Welcome to Verona Pharma Full Year 2019 Financial Results and Operating Highlights Conference Call. All lines have been placed on mute to prevent any background noise. Following the speakers’ remarks, there will a question-and-answer session.

Before we begin, I would like to remind you that during today's call statements about the company's future expectations, plans and prospects constitutes forward-looking statements. These forward-looking statements are based on management's current expectations.

These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from our expectations, expressed or implied by the forward-looking statements.

Any such forward-looking statements represent management's estimate as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligations to do so even if subsequent events cause its views to change. As a reminder this call is being recorded.

I would now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer..

Thank you, operator. And welcome to everyone on today's call. I'm joined today by Mark Hahn, Chief Financial Officer; and Dr. Kathy Rickard, the Chief Medical Officer of Verona. Mark and I are delighted to join Verona Pharma at this exciting time in the Company's development.

We believe this is a fantastic opportunity and ensifentrine with its novel mode of action is truly differentiated from other COPD therapies on the market or in development.

With both bronchodilator and anti-inflammatory properties in a single molecule ensifentrine has the potential to become an important therapeutic for millions of patients suffering from respiratory disease. In addition to the potential of ensifentrine, we were attracted to the opportunity by the strength and experience of the Verona Pharma team.

Our highly accomplished clinical team has been involved in the development of many leading respiratory therapies and will be instrumental in advancing ensifentrine through its Phase 3 program.

As an area of drug development, chronic respiratory disease has not benefited from significant innovation in many years, despite the large market size and unmet medical need for patients. Chronic obstructive pulmonary disease, COPD, is predicted to become the third leading cause of death worldwide by 2030 according to the World Health Organization.

COPD affects over 380 million people globally. Yet new treatment options are limited, particularly for those more severe population. In the U.S. alone, more than 1.2 million COPD patients remain symptomatic, despite receiving maximum therapeutic treatment.

The evidence backing ensifentrine's efficacy and safety as a treatment for COPD is substantial with 15 clinical studies conducted to-date in over 1,300 individuals. Earlier this month, we announced results from a Phase 2b clinical trial with nebulized ensifentrine were published in the medical journal Respiratory Research.

Highlights of this 405 patient trial include significant improvements in bronchodilation, as well as symptoms of COPD -- in COPD patients receiving nebulized ensifentrine therapy at all doses compared to placebo. In addition, as many of you know in January we announced results from our second Phase 2b dose ranging trial.

In this trial, 416 patients with moderate-to-severe COPD were randomized to receive either nebulized ensifentrine, plus a leading long-acting antimuscarinic agent tiotropium or placebo plus tiotropium.

As we reported previously, ensifentrine added to a stable regimen of tiotropium produced statistically significant and clinically meaningful improvements in lung function at all four doses tested compared to the placebo arm. Dose-dependent improvements in lung function were observed for both peak FEV1 and average FEV1 over 12 hours.

The 3 milligram dose of ensifentrine showed an impressive 124 milliliter improvement in peak FEV1, when added to tiotropium. The safety and tolerability of the 3 milligram dose was similar compared to placebo and the other lower dose cohorts in the study.

Leading pulmonologists, including those on our advisory board have been impressed with the magnitude of lung function improvement on top of a standard of care therapy demonstrated by nebulized ensifentrine. Another important finding in this study is the progressive and clinically meaningful improvement seen in health-related quality of life.

The two higher doses of ensifentrine, 1.5 milligram and 3 milligram produced statistically significant improvements in COPD symptoms in just four weeks, as measured using the validated SGRQ measure.

Patients on these doses met the minimum clinically important difference or MCID in the trial, which is rarely seen with COPD treatments, especially in four weeks. We believe that achieving this result, when ensifentrine is added to tiotropium is highly differentiating.

We also announced positive Phase 2 results for our dry powder inhaler or DPI formulation in August of last year, reinforcing the clinical evidence behind ensifentrine, as well as the ability to deliver the compound in a convenient handheld device formulation.

In addition to ensifentrine's well documented ability to improve lung function, the safety and tolerability data are very favorable across our clinical study programs, supporting the potential for broad use of ensifentrine in COPD treatment, severe asthma, cystic fibrosis as well as other respiratory diseases.

We have a substantial pre-clinical CMC and clinical data package we plan to submit for our end of Phase 2 meeting with the FDA, which is planned for the second quarter of 2020.

As many of you know, my background in clinical drug development and the favorable clinical profile of ensifentrine, the large unmet medical need in COPD and well-validated regulatory pathway for COPD therapy gives me confidence that ensifentrine is an approvable compound after positive Phase 3 results and can play a major role in treating COPD patients.

I joined Verona Pharma from Dova Pharmaceuticals, where I served as President and CEO until its acquisition in 2019 by Swedish Orphan Biovitrum for up to $915 million. Mark and I worked closely at Dova, as Mark served as the CFO.

During his career, Mark has raised over $600 million in the pharmaceutical space and also led the IPO at Cempra Pharmaceuticals. Both Mark and I have significant operational experience in the U.S. and I am pleased that Mark has joined me at Verona for this exciting opportunity.

2020 is a transformational year for Verona Pharma and we'd like to share our key priorities for this year. First, we will meet with the FDA for an end-of-Phase 2 meeting and agree on the Phase 3 program which is expected in the second quarter as I mentioned.

Second, we will initiate our Phase 3 clinical trial program for ensifentrine which we anticipate in the third quarter of this year.

Third, we'll complete the Phase 2 clinical proof-of-concept study with ensifentrine in handheld pressurized metered-dose inhaler or MDI format with the single dose portion of the Phase 2 study reading out in the early part of the second quarter and the multi-dose portion of the study reading out in the second half of this year.

Fourth, we'll progress our pre-commercial work for ensifentrine including additional analysis on health plan acceptance and reimbursement for nebulized ensifentrine. And finally, we will ensure we have adequate capital to fund the Phase 3 program and our company operations.

Before I turn the call over to Mark, I'd like to take a moment to thank Jan-Anders, Piers, and the rest of the Verona team for their hard work and significant achievements advancing ensifentrine over the years and through the Phase 2 program. I'll now turn the call over to Mark to report our financial results for 2019..

Thank you, Dave and hello everyone. Before I review our financial results for 2019, I'd like to reiterate Dave's sentiments about Verona Pharma and share my enthusiasm about joining the company at this exciting stage.

Turning to the financial results, please refer to the press release that we issued this morning which is also filed as a 20-F with the SEC. Given that we are headquartered in the U.K. our financial results are reported in British pounds. For your convenience, we've also included a translation to U.S.

dollars based on the year-end December 31st exchange rate of £1 to $1.3269. Turning to the income statement for the year ended December 31, 2019, our operating loss for the 12 months was £41.1 million or $54.5 million compared to £25.6 million in 2018. The loss after-tax for 2019 was £31.9 million or $42.4 million compared to £19.9 million for 2018.

This represents a loss per share of £0.303 per diluted share or a loss of $3.22 per ADS for the year ended December 31, 2019, which compares to a loss of £0.189 per diluted share or a $1.92 per ADS for the prior year.

Research and development costs for the fiscal year ended December 31, 2019 were £33.5 million or $44.4 million, representing an increase of 74% compared to 2018. The cost of clinical trials increased by £12.7 million as there were four active trials in the year ended December 31, 2019 compared to two clinical trials in 2018.

The majority of clinical trial costs in 2019 related to the recently completed Phase 2b 4-week study known as a 205 study that Dave discussed. Personnel-related costs increased by £1.3 million in the year compared to the prior year.

General and administrative costs for the year ended December 31st, 2019 were £7.6 million or $10.1 million, an increase of 21% compared to 2018. This increase was primarily attributable to increases in market research and in personnel.

Finance income net of finance expense was £1.9 million or $2.4 million for the year ended December 31, 2019 compared to £1.5 million for the year ended December 31, 2018.

Finance income and expense are largely non-cash entries driven by foreign exchange differences on cash and short-term investments and the changes in the fair value of the warrant liability from year-to-year. Taxation for 2019 amounted to a credit of £7.3 million or $9.6 million compared to a tax credit of £4.2 million in 2018.

This was attributable to our increased research and development costs compared to the prior year, including a change in the mix of qualifying expenditures. Verona ended 2019 with £30.7 million, or $40.7 million in cash and short-term investments compared to £64.7 million at December 31, 2018.

While we expect that our existing cash and short-term investments will enable us to fund our current level of operations through 2020 as Dave mentioned earlier, we will need to raise additional capital to fund our Phase 3 clinical trial program for nebulized ensifentrine in the treatment of COPD. I'll now turn the call back over to Dave..

Thanks Mark. We believe that the upcoming development and regulatory milestones are important value creating activities directly supporting the commercial value of ensifentrine both in the nebulized formulation as well as our handheld inhaler formulations. I will now turn the call back to the operator to open up for questions and answers.

Question-and-Answer Session.

[Operator Instructions] And your first question comes from the line of Tom Shrader of BTIG..

This is Julian on for Tom. Thanks for taking my questions. First, I understand you're exploring the possibility of only one dose instead of two for Phase 3, just wondering if you have a sense at this time for the relative cost for pivotal development considering the possible outcomes here. Thanks..

Yes. Thank you so much for the question. I think that we understand that we may need to include two doses in the Phase 3 program, although we fully believe that one dose should be satisfactory based on the data that's generated to date. Clearly, we'll be covering this topic with the FDA in the upcoming in the Phase 2 meeting.

And of course, we have developed cost estimates on various scenarios depending on the Phase 3 program after the meeting. And I think we will definitely report back to everyone once we have clarity after the Phase 2 meeting on the actual Phase 3 clinical program, the cost and the timing..

Okay. Great. Thanks. That's helpful.

And then I understand these are distinct formulations but is there anything from the upcoming MDI readouts that could help inform pivotal development for nebulized ensifentrine or is it fair to say you already have everything you need at this time data-wise to arrive at a final plan for Phase 3?.

Yeah with regard to nebulized ensifentrine, we think we have adequate data to support the Phase 3 program as it stands. Of course, we look forward to the additional data on MDI and will hopefully fully support the continued development in that dosage form and further creates evidence of the effect and benefit of ensifentrine..

Great. Thanks for taking my questions..

And your next question comes from the line of Liana Moussatos of Wedbush..

Thank you for taking my question.

So for serious strategic discussions, do you need to wait for the multi-dose MDI data in the second half?.

Hi, good morning Liana. I guess with regard to -- if I understand your question, I think with regard to nebulized ensifentrine in our plan for Phase 3, we do not need to wait on the MDI data. Clearly we're interested in it as additional supporting information for our program overall, demonstrating its use in other formats in a handheld formulation.

But it doesn't impact our strategy with regard to Phase 3 program for nebulized ensifentrine..

What about commercial partnership?.

Yes, well I think again additional data is always supportive. You can imagine as we've progressed nebulized ensifentrine having also dosage forms and a DPI and an MDI are very attractive, we're very excited about that and making sure that we have that data for partnering conversations. As you know Mark and I just joined in the last month or so.

So we're actually getting our arms around all aspects of partnering and our best strategy for creating shareholder value and the best strategy for ensifentrine not only in the U.S. but globally..

Okay. Thank you very much..

And your next question comes from the line of Patrick Trucchio with Berenberg Capital Markets..

Hi, good morning. This is Iris on for Patrick. Thanks for taking our question. So regarding the Phase 3 trial design and efficacy endpoints we have a few questions. So if the intention is to conduct two six months trials with no or single bronchodilator background treatment.

So first, how many patients would you anticipate to be enrolled in these trials? And then what type of bronchodilator would patients be treated with on background treatment? Is there a particular proportion of patients that should be on no therapy versus background therapy? And then finally what is the threshold improvement of FEV1 that would be expected to be necessary from a regulatory standpoint as well as a clinician perspective? Thanks..

Thank you very much for the question. And there is a fair amount to unpack with that one. I want to turn it over to Dr. Rickard to provide her thoughts on it, although I would say that much of that is going to be an outcome of our end-of-Phase 2 meeting with the agency..

So as discussed in previous calls, we are planning on two 24-week studies. Our primary endpoint will be a form of lung improvement including some type of FEV1 evaluation. We plan on including some other secondary endpoints including symptoms in the study.

This will all be discussed with the FDA at the end of Phase 2 meeting where we'll be finalizing that including patient numbers and what we'll see as far as extend of improvement and so forth. So that'll be coming towards the second quarter of this year..

Okay, thank you. And then one more question regarding the payer perceptive. So can you discuss your work with payers and their willingness to reimburse for a novel COPD therapy? And then secondly where could we anticipate pricing for nebulizer versus the inhaler formulation..

Yes, thank you for the question. We have been doing extensive market research and also payer research. We're still some time away from commercialization, although we are attentive to the topics you mentioned. We are comfortable that payers would pay for a novel therapeutic in COPD.

We think that the price point could be supported at least at, if not over the current pricing for nebulized products in COPD. We're continuing to discuss with payers that concept and will continue to refine as I mentioned in our goals for this year our approach commercially both with prescribers and payers..

Thank you..

And your next question comes from the line of Adam Walsh with Stifel..

Hey thanks for taking my question this morning and Mark and David congrats on your new roles there. Let me start I have a couple -- let me just start broadly since you've arrived recently at the company. Maybe Mark and David you could speak to whether or not there've been any strategic changes in the strategic plan since your arrival.

That would be a good place to start? Thanks..

Thanks Adam. Thanks for the question. I think with regard to the strategy for Verona it remains essentially the same. Although again, as I mentioned in my opening remarks we're very focused laser focused on executing around our Phase III program in COPD. It is an emphasis for the company.

We think the greatest value creation for shareholders as well as advancing the product to help patients sits within that space. So I think we will look forward to continuing to execute around the COPD program, as I mentioned in my remarks. All of that, again was the strategy of the company.

We'll continue to do the other activities around that, as I mentioned including the payer prescriber dynamics, as well as continuing to assess the best approach for partnering as we look forward to the next year or two as we continue to execute on the Phase III program..

So just on the partnering front there were some questions earlier about whether the PMDI multi-dose data worth dating for a partnership.

And we know you're constantly looking, but maybe just a little bit more granularity on that? I mean are you continuing to kind of hold discussions in the meantime as those data mature? Is that something that you're looking for in terms of a potential non-diluting financing mechanism over the course of the next 12 months?.

Yes right I think that of course more data always is support of advancing our discussions with partners and we look forward to progressing the MDI data in addition to already the data created on the DPI. But I think that ensifentrine as a nebulized formulation is an incredible opportunity in its own right.

And when we talk about partnering there is the U.S. in which we think that commercially we could progress well with the nebulized product in the U.S., but we do hold worldwide IP rights to ensifentrine and the opportunities in other countries are substantial.

It also really requires a partner who has expertise in those countries probably has commercial engine already in place, where ensifentrine can make a real impact and help patients as well as that partner. I don't consider the MDI gating in advancing the conversations.

I do consider it enhancing and helping any partner to understand the opportunity in its entirety and other indications potentially asthma and other respiratory diseases. Also helps them, guide them depending on the partner what type of formulation fits well with the technologies they may have or have used in the past for other products.

And I think that we will see over the coming months the progress on partnering with a perspective of global assessment of any partnering discussions, but I think that that is secondary to our focus on executing on the Phase 3 program in COPD..

Hey, that's really helpful. Thank you..

And your next question comes from the line of Peter Welford of Jefferies..

Hi. Yes. Thanks. Couple of questions left. Firstly, just with regards to PMDI, there seems to be sort of a series of setbacks of the timeline for the multi-dose relative to the initial sort of planning for that study.

I wonder if you can just outline, I guess why that does seem to slip back a bit for the multi-dose data and what the challenges are potentially doing that. Secondly then just with regards to the Phase 3, I think the prior management alluded to the cost potentially being around $125 million or so or in that sort of ballpark.

Is that would you say, on the assumption of probably your most extreme plan for Phase 3 is that an average or would you say on the other hand there is room for that to be lower should, for example, your decision with the FDA be just placebo single dose in the Phase 3 program? And then finally just with regards to partnering, I'm curious is it possible do you think to separate the ensifentrine rights by formulation? I guess, I'm thinking your commentary with regards to focus on executing the nebulized program, is it possible for you to retain that while also doing a deal for the DPI, MDI formulations or do you very much regard this as expeditiously more of a geographical focus but that it's very difficult to consider separating different formulations of the product? Thank you..

Thanks very much for the questions. I guess to start with regard to the MDI program and any delays I think there has been a slight shift in the timelines that I'm not sure are really material. We do want to ensure that we have the right patients enrolled in the study and recruitment has just required it to be extended slightly.

So I think that in an effort to do the best science, the best clinical research, we're fairly on target on the timelines with, as I said, yes, you've pointed out a slight delay.

But we do have clarity on finishing enrollment in the first part of the study already, and then will progress and look at to get the rest of the data not only from the first part, but the rest of the part of the study in the second half of the year.

With regard to the cost of the Phase 3 program, fully aware of what numbers have been generally mentioned. We are confirming that with regard to the final study design of the Phase 3 program. As was mentioned, there are a number of factors that may go into the total cost, with regard to how many doses are in the Phase 3 program, et cetera.

We really want to come back with to you, once we have that clarity after the end of Phase 2 meeting. I think the numbers mentioned to date are perfectly fine for working estimates.

But I think that we want to come back to you when we have a much better clarity on what the Phase 3 program is, what we think it's going to cost and how long it's going to take. With regard to partnering, your point is well taken and understood and we're looking now at all options.

Typically, a geographical license works best as people like to have sort of an understanding and utilization, because there're such overlap potentially in the different formulations; handheld and nebulized and how it may be used in patients within the same disease.

So, I think, we're looking at it from the geographical basis initially, but we're open to all approaches depending on the circumstance with the partner..

That's great. Thank you very much..

And your final question comes from the line of Liana Moussatos of Wedbush..

Thanks for taking my second question.

If the Phase 3 is a single dose, are you thinking 3 milligrams and if there're two doses would it be 1.5 and 3?.

Yes, great. Thanks Liana for that. I think, as you've looked at the data, you're making those assessments and those are reasonable and rational. At the same time, we'll be reviewing all the data with the FDA, of course, providing our guidance and what we think we should do in the Phase 3 program.

And we'll come back to you once we have that clarity from them and let you know what dose was agreed..

Thank you..

And there are no further questions in queue at this time. And I'll turn the call back over to Mr. Zaccardelli..

So, thank you, everyone, for joining us today. We appreciate your continued support and look forward to updating you on our clinical developmental progress for ensifentrine. So talk with you all soon. Thanks very much..