Welcome to Verona Pharma's Second Quarter 2021 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 and six months ended June 30, 2021.

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 or may cause our actual results, performance or achievements to be materially different from our expectations expressed or implied by forward looking statements, including without limitation, the impact of COVID 19 pandemic on the status, recruitment timing results in costs 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 call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead..

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

During the second quarter of 2021, we continued steady progress towards our goal of delivering ensifentrine, a novel inhaled PDE 3 and PDE 4 inhibitor, and first in class product candidate for the maintenance treatment of COPD via our Phase 3 enhanced program.

As a reminder, each of the two randomized double blind placebo controlled enhanced studies are plannd to enrol, approximately 800 moderate to severe symptomatic COPD patients for a total of 1600 patients across sites in the US, Europe and Asia.

The ENHANCE-1 and ENHANCE-2 trials will replicate measurements of efficacy and safety data over 24 weeks with ENHANCE-1, also evaluating longer-term safety in approximately 400 patients over 48 weeks.

As discussed in previous calls, our projections of completing enrollment in ENHANCE-1 and ENHANCE-2 were based on expected, continued improvements in the COVID-19 pandemic. Over the past quarter, our COVID-19 mitigation strategies have been helpful.

However, the emergence of numerous COVID-19 related challenges, including new variants and increased infection and hospitalization rates across a number of countries have put pressure on our recruitment timeline. With that said, let's review in more detail the enrolment status of both Enhance trial.

As of the end of July, the ENHANCE-2 trial had 63% of patients randomized into the study. Including those currently entered in the run-in period, we expect ENHANCE-2 to be approximately 70% enrolled by the end of August.

For the ENHANCE-1 trial completing recruitment of the 48 week patient subset is a critical driver of the timeline for reporting topline data from the study. As of the end of July, the 48 weeks subset ENHANCE-1 had 70% of patients randomized into the study.

Including those patients currently entered in the running period, we expect the 48-week subset to be approximately 80% enrolled by the end of August. Based on current enrolment and our projections, we are on pace to complete enrolment in both ENHANCE-2 and the critical timeline, 48 weeks subset of ENHANCE-1 by the end of this year.

The Enhance program continues to effectively enrol patients in part due to the COVID-19 mitigation strategies we implemented at the start of the program. These include planning the program to include broad geographic coverage of sites, both in the US and Europe, to help manage the impact of local COVID impact.

Planning the program around newly required onsite visits and adding flexibility around business to ensure sites could follow their safety protocols, developing individual site plans to prepare for events that may disrupt normal site operations, such as alternative methods for distributing study medications and for collecting data from patients and providing for COVID-19 testing and personal protective equipment at all sites for adhering to safety protocols.

Additionally, we amended ENHANCE-1 and ENHANCE-2 protocols to allow for up to 20% of patients to receive inhaled cortical steroids or ICS in addition to either a LAMA or a LABA. This modification broadens our patient pool and more accurately reflects the reality of clinical management during the COVID-19 pandemic.

In Phase 2, ensifentrine demonstrated consistent lung function and symptom improvement as well as a favorable safety profile with or without the use of ICS. Approximately 40% of patients in our 400 patients Phase 2B study 2 or 3 were receiving ICS. These data were presented as an abstract at the American Thoracic Society 2020 International Conference.

Based on our current enrollment and stated mitigation strategies due to COVID-19, our projections were for reporting top-line data are in line with previous guidance, with enhanced to ENHANCE-2 expected to report in the first half of 2022 and ENHANCE-1 in the second half of 2022.

However, should COVID-19 related challenges continue to increase, our models predict top-line data would be expected in Q3 2022 or ENHANCE-2 and Q4 2022 for ENHANCE-1. In support of our planned NDA submission, we have completed enrollment in our thorough QT study.

This 32 patient study is designed to evaluate the effect of ensifentrine if any on cardiac conduction. We expect to report results by the end of this year. In 18 clinical trials to date involving over 1300 subjects ensifentrine has demonstrated a safety profile similar to placebo.

As a reminder, based on the clinical safety data to date, no adverse events of interest are being assessed in the ENHANCE trials. And we were not required to include cardiac Holter monitoring in the Enhance trials. Our goal remains the same, deliver ensifentrine to the millions of COPD patients who are not well served by available treatments.

Worldwide there are over 384 million COPD patients and COPD is the third leading cause of death. In the U S where Verona is preparing to commercialize ensifentrine, COPD affects more than 25 million patients and sales in the maintenance COPD market total over $10 million.

Despite maximum therapy with existing medications, more than 1 million patients remain symptomatic. Outside the US millions of COPD patients in Europe and China also remain symptomatic and in need of additional treatment. Turning to execution on our strategy to partner ensifentrine outside the US.

We announced in June a strategic collaboration with Nuance Pharma, a Shanghai-based specialty pharmaceutical company to which we granted the rights to develop and commercialize ensifentrine in Greater China, which includes Mainland China, Taiwan, Hong Kong and Macau.

The agreement with a potential value of up to $219 million for us provided Verona with a $40 million upfront payment consisting of $25 million in cash and an equity interest currently valued at $50 million in Nuance Biotech, the parent company of Nuance Pharma.

Verona is eligible to receive future milestone payments of up to $179 million upon achievement of certain clinical regulatory and commercial milestones. Verona is also entitled to receive tier double-digit royalties on net sales in the licensed territories.

We are excited about working with Nuance Pharma to bring a new and important treatment for COPD to these growing markets. Nuance's highly talented leadership team has extensive experience in developing and commercializing innovative products, including leading respiratory brands across Greater China.

Nuance Pharma, intends to meet with China's regulatory authorities to develop a plan to file an investigational new drug application for the treatment of COPD and we look forward to updating everyone as we progress. We continue to build on our substantial clinical evidence to support the benefits of ensifentrine to the maintenance treatment of COPD.

In May, Dr. Kathy Rickard and Dr. Tara Rheault, Verona's Vice President of R&D presented new subgroup analyses from Phase 2B trials, which nebulized ensifentrine in COPD at the American Thoracic International Conference 2021.

The subgroup analysis demonstrated that ensifentrine showed improvement in lung function and quality of life in both severe and moderate COPD sub groups. Improvements in both subgroups were clinically meaningful after four weeks of treatment.

In April, Verona published Phase 2B clinical results with nebulized ensifentrine added on to maintenance bronchodilator therapy in symptomatic COPD patients in the peer reviewed journal International Journal of Chronic Obstructive Pulmonary Disease.

We are pleased with our progress and as we look ahead, we anticipate several important milestones, including presentations at the European Respiratory Society International Conference in China [ph], reporting results of the TQT study and importantly, reporting results of both the ENHANCE-1 and ENHANCE-2 trials in 2022.

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

Thank you, Dave and good morning. We ended the second quarter of 2021 with $146 million in cash and equivalents, driven by an operating cash burn in Q2 of $20.2 million.

After giving effect to the $25 million upfront payment from Nuance Pharma and the $8 million receipt from the UK tax credit program, both received in July, our pro forma cash equivalents at June 30 was $179 million.

We believe the combination of our cash position, expected cash receipts from UK tax credits and potential borrowings under the $30 million debt financing facility secured in November 2020 will support our operations and current clinical development programs through at least 2023.

For the six months ended June 30, 2021, the loss after tax was $43.4 million compared to $21.4 million for the same period in the prior year. This represents a loss of $0.09 per ordinary share or $0.72 per ADS for the six months ended June 30, 2021 compared to a loss of $0.20 per ordinary share, or a $1.63 per ADS in the same period of 2020.

Research and development costs were $34.1 million for the six months ended June 30, 2021 compared to the $15.4 million reported for the same period in 2020. The increase of $18.7 million is primarily due to cost for the Phase 3 clinical program and an increase in share-based compensation charges.

General and administrative costs were $17.3 million for the six months ended June 30, 2021, compared to the $10 million reported for the same period of 2020. This increase of $7.3 million was driven primarily by an increase in share-based compensation charges, partially offset by executive change costs in the comparative period in 2020.

The UK R&D tax credit for the six months ended June 30, 2021 was $5.9 million compared to a credit of $3.5 million for the same period in 2020, increasing in line with the higher qualifying R&D expenditures incurred with the enhanced Phase 3 program.

We expect the tax credit to increase for the next two quarters as spending on the Enhance program continues. I'll now turn the call back over to the operator for the Q&A..

We will now begin the question and answer session. [Operator instructions] And the first question comes from Suji Jeong with Jefferies. Please go ahead..

Hi, good morning. Thanks for taking my question.

I have questions about the enrollment for enhanced trial given that the studies were initiated at the end of September last year, what gives you confidence that the enrollment for booked trials may complete by the end of the year? And could you also tell us that yeah, how many study sites are currently open and also what's the number of target? What the number of target number of sites for the study.

Thank you..

Hi, Susie. Great to speak with you this morning. So let me just give a few comments about enrollment and trajectory of enrollment. As in any trial and especially one of the magnitude of sites and international coverage, although we started at the end of September, sites do come online at different time.

Europe tends to be a bit lagged from the US typically and so over that period of time, especially in the first couple quarters or so, you saw sites coming online and then we're building the recruitment and the sites.

And so much of that is past us now and what I would say is we're in the middle or the trajectory that I guess is increasing if you will, with sites that are substantially all up and running.

And so we have, as we've kind of given you the insight as to the month over month type of recruitment that we're expecting to see, albeit it could be impacted by COVID-19 as we've discussed. But we do have a record now of recruitment over the past quarter or so of course on a weekly basis.

And we see that trajectory getting us to completing the enrollment by the end of the year. And I think as you see, by the percentages and the movement from July to August, we're in that part of the recruitment curve that will should get us there.

Of course we continue our mitigation plan and we continue to work with all the sites to solve any local issues that they may have in order to continue enrollment. And so I think we have that confidence based on really where we are on recruitment and on our projections.

As far as the number of sites as I think we've gotten into, there are over 200 sites participating in the Enhance program overall and we have, of course the vast majority of those sites up and running.

Each one of those sites, works through at various any impacts from COVID-19 and so that may slow them down or not have a slow down depending on the situation locally for them at any given time. But as I mentioned, we have a great variety and span of geographic coverage.

So, I think based on the site, the number we have, the trajectory, we're seeing that we can complete the enrollment by the end of the year..

Okay. Couple more questions.

Could you tell us about the run-in period and how long that is, and also they, you said that your study will now include 20% of patients, are there would be on ICS, was that amendment initiated by the company or was it at the request of FDA and would that inclusion affect the, our statistical analysis plan?.

Right. As far as ICS, we initiated that that change based on continued feedback from physicians KOL that patients during the COVID-19 pandemic were being left on ICS as a perceived precautionary measure and maybe some protection from COVID-19.

Of course we looked at our data and felt that we can enroll those patients into the study being on also a background of a LAMA or a LABA.

And that we don't believe that that will impact the primary endpoint, the secondary endpoint based on the data we had accumulated to date in Phase 2 and we don't see it impacting our statistical analysis plan in the study.

Was there something else that I missed?.

The run-in period? How long….

The running period? 30 days..

30 days. Okay. Great. Thank you..

The next question comes from Joon Lee with Truist Securities. Please go ahead..

Good morning. This is [indiscernible] on for Joon. And thank you for taking my questions. First congratulations on establishing the validating partnership with Nuance in China.

Can you first speak to the timelines for the NDA process by Nuance and second, can you also talk about your progress on partnership discussions in other regions, and would you expect that they would have a similar composition to the one with Nuance?.

Right. Thanks for the question. As far as the timeline in China, it may be a little bit premature.

As I mentioned, we need to have a meeting with the China regulatory authorities discuss plan for the IND and also our overarching plan for development in China and we to want to wait for that feedback before we understand the timelines and then they create details.

Clearly it's behind our process that targeted in the US but nonetheless, we'll wait for that. As far as other BD development, collaboration and other geographic areas, of course, we continue to do that. It's part of our stated strategy and we have ongoing outreach and discussions about that.

We are also in no particular hurry and we want to make sure that the partner, the deal structure is representative of the underlying value of ensifentrine, which of course we believe we achieved with the partnership with Nuance.

Terms are always can be different and variable, but again, we're going to make sure that we feel that it is a deal structure that represents the value of ensifentrine and we'll continue to work on that through this year and into next year. And of course, I think the dynamic changes substantially as the, as the data comes out as well..

Thank you for that color. And then last one for me is on the UK tax credits. They've somewhat become what more material to your impact on the balance sheet.

Can you outline the dynamics of these tax credits and how should we model these dual enrollment completion as well as the pipeline results and at what point did these tax credits taper off? Thank you..

Mark.

You want to handle that?.

Yeah. Sure. Thanks for the question. So the UK tax credit program is one where the UK allows us to accumulate our R&D costs on an annual basis. And then once a year spring time, we'll do it after the audited results are complete. We do a submission to the UK government and they wire transfer money to us.

We just received the money in July for the R&D related to the R&D spend in 2020. So as we incur or continue to incur R&D costs throughout 2021, those amounts getting approved, and then we will make our submission again, sometime early next year after the audited report complete. The R&D the UK R&D tax credit program is changing in 2022.

So it will be -- there will likely be a lower reimbursement rate if you will, against our R&D spend. So I think as you're modeling, you could expect a growing level of R&D tax through 2021, and then it should drop pretty significantly in 2022..

Great. Thank you..

The next question comes from Edward Nash with Canaccord Genuity. Please go ahead..

Good morning. Thank you for taking our question. This a Xing [ph] for Edward.

We would like to hear your thoughts from your perspective of real [ph] what's the competitive landscape has changed or has there been any changes for an insistent trend during the past year or one year and a half what's do you think might be the next close competitor for ensifentrine. Thank you..

Thanks for the call. I think I'm going to turn that over to Chris Martin, Head of Commercial to comment on the competitive landscape..

Thanks, Dave. And as we look at the competitive landscape right now, there's nothing eminent in the pipeline that is as unique or as unique like NC ensifentrine. Remember that ensifentrine, the first dual Bronco dial anti-inflammatory in one molecule.

So when we look at the competitive landscape and what's on the horizon, there's nothing that looks like ensifentrine's profile and when we talk to KOLs and physicians in our market research, that's something that's very appealing to them and something of great need, a significant unmet need in the marketplace is this idea that they have three mechanisms that they can use with patients today, and they need something additional when these patients remain symptomatic.

So when we look at how the landscape looks today and how it will look when ensifentrine launches, we believe that ensifentrine will place and be in a very favorable position because of that mechanism of action.

And then also the clinical data set that we have, which balances a very effective molecule on lung function and symptom improvement, but also with a safety profile that gives physicians confidence to try ensifentrine in symptomatic patients..

Okay, great. Thank you..

The next question comes from Andreas [ph] with Wedbush. Please go ahead..

Hi, good morning. Thank you for taking our questions. This is Andreas on for Leon [ph]. Just a quick one on the near term milestones, you have a couple of presentations at ERS and Chest but if you could just give us a bit of a summary as to what we're going to -- we're to see any incremental there. Thank you..

Thanks for that. So it looks like we're working everyone into the call today. I'm going to ask Dr. Rick to comment on her upcoming abstracts and publications,.

Right? Correct. Hello, this is Kathy Rickard. So for our presentations coming up, we have one at the European Respiratory Society Meeting, which is a PK102. So that's our pharmacokinetics study, which basically looks at drug interactions. And as the data shows that we have really very little drug interaction with a drug that affects the liver.

And the second one is for Chest 2021, which is October. And that's basically looking at our safety and efficacy data from our seven day trial, four meter dose inhaler formulation, which basically shows again that we can deliver the medication by the MDI and that we show very strong bronchodilation in this study.

So it confirms what we've seen in our dry powder inhaler studies also. So those are the two that we have coming up in the near future..

Fantastic. Okay. Thank you. And congrats on all the enrolment progress. Thank you..

[Operator instructions] The next question comes from Tom Shrader with BTIG. Please go ahead..

Hello. Good morning. This is Sung Hong filling in for Tom Shrader. So could you guys provide a little more color on thinking about the commercial opportunity in China? So I know that the market is very large if we're in terms of the COPD market, but I assume the pricing will be different as well as like the reimbursement landscape will be also complex.

So could you just provide your thoughts on that please? Thank you..

Yes, no, thanks for the question. And, and, and you're right. I think the market dynamics are different. Of course in China pricing is different. They have different pair dynamics, private pay and government pay, and that process has to evolve. As you noted, the number of patients in China is much greater and so that dynamic also plays into it.

I think it's a little premature to understand the exact forecast in market in China, although we consider it to be substantial on a worldwide basis.

And I don't know, Chris, you want to comment in addition to that from our collaboration with Nuance?.

No, I think, Dave covered it very well there. The one thing to keep in mind is one of the things that we see from a market standpoint is data out there suggests that the market for COPD medications within China's expected to more than double in the coming years.

A lot of that is due to increased diagnosis of COPD and increased treatment and access to newer medications. So again, as Dave said, we expect this market to be a substantial market, and we're working through kind of how that, how ensifentrine will fit in there from both a clinical and a commercial perspective with our partner..

Great. Thank you. And congrats again on the progress. Go for it..

Thanks. This concludes our question and answer session. I'll now turn the conference back over to David Zaccardelli for any closing remarks..

Thanks operator. We'd like to thank you for your questions and thanks to patients and healthcare professionals participating in the enhanced program. In August, we'll be presenting at several investor conferences, including BTIG, Wedbush and Canaccord and look forward to speaking to many of you then.

I'd like to thank our shareholders for their continued support and the dedicated and talented team at Verona for their commitment. Operator, that concludes today's call..

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