Welcome to Verona Pharma's Fourth Quarter and Year End 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 it's financial results for the three months and full year ended December 31, 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 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 and the Russia, Ukraine conflict on such progress.

And on the status, recruitment, timing, results and cost of our clinical trials. Any such forward-looking statements represents 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 obligations to do so, even if subsequent events cause our views to change. As a reminder, this call is being recorded and will remain available for 90 days. I would now like to turn the call over to Dr.

David Zaccardelli, Chief Executive Officer..

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 Senior Vice President of Commercial.

Throughout 2021, we made significant progress towards completing patient enrollment in our Phase III ENHANCE clinical program and furthering our goal of delivering ensifentrine, a first-in-class product candidate for the maintenance treatment of COPD.

As a reminder, each of the two randomized, double-blind, placebo-controlled enhanced studies, our plan to enroll approximately 800 moderate to severe symptomatic COPD patients for a total of approximately 1,600 patients across sites in the U.S., Europe and Asia.

The ENHANCE-1 and ENHANCE-2 trials will replicate measures of efficacy and safety data over 24 weeks with ENHANCE-1 also evaluating longer-term safety in approximately 400 patients over 48 weeks. We are close to completing enrollment in ENHANCE program and excited about reporting top line data.

In December 2021, we completed enrollment of approximately 400 patients in the 48-week subset of ENHANCE-1. Completing recruitment in this subset of ENHANCE-1 is a critical driver for reporting top line data from the study. We continue to progress enrollment in the 24 week subset of ENHANCE-1.

As of March 2, 2022, the ENHANCE-1 trial had approximately 80% of patients randomized into the study, including those patients currently entered in the run-in period, we expect ENHANCE-1 to be fully enrolled around the end of the second quarter of 2022. In January 2022, we completed enrollment of ENHANCE-2 with more than 800 patients randomized.

Looking to results; we expect to report top line data from ENHANCE-2 in the third quarter of 2022 and from ENHANCE-1 around the end of 2022. We will provide further guidance on the timing of ENHANCE-1 data once full enrollment is completed.

As stated previously, our projected enrollment time lines in ENHANCE-1 and ENHANCE-2 were based on expected continued improvements in the COVID-19 pandemic and successful implementation of our COVID-19 mitigation efforts.

With the recent sanctions and other restrictions imposed on Russia and the COVID-19 pandemic and government and other measures continuing to impact a number of clinical trial activities, we continue to closely monitor these time lines.

That being said, we are very pleased with recruitment progress in these international multisite clinical trials during the ongoing global pandemic. Conditional upon positive results, the company expects to submit a new drug application, an NDA, to the U.S. Food and Drug Administration in the first half of 2023.

In support of our planned NDA submission, in December 2021, we reported ensifentrine successfully met all safety objectives in a thorough QT or a TQT study designed to evaluate the effect, if any, of ensifentrine on measures of the TQT interval in cardiac conduction in 32 healthy volunteers.

Ensifentrine was shown not to impact the TQT interval and no clinically relevant changes in measures of cardiac conduction were observed with either the 3-milligram or 9-milligram inhaled ensifentrine dose over 24 hours. The FDA requires a TQT study for most new drug applications and review the protocol prior to us conducting the study.

We continue to advance towards our goal to deliver ensifentrine antipentrin to the millions of COPD patients who are not well served by available treatments. Worldwide, over 380 million patients suffer from COPD. And COPD is the third leading cause of death.

In the U.S., where Verona is preparing to commercialize ensifentrine itself, COPD affects more than 25 million patients and sales in the maintenance COPD market totaled over $10 billion.

While existing medications are available to treat COPD, more than one million patients remain symptomatic on maximum therapy, highlighting the need for novel therapies to provide relief to these patients. Outside of the U.S., millions of COPD patients remain symptomatic and urgently in need of additional treatments.

Alongside our clinical progress in 2021, we advanced our global partnering strategy through a strategic collaboration with Nuance Pharma, a Shanghai-based specialty pharmaceutical company.

The partnership provides a tiered double-digit royalty and potential milestone payments of up to $179 million in addition to the $40 million in cash and equity received at the execution of the agreement.

Nuance Pharma is responsible for developing and commercializing ensifentrine in Greater China and we look forward to providing future updates on their progress. We are pleased with our robust progress throughout 2021 and excited about reporting top line data from our Phase III ENHANCE program this year.

I will now turn the call over to Mark to review our financial results for 2021..

Thank you, Dave. We ended 2021 with $148.4 million in cash and equivalents. We believe our cash and equivalents at December 31, 2021, expected cash receipts from the U.K.

tax credit program and funding expected to become available under the $30 million debt facility with Silicon Valley Bank will enable us to fund our planned operating expenses and capital expenditure requirements through at least the end of 2023.

For the year ended December 31, 2021, the loss after tax was $55.6 million compared to a loss after tax of $65.1 million for the prior year. This represents a loss of $0.12 per ordinary share or $0.96 per ADS for the year compared to a loss of $0.25 per ordinary share or $2 per ADS in 2020.

Research and development costs were $79.4 million for the year ended December 31, 2021, compared to the $44.5 million reported in 2020. The $34.9 million increase is driven primarily by costs associated with the Phase III ENHANCE program.

Selling, general and administrative costs were $33.9 million for the year ended December 31, 2021, compared to the $29.8 million reported for the prior year.

This increase of $4.1 million was driven primarily by costs relating to the Nuance agreement, share-based compensation charges and increased D&O insurance premiums, partially offset by a reduction in costs related to the July 2020 pipe financing and severance incurred in 2020. The U.K.

R&D tax credit for 2021 was $15.6 million compared to a credit of $8.3 million for the year ended December 31, 2020, increasing in line with the higher qualifying R&D expenditures incurred with the ENHANCE Phase III program. As discussed last quarter, under the terms of the U.K.

R&D tax credit program, we intend to submit for reimbursement of this amount in the first half of 2022 and we expect to receive the payment later in 2022. This nondilutive source of capital continues to be an important element in our financing strategy. I'll now turn the call back over to the operator for the Q&A..

[Operator Instructions] The first comes from Andreas Argyrides with Wedbush Securities. You may now go ahead..

All right, good morning, and thanks for taking our questions; two for us here. Just to start. So can you just reiterate how many of the clinical sites are in Eastern Europe and affected by the Russian conflict? And then when you're -- let's say and you're thinking about the commercial opportunity for ensifentrine.

Can you just tell us how you maybe -- remind us of the clinical -- the design of the Phase III studies are going to kind of impact the commercial strategy? And how you see it playing out in the different other -- dual or a triple therapy?.

Great. Thanks for the question. I'll start to take the first one and then turn it over to Chris to outline how our clinical program dovetails into our commercial strategy. So with regard to sites in Russia, we have a handful or so of sites in Russia that have entered patients over the past period of time while the study was being conducted.

And the majority of those patients have passed the 12-week or primary end point. And a good number of them have passed the 24-week time point as well. So the study continues in Russia, although as you can imagine, we're acutely monitoring the situation.

And as of now, the study continues to be conducted with no interruption that we have detected with the site. Of course, we're in close contact with them and making sure that the study continues to enroll and also continues to manage the patients in the site -- in the study. Chris, I don't know if you want to handle the commercial..

Yes. I can talk a little bit about the commercial opportunity with regards to our Phase III trial. So Andreas, we've done significant research looking at our Phase III trial design and the commercial opportunity with ensifentrine.

And what we see is that the data that we anticipate receiving with ensifentrine in the Phase III trial supports very broad adoption of ensifentrine in the pulmonology and COPD treater community.

And when we think about that, we have to think about what the market looks like today and what we know, as Dave mentioned in his remarks earlier, is that there's over one million patients that are remaining symptomatic on dual and triple therapy.

And the reason why that's important is these patients when we think about the treatment paradigm have no options today for a therapeutic choice that could help improve lung function, help improve symptoms and potentially help improve quality of life.

And knowing our data from Phase II, that's where ensifentrine can provide substantial benefit to these physicians that are out there treating them. Because at this point in time, when a patient gets to that situation, they have no real therapeutic options for them.

So when they look at ensifentrine safety profile and efficacy profile, they're excited because it allows them to give you a new MOA to these patients that remain symptomatic. And again, that's well over one million patients. That's really the first entry of use for ensifentrine because those are the patients in the most immediate need.

But the physicians also tell us that ensifentrine could be used in earlier lines of therapy as well because you have this new mechanism that allows them to provide a potential bronchodilator in antilabor molecule in one.

So it allows them to get a little bit more flexible in how they treat patients that are on current LAMAs/LABAs or dual therapy as well..

Okay, great. Appreciate that. I'll jump back in the queue. Thanks..

Our next question comes from Suji Jeong with Jefferies. You may now go ahead..

Thanks for taking my question. First of all, regards to the site, especially in Poland and Eastern Europe.

I was just wondering if you have heard from any hospitals that have enrolled patients into the study, communicating to you guys saying that those patients may not be able to come in for follow-up visits or there might be some changes in how patients are followed or how the studies may be conducted in those sites? And my second question is, as you completed enrollment for ENHANCE-1 and 2 -- ENHANCE-1 subset and 2.

Could you guys comment on possibly how many patients may have tested positive for COVID for those studies? And the last question is you recently amended a protocol to include up to 20% of patients using the steroid. And I was just wondering if that amendment may lead to change in how the vision may use ensifentrine in their patients..

Great. Suji, thanks for the questions. I think broadly speaking, for -- and as you know, the situation in Eastern Europe and the Russian/Ukraine conflict is extremely fluid and fairly fresh, as you know.

Right now, the conduct of the study in Eastern Europe, as you mentioned, in those countries that are part of NATO, continue to be conducted according to the protocol as we've seen it. Of course, that's only about a week or so into that information flow.

We are in contact with them through our contract research organization to make sure that the protocol continues to be conducted. But right now, we do not see an issue with the study continue to be handled according to the protocol.

If that changes or if we have any other issues, of course, we would raise that and we're very attentive to it at the moment. As far as patients positive for COVID, to some extent, that's a changing number. You can imagine that as patients were positive for COVID and asymptomatic, those were discontinued from the study.

Although that number has been, broadly speaking, again, relatively modest and accommodated within our overall expectation for discontinuations. So as far as patients who may test positive for COVID and be asymptomatic or for that matter, patients who have COVID but haven't actually tested positive because they were tested.

And so you can imagine there's all kinds of variations of the theme. All of that, I'm sure, is going on in the world as we know it. So we continue to conduct the protocol as written and it's going to be very difficult to say how many patients had COVID.

Because there are probably plenty of patients who have COVID that haven't tested positive because they haven't been tested. So I think it's a bit of a difficult number to actually capture and represent properly other than, of course, those patients who had COVID and discontinued which we will cover. And as I said, we're accommodating.

With regard to the amendment, was guiding up to 20% of the patients receiving an ICS and a corticosteroid on top of their background therapy. That -- we have enrolled patients with that. I can tell you we have not bumped up against the 20%.

So at the moment, it appears to be less than that, although at least in ENHANCE-1, that continues to enroll patients. So we'll see how we read out on that. And I don't think it -- from our Phase II data and how we view it going forward, it doesn't -- we don't see it impacting in any material way.

The lung function or the secondary endpoints of symptoms and quality of life based on our review of the Phase II data in which we looked at the use of ICS and the impact on lung function, for example..

I see.

Just to clarify, for ENHANCE-2, how many percent -- what percentage of the patients are on ICS?.

Yes, it's under 20%. I wouldn't want to -- the data is still being confirmed and clarified but I can tell you that it is -- we did not hit the 20% level..

Okay, great. Thank you..

Our next question comes from [indiscernible] with H.C. Wainwright. You may now go ahead..

Hi, can you hear me okay?.

Yes. Perfect. Good morning..

Good morning. A few questions from our end. So one of the inclusion criteria for your ENHANCE studies is that the patient should have 30% to 70% of predicted FEV1.

I'm curious whether you see ensifentrine being particularly effective in patients with all 50% or so predictive FEV1 versus those who have 40% or below FEV1?.

Great. Thanks for the question. I'm going to turn that over to Dr. Rickard to give her thoughts on the Phase II data as well as clinically speaking, the use of bronchodilation in those different types of patients..

Sure. So this is Kathleen Rickard. So the 37% to 70% predicted is in patients who have moderate to severe COPD. As usual, we usually treat these patients with bronchodilators and sometimes other medications.

As far as our data in our Phase II studies, we did not see a difference between the moderate or severe patients in the response to ensifentrine and we would predict that we would see a similar response in our Phase III data.

We continue to see responses in our Phase II data that we see additional response with ensifentrine on top of patients who are using additional bronchodilators when they're being treated. I hope that answers your question..

Yes.

And secondly, can you comment on the exacerbation history and the MMRC profile of patients enrolled in the ENHANCE-2 study, other patients with an mMRC scale up of plus three years ago?.

So they have to have at least a mMRC of 3 to enter into the study. As far as exacerbations, we are not requiring an exacerbation history to enter into the study..

Okay, got it.

So can you hold the expectations for the upcoming ENHANCE-2 study readout and what response threshold, if achieved, will make the program a successful one?.

Yes. No, great question. I think as always in a Phase III program, I think hitting statistical significance on the primary endpoint is always important. Just to remind everybody, we have 90% power in the study to detect a difference of 59 milliliters in FEV1 0 to 12 hours which is a primary endpoint at week 12.

So I think that any improvement in lung function in a patient who needs additional improvement which the study is designed to look at is important. And at the same time, there is no magic number of somehow 40, 50, 70, 90 mills are specifically different in how the patient feels. But we could all agree that greater improvements are always desired.

But at the same time, any improvement is important. I think in addition to the primary endpoint of FEV1 0 to 12, week 12, I think that secondary end points are also always important in a clinical study.

In this instance, symptoms and quality of life which based on the Phase II data, we were extremely encouraged by the effect that was seen over four weeks with these measurements actually being assessed over 24 weeks.

And based on previous studies and the effect we saw in Phase II and previous studies of other drugs in Phase III, we would expect to see improvements again on these secondary endpoints. So I think it's always a total picture of what's important in a Phase III program. I just highlighted, I think, what are the key elements.

At the same time, ultimately, it's a benefit to risk assessment that really is how drugs get assessed and approved. So what is the total picture of benefit what is the total picture of risk. And is that in the favor of the drug and justifying it's use in patients.

And so I think when I look at it, I always -- instead of just one parameter, I always want to assess all aspects and put together the benefit to risk with really an NDA is -- what that is structured to demonstrate..

All right, that's it for me. Thanks for taking my questions..

Great. Thanks..

Our next question comes from Joon Lee with Truist Securities. You may now go ahead..

Hi, thanks for taking our question and for the updates. This is actually Asim Rana [ph] on for Joon Lee.

Are you able to provide any information on what proportion of the patients in the ongoing Phase III trials on baseline LAMA versus LABA? And can you remind us what the strongest evidence is that ensifentrine will work for patients with baseline LABA?.

Great. No, thanks for the question. I think that as expected, we have more patients receiving a LAMA than a LABA as is what's typically used in patients on single background therapy, although we do have patients that are on a LABA as well. We, of course, have Phase II data that demonstrated acute bronchodilation on top of LABA.

Of course, we have a larger Phase II trial that shows ensifentrine effects on top of a LAMA or tiotropium in that instance. Pharmacologically speaking, we don't see any differences as the acute bronchodilation occurs on the back of either a LAMA or a LABA.

And, of course, because of a different mechanism of action and the fact that these patients are all coming in with compromised lung function to start with without regard to whether it was a LAMA or LABA.

And we feel we have adequate data to demonstrate that pharmacologically, we will get comparable bronchodilation based on our Phase II data, whether they're on a LAMA or a LABA..

Okay. Thank you so much..

[Operator Instructions] Our next question comes from Tom Shrader with BTIG. You may now go ahead..

Good morning. Thanks for taking the questions. It's a heck of a time to run a trial, isn't it? I had a question on ENHANCE-1.

Did the first 400 patients have to go into the 48-week arm? And just on your enrollment expectations, is it now easier to fill the 24-week patients?.

No, they weren't all required to be in the 48-weeks subset. We had sort of a desire and, of course, a strategy of ensuring that we enrolled the 48-week patients earlier rather than later. But during that period of time, while we were recruiting into the 48-week subset, patients were recruited into the 24-week subset.

But you can imagine, we were asking sites and -- targeting sites that felt that they had patients that would want to be in the 48 weeks of it, keeping in mind they had to consent to that.

And so we were pleased with accomplishing that in December of 2021 so that we can continue to enroll because we already had enrolled patients in the 24-week subset as well and continue to enroll that.

And again, based on our trajectory, the patients where we are now, the patients that are in the run-in period and our current lineup of sites, we again expect to complete enrollment around the end of the second quarter of 2022 into ENHANCE-1. And we, of course, manage and work on that daily..

Great. And then a follow-up which I think is really for Chris. I understand the primary for -- approval is the average FEV1 over 12 hours. I'm curious if the trough FEV1 at the end of the second dose matters from a commercial point of view. I think that's -- for the QD drug, that's often what people are used to looking at.

And I'm just -- Chris is -- curious of Chris' thoughts on whether that's a key marketing number for you guys..

Yes. Thanks, Tom. Yes, when we look at our market research and our conversations with both on the KOLs in the community, the trough FEV number is not something that will dictate or change the commercial uptake. It's the totality of the picture for ensifentrine.

So if we think about the profile that ensifentrine could produce in the Phase III which is improvements of lung function which is, as you stated, the FEV1 -- average FEV1 0 to 12, improvements in symptoms and quality of life. That profile is extraordinarily compelling to the health care provider in adopting ensifentrine over time.

So when we think about trough, trough is not essential from a commercial standpoint as far as uptake or changing uptake for the molecule..

Okay, great. Thank you. Good luck with the enrolment [ph]..

This concludes our question-and-answer session. I would like to turn the conference back over to David Zaccardelli for any closing remarks..

Great, thanks. We would like to thank you and for your questions today and thank the patients and health care professionals participating in an ENHANCE program. We look forward to speaking to many of you about the potential of ensifentrine in the coming weeks and months.

And finally, 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..