Verona Pharma(US:VRNA)2024-05-10 13:09PART I Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2024 are presented, showing a net loss of $25.8 million and $254.9 million in cash, alongside a significant post-quarter $400 million financing event Condensed Consolidated Balance Sheets The balance sheets as of March 31, 2024, show total assets at $289.9 million, a decrease from $308.1 million, and total liabilities increasing to $64.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $254,882 | $271,772 | | Total current assets | $271,840 | $289,708 | | Total assets | $289,912 | $308,124 | | Liabilities & Equity | | | | Total current liabilities | $14,774 | $8,692 | | Term loan | $48,546 | $48,374 | | Total liabilities | $64,924 | $58,841 | | Total shareholders' equity | $224,988 | $249,283 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended March 31, 2024, the company reported a net loss of $25.8 million, an increase from $16.7 million in the prior year, driven by higher SG&A expenses Condensed Consolidated Statements of Operations (in thousands) | Account | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Research and development | $6,764 | $12,610 | | Selling, general and administrative | $20,434 | $9,589 | | Total operating expenses | $27,198 | $22,199 | | Operating loss | ($27,198) | ($22,199) | | Total other income/(expense), net | $2,158 | $5,629 | | Net loss | ($25,794) | ($16,743) | | Loss per ordinary share | ($0.04) | ($0.03) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for Q1 2024 increased to $13.6 million from $5.8 million, with the company ending the quarter with $254.9 million in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | Account | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($13,610) | ($5,782) | | Net cash used in investing activities | ($16) | $0 | | Net cash (used in)/provided by financing activities | ($3,123) | $68,685 | | Net change in cash and cash equivalents | ($16,890) | $63,588 | | Cash and cash equivalents at end of the period | $254,882 | $291,415 | Notes to Condensed Consolidated Financial Statements Key notes include the FDA's acceptance of the ensifentrine NDA with a PDUFA date of June 26, 2024, an accumulated deficit of $414.4 million, and a significant $400 million post-quarter financing event - The FDA accepted the company's New Drug Application (NDA) for ensifentrine for the maintenance treatment of COPD and assigned a PDUFA target action date of June 26, 202423 - The company has an accumulated deficit of $414.4 million as of March 31, 2024, but expects its cash and cash equivalents to be sufficient to fund operations for at least the next 12 months2425 - Subsequent to the quarter's end, on May 9, 2024, the company entered into a new term loan facility of up to $400.0 million and a revenue interest purchase and sale agreement (RIPSA), using part of the proceeds to repay its existing 2023 term loan in full485556 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the development and commercialization of ensifentrine, highlighting increased SG&A costs for launch preparations, decreased R&D, and sufficient liquidity through at least 2026 Overview Verona Pharma focuses on ensifentrine for COPD, with an FDA PDUFA date of June 26, 2024, anticipating increased expenses for commercial launch and further clinical development - The company's product candidate, ensifentrine, has a PDUFA target action date of June 26, 2024, for the maintenance treatment of COPD65 - The company anticipates significant future expenses related to establishing a sales and marketing infrastructure, scaling up manufacturing, and continuing clinical development of ensifentrine for other formulations and indications69 - With cash on hand and new financing agreements, the company believes it can fund operations through at least the end of 2026, including the planned commercial launch of ensifentrine if approved71 Clinical Development Update The section summarizes positive Phase 3 ENHANCE program results for ensifentrine and outlines plans for Phase 2 trials for a fixed-dose combination and NCFBE in H2 2024 Top-line Results from ENHANCE Program vs Placebo | Top-line Measurement | ENHANCE-1 | ENHANCE-2 | | :--- | :--- | :--- | | Average FEV, AUC (0-12 hours) | +87 mL (p<0.0001) | +94 mL (p<0.0001) | | Exacerbation rate | 36% reduction (p=0.0503) | 43% reduction (p=0.0090) | | Pooled exacerbation rate | 40% reduction (p=0.0012) | N/A | - The company plans to submit an IND and initiate a Phase 2 clinical trial for a fixed-dose combination of ensifentrine and glycopyrrolate (a LAMA) in the second half of 20247980 - A Phase 2 clinical trial to assess nebulized ensifentrine in patients with non-cystic fibrosis bronchiectasis (NCFBE) is planned to commence in the second half of 202482 Results of Operations The company's net loss increased to $25.8 million in Q1 2024, driven by a $10.8 million rise in SG&A costs, partially offset by a $5.8 million decrease in R&D expenses Comparison of Results of Operations (in thousands) | Account | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Research and development | $6,764 | $12,610 | | Selling, general and administrative | $20,434 | $9,589 | | Operating loss | ($27,198) | ($22,199) | | Net loss | ($25,794) | ($16,743) | - The $5.8 million decrease in R&D costs was primarily due to the completion of the Phase 3 ENHANCE program in 202395 - The $10.8 million increase in SG&A costs was driven by a $4.6 million increase in marketing and pre-commercial activities and a $4.1 million increase in people-related costs in preparation for a potential commercial launch96 Liquidity and Capital Resources The company has an accumulated deficit of $414.4 million but believes its current cash and new financing will fund operations through at least the end of 2026 - The company has an accumulated deficit of $414.4 million as of March 31, 2024, and has never generated revenue from product sales102103 - Management believes current cash and available funding from the 2024 Term Loan and RIPSA will fund planned operating expenses through at least the end of 2026105 - The company may require additional capital for further clinical development of ensifentrine in other formulations or indications, or to in-license other product candidates106 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign exchange risks, but management does not anticipate a material impact on its financial condition or results of operations from sudden changes - The company has exposure to interest rate risk on its $254.9 million of cash and cash equivalents and its floating-rate loan, but does not consider the potential impact to be material112113 - Foreign exchange risk is present due to holdings and payables in foreign currencies (primarily pound sterling), but is not considered material114 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024116 - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2024117 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently subject to any material legal proceedings118 Item 1A. Risk Factors This section details significant risks, including complete dependence on ensifentrine, history of losses, funding needs, regulatory uncertainties, reliance on third parties, intense competition, and intellectual property challenges Risks Related to Our Business and Industry The company faces substantial business risks due to its limited operating history, accumulated deficit of $414.4 million, complete dependence on ensifentrine, and restrictive debt covenants - The company has a limited operating history, has never generated product revenue, and had an accumulated deficit of $414.4 million as of March 31, 2024120 - The company's success is entirely dependent on ensifentrine, its only product candidate, which has not yet received regulatory approval131 - The company's credit facility and revenue interest purchase and sale agreement (RIPSA) impose restrictive covenants and financial obligations that could adversely affect business operations137141 Risks Related to Development, Clinical Testing and Regulatory Approval This section highlights inherent risks in drug development, including lengthy, expensive, and uncertain clinical trials, potential for ensifentrine to not be safe or effective, and the impact of undesirable side effects - Clinical drug development is a long, expensive, and uncertain process, and there is no guarantee of a successful outcome for ensifentrine146 - The regulatory approval process is unpredictable, and the FDA or other authorities may not approve ensifentrine even with positive clinical trial data, or may require additional, costly post-marketing studies171173174 - Serious or undesirable side effects discovered during development or after approval could lead to delays, denial of approval, a more restrictive label, or market withdrawal161 Risks Related to Commercialization The company faces significant commercialization risks, including intense competition, uncertainty in securing adequate reimbursement, challenges in market acceptance, and the need to build its own commercial infrastructure - The company operates in a highly competitive industry and will face intense competition from large pharmaceutical companies with greater resources225226 - The ability to generate revenue depends on obtaining adequate coverage and reimbursement from payors like Medicare, which is a significant uncertainty228 - The company is currently building its commercial capabilities and any failure or delay in developing its sales, marketing, and distribution infrastructure would adversely impact the commercialization of ensifentrine240 Risks Related to Intellectual Property The company's commercial success relies on intellectual property, facing risks from expired composition of matter patents, potential challenges to remaining patents, and costly litigation for infringement claims - The issued patents covering the composition of matter for ensifentrine expired in 2020. The company's protection now relies on other patents expiring between 2031 and 2044284 - The company may be involved in expensive and time-consuming lawsuits to enforce its patents or defend against claims that it is infringing on the intellectual property rights of others267271 - Changes in patent law, such as the America Invents Act (AIA) in the U.S. and the new Unified Patent Court (UPC) in Europe, could diminish the value of patents and impair the company's ability to protect its products292298 Risks Related to Taxation The company faces tax risks from potential adverse changes to the U.K.'s R&D tax relief regime and its status as a Passive Foreign Investment Company (PFIC) for 2023 - The company benefits from the U.K.'s SME R&D tax relief program, but proposed changes to this regime could have a material adverse effect on its financial position327331333 - The company believes it was a Passive Foreign Investment Company (PFIC) for its 2023 taxable year, which could result in adverse U.S. federal income tax consequences for U.S. holders of its shares or ADSs334 Item 5. Other Information This section discloses that the CEO and CFO terminated prior Rule 10b5-1 trading plans and adopted new ones during Q1 2024 Rule 10b5-1 Trading Plan Activity in Q1 2024 | Name and Title | Action | Date | Aggregate ADSs to be Sold | | :--- | :--- | :--- | :--- | | David Zaccardelli, CEO | Terminate | March 6, 2024 | 700,000 | | David Zaccardelli, CEO | Adopt | March 8, 2024 | 900,000 | | Mark Hahn, CFO | Terminate | March 5, 2024 | 700,000 | | Mark Hahn, CFO | Adopt | March 6, 2024 | 900,000 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including key agreements dated May 9, 2024, and officer certifications