Dr. David Zaccardelli - Chief Executive Officer Mark Hahn - Chief Financial Officer Dr. Kathy Rickard - Chief Medical Officer Chris Martin - Senior Vice President of Commercial.

Welcome to Verona Pharma's, First Quarter 2022 Financial Results and Operating Highlights Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Earlier this morning Verona Pharma issued a press release announcing its financial results for the three months ended March 31, 2022.

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 the COVID-19 pandemic and the Russia, Ukraine conflict on such progress, and on the status, recruitment, timing, results and costs of our clinical trials.

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 obligations to do so, even if subsequent events cause its views to change.

After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. 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 today are Mark Hahn, our Chief Financial Officer; Dr. Kathy Rickard, our Chief Medical Officer; and Chris Martin, our Senior Vice President of Commercial.

During the first quarter of 2022 we continue to make substantial progress toward completing enrollment in our Phase 3 ENHANCE clinical program. This advancement brings us closer to our goal of delivering ensifentrine, a novel inhaled PDE3 and PDE4 inhibitor and first in class product candidate for the maintenance treatment of COPD.

As a reminder each of the two randomized double-blind placebo controlled ENHANCE studies are designed to enroll approximately 800 moderate to severe symptomatic COPD subjects, for a total of approximately 1600 subjects across sites in the U.S., 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 subjects over 48 weeks. Turning to recruitment, in December 2021 we completed enrollment of approximately 400 subjects in their 48 week subset of ENHANCE-2.

Completing recruitment in this subset of ENHANCE-1 is a critical driver for reporting top line data from this study. We continue to progress enrolment in the 24 week subset of ENHANCE-1. As of May 2, 2022 the ENHANCE-1 trial had approximately 90% of subjects randomized into the study.

We expect ENHANCE-1 to be fully enrolled in the second quarter of 2022. In January 2022, we completed enrollment in ENHANCE-2 with more than 800 subjects randomized. The design of the ENHANCE program was based on analysis of our two Phase 2b clinical trials, which both enrolled approximately 400 subjects with moderate to severe COPD.

This includes similar entry and exclusion parameters, as well as key study endpoint. To-date, overall population attributes including demographics, and baseline COPD characteristics including smoking history, lung function, symptoms and quality of life for subjects in the ENHANCE program are similar to those seen in the Phase 2b trial.

While both ENHANCE trials were expected to enroll approximately 50% of subjects on background therapy, we expect to enroll approximately 55% to 65% in each study, which reflects current treatment practices.

Looking to results, we are on track to report topline data from ENHANCE-2 in the third quarter of 2022 and from ENHANCE-1 around the end of the year.

Top line data from both ENHANCE trials will include the primary endpoint, improvement in lung function as measured by average force expiratory volume in one second or FEV1, area under the curve or AUC 0-12 hours post dose at week 12, as well as secondary endpoints comprising measurements of COPD symptoms and health-related quality of life, including ER-S and SGRQ endpoints, as well as overall safety data.

As previously stated, our projected enrollment time lines in ENHANCE-1 and ENHANCE-2, as well as timing of topline data are based on our ability to continue navigating the COVID-19 pandemic and ongoing restrictions and sanctions and other challenges posed by the Russia, Ukraine conflict.

Conditional upon positive results, the company plans to submit a new drug application to the U.S. Food and Drug Administration in the first half of 2023. On the corporate front, in March 2022 James Brady joined our Board as a Non-Executive Director bringing 30-plus years of experience in the biopharmaceutical industry.

He has a wealth of leadership, strategic and commercial expertise, which will be key as we prepare to submit our NDA and progress our commercialization and licensing strategy. James has served in multiple leadership roles across the U.S., Europe and China during his career at AstraZeneca.

Most recently, he served as Chief Financial Officer of MedImmune, a biologics discovery and development division of AstraZeneca. We continue to proceed towards our objective to bring ensifentrine to the millions of COPD patients who are not well served by available treatments.

Worldwide, over 380 million patients suffer from COPD and it 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, with product sales for the maintenance COPD market totaling over $10 billion per year.

Despite the availability of existing COPD treatment, more than 1 million patients remain symptomatic on maximum therapy, highlighting the need for novel medications to provide relief to these patients. Outside of the U.S. millions of COPD patients remain symptomatic and urgently in need of additional treatment.

Looking ahead, we expect 2022 to be another exciting and productive year. In May we will present a LATE-BREAKING abstract at the American Thoracic Society Meeting in San Francisco on our successful Thorough QT Analysis demonstrating Ensifentrine had no clinically relevant effect on cardiac conduction.

On the morning of June 16 we planned to host an in-person KOL event in New York, ahead of our top line Phase 3 data-readout in the third quarter.

This event will feature management and KOLs who will discuss the current COPD treatment landscape, unmet needs and how ensifentrine’s novel profile could help manage the current challenges within the treatment paradigm.

We are looking forward to enrolling the final subjects in ENHANCE-1 and excited about reporting top line data from our Phase 3 ENHANCE program later this year. I will now turn the call over to Mark to review our financial results for the first quarter of 2022. .

Thank you, Dave. We ended the first quarter of 2022 what $132.8 million in cash and equivalents.

We believe our cash and equivalents at March 31, 2022, expected cash receipts from the U.K., R&D tax credit program and funding expected to become available under the $30 million Silicon Valley Bank debt facility, will enable us to fund our planned operating expenses and capital expenditure requirements through at least the end of 2023.

For the quarter ended March 31, 2022 the loss after tax was $24.8 million compared to a loss after tax of $21.3 million for the same period in 2021. This represents a loss of $0.05 per ordinary share or $0.41 per ADS for the quarter, compared to a loss of $0.05 per ordinary share or $0.36 per ADS in the first quarter of 2021.

Research and development costs were $17.6 million for the quarter ended March 31, 2022 compared to the $13.6 million recorded for the first quarter of 2021.

The increase of $4 million was primarily due to a $5.6 million increase in costs associated with the Phase 3 ENHANCE program, partially offset by a $2 million reduction in share based compensation charges.

Selling, general and administrative expenses were $7.4 million for the quarter ended March 31, 2022 compared to $9.3 million recorded for the same period in 2021.

This decrease of $1.9 million was primarily driven by a decrease in share based compensation charges of $3.1 million and a $600,000 decrease in professional fees, partially offset by a $2 million charge related to the modification of the Ligand Agreement.

The U.K., R&D tax credit for the first quarter of 2022 was $1.3 million compared to a credit of $2.1 million for the quarter ended March 31, 2021. The decrease of $800,000 is due to changes in the SME, R&D tax credit program that established a cap, limiting the R&D tax credit to 20,000 pounds plus 3x U.K. Pay As You Earn and National Insurance Taxes.

In the next few months we intend to submit a claim for approximately $15 million related to our 2021 R&D spend. We expect to receive the reimbursement payment later in 2022. This non-dilutive 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. .

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

Good morning! Thanks for taking my question. I have a couple of questions about the background therapy. You said that 55% to 65% of the patients are expected to be on the background treatment.

Do you see any differences based on characteristics between those who are on background versus those who are not? And also, can you comment on what percentage of the enrolled patients are expected to be on the inhaled steroid.

And my second question is for the pipeline data in the third quarter, can you be kind to share which one is core data as well? Thank you. .

Hi Suji! Good morning! No, happy to touch on those. Yes, I think what we're seeing is the final breakdown in percentage of those on background therapy and those not on background therapy to landing somewhere in that 55% to 65% range approximately. I think that that is well in line with our expectations overall.

Definitely in-line with how we powered this study, reminding you that we powered this study to detect a difference of 59 millimeters and that 90% powered, to detect a difference the 59 millimeters in FEV1, AUC 0-12 and also remind you that in Phase 2, for those that are on background therapy, we saw approximately a 90 milliliter difference and those patients over four weeks.

So we feel comfortable with where we are landing and how the study is powered. With regard to baseline demographics, you know we're still assessing things overall. There is no particular reason we see any significant differences of those on background therapy and those that are not on background therapy compared to the Phase 2 experience.

Do want to remind you that of course the primary endpoint is done on the patient population in total, those that are on background and not on background and as you know we still have significant numbers of patients not on background.

So we think the blend is perfectly fine within the study assumptions and also how we've seen patients enrolled in their baseline demographics overall.

With regard to ICS background therapy, remind you that we capped that at 20% of the patient population and of course they also needed to be on background therapy, a LAMA or a LABA in order to on ICS as well. And we are seeing it not exceeding that at that time.

You know 302 or the ENHANCE-2 study has already you know completed enrollment and so we are underneath that threshold, but we did accumulate a notable amount of patients that are on ICS which we anticipated based on that amendment.

And I think your other question was the 24 week data for the top line results for ENHANCE-2?.

Yeah, ENHANCE-2 in the third quarter. .

Yeah, we will have 24 week data related to SGRQ and E-RS and symptoms, quality of life, that's were that primary endpoint comes from. We’ll also have insights to that end point over the study as well, but we will have it for 24 week as well. .

Great! Thank you. .

Thanks. .

The next question comes from Andreas Argyrides with Wedbush Securities. Please go ahead. .

Good morning, and thanks for taking our questions. Just two for us here.

So, even though the Phase 3 is not evaluating ensifentrine for COPD exacerbations, of COPD patients remain symptomatic on the current therapies, are there any phenotypes that you anticipate will be the most responsive to ensifentrine based on the data you guys have generated so far.

And then, if the three ensifentrine shows a greater effect on FEV1, but less of an impact on symptoms, what impact would this have or could have on the commercial uptake or any color on that. I appreciate it. .

Sure. Hi Andreas! Good morning! You know I think as you as you pointed out, the study is not designed as an exacerbation endpoint study, but we are capturing those events in the study.

We also have mentioned that our overall intent is to look at that on a combined study, analysis of ENHANCE-1 and ENHANCE-2 and of course ENHANCE-1 is still moving forward and still completing enrollment as had mentioned.

We haven't broken it down to any specific phenotype and again, it's not even a listed secondary endpoint, but rather an exploratory endpoint. With that said, we do – we are accumulating exacerbation events in the study. So I think we are quite interested into seeing how that looks in the final analysis.

But either way it doesn't impact on how we view this study with regard to the primary endpoint and the secondary endpoints, but it will be interesting to see.

You know, as far as every possible permutation of results, you know primary and secondary endpoints and which ones do better and which ones don't do better and how much better and all of that, I think it’s a little bit difficult to do that without the data, because it's an endless conversation.

I think we believe that hitting the primary endpoint of course is important as it always is in Phase 3. We design the study specifically to look at secondary endpoints over 24 weeks, keeping in mind, remember the primary endpoint is measured at week 12.

And that's what's required to demonstrate chronic bronchodilation or lung function improvement in COPD. And so you know the studies are designed to look at secondary endpoints and we believe in them based on Phase 2 data.

But I would say, as we look at everything and when we have the results, it's really an integrated analysis of benefit to risk and that's what ultimately is evaluated on drugs that are approved. That is the total benefit; whatever that is related to primary and secondary endpoints.

You know it outweighed any risks and is the benefit to risk strong enough for approval.

And so I think that's what we're looking at ultimately, is the profile of Ensifentrine benefit to risk and we are quite confident in it based on the Phase 2 data, and remind everyone that we've had a very favorable safety profile for Ensifentrine, which then lends itself to a strong benefit to risk.

So we’ll see and we look forward to sharing the data with everyone. .

Thanks. Looking forward to the Investor Day in June. Thanks. .

The next question comes from Boobalan Pachaiyappan with H.C. Wainwright. Please go ahead. .

Hi! Can you hear me okay?.

Yes, perfect. .

Awesome! So just a couple from our side.

So just to be clear, so 80 patients are left in order for you to complete the enrollment process of the 24 week subset of ENHANCE-1, is that right?.

We guided to approximately 90% of the study is enrolled against 800 – approximately 800 patients. So you can do the math and probably that gives you insight..

Okay..

You know yeah, that – it changes all the time, so I'm reluctant to give you an exact number. .

Okay, that's fine. So I just wanted to make sure I heard it correctly. So I mean, for math its 80 patients, so. And with respect to R&D expenses, so obviously they were roughly $17.6 million for the first quarter.

So how do you expect the cadence to look like for the next quarter on maybe for the rest of the year?.

Yes, thanks for the question Boobalan. I think what we'll see is that the R&D will continue say in that general neighborhood for Q2, and then it should start to taper off in the back half for the year, quite significantly by the end of the year. .

Okay, got it. And then one final, so obviously ensifentrine will hit a meaningful instruction this year hopefully.

So how should investors think about the cadence of other programs?.

Yeah.

No, a great question and as you know we've been very focused on executing the COPD program over the past couple of years, and I think that’s served ensifentrine well and Verona well to have that focus, and it’s one of the things that we did when we joined the companies to make sure that that occurred, including raising the capital that was you know dedicated to executing the COPD program.

We have enormous of opportunity with ensifentrine in other indications, because of its clinical pharmacology and profile.

As we mentioned, there is opportunities in asthma, cystic fibrosis and we think that that’s enormous opportunity, especially in looking at other dose delivery approaches, including MDI and DPI, and so you should expect that as part of it.

We also see again and we're wanting to see the data overall, but clearly there's opportunity for combination of ensifentrine with other COPD products, for example LAMA, and you know that the COPD space says they are quite familiar with combination products and so you could expect a program to relate to that, either as nebulized and/or inhaled devices.

.

Thanks for the color. That’s it from us..

Alright, thank you..

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

I wanted to just ask, now that you know we’re getting closer now to giving these two Phase 3 readouts and an NDA filing at the beginning of next year.

Just wanted to kind of understand what's going to be happening I guess towards maybe the end of this year or beginning of next year, after the filing with regards to starting to build in earnest the commercial structure.

Just kind of what are the thoughts on timing and when that would start and the efforts that you'd be employing over time, before approval?.

Great! Yeah, thanks for the question, and great to talk with you this morning, and I'll turn that over to Chris to give you that review. .

Hey Edward! This is Chris. Great question.

I think one of the things that we've done with ensifentrine and Verona is really though the commercial build-out around our milestones and the first clinical milestone being positive data coming out of the ENHANCE-2 trial, and upon that that data will start to work toward building out the commercial organization and really starting to work around securing and discussions with payers to ensure that we have proper access.

In coverage for ensifentrine we get to launch.

The other things that'll be important as we get to launch is making sure that we're prepping the market appropriately, and what I mean by that is making sure the market’s ready for a new mechanism of action like ensifentrine, that provides both PD3 and PD4 inhibition and one molecule with bronchodilation and anti-inflammatory effects.

That activity is going to be critical as we get ready for launch. It's important that we feed the market with information around ensifentrine, so that the prescribers and the payers are ready for a molecule like ensifentrine when it comes out on the field.

The other thing that's important for us to do is really start to work with advocacies – advocacy groups and societies too as we think about how patients will take this medication and ultimately use it in their daily lives.

So those are a lot of the activities that we’ll be conducting over the next 18 to 24 months, and all of those are triggered around us reaching some of those critical milestones that we’ll see over the next six to 12 months as well. I hope that helps you there..

Yeah, thanks very much..

Yeah..

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

Hi! Thanks for taking our questions. You know assuming things go as planned, could you talk about your IP around ensifentrine and your strategy to expand commercial runway, and I have a follow-up question..

Sure. No, I think with regard to IP of course we are constantly attentive to it to start with and we believe we have an extremely strong IP position for ensifentrine and I think that's been looked at quite extensively by our investors primarily and others.

You know we have a – shall we say a network of patents that provide coverage and protection for ensifentrine commercially. You know they are grounded in three patents that sort of work together, our polymorph patent, our formulation patent and our manufacturing patent.

Of course we have others in addition to those as well, and we expect those to provide protection out to the mid 2030’s.

We also will have an opportunity to extend patent life on one of the patents as we apply for that extension, so which will allow maybe up to another five years, and so we again are quite confident in our patent protection past the mid 2030’s.

As far as protecting that runway, there are a lot of opportunities for lifecycle management with ensifentrine past that, different devices, approaches as I mentioned, combination of other drugs with ensifentrine. So I think that, between other indications, combinations, different delivery devices, we have enormous opportunity with ensifentrine. .

Okay. And its great to see you guys onboarding someone of Mr. Brady’s caliber. How are his visions for the commercialization and licensing strategy for ensifentrine similar or is different than what you have envisioned on the past couple of years as you are developing your ensifentrine. Thank you. .

Right, you're talking about our new board member James Brady?.

Yeah, exactly. .

Yeah, great. You know it’s fantastic to have him join the company. I think that speaks also a bit of volumes about Verona and ensifentrine as in wanting to join. As you pointed out, yes an extensive experience financially, commercially, strategically and have done multiple licensing deals you know for example.

So it's just tremendous to have him join the board. You know it's a little bit early days as you can imagine. It's been just a few months of that and so I think he's been contributing of course and also gathering a lot of information and learning about where we've been and what we're doing and making sure that he understands all of that.

But we look very much forward to his contribution as we work through the rest of 2022 and into 2023, where much of all of this action occurs. .

Great! Thank you. .

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

Hey! Good morning! This is [inaudible] calling for Tom. So two questions, the first question is, what is a general exercise of sales force that’s often in the field of COPD.

And the second question is, I was hoping if you guys can provide any additional color update on the development into China through the collaboration with Nuance and then any update on the potential licensing in the European market as well too. Thank you. .

Right, so thanks for those questions. Let me handle the last one very quickly with regard to licensing and other territories including Europe for example. Clearly it's part of our stated strategy and I think we continue to progress.

Although as you can imagine, as we're so close to the data, that it sort of is in everyone's best interest to get that, so that I think our ability to optimize ensifentrine and the financials around ensifentrine and the licensing deal are best represented by having the data now.

We did the China deal with Nuance in Greater China you know a little earlier, of course on terms that we thought were extremely favorable as well. And now well I think practically speaking, we’ll wait to see the data and then move forward with our licensing strategy.

With regard to the Nuance update and sales force sizing, I’ll turn that over to Chris who manages that area. .

Thanks Dave. And I'll start with kind of sales force sizing and then move into the China Nuance partnership.

As far as sales force sizing for this opportunity, if we look at our market research and how we believe ensifentrine will be utilized, which is on top of existing therapies for patients that are symptomatic, what we see is that as patients continue to be symptomatic with COPD, they transition out of primary care and into pulmonologist, and that transition allows us to be a lot more targeted in our sales force deployment.

When you look at the pulmonology community that's out there, there's about 12,000 to 13,000 pulmonologist in the United States. And so given that size, we anticipate that a sales force of around 100 sales representatives would be adequate to reach the physician opportunity, as well as the patient opportunity.

And we believe there's well over 1 million patients that are remaining symptomatic on just maximal therapy. So that 100 person sales force could reach that opportunity very effectively. Switching gears to China, our partnership with Nuance has been working very well.

They continue to progress the documentation with the CDEs to move toward IND, and that progression will continue over the course of the year, and we look forward to potentially updating their progress as we move through 2022. But the partnership and their work has been moving on very, very seamlessly with them. .

Great! Thank you. .

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

Thank you. We would like to thank everyone for your questions and to thank the patients and healthcare professionals participating in the ENHANCE program.

As a reminder, our near term milestones include completing enrollment in the Phase 3 ENHANCE program in the second quarter of 2022; reporting top line data from ENHANCE-2 in the third quarter of 2022 and from ENHANCE-1 around the end of the year; and a condition of on positive results, submitting an NDA to the U.S. FDA in the first half of 2023.

We look forward to speaking to many of you about ensifentrine in the coming weeks. 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. .

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