Welcome to Verona Pharma's Fourth Quarter and Year End 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 announcing its financial results for the three months and full year ended December 31st, 2020.

A copy can be found in the Investor Relations tab on the corporate website www.veronapharma.com. Before we begin, I'd 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 by the forward-looking statements, including, without limitation, the impact of COVID-19 pandemic on the status, recruitment, timing, results, and cost of our clinical trials and the continuity of our business.

Any such forward-looking statements represent management's estimates 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 obligation to do so even if subsequent events cause its views to change.

As a reminder, this call is being recorded and will remain available for 90 days. I'd now like to turn the conference over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead..

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 Christopher Martin, our Vice President of Commercial. The fourth quarter of 2020 was a continuation of a pivotal year for Verona Pharma.

During the year, we made substantial clinical progress advancing our first-in-class product candidate Ensifentrine into Phase 3 trials and raised $200 million in an oversubscribed financing.

Our 2020 highlights included, in January, we reported positive data from a Phase 2b trial with nebulized Ensifentrine added onto bronchodilator therapy for the maintenance treatment of COPD. Ensifentrine demonstrated significant improvements in lung function and, importantly, in symptoms and quality of life measurements.

The data also supported dose selection for Phase 3 trials. And in March, we reported positive data from the single-dose part of a Phase 2 trial with pressurized metered-dose inhaler, or pMDI, Ensifentrine in COPD. And in May, we received end-of-Phase 2 guidance from the U.S. Food and Drug Administration on our Phase 3 ENHANCE program.

And in July, we recapitalized the company with a $200 million private placement, allowing us to initiate enrollment in the pivotal Phase 3 ENHANCE trials in September. And finally, we initiated a pilot study with pMDI Ensifentrine in U.S. patients hospitalized with COVID-19 in September.

We executed on all our goals set out at the beginning of 2020 despite the unexpected challenges of COVID-19. As we turn to 2021, we have already announced data from 1 clinical trial and have three additional trials underway.

Earlier this month, we announced positive results from the multiple-dose part of our Phase 2 trial with pMDI formulation of Ensifentrine in moderate to severe COPD patients.

Ensifentrine delivered by pMDI met the primary endpoint of improved lung function with Ensifentrine demonstrating a clinically and statistically significant dose-dependent improvement in peak forced expiratory volume in one second, or FEV1, over four hours post dose with Ensifentrine compared to placebo after seven days of treatment.

In addition, Ensifentrine demonstrated clinically and meaningful -- meaningful and statistical significant improvements in trough FEV1 and average FEV1 over four and 12 hours with safety and tolerability, again, very similar to placebo. These data support twice-daily dosing of Ensifentrine via pMDI for the treatment of COPD.

In the near-term, we will continue to focus our efforts and attention on nebulized formulation of Ensifentrine, but these data provide additional evidence of Ensifentrine's clinical value and broad utility across formulations and devices, providing future life cycle management opportunities.

In January 2021, we completed enrollment in a randomized, double-blind, placebo-controlled pilot clinical study investigating the efficacy and safety of Ensifentrine in 45 patients hospitalized with COVID-19 at a single center at the University of Alabama at Birmingham.

This exploratory study will evaluate the effect of Ensifentrine on key outcomes, including safety and tolerability, clinical status improvement, reduction in supplemental oxygen use, progression to mechanical ventilation and mortality.

We are pleased that vaccines are now approved for the prevention of COVID-19, but a significant unmet need remains for effective treatments for symptomatic patients. We believe Ensifentrine, with its novel mode of action, could help patients with COVID-19.

Enrollment in both Phase 3 clinical trials, ENHANCE-1 and ENHANCE-2, is ongoing across planned global regions. The two randomized, double-blind, placebo-controlled studies are designed to evaluate Ensifentrine as monotherapy and added onto single-bronchodilator background therapy.

Each study is expected to enroll approximately 800 moderate to severe symptomatic COPD patients. The two studies are designed to replicate measurements of efficacy and safety over 24 weeks, with ENHANCE-1 also evaluating longer-term safety in a subset of approximately 400 patients over 48 weeks.

The primary endpoint is improvement in lung function measured by FEV1 over 12 hours with Ensifentrine after 12 weeks of treatment. Key secondary endpoints include measurement of COPD symptoms and health-related quality of life through 24 weeks assessed via the validated SGRQ and ERS patient-reported outcome tools.

Additional lung function endpoints, including peak and morning trough FEV1, will also be assessed. Exacerbations will be analyzed in a pooled analysis. Finally, I'd like to summarize several important milestones we expect this year. In the second quarter, we expect to report topline data from our pilot COVID-19 study.

Second, our Phase 3 ENHANCE trials continue to add clinical sites, and based on our recruitment projections, we expect to complete enrollment in both of the Phase 3 ENHANCE trials in the second half of 2021.

And finally, looking further ahead, topline data from ENHANCE-2 is expected in the first half of 2022 and from ENHANCE-1 in the second half of 2022. I will now turn the call over to Mark to review our year-end 2020 financial results. .

Thank you, Dave. For the year ended December 31st, 2020, the loss after-tax was $65.1 million compared to $40.6 million for the prior year. This represents a loss of $0.25 per ordinary share or $2 per ADS for the year compared to a loss of $0.39 per ordinary share or $3.12 per ADS for 2019.

Research and development costs were $44.5 million for the year ended December 31st, 2020 compared to $42.4 million for the year ended December 31st, 2019, an increase of $2.1 million attributable primarily to an increase in share-based compensation charges in salary and related costs as we expanded the clinical development team.

General and administrative costs were $29.8 million for the year ended December 31st, 2020 compared to $10 million for the year ended December 31st, 2019, an increase of $19.8 million.

This increase was primarily attributable to share-based compensation charges, severance costs, salaries, higher D&O insurance premiums, and financing costs related to our private placement. Additionally, the U.K.

R&D tax credit for 2020 was $8.3 million compared to a credit of $9.3 million for the year ended December 31st, 2019, a decrease of $1 million which is attributable to lower qualifying R&D expenditures in 2020 compared to 2019. Credits recorded in the 2020 financial year are expected to be received in cash in 2021.

As spending on the ENHANCE program accelerates in coming quarters, this credit could aggregate as much as $15 million to $25 million over the next few years subject to any changes in legislation which could impose limitations. We ended 2020 with $188 million in cash and equivalents.

The proceeds from the July PIPE offering, the potential borrowings under the $30 million SVB debt facility, and potential cash receipts under the U.K. R&D tax credit program are all important elements of our near-term financing strategy.

We believe the combination of these elements will support our operations and the ENHANCE clinical development program into 2023. I'll now turn the call back over to the operator for Q&A..

We'll now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Tom Shrader with BTIG. Please go ahead..

Thank you. So, congratulations. It's mostly an execution quarter. Just thoughts on the sales force. Do you think you are likely to go it alone? You didn't mention anything in your thoughts about your spend. Or do you think you might take a partner for some piece of it? Just your thoughts. I know it's a little early. .

Yes, sure. Hi Tom. Thanks. No, I think that we are constantly evaluating, as we've mentioned previously, that we are prepared and preparing to launch in the United States for the treatment of COPD using the nebulized formulation. We believe that is well within our capability, having previously done it at other companies at that sort of size and scale.

We have also mentioned previously, we are looking for partners outside the U.S. and we continue to do that. We expect that to be an ongoing process in 2021, especially as we've advanced through 2020 as we reviewed today.

And while we do that, of course, there may be certain partners that want to have a broader view and geographic coverage that may make sense. And it all depends on the partner, the valuation and what they can offer in making sure that Ensifentrine is provided to those patients in need.

So, we'll continue to execute on the Phase 3 program, as we talked about, data coming out in 2022. And during this time, we'll continue to advance our partnering conversations. .

And is any of the plans -- are they included in the 2023 guidance? Does that include hiring MSLs? Or what can you tell us?.

Yes. Tom, this is Mark. So as we are progressing, we have Chris Martin on board as our VP of Commercial right now. He's really our only commercial person on the team at this point.

But as we continue through the coming years, in 2021, I'd say there's a small amount of commercial work being done, and that will get to be more significant once we get data from the Phase 3 program. We will -- and our forecasts include spending money to get the company ready to launch.

And so through the -- through 2022, there will be a small build -- let's say, a small build in personnel around the commercial organization. Maybe some of the leadership team would be coming in, again, assuming positive data.

And then the real heavy commercial spend will be in and around the time of approval, which would be later in 2023, early 2024 kind of timeframe, which is beyond the forecast we've given from a cash perspective. .

All right, great. Thank you very much for the detail..

Our next question will come from Andreas -- I'm sorry. I misread that. Our next question will come from Suji Jeong with Jefferies. Please go ahead..

Hi, good morning. Thanks for taking my question. I have -- my first question is about the Yupelri, which is nebulized LAMA.

I'm just wondering, what percentage of the prescriptions are filled when written? And my second is, if ENHANCE program doesn't show benefit in exacerbation rate, do you plan to run additional studies to show exacerbation benefits? Thank you..

Hi Suji, it's Dave. Thanks for the questions. Maybe I'll comment on the second first and then turn it over to Chris for the question on Yupelri. As you know, the ENHANCE trials are not specifically designed to be exacerbation endpoint studies, both by numbers of patients as well as duration.

However, as I mentioned, we will determine the effect on exacerbations and measure that in the study. And we're very pleased to have the opportunity to look at that in a pooled analysis in our discussions with the FDA. And we'll see what those results show us.

It's not essential in our view for the launch of Ensifentrine for COPD that the ENHANCE trials provide the data that physicians are looking for as well as payers. And so we believe that we will have the data necessary to have an effective launch of Ensifentrine with the data from the ENHANCE trials.

With that said, based on the outcomes of those studies and our evaluation of the effect on exacerbation, we will look at that after the studies are completed and determine if that is something that we'd want to do. But we, at this time, don't believe it's essential for the success of Ensifentrine.

Chris?.

Yes. Suji, as far as Yupelri, one of the things that we know about them, I can't talk to the specifics about what their abandonment is at the pharmacy and what's going on there. But what we've seen from their public documents and what they reported publicly is that they have 100% coverage within Medicare Part B right now.

And remember, that's an important aspect when we think about a nebulizer because 50% of the claims are reimbursed through Medicare Part B at this point in time. So, Yupelri has 100% access coverage within that space. The other thing that they've said and are discussing is their commercial coverage is also increasing to a very high level as well.

So, we can see from the Yupelri launch and learn from them how quickly managed care from a Medicare Part B standpoint and from a commercial standpoint is taking place within the marketplace. And to this date, there seem -- they're getting very good traction on both ends..

Okay, great. Thank you..

Our next question will come from Andreas Argyrides with Wedbush Securities. Please go ahead..

Good morning and thank you for taking my questions. Regarding the COVID pilot study, we've seen a lot of changes over the past year, especially in hospitalized treatments improving.

To what extent have you seen those improvements, especially with getting patients -- or actually preventing patients from getting on ventilators? Are there any impacts on the study from that perspective? And were there adjustments or amendments made during the study if those observations were made to look to, whatever, improve the outcome?.

Yes. So, thank you for the question. Just to back up a little bit, just keep in mind the -- this study is a pilot study by design, involves 45 patients that had been recently hospitalized with COVID-19. And it is done at a single center at the University of Alabama at Birmingham.

It is an evaluation of Ensifentrine delivered via pMDI on top of standard of care at the institution. Of course, we weren't in a position, of course, to limit what they would want to do to treat the patients as appropriate based on their protocols. Although being a single center, there is a bit more uniformity in the treatment of these patients.

The study also was conducted, I would say, over a relatively short period of time, a few months, in which the treatment paradigm, of course, was always subject to be shifting and different over time. But this study was conducted in a fairly narrow window.

And so I think really, what we're looking to do is learn from this study of, of course, the safety and tolerability of Ensifentrine to start with and then, of course, what impacts it could have on the clinical course, specifically around lung function, oxygenation, for example, and supplemental oxygen use.

And so it's really a study in which we want to learn. It's the first time of evaluating Ensifentrine in this disease. And based on the results, we then we'll take a look at what we do next depending on those results and, of course, our continued evaluation of COVID-19 and its unmet needs that are occurring in patients who continue to be hospitalized.

And as you say and we all are very aware that's a changing field, not only over the next few months, six months but over the next year or two in a period where this type of development would continue on. So, I think our first step is to get the results of the study and then take a look at what we would do next..

So, we've seen -- because we have seen a recent study impacted -- the results were impacted by the fact that there were improvements in hospitalized care based on the particular endpoint that they were going for, which was patients require an oxygen either on ventilation or assistance, et cetera. Just two quick follow-ups then.

Could you speak to the breakdown on patients based on age? What -- how many were over 65, under 65? And also, to the extent that -- well, go with that, and then I'll follow-up..

Yes. No. Thanks. At this time, we're not characterizing the patients or any type of interpretable results of any sort. We're looking to finish the study. As you know, we've completed enrollment, but we're still within the active period of the study and follow-up. And so we want to -- it's still in a double-blind status -- blinded status.

And so we want to make sure we get through that. And then we'll report out the topline results, including the demographics, as you mentioned, all at once. .

Okay.

And do you anticipate -- I mean, was the study designed for powering a statistical analysis? Or will those results be -- what would be provided in that context? Or is it just a kind of very early learning study?.

Yes, as I mentioned, it's a pilot study by design. There are no statistical assumptions. It will be strictly descriptive in nature, as it should be for an initial study of this type..

Okay. All right. Thank you guys very much and congrats on the quarter..

Thanks..

[Operator Instructions] Our next question will come from Joon Lee with Truist Securities. Please go ahead..

Hi. Thanks for the question and congrats on the progress. For the -- just to finish up the prior question, the pilot study.

Is there any chance that, that study could be used for EUA? Or does that depend on certain outcomes? Can you tell us about the possible outcomes of that study and what you would need to do to get through the goal line? And I have one more follow-up. Thank you..

Yes.

So, as I said, I think on the study, really, we need to take a look at what signals we're receiving, the size of them, the variability and the effect on some of the key features that we think we could impact, as I mentioned, oxygenation and supplemental oxygen use, progression of mechanical ventilation, these type of clinical course items that we would think we could help prevent or mitigate.

So, I think we need to keep in mind what the study is by design. That's not to say that it isn't a well-conducted study. Just keep in mind; it's still a placebo-controlled, double-blind trial. So, I think it has a lot of scientific integrity, but it also is pilot in nature, not powered for any endpoint. We're going to have descriptive statistics.

And so I wouldn't want to predict what we could do with the study at this time until we actually have a handle on what the results tell us and what we should do next..

Does the pilot nature of the study preclude you from applying for EUA?.

No, I don't think it does. I mean, I think the concept around treatments for COVID are quite fluid at the moment. I think it has to do with the results that you see, of course, the safety, the clinical utility and the whole picture of the, as always, benefit to risk that comes from any of the treatment.

So, what I wanted to say is that it is pilot in nature. So, any -- there are no endpoints that the study was specifically structured around to be statistically tested. So, again, we need to look at the results first and then decide what to do next. .

Understood. Looking forward to the update. And then the next question is for the pMDI and the dry powder formulations.

Can you remind us again what the magnitude of effect was and how that compares with the nebulized formulation? And are you actively in dialogue with a potential partner? And then if these three different formulations were to be in the market, to what extent are they competitive versus complementary? Thank you..

Yes.

So, I think overall, if you look at the data on nebulized, which, of course, we have substantially more information on, and pMDI and the dry powder inhaler, the DPI, it basically shows a consistent picture of the fact that Ensifentrine could be delivered in any of these formulations and delivery devices, provides bronchodilation, improved lung function as measured by FEV1, and is very consistent across those three different formulations as the effect on lung function.

There are -- there is some variability, as you definitely would expect, in the dose. There's not necessarily specific dose equivalence between DPI, pMDI and nebulized. And we're learning a little bit more about that as we're doing these studies, some of the dose relationships between the different delivery methods.

But Ensifentrine, from a clinical pharmacology perspective, is performing very much the same in each one of those delivery devices and formulation. And we're very pleased about that because, as I think you're alluding to, it provides us great flexibility and opportunity for lifecycle management, other indications, and also partnering opportunities.

As you would expect, some partners have much more experience and deeper experience in maybe DPI, maybe proprietary devices or have an MDI bias and also are looking for other indications where DPI or an MDI would be much more applicable.

Because as we see it, within COPD and our approach, that we do not need to progress the DPI or the MDI to be successful in COPD. It definitely provides some optionality as that indication were to mature with the nebulized formulation.

But the opportunity with nebulized Ensifentrine is great in its own right, and we see that physician need, patient acceptance, payer acceptance, all line up very nicely with progressing and focusing on nebulized Ensifentrine. I don't find them to be competitive in nature. More expansive would be the word.

When you do an MDI or DPI, it tends to be at a different price point, a different market. And so there are some other additional commercial complexities to those formulations. And also, it may be best suited just for other indications outright, such as asthma, for example.

So, we'll continue to look at that while we stay very laser-focused in executing on our Phase 3 program with nebulized Ensifentrine. .

Great. Thank you so much..

There being no further questions, this will conclude our question-and-answer session. I'd like to turn the conference back over to Dr. David Zaccardelli for any closing remarks. .

Thank you, everyone, for your questions today. I would like to thank our shareholders for their continued support of Verona and the dedicated and talented team at Verona for their execution on all of our goals during these challenging times.

2021 is another important year for Verona, and we look forward to updating you on the continued progress of Ensifentrine. We hope that you and your family and your colleagues stay safe and healthy during this time. Operator that concludes today's call..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..