PART I - FINANCIAL INFORMATION This section presents Verona Pharma plc's unaudited condensed consolidated financial information, including statements and management's analysis [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20statements) This section presents Verona Pharma plc's unaudited condensed consolidated financial statements, highlighting performance and position [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows an increase in total assets and shareholders' equity from December 31, 2024, to June 30, 2025, primarily driven by higher cash, accounts receivable, and inventory, alongside an increase in non-current liabilities due to term loans | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Assets | $572,871 | $474,242 | | Cash and cash equivalents | $438,016 | $399,757 | | Accounts receivable, net | $82,858 | $31,496 | | Inventory (Current) | $8,612 | $6,249 | | Inventory (Long-term) | $5,910 | $1,972 | | Total Liabilities | $294,598 | $269,683 | | Term loan (Non-current) | $242,434 | $120,341 | | Total Shareholders' Equity | $278,273 | $204,559 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported its first net income for the three months ended June 30, 2025, a significant turnaround from a net loss in the prior year, primarily due to the commercial launch and product sales of Ohtuvayre. Operating expenses increased overall, with a notable rise in selling, general and administrative costs | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Product sales, net | $102,939 | $— | $174,195 | $— | | Total revenue, net | $103,138 | $— | $179,394 | $— | | Cost of sales | $4,756 | $— | $8,163 | $— | | Research and development | $12,950 | $19,388 | $27,004 | $26,152 | | Selling, general and administrative | $72,127 | $49,035 | $141,239 | $69,469 | | Operating income/(loss) | $13,305 | $(68,423) | $2,988 | $(95,621) | | Net income/(loss) | $11,921 | $(70,835) | $(4,398) | $(96,629) | - Net income for the three months ended June 30, 2025, was **$11.9 million**, a significant improvement from a net loss of **$70.8 million** in the prior year, driven by product sales[14](index=14&type=chunk) - Selling, general and administrative costs increased by **$23.1 million** for the three months ended June 30, 2025, primarily due to increased headcount for the field sales team and marketing activities related to Ohtuvayre's launch[134](index=134&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased from December 31, 2024, to June 30, 2025, primarily due to net income in the latest quarter, proceeds from share options exercised, and share-based compensation, despite an accumulated deficit | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :-------------------------- | :------------------------------- | :--------------------------- | | Total Shareholders' Equity | $204,559 | $278,273 | | Additional paid-in capital | $728,199 | $805,918 | | Accumulated deficit | $(562,401) | $(567,101) | - Share-based compensation totaled **$72.3 million** for the six months ended June 30, 2025, compared to **$19.9 million** for the same period in 2024[75](index=75&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive net cash from operating activities for the six months ended June 30, 2025, a significant improvement from a net cash outflow in the prior year, primarily driven by Ohtuvayre product sales. Net cash from financing activities decreased due to larger debt proceeds in the prior year | Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by/(used in) operating activities | $19,000 | $(30,712) | | Net cash used in investing activities | $(535) | $(45) | | Net cash provided by financing activities | $18,400 | $163,709 | | Cash and cash equivalents at end of the period | $438,016 | $404,599 | - The change in cash from operating activities was primarily due to cash received from product sales of Ohtuvayre, partially offset by increased commercial costs[144](index=144&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's organization, significant accounting policies, inventory, equity interests, accrued expenses, license obligations, debt, share-based compensation, net loss per share, and subsequent events, including the pending acquisition by Merck [Note 1 - Organization and description of business operations](index=11&type=section&id=Note%201%20-%20Organization%20and%20description%20of%20business%20operations) Verona Pharma plc, a UK-based biopharmaceutical company, focuses on respiratory diseases. Key events include the pending $10 billion acquisition by Merck, FDA approval and U.S. launch of Ohtuvayre for COPD, international marketing applications, and an ongoing dispute with Nuance Pharma regarding a license buy-back option. The company continues to develop ensifentrine for other indications - On July 8, 2025, the company entered into a Transaction Agreement with Merck for an acquisition valued at approximately **$10 billion**, expected to close in Q4 2025[25](index=25&type=chunk)[82](index=82&type=chunk)[95](index=95&type=chunk) - The U.S. FDA approved Ohtuvayre (ensifentrine) for the maintenance treatment of COPD on June 26, 2024, and the product was launched in the U.S. in August 2024[26](index=26&type=chunk)[96](index=96&type=chunk) - Marketing authorization applications for Ohtuvayre for COPD maintenance treatment were submitted in the UK and EU in June and July 2025, respectively[28](index=28&type=chunk)[98](index=98&type=chunk) - The company exercised its option to buy back the license granted to Nuance Pharma for Greater China on June 24, 2025, which Nuance Pharma has disputed[30](index=30&type=chunk)[118](index=118&type=chunk) - An accumulated deficit of **$567.1 million** was reported as of June 30, 2025, with recurring losses and negative cash flows from operations until the quarter ended June 30, 2025[35](index=35&type=chunk)[103](index=103&type=chunk) [Note 2 - Basis of presentation and summary of significant accounting policies](index=12&type=section&id=Note%202%20-%20Basis%20of%20presentation%20and%20summary%20of%20significant%20accounting%20policies) The financial statements are prepared under U.S. GAAP, consolidating Verona Pharma plc and its subsidiaries as a single operating segment. Key accounting estimates include R&D expenses, revenue adjustments, and share-based compensation. The company is evaluating the impact of new accounting standards on income tax and expense disclosures - The company has one operating and reportable segment: the development and commercialization of pharmaceutical products[41](index=41&type=chunk) - Five specialty pharmacies accounted for **47%**, **31%**, **1%**, **20%**, and **1%** of product sales, net, for the three months ended June 30, 2025, and all outstanding accounts receivable from product sales[42](index=42&type=chunk) - The company is evaluating the impact of ASU No. 2023-09 (Improvements to Income Tax Disclosures) and ASU No. 2024-03 (Disaggregation of Income Statement Expenses) on its financial disclosures[44](index=44&type=chunk)[46](index=46&type=chunk) [Note 3 - Inventory](index=13&type=section&id=Note%203%20-%20Inventory) Total inventory significantly increased from $8.2 million at December 31, 2024, to $14.5 million at June 30, 2025, primarily in finished goods, reflecting the commercialization of Ohtuvayre. No inventory write-downs were recorded | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------- | :--------------------------- | :------------------------------- | | Raw materials | $1,823 | $228 | | Finished goods | $12,699 | $7,993 | | **Total** | **$14,522** | **$8,221** | [Note 4 - Equity interest](index=14&type=section&id=Note%204%20-%20Equity%20interest) The company maintains a $15.0 million equity interest in Nuance Biotech. A $5.0 million development milestone payment was received in Q2 2025 from Nuance Pharma, but the company's decision to exercise a license buy-back option is currently disputed - Equity interest in Nuance Biotech valued at **$15.0 million** as of June 30, 2025[12](index=12&type=chunk)[49](index=49&type=chunk) - Received a **$5.0 million** development milestone payment from Nuance Pharma in Q2 2025[51](index=51&type=chunk) - Exercised the Buy-Back Option for the Nuance Pharma license in June 2025, which Nuance Pharma has disputed[52](index=52&type=chunk) [Note 5 - Accrued expenses](index=14&type=section&id=Note%205%20-%20Accrued%20expenses) Accrued expenses significantly increased to $43.3 million at June 30, 2025, from $16.8 million at December 31, 2024, primarily due to higher rebates and other sales deductions, professional fees, and people-related costs, reflecting increased commercial activities | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | | Rebates and other sales deductions | $21,802 | $6,178 | | Clinical trial and other development costs | $4,070 | $4,006 | | Professional fees and general corporate costs | $9,527 | $3,642 | | People related costs | $7,929 | $2,931 | | **Total accrued expenses** | **$43,328** | **$16,757** | [Note 6 - Ligand license agreement obligations](index=14&type=section&id=Note%206%20-%20Ligand%20license%20agreement%20obligations) The company has ongoing obligations under the Ligand Agreement, including low single-digit royalties on net sales of Ligand Licensed Products and a 25% share of any sub-licensee milestones. A $1.3 million expense was recorded for a milestone payment from Nuance Pharma - Obligated to pay low single-digit royalties on net sales of Ligand Licensed Products, expensed as cost of sales[57](index=57&type=chunk) - Obligated to pay Ligand **25%** of any milestones received from sub-licensees; **$1.3 million** recorded in SG&A for a Nuance Pharma milestone[58](index=58&type=chunk) [Note 7 - Debt](index=15&type=section&id=Note%207%20-%20Debt) The company's term loan facility was amended in March 2025, increasing the Tranche C commitment to $125.0 million and reducing the interest rate from 11.0% to 9.7% (with a potential further reduction to 9.35%). The Revenue Interest Purchase and Sale Agreement (RIPSA) was repurchased in March 2025 - Term loan facility increased to **$450.0 million** with Tranche C commitment increasing from **$75.0 million** to **$125.0 million**, drawn on March 27, 2025[68](index=68&type=chunk)[193](index=193&type=chunk) - Interest rate on term loans reduced from **11.0%** to **9.7%** per annum, with a further step down to **9.35%** upon meeting certain net sales milestones[68](index=68&type=chunk)[194](index=194&type=chunk) - The company exercised its buy-out option under the RIPSA and repurchased the Tranche A obligation on March 25, 2025[71](index=71&type=chunk)[153](index=153&type=chunk) [Note 8 - Share-based compensation](index=17&type=section&id=Note%208%20-%20Share-based%20compensation) Share-based compensation significantly increased to $72.3 million for the six months ended June 30, 2025, compared to $19.9 million in the prior year, allocated across inventory, R&D, and SG&A. The company also detailed activity for share options, restricted stock units (RSUs), and performance restricted stock units (PRSUs) | Allocation | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Capitalized to inventory | $522 | $— | $1,161 | $— | | Research and development | $5,126 | $3,664 | $11,605 | $4,680 | | Selling, general and administrative | $29,166 | $11,930 | $59,525 | $15,172 | | **Total** | **$34,814** | **$15,594** | **$72,291** | **$19,852** | - Total unrecognized compensation cost for PRSUs was **$65.4 million** as of June 30, 2025, to be recognized over approximately one year[78](index=78&type=chunk) [Note 9 - Net loss per share](index=19&type=section&id=Note%209%20-%20Net%20loss%20per%20share) The company reported basic and diluted net income per ordinary share of $0.02 for the three months ended June 30, 2025, a significant improvement from a loss of $0.11 in the prior year, reflecting recent profitability. Basic and diluted net loss per ADS was $0.05 for the six months ended June 30, 2025 | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income/(loss) per ordinary share - basic | $0.02 | $(0.11) | $(0.01) | $(0.15) | | Income/(loss) per ordinary share - diluted | $0.02 | $(0.11) | $(0.01) | $(0.15) | | Income/(loss) per ADS - basic | $0.14 | $(0.87) | $(0.05) | $(1.19) | | Income/(loss) per ADS - diluted | $0.13 | $(0.87) | $(0.05) | $(1.19) | [Note 10 - Subsequent events](index=19&type=section&id=Note%2010%20-%20Subsequent%20events) On July 8, 2025, the company entered into a Transaction Agreement with Merck for an acquisition valued at approximately $10 billion, where shareholders will receive $13.375 per ordinary share ($107 per ADS). The transaction is expected to close in Q4 2025, subject to customary closing conditions including shareholder and regulatory approvals - Transaction Agreement entered with Merck on July 8, 2025, for acquisition via a court-sanctioned scheme of arrangement[25](index=25&type=chunk)[82](index=82&type=chunk)[95](index=95&type=chunk) - Holders of ordinary shares will receive **$13.375** in cash per share, and ADS holders will receive **$107** in cash per ADS[83](index=83&type=chunk)[164](index=164&type=chunk) - The transaction is expected to close in the fourth quarter of 2025, contingent on shareholder approval, High Court sanction, and required regulatory approvals[25](index=25&type=chunk)[88](index=88&type=chunk)[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, clinical development updates, and detailed analysis of revenues, expenses, cash flows, and liquidity. It also discusses the implications of the pending Merck acquisition and future funding requirements [Overview](index=22&type=section&id=Overview) Verona Pharma is a biopharmaceutical company focused on respiratory diseases, with its lead product Ohtuvayre (ensifentrine) approved by the FDA for COPD and commercially launched in the U.S. The company is subject to a pending $10 billion acquisition by Merck and is also developing ensifentrine for other indications and formulations. Despite recent profitability, it has an accumulated deficit - Verona Pharma is a biopharmaceutical company focused on developing and commercializing innovative therapeutics for respiratory diseases[94](index=94&type=chunk) - Ohtuvayre (ensifentrine) received FDA approval for COPD maintenance treatment on June 26, 2024, and was launched in the U.S. in August 2024[96](index=96&type=chunk) - The company entered into a Transaction Agreement with Merck for an approximate **$10 billion** acquisition, expected to close in Q4 2025[95](index=95&type=chunk) - An accumulated deficit of **$567.1 million** was reported as of June 30, 2025, with recurring losses and negative cash flows from operations until the quarter ended June 30, 2025[103](index=103&type=chunk) [Clinical development update](index=24&type=section&id=Clinical%20development%20update) Ohtuvayre's U.S. approval was based on positive Phase 3 ENHANCE trials, which demonstrated statistically significant improvements in lung function and reduced COPD exacerbations. The company is also advancing ensifentrine in new formulations and indications, including a fixed-dose combination with glycopyrrolate for COPD and nebulized ensifentrine for bronchiectasis - Ohtuvayre successfully met primary endpoints in Phase 3 ENHANCE-1 and ENHANCE-2 trials, showing significant improvements in lung function and reduced COPD exacerbations[107](index=107&type=chunk) | Endpoint | ENHANCE-1 (N=760) | ENHANCE-2 (N=789) | | :-------------------------- | :---------------------- | :---------------------- | | Average FEV, AUC (0-12 hours) | +87 mL (p<0.0001) vs placebo | +94 mL (p<0.0001) vs placebo | | Peak FEV4 | +147 mL (p<0.0001) vs placebo | +146 mL (p<0.0001) vs placebo | | Exacerbation rate | 36% reduction in rate | 43% reduction in rate | | Time to first COPD exacerbation | 38% reduction in risk | 42% reduction in risk | - A dose-ranging Phase 2b trial for a fixed-dose nebulized combination of ensifentrine with glycopyrrolate for COPD is planned for the second half of 2025[102](index=102&type=chunk)[113](index=113&type=chunk) - A Phase 2 clinical trial to assess nebulized ensifentrine in patients with non-cystic fibrosis bronchiectasis commenced in Q3 2024[103](index=103&type=chunk)[115](index=115&type=chunk) [Nuance Pharma](index=25&type=section&id=Nuance%20Pharma) Nuance Pharma, Verona's partner in Greater China, received Ohtuvayre approval in Macau in February 2025 and announced positive Phase 3 trial results in China in May 2025. Verona exercised its buy-back option for the license in June 2025, which Nuance Pharma has disputed, leading to ongoing discussions - Ohtuvayre was approved in Macau in February 2025, marking the first approval outside of the U.S[118](index=118&type=chunk) - Nuance Pharma announced positive results from its pivotal Phase 3 trial evaluating ensifentrine for COPD maintenance treatment in China in May 2025[116](index=116&type=chunk) - A **$5.0 million** development milestone payment was received by the company in Q2 2025 following the completion of treatment in the Phase 3 trial[117](index=117&type=chunk) - The company provided notice to Nuance Pharma on June 24, 2025, to exercise its option to buy back the license, which Nuance Pharma has disputed[118](index=118&type=chunk) [Critical accounting estimates](index=25&type=section&id=Critical%20accounting%20estimates) There were no material changes to the company's critical accounting estimates during the six months ended June 30, 2025, as compared to those disclosed in the 2024 Form 10-K - No material changes to critical accounting estimates during the six months ended June 30, 2025[119](index=119&type=chunk) [Components of results of operations](index=25&type=section&id=Components%20of%20results%20of%20operations) This section details the company's revenue and expense components. Product sales began after Ohtuvayre's commercial launch, contributing to cost of sales. Research and development costs are expensed as incurred and are expected to increase. Selling, general and administrative costs cover commercial activities and public company operations. Other income/expense includes interest, foreign exchange, and R&D tax credits, with the effective tax rate influenced by deferred tax asset valuation - Product sales, net, began to be recognized after the commercial launch of Ohtuvayre in Q3 2024, net of estimated distribution fees, rebates, and other deductions[120](index=120&type=chunk) - Cost of sales includes Ohtuvayre manufacturing costs, freight, overhead, and sales-based royalties due to Ligand[122](index=122&type=chunk) - Research and development costs are expensed as incurred and are expected to increase due to additional trials for a fixed-dose combination for COPD and nebulized ensifentrine in bronchiectasis[123](index=123&type=chunk)[124](index=124&type=chunk) - Selling, general and administrative costs include personnel, Ohtuvayre launch expenses, public company operating costs, and professional fees[125](index=125&type=chunk) - Other income/(expense) is primarily driven by interest income and expense, foreign exchange movements, and historical U.K. research and development tax credits[127](index=127&type=chunk) [Results of operations for the three months ended June 30, 2025 and 2024](index=27&type=section&id=Results%20of%20operations%20for%20the%20three%20months%20ended%20June%2030%2C%202025%20and%202024) For the three months ended June 30, 2025, the company achieved a net income of $11.9 million, a significant improvement from a $70.8 million net loss in the prior year, primarily driven by $102.9 million in Ohtuvayre product sales. Research and development costs decreased, while selling, general and administrative costs increased due to commercialization efforts | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Change (YoY) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :----------- | | Product sales, net | $102,939 | $— | $102,939 | | Total revenue, net | $103,138 | $— | $103,138 | | Cost of sales | $4,756 | $— | $4,756 | | Research and development | $12,950 | $19,388 | $(6,438) | | Selling, general and administrative | $72,127 | $49,035 | $23,092 | | Operating income/(loss) | $13,305 | $(68,423) | $81,728 | | Net income/(loss) | $11,921 | $(70,835) | $82,756 | - Research and development costs decreased by **$6.4 million**, primarily due to a prior year accrual for a Ligand approval milestone and pre-launch manufacturing costs, partially offset by increased share-based compensation[133](index=133&type=chunk) - Selling, general and administrative costs increased by **$23.1 million**, driven by a **$10.9 million** increase in people-related costs and **$17.2 million** in share-based compensation due to the Ohtuvayre launch, and increased marketing activities[134](index=134&type=chunk) [Results of operations for the six months ended June 30, 2025 and 2024](index=29&type=section&id=Results%20of%20operations%20for%20the%20six%20months%20ended%20June%2030%2C%202025%20and%202024) For the six months ended June 30, 2025, the company reported a net loss of $4.4 million, a substantial improvement from a $96.6 million net loss in the prior year, primarily due to $174.2 million in Ohtuvayre product sales. Selling, general and administrative costs significantly increased due to commercialization, while research and development costs saw a slight increase | Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change (YoY) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :----------- | | Product sales, net | $174,195 | $— | $174,195 | | Other revenue | $5,199 | $— | $5,199 | | Total revenue, net | $179,394 | $— | $179,394 | | Cost of sales | $8,163 | $— | $8,163 | | Research and development | $27,004 | $26,152 | $852 | | Selling, general and administrative | $141,239 | $69,469 | $71,770 | | Operating income/(loss) | $2,988 | $(95,621) | $98,609 | | Net loss | $(4,398) | $(96,629) | $92,231 | - Other revenue of **$5.2 million** was primarily due to a milestone earned from Nuance Pharma's Phase 3 trial completion[138](index=138&type=chunk) - Selling, general and administrative costs increased by **$71.8 million**, driven by a **$20.2 million** increase in people-related costs and **$44.4 million** in share-based compensation due to the Ohtuvayre launch[141](index=141&type=chunk) [Cash flows](index=30&type=section&id=Cash%20flows) Net cash provided by operating activities significantly improved to $19.0 million for the six months ended June 30, 2025, from a net cash outflow of $30.7 million in the prior year, primarily due to Ohtuvayre product sales. Net cash provided by financing activities decreased due to larger debt proceeds in the prior year | Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | Change | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------- | | Net cash provided by/(used in) operating activities | $19,000 | $(30,712) | $49,712 | | Net cash used in investing activities | $(535) | $(45) | $(490) | | Net cash provided by financing activities | $18,400 | $163,709 | $(145,309) | | Cash and cash equivalents at end of the period | $438,016 | $404,599 | $33,417 | - The increase in cash from operating activities was primarily due to cash received from product sales of Ohtuvayre, partially offset by increased commercial costs[144](index=144&type=chunk) - The decrease in cash provided by financing activities was primarily due to **$167.9 million** in net proceeds from 2024 Term Loans and RIPSA in the prior year, compared to **$12.6 million** from Tranche C draw and RIPSA repurchase in the current period[145](index=145&type=chunk) [Liquidity and capital resources](index=31&type=section&id=Liquidity%20and%20capital%20resources) The company expects its current cash, anticipated Ohtuvayre sales, and available Term Loan funding to cover operating and capital expenses for at least the next 12 months. However, future funding needs are contingent on commercial milestones and the completion of the Merck acquisition. The company's accumulated deficit remains significant, and future capital requirements will depend on various factors, including clinical development and commercialization efforts - The company believes its cash and cash equivalents (**$438.0 million** as of June 30, 2025), anticipated product sales, and available Term Loan funding will cover operating and capital expenses for at least the next 12 months[149](index=149&type=chunk) - The company had an accumulated deficit of **$567.1 million** as of June 30, 2025[146](index=146&type=chunk) - 2025 financing transactions included amending Term Loans (decreasing interest rate, increasing Tranche C draw) and repurchasing the RIPSA in full[148](index=148&type=chunk)[153](index=153&type=chunk) - Future capital requirements depend on factors such as the Merck transaction, Ohtuvayre commercialization, clinical development of ensifentrine for other indications/formulations, and intellectual property costs[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically interest rate risk and foreign exchange risk. Due to the short-term nature of cash equivalents and the relative magnitude of foreign currency holdings, neither is expected to have a material effect on the company's financial condition or results of operations [Interest Rate Risk](index=33&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk on its cash and cash equivalents, primarily money market funds. However, due to the short-term nature of these holdings, a sudden change in interest rates is not expected to materially affect the company's financial results - Cash and cash equivalents totaled **$438.0 million** as of June 30, 2025, primarily consisting of money market funds[156](index=156&type=chunk) - A sudden change in interest rates is not expected to have a material effect on the company's business, financial condition, or results of operations due to the short-term nature of cash equivalents[156](index=156&type=chunk) [Foreign Exchange Risk](index=33&type=section&id=Foreign%20Exchange%20Risk) The company faces foreign exchange risk from transactions in currencies other than the U.S. dollar, such as euros and pound sterling. While a small portion of cash and accounts payable are denominated in foreign currencies, a 1% change in foreign exchange rates is not expected to have a material financial impact - The company is exposed to foreign exchange risk from transactions in euros and pound sterling[157](index=157&type=chunk) - As of June 30, 2025, approximately **3%** of cash and cash equivalents and **22%** of accounts payable were denominated in foreign currencies[157](index=157&type=chunk) - A **1%** change in foreign exchange rates is not expected to have a material effect on the company's business, financial condition, or results of operations[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting. Management concluded that disclosure controls were effective as of June 30, 2025, and reported no material changes to internal control over financial reporting during the quarter [Limitations on Effectiveness of Controls and Procedures](index=33&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) Management acknowledges that any controls and procedures, regardless of design, can only provide reasonable assurance of achieving control objectives due to inherent limitations and the need to balance benefits against costs - Controls and procedures provide only reasonable assurance due to inherent limitations and the application of judgment in evaluating benefits versus costs[158](index=158&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of June 30, 2025, the company's management, including the principal executive officer and principal financial officer, concluded that its disclosure controls and procedures were effective at the reasonable assurance level - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[159](index=159&type=chunk) [Changes in Internal Control over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No change in the company's internal control over financial reporting occurred during the quarter ended June 30, 2025, that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[160](index=160&type=chunk) PART II - OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company is not currently subject to any material legal proceedings[161](index=161&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) Investing in the company's ADSs involves a high degree of risk, encompassing uncertainties related to the pending Merck acquisition, the company's limited operating history, sole dependence on Ohtuvayre, lengthy and unpredictable regulatory processes, intense industry competition, and challenges in protecting intellectual property. These factors could adversely affect the company's business, financial condition, results of operations, and growth prospects [Risks Relating to the Transaction with Merck](index=34&type=section&id=Risks%20Relating%20to%20the%20Transaction%20with%20Merck) The pending $10 billion acquisition by Merck may not be completed as expected, leading to potential business disruptions, financial uncertainty, and adverse effects on the company's stock price. The transaction agreement also imposes restrictions on business activities and includes a significant termination fee, which could deter competing offers - The pending acquisition by Merck may not be completed within the expected timeframe or at all, which could adversely affect the company's business and the market price of its ADSs[7](index=7&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk) - The announcement and pendency of the acquisition could disrupt business, prospects, financial condition, and results of operations[7](index=7&type=chunk)[167](index=167&type=chunk) - The company may be required to pay Merck a termination fee of approximately **$100 million** under specified circumstances[168](index=168&type=chunk)[170](index=170&type=chunk) - The Transaction Agreement imposes restrictions on the company's business activities prior to closing, potentially limiting its ability to respond to competitive pressures or pursue alternative opportunities[7](index=7&type=chunk)[171](index=171&type=chunk) [Risks Related to Our Business and Industry](index=36&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The company has a limited operating history and has incurred significant losses, with its future profitability solely dependent on the commercial success of Ohtuvayre and the successful development of ensifentrine for other indications. Additional funding may be required, and the terms of existing debt facilities impose restrictions on financial flexibility. International operations also expose the company to economic, political, and foreign exchange risks - The company has a limited operating history and has incurred significant operating losses since inception, with an accumulated deficit of **$567.1 million** as of June 30, 2025[7](index=7&type=chunk)[172](index=172&type=chunk) - Profitability depends solely on the commercial success of Ohtuvayre and the successful development of ensifentrine for other indications[7](index=7&type=chunk)[175](index=175&type=chunk)[185](index=185&type=chunk) - If the Merck transaction is not completed, the company may need additional funding for development and commercialization, and inability to raise capital could force delays or elimination of programs[7](index=7&type=chunk)[179](index=179&type=chunk) - The terms of the company's credit facility (Term Loans) place restrictions on operating and financial flexibility, and existing and future indebtedness could adversely affect business operations[7](index=7&type=chunk)[193](index=193&type=chunk)[195](index=195&type=chunk) - The company's international operations expose it to economic weakness, differing regulatory requirements, and foreign exchange rate fluctuations[7](index=7&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Risks Related to Development, Clinical Testing and Regulatory Approval](index=39&type=section&id=Risks%20Related%20to%20Development%2C%20Clinical%20Testing%20and%20Regulatory%20Approval) Clinical drug development is a lengthy, expensive, and inherently unpredictable process, with potential for delays, failures, and unforeseen side effects that could prevent or delay marketing approval. Regulatory approval processes are complex, time-consuming, and vary internationally, and failure to obtain or maintain approvals, or to comply with ongoing regulatory requirements, could substantially harm the business. Additionally, disruptions at government agencies and the risk of off-label promotion claims pose significant challenges - Clinical drug development is a lengthy and expensive process with uncertain timelines and outcomes; delays or failures in trials could prevent timely commercialization[7](index=7&type=chunk)[201](index=201&type=chunk)[205](index=205&type=chunk) - Product candidates may have serious adverse, undesirable, or unacceptable side effects, which could delay or prevent marketing approval, or lead to a more restrictive label or market withdrawal[7](index=7&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - The regulatory approval processes of the FDA, EMA, and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable; failure to obtain approval outside the U.S. or for additional indications would substantially harm the business[7](index=7&type=chunk)[226](index=226&type=chunk)[242](index=242&type=chunk) - Even after FDA approval of Ohtuvayre, the company remains subject to ongoing regulatory review and obligations, which may result in significant additional expense and potential penalties for non-compliance[234](index=234&type=chunk)[236](index=236&type=chunk) - The FDA and other foreign regulatory agencies actively enforce laws prohibiting the promotion of off-label uses, which could result in significant liability if violated[239](index=239&type=chunk) - Disruptions at the FDA and other government agencies due to funding shortages, staffing limitations, or global health concerns could hinder timely product development, approval, or commercialization[232](index=232&type=chunk)[233](index=233&type=chunk) [Risks Related to Healthcare Laws and Other Legal Compliance Matters](index=52&type=section&id=Risks%20Related%20to%20Healthcare%20Laws%20and%20Other%20Legal%20Compliance%20Matters) The company's business operations are subject to complex and evolving healthcare regulatory laws, including anti-kickback, false claims, and data privacy laws (HIPAA, CCPA, GDPR), which govern pricing, marketing, and data handling. Non-compliance with these laws, as well as environmental, health, safety, anti-corruption, and trade control laws, could result in significant penalties, reputational harm, and operational restructuring - Enacted and future legislation, such as the ACA, IRA, and OBBBA, may increase the difficulty and cost of commercializing products and affect pricing[7](index=7&type=chunk)[249](index=249&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk) - Business operations and relationships are subject to applicable healthcare regulatory laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), which could expose the company to penalties for non-compliance[7](index=7&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) - Actual or perceived failures to comply with data protection, privacy, and security laws (e.g., HIPAA, CCPA, GDPR) could adversely affect business, results of operations, and financial condition, leading to investigations, fines, and reputational damage[8](index=8&type=chunk)[268](index=268&type=chunk)[273](index=273&type=chunk) - The company is subject to environmental, health, and safety laws and regulations, with potential for liability and substantial expenses in connection with compliance or remediation activities[278](index=278&type=chunk) - Operations are subject to anti-corruption laws (e.g., U.K. Bribery Act, U.S. FCPA) and Trade Control laws; failure to comply could result in civil or criminal penalties and legal expenses[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk) [Risks Related to Commercialization](index=58&type=section&id=Risks%20Related%20to%20Commercialization) The biopharmaceutical industry is highly competitive, and the company faces significant challenges in gaining market acceptance for Ohtuvayre, accurately forecasting demand, and establishing adequate commercial infrastructure. Failure in these areas, or inadequate coverage and reimbursement from third-party payors, could severely impact revenue and business operations. Compliance with government pricing programs also presents ongoing risks - The company operates in a highly competitive and rapidly changing industry, facing intense competition for its approved products and product candidates[7](index=7&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk) - If Ohtuvayre does not gain sufficient market acceptance, the company may not generate significant product revenues or profits[7](index=7&type=chunk)[309](index=309&type=chunk) - Forecasting potential sales for Ohtuvayre is difficult, and inaccurate projections could harm the business and adversely affect the share price[7](index=7&type=chunk)[288](index=288&type=chunk)[291](index=291&type=chunk) - Successful commercialization depends on government authorities and health insurers establishing adequate coverage, reimbursement levels, and pricing policies for Ohtuvayre[292](index=292&type=chunk)[293](index=293&type=chunk) - The company's commercial capabilities and infrastructure (sales, marketing, distribution, reimbursement) may not be adequate to successfully commercialize Ohtuvayre, requiring significant investment and posing risks[7](index=7&type=chunk)[313](index=313&type=chunk)[318](index=318&type=chunk) - Failure to comply with reporting and payment obligations under government pricing programs (e.g., Medicaid Drug Rebate Program, 340B program, VA/FSS program) could result in additional reimbursement requirements, penalties, and fines[301](index=301&type=chunk)[303](index=303&type=chunk)[305](index=305&type=chunk) [Risks Related to Our Dependence on Third Parties](index=64&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) The company heavily relies on third parties, including independent clinical investigators, CROs, and contract manufacturing organizations (CMOs), for its pre-clinical studies, clinical trials, and commercial supply chain. Failures by these third parties to perform contractual duties, comply with regulations, or resolve disputes (such as with Nuance Pharma) could significantly delay development, commercialization, and adversely affect the business. Additionally, the absence of new strategic relationships, if the Merck transaction is not completed, could hinder future prospects - Reliance on third parties (clinical investigators, CROs) to conduct pre-clinical studies and clinical trials; failure to perform or meet deadlines could substantially harm regulatory approvals and business[7](index=7&type=chunk)[323](index=323&type=chunk)[325](index=325&type=chunk) - The ongoing dispute with Nuance Pharma regarding the license buy-back option may result in costly litigation or arbitration, diverting management's attention and resources[7](index=7&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk)[334](index=334&type=chunk) - If the Merck transaction is not completed, failure to enter into new strategic relationships for ensifentrine could adversely affect the company's business, research and development, and commercialization prospects[8](index=8&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk) - Dependence on third-party manufacturers and suppliers for ensifentrine API and formulated products; failures in manufacturing, quality, or timely supply could impair research and development programs and commercialization[8](index=8&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) [Risks Related to Intellectual Property](index=68&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's commercial success relies on obtaining, maintaining, and enforcing patents and other intellectual property rights, which is a challenging and costly endeavor. Risks include the failure to secure adequate patent protection, potential infringement claims by third parties, challenges to inventorship, and the impact of evolving patent laws and jurisprudence. Failure to comply with license obligations or protect trade secrets could also severely impair the company's competitive position - Reliance on patents and other intellectual property rights to protect products and product candidates; enforcement, defense, and maintenance may be challenging and costly[8](index=8&type=chunk)[345](index=345&type=chunk) - Risk of not identifying relevant third-party patents or incorrectly interpreting their scope or expiration, which could adversely affect the ability to develop, manufacture, and market products[8](index=8&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - Involvement in lawsuits to protect or enforce patents could be expensive, time-consuming, and unsuccessful, potentially leading to patents being found invalid or unenforceable[8](index=8&type=chunk)[351](index=351&type=chunk)[355](index=355&type=chunk) - Failure to obtain or maintain patent term extensions (e.g., under Hatch-Waxman Amendments) for Ohtuvayre could impair the ability to compete effectively[366](index=366&type=chunk)[367](index=367&type=chunk) - Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information[383](index=383&type=chunk)[384](index=384&type=chunk) - Changes in patent laws or jurisprudence (e.g., AIA, UPC) could diminish the value of patents and impair the ability to protect products[376](index=376&type=chunk)[382](index=382&type=chunk) [Risks Related to Information Technology](index=76&type=section&id=Risks%20Related%20to%20Information%20Technology) The company's information technology systems, and those of its manufacturers, suppliers, and other third parties, are vulnerable to failures and security breaches, including cyberattacks and human error. Such incidents could disrupt operations, cause delays in research and development and commercialization activities, lead to legal claims, regulatory penalties, and damage the company's reputation and financial performance - Information technology systems, and those of third parties, are vulnerable to damage, attack, or interruption from various sources, including computer viruses, malware, hacking, and human error[8](index=8&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk) - Security breaches could compromise confidential information, resulting in legal claims, regulatory penalties, operational disruption, and damage to reputation, delaying clinical development and commercialization[8](index=8&type=chunk)[392](index=392&type=chunk) - There is no assurance that cybersecurity risk management programs will be fully implemented, complied with, or effective in protecting systems and confidential information[391](index=391&type=chunk) [Risks Related to Employee Matters and Managing Growth](index=77&type=section&id=Risks%20Related%20to%20Employee%20Matters%20and%20Managing%20Growth) The company's future growth and ability to compete are highly dependent on its capacity to retain key personnel and recruit additional qualified staff in a competitive biopharmaceutical market. Managing significant growth in employee numbers and operational scope, particularly in commercial areas, presents challenges that could disrupt business plans and hinder the achievement of commercialization and development objectives - Success depends on retaining key management, scientific, and technical personnel; loss of key personnel could impact commercialization efforts and research and development activities[8](index=8&type=chunk)[393](index=393&type=chunk) - The company faces intense competition for qualified personnel in the biopharmaceutical field[393](index=393&type=chunk) - Expanding development, regulatory, commercial, sales, marketing, reimbursement, and distribution capabilities presents difficulties in managing growth, which could disrupt operations and delay business plans[8](index=8&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) [Risks Related to Our ADSs](index=78&type=section&id=Risks%20Related%20to%20Our%20ADSs) The price of the company's American Depositary Shares (ADSs) may be volatile due to various market and industry factors, including the Merck transaction and company performance. Shareholders may have limited control, may not receive cash dividends in the foreseeable future, and may face limitations on ADS transfers or enforceability of U.S. civil liabilities due to the company's incorporation under English law. Additionally, failure to maintain effective internal controls could harm the business and ADS trading price - The market price of the company's ADSs may be volatile and fluctuate significantly due to factors beyond its control, including the Merck transaction, competitor developments, and general market conditions[8](index=8&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk) - Future sales, or the possibility of future sales, of a substantial number of ADSs or ordinary shares could adversely affect the price of the ADSs[8](index=8&type=chunk)[426](index=426&type=chunk) - The company does not anticipate paying any cash dividends on its ADSs or ordinary shares in the foreseeable future; capital appreciation will be the sole source of gains[397](index=397&type=chunk) - Holders of ADSs may not have the same voting rights as ordinary shareholders and may not receive distributions if it is illegal or impractical[398](index=398&type=chunk)[399](index=399&type=chunk) - Claims of U.S. civil liabilities may not be enforceable against the company due to its incorporation under English law and non-U.S. based directors[403](index=403&type=chunk)[404](index=404&type=chunk) - Failure to maintain an effective system of internal control over financial reporting could adversely affect financial reporting accuracy and the trading price of ADSs[406](index=406&type=chunk) [Risks Related to Taxation](index=79&type=section&id=Risks%20Related%20to%20Taxation) Changes in tax rates, the unavailability of certain tax credits (such as the UK SME R&D Relief), or audits by tax authorities could adversely affect the company's profitability. The company's Passive Foreign Investment Company (PFIC) status is uncertain, and if classified as such, U.S. Holders could face adverse U.S. federal income tax consequences. Similarly, U.S. Holders owning a significant percentage of shares could be subject to adverse tax consequences related to Controlled Foreign Corporations (CFCs) - Changes in tax rates, unavailability of certain tax credits or reliefs (e.g., changes to UK SME R&D Relief), or exposure to additional tax liabilities could affect profitability[7](index=7&type=chunk)[408](index=408&type=chunk)[414](index=414&type=chunk) - The recently enacted "One Big Beautiful Bill Act" (OBBBA) modifies key U.S. business tax provisions, with potential, though currently not material, impact on the company[253](index=253&type=chunk)[409](index=409&type=chunk) - If classified as a Passive Foreign Investment Company (PFIC) for any taxable year, U.S. Holders could face adverse U.S. federal income tax consequences[8](index=8&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk) - U.S. Holders owning at least **10%** of ordinary shares or ADSs may be subject to adverse U.S. federal income tax consequences related to Controlled Foreign Corporations (CFCs)[8](index=8&type=chunk)[421](index=421&type=chunk) [General Risks](index=82&type=section&id=General%20Risks) The price of the company's ADSs is subject to high volatility due to various market and industry factors. Future sales of a substantial number of ADSs could negatively impact the price. Unstable market and economic conditions, as well as inaccurate or unfavorable research from securities analysts, also pose risks. Operating as a U.S. public company incurs increased costs and demands significant management time for compliance, and business interruptions could adversely affect operations - The price of the company's ADSs may be volatile and fluctuate due to factors beyond its control, including public concern, competitor developments, regulatory changes, and financial performance[8](index=8&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk) - Future sales, or the possibility of future sales, of a substantial number of ADSs or ordinary shares could adversely affect the price of the ADSs[8](index=8&type=chunk)[426](index=426&type=chunk) - Unstable market and economic conditions (e.g., extreme volatility, inflation, recession) may have serious adverse consequences on the business and financial condition, and the price of ADSs[8](index=8&type=chunk)[427](index=427&type=chunk) - Inaccurate or unfavorable research published by securities or industry analysts could cause the price of ADSs and trading volume to decline[8](index=8&type=chunk)[428](index=428&type=chunk) - The company incurs and expects to continue incurring increased costs as a U.S. public company, requiring substantial senior management time for compliance initiatives and corporate governance practices (e.g., Sarbanes-Oxley Act Section 404)[8](index=8&type=chunk)[429](index=429&type=chunk)[431](index=431&type=chunk) - Business interruptions from fire, severe weather, power loss, public health crises, or other disasters could adversely affect operations and financial condition[8](index=8&type=chunk)[433](index=433&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report during the period - None[434](index=434&type=chunk) [Item 3. Defaults Upon Senior Securities](index=84&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report during the period - None[435](index=435&type=chunk) [Item 4. Mine Safety Disclosure](index=84&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company - Not applicable[436](index=436&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) This section includes information regarding Rule 10b5-1 trading plans [Rule 10b5-1 Trading Plans](index=84&type=section&id=Rule%2010b5-1%20Trading%20Plans) Officers and directors may enter into Rule 10b5-1 or non-Rule 10b5-1 trading plans to satisfy the affirmative defense in Rule 10b5-1(c). Actions taken by officers and directors with respect to these plans during the three months ended June 30, 2025, are noted - Officers and directors may enter into Rule 10b5-1 or non-Rule 10b5-1 trading plans[437](index=437&type=chunk) - Actions taken by officers and directors with respect to 10b5-1 trading plans during the three months ended June 30, 2025, are noted[437](index=437&type=chunk) [Item 6. Exhibits](index=85&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the Transaction Agreement with Merck, the Voting Agreement, and various certifications - Key exhibits include the Transaction Agreement (2.1), Voting Agreement (10.1), First Amendment to Collaboration and License Agreement (10.2), and Rule 13a-14(a)/15d-14(a) Certifications (31.1, 31.2)[438](index=438&type=chunk) [Signatures](index=86&type=section&id=Signatures) The report is duly signed on behalf of Verona Pharma plc by its President and Chief Executive Officer, David Zaccardelli, and Chief Financial Officer, Mark W. Hahn, on August 6, 2025 - The report was signed by David Zaccardelli, President and Chief Executive Officer, and Mark W. Hahn, Chief Financial Officer, on August 6, 2025[442](index=442&type=chunk)

Core Insights - The U.S. stock market is anticipated to remain volatile due to stalled trade talks with China and uncertainty surrounding the Federal Reserve's interest rate decision, prompting a focus on low-beta stocks as a strategic investment approach [1][2] Group 1: Market Conditions - The U.S. stock market is expected to experience volatility as trade discussions with China have stalled, leading to investor uncertainty [1] - Investors are apprehensive ahead of the Federal Reserve's interest rate decision, which may negatively affect borrowing costs and business growth [1] Group 2: Investment Strategy - Creating a curated portfolio of low-beta stocks is recommended as a prudent strategy to navigate market volatility [1][2] - Stocks such as Vipshop Holdings Limited (VIPS), GDS Holdings Limited (GDS), Futu Holdings Limited (FUTU), and Verona Pharma plc (VRNA) are highlighted as potential investment opportunities [2][9] Group 3: Stock Characteristics - Beta measures the volatility of a stock relative to the market, with a beta of less than 1 indicating lower volatility compared to the market [3][4] - A screening criterion for low-beta stocks includes a beta between 0 and 0.6, ensuring less volatility [5][6] Group 4: Company Highlights - **Vipshop Holdings**: Utilizes a strategy called "Made for Vipshop," offering exclusive products from over 200 brands, which are in high demand [7] - **GDS Holdings**: Recently secured a 152 MW AI data center order and plans to expand its 900 MW capacity in key markets, indicating strong demand [9][10] - **Futu Holdings**: A tech-driven company enhancing its platform with Futubull AI, a smart assistant for investment-related queries [11] - **Verona Pharma**: Its drug Ohtuvayre is a novel COPD treatment, combining bronchodilation and anti-inflammatory effects, marking a significant advancement in therapy [12]

Core Insights - The U.S. stock market is anticipated to remain volatile due to rising inflation pressures from new tariffs and uncertainty surrounding corporate earnings [2] - A curated portfolio of low-beta stocks is recommended as a strategy to navigate this volatility [2][3] Stock Analysis - **Vipshop Holdings Limited (VIPS)**: The company utilizes the "Made for Vipshop" program, offering exclusive products from over 200 brands, which drives customer loyalty and demand [8][10] - **Alkami Technology Inc (ALKT)**: The firm is experiencing increased demand from banks and credit unions, particularly due to its acquisition of MANTL, which simplifies account opening processes [11][10] - **Futu Holdings Limited (FUTU)**: As a tech-driven company, Futu is enhancing its online investment platform, recently introducing Futubull AI, a smart assistant for investment inquiries [12][10] - **Verona Pharma plc (VRNA)**: The company's drug Ohtuvayre is a significant advancement in COPD treatment, being the first inhaled therapy with a new mechanism in over two decades, providing dual benefits of bronchodilation and anti-inflammatory effects [13][10] Screening Criteria - Stocks with a beta between 0 and 0.6 are prioritized for lower volatility compared to the market [6] - Additional criteria include positive price movement over the last month, average trading volume greater than 50,000, a minimum price of $5, and a Zacks Rank of 1 indicating strong buy potential [7]

Core Viewpoint - Momentum investing focuses on following a stock's recent price trends, with the aim of buying high and selling higher, capitalizing on established price movements [1] Company Overview: Verona Pharma PLC (VRNA) - VRNA currently holds a Momentum Style Score of B, indicating a positive momentum outlook [2] - The stock has a Zacks Rank of 1 (Strong Buy), suggesting strong potential for outperformance in the market [3] Performance Metrics - Over the past week, VRNA shares have increased by 14.53%, significantly outperforming the Zacks Medical - Biomedical and Genetics industry, which rose by 2.16% [5] - In a longer timeframe, VRNA shares have gained 74.25% over the past quarter and 386.84% over the last year, while the S&P 500 has only increased by 16.27% and 12.91%, respectively [6] Trading Volume - The average 20-day trading volume for VRNA is 6,108,280 shares, indicating strong interest and a bullish sentiment in the stock [7] Earnings Outlook - In the last two months, three earnings estimates for VRNA have been revised upwards, with the consensus estimate increasing from $0.16 to $0.22 [9] - For the next fiscal year, two estimates have also moved higher, with no downward revisions noted [9] Conclusion - Given the strong performance metrics and positive earnings outlook, VRNA is positioned as a promising investment opportunity with a Momentum Score of B and a Zacks Rank of 1 (Strong Buy) [11]

Core Insights - Monteverde & Associates PC is investigating Verona Pharma plc regarding its sale to Merck Sharp & Dohme LLC for $107.00 per American Depository Share, questioning the fairness of the deal [1] Group 1: Company Overview - Monteverde & Associates PC is recognized as a Top 50 Firm in the 2024 ISS Securities Class Action Services Report and has recovered millions for shareholders [1] - The firm is located in the Empire State Building, New York City, and specializes in class action securities litigation [2] Group 2: Legal Services - The firm offers free consultations for shareholders concerned about the sale of Verona Pharma plc [1][3] - Contact information for Juan Monteverde, Esq. is provided for shareholders seeking additional information [3]

Core Viewpoint - The acquisition of Verona Pharma by Merck for $10 billion highlights the significant value in the respiratory field, while Health元 has already established a comprehensive strategic layout that surpasses Verona in several key innovative directions [1][15][17]. Group 1: COPD Market Insights - COPD, known as the "silent killer," ranks among the top three causes of death globally [2]. - The disease is characterized by its slow progression and limited treatment options, leading to persistent symptoms in nearly half of the patients [3][5]. - Traditional treatments have not effectively controlled symptoms, necessitating a shift in focus towards chronic local inflammation rather than solely bronchial dilation [6][4]. Group 2: Health元's Strategic Innovations - Health元 is pursuing three innovative solutions for COPD: 1. An inhaled PDE4 inhibitor, aligning with Verona's approach to enhance safety and anti-inflammatory effects [7]. 2. A globally unique oral PREP inhibitor, which is currently in Phase II clinical trials [9][10]. 3. A new generation of inhaled corticosteroids (ICS) that optimizes structure and delivery to address traditional issues of efficacy and side effects [11][12]. - This multi-faceted strategy positions Health元 as a leader in the COPD innovation matrix, combining global uniqueness, cutting-edge mechanisms, and deep innovation in traditional areas [13][14]. Group 3: Market Positioning and Future Outlook - Health元's strategic foresight in recognizing the respiratory market as a future growth area has led to a robust pipeline of 12 drugs targeting various pathways, including TSLP, IL-4, PREP, PDE4, and β inhibitors [14]. - The recent acquisition by Merck signals a clear market trend towards respiratory innovation, particularly products that combine PDE mechanisms, inhalation delivery, and anti-inflammatory capabilities [15]. - Health元's proactive approach has transitioned it from a follower to a leader in the respiratory sector, positioning it well for future opportunities [16][17].

Investment Rating - The report rates the pharmaceutical industry as "Overweight," indicating a positive outlook for the sector compared to the overall market performance [2][30]. Core Insights - The pharmaceutical sector saw a weekly increase of 1.8%, outperforming the Shanghai Composite Index, which rose by 1.1% [3][4]. - The National Healthcare Security Administration officially launched the 2025 medical insurance catalog adjustment, introducing a commercial health insurance innovative drug catalog for the first time, focusing on high-innovation and clinically valuable drugs [10]. - China has imposed restrictions on the procurement of medical devices from the EU, affecting government purchases exceeding 45 million RMB [10]. - Merck announced a $10 billion acquisition of Verona Pharma, focusing on a new COPD drug, marking a significant transaction in the pharmaceutical sector [11]. Market Performance - The pharmaceutical and biotechnology index increased by 1.8%, ranking 16th among 31 sub-industries [3][4]. - The overall valuation of the pharmaceutical sector stands at 30.2 times PE for 2025E, ranking 6th among 31 primary industries [4][9]. Key Events - The adjustment of the medical insurance catalog officially commenced on July 10, 2025, with a submission period for eligible entities from July 11 to 20 [10]. - The Chinese government has taken measures to restrict the procurement of certain medical devices from the EU, impacting the competitive landscape [10]. - Merck's acquisition of Verona Pharma is a notable event, emphasizing the trend of large-scale business development transactions in the innovative drug sector [11]. Investment Analysis - The innovative drug sector has shown rapid growth in product revenue and licensing deals over the past three years, with significant business development transactions occurring this year [11]. - Companies to watch include Heng Rui Medicine, Bei Da Medicine, and WuXi AppTec, which are expected to benefit from the upcoming changes in the medical insurance catalog and the overall growth in the innovative drug market [11].

Core Insights - Merck (MRK) has announced a definitive agreement to acquire Verona Pharma (VRNA) for approximately $10 billion, which will enhance its cardio-pulmonary pipeline with the addition of Ohtuvayre, a drug approved for the maintenance treatment of chronic obstructive pulmonary disease (COPD) [1][10] - Ohtuvayre's unique dual inhibition of PDE3 and PDE4 distinguishes it from existing COPD treatments, combining bronchodilation and anti-inflammatory effects in a single inhaled therapy [2][10] - The acquisition is part of Merck's strategy to diversify its business as it faces the upcoming patent loss of its blockbuster drug Keytruda, which currently accounts for around 50% of the company's pharmaceutical sales [3][4][12] Merck's Product Portfolio and Pipeline - Keytruda remains Merck's biggest strength, driving steady revenue growth, particularly in early-stage non-small cell lung cancer [4][5] - Merck is exploring innovative combinations and developing a subcutaneous formulation of Keytruda to extend its patent life, with an FDA decision expected in September [6][7] - The company's phase III pipeline has nearly tripled since 2021, positioning it to launch around 20 new vaccines and drugs, including the promising Capvaxive and Winrevair [8][9] Challenges and Market Dynamics - Merck's reliance on Keytruda raises concerns about its ability to grow its non-oncology business ahead of the drug's loss of exclusivity in 2028 [12] - Competitive pressure is increasing, with potential challengers like Summit Therapeutics' ivonescimab showing promising results in clinical studies [13] - Sales of Gardasil, Merck's second-largest product, are declining in China due to weak demand, leading to a temporary halt in shipments [14][15] Financial Performance and Valuation - Merck's shares have underperformed the industry and the S&P 500, losing 14.0% so far this year [16][17] - The company's price/earnings ratio is currently at 8.99, lower than the industry average of 15.16, indicating potential attractiveness from a valuation standpoint [19] - EPS estimates for 2025 and 2026 have declined over the past 60 days, reflecting analysts' pessimistic outlook [22][24] Future Outlook - Despite current challenges, Merck's strong fundamentals and promising pipeline, along with the potential revenue from new products, suggest that long-term investors may find value in the stock [25][27] - The acquisition of Verona Pharma is expected to help fill the revenue gap created by Keytruda's upcoming loss of exclusivity, with Ohtuvayre already showing strong sales growth [26]

Market Overview - The pharmaceutical sector experienced a significant surge on July 10, with stocks such as Seer Medical, Lianhuan Pharmaceutical, and Kangchen Pharmaceutical hitting the daily limit [1] - Seer Medical recorded a price of 25.61 with a rise of 10.01%, Lianhuan Pharmaceutical reached 13.62 with a 10.02% increase, and Kangchen Pharmaceutical was at 40.68 with a 10.01% gain [2] Key Events - Merck, a major U.S. pharmaceutical company, announced its intention to acquire UK-based Verona Pharma for approximately $10 billion to enhance its product line for chronic obstructive pulmonary disease (COPD) [3] - Former President Trump threatened to impose a 200% tariff on pharmaceuticals, although this may not take effect immediately, allowing pharmaceutical companies a one-year buffer [3] - The National Healthcare Security Administration and the National Health Commission released measures to support the high-quality development of innovative drugs, including 16 initiatives to enhance support for R&D and encourage clinical application [3] Institutional Insights - The trend of Chinese innovative drugs entering international markets is expected to grow over the next 3-5 years, driven by improved innovation capabilities and profitability of Chinese pharmaceutical companies, which will enhance industry valuation levels [4] - The upstream raw material drug sector has seen a valuation adjustment, now positioned at relatively low levels, with the commercialization of GLP-1 products expected to drive growth in upstream peptide raw materials [4] - As the mid-year reporting period approaches, performance metrics will become a focal point for the market, with expectations for continued improvement in innovative drugs and their supply chains [4]

Group 1 - Verona Pharma (VRNA) has entered into a definitive agreement with Merck (MRK) for the acquisition of all outstanding shares at $107 per American depositary share, valuing the deal at approximately $10 billion [1][7] - The acquisition will allow Merck to add Ohtuvayre, Verona's first marketed drug for chronic obstructive pulmonary disease (COPD), which is the first inhaled therapy with a new mechanism of action for COPD in over 20 years [2][8] - The deal is expected to close in the fourth quarter and has been unanimously approved by the boards of both companies [3] Group 2 - Following the announcement, shares of Verona surged by 20% in pre-market trading, with a year-to-date increase of 87%, contrasting with a 3% decline in the industry [4] - Merck's motivation for the acquisition is to diversify its revenue base, which is heavily reliant on Keytruda, accounting for nearly 46% of its total revenues in 2024 [6] - This acquisition marks Merck's largest since its $10.8 billion purchase of Prometheus Bioscience in 2023, strengthening its position in the respiratory disease market [8] Group 3 - Merck has been actively pursuing licensing deals with Chinese biotechs, including multi-billion-dollar agreements with Hansoh Pharma, LaNova Medicines, and Hengrui Pharma [9] - Recent M&A activity in the pharmaceutical sector indicates a trend where major companies are seeking strategic assets in key growth areas despite broader macroeconomic challenges [10] - Other notable transactions include Sanofi's $9.5 billion acquisition of Blueprint Medicines and Eli Lilly's intent to acquire Verve Therapeutics for up to $1.3 billion, highlighting the ongoing interest in small biotechs with innovative assets [11][12]