash equivalents of $41.0 million. Our exposure to interest rate sensitivity is impacted by changes in the underlying U.S. and U.K. bank interest rates. We manage interest rate risk by monitoring short and medium-term interest rates and placing cash on deposit or in money market fund for periods that optimize the amount of interest earned while maintaining access to sufficient funds to meet day-to-day cash requirements. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the value of our cash and cash equivalents, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.

Foreign Currency Risk

We currently maintain the consolidated financial statements of the Company in pounds sterling, which is the functional currency of the Company, but for financial reporting purposes our consolidated financial statements have been presented in U.S dollars, the reporting currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at 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, as foreign currency transaction gain/(loss). The financial statements of our consolidated subsidiaries are translated from their functional currency into the reporting currency as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates, expenses are translated at the average exchange rates for the relevant period and shareholders' equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to the comprehensive loss, a component of the shareholders’ equity. For the year ended December 31, 2025, $8.0 million of unrealized gain on foreign currency translation was included in other comprehensive loss compared to an unrealized loss of $1.4 million for the year ended December 31, 2024.

We monitor our exposure to foreign exchange risk. We have not entered into foreign exchange contracts to hedge against foreign exchange fluctuations but maintain cash and cash equivalents in U.S. dollars to cover anticipated forward commitments, to provide a natural hedge against the impact of foreign exchange rate movements, but there can be no assurance that we will be fully protected against material foreign currency fluctuations.

Inflation Risk

Inflation may generally affect us by increasing our personnel costs, R&D expenses and general operating expenses. While we have experienced increased operating expenses in recent periods, which we believe are due in part to the recent growth in inflation, we do not believe that inflation has had a material effect on our business, financial condition or results of operations during the year ended December 31, 2025; however, operating expenses may continue to increase in future periods due to inflation.

Item 8. Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and regulations promulgated thereunder) as of December 31, 2025, or the Evaluation Date. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be included in periodic filings under the Exchange Act and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our management concluded that, as of December 31, 2025, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm

Not applicable.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Item 408 Regulation S-K Compliance

During the quarter ended December 31, 2025, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item will be set forth in our 2026 Proxy Statement under “Board of Directors and Corporate

Governance” and “Executive Officers of the Company” to be filed with the SEC within 120 days of December 31, 2025 and is incorporated by reference into this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required by this Item will be set forth in our 2026 Proxy Statement under “Executive Compensation” to be filed with the SEC within 120 days of December 31, 2025 and is incorporated by reference into this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be set forth in our 2026 Proxy Statement under “Security Ownership of Certain

Beneficial Owners and Management” to be filed with the SEC within 120 days of December 31, 2025 and is incorporated by reference into this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be set forth in our 2026 Proxy Statement under “Transactions with Related Persons” and “Corporate Governance—Composition of the Mereo Board” to be filed with the SEC within 120 days of December 31, 2025 and is incorporated by reference into this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services

The information required by this Item will be set forth in our 2026 Proxy Statement under “Fees for Independent Registered Public Accounting Firm—PwC” to be filed with the SEC within 120 days of December 31, 2025 and is incorporated by reference into this Annual Report on Form 10-K.

102

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Financial Statements

As part of this Annual Report on Form 10‐K, the consolidated financial statements are as follows:

Audited Financial Statements Page

Report of independent registered public accounting firm F-2

Consolidated balance sheets F-4

Consolidated statements of operations and comprehensive loss F-5

Consolidated statements of cash flows F-6

Consolidated statements of changes in equity F-7

Notes to consolidated financial statements F-8

2. Financial Statement Schedules

All schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is otherwise included.

3. Exhibit Index

The following is a list of exhibits filed as part of this Annual Report on Form 10‐K or are incorporated herein by reference.

ExhibitNumber Description of Exhibit

103

ExhibitNumber Description of Exhibit

104

ExhibitNumber Description of Exhibit

105

ExhibitNumber Description of Exhibit

24.1* Power of Attorney (included on signature page of this report).

31.1* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

104 Cover Page Interactive Data File.

* Filed herewith.

† Portions of this exhibit are subject to a previously filed confidential treatment order pursuant to Rule 406 under the Securities Act.

†† Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) or Item 601(a)(5) of Regulation S-K because they are not material and they are the type of information that the Registrant treats as private or confidential. The Company agrees to furnish supplementally to the Commission a copy of any omissions upon request.

106

Item 16. Form 10‐K Summary

None.

107

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, on March 19, 2026.

By: /s/ Denise Scots-Knight

Name: Denise Scots-Knight

Title: Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Denise Scots-Knight and Christine Fox, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10‐K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on March 19, 2026, in the capacities indicated.

Signature Title Date

/s/ Denise Scots-Knight Chief Executive Officer and Director March 19, 2026

Denise Scots-Knight (Principal Executive Officer)

/s/ Christine Fox Chief Financial Officer March 19, 2026

Christine Fox (Principal Accounting and Financial Officer)

/s/ Michael Wyzga Chairman of the Board of Directors March 19, 2026

Michael Wyzga

/s/ Jeremy Bender Director March 19, 2026

Jeremy Bender

/s/ Anders Ekblom Director March 19, 2026

Anders Ekblom

/s/ Pierre Jacquet Director March 19, 2026

Pierre Jacquet

/s/ Annalisa Jenkins Director March 19, 2026

Annalisa Jenkins

/s/ Deepika Pakianathan Director March 19, 2026

Deepika Pakianathan

/s/ Justin Roberts Director March 19, 2026

Justin Roberts

/s/ Daniel Shames Director March 19, 2026

Daniel Shames

/s/ Marc Yoskowitz Director March 19, 2026

Marc Yoskowitz

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements Page

Report of independent registered public accounting firm (PCAOB ID 876) F-2

Consolidated balance sheets F-4

Consolidated statements of operations and comprehensive loss F-5

Consolidated statements of cash flows F-6

Consolidated statements of changes in equity F-7

Notes to consolidated financial statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Mereo BioPharma Group plc

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mereo BioPharma Group plc and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 2 to the consolidated financial statements, the Company will need additional funding to support its continuing operations and pursue its business strategy. Management’s evaluation of the events and conditions and management's plans to mitigate these matters are also described in Note 2.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Share-based compensation expense

As described in Note 15 to the consolidated financial statements, the total charge for share-based compensation was $7.6 million for the year ended December 31, 2025. 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). The total amounts to be expensed 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

F-2

perform services in exchange for the award. The fair value of option awards are estimated on the date of grant using the Black-Scholes option pricing model which includes assumptions made by management.

The principal considerations for our determination that performing procedures relating to share-based compensation charge is a critical audit matter are the high degree of auditor effort in performing procedures and evaluating audit evidence related to the grant-date fair value of option awards.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for developing the fair value estimate, (ii) evaluating the appropriateness of the model used by management, (iii) testing the completeness and accuracy of underlying data used in the fair value estimate, (iv) evaluating the reasonableness of the significant assumptions used by management in estimating the fair value, (v) performing a recalculation of the grant-date fair value estimate for a sample of option awards, and (vi) testing the expense recognized during the period for a sample of awards.

/s/ PricewaterhouseCoopers LLP

Reading, United Kingdom

March 19, 2026

We have served as the Company's auditor since 2023.

F-3

MEREO BIOPHARMA GROUP PLC

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

December 31, December 31,

Assets

Current assets:

Prepaid expenses and other current assets 2,531 2,175

Research and development incentives receivables 1,497 2,786

Property and equipment, net 137 257

Operating lease right-of-use assets, net 244 727

Liabilities

Current liabilities:

Convertible loan notes – current — 5,535

Operating lease liabilities – current 202 707

Warrant liabilities – non-current 38 821

Operating lease liabilities – non-current — 187

Other non-current liabilities 661 565

Commitments and contingencies (Note 17)

Shareholders’ Equity

Accumulated other comprehensive loss (10,823 ) (18,849 )

Total liabilities and shareholders’ equity $ 45,917 $ 76,390

The accompanying notes form an integral part of these consolidated financial statements.

F-4

MEREO BIOPHARMA GROUP PLC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

Year Ended December 31,

Revenue $ 500 $ —

Operating expenses

Cost of revenue (133 ) —

Other income 300 —

Other income/(expenses)

Changes in the fair value of warrants 805 (419 )

Foreign currency transaction (loss)/gain, net (6,344 ) 1,210

Benefit from research and development tax credit 1,850 1,649

Income tax benefit — —

Loss per share – basic and diluted $ (0.05 ) $ (0.06 )

The accompanying notes form an integral part of these consolidated financial statements.

F-5

MEREO BIOPHARMA GROUP PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except per share amounts)

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of intangible assets 465 438

Amortization of operating lease right-of-use assets 527 507

Change in fair value of warrants (805 ) 419

Non-cash interest income (104 ) —

Foreign currency transaction loss/(gain) 6,344 (1,210 )

Other income (300 ) —

Non-cash consideration, milestone payment — 1,750

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (84 ) 2,980

Research and development incentives receivable 1,396 (1,649 )

Accrued expenses and other liabilities (2,394 ) (1,192 )

Operating lease liabilities (743 ) (654 )

Net cash used in operating activities (30,971 ) (32,834 )

Cash flows from investing activities

Payments for intangible assets (300 ) (699 )

Purchase of property and equipment (20 ) —

Proceeds from out-licensing 300 —

Net cash used in investing activities (20 ) (699 )

Cash flows from financing activities

Proceeds from exercise of warrants 487 —

Proceeds from issuance of ordinary shares 39 47,000

Transaction costs on issuance of ordinary shares (199 ) (853 )

Net cash provided by financing activities 327 46,147

(Decrease)/increase in cash and cash equivalents (30,664 ) 12,614

Effect of exchange rate changes 1,854 (233 )

Supplemental disclosure

Cash paid for interest 29 21

The accompanying notes form an integral part of these consolidated financial statements.

F-6

MEREO BIOPHARMA GROUP PLC

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share amounts)

Ordinary shares Treasury shares Additional Accumulatedother Total

Foreign currency translation adjustments — — — — — (1,364 ) — (1,364 )

Share-based compensation — — — — 7,390 — — 7,390

Transaction costs on issuance of shares — — — — (1,039 ) — — (1,039 )

Foreign currency translation adjustments — — — — — 8,026 — 8,026

Share-based compensation — — — — 7,598 — — 7,598

Transaction costs on issuance of shares — — — — (65 ) — — (65 )

Transfer between reserves — — — — (3,743 ) — 3,743 —

The accompanying notes form an integral part of these consolidated financial statements.

F-7

MEREO BIOPHARMA GROUP PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of 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.

F-8

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.

F-9

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.

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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

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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 to27% for R&D intensive companies where at least40% 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.

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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 the straight-line method over the estimated useful lives of the related assets. Useful lives of various property and equipment are as follows:

•Leasehold improvements shorter of lease term or ten years

•Office equipment five years

•IT equipment three years

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.

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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:

•Right-of-use asset (building) five years

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.

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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:

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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).

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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:

•

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

•

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

•

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

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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.

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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.