TIDMVRP
Initiated ENHANCE Phase 3 clinical trials in COPD
Completed $200 million private placement
Commenced a pilot clinical study in U.S. patients hospitalized with
COVID-19
Conference call today at 9:00 a.m. EDT / 1:00 p.m. GMT
LONDON and RALEIGH, N.C., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Verona
Pharma plc (AIM: VRP) (Nasdaq: VRNA) ("Verona Pharma" or the "Company"),
a clinical-stage biopharmaceutical company focused on developing and
commercializing innovative therapies for respiratory diseases, announces
financial results for the three and nine months ended September 30, 2020
and provides a corporate update.
"We continue to make outstanding progress and are delighted to have
started four clinical trials in the third quarter including our pivotal
ENHANCE-1 and 2 (Ensifentrine as a Novel inHAled Nebulized COPD thErapy)
Phase 3 studies," said David Zaccardelli, Pharm. D., President and Chief
Executive Officer. "This important milestone brings us closer to
potentially submitting a New Drug Application in the U.S. for
ensifentrine and addressing the urgent need for a novel therapy for the
treatment of chronic obstructive pulmonary disease ("COPD").
"In addition to the two ENHANCE clinical trials which have both enrolled
patients, we started a pilot clinical study to investigate ensifentrine
delivered via pressurized metered-dose inhaler ("pMDI") formulation in
U.S. patients hospitalized with COVID-19. Clinical data from prior
studies of ensifentrine have demonstrated that it improves lung function
and reduces cellular markers of inflammation in the lungs. We believe
ensifentrine, with its novel mechanism of action, has the potential to
benefit patients suffering from COVID-19. Results are anticipated in the
first half of 2021.
"Also during the third quarter, we initiated the second, multiple dose
part of a Phase 2 study with the pMDI formulation of ensifentrine in
COPD, which was postponed due to the pandemic. Results are expected in
the first half of 2021.
"This clinical progress is supported by the $200 million raise we
completed in July and we appreciate the highly experienced life science
investors that participated in the offering. The funds are expected to
support our operations and Phase 3 clinical programs into 2023."
OUTLOOK AND STRATEGY
Verona Pharma aims to improve health and quality of life for the
millions of people affected by respiratory diseases. The Company's
first-in-class development candidate, ensifentrine, has the potential to
provide benefit to patients suffering from respiratory conditions such
as COPD, COVID-19, cystic fibrosis ("CF") and asthma.
Ensifentrine is a novel, investigational inhaled therapy that has been
shown to act as both a bronchodilator and an anti-inflammatory agent in
one compound. Initially, the Company is advancing the development of
nebulized ensifentrine for the maintenance treatment of COPD.
We are pleased to announce that Verona Pharma has met the following 2020
objectives that were established at the time of the management change:
-- Completing an End-of-Phase 2 meeting with the FDA in May to receive
guidance on the design of the Phase 3 program with nebulized
ensifentrine.
-- Securing $200 million in gross proceeds ($185.5 million net of
commissions and expenses) through a private placement in July which we
expect to be sufficient capital to fund the Phase 3 program for nebulized
ensifentrine.
-- Initiating the ENHANCE Phase 3 program with nebulized ensifentrine in
moderate to severe COPD patients in September.
OPERATIONAL AND DEVELOPMENT HIGHLIGHTS FOR THE THREE MONTH PERIODED
SEPTEMBER 30, 2020
Financial
-- In July, the Company completed a $200 million private placement of
American Depositary Shares ("ADSs") and ordinary shares that resulted in
net proceeds of approximately $185.5 million after giving effect to
transaction related fees and expenses (the "Private Placement"). The
Company expects the proceeds of the Private Placement to be sufficient to
support its operations and clinical programs into 2023.
-- In September, Verona Pharma announced plans to delist from the AIM stock
market effective from 7:00 am GMT on October 30, 2020. The Company will
retain its listing on the Nasdaq Global Market ("Nasdaq"). The move is
expected to further enhance liquidity of trading by combining all trading
transactions on Nasdaq and to reduce costs through removing duplicative
listing and compliance fees.
-- Also in September, Verona Pharma rang the Nasdaq closing bell in
celebration of the Company's $200 million financing.
-- In the third quarter the Company changed its accounting policy with
regards to its presentational currency and is now presenting financial
results in US dollars. Historical results, including the six months ended
June 30, 2020, have been retrospectively presented in US dollars.
Clinical
-- In July, the Company received a notice to proceed from the FDA for our
Investigational New Drug Application to evaluate pMDI ensifentrine in a
randomized, double-blind, placebo-controlled pilot clinical study for the
treatment of patients hospitalized with COVID-19 and, in September, the
Company initiated the study. The study will evaluate the effect of
ensifentrine on key outcomes in patients hospitalized with COVID-19
including facilitation of recovery from the viral infection, clinical
status improvement and reduction in supplemental oxygen use and
progression to mechanical ventilation.
-- In August, the Company initiated the second, multiple dose, part of a
Phase 2 study to evaluate pMDI ensifentrine in patients with moderate to
severe COPD. Results are expected in the first half of 2021.
-- In September, the Company initiated its ENHANCE Phase 3 trials to
evaluate the efficacy and safety of nebulized ensifentrine in patients
with moderate to severe COPD. The two randomized, double-blind,
placebo-controlled studies (ENHANCE-1 and ENHANCE-2) will evaluate
ensifentrine as monotherapy and added onto a single bronchodilator. Each
study will enroll approximately 800 moderate to severe, symptomatic COPD
patients at sites primarily in the U.S. and Europe. The two study designs
will replicate measurements of efficacy and safety data over 24 weeks,
but ENHANCE-1 will also evaluate longer-term safety in 400 patients over
48 weeks.
-- Additionally in September, a detailed analysis of symptom data from a
previously reported Phase 2b clinical trial with nebulized ensifentrine
as a maintenance treatment for COPD was published in the leading peer
reviewed journal for specialists and healthcare professionals,
International Journal of Chronic Obstructive Pulmonary Disease. The
analyses demonstrate that ensifentrine meaningfully improved symptoms and
quality of life after 4 weeks in patients with moderate to severe COPD.
-- Also in September, Dr. Tara Rheault, Vice President, R&D and Global
Project Management, presented new subgroup analysis from Phase 2b trials
with nebulized ensifentrine in COPD at the European Respiratory Society
International Congress. The data demonstrated that ensifentrine as
monotherapy or added onto tiotropium (Spiriva(R) Respimat(R)) improved
lung function in moderate or severe COPD patients regardless of smoking
status or history of chronic bronchitis over 4 weeks.
FINANCIAL HIGHLIGHTS
-- Net cash, cash equivalents and short term investments at September 30,
2020, amounted to $202.0 million (December 31, 2019: $40.8 million). The
increase is due to the completion of the Private Placement with gross
proceeds of approximately $200 million. The net proceeds of the Private
Placement were approximately $185.5 million after deducting placement
agent fees and other expenses. We continue to evaluate and consider other
financing vehicles, including venture debt and other facilities, to
potentially provide us with further financial flexibility.
-- For the nine months ended September 30, 2020, the Company reported
operating loss of $46.2 million (nine months ended September 30, 2019:
$42.7 million) and reported loss after tax of $41.4 million (nine months
ended September 30, 2019: $31.0 million). Research and development costs
fell by $7.1 million in the nine months ended September 30, 2020,
compared to the prior period, primarily due to significantly higher costs
of an ongoing Phase 2b study in 2019 compared to the start up costs
incurred in 2020 for the ENHANCE program. General and administrative
costs increased by $10.6 million as the 2020 period had higher costs
related to share based payment charges, executive changes and certain
costs related to the Private Placement recorded as expenses in the
Statement of Comprehensive Income.
-- The Company reported loss per share of 21.0 cents for the nine months
ended September 30, 2020 (nine months ended September 30, 2019: 29.4
cents).
-- Net cash used in operating activities for the nine months ended September
30, 2020 was $25.7 million (nine months ended September 30, 2019: $31.3
million). Cash used was lower predominantly due to lower cash based
operating costs and a higher cash tax credit received.
-- Cash generated from financing activities of $188 million was primarily
related to net cash proceeds from the Private Placement.
-- In the nine months ended September 30, 2020 the Company re-evaluated its
assumed contingent liability and In-Process Research and Development
asset in light of its determination that ensifentrine had moved from
Phase 2 to Phase 3 stage of clinical development. Future cashflows
relating to a potential milestone payment and potential royalties payable
were remeasured applying updated estimates of probabilities of success
based on the assumed reduced clinical risk of moving into Phase 3.
Accordingly the Company recorded an increase of $27.7 million to the
assumed contingent liability and a corresponding increase to the related
In-Process Research and Development intangible asset. There is no
material effect on current period comprehensive loss, net assets or
cashflows.
CONFERENCE CALL AND WEBCAST INFORMATION
Verona Pharma will host an investment community conference call at 9:00
a.m. EDT / 1:00 p.m. GMT on Thursday, October 29, 2020 to discuss the Q3
2020 financial results and the corporate update.
Analysts and investors may participate by dialing one of the following
numbers and reference conference number: 2469127:
-- +1-888-317-6003 for callers in the United States
-- +1-412-317-6061 for international callers
A live webcast will be available on the Events and Presentations link on
the Investors page of the Company's website, www.veronapharma.com, and
an audio replay will be available there for 90 days. An electronic copy
of the Q3 2020 results release will also be made available today on the
Company's website. This press release does not constitute an offer to
sell or the solicitation of an offer to buy any of the Company's
securities, and shall not constitute an offer, solicitation or sale in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities
laws of that jurisdiction.
For further information please contact:
Verona Pharma plc Tel: +44 (0)20 3283 4200
Victoria Stewart, Director of Communications info@veronapharma.com
N+1 Singer Tel: +44 (0)20 3283 4200
(Nominated Adviser and UK Broker)
Aubrey Powell / George Tzimas / Iqra Amin (Corporate
Finance)
Tom Salvesen (Corporate Broking)
Optimum Strategic Communications Tel: +44 (0)20 3950 9144
(European Media and Investor Enquiries) verona@optimumcomms.com
Mary Clark / Eva Haas / Shabnam Bashir
Argot Partners Tel: +1 212-600-1902
(U.S. Investor Enquiries) verona@argotpartners.com
Kimberly Minarovich / Michael Barron
COVID-19 IMPACT AND BUSINESS CONTINUITY
To help protect the health and safety of the patients, caregivers and
healthcare professionals involved in its ongoing clinical trials of
ensifentrine, as well as its employees and independent contractors, the
Company continues to follow guidance from the FDA and other health
regulatory authorities regarding the conduct of clinical trials during
the COVID-19 pandemic to ensure the safety of study participants,
minimize risks to study integrity, and maintain compliance with good
clinical practice (GCP). The Company continues to review this guidance
and the effect of the COVID-19 pandemic on its operations and clinical
trials and will provide an update if it becomes aware of any meaningful
disruption caused by the pandemic to its clinical trials.
Verona Pharma is closely monitoring activities at the Company's contract
manufacturers associated with clinical supply for the ongoing clinical
trials, and is satisfied that appropriate plans and procedures are in
place to ensure uninterrupted future supply of ensifentrine to the
clinical trial sites, subject to potential limitations on their
operations and on the supply chain due to the COVID-19 pandemic. The
Company is continuing to monitor this situation and will provide an
update if it becomes aware of any meaningful disruption caused by the
pandemic to the clinical supply of ensifentrine for its clinical trials.
Corporate Operations and Financial Impact
Verona Pharma has also implemented measures to help keep the Company's
employees, families, and local communities healthy and safe. All
employees are working remotely and all business travel has been
restricted.
The COVID-19 pandemic has caused significant disruption to the financial
markets but Verona Pharma has successfully raised sufficient capital to
fund the Phase 3 program for nebulized ensifentrine.
COVID-19 Risk Factor
Verona Pharma has assessed the potential impact on its business of the
COVID-19 pandemic and updated its risk factor disclosures on a Report on
Form 6-K filed with the SEC on April 30, 2020.
About Verona Pharma plc
Verona Pharma is a clinical-stage biopharmaceutical company focused on
developing and commercializing innovative therapies for the treatment of
respiratory diseases with significant unmet medical needs. If
successfully developed and approved, Verona Pharma's product candidate,
ensifentrine, has the potential to be the first therapy for the
treatment of respiratory diseases that combines bronchodilator and
anti-inflammatory activities in one compound. The Company is evaluating
nebulized ensifentrine in its Phase 3 clinical program ENHANCE
("Ensifentrine as a Novel inHAled Nebulized COPD thErapy") for COPD
maintenance treatment. The Company raised gross proceeds of $200 million
through a private placement in July 2020 and expects the funds to
support its operations and Phase 3 clinical program into 2023. Two
additional formulations of ensifentrine are currently in Phase 2
development for the treatment of COPD: dry powder inhaler ("DPI") and
pressurized metered-dose inhaler ("pMDI"). Ensifentrine is being
evaluated in a pilot clinical study in patients hospitalized with
COVID-19 and has potential applications in cystic fibrosis, asthma and
other respiratory diseases. For more information, please visit
www.veronapharma.com.
Forward Looking Statements
This press release, operational review, outlook and financial review
contain forward-looking statements. All statements contained in this
press release, with respect to our operational review, outlook and
financial review that do not relate to matters of historical fact should
be considered forward-looking statements, including, but not limited to,
statements regarding the development and potential of ensifentrine,
including its potential to help patients recover from COVID-19, the
initiation, progress and timing of clinical trials and related data
readouts, our expectations surrounding clinical trial results and
responses from the FDA, the market opportunity for various formulations
of ensifentrine, including estimates of the market size for COPD, the
impact of the COVID-19 pandemic on our business and operations and the
Company's future financial results, the sufficiency of our cash and cash
equivalents, and our expectations surrounding additional funding.
These forward-looking statements are based on management's current
expectations. These statements are neither promises nor guarantees, but
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, but not limited to, the
following: our limited operating history; our need for additional
funding to complete development and commercialization of ensifentrine,
which may not be available and which may force us to delay, reduce or
eliminate our development or commercialization efforts; the reliance of
our business on the success of ensifentrine, our only product candidate
under development; economic, political, regulatory and other risks
involved with international operations; the lengthy and expensive
process of clinical drug development, which has an uncertain outcome;
serious adverse, undesirable or unacceptable side effects associated
with ensifentrine, which could adversely affect our ability to develop
or commercialize ensifentrine; potential delays in enrolling patients,
which could adversely affect our research and development efforts; we
may not be successful in developing ensifentrine for multiple
indications; our ability to obtain approval for and commercialize
ensifentrine in multiple major pharmaceutical markets; misconduct or
other improper activities by our employees, consultants, principal
investigators, and third-party service providers; the loss of any key
personnel and our ability to recruit replacement personnel, as well as
the impact of our management team transition; material differences
between our "top-line" data and final data; our reliance on third
parties, including clinical investigators, manufacturers and suppliers,
and the risks related to these parties' ability to successfully develop
and commercialize ensifentrine; lawsuits related to patents covering
ensifentrine and the potential for our patents to be found invalid or
unenforceable; the impact of the COVID-19 pandemic on our operations,
the continuity of our business and general economic conditions; and our
vulnerability to natural disasters, global economic factors and other
unexpected events, including health epidemics or pandemics like
COVID-19.
These and other important factors under the caption "Risk Factors" in
our Registration Statement on Form F-1 filed with the SEC on August 17,
2020, and our other reports filed with the SEC, could cause actual
results to differ materially from those indicated by the forward-looking
statements made in this press release, operational review, outlook and
financial review. Any such forward-looking statements represent
management's estimates as of the date of this press release and
operational and financial review. While we may elect to update such
forward-looking statements at some point in the future, we disclaim any
obligation to do so, even if subsequent events cause our views to
change. These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of this
press release, operational review, outlook and financial review.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF
ARTICLE 7 OF REGULATION (EU) NO 596/2014
OPERATIONAL REVIEW
Company Overview
Verona Pharma is focused on developing and commercializing our
first-in-class Phase 3 candidate, ensifentrine, for the treatment of
significant unmet respiratory needs such as chronic obstructive
pulmonary disease ("COPD"). Ensifentrine has a novel mechanism of action
and has the potential to be the first therapy for the treatment of
respiratory diseases that combines bronchodilator and anti-inflammatory
activities in one compound. As well as COPD, ensifentrine has potential
applications in COVID-19, cystic fibrosis, asthma and other respiratory
diseases.
Verona Pharma is evaluating nebulized ensifentrine in the Phase 3
clinical program ENHANCE (Ensifentrine as a Novel inHAled Nebulized COPD
thErapy) for the maintenance treatment of COPD. The Company raised gross
proceeds of $200 million through a private placement in July 2020 and
expects the funds to support its operations and Phase 3 clinical program
into 2023. Two additional formulations of ensifentrine are currently in
Phase 2 development for the treatment of COPD: dry powder inhaler
("DPI") and pressurized metered-dose inhaler ("pMDI"). Ensifentrine is
being evaluated in a pilot clinical study in U.S. patients hospitalized
with COVID-19.
Ensifentrine has demonstrated significant and clinically meaningful
improvements in both lung function and COPD symptoms, including
breathlessness, in patients with moderate to severe COPD. In addition,
ensifentrine showed further improved lung function and reduced lung
volumes in patients taking standard short- and long-acting
bronchodilator therapy, including maximum bronchodilator treatment with
dual/triple therapy. Ensifentrine has been well tolerated in clinical
trials involving more than 1,300 people to date.
Ensifentrine highlights:
-- First-in-class dual bronchodilator and anti-inflammatory agent in a
single molecule
-- Potentially the first novel class of bronchodilator in COPD in over 40
years
-- Potentially the only bronchodilator option as an add-on to existing dual
/ triple therapy
COPD is a common, progressive, and life-threatening respiratory disease
without a cure. It damages the airways and lungs, leading to
debilitating breathlessness, hospitalizations and death. COPD has a
major impact on everyday life. Patients struggle with basic activities
such as getting out of bed, showering and walking. COPD affects
approximately 384 million people worldwide. It is the third leading
cause of death globally, according to the World Health Organization.
COPD patients are frequently treated with bronchodilators, to relieve
airway constriction and make it easier to breathe, and with
corticosteroids, to reduce lung inflammation. Despite receiving maximum
therapy, many patients, more than 1.2 million in the U.S. alone, remain
symptomatic and urgently need additional treatment. We believe that
ensifentrine can provide significant benefits for these patients.
The pharmacological profile of ensifentrine including its novel
mechanism of action, which is complementary to existing classes, strong
improvement in COPD symptoms and meaningful improvement in quality of
life, addresses the large unmet need experienced by COPD patients today.
Ensifentrine is a dual phosphodiesterase ("PDE") 3 and PDE4 inhibitor.
It is delivered via inhalation, locally to the lung to maximize
pulmonary exposure to ensifentrine while minimizing systemic exposure.
This minimizes side-effects such as the gastrointestinal disturbance
associated with oral PDE4 inhibitors and the cardiovascular side-effects
seen with oral PDE3 inhibitors.
The nebulized formulation of ensifentrine can be used by adults of any
age and dexterity and regardless of peak inspiratory flow, offering
advantages to patients who may struggle to operate handheld inhaler
devices or have low peak inspiratory flow. Nevertheless, handheld
inhaler formats are also important delivery mechanisms in the
approximately $9.6 billion U.S. market for maintenance COPD therapies.
Verona Pharma has developed formulations of ensifentrine in DPI and pMDI
formats and successfully demonstrated proof of concept in COPD patients
with these formulations. The development of pMDI and DPI formulations of
ensifentrine provides expanded opportunities in life cycle management
including new indications, formulation combinations and collaborations.
Verona Pharma sees its initial market opportunity as the U.S. and the
Company intends to commercialize nebulized ensifentrine itself in this
market. Outside of the U.S., Verona Pharma intends to identify
collaborators that can maximize ensifentrine's potential in those
regions.
FINANCIAL REVIEW
Financial review of the nine and three month periods ended September 30,
2020
Nine months ended September 30, 2020
Research and Development Costs
Research and development costs were $28.1 million for the nine months
ended September 30, 2020, compared to $35.2 million for the nine months
ended September 30, 2019, a decrease of $7.1 million, predominantly
attributable to a $9.9 million decrease in clinical trial expenses,
partially offset by a $2.5 million increase in non-cash share based
payment charges. While there were six clinical trials (ongoing, in
preparation or closing down) in the nine months ended September 30, 2020
compared to four in the same period in 2019, the costs related to the
Phase 2b four-week clinical study with ensifentrine added on to
tiotropium in the 2019 period were significantly higher than the
start-up costs of the ENHANCE program that were incurred in the 2020
period.
General and Administrative Costs
General and administrative costs were $18.1 million for the nine months
ended September 30, 2020, compared to $7.5 million for the nine months
ended September 30, 2019, an increase of $10.6 million. The increase
included $2.7 million of costs relating to executive changes and
relocation of our U.S. office to North Carolina, $1.7 million in higher
Director's and Officers liability insurance costs, $1.6 million in costs
relating to the Private Placement and a $4.4 million increase in
non-cash share based payment charges. Other costs increased by $0.2
million.
Finance Income and Expense
Finance income and expense are driven by the changes in the fair value
of the warrant liability, changes in the present value of the assumed
contingent liability, foreign exchange movements on cash and cash
equivalents and interest income and expense.
Finance income was $1.3 million for the nine months ended September 30,
2020, and $4.2 million for the nine months ended September 30, 2019.
Finance income was lower in the nine months ended September 30, 2020 as
the fair value of the warrant liability decreased by $2.7 million in the
2019 period, compared to an increase in the nine months ended September
30, 2020. The increase in the 2020 period was recorded in finance
expense.
Gains on cash and short term investments due to foreign exchange
movements were $1.2 million in the nine months ended September 30, 2020,
compared to $0.7 million in the same period in the prior year.
Interest received on cash and short term investments reduced by $0.7
million due to lower overall interest rates and a change in our
investment policy to use government debt money market funds compared to
term deposits previously utilized.
Finance expense was $2.2 million for the nine months ended September 30,
2020, compared to $0.1 million for the nine months ended September 30,
2019. The increase in the nine months ended September 30, 2020 was
primarily related to a $1.4 million accounting charge relating to the
unwind of the discount on the assumed contingent liability as the
present value of the contingent liability increases as the estimated
time to potential payment is becoming closer. Additionally, there was a
$0.7 million charge relating to an increase in the fair value of the
warrant liability in the nine months ended September 30, 2020. In the
prior period the present value of the warrant liability decreased
resulting in finance income.
Taxation
The tax credit in the Statement of Comprehensive Income is predominantly
made up of the UK tax credit and a small tax charge relating to our US
operations. The UK tax credits are calculated as a percentage of
qualifying research and development expenditure and are payable in cash
by the UK government to the Company. Credits recorded in the 2020
financial year are expected to be received in the 2021 financial year.
We expect the magnitude of these credits to increase as expenditures on
our Phase 3 program accelerate and they continue to be a significant
element in our financing strategy.
The tax credit for the nine month period ended September 30, 2020 was
$5.7 million compared to a credit of $7.6 million for the nine months
ended September 30, 2019, a decrease of $1.9 million. The decrease in
the credit amount was attributable to our decreased expenditures on
research and development in 2020, compared to the same period in 2019.
Assumed contingent liability and In-Process Research and Development
Asset
In the second quarter of 2020, the Company re-evaluated its contingent
liability and In-Process Research and Development asset in light of its
determination that ensifentrine has moved from Phase 2 to Phase 3 stage
of clinical development. Future cashflows relating to a milestone
payment and potential royalties payable were remeasured. After applying
estimated probabilities of success, the assumed contingent liability
that relates to these potential future cashflows was adjusted.
Accordingly the Company recorded an increase of $27.7 million to the
contingent liability and a corresponding increase to the related
In-Process Research and Development asset. There is no material effect
on current period comprehensive loss, net assets or cashflows.
The discount that is used to calculate the present value of the assumed
contingent liability unwinds each quarter as the time to potential
payment becomes closer and is recorded as a finance expense.
Private Placement
On July 17, 2020, Verona Pharma announced that it had raised
approximately $200 million in a private placement with new and existing
institutional and accredited investors. The Private Placement comprised
a placement of 39,090,009 ADSs, each representing eight Ordinary Shares
or non-voting Ordinary Shares of the Company, at a price of $4.50 per
ADS, and 43,111,112 of the Company's Ordinary Shares at the equivalent
price per Ordinary Share of $0.5625.
The net proceeds of the Private Placement were approximately $185.5
million after deducting placement agent fees and associated expenses
(including costs recorded to both equity and the Statement of
Comprehensive Income). $1 million of such costs were paid in October
2020. Should the Company need to raise additional capital in the future,
there can be no assurance that we will be able to do so on acceptable
terms or at all.
Cash Flows
Net cash used in operating activities decreased to $25.7 million for the
nine months ended September 30, 2020, from $31.3 million for the nine
months ended September 30, 2019, a fall of $5.6 million. Operating loss
in the nine months ended September 30, 2020 was $3.5 million higher
which included $6.9 million higher non-cash share based payment charges,
so cash related charges were approximately $3.4 million lower. In
addition, the cash tax credit of $9.0 million received was $3.8 million
higher than in the nine months ended September 30, 2019. Offsetting this,
the timing of supplier payments led to $1.6 million higher cash outflow
in the current period.
The decrease in net cash generated in investing activities to $9.7
million for the nine months ended September 30, 2020, from $49.0 million
for the nine months ended September 30, 2019 was due to the net movement
of funds from short term investments to cash being less in the 2020
period.
The $187.5 million increase in cash generated from financing activities
was primarily due to net cash received from the Private Placement.
Cash, cash equivalents and short-term investments
Net cash, cash equivalents and short-term investments at September 30,
2020, increased to $202.0 million from $40.8 million at December 31,
2019 due to net receipts from the Private Placement, partially offset by
utilization of cash in ordinary operating activities.
Net assets
Net assets increased to $197.7 million at September 30, 2020, from $44.9
million at December 31, 2019. This was predominantly due to the increase
in equity from the Private Placement, partially offset by Company's
operating activities.
Three months ended September 30, 2020
The operating loss for the three months ended September 30, 2020, was
$21.2 million (September 30, 2019: $17.2 million) and the loss after tax
for the three months ended September 30, 2020, was $19.9 million
(September 30, 2019: $12.5 million).
Research and Development Costs
Research and development costs were $12.7 million for the three months
ended September 30, 2020, compared to $14.7 million for the three months
ended September 30, 2019, a decrease of $2.0 million.
This decrease was primarily attributable to a $4.2 million decrease in
clinical trial expenses partially offset by a $2.4 million increase in
the share based payment charge recorded in the three months ended
September 30, 2020. There were costs relating to four clinical trials
(ongoing, in preparation or closing down) in the three months ended
September 30, 2020, compared to two in the comparative period, however,
the costs related to the Phase 2b four-week clinical study with
ensifentrine added on to tiotropium in the 2019 period, were
significantly higher than the start-up costs of the ENHANCE program that
were incurred in the 2020 period.
General and Administrative Costs
General and administrative costs were $8.5 million for the three months
ended September 30, 2020, compared to $2.4 million for the three months
ended September 30, 2019, an increase of $6.1 million. The increase was
attributable to $1.6 million of costs related to the Private Placement
which were recorded as expenses, a $1.0 million increase in Directors
and Officers liability insurance costs and a $3.4 million increase in
non-cash share based payment charges.
Finance Income and Expense
Finance income was $0.9 million for the three months ended September 30,
2020, and $1.5 million for the three months ended September 30, 2019.
Finance income in the three months ended September 30, 2020,
predominantly comprised a $0.8 million foreign exchange gain on cash and
cash equivalents, which was broadly similar to the gain in the prior
period. Also, the prior period included $0.4 million relating to
movements in the fair value of the warrants (recorded in finance expense
in the 2020 period) and $0.2 million of interest on cash balances.
Finance expense was $1.9 million for the three months ended September
30, 2020, compared to $54 thousand for the three months ended September
30, 2019. The increase was primarily due to a $1.0 million charge
relating to the revaluation of the warrants and a $0.9 million charge
relating to the unwind of the discount on the assumed contingent
liability in the 2020 period.
Taxation
Taxation for the three months ended September 30, 2020, amounted to a
credit of $2.3 million compared to a credit of $3.2 million for the
three months ended September 30, 2019.
VERONA PHARMA PLC
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
AS OF SEPTEMBER 30, 2020, DECEMBER 31, 2019 AND JANUARY 1, 2019
Restated* Restated*
As of As of As of
September 30, December 31, January 1,
Notes 2020 2019 2019
---------------- ------------- -------------
$'000s $'000s $'000s
ASSETS
Non-current
assets:
Goodwill 545 585 563
Intangible
assets 10 31,507 3,659 3,340
Property,
plant and
equipment 107 57 27
Right-of-use
asset 11 1,194 1,288 415
----------- --- ------------ ----------
Total
non-current
assets 33,353 5,589 4,345
----------- --- ------------ ----------
Current
assets:
Prepayments
and other
receivables 4,668 3,676 3,144
Current tax
receivable 5,838 9,814 5,741
Short term
investments 12 -- 10,380 57,320
Cash and cash
equivalents 13 201,968 30,428 25,243
----------- --- ------------ ----------
Total current
assets 212,474 54,298 91,448
----------- --- ------------ ----------
Total assets 245,827 59,887 95,793
=========== === ============ ==========
EQUITY AND
LIABILITIES
Capital and
reserves
attributable
to equity
holders:
Share capital 30,054 7,265 7,265
Share premium 330,068 165,408 165,408
Share-based
payment
reserve 23,430 14,127 11,008
Cumulative
Translation
Adjustment (5,796) (3,327) (4,751)
Accumulated
loss (180,041) (138,542) (98,031)
----------- ------------ ----------
Total equity 197,715 44,931 80,899
----------- --- ------------ ----------
Current
liabilities:
Derivative
financial
instrument 14 1,857 1,188 3,180
Lease
liabilities 808 611 441
Trade and
other
payables 14,194 10,962 9,866
Total current
liabilities 16,859 12,761 13,487
----------- --- ------------ ----------
Non-current
liabilities:
Assumed
contingent
liability 15 30,552 1,463 1,271
Non-current
lease
liability 667 652 --
Deferred
income 34 80 136
----------- --- ------------ ----------
Total
non-current
liabilities 31,253 2,195 1,407
----------- --- ------------ ----------
Total equity
and
liabilities 245,827 59,887 95,793
=========== === ============ ==========
The accompanying notes form an integral part of these condensed
consolidated financial statements.
* Comparative results were restated to reflect the change in
presentational currency (see note 3).
VERONA PHARMA PLC
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHSED SEPTEMBER 30, 2020, AND SEPTEMBER
30, 2019 (UNAUDITED)
Restated* Restated* Restated*
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
Notes 2020 2019 2020 2019
-------------------- -------------------- ------------------- ---------------------
$'000s $'000s $'000s $'000s
Research and development costs (12,704) (14,741) (28,149) (35,200)
General and administrative costs (8,456) (2,424) (18,083) (7,549)
------------- ---- ------------ ----- ------------ ---- ------------ ----
Operating loss (21,160) (17,165) (46,232) (42,749)
Finance income 7 857 1,515 1,304 4,248
Finance expense 7 (1,858) (54) (2,182) (149)
------------- ---- ------------ ----- ------------ ---- ------------ ----
Loss before taxation (22,161) (15,704) (47,110) (38,650)
Taxation -- credit 8 2,294 3,224 5,699 7,632
------------- ----- ------------ ------ ------------ ----- ------------ -----
Loss for the period (19,867) (12,480) (41,411) (31,018)
Other comprehensive loss:
Items that might be subsequently reclassified to profit
or loss
Exchange differences on translation to presentational
currency -- (1,974) (2,469) (2,113)
------------- ----- ------------ ----- ------------ ---- ------------ ----
Total comprehensive loss attributable to owners of
the Company (19,867) (14,454) (43,880) (33,131)
============= ==== ============ ===== ============ ==== ============ ====
Loss per ordinary share -- basic and diluted (cents) 9 (5.8) (11.8) (21.0) (29.4)
The accompanying notes form an integral part of these condensed
consolidated financial statements.
* Comparative results were restated to reflect the change in
presentational currency (see note 3).
VERONA PHARMA PLC
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHSED SEPTEMBER 30, 2020, AND SEPTEMBER 30, 2019
(UNAUDITED)
Restated* Restated* Restated* Restated* Restated* Restated*
Cumulative
Translation
Share Share Share-based Adjustment Accumulated Total
Capital Premium Expenses ("CTA") Loss Equity
--------- --------- ----------- ------------- ------------- -----------
$'000s $'000s $'000s $'000s $'000s $'000s
Retranslated balances at July 1, 2019 7,265 165,408 12,676 77 (116,569) 68,857
Impact on CTA reserve of change in presentation currency
to US dollars (1) -- -- -- (4,967) -- (4,967)
--------- -------- ----------- -------- --------- --------
Adjusted balance at July 1, 2019 7,265 165,408 12,676 (4,890) (116,569) 63,890
Loss for the period -- -- -- -- (12,480) (12,480)
Other comprehensive income for the year:
Exchange differences on translation to presentational
currency -- -- -- (1,974) -- (1,974)
--------- -------- ----------- -------- --------- --------
Total comprehensive loss for the period -- -- -- (1,974) (12,480) (14,454)
Share-based payments -- -- 711 -- -- 711
--------- -------- ----------- -------- --- --------- --------
Balance at September 30, 2019 7,265 165,408 13,387 (6,864) (129,049) 50,147
========= ======== =========== ======== ========= ========
Balance at July 1, 2020 7,333 165,408 16,944 (5,796) (160,154) 23,735
--------- -------- ----------- -------- --------- --------
Loss for the period -- -- -- -- (19,867) (19,867)
Total comprehensive loss for the period -- -- -- -- (19,867) (19,867)
New share capital issued on Private Placement 22,700 177,456 -- -- (20) 200,136
Transaction costs on share capital issued -- (12,796) -- -- -- (12,796)
Share options exercised during the period 21 -- -- -- -- 21
Share-based payments -- -- 6,486 -- -- 6,486
--------- -------- ----------- -------- --- --------- --------
Balance at September 30, 2020 30,054 330,068 23,430 (5,796) (180,041) 197,715
========= ======== =========== ======== ========= ========
(1) $4,967 thousand relates to the reversal of previous cumulative
translation adjustments (which were previously recorded in Accumulated
Loss and are now shown separately) relating to the translation of Verona
Pharma, Inc.'s results from US dollars to pounds sterling and recording
the cumulative translation adjustments relating to the translation of
Verona Pharma plc's results from pounds sterling to US dollars as a
result of the change of the presentational currency. See note 3 for more
information.
* Comparative results were restated to reflect the change in
presentational currency (see note 3).
VERONA PHARMA PLC
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHSED SEPTEMBER 30, 2020, AND SEPTEMBER 30, 2019
(UNAUDITED)
Restated* Restated* Restated* Restated* Restated* Restated*
Cumulative
Translation
Share Share Share-based Adjustment Accumulated Total
Capital Premium Expenses ("CTA") Loss Equity
--------- --------- ----------- ------------- ------------- -----------
$'000s $'000s $'000s $'000s $'000s $'000s
Retranslated balances at January 1, 2019 7,265 165,408 11,008 33 (98,005) 85,709
Impact of adoption of IFRS 16 (1) -- -- -- -- (26) (26)
Impact on CTA reserve of change in presentation currency
to US dollars (2) -- -- (4,784) -- (4,784)
--------- -------- ----------- -------- --------- --------
Adjusted Balance at January 1, 2019 7,265 165,408 11,008 (4,751) (98,031) 80,899
Loss for the period -- -- -- -- (31,018) (31,018)
Other comprehensive income for the year:
Exchange differences on translation to presentational
currency -- -- -- (2,113) -- (2,113)
--------- -------- ----------- -------- --------- --------
Total comprehensive loss for the period -- -- -- (2,113) (31,018) (33,131)
Share-based payments -- -- 2,379 -- -- 2,379
--------- -------- ----------- -------- --- --------- --------
Balance at September 30, 2019 7,265 165,408 13,387 (6,864) (129,049) 50,147
========= ======== =========== ======== ========= ========
Balance at January 1, 2020 7,265 165,408 14,127 (3,327) (138,542) 44,931
--------- -------- ----------- -------- --------- --------
Loss for the period -- -- -- -- (41,411) (41,411)
Other comprehensive loss for the year:
Exchange differences on translation to presentational
currency -- -- -- (2,469) -- (2,469)
--------- -------- ----------- -------- --------- --------
Total comprehensive loss for the period -- -- -- (2,469) (41,411) (43,880)
New share capital issued on Private Placement 22,700 177,456 -- -- (20) 200,136
Transaction costs on share capital issued -- (12,796) -- -- -- (12,796)
Share options exercised during the period 89 -- -- -- (68) 21
Share-based payments -- -- 9,303 -- -- 9,303
--------- -------- ----------- -------- --- --------- --------
Balance at September 30, 2020 30,054 330,068 23,430 (5,796) (180,041) 197,715
========= ======== =========== ======== ========= ========
(1) $26 thousand relates to the adoption of IFRS 16. See note 2.17 of
the 2019 20-F.
(2) $4,784 thousand relates to the reversal of previous cumulative
translation adjustments (which were previously recorded in Accumulated
Loss and are now shown separately) relating to the translation of Verona
Pharma, Inc.'s results from US dollars to pounds sterling and recording
the cumulative translation adjustments relating to the translation of
Verona Pharma plc's results from pounds sterling to US dollars as a
result of the change of the presentational currency. See note 3 for more
information.
* Comparative results were restated to reflect the change in
presentational currency (see note 3).
VERONA PHARMA PLC
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHSED SEPTEMBER 30, 2020, AND SEPTEMBER 30, 2019
(UNAUDITED)
Restated*
Nine Months Nine Months
Ended Ended
September 30, September 30,
2020 2019
---------------- ------------------
$'000s $'000s
Cash used in operating activities:
Loss before taxation (47,110) (38,650)
Finance income (1,304) (4,248)
Finance expense 2,182 149
Share-based payment charge 9,303 2,379
Increase in prepayments and other receivables (1,368) (1,970)
Increase in trade and other payables 2,931 5,280
Depreciation of property, plant and equipment and
right of use asset 468 348
Impairment of right of use asset 289 --
Unrealized foreign exchange (gains) / losses (251) 15
Amortization of intangible assets 120 97
---------- ---- ---------- ----
Cash used in operating activities (34,740) (36,600)
Cash inflow from taxation 9,035 5,283
---------- ---- ---------- ----
Net cash used in operating activities (25,705) (31,317)
---------- --- ---------- ---
Cash flow from investing activities:
Interest received 191 1,046
Purchase of plant and equipment (73) (25)
Payment for patents and computer software (228) (233)
Transfer to short term investments -- (8,915)
Maturity of short term investments 9,792 57,144
---------- ---- ---------- ----
Net cash generated in investing activities 9,682 49,017
---------- ---- ---------- ----
Cash flow from financing activities:
Proceeds of Private Placement 200,156 --
Transaction costs of Private Placement (11,763) --
Payment of lease liabilities (539) (372)
Net cash generated from / (used) in financing
activities 187,854 (372)
---------- ---- ---------- ---
Net increase in cash and cash equivalents 171,831 17,328
Cash and cash equivalents at the beginning of the
period 30,428 25,243
Effect of exchange rates on cash and cash
equivalents (291) (966)
---------- --- ---------- ---
Cash and cash equivalents at the end of the period 201,968 41,605
========== ==== ========== ====
* Comparative results were restated to reflect the change in
presentational currency (see note 3).
VERONA PHARMA PLC
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHSED SEPTEMBER 30, 2020
1. General information
Verona Pharma plc (the "Company") and its subsidiaries are a
clinical-stage biopharmaceutical company focused on developing and
commercializing innovative therapeutics for the treatment of respiratory
diseases with significant unmet medical needs.
The Company is a public limited company, which is currently dual listed,
with its ordinary shares listed on the AIM market operated by the London
Stock Exchange and its American Depositary Shares ("ADSs") on the Nasdaq
Global Market ("Nasdaq"). The Company is incorporated and domiciled in
the United Kingdom.
The address of the registered office is 1 Central Square, Cardiff, CF10
1FS, United Kingdom.
The Company has two subsidiaries, Verona Pharma, Inc. and Rhinopharma
Limited ("Rhinopharma"), both of which are wholly owned.
In September, 2020, Verona Pharma announced plans to delist from the AIM
stock market effective as of October 30, 2020. The Company will retain
its listing on the Nasdaq.
2. Basis of accounting
The unaudited condensed consolidated interim financial statements of
Verona Pharma plc and its subsidiaries, Verona Pharma, Inc., and
Rhinopharma Limited (together the "Group"), for the nine months ended
September 30, 2020, do not include all the statements required for full
annual financial statements and should be read in conjunction with the
consolidated financial statements of the Group as of December 31, 2019.
The 2019 Accounts, on which the Company's auditors delivered an
unqualified audit report, have been delivered to the Registrar of
Companies.
In the period the Company's functional currency changed from pounds
sterling to US dollars and as a consequence the Group changed its
accounting policy to present its financial statements in US dollars (see
note 3). There have been no other changes to the accounting policies as
contained in the annual consolidated financial statements as of and for
the year ended December 31, 2019, which have been prepared in accordance
with international financial reporting standards ("IFRS") as issued by
the International Accounting Standards Board and as adopted in the EU.
These unaudited condensed interim financial statements were authorized
for issue by the Company's board of directors on October 29, 2020.
The Group's activities and results are not exposed to any seasonality.
The Group operates as a single operating and reportable segment.
Going concern
The Group has incurred recurring losses since inception, including net
losses of $40.5 million, $27.2 million and $26.8 million for the years
ended December 31, 2019, 2018 and 2017, respectively. In addition, as of
September 30, 2020, the Group had an accumulated loss of $180.0 million.
The Group expects to continue to generate operating losses for the
foreseeable future. On July 17, 2020, the Group announced it raised $200
million in a private placement (the "Private Placement"), with net
proceeds after transaction related fees and expenses of approximately
$185.5 million (see note 18).
As of the issuance date of these condensed consolidated interim
financial statements, the Group therefore expects that its cash and cash
equivalents will be sufficient to fund its operating expenses and
capital expenditure requirements for at least twelve months from the
issuance date of these condensed consolidated interim financial
statements. Accordingly, the consolidated financial statements have been
prepared on a basis that assumes the Group will continue as a going
concern and which contemplates the realization of assets and
satisfaction of liabilities and commitments in the ordinary course of
business.
Impairment of intangible assets, goodwill and non-financial assets
The Group continues to review the effect of the COVID-19 pandemic on its
operations, ongoing and planned clinical trials and the potential
disruption to financial markets. Management has determined that the
current effect on the Group does not require an impairment of intangible
assets or goodwill as the Company's market value still supports the
value of the assets. However, management will continue to monitor the
situation for any triggering events that relate to the pandemic or other
issues.
Dividend
The Directors do not recommend the payment of a dividend for the nine
months ended September 30, 2020, (nine months ended September 30, 2019:
$nil and the year ended December 31, 2019: $nil).
3. Change in presentational and functional currency
Accounting policy change - change in presentational currency
On July 1, 2020, the Group changed its presentational currency from
pounds sterling to US dollars. This change has been made retrospectively
and comparative financial statements, including the six months to June
30, 2020, have been restated using the following procedures:
-- assets and liabilities were translated into US dollars at the closing
rate of exchange;
-- income and expenses were translated into US dollars at the average rate
for the month in which they were recorded, which approximates to the rate
at the date of the transactions;
-- equity balances were translated at historical rates at the date of
transactions;
-- translation differences were taken to the cumulative translation
adjustment reserve; and
-- statements of cash flows were prepared in the functional currency of the
entities and translated into the presentational currency at rates
approximating the dates of transactions.
In accordance with IAS 1, Presentation of Financial Statements, a
transition balance sheet has been included in the primary financial
statements.
Change in functional currency
The functional currency of an entity is defined by IAS 21, The Effects
of Changes in Foreign Exchange Rates, as the currency of the primary
economic environment in which an entity operates. Determining the point
at which the functional currency changes is a matter of judgment as
economic activity changes over time.
In the six months to June 30, 2020, management changes resulted in lower
people costs being paid in pounds sterling. Following the Private
Placement the Company entered into contracts to commence Phase 3 trials
for ensifentrine and the majority of the costs are incurred in US
dollars. Management has reviewed budgeted activities over the next five
years and identified that the majority of costs from the second half of
2020 onwards will be incurred in US dollars. Furthermore, the Private
Placement in July, 2020, raised funds in US dollars and after delisting
from AIM any future fund raises will be in US dollars. Also, the
commercial focus of Company is the US market.
As a consequence, management determined that the Company's functional
currency has changed from sterling to US dollars and this has been
accounted for prospectively from July 1, 2020. To convert the Company's
books and records into US dollars assets and liabilities were translated
at the closing rate of exchange as of June 30, 2020.
4. Segmental reporting
The Group's activities are covered by one operating and reporting
segment: Drug Development. There have been no changes to management's
assessment of the operating and reporting segment of the Group during
the period.
All non-current assets are based in the United Kingdom apart from a
right-of-use asset relating to a property lease, and associated fixtures
and fittings, in the United States.
5. Financial instruments
The Group's activities expose it to a variety of financial risks: market
risk (including foreign currency risk), cash flow and fair value
interest rate risk, credit risk and liquidity risk. The condensed
consolidated interim financial statements do not include all financial
risk management information and disclosures required in the annual
financial statements, and they should be read in conjunction with the
Group's annual financial statements for the year ended December 31,
2019. In addition, due to the change of the Company's functional
currency to US dollars and Private Placement, the foreign exchange risk
profile of the Group has changed, discussed below.
Currency risk
Foreign currency risk reflects the risk that the Company's net assets
will be negatively impacted due to fluctuations in exchange rates. The
Company has not entered into foreign exchange contracts to hedge against
gains or losses from foreign exchange fluctuations. Up to June 30, 2020,
movements in the value of its US dollar balances impacted its net
assets. From July 1, 2020, movements in the value of its pounds sterling
balances impact its net assets.
The summary data about the Company's exposure to currency risk is as
follows. Figures are the US dollar values of balances in each currency:
September 30, 2020
USD GBP EUR
------- ------ --------
$'000s $'000s $'000s
Cash and cash equivalents 185,608 16,078 282
Trade, other payables and sterling element of assumed
contingent liability 10,714 8,716 742
Sensitivity Analysis
A reasonably possible strengthening or weakening of the Euro or pounds
sterling against US dollars as of September 30, 2020 would have affected
the measurement of the financial instruments denominated in a foreign
currency.
The following table shows how a movement in a currency would give rise
to a profit or (loss) and a corresponding entry in equity.
Profit or Loss and equity
Strengthening Weakening
--------------------- -----------
$'000s $'000s
September 30, 2020
GBP (5% movement) 368 (368)
EUR (5% movement) (23) 23
Foreign currency denominated trade payables are short term in nature
(generally 30 to 45 days) except for the sterling element of the assumed
contingent liability which is likely to become due between two and five
years from the balance sheet date.
6. Critical estimates and judgements
The preparation of condensed consolidated interim financial statements
require management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts
of assets and liabilities, income and expenses. Actual results may
differ from those estimates.
In preparing these condensed consolidated interim financial statements,
the significant judgments made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty were
the same as those applied to the consolidated financial statements for
the year ended December 31, 2019, with the exception of development of
the COVID-19 pandemic and the judgment required in determining the date
that the Company's functional currency changed (see note 3).
We have assessed whether the COVID-19 pandemic has any impact on the key
estimates and judgments previously reported in respect of the derivative
financial instrument, the assumed contingent liability or other balances
and concluded that there is no significant impact.
7. Finance income and expense
Restated Restated
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
------------------- ------------------- ------------------- ---------------------
$'000s $'000s $'000s $'000s
Finance income:
Interest received on cash and short term investments 13 222 116 844
Foreign exchange gain on translating foreign currency
denominated cash balances 844 860 1,188 709
Fair value adjustment on derivative financial instruments
(note 14) -- 433 -- 2,695
------------------- ------------------- ------------------- -------------------
Total finance income 857 1,515 1,304 4,248
=================== =================== =================== ===================
Restated Restated
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2020 2019 2020 2019
------------------ ------------------ ----------------- -------------------
$'000s $'000s $'000s $'000s
Finance expense:
Fair value adjustment on derivative financial instruments
(note 14) 978 -- 747 --
Interest on discounted lease liability 25 17 78 37
Unwinding of discount factor movements related to
the assumed contingent liability (note 15) 855 37 1,357 112
------------------ ------------------ ----------------- -----------------
Total finance expense 1,858 54 2,182 149
================== ================== ================= =================
8. Taxation
The tax credit for the nine month period ended September 30, 2020,
amounts to $5.7 million and primarily consists of the estimated research
and development tax credit receivable on qualifying expenditure incurred
during the nine month period ended September 30, 2020 for an amount of
$5.8 million less a tax expense of $0.1 million related to the U.S.
operations (nine month period ended September 30, 2019: $7.6 million tax
credit, comprising $7.7 million for research and development tax credit,
less $45 thousand expense for tax on U.S. operations).
The tax credit for the three month period ended September 30, 2020,
amounts to $2.3 million, and consists of the estimated research and
development tax credit receivable on qualifying expenditure incurred
during the three month period ended September 30, 2020 for an amount of
$2.3 million less a tax expense of $44 thousand related to the U.S.
operations (three month period ended September 30, 2019: $3.2 million
tax credit, comprising $3.2 million for research and development tax
credit, less $20 thousand expense for tax on U.S. operations).
9. Loss per share calculation
For the nine months ended September 30, 2020, the basic loss per share
of 21.0 cents (September 30, 2019: 29.4 cents) is calculated by dividing
the loss for the nine months ended September 30, 2020 by the weighted
average number of ordinary shares in issue of 197,049,240 during the
nine months ended September 30, 2020 (September 30, 2019: 105,326,638).
Potential ordinary shares are not treated as dilutive as the entity is
incurring losses and such shares would be anti-dilutive.
For the three months ended September 30, 2020, the basic loss per share
of 5.8 cents (September 30, 2019: 11.8 cents) is calculated by dividing
the loss for the three months ended September 30, 2020 by the weighted
average number of ordinary shares in issue of 344,809,792 during the
three months ended September 30, 2020 (September 30, 2019: 105,326,638).
Potential ordinary shares are not treated as dilutive as the entity is
incurring losses and such shares would be anti-dilutive.
Each ADS represents 8 ordinary shares of the Company, so the profit or
loss per ADS in any period is equal to eight times the profit or loss
per share.
10. Intangible assets
Restated Restated Restated Restated
Computer
IP R&D software Patents Total
-------- ----------- ---------- ----------
$'000s $'000s $'000s $'000s
Cost
At January 1, 2020 2,591 25 1,611 4,227
Additions 27,666 -- 227 28,161
Translation differences recognized in other comprehensive
loss 148 (2) (112) (234)
-------- ----- --- ------ -------
At September 30, 2020 30,405 23 1,726 32,154
-------- ----- ---- ------ -------
Accumulated amortization
At January 1, 2020 -- 19 549 568
Charge for period -- 3 117 120
Translation differences recognized in other comprehensive
loss -- (1) (40) (41)
-------- ----- --- ------ -------
At September 30, 2020 -- 21 626 647
-------- ----- ---- ------ -------
Net book value
At September 30, 2020 30,405 2 1,100 31,507
======== ===== ==== ====== =======
Movements in the assumed contingent liability (see note 15) that relate
to changes in estimated cashflows or probabilities of success are
recognized as additions to the In-Process Research and Development ("IP
R&D") asset that it relates to.
In the nine months ended September 30, 2020, the Group determined that
it had moved from Phase 2 of ensifentrine's clinical development plan to
Phase 3. The probability of success and estimated cashflows have changed
and the $27.7 million movement in the liability relating to this was
recorded as an addition to the IP R&D asset that it relates to.
There were no changes in estimated cashflows or probabilities of success
in 2019.
11. Right-of-use assets
In the nine months ended September 30, 2020, an office lease was signed
in North Carolina and a liability and corresponding right-of-use ("ROU")
asset of $703 thousand were recorded. The lease terminates on April 30,
2024.
As at December 31, 2019, the Group had an ROU asset relating to office
space in New York. In the nine months ended September 30, 2020, the New
York office was closed and the ROU asset was subject to an impairment
review and its net book value of $290 thousand was subsequently expensed
to the income statement. The Group retains a liability of $195 thousand
relating to this asset.
12. Short term investments
Short term investments as at September 30, 2020, amounted to a total of
$nil (December 31, 2019: $10.4 million) and in 2019 consisted of fixed
term deposits.
13. Cash and cash equivalents
Included in cash and cash equivalents are cash balances held at bank,
term deposits with maturities of less than three months at inception and
investments in money market funds. Money market funds have been
classified as cash and cash equivalents as they are low risk instruments,
readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value. Management's intention is to
manage these funds as cash and to use them to meet short term cash
requirements.
14. Derivative financial instrument
On July 29, 2016, the Company issued 31,115,926 warrants, allowing the
holders to subscribe for 0.4 of an ordinary share at a per share
exercise price of GBP1.7238. The warrants can be exercised until May 2,
2022.
The warrant holders can opt for a cashless exercise of their warrants,
whereby they can choose to exchange the warrants held for a reduced
number of warrants exercisable at nil consideration. The reduced number
of warrants is calculated based on a formula considering the share price
and the exercise price of the warrants. The warrants are therefore
classified as a derivative financial liability, since their exercise
could result in a variable number of shares to be issued.
At September 30, 2020, and December 31, 2019, warrants over 12,401,262
shares were in effect.
As of September 30, As of December 31,
2020 2019
----------------------- ----------------------
Shares available to be
issued under warrants 12,401,262 12,401,262
Exercise price GBP 1.7238 GBP 1.7238
Risk-free interest rate 0.00% 0.54%
Remaining term to exercise 1.59 years 2.34 years
Annualized volatility 90.07% 65.56%
Dividend rate 0.00% 0.00%
As of September 30, 2020, the Group updated the underlying assumptions
and calculated a fair value of these warrants of $1.9 million.
The variance for the nine month period ended September 30, 2020, was
$0.7 million (nine month period ended September 30, 2019: $2.7 million)
and is recorded as finance income and expense in the Consolidated
Statement of Comprehensive Income.
Restated
Derivative Derivative
financial financial
instrument instrument
------------- ---------------
2020 2019
------------- ---------------
$'000s $'000s
As of January 1 1,188 3,180
Fair value adjustments recognized in profit or loss 725 (2,695)
Foreign exchange differences recognized in loss for
the period 22 --
Translation differences recognized in other comprehensive
loss (78) 26
-------- -------- ---
As of September 30 1,857 511
======== === ======== ===
For the amount recognized as at September 30, 2020, the effect if
volatility were to deviate up or down is presented in the following
table:
Volatility
(up / down
10 % pts)
-------------
$'000s
Variable up 2,359
Base case, reported fair value 1,857
Variable down 1,378
15. Assumed contingent liability related to the business combination
The value of the assumed contingent liability as of September 30, 2020,
amounted to $30.6 million (December 31, 2019: $1.5 million). The
increase in value of the assumed contingent liability during the nine
months ended September 30, 2020, amounted to $29.1 million (nine months
ended September 30, 2019: $78 thousand).
The assumed contingent liability relates to the acquisition, in 2006, of
rights to certain patents and patent applications relating to
ensifentrine and related compounds under which the Company is obliged to
pay royalties to Ligand.
The assumed contingent liability is accounted for as a liability and its
value is measured at amortized cost using the effective interest rate
method, and is re-measured for changes in estimated cash flows or when
the probability of success changes.
The expected cash flows are based on estimated future royalties payable,
derived from sales forecasts, and an assessment of the probability of
success using standard market probabilities for respiratory drug
development. The risk-weighted value of the assumed contingent
arrangement is discounted back to its net present value applying an
effective interest rate of 12%.
Re-measurements relating to changes in estimated cash flows and
probabilities of success are recognized in the IP R&D asset it relates
to. The unwinding of the liability is recorded in finance expense.
As at May 13, 2020, the Group determined that it had moved from Phase 2
of ensifentrine's clinical development plan to Phase 3. As a consequence,
the probability of success has changed, reducing the risk-weighting
adjustment applied to estimated cashflows. Furthermore, the Group had
carried out market research and updated its forecasts for ensifentrine's
revenue for the maintenance treatment of chronic obstructive pulmonary
disorder using a nebulized formulation in the U.S. The Group therefore
updated estimated cashflows in the second quarter of 2020. In the third
quarter of 2020 and in 2019 there were no events that triggered
remeasurement.
Restated
2020 2019
------- ------------
$'000s $'000s
January 1 1,463 1,271
Re-measurement of contingent liability 27,666 --
Foreign exchange differences recognized in loss for
the period 223 14
Translation differences recognized in other comprehensive
loss (157) (48)
Unwinding of discount factor 1,357 112
------ ------
September 30 30,552 1,349
====== ======
There is no material difference between the fair value and carrying
value of the financial liability.
For the amount recognized as at September 30, 2020, of $30.6 million,
the effect if underlying assumptions were to deviate up or down is
presented in the following table (assuming other variables do not
change):
Revenue
(up / down
Probability of success up / down 5 % pt 10%)
--------------------------------------- -------------
$'000s $'000s
Variable up 32,822 33,307
Base case, reported fair
value 30,552 30,552
Variable down 28,282 27,798
16. Share option plans
During the nine months ended September 30, 2020 the Company granted a
total of 2,096,200 share options and 62,566,216 Restricted Stock Units
("RSUs") (nine months ended September 30, 2019, the Company granted
4,349,050 share options, and 740,496 RSUs).
The movement in the number of the Company's share options is set out
below and relate to options over ordinary shares:
Restated
Weighted Weighted
average average
exercise exercise
price 2020 price 2019
--------- ----------- --------- -------------
$ $
Outstanding
at January
1 1.55 14,179,196 2.09 8,752,114
Granted
during the
period 0.73 2,096,200 0.75 4,349,050
Expired
during the
period 1.93 (589,129) 3.06 (19,998)
Forfeited
during the
period 1.51 (2,292,747) 1.07 (43,723)
---------- ----------
Outstanding
options at
September
30 1.41 13,393,520 1.64 13,037,443
========== ==========
The movement in the number of the Company's RSUs is set out below and
relate to RSUs over ordinary shares:
2020 2019
----------- -----------
Outstanding at January 1 1,602,969 862,473
Granted during the period 62,566,216 740,496
Exercised during the period (1,476,664) --
Forfeited during the period (84,889) --
---------- ---------
Outstanding RSUs at September 30 62,607,632 1,602,969
========== =========
1,069,184 of the RSUs issued related to an element of annual base salary
and 36,989,376 related to additional equity grants for Dr. Zaccardelli
and Mr. Hahn (see note 17). Using the Black-Scholes valuation model the
fair value of each RSUs relating to annual base salary was $0.71 and the
fair value of each RSU relating to the additional grants was at $0.94.
The share-based payment expense for the nine months ended September 30,
2020, was $9.3 million (nine months ended September 30, 2019: $2.4
million).
17. Related party transactions
The Directors and Officers have authority and responsibility for
planning, directing and controlling the activities of the Company and
they therefore comprise key management personnel as defined by IAS 24
("Related Party Disclosures").
During the nine months ended September 30, 2020, Dr. Jan-Anders Karlsson,
the Company's former CEO, and Piers Morgan, the Company's former CFO,
resigned and were replaced by Dr. David Zaccardelli as CEO and President,
and Mark Hahn as CFO.
Dr. Jan-Anders Karlsson's severance agreement included severance pay
equal to GBP479,160, a cash bonus of GBP40,000, a payment as
compensation of termination of employment of GBP100,000 and base salary
in lieu of notice of GBP363,000. Other benefits included continued
medical and life insurance and continued pension contributions until
February 28, 2021.
Piers Morgan's severance agreement included severance pay equal to
GBP123,930 as payment in lieu of notice, a cash bonus of GBP82,620, ex
gratia compensation of GBP30,000 and GBP40,000 additional compensation
for termination of employment.
Pursuant to the terms of his employment agreement Dr. Zaccardelli is
entitled to receive an annual base salary of $750,000, payable $250,000
in cash and $500,000 in restricted stock units, and a target annual
bonus opportunity of 50% of his annual base salary. Dr. Zaccardelli is
also entitled to receive an award of restricted stock units, equal to 4%
of the Company's outstanding ordinary shares, and an additional award of
restricted stock units if the Company raises additional equity capital
during fiscal year 2020, which is intended to result in Dr.
Zaccardelli's equity awards (other than the portion of his base salary
payable in restricted stock units) being equal to 4% of the Company's
outstanding ordinary shares on the applicable date of issuance.
Following the Private Placement in July, 2020, Dr. Zaccardelli received
this additional award (see note 18).
Pursuant to the terms of his employment agreement Mr. Hahn is entitled
to receive an annual base salary of $500,000, payable $250,000 in cash
and $250,000 in restricted stock units, and a target annual bonus
opportunity of 50% of his annual base salary. Mr. Hahn is also entitled
to receive an initial award of restricted stock units, equal to 3% of
the Company's outstanding ordinary shares and an award of restricted
stock units equal to 1% of the Company's outstanding ordinary shares
after six months of employment. He will also be entitled to an
additional award of restricted stock units if the Company raises
additional equity capital during fiscal year 2020, which is intended to
result in Mr. Hahn's equity awards (other than the portion of his base
salary payable in restricted stock units) being equal to 4% of the
Company's outstanding ordinary shares on the applicable date of
issuance. Following the Private Placement in July 2020 Mr. Hahn received
this additional award (see note 18).
During the nine months ended September 30, 2020, 356,392 and 178,192
RSUs that were issued to Dr. Zaccardelli and Mr. Hahn, respectively,
vested. The shares were issued on May 12, 2020, and August 5, 2020.
Pursuant to their employment agreements, during the nine months ended
September 30, 2020, Dr. Zaccardelli and Mr. Hahn were each awarded an
aggregate of 18,494,688 RSUs equal to 4% of the Company's outstanding
ordinary shares as of July 23, 2020.
During the nine months ended September 30, 2020, the board of directors
were awarded RSUs or share options. Dr. Ebsworth, Dr. Cunningham, Dr.
Edwards, Dr. Shah, Mr. Sinha and Dr. Ullman were awarded 116,000 RSUs
each. Mr. Gupta and Dr. Sinclair were awarded 185,600 share options
each.
In connection with the Private Placement, certain Directors and an
Officer of the Company (the "Participating Directors and Officer")
subscribed for new ordinary shares at a price of $0.5625, or GBP0.45, or
ADSs at a price of $4.50.
A summary of the Participating Directors and Officers is shown below:
Number of
Name Title Amount shares
Dr. Ebsworth Chairman GBP 100,000 222,216
Dr. Zaccardelli President & CEO $ 249,998 444,440
Mr. Sinha
(through connected persons) Director $ 299,997 533,328
Dr. Ullman Director $ 149,983 266,664
Dr. Edwards Director $ 29,997 53,328
Mr. Hahn CFO $ 100,004 177,784
As of July 15, 2020, Novo Holdings A/S and Vivo Capital held
approximately 11.63 per cent and 11.21 per cent, respectively, of Verona
Pharma's issued ordinary share capital and as such each is considered to
be a related party of the Company as defined in the AIM Rules for
Companies. The participation by Novo Holdings A/S and Vivo Capital in
the Financing are deemed to each constitute a related party transaction
pursuant to AIM Rule 13. Post the closing of the financing July 22,
2020, Novo Holdings A/S and Vivo Capital were no longer related parties.
18. July 2020 Private Placement
On July 17, 2020, Verona Pharma announced that it raised approximately
$200 million in a private placement with new and existing institutional
and accredited investors (the "Private Placement"). The Private
Placement comprised a private placement of 39,090,009 ADSs, each
representing eight ordinary shares or non-voting ordinary shares, at a
price of $4.50 per ADS, and 43,111,112 ordinary shares at the equivalent
price of $0.5625 per ordinary share.
The net proceeds of the Financing were approximately $185.5 million
after deducting placement agent fees and estimated expenses.
19. Post balance sheet events
There were no post balance sheet events to report.
(END) Dow Jones Newswires
October 29, 2020 03:00 ET (07:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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