Novartis said today it swapped three clinical compounds in return for equity in a recently formed speciality biopharma that it helped to create—and which has raised $119 million from two U.K. institutional investors.

Mereo BioPharma Group said it will work to rapidly develop a pipeline of drugs focused on rare and specialty diseases by acquiring validated, mid-stage development programs from large biopharmas.

That portfolio will initially consist of the three Novartis compounds. The three are:

  • BPS-804, a Phase III-ready human monoclonal antibody designed to improve bone density in osteogenesis imperfect or brittle bone syndrome, an orphan disease. A Phase II study (NCT01417091) was completed as of January 2, according to ClinicalTrials.gov
  • BGS-649, a Phase IIb oral aromatase inhibitor being developed as a first-line therapy for obese men with hypogonadotrophic hypogonadism to normalize testosterone levels.
  • BCT-197, a Phase IIa oral p38 MAP kinase inhibitor being developed as first-line acute therapy alongside existing treatment and supportive care for acute exacerbations in chronic obstructive pulmonary disease (COPD).

Mereo said in a statement that all three compounds have comprehensive data, including proof of concept clinical studies.

“We believe that by acquiring quality assets from Novartis and securing substantial financing we have put in place the building blocks to create a successful specialty biopharmaceutical company,” Mereo CEO and founder Denise Scots-Knight (Pollard-Knight), Ph.D., said in a statement.

According to its most recent listing posted on its website of pipeline compounds as of December 31, 2014, Novartis anticipated filings at or later than 2019 for BGS-649 and BCT-197. The listing contained no information for BPS-804.

In exchange for the swap, Novartis will have an equity stake in Mereo and will share in the success of the development of these compounds, including an undisclosed share on milestones and royalties on future commercial sales.

Mereo has formed a strategic development partnership with the CRO Icon to facilitate clinical development of its portfolio from pre-acquisition through global clinical studies for pipeline products. The partnership is designed to enable Mereo to expand its product portfolio without adding significant internal resources.

The new company added in a statement that it plans to tap into “an extensive network of experts with experience across multiple clinical disciplines.”

Mereo is also building an internal management team led by Dr. Scots-Knight, a former managing partner of the healthcare-focused venture capital investor Phase4 Partners; and by Chairman Peter Fellner, Ph.D., who is also chairman of Ablynx, Vernalis, and Consort Medical.

Founded in March, Mereo said today it raised the $119 million through investments from Woodford Investment Management and Invesco Perpetual.