Welcome to the Verona Pharma Second Quarter 2020 Financial Results and Operating Highlights Conference Call. At this time, all participants are in a listen-only mode. Earlier this morning, Verona Pharma issued a press release about its financial results for the three and six months ended June 30, 2020.

A copy can be found in the Investor Relations tab on the corporate Web site www.veronapharma.com. Before we begin, I would like to remind you that during today’s call statements about the company’s future expectations, plans, and prospects are 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 with the forward-looking statements including without limitations the impact of the COVID-19 pandemic on the status, enrollment, claiming results, and cost of our clinical trials and the continuity of our business.

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 view to change.

As a reminder, this call is being recorded and will remain available for one year. I would now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead, sir..

Thank you, and welcome everyone to today's call. With me today are Mark Hahn, our Chief Financial Officer; Dr. Kathy Rickard, our Chief Medical Officer; and Chris Martin, our Vice President of Commercial.

The second quarter of 2020 was a highly productive quarter marked by several pivotal accomplishments, including closing on an oversubscribed $200 million financing to fund the Phase 3 ENHANCE clinical trials for Ensifentrine planned to begin later this year.

Receiving a notice to proceed for our new IND to study inhaled Ensifentrine in patients with COVID-19, receiving a supportive FDA response to our end of Phase 2 package for nebulized Ensifentrine as maintenance treatment for COPD to support our Phase 3 ENHANCE trials, and appointing Chris Martin, Vice President, Commercial whose expertise will be instrumental as Verona Pharma prepares over the next few years to become a commercial-ready organization.

Since joining Verona Pharma earlier this year, we have executed on all our objectives to ensure Ensifentrine is well-positioned to progress to Phase 3 clinical trials this year.

Specifically, Verona Pharma secured $200 million in gross proceeds from a recent oversubscribed financing, raising almost four times our market capitalization, which we believe is unprecedented, and validates the clear potential of Ensifentrine as treatment for Chronic Obstructive Pulmonary Disease, COPD, and other respiratory diseases.

The financing was supported by a highly-experienced group of new and existing life science investors who understand the potential benefit of Ensifentrine for patients with COPD.

We welcome our new shareholders, including RA Capital Management, Access Biotechnology, Perceptive Advisors, Acorn Bioventures, PBM Capital, Samsara BioCapital, Foresite Capital, Sphera, Fairmount, and Soleus Capital.

With our balance sheet strengthened, we believe our Phase 3 program for Ensifentrine in COPD is fully-funded, and expect to support our program well into 2023. Following the financing and the FDA response to our end of Phase 2 package, we expect to commence our Phase 3 clinical trials later this year.

However, we continue to monitor the potential impact of COVID-19 on the timing of the initiation, and have put in place mitigation strategies to reduce the likelihood of COVID-19 related delays.

In March, due to the pandemic, we postponed the start of the second multi-dose part of the Phase 2 study with a Pressurized Metered-Dose Inhaler or the pMDI formulation of Ensifentrine in COPD. We are pleased to report that we now plan to start the second part of the study in the third quarter of 2020 with results expected in the first-half of 2021.

We are confident in the clinical potential of Ensifentrine and encouraged by the well-validated regulatory pathway for COPD therapy. Ensifentrine has demonstrated beneficial effects on lung function, COPD systems, and quality of life, as well as having a favorable safety profile.

We believe that Ensifentrine with its dual bronchodilator and anti-inflammatory activity will be an important therapeutic for millions of patients who are not well-served by available COPD therapies.

The medical community is also excited about the potential of Ensifentrine, and eager to have a new therapy with a novel mode of action to treat COPD patient. Many of you participated in our KOL event in June, where several leading pulmonologists discussed how Ensifentrine could address the treatment challenges of COPD.

If you were unable to participate, we encourage you to listen to the webcast, which can be found on Events & Presentations on our Web site.

While we are, and continue to be primarily focused on developing Ensifentrine for the treatment of moderate to severe COPD, we also understand Ensifentrine’s novel mechanism of action coupling both bronchodilator and anti-inflammatory properties may have utility in the treatment of COVID-19 patients.

We recently received a notice to proceed for our new IND to study Ensifentrine in patients with COVID-19. In this quarter, we intend to initiate a pilot clinical trial to investigate the efficacy and safety of Ensifentrine delivered via a metered dose inhaler in patients hospitalized with COVID-19.

We believe Ensifentrine can help to improve patient outcomes, given that prior data has demonstrated its potential to improve oxygenation, reduced inflammation in the lung and enhance mucus clearance.

A single center randomized double-blind placebo-controlled 45 patients study at the University of Alabama at Birmingham is designed to evaluate the efficacy and safety of Ensifentrine added on to standard of care treatment in patients hospitalized with COVID-19, compared to stand of care plus placebo.

Patients will receive two milligrams of pressurized MDI Ensifentrine twice-daily or a placebo for up to 29 days or until hospital discharge if that occurs before 29 days. The clinical status of all patients will be evaluated at day 29 and day 60.

The primary endpoint of the trial is the proportion of patients recovered from COVID-19 and no longer hospitalized at day 29. Secondary endpoints included improvements in clinical status, time to recovery, supplemental oxygen use, proportion of patients requiring mechanical ventilation, and mortality.

We look forward to updating you on the progress of the study as we develop new treatments for this pandemic. We are pleased that six abstracts presenting findings from clinical trials with Ensifentrine were accepted by the 2020 American Thoracic Society International Conference.

The abstracts are published on the ATS Web site and can be found in the peer-reviewed publication, American Journal of Respiratory and Critical Care Medicine.

The presentations include a late-breaking abstract that expands on Phase 2b efficacy and symptom data first announced in January 2020, where nebulized Ensifentrine added on to Tiotropium demonstrated clinically and statistically significant dose dependent improvement and long function as well as COPD systems.

As we prepare to commence our ENHANCE Phase 3 clinical trials for Ensifentrine and explore its efficacy in COVID-19, we are beginning to build our commercial infrastructure. We welcome Chris Martin as Vice President, Commercial, who will oversee commercial operations for Ensifentrine.

Chris has more than 15 years of sales, marketing and business development experience. Prior to joining Verona Pharma, Chris was Executive Director of Marketing at SK Life Science, a subsidiary of SK Biopharmaceuticals, where he launched his first commercial product, the anti-epileptic medication Xcopri.

At Verona Pharma, his expertise will be instrumental in analyzing the market, developing key relationships with healthcare professionals and payers in developing and executing pre-launch and commercial launch activities. We welcome him to the Verona Pharma team.

I will now turn the call over to Mark Hahn to review our second quarter 2020 financial results..

Thank you, Dave. Turning to our financial results, please refer to the press release that was issued this morning, which is also being filed as a 6-K with the SEC. Given that we are headquartered in the U.K., our financial results are in British Pound sterling. For your convenience, we have included a translation to U.S.

dollars, based on the noon buying rates of the Federal Reserve Bank of New York on June 30, 2020, which is GBP 1 to $1.2369 for certain key figures. We ended the second quarter 2020 with GBP 18.1 million or $22.4 million in cash, cash equivalents and short-term investments.

This excludes the proceeds raised in the oversubscribed private placement that Dave mentioned.

Gross proceeds from that offering were $200 million, and after deducting the placement fees and other transaction expenses, the net proceeds were approximately $183 million including these net proceeds from the financing our pro forma cash balance at June 30 is $206 million or GBP 163 million, and is expected to be sufficient to support our operations and clinical programs well into 2023.

For the first six months ended June 30, 2020, the loss after-tax was GBP 16.9 million pounds, or $21 million, compared to GBP 14.4 million for the prior year period.

This represents a loss of 16 pence per diluted share, or a loss of $1.58 per ADS for the six months ended June 30, 2020, compared to a loss of 13.7 pence per diluted share for the prior year.

Research and development costs were GBP 12.1 million or $15 million for the six months ended June 30, 2020, compared to GBP 15.8 million pounds for the six months ended June 30, 2019, a decrease of GBP 3.7 million attributable primarily to less clinical activity in the six months ended June 30, 2020.

The largest driver of R&D expense in the six months ended June 30, 2020 with startup costs for the Phase 3 enhanced program. In the same period of 2019, the primary expenses were related to the Phase 2b study of Ensifentrine as an add-on therapy to Tiotropium that read out in January of this year.

General and administrative costs were GBP 7.6 million, or $9.3 million for the six months ended June 30, 2020, compared to GBP 4 million for the six months ended June 30, 2019, an increase of GBP 3.6 million.

This increase was primarily attributable to a GBP 2.9 million increase in costs related to executive changes and costs associated with the closure of our New York office, and relocation of our U.S. base of operations to North Carolina. Finance income offset finance expense in the six months ended June 30, 2020.

In the first six months of 2019, finance income net of finance expense was approximately GBP 2 million. This change was primarily driven by a smaller decrease in the fair value of the warrant liability during the first six months of 2020, as compared to 2019.

The tax credit reported in the statement of comprehensive income is related to an R&D tax credit in the U.K., which is based on our qualifying research and development expenditures. Lower research and development expenditures in the first six months of 2020 resulted in a lower tax credit when compared to the first six months of 2019.

We believe this tax credit will increase in coming years as spending on the enhanced program accelerates and is an important element in our financial plans. I'll now turn the call back over to Dave..

Thanks Mark. We've made tremendous progress in the second quarter. And I'm pleased that we are executing on our goals and moving rapidly to advance Ensifentrine in our enhanced Phase 3 clinical trials as well as physician Verona Pharma, into a commercial-ready company. I would like to thank the team for their talents, expertise, and dedication.

I'll now turn back to the operator to open it up for questions and answers..

[Operator Instructions] We have one question coming from the line of Lucy Codrington. Please go ahead with your question announcing your company's name..

Hi, there, it’s Lucy Codrington from Jefferies.

I have a couple of questions, please, and just out of interest, just wondering why you chose to evaluate the MDI formulation for the COVID trial, and what was the reasoning behind that? Secondly, the cash runway, is that just into development of Ensifentrine for the nebulizer PD study, or a use including that, and the other indications or the other formulations other than the MDI study that you've already disclosed? And then finally, so the Phase 3, I'm just interested in how you're going to incorporate COVID testing, whether that antibody or antigen testing just to ensure that any patients that may get infected during the study, or have implied to study, any long-term consequences of those intensive respiratory symptoms are accounted for? Thank you..

Thanks Lucy for those questions. I'll maybe take the first and then hand over to Mark, and I think Kathy can answer the third. Good questions. We decided to move forward with the MDI for use in this clinical trial to evaluate COVID-19 effect and COVID-19.

It was done in collaboration with the site, who felt that that dosage format, ease-of-use utility in their hospital was best suited for these patients, and of course, as you know, we have been progressing the MDI formulation, had recently reported out data on single dose, and based on the clinical, and in vitro data felt very comfortable with the dosage delivery, as well as the investigator, and so, it was the best approach for this study at this time, and so, I'm very pleased to be progressing an additional formulation into clinical trials in this way.

Now, Mark, you want to handle the cash runway and the use of proceeds and financing COVID as well as COPD?.

Yes, yes for sure. So, great question, Lucy, and the proceeds from the offering are really earmarked for running the COPD trial with nebulized Ensifentrine.

There is also an amount of cash that's been earmarked for the COVID-19 study, but that's a relatively small amount of money as compared to the COPD program, but we will look at any other uses of Ensifentrine or any other dosing forms as being future activities that we would engage in later.

And Kathy, do you want to take the COVID testing for Phase 3?.

So far as related to doing COVID testing in Phase 3, we are proceeding with what our health care recommendations for the local countries that they have, most of them are not mandating it to be done every time, but as given to the physicians and the investigators discretion.

So, it will be available to be done when needed by the investigator, when he felt they need to do it, but it won't be done in everybody every time..

Okay, and what about, will patients be screened for antibodies before they start the trials, just to ensure that you know which patients have had an infection and therefore might have long-term [decline] [ph]?.

No, they won't be screened before the trial. COPD patients, as you’re probably aware, get viruses all the time. This is another respiratory virus. If they have recovered from the virus, and they’re back at their stable baseline, we don't expect to see any significant differences in our trial with that.

So, we would not be screening them for antibodies at this time. Also remember, the state of the antibodies, we don't really know how long they will last and whether the information will be that useful at this time is really up in the air. So, we don't believe that's [even] [ph] at this time..

Okay, that makes sense. Thank you..

Thank you, Lucy.

Operator?.

Okay, we have another question coming from the line of Tom Shrader. Please go ahead with your question announcing your company's name..

Good morning. This is Tom Shrader from BTIG. I would add the congratulations for the deal. You almost have done an incredible amount of work. I have a question about the patients, so they're all on nebulized drugs already.

Is that right, and is it a complexity, if they're not if you have to provide a device?.

Hi, Tom, I’m trying to make sure I understand the question, are you referring to the COPD trial or….

That's right. Yes, yes..

Yes. So, as far as the Phase 3 ENHANCE trials, patients can be on background therapy, either at LAMA or at LABA that will be given typically as a MDI or DPI or another handheld device, and also patients can be not on any background therapy, and we're targeting about 50% of the patients will be on background therapy and 50% will not.

So, most of the patients, of course from their history have experience with nebulizers, and they may have received products by nebulization in the past for acute use, or even chronic, and I hope that helps. I mean, that's the sort of layout of the patients who will be coming into the study from a nebulizer MDI/DPI standpoint..

Right, okay, and then I have a question on exacerbations. I know it's not really the point of this trial, but do you have any sense of for your enrolled patients the number of exacerbations they're likely to have had in the last 12 months? I'm just wondering what kind of signal we're likely to get out of this trial..

Kathy, do you want to comment on that?.

Sure. We are not recruiting patients that are high exacerbated. So, if you look at normal exacerbation studies, they're looking for people who generally have one or more exacerbations over a year. We are not doing that. The average exacerbation rate for a normal COPD patient, I think the past data have shown it's about a half an exacerbation a year.

So that's the typical patient we're going to have in our study, being that we're not specifically designed to look at exacerbations, but we are equipped to be able to assess exacerbations over the study period of time, which we're looking at for six months. We have enough patients for that period.

We do know and other studies similar to ours, when they use the same type of patient population, they're able to show a difference in decreasing exacerbations, and so, we're hopeful and actually expect that we'll be able to show some type of effects on exacerbations in the full analysis from our two studies, since they're not specifically designed for exacerbation..

That's great. Thank you. That's exactly what I want. Thank you. Good luck..

Thank you..

We have another question coming from the line of Liana Moussatos. Please go ahead with your question announcing your company's name..

Thank you for taking my question. I'm from Wedbush Securities.

For the COVID trial, will the standard of care include Remdesivir?.

Hi, Liana. Yes, it will. If that's what the physician has prescribed the patient that would be allowed..

And how are you going to account for, do you anticipate placebo patients and treated patients to get Remdesivir in order to compare it?.

Yes, I mean, I think we would -- again, it's on top of standard of care, it's a 45 patient trial, 30 of the patients will be receiving Ensifentrine in placebo, we will not dictate standard of care, and we expect that to fall out as it should in a balanced form, and so, I expect Remdesivir to be used in both Ensifentrine and placebo groups..

Thank you..

Operator?.

Yes, we do have another question and it comes from the line of Joon Lee. Please go ahead with your question announcing your company's name..

Hi. This is Joon Lee from Truist Securities. Congrats on the financing as well and that removal of the funding overhang.

I have three questions; number one, just a follow-up on the MDI as a choice of device to go forward in the hospital as patient, you commented that the hospitals felt that the MDI might have been more convenient, but that they're in hospital hospitalized.

So, why wouldn't they have actually wanted a more proven nebulizer, as opposed to a MDI that is still undergoing clinical testing? And then the second question is going to be regarding the enrollment of patients for Phase 3 COPD study, is it possible that having COVID-19 co-infection in both the placebo and the drug arm might help you, because your drug actually has a dual mechanism of action.

So, maybe hypothetically, that having this mechanism could help those more with if they were to have the co-infection with SARS-CoV-19 or SARS-CoV-2, I believe, and that we'll find out when you have two results from the pilot study, but just curious your thoughts there.

And then the third is the second Phase 3, what's the timing of the trial, and then what's your strategy around the starting of the second Phase 2? Thank you..

Yes, thanks very much for the questions. Maybe I'll turn it over to Kathy and have her comment, because she's been speaking with the investigators very directly on MDI and her thoughts on having co-infection in the Phase 3, and I can follow-up on the last part.

Kathy?.

Sure. So I think the MDI, I mean, we're very confident in our data from the MDI as we have data from the DPI and the MDI and that is the equivalent we see equivalent efficacy with the nebulizer.

I think that this point in a small pilot study in the hospitalized patient, investigator and the hospital believes by the use of the MDI, which we truly believe is equivalent to the nebulizer will enable us to carry out the study in a more, in an easier manner for them in the hospital since it's a pilot study from that perspective, and that's why we chose to do the MDI.

I think it's actually good to have the MDI. We now have a new IND in the U.S. allowing us to use the MDI. So that allowed us to have another additional clearance from the FDA to be able to proceed with our experimental the MDI, from that perspective.

As far as co-infections, to be clear, patients are not going to be allowed in the COPD studies if they're actively having infection of COVID. First of all, that's from a safety perspective, we have to guard protection of both the subject and the personnel we're working with these.

So anybody is expected to have COVID, they will be tested, and if they prove to be positive and have disease, they'll be discontinued from the study.

So there's no expectation that we will be allowing patients to have active disease in the study from that perspective, I think that will allow too many factors that could prevent us from being able to have the control over the study. So that's not the intention of doing studies from it.

I think there's a question about starting the Phase, the second Phase 3 study there, both studies are starting in the same timeframe. The one study will be longer than the other because we'll be doing an additional 24 weeks safety data, but the intent is to start them both around the same time..

Can I ask you a follow-up?.

Fine, go ahead..

Yes, yes for the COVID study, is there anything pre-specified that that you agreed to with the FDA to analyze the data? Maybe retrospectively to see if there was any like COVID because the literature says there are 5 million people confirmed with COVID-19 in the U.S.

and some literature that in science, which is a really high impact factor journal says, about 86% of the people who are infected go undetected, because of lack of sort of obvious symptoms. So, assuming 40 million people in the U.S.

have it, I mean, you're going to end-up enrolling some patients for COVID-19 or the virus that is asymptomatic and do you have any plans to analyze the data, taking that into consideration?.

Are you talking about the COVID study now versus the COPD study?.

No, no, no.

COPD study, and then if you have any plans to analyze the data, looking more closely retrospectively as maybe whether the patient have COVID-19 or not, and may have confounded the study results?.

Well, again, for the COPD studies, if somebody becomes COVID positive, they will be discontinued from the study, but they'll still be discontinued from treatment, but they still be allowed in the study. So, yes, we could carry their data forward, and as in allergic studies, we do a lot of analysis to look at that data.

So, certainly we can have a look at that. I think it's clear to understand that COPD patients are generally not the ones that are going to be asymptomatic. If they get affected from COVID, they are the high risk group. So, they're going to be the ones that are clearly showing symptoms.

I think the most of the asymptomatic people are going to be people who are relatively healthy and younger, and will not fall into our COPD population possibly….

All right, thank you very much..

But I'm aware of the fact that one or two might be positive for it..

Yes, yes. That's it, thank you, and congrats on the funding..

Thanks very much..

[Operator Instructions] We have a question coming from the line of Edward Thomason. Please go ahead with your question announcing your company's name..

Thank you. It's Edward Thomason here from N+1 Singer. Thanks for the briefing.

And two questions if I may; first is just actually just a general strategy update please, on licensing the Ensifentrine dose package, and whether you think you will still follow either a global license with a partner or without being more reasonable now or specific to certain indications? And the second question was in relation due to the COVID-19 trial, I know we focus on a lot, but do you see with the MDI formulation, the tidal flows for patients being a issue with the MDI formulation, and I would have thought theoretically with the nebulizer formulation will probably suit patients with poor tidal flows, particularly if they're hospitalized with COVID-19? Thank you..

Hi, Edward, I'll go and take the first part of that question and then turn it over to Kathy for the second. As far as our partnership licensing strategy, we have a specific strategy of course of looking for partners outside the United States.

Our intention is for Ensifentrine to be further developed and commercialized by our partner in those geographies. Of course, the large ones are Asia, China, for example, the EU for sure, and so, we're going to be making sure we turn our attention to that in the back end of this year and as we get into 2020 and executing on Phase 3 trials.

Whether it's regionally based or more globally in multiple territories, it will depend on the partner themselves as you'd expect. You know, it's always simpler in many ways, especially if the value is provided to do a larger deal that covers multiple areas. So, we will be looking at that.

As far as the different indications, while anything is possible, I always find it quite difficult to start splitting a compound by indication in different regions from a development commercialization approach, but if that were to be clear and beneficial and help Ensifentrine get out in different countries quicker, we would be always listening to that.

So, that's our overall strategy and update, and Kathy, do you want to handle the MDI COVID-19?.

Sure. So, remember again for the COVID-19 study, unlike the COPD patients, we are recruiting everybody with COVID-19. So, we're not expecting this to be a population that is completely people who have underlying lung disease, which may limit their tidal flow.

There'll be relatively healthy individuals, people with other health problems, but as far as tidal flows, if we were using DPI, particularly in a COPD population, and DPI can have problems in a patient who has compromised lung function because of their ability to disperse the dry powder elements, but pMDI is actually one of the devices we tend to use in people who have lower tidal volumes, because that's not the same effect.

So, I think pMDI will actually function very well in these patients that were enrolling in the COVID-19 study..

Thanks. Operator, maybe we have time for one more question….

Okay, thank you very much..

Thanks, Edward. Operator, there is time for one more question.

Is there somebody in the queue?.

Yes, indeed. There is somebody in the queue, and we're currently taking their details in order to announce them. [Operator Instructions] So, we are just waiting for the participant's details to show up, and I will be able to announce. Kindly bear with us. Thank you. So, our question comes from the line of Sharon Ofer.

Please go ahead with your question announcing your company's name..

Hi. This is Sharon Ofer from Sphera. Congratulations again on the race. So, question on the COVID trial, I'm not quite sure how much bronchodilators are used as part of standard of care for COVID at the moment.

So, can you maybe give us some color on if the patients enrolled with the -- maybe intentionally not be prescribed bronchodilators?.

Hi, Sharon, thanks for the question. [Multiple Speakers] Yes, hi. Yes, so maybe I'll turn it over to Kathy to give her thoughts on that, and….

Sure. So, yes, bronchodilators are actually binges a lot in COVID. Certainly we're using everything we can, because the symptoms of the patients are demonstrating, so much so that there has been a short-acting bronchodilator a decline, there is a shortage of them available around the world. It's lead to a shortage of the drug being available.

So, yes, they are being done. The thought is that if you [broncholize] [ph] the patient, they can breathe easier, take deeper breaths, and also helps clear the virus from it.

So, certainly, I think it's an important thing that can be done both in patients who don't have underlying lung disease, and patients who do have previous underlying lung diseases..

Great. Thank you, Kathy..

Okay, thank you..

Thank you, Sharon..

Thanks..

Great. So I think that -- I appreciate everyone's participation in today's call. We appreciate your continued support, and look forward to updating you on our clinical development progress for Ensifentrine. We hope that you, your families, and colleagues stay safe and healthy during this time. Operator that concludes today's call..

Thank you. Ladies and gentlemen, thank you for your participation. Once again, this concludes today's conference, and you may now disconnect your lines. Thank you..