Verona Pharma plc

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 30th, 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 forward-looking statements including, without limitation, the impact of COVID-19 pandemic on the status, recruitment, timing, results, and 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 Sacardelli, 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 Rickard, 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 Ncfentrin, a novel inhaled PDE3 and PDE4 inhibitor, and first-in-class product candidate for the maintenance treatment of COPD via our Phase III enhanced program. 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 1,600 patients across sites in the U.S., Europe, and Asia. The Enhance I and Enhance II trials will replicate measurements of efficacy and safety data over 24 weeks, with Enhance I 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 enrollment status of both enhanced trials. As of the end of July, the Enhance-2 trial had 63% of patients randomized into the study. Including those currently entered in the running 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 top line data from the study. As of the end of July, the 48-week subset in 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 enrollment and our projections, we are on pace to complete enrollment in both Enhance 2 and the critical timeline 48-week subset of Enhance 1 by the end of this year. The Enhance program continues to effectively enroll 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 impacts. Planning the program around minimally required on-site visits and adding flexibility around visits 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 corticosteroids, 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, NC-Fentron 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-patient Phase 2B study 203 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 for reporting top line data are in line with previous guidance, with enhanced two expected to report in the first half of 2022 and enhanced one 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 for 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 encipentrin, if any, on cardiac conduction. We expect to report results by the end of this year. In 18 clinical trials to date involving over 1,300 subjects, NC-Centron 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 enhanced trials, and we were not required to include cardiac culture monitoring in the enhanced trials. Our goal remains the same. deliver ncfentrin 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 ncfentrin copd affects more than 25 million patients and sales in the maintenance copd market total over 10 billion dollars Despite maximum therapy with existing medications, more than 1 million patients remain symptomatic. Outside the U.S., 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 NC Fenton outside the U.S., 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 NC-Fenton in Greater China, which includes Mainland China, Taiwan, Hong Kong, and Macau. The agreement, with a potential value of up to $219 million, 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 tiered 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 NC-centrin for the maintenance treatment of COPD. In May, Dr. Kathy Rickard and Dr. Tara Rowe, Verona's Vice President of R&D, presented new subgroup analyses from Phase IIb trials, which nebulized NC-centrin and COPD at the American Thoracic International Conference 2021. The subgroup analysis demonstrated that NC-fentrin showed improvement in lung function and quality of life in both severe and moderate COPD subgroups. Improvements in both subgroups were clinically meaningful after four weeks of treatment. In April, Verona published Phase IIb clinical results with nebulized NC-fentrin added on to maintenance, bronchodilator therapy, and 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 and CHESS, 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 cashing equivalent at June 30th 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 9 cents per ordinary share or 72 cents per ADS for the six months ended June 30, 2021, compared to a loss of 20 cents per ordinary share or $1.60 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 III 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 III program. We expect the tax credit to increase for the next two quarters as spending on the enhanced program continues. I'll now turn the call back over to the operator for the Q&A.