Good morning. Welcome to Verona Pharma's First Quarter 2023 Financial Results and Operating Highlights Conference Call. At this time, all participants are in a mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the 3 months ended March 31, 2023.

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.

Any such forward-looking statements represent management's estimates of the -- 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 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, we continued to make substantial progress towards the planned submission of our NDA for nebulized ensifentrine for the maintenance treatment of COPD in the United States. We recently had a pre-NDA meeting with the FDA and believe that we are aligned on the content of the regulatory package.

The NDA will comprise data from the successful Phase III ENHANCE program and other ensifentrine clinical studies including safety data from approximately 3,000 subjects. We remain on schedule to submit the NDA in the second quarter and look forward to providing an update later this quarter. In parallel, our pre-commercialization efforts and U.S.

launch activities are proceeding as planned.

After reporting our positive ENHANCE-2 data in August 2022, we began adding key leadership positions across commercial, HR, IT and finance functions and after announcing the ENHANCE-1 data in December 2022, we expanded these efforts adding leadership positions across medical affairs and compliance and deepened our commercial teams in marketing, market access and commercial operations.

Our pre-commercialization efforts continue to accelerate as we prepare the market for the potential launch of ensifentrine in the second half of 2024. These efforts are critical in setting the stage for ensifentrine, which has the potential to be the first novel MOA launched for the maintenance treatment of COPD in over 10 years.

Turning to our global partnering strategy. Last month, Nuance Pharma, our development partner in Greater China, announced they enrolled the first subject in their Phase III trial evaluating ensifentrine for the maintenance treatment of COPD in China.

As a reminder, Nuance Pharma has exclusive right to develop and commercialize ensifentrine in Greater China, and as such, will play a key role in addressing the global need for a novel treatment for COPD.

Nuance Pharma previously received clearance from China's Center for Drug Evaluation to begin Phase I and Phase III studies with ensifentrine for COPD in China, and we look forward to providing further updates as these studies progress. We believe ensifentrine, if approved, has the potential to change the treatment paradigm for COPD.

The data from our Phase III ENHANCE program was highly positive. And ensifentrine successfully met the primary endpoints in both ENHANCE-1 and ENHANCE-2, demonstrating statistically significant and clinically meaningful improvements in lung function as well as remarkable reductions in the rate and risk of exacerbation.

The success of these trials and our work towards submitting the NDA for ensifentrine brings us closer to providing ensifentrine to a patient population in urgent need of a new effective treatment option.

As announced earlier this month, we are looking forward to presenting additional analysis from the ENHANCE study at the American Thoracic Society International Conference later this month.

We will present 12 abstracts and a clinical trial symposium on subgroup data and pooled analysis from ENHANCE-1 and ENHANCE-2 covering exacerbation, symptoms, quality of life use of rescue medication, healthcare utilization and safety.

An overview of the ENHANCE trial results will be presented as part of the clinical trial symposium reserved for highlighting new breakthroughs. The abstracts are published on the ATS website and in the May issue of the American Journal of Respiratory and Critical Care Medicine.

We will also be hosting a webcast and conference call on Tuesday, May 23, to discuss these data. Currently, more than 380 million patients suffer from COPD worldwide. And it is the third leading cause of death.

Despite the availability of existing COPD treatment, approximately 50% of patients experienced symptoms for more than 24 days per month, and physicians require new and effective COPD therapies to provide relief to their patients.

With its novel mechanism of action as a selective PDE3 and PDE4 inhibitor, we believe ensifentrine, if approved, will be a transformational advance in the treatment for COPD patients. In conclusion, we expect 2023 to be another pivotal year for Verona as we advance towards our mission of delivering ensifentrine to patients with COPD.

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

Thank you, Dave, and good morning, everyone. We ended the first quarter of 2023 with $291.4 million in cash and equivalents. We believe our balance sheet remains strong and with the cash currently on hand, expected receipts from the U.K.

tax credit program and funding expected to be available under the Oxford loan facility, we expect to have sufficient runway at least through the end of 2025, including the planned commercial launch of ensifentrine in the United States pending regulatory approval.

For the quarter ended March 31, 2023, the net loss after tax was $16.7 million compared to net loss after tax of $24.8 million for the same period in 2022. This represents a loss of $0.03 per ordinary share or $0.22 per ATS for the quarter compared to a loss of $0.05 per ordinary share or $0.41 per ATS for the first quarter of 2022.

Research and development costs were $12.6 million for the quarter ended March 31, 2023, compared to the $17.6 million reported for the first quarter of 2022.

The decrease was primarily due to a $5.1 million decrease in clinical trial and other development costs as Q1 2022 was a period of heavy trial enrollment and Q1 2023 was focused on finalizing data analysis and related activities of the Phase III ENHANCE program.

Selling, general and administrative expenses were $9.6 million for the quarter ended March 31, 2023 compared to $7.4 million reported for the same period in 2022.

This increase was primarily due to a $2.7 million increase in people-related costs, including share-based compensation as well as an increase of $0.8 million in cost related to the build-out of our commercial infrastructure as we prepare for a potential commercial launch.

The increase in SG&A expenses was partially offset by the nonrecurring $2 million charge related to the modification of our Ligand agreement, which was incurred during the first quarter of 2022. I'll now turn the call back over to the operator for the Q&A..

[Operator Instructions] The first question is from Yasmeen Rahimi with Piper Sandler..

Hi, guys. This is Lauren on for Yas. Just a few questions for us.

First, could you comment on what type of feedback you received in your pre-NDA meeting? And then how important is completion of the pre-NDA meeting and strategic discussions?.

Hello and good morning. Yes. So the pre-NDA meeting as really expected -- was structured around, I would say, highly administrative in nature regarding content, how we were handling certain data what the agency wanted to see in certain areas.

And so there was nothing that was difficult, problematic or anything like that, but rather just confirmatory and making sure that we were aligned as we mentioned in the press release with regard to the content and the format of the NDA. So I think we covered many topics as you should typically in these meetings.

And as I said, I think we're in a good position to, again, meet our timeline projection of submitting in the second quarter. With regard to the pre-NDA meeting as an item for partnering, I think all activities had some impact depending on the partner. So really, it's difficult to assess that exactly.

But progress is continual with us, and I think all of these activities are helpful in our partnering..

Great. And just one more. Why is ATS such a clinically important conference for you guys with the 12 posters, -- just maybe a little bit of color there. Well, I think timing is important, of course. It was really the first major conference that we had after really getting all the data from the ENHANCE program. So I think timing worked out very nice.

We also have a very strong history of transparency, making sure that we provide all the data that we can in the right forum, I think we're very excited about all the data that we're sharing at ATS with regard to subset analyses. And as I mentioned, a lot of different pooled analyses as well between the ENHANCE-1 and ENHANCE-2 study.

So I do encourage everyone to be there. I think it's going to be an exciting time. And really a moment where ensifentrine is going to be highlighted for all the data that we've generated over the years and specifically an enhanced program. So a big moment for ensifentrine for sure, and we look forward to it..

The next question is from Andreas Argyrides with Wedbush Securities..

Hey, good morning. And thanks for taking our questions. Yes, follow up to the question that was just asked on ATS. You have a lot of posters there, and you have some subgroup analyses.

How are you framing -- or how are they framing how you're thinking about the commercial opportunity where ensifentrine sits in, in the ideal patient population for this therapy? And then what are the gating factors to submitting the NDA?.

Sure, Andreas. Let me sort of take the second one first, and then I'll turn it over to Chris for him to comment on our commercialization. I think the gating items for the NDA is just what an NDA is. And that it is a massive document, sub documents -- interrelated documents and the totality, the program, which is substantial in putting that together.

And so the team has been working diligently to do that. And we've made incredible progress. And at the same time, some of the items can't be done concurrently. They must be done consecutively as they feed off each other as far as the content when you put together an NDA.

And so all of that is lining up and really if you want to call that gating, it's more of just the work streams that are involved in putting together an NDA. And maybe one who've done it, understands the magnitude of that event and that workload. So that's where we're at, and we're quite pleased with the progress.

So with that, I'll turn it over to Chris..

Thanks Dave. Andreas, I appreciate the question that you posed about ATS and where ensifentrine fits in. I think one of the great things about the ATS conference coming up is the data that will be highlighted there continues to show the consistency of how ensifentrine performs in a COPD patient population.

I think when you look at the data that we've produced out of the ENHANCE trials, and it will be shown at ATS but we also see in our market research, which is physicians being attracted to this early and sustained response of ensifentrine, that's seen in the lung function data, where you have acute bronchodilation, but also seen in symptoms and quality of life improvements, but then also seen in the exacerbation risk reduction, which separates from placebo between 4 and 6 weeks.

So when you take that totality of a profile, what you see is physicians from a market research standpoint, really seeing ensifentrine as an extremely complementary product to the current mechanisms that are out there. So they're using ensifentrine as an add-on in our market research to those patients that remain symptomatic on all current therapies.

I think one of the things that we know about the COPD patient population today is that they're still struggling with daily burdens of symptoms, and they're still struggling with the risk of exacerbations. And up until the potential approval of ensifentrine, the doctors have been limited in MOAs that they've been using for 20-plus years.

So the physicians are extraordinarily excited when they see in a profile of ensifentrine, and they see patients that come in on a very regular basis that are symptomatic in a need of additional health, that ensifentrine could provide a much needed alternative and new kind of weapon in their treatment paradigm for the patient.

So we see very broad usage of ensifentrine across symptomatic COPD patients that are on the current therapies..

The next question is from David Risinger with SVB Securities..

Thanks very much. Good morning, David and team. So I have two questions.

First, could you provide some more color on your vision for commercial adoption of ensifentrine, including the expected mix of prescribing between pulmonologists versus other prescribers? And then second, could you provide an update on your Phase II development programs and go-forward R&D spending relative to the $12.6 million in the first quarter?.

David, maybe I'll just comment briefly on the Phase II programs. Mark can comment on spend and then Chris can comment on the commercialization question. So our Phase II programs, I guess, specifically you me referring to asthma, for example, cystic fibrosis are tremendous opportunities for ensifentrine as we move forward.

They're based on the pharmacology, as you know, ensifentrine makes great sense in asthma for sure, and we look forward to progressing that. We've been very careful to stay focused really since joining in the beginning of 2022 to progress the COPD indication, which we have.

And I think we'll continue to do that through 2023 being laser-focused on making sure that we bring ensifentrine for COPD forward.

We do look to our partners to help us with other indications, specifically around devices, for example, MDI, DPI and the size offering expertise, possibly a proprietary devices and intellectual property around the space, all would be advantageous as we continue the development in these other indications.

So I would not expect great differences in our strategy in '23. But as we get through '23 and into '24 and as our partnering continues to progress, I think you'll see more clarity around that.

I do want to comment that we are progressing ensifentrine and a LAMA combination nebulized product for COPD, we find that fits very nicely with the pharmacology, fits very well with how physicians treat patients allows us to really look at a dual bronchodilator with different pharmacology and anti-inflammatory activity in a nebulized product, which doesn't exist.

And we think that's a great step forward for ensifentrine as well. And so you'll hear more about that as we progress through 2023 as well.

So with that, I'll ask now, Mark, do you want to talk about anything with regard to spend?.

Yes. So just a couple of thoughts. One is that there are some, I'll call lingering costs related to the Phase III program as we're continuing to work with IQVIA and other suppliers on the wrap-up of the study. There's also, as Dave mentioned, some early costs related to that combination product, we're doing some formulation work.

So there will be some, I would call it, small dollar spends on that. And then, of course, there's the NDA filing fee that will be incurred this quarter as well. And then there's some CMC work going on as we do the validation batches.

So I think as you look at it from a spend perspective, the $12.6 million will probably be tapering down over the balance of the year. But it will still be -- it could still be fairly significant in Q2 and then much lower as we get through Q3 and Q4..

And then I can answer the comment on the color and adoption and what we think of the mix here, David, for you. So as we think about ensifentrine at launch, we believe that about 100 reps are the appropriate size sales force to reach the opportunity for the ensifentrine patient and the prescribers that are most likely to use ensifentrine.

From our market research, what we see is that pulmonologists, we believe, are the driver of utilization and adoption early on with ensifentrine.

So our primary focus from a call point will be pulmonology, but there are also nurse practitioners and PAs, nurse physician assistants that we believe are very important and are one of the largest growing prescriber segments within COPD. That will be influential in the treatment of the COPD patient, but also the adoption of ensifentrine.

And then there are certain areas in the country where patients do not have access to a pulmonologist -- and we believe that in those type of areas, we would be calling on what potentially some -- not a large number, but some primary care doctors that are acting like pulmonology within the community.

And all we believe that there's about 12,000 -- 12,000 to 13,000 physicians that will be critical for adoption at the initial stages of launch with ensifentrine. And again, about 100 reps are able to handle that quite easily, and we believe is the right way to size the organization as we prepare for launch..

The next question is from Tom Shrader with BTIG..

Good morning. Thanks for taking the questions. You're sitting on a pile of data.

I'm wondering what your publication schedule looks like? And is it as soon as possible in your minds? Or does it make sense to wait for closer to the launch? And then with a related question, I think probably for Chris, we've done a lot of KOL work, and we get wildly disparate answers.

We get people who want to use the drug in 1/3 of their patients on day 1 and people who say serious patients only. And I'm curious if you're getting the same sort of feedback and what data is most compelling in talking to people and changing their minds..

So just a brief comment on publication strategy, and I'll ask Kathy to opine as well. It is that we are -- we do have a mountain of data, as you mentioned, much of that is going to come out as well at ATS. We have submitted the enhanced publication. And so we would expect that to come out as we don't control the timing very much.

But of course, we expect that to come out in the relatively near future, hopefully. And then we would continue to progress. And I don't know if, Kathy, you want to comment on publications overall and ATF specifically..

All right. Well, as they say, the enhanced data is submitted and we're waiting for the go ahead with that. We have a couple of other publications that were submitted recently. And again, that as Dave says, we don't control the timing of those, but we anticipate those were coming out recently.

Also all the data presented at ATS, many of those will be now worked into various forms of formal publications to different scientific journals to further enhance the background and the profile of ensifentrine.

I think it's very important to understand that ATS is probably the leading scientific meeting of all respiratory experts around the world, particularly also in the U.S. And so we anticipate that all of that data being presented there will be very well received, and we'll continue to proceed with publications for those data..

And Chris, do you want to talk about our market research?.

Yes. Thanks, Dave, and thanks, Tom, for the question. One thing we -- as you mentioned, we have mountains of data on ensifentrine from the ENHANCE studies, we now have a significant amount of market research on ensifentrine, too.

I think we're close to almost between 800 and 1,000 HCPs over the course of the last few years talking about ensifentrine in market research.

And the thing that we've seen within that is very similar to what we saw in the clinical data, which is there's consistency in how they answer, how they'll use ensifentrine and what they see the potential of ensifentrine being.

I think what they see ensifentrine has is the potential to be a novel mechanism that can be added to many symptomatic patients that are in their practice.

As you mentioned, the serious patient, as we talk to KOLs, one of the places that's the first place that they think about using ensifentrine is maybe on top of those patients on dual or triple therapy that are symptomatic.

We know there's a significant number of those patients on them out there in the market, and those physicians have no other choices to use, or they have very limited choices to use in that patient population.

But as the ENHANCE data has come out and we went from ENHANCE-2 to ENHANCE-1 and you saw the consistency of the data on lung function symptoms and exacerbations, physicians started moving the drug earlier into the treatment paradigm.

So they're looking at these patients maybe on a single bronchodilator or a LABA ICS, which is almost 5 million to 6 million patients in the United States. And they say the next logical choice really is ensifentrine, given the data that's come out of the clinical trials.

So you see that second and then sometimes the first patient being that much broader patient population in the physician's minds as well.

I think the other thing that's really important, and you asked about the compelling data points that physicians point to, it's a balance between efficacy profile, which shows the early and sustained response on all key measures that they're worried about, lung function symptoms at risk of exacerbations, but that's balanced with a safety profile that's comparable or similar to placebo.

So the physicians can get this profile of a novel mechanism without taking much risk. So that allows them to make very quick decisions and choices and adding ensifentrine to these patients. And in most cases, they're going to be able to find out in a short period of time how the product is going to work within the patient population as well..

The next question is from Boobalan Pachaiyappan with H.C. Wainwright..

Hi. Good morning, team. Congrats on the progress. A few questions from us.

Firstly, can you speak to us whether the FDA has provided any comments or clarifications regarding the applicability of [inaudible] data for NDA filing, particularly about ISS, ISE and CMC sections and did they communicate any outstanding issue in their radar?.

Of course, we would cover general concepts with regard to ISE, ISS. For example, CMC topics as well. And as I've mentioned, there is nothing that we see is prohibiting us from proceeding with the submission in the second quarter.

Much of the meetings were, again, as I mentioned, related to alignment, clarification, confirmation and making sure we understood and they also had the information from us about how we were going to approach different topics in those sections.

So again, very pleased with our progress and I think for a pre-NDA meeting and accomplish what -- exactly what it's supposed to do..

Okay.

Can you share any preliminary discussions you had with the agency with respect to ensifentrine label? And also what label expansion or improvement opportunities are you more excited about in the future?.

Yes. I mean I think it's incredibly premature to talk about the label. I think that everything is a review issue, as you'd expect. And so we will submit what we view as the label and then the review will commence. So I think, again, we'll wait on that. As far as expansion in the label, I think there are many opportunities for us.

I think we first need to see where we end up.

Of course, at the end of this process as well as looking for other indications, as I mentioned, as well as expansion of other products with ensifentrine as a combination with a LAMA, for example, I think are great opportunities to continue to allow ensifentrine to be utilized in COPD and to extract the maximum benefit for patients from ensifentrine.

So I think there's a lot of opportunity as we progress with it..

Okay. Maybe one last one, maybe for Katie. Kathy, sorry. So just curious to hear your thoughts on off-label use of biologics in COPD treatment.

Maybe staying in that lane, how does Dupixent COPD exacerbation data stake up against your ensifentrine performance? And then how this could impact in ensifentrine adoption?.

Kathy, do you want to talk about that?.

Sure. I think you need to understand that there are very different populations of patients that are being studied here. So DUPIXENT really looks at the patients who are very severe having multi exacerbations in only those patients. And so they have an effect in patients who have really on the end of the spectrum for that.

So it's a very small limited population of the COPD patients that we all treat as pulmonologist. The very difference of ensifentrine is we're looking at the general COPD population. So the population that's treated every day by pulmonologists in the U.S.

and as Chris mentioned, PAs, NPs and in primary care physicians, patients who have COPD that may or may not have an exacerbation 1 or 2 year, but have a lot of symptoms, have a lot of problems.

And the significance of that is that we are able to show a significant decrease in exacerbations in this very general population, which we didn't have to enhance for patients who are having exacerbations.

And the reason why many products do that is because they can't show a difference unless they enhance for patients who are having many exacerbations.

So I think the relevance of ensifentrine is, it's applicable to all COPD patients out there, whereas many products, including Dupixent are only applicable to a certain small portion of the COPD population. I hope that helps..

The next question comes from Joon Lee with Truist..

Hey, thanks for taking our questions. As Tom just alluded to, you have a mountain of data and one in particular was interesting, the abstract showing that subjects with -- even subjects with [inaudible] greater than 150 cells per microliter benefited from ensifentrine.

Is there any reason why some COPD patients with allergic component wouldn't use ensifentrine? And I have a follow-up..

Kathy, you want to comment on that?.

Right. There is no reason why you wouldn't use it. And I wouldn't -- I'd hesitate to call it an allergic component. That certainly could be driving it in some COPD patients, but not necessarily in most COPD patients.

It's just an interesting pattern that some patients have higher eosinophils in COPD, which is, again, a smaller number, generally about 25%, maybe 30%. And oftentimes, you see that around an acute exacerbation, so we're not quite sure why the [inaudible] thought at that time.

So I don't think there's any reason to suspect why there would be a different effect. In fact, we would not only -- there's no reason, we've actually shown that we work in both subjects who have high eosinophil and low eosinophil. So it doesn't affect the ability of ensifentrine to work in those types of patients..

And then as you look at the COPD patients, like what percentage of COPD patients who are contraindicated for being on LAMA-LABA dual therapy?.

Kathy?.

Are you asking what percent are contraindicated for LABA LAMA dual therapy? Is that the question?.

Yes, what percentage of COPD patients are not qualified or have pre-existing medical condition or [inaudible] issues that would preclude them from being a LAMA and LABA?.

All right. Well, that's kind of a broad question. Quite frankly, it really depends on the individual patient and the physician needs to assess their background use of other medications in the past, whether they've gone [inaudible] in the past, their underlying status of cardiovascular disease and so forth.

So I don't know that I can statistically tell you that there's a certain percentage that are contraindicated, but certainly, you need to take the whole gestalt of what was done with the patient before what the reactions for and all of their underlying medical conditions, as you know, from a COPD perspective, many of these patients have many other comorbidities that we have to take in hand when we're looking at how to treat them..

Yes. And last question, you have a lot of presentations of ATS.

What additional data could we possibly expect a test in October?.

Kathy?.

So we are going to be expanding on the data we're showing at ATS. So further analysis, further subgroup analysis, further data on safety from that perspective. So just bringing out more of the nuances of the amount of data, which is Dave and all have said, we have extensive data.

And so we're trying to bring all the different facets of that, and that's what some of the abstracts we'll be presenting at check also..

Next, we have a follow-up question from Yasmeen Rahimi with Piper Sandler..

Hi, guys. Thanks so much. Sorry just one last one for me for Chris.

Could you just talk to us about your game plan post-NDA filing and acceptance?.

Yes. Lauren, thanks. I think as we get past the NDA filing, we'll just -- we will continue to accelerate our commercialization efforts. So I'll talk in a couple of buckets. One is on like distribution and market access. Our team has been working very diligently in setting up our distribution pathway for ensifentrine to get product to the patient.

And we've been actively having discussions on the market access side. So we'll continue to ramp up those discussions and finalize that distribution pathway and continue to work with the payers as far as how ensifentrine will be covered outside of Medicare Part B because we know Medicare Part B is the primary reimbursement channel.

So that will be one work stream that continues to accelerate. I think another important work stream that not only my team from a marketing perspective but also medical affairs are working through, which is disease shaping or market shaping.

As Dave mentioned, ensifentrine has the potential to be the first new product launch in new mechanism in over 10 years. So the idea of making sure the market is ready and providing the right information to the market from a disease state education will be critical.

That work is being done today through medical affairs, but you could expect some sort of marketing efforts regarding that as well, which is very critical and something that I think will really differentiate us as we get closer and closer to launch. So that we're setting the market right before ensifentrine’s launch in 2024.

I think the other work stream is really on the operations and systems side. We are actively setting up all our commercial operations and the systems needed to support the commercial infrastructure.

So that work has started, but that work will be finalized post the ENHANCE data so that we're ready to actively and be promoting the product as quickly as possible after a PDUFA date..

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

Great. Just I want to thank everyone for your questions, and thank you to the patients and healthcare professionals that participated in the ENHANCE program. We are extremely excited about the potential of ensifentrine and look forward to providing you further updates.

And of course, finally, I'd like to thank our shareholders for their continued support and absolutely 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..