Verona Pharma PLC

NASDAQ:VRNA

Earnings Call Analysis

Verona Pharma's Robust Financial Standing and Promising Drug Launch

Verona Pharma's second quarter was highlighted by the U.S. FDA approval and commercial launch of Ohtuvayre for COPD treatment. Patients have started receiving the drug, and initial interest from healthcare providers is strong. The company highlighted the extensive preparations and market research demonstrating significant interest among top prescribers. Financially, the company remains robust with over $400 million in cash and anticipates sufficient funds to extend beyond 2026. Operating expenses surged due to milestone payments and commercialization activities, with R&D and SG&A costs totaling approximately $68.4 million compared to $14.9 million the previous year.

Transformative Launch of Ohtuvayre

Verona Pharma initiated an exciting chapter with the FDA approval of Ohtuvayre for the maintenance treatment of Chronic Obstructive Pulmonary Disease (COPD). This inhaled treatment is designed to provide both bronchodilation and anti-inflammatory effects, setting itself apart from existing therapies. The approval is not just a regulatory victory; it's positioned to redefine how healthcare professionals (HCPs) manage COPD. Importantly, Ohtuvayre is available without limitations related to patients' existing medications or COPD classification, which could broaden its adoption.

Initial Market Response and Preparedness

The company reported that Ohtuvayre is now accessible through an exclusive network of specialty pharmacies, with patient shipments already underway. As of the earnings call, over 100 HCPs had begun prescribing the medication, indicating an encouraging reception. Verona’s launch strategy targets around 14,500 active HCPs, including pulmonologists and primary care providers, and the sales team has engaged with over 2,000 physicians within the first weeks of launch.

Financial Resilience and Expense Structure

Verona's financial standing remains robust, boasting over $400 million in cash as of June 30, 2024. This includes funds drawn from debt facilities yet leaves significant liquidity available for future growth initiatives. The company expects its cash runway to sustain operations beyond 2026, accommodating both the commercialization of Ohtuvayre and two upcoming Phase II clinical trials. Operating expenses rose substantially, primarily due to milestone payments and increased marketing costs. Total operating expenses reached $49 million, significantly higher than the $12.4 million reported in the same quarter of the previous year.

Guidance on Future Growth and Investment

For the third quarter, consensus estimates expect revenues around $1.5 million amid early adoption hurdles. The company is aware of potential patient rejection and abandonment due to economic factors, especially during the initial launch phase. However, they are optimistic that their Patient Assistance Program will effectively enhance access and adherence to Ohtuvayre. The executives emphasized their commitment to transparency and expect to share evolving metrics regarding adoption rates in future earnings calls.

Upcoming Clinical Trials and Research Direction

Looking ahead, Verona Pharma is actively planning two Phase II trials scheduled to commence in the third quarter of 2024. One trial will explore a fixed-dose combination of ensifentrine and glycopyrrolate for COPD maintenance, while the other will assess nebulized ensifentrine for patients with non-CF bronchiectasis. These trials reflect the company's dedication to expanding the treatment options available for chronic respiratory diseases, harnessing the strong clinical evidence derived from past research.

Strategic Marketing Initiatives

Verona Pharma is implementing a comprehensive marketing approach for Ohtuvayre, leveraging both digital outreach and traditional physician engagement strategies. Their digital campaign has already reached over 50,000 physicians and garnered significant interaction. The marketing team is also planning speaker programs and patient advocacy outreach to elevate awareness and encourage prescriptions among HCPs.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Verona Pharma's Second Quarter 2024 Financial Results and Operating Highlights Conference Call. [Operator Instructions] Earlier this morning, Verona Pharma issued a press release announcing its financial results for the 3 months ended June 30, 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 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 material -- to 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'd now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer.

[David Zaccardelli, executive]

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 Rheault, our Chief Development Officer.

The second quarter was an exceptional for Verona Pharma, marked by the U.S. FDA approval of Ohtuvayre for the treatment -- for the maintenance treatment of COPD. Ohtuvayre is the first inhaled COPD treatment to provide both bronchodilation and nonsteroidal anti-inflammatory effects, and we believe this approval can redefine the treatment paradigm for COPD in the U.S.

Today, we announced Ohtuvayre is now available through our exclusive network of specialty pharmacies, and patient shipments have begun. We are very excited to share this achievement with you and are confident that our extensive preparation position us for the successful commercialization of Ohtuvayre in the U.S.

As a reminder, Ohtuvayre's label supports broad use across all COPD patients without restriction to background medication, COPD etiology, including chronic bronchitis or emphysema or blood eosinophil level.

The label also describes Ohtuvayre's mechanism of action, which differentiates it from all other approved COPD treatments. Based on Ohtuvayre's novel mechanism of action and compelling benefit-to-risk profile, our market research shows HCPs have significant interest in prescribing Ohtuvayre broadly across all symptomatic COPD patient types.

Initially, our launch efforts are focused on promoting Ohtuvayre to the most active HCPs that treat COPD patients, which our market analysis shows is approximately 14,500 providers. These providers include pulmonologists, primary care physicians, nurse practitioners and physician assistants.

Our sales and field reimbursement teams are fully hired and have been in the field since late July. During that time, they have interacted with over 2,000 HCPs, with over 85% being top prescribers. Although it has just been a few days, over 100 HCPs have prescribed Ohtuvayre.

In addition to the U.S. launch of Ohtuvayre, we plan to initiate 2 new Phase II programs in the third quarter. First, we are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, a LAMA, for the maintenance treatment of COPD, delivered via standard jet nebulizer.

In July, we submitted an IND to the FDA. And subject to clearance, we plan to start a Phase II dose-ranging trial in the third quarter. The trial is a randomized, double-blind, placebo-controlled, 1-week crossover trial to assess lung function, safety and the pharmacokinetic profile of glycopyrrolates in the novel formulation delivered via nebulizer in approximately 40 patients with COPD.

Following identification of an appropriate glycopyrrolate dose range, a Phase II trial assessing the fixed-dose combination of ensifentrine and glycopyrrolate compared to placebo and individual components will be conducted.

Additionally, we plan to initiate a Phase II trial to assess nebulized ensifentrine in patients with non-cystic fibrosis bronchiectasis in the third quarter. The randomized, double-blind, placebo-controlled parallel group trial will enroll 180 patients with a recent history of pulmonary exacerbation.

The trial will assess the effect of 3 milligrams of ensifentrine twice daily on the rate and risk of pulmonary exacerbation in addition to symptoms and quality of life. To ensure robust powering, the trial is planned as event-driven, where all patients enrolled will be treated for at least 24 weeks and until they require, a number of exacerbation events are observed.

Lastly, our balance sheet remains strong with over $400 million of cash on hand and optionality for future draws under our Oaktree facility.

I will now turn the call over to Mark to review our financial results for the second quarter. Mark, please go ahead.

[Mark Hahn, executive]

As Dave mentioned, our balance sheet is strong with in excess of $400 million in cash and equivalents at June 30, 2024. This includes $70 million drawn under our debt facility and $100 million drawn under the RIPSA at approval. With the cash currently on hand and potential future access to the remaining $425 million under the Oaktree facility, we expect to have sufficient cash runway beyond 2026, including the commercial launch of Ohtuvayre in the U.S. and our 2 new Phase II clinical programs.

Total operating expenses for the second quarter of 2024 were higher than historical levels as a result of the recognition of onetime expenses for milestone payments due to Ligand and performance-based RSUs. Excluding these onetime costs, our quarterly R&D and SG&A expenses would be approximately $37 million for the quarter, in line with our previous guidance.

Research and development costs were $19.4 million for the quarter compared to a net reversal of costs of $2.5 million reported for the second quarter of 2023.

This increase was primarily due to accrual of the $6.3 million approval milestone to Ligand, a $2.5 million increase in share-based compensation, largely driven by the recognition of expense related to performance-based RSUs; $1.7 million of expense related to pre-approval inventory production and an $8.8 million increase in clinical trial costs from Q2 2023 to Q2 2024.

Selling, general and administrative expenses were $49 million for the quarter ended June 30, 2024, compared to $12.4 million reported for the same period in 2023.

This increase was driven primarily by an accrual of the $15 million first sale milestone due to Ligand, an increases of $7.4 million from marketing and other commercial launch-related activities, $4.3 million in people-related costs as we built out our commercial organization, as well as an increase in share-based compensation of approximately $8 million largely driven by performance-based RSU expense.

I'll now turn the call back over to the operator for the Q&A.

[Operator]

[Operator Instructions] The first question comes from Andrew Tsai with Jefferies.

[Lin Tsai, analyst]

Congratulations on the execution and launch. So first one is, as we took around our models, what kind of payer rejection and patient abandonment rate should we be modeling for ensifentrine? And can you remind us if there will be a free drug?

[David Zaccardelli, executive]

Andrew, thanks for the questions. With regard to free drug, we do have programs in place to support patients based on economic need, for example. And also, we do have what we would call a bridging program for those patients that may have delayed benefit and allowing them to start on drug in the short term, while those benefits become in effect.

So there is not a sampling program per se, but there is an ability to provide Ohtuvayre to those patients that need it and to support them through any short-term benefit verification.

With that, I guess I'll turn it over to Chris on payer dynamics, at least from a modeling standpoint. And as you know, incredibly early in the launch to understand that based on current prescriptions that have been written.

[Christopher Martin, executive]

Andrew, this is Chris. Thank you for the question. When we think about the overall payer abandonment and rejection, as Dave mentioned, we're very early in the launch here. But I'm going to go back to using older analog within the nebulizer space.

And what you see within those spaces, keep in mind that Ohtuvayre will be primarily reimbursed under a medical benefit within our historical analogs that we've looked at under a medical benefit side, which can either be under traditional Med B or through Medicare Advantage. Those abandonments are lower than what you see in Medicare Part D and commercial, but they do exist early on.

There's just a natural patient dynamic that some patients, regardless of co-pay, even if it's low and zero, may have walked away from a prescription. But we believe that everything that we have from a patient assistance program through Verona Pathway Plus provides access to the medication in a variety of different ways.

Additionally, if you think about rejection rates and how rejection works, I'll go back to the same statement there around medical benefit versus pharmacy benefit. We believe the majority of our prescriptions will run through the medical benefit side of the business. And within that medical benefit side of the business, we have data and -- on what those rejection rates look like.

We also know that during this time, we'll be using a nonspecific J-code. That nonspecific J-code exists, the local coverage determination exists, and we believe that the product is able to flow through that channel very freely.

Additionally, as we talked about on the approval call, we have submitted our J-code application in [ LCD ]. We did that on June 27. It is currently under review at CMS, and we would expect a product-specific J-code at the beginning of 2025 to be in effect. So I hope that helps with your question. And again, I appreciate it.

[Lin Tsai, analyst]

No. Yes. And secondly, consensus for Q3 is $1.5 million. If we assumed patients who get reimbursed this quarter maybe get treated for an average of 0.5 a month, then by my calculation, the number of patients needed is 1,400 or more. Would you feel comfortable meeting or exceeding that patient number in Q3 or exiting out of September 30?

[Mark Hahn, executive]

Yes. Maybe I'll take that one, Andrew. I don't think we're prepared to talk about patient numbers. I will note, however, that in viewing your math, you do have to consider there will be some inventory making its way into the channel, not actually getting the patients quite yet that will impact revenue.

[Operator]

Next question comes from Yasmeen Rahimi with Piper Sandler.

[Unknown Analyst]

This is Emma on for Yas. Firstly, can you provide any color on patient starting forms and how that ties into how you're thinking about patient uptake? And with that, what type of metrics do you plan to share at next earnings in November to help us track the launch progress and guide future expectations?

[David Zaccardelli, executive]

Yes. Thanks for the question. I think I'll start with the latter part. Clearly, as you've seen in our history, we're as transparent as we can be as we progress. We expect our metrics to continually evolve as we get further into the launch, and we're still assessing which those are for the next quarterly call.

As you can see, just in a few days, the uptake is quite strong with Ohtuvayre with over 100 HCPs already writing for it, and we've barely just begun. And so we will, of course, again, be informative, be transparent and give you metrics to understand the launch dynamics, and we expect again that to change over time.

[Operator]

Next question comes from Tom Shrader with BTIG.

[Thomas Shrader, analyst]

Congratulations. I have what's probably an annoying question, but you've written 100 prescriptions. Do you have any read on who they're for? Are they all patients unhappy on triple? Or are you already seeing people try the drug earlier?

[David Zaccardelli, executive]

Again, I'll have Chris comment. But keep in mind that we're just a few days into this. And so all the analyses that you'd expect on a maturing launch haven't quite started yet. But with that, I'll have Chris comment.

[Christopher Martin, executive]

Yes, Tom, thanks for the question. And just for clarity, we have over 100 writers of -- prescribers of Ohtuvayre. What we know about those prescribers is they come from our top target list. So if we think back to our other calls, these are the highest prescribing physicians, both what I would call segment 1 and segment 2 positions that our reps are calling on.

We're also hearing very clearly from our early field conversations with the unmet need that we've expressed throughout the last year, 1.5 years is very high within the [ offices ]. The doctors are reporting back to our reps. They have significant numbers of patients who continually have for [ shift in ] symptoms. And they look at Ohtuvayre as a new tool in their toolkit for treating these patients, and it allows them to use it in a variety of different ways.

As Dave said, it's very early to kind of give an analysis of what the patient profile looks like of the ways that these doctors have prescribed it. However, what we do know is that they are telling us every single time our reps go into the office that these patients continue to have persistent symptoms, and that will drive utilization as we move through the third quarter and into the fourth quarter as well.

[Thomas Shrader, analyst]

Okay. And then a quick question on the fixed dose. To try a fixed dose in a handheld device, do you have to get the monotherapy approved in a handheld device first? Or could you, in fact, try that combination in a different device?

[Unknown Executive]

Yes. I think the way that the programs are typically designed for a fixed-dose combination, you actually, one way or another, work through the entire development of a monotherapy in that formulation, whether it's in a handheld device or a nebulizer.

[Operator]

Next question comes from Joon Lee with Truist.

[Unknown Analyst]

This is [ Jane ] for Joon, and also, congratulations on your progress. So I have other questions regarding about your -- can you give more color on the drug compare with treating the non-CF bronchiectasis, especially compared with your competitors like [ NZMS ] [indiscernible]? And then also, could you give some -- provide some unique of this mechanism for this drug can be offered better, competitive edge over other drugs?

[Unknown Executive]

Yes. So we think ensifentrine has the potential to make a difference in patients with non-CF bronchiectasis because it targets neutrophilic inflammation, including both neutrophils and macrophages-based inflammatory processes.

It also works through increasing ciliary function and cough and sputum. Sputum in particular is one of the most problematic issues associated with bronchiectasis, and it's that dysfunctional mucociliary processes in these patients that cause continual infections and further pulmonary exacerbation.

So our trial, of course, is designed to assess the effect of ensifentrine on pulmonary exacerbations. We saw very strong data against pulmonary exacerbations in reducing rates and risk of exacerbations in the COPD population. We certainly think that based on the mechanism, this will extrapolate to a bronchiectasis population.

Regarding how ensifentrine might impact patients with bronchiectasis compared to other competitor drugs that are out there, we really think that ensifentrine has the opportunity to actually make these patients feel better rather than just reducing exacerbation rates. And so that's the goal, and those are some of the endpoints that we'll be assessing in this first trial.

[Unknown Analyst]

Great. But do you have any preclinical data to support what you have for this indication?

[Unknown Executive]

Well, I'm not aware of any model specifically relating to bronchiectasis. But certainly, we have a wealth of data with similar pathophysiological processes in patients with COPD, including reduction in cough and sputum that was important in the Phase III program.

[Operator]

Next question comes from Ram Selvaraju with H.C. Wainwright.

[Raghuram Selvaraju, analyst]

On the commercial front, this is probably for Chris, I wanted to see if you could provide us with some more granularity on what you are currently engaged in doing on the social media front and what you plan to do in the course of the coming months with respect to marketing outreach.

And also, when you anticipate involving direct-to-consumer advertising as part of the overall commercial process for Ohtuvayre? And if so, what forms that might potentially take? And what you might think about doing on, for example, the speaker program side with physicians as well as what you're seeing in terms of patient advocacy involvement in support of Ohtuvayre within the COPD community?

[David Zaccardelli, executive]

Thanks, Ram. Go ahead, Chris.

[Christopher Martin, executive]

Yes. Thanks, Ram. I'm going to take these kind of stepwise on just our promotion through marketing and point. One of the things that the team did a very good job of -- and we talked about this throughout the commercial launch preparation was setting up our infrastructure specifically from a data side to be very flexible for marketing programs and digital programs to HCPs and patients. And we've seen that in execution already.

I'll give you a good example here. Our marketing team, through digital avenues, have reached out to over 50,000 physicians multiple times through e-mail, banner ads and other types of channels to engage with physicians.

And what we've seen over the course since approval is we have over -- almost 7,000 physicians that are highly engaged with our marketing content over the last month. And what I mean by highly engaged means they're clicking on e-mails, they're going to our website, they're interacting with the communications the marketing team is doing.

Additionally, what that's allowing our reps to do is give them high-profile leads so that they can go into offices with physicians that are ready to prescribe Ohtuvayre very quickly. So it's been a really nice process and system in place from a marketing perspective.

I think as we think about the future from the HCP side, we will continue to support our field messaging with what I would classify as omnichannel promotion. Omnichannel promotion is not only digital, but as you talked about some speaker programs and other things, we -- today, if you go on the Ohtuvayre HCP website, it's just fully updated and launched, as well as the ohtuvayre.com website for patients is fully launched as well. So those are avenues to continue to reach physicians outside of the traditional rep standpoint.

From a speaker program standpoint, we will have speaker programs. Our reps have the ability to have speaker programs. We have trained a group of speakers already, and the reps have already started scheduling future speaker programs with physicians in their locations. So that is part of that omnichannel plan.

When I think about patients, patients have always been part of our plan. It's the reason why we have a patient website today. It's also a reason why we collect patient information -- our patient data through our interactions on social and other channels.

We also think that in the future, there's very good avenues of point-of-care patient marketing, where we're able to interact with the patient and physician offices, where the doctors are already prescribing.

So the team has put together a very robust, both physician and patient, marketing plan to ensure that we support our field force as they're out there interacting with these physicians.

[Raghuram Selvaraju, analyst]

Great. And then just very quickly on the non-CF bronchiectasis. I was wondering if you could give us some additional color on the timeline to reach full enrollment and potentially the timeline to data? Or if you don't have that great a read on that yet?

[Unknown Executive]

Sure. It's -- this population is not a really easy one to project out. But we do anticipate this could take around 2 years to get to the end of the set. Remember, the population is essentially just somewhat larger than a rare disease. So the patients are a bit harder to find.

[Operator]

[Operator Instructions] Our next question comes from Edward Thomason with [ Kempen ].

[Edward Thomason, analyst]

I had a quick question just about the pricing. There was -- in recent weeks, we've seen news how the pricing differences. This is from the [ ICR ] cost-effective pricing on an annual basis. Does that have any implications on reimbursement? And how does that play into your strategy for the Ohtuvayre launch?

[Christopher Martin, executive]

Edward, thank you for the question, and I appreciate that. Yes, I think we believe that we have priced Ohtuvayre at the appropriate value to both the health care system and the patient.

If we look, we've done significant pharmacoeconomic analyses on Ohtuvayre and the benefits that provides the system. And we've had ranges of prices per month upwards of $5,000 a month that you could have charged for Ohtuvayre. As you know, our WACC price is $22,950. We feel like that represents an appropriate value for what Ohtuvayre brings to the overall health care system.

When it comes to reimbursement, we have not -- we don't believe that. And we haven't seen anything from an indication standpoint from any of our interactions with payers that price is dictating how it will be covered. Keep in mind, Ohtuvayre is reimbursed under a medical benefit, and that is different than how traditional pharmacy benefit drugs work.

So again, from all the work the team has done across the pricing and payer community, we believe that price appropriately reflects the value but also appropriately allows the patient to get access to the medication long term as well.

[Edward Thomason, analyst]

Okay. And then I just had a follow-up question actually on the data that we might be expecting at ERS and CHEST later in the year. Can you just give us a flavor on what we might expect in those releases, whether that'll be subgroup analysis or I don't know, patient populations or background therapies and -- just so we can [ wrap ] the [ upside ] ahead of that?

[Unknown Executive]

Sure. And all of those things, actually. At the ERS, you'll see some analyses specifically on the European population that was enrolled in the ENHANCE program, additional analyses on the effect of ensifentrine on cough and sputum, from ENHANCE pool patient reported outcome assessments and a look at exacerbation effects by COPD phenotype to chronic bronchitis or not-chronic bronchitis.

At CHEST, you'll see some additional analyses on COPD severity on smoking status, again, on data from COPD phenotypes, chronic bronchitis or emphysema, an analysis of pool of lung function and also a look at health care resource utilization over 48 weeks.

[Operator]

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

[David Zaccardelli, executive]

Thank you, everyone, for joining today's call. As you can see, we are very excited about Ohtuvayre's launch in the U.S. I think we're off to an incredible start just a few days into it. And we look very much to updating you in the future. We look forward to seeing you all soon at various meetings and investor conferences. Thanks very much.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.