Verona Pharma plc

Hello and welcome to Verona Pharma's first quarter 2024 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 months ended March 31, 2024. 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 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 would 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, Chris Martin, our Chief Commercial Officer, and Dr. Tara Rowe, our Chief Development Officer. In the first quarter, we continued to make excellent progress on preparations for the planned commercialization of ncFentrin for the maintenance treatment of COPD. As you know, the FDA assigned a PDUFA target action date for ncFentrin of June 26, and has indicated they are not planning to hold an advisory committee meeting. We are finalizing our activities for a potential US launch of ncFentrin in the third quarter of this year, and look forward to continuing our work with the FDA during the review. If approved, MCFentrin is expected to be the first novel inhaled mechanism available for the maintenance treatment of COPD in over 20 years. We believe its dual mechanism, providing bronchodilator and nonsteroidal anti-inflammatory effects, has the potential to change the treatment paradigm for COPD. Currently, more than 390 million patients suffer from COPD worldwide, and it is the third leading cause of death globally. Despite the availability of existing COPD treatments in the U.S., approximately 50% of the 8.6 million maintenance-treated patients experience persistent symptoms for more than 24 days per month. In addition, approximately 60% of patients who could be considered maximally treated on dual bronchodilators or triple therapy are dissatisfied with their treatment. This highlights healthcare providers' continued need for new and effective COPD therapies to provide relief to patients. We continue to make excellent progress on our commercial launch preparation and are now finalizing key aspects including sales force deployment strategy, pricing, distribution, patient services programs, healthcare professional and patient engagement plans, and strengthening our internal data infrastructure capabilities to enable quick and actionable insights during launch. We have also advanced our disease awareness campaign, Unspoken COPD. This campaign is actively highlighting the severe impact of COPD on patients' lives and encourages HCPs to engage patients in better dialogue to help optimize their care. Through the first quarter of this year, unspoken COPD reached 85% of targeted HCPs and over 2,000 HCPs engaged with the campaign website. In summary, we are in a strong position to successfully launch NC-Fentrin pending approval in June. Our confidence is based on the novel profile of NC veterans, the significant unmet need in COPD, our extensive commercial preparation, and the deep experience and capabilities of the Verona team. As announced last week, we will present pooled analyses from the enhanced Phase III study in eight posters, including two oral symposia at the ATS conference later this month. The posters will highlight additional pooled analyses of the Phase III enhanced studies with NC-Fentrin for the treatment of COPD, demonstrating improvements in lung function, symptoms, and quality of life measures. A pooled analysis demonstrating reductions in the rate and risk of exacerbations with NC-Fentrin will be presented as part of the late-breaking mini-symposium designed to highlight new breakthroughs. We will also host an exhibition booth exploring the role of phosphodiesterase in inflammation and lung function impairment in COPD, as well as three Innovation Hub presentations led by clinical experts. In addition to the planned U.S. launch of ncPentrin, we are working to initiate two Phase II programs with ncPentrin in the second half of this year. we are developing a fixed dose combination formulation with ncfentrin and glycopyrrolate, Palama, for the maintenance treatment of COPD delivered via a nebulizer. Upon confirmation of an adequate fixed dose combination formulation, we plan to submit an IND to the FDA in the second half of 2024 and initiate a phase two clinical study intending to support dose escalation for phase three. Additionally, based on the clinical profile of ncfentrin observed in COPD patients, including a reduction in exacerbation rate and risk and improvements in symptoms of cough and sputum, we believe ncfentrin could potentially be an effective treatment for non-cystic fibrosis bronchiectasis. This is a severe chronic condition that affects up to 500,000 patients in the U.S., and there is currently no approved therapies. We plan to start a phase two clinical trial to assess the efficacy and safety of nebulized ncfentrin in patients with non-CF bronchiectasis in the second half of 2024. Moving on to our finances, I'm pleased to report on our strong balance sheet. In addition to over $250 million of cash on hand at the end of March, we recently strengthened our balance sheet and enhanced our financial flexibility through a $650 million strategic financing arrangement with Oak Tree Capital and OMERS. We refinanced our $400 million debt facility to one with a lower overall cost of capital and more favorable financial covenants. In addition, we entered into a $250 million capped revenue interest sales transaction with repayment based on a percentage of future NC pension revenues. Withdraws available under this facility at approval, we expect to have approximately $400 million at launch and potential access to an additional $425 million, giving us a runway beyond 2026. Lastly, and before I turn the call over to Mark to review our financial results for the first quarter of 2024, I'd like to mention we'll be entering a quiet period leading into the June 26th PDUFA Day, and so we welcome your questions in the Q&A session. With that, Mark, please go ahead. Thank you, Dave.

We ended the first quarter of 2024 with $254.9 million in cash and equivalents. We believe that our balance sheet remains strong, and with the current cash currently on hand, and funding anticipated to be available under the $650 million strategic financing with Oak Tree and Omer's, we expect to have sufficient runway beyond 2026, including the planned commercial launch of NC Fenton in the U.S. and our two new phase two programs Dave discussed a few moments ago. Let me spend a minute discussing key terms of the financing package. Our primary goals in establishing this new package were to provide additional financial flexibility to the company as we look to launch NC Venture, increase the quantum of cash on hand at launch while decreasing covenant risk and without diluting our shareholders, and providing lower cost of capital. The financing consists of a refinance of the existing $400 million facility we have in place with Oxford and Hercules and provides for a $250 million cap revenue interest sale which we refer to as the RPSA. Under the terms of the debt facility, we are drawing $55 million at close in order to repay and retire the Oxford Hercules Loan Facility. We will be eligible to draw an additional $70 million at approval with $175 million available in two separate milestone-based tranches and $100 million in future availability to support strategic initiatives. Draws under the facility bear interest at 11% per annum, with interest-only payments for five years and 100% of the principal due thereafter. Additionally, the covenant structure has been simplified and eased compared with the existing facility. Under the RPSA, we will receive $100 million of non-approval with an additional $150 million available to draw at our discretion upon achieving certain commercial milestones. The revenue interest financing rate ranges from 5% of proceeds we receive from ex-U.S. licenses that we may engage during the term of the RPSA outside of the U.S. to 6.5% of global net sales of NC pension made by the company. The total revenue interest financing payable by the company to Oaktree and Omer's is capped at 1.75 times the amount funded, with the ability to redeem the RIF set at much lower multiples within the first three years from funding. This facility was designed with an expectation that, if drawn in full, it would be retired in approximately six years. Now back to the results. For the quarter ended March 31, 2024, net loss after tax was $25.8 million, compared to a net loss after tax of $16.7 million for the same period in 2023. This represents a loss of 4 cents per ordinary share or 32 cents per ADS for the quarter compared to a loss of 3 cents per ordinary share or 22 cents per ADS for the first quarter of 2023. Research and development costs were $6.8 million for the quarter ended March 31, 2024 compared to the $12.6 million reported for the first quarter of 2023. This decrease was primarily due to expenses of $7.2 million in the first quarter of 2023 for finalizing all matters related to the Phase III enhanced program. As the program was completed in 2023, no similar costs were incurred in 2024. This decrease was partially offset by $1.5 million of pre-approval API manufacturing-related costs, as well as an increase of $0.7 million in people-related costs, including share-based compensation. Selling, general, and administrative expenses were $20.4 million for the quarter, ended March 31, 2024, compared to $9.6 million reported for the same period in 2023. This increase was driven primarily by increases of $4.6 million related to marketing, commercial preparation, and other pre-commercial activities, $1.1 million related to professional fees, consulting costs, and other administrative expenses, which support our continued growth and evolution of the business, and $.7 million related to the continued build out of our information technology infrastructure. Additionally, People-related costs increased by $4.1 million, including share-based compensation, as we increased our headcount in our commercial and support functions ahead of the planned commercial launch. I'll now turn the call back to the operator for the Q&A.