Verona Pharma plc

Welcome to Verona Pharma's third quarter 2021 financial results and operating highlights conference call. At this time, all participants are in a listening mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the three and nine months ended September 30, 2021. A copy can be found in the investor relations tab on the corporate website, www.veronapharma.com. Before we begin, I'd like to remind you that during today's call, statements about the company's future expectations, plans, and prospects are forward-looking statements. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause 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 on the status, recruitment, timing, results, and costs of our clinical trials and the continuity of our business. Any such forward-looking statements represents management's estimates as the date of this conference call. While the company may elect to update 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 Zacardelli, 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 Vice President of Commercial. During the third quarter, we continued steady progress towards our goal of delivering encephentrin, 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 are planned 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 stated previously, our projected enrollment timelines 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. I'm excited to report enrollment is nearing completion, and we expect that by the end of November, both the 800-patient Enhance 2 trial and the 400-patient 48-week subset of the Enhance One trial will be approximately 95% enrolled. We continue to make substantial progress during the third quarter, and we are pleased with our ability to advance recruitment in these international multi-site clinical trials during a global pandemic. Although the pace of enrollment is expected to slow due to the approaching holiday season, compounded by continued effects of the COVID-19 pandemic on the healthcare industry, we still expect to complete enrollment in Enhance 2 and the 48-week subset of Enhance 1 around year end 2021. Specifically reviewing our enrollment progress, as of November 8th, 2021, Enhance 2 had approximately 90% of patients randomized into the study. Including those patients currently entered in the run-in period, we expect Enhance-2 to be approximately 95% enrolled by the end of November. As of November 8th, 2021, the 48-week subset of Enhance-1 had approximately 95% of patients randomized into the study. Recall, completing recruitment of the 48-week subset in Enhance-1 is critical driver for reporting top line data from the study. Enrollment in full Enhance-1 trial is expected to complete in the second quarter of 2022. Looking forward to results, we expect to report topline data for Enhance 2 mid-year 2022 and for Enhance 1 around the end of 2022. Although, should COVID-19-related challenges increase further, our models predict timelines could shift by a quarter. In this scenario, top-line data would be expected in Q3 2022 for Enhance 2 and Q1 2023 for Enhance 1. We look forward to providing further guidance when recruitment is completed. The mitigation strategies we implemented at the start of the Enhance program have allowed us to make solid enrollment progress. As a reminder, these include inclusion of broad geographic coverage of sites both in the U.S. and Europe, to help manage the effect of local COVID impacts. Requiring only essential 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 medication and for collecting data from patients. and providing for COVID-19 testing and personal protective equipment at all sites to adhere to safety protocols. Looking ahead, in support of our planned NDA submission, we expect to report results from our thorough QT study in December. This 32-patient study is designed to evaluate the effect of ncfentrin, if any, on cardiac conduction. In addition to progress in our Phase III trials, We continue to add to the substantial clinical evidence in support of benefits of encephentrin for the maintenance treatment of COPD. In October, Dr. Tara Rowe, our Vice President of Research and Development, presented Phase II data demonstrating the positive effect of pressurized meter dose inhaler, or PMDI formulation, of encephentrin in patients with moderate to severe COPD at the CHEST annual meetings. Data from Part B of the two-part study, first reported in February 2021, showed encephentrine delivered by PMDI over one week provided statistically significant, clinically meaningful, and dose-dependent improvements in lung function and was well-tolerated with adverse event profiles similar to placebo. The data are consistent with the results from dry powder inhaler, or DPI, and nebulizer formulations of encephentrine. In September, Dr. Rowe presented an abstract describing a drug-drug interaction study assessing the effect of CYP2C9 inhibitor fluconazole on the pharmacokinetics of nebulized encephentrin in healthy individuals at the European Respiratory Society International Congress. These data demonstrated co-administration of fluconazole had less than two-fold, not clinically relevant effect on pharmacokinetic measures for encephentrins. As we prepare for the planned NDA submission, I'm pleased to announce Caroline Diaz will join Verona Pharma starting next week as Senior Vice President of Regulatory Affairs, bringing more than 18 years of experience in both large and small pharmaceutical companies across key regions. Ms. Diaz has previously served at Reviral as Vice President Regulatory Affairs, as well as Vice President Regulatory and Quality at Dova Pharmaceuticals, where she worked with Mark and me. At Dova, she built the regulatory function from the ground up and led regulatory strategy development and implementation efforts, resulting in the first marketing approvals for the company. Her expertise will be invaluable as we further prepare our regulatory strategy for NCFentren, and we are delighted to welcome her to the team. We continue to work towards our goal to deliver NCFentren to the millions of COPD patients who are not well served by available treatments. Worldwide, there are over 380 million COPD patients, and COPD is the third leading cause of death. In the U.S., where Verona is preparing to commercialize encephentrin, COPD affects more than 25 million patients, and sales in the maintenance COPD market total over $10 billion. Despite maximum therapy with existing medications, more than 1 million patients remain symptomatic. Outside of the U.S., millions of COPD patients in Europe, China also remain symptomatic and in need of additional treatments. We are pleased with our progress, and as we look ahead, we anticipate several important milestones. These include results from the QT study, completion of enrollment in the enhanced trials, and importantly, top-line data for the enhanced trial program in 2022. I will now turn the call over to Mark to review our third quarter financial results.

Thank you, Dave. We ended the third quarter of 2021 with $166.5 million in cash and equivalents. During the third quarter, we received the $25 million upfront payment from our Nuance Pharma License Agreement and $8 million from the UK R&D Tax Credit Program relating to our qualified R&D expenditures in 2020. We believe the combination of our cash position and expected cash receipts from the UK R&D tax credit program and potential borrowings under the $30 million debt financing facility will support our operations and current clinical development programs through at least the end of 2023. For the three months ended September 30, 2021, The net profit after tax was $11.1 million compared to a loss after tax of $18.9 million for the same period in the prior year. The net profit this quarter is due to recognition of the $40 million aggregate upfront consideration from the nuance agreement. This represents a profit of 5 cents per ordinary share or 40 cents per ADS for the three months ended September 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 $22.6 million for the three months ended September 30, 2021, compared to the $12.8 million reported for the same period in 2020. The $9.8 million increase is primarily driven by costs associated with the Phase III Enhanced Clinical Program partially offset by a decrease in share-based compensation charges. General and administrative costs were $10.9 million for the third quarter of 2021, compared to the $8.3 million reported for the same period in 2020. This increase of $2.6 million was driven primarily by costs relating to the nuance agreement, partially offset by a reduction in costs relating to the July 2020 pipe financing. The UK R&D tax credit for the three months ended September 30, 2021 was $4.7 million compared to a credit of $2.3 million for the same period in 2020, increasing in line with the higher qualifying R&D expenditures incurred with the enhanced phase three program this year. Year to date, we have accrued approximately $10.6 million under this program. Under the terms of the UK R&D tax credit program, We intend to submit for reimbursement of this amount, along with any amounts to be accrued in the fourth quarter, sometime in the first half of 2022, and we expect to receive the 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.