Verona Pharma PLC

NASDAQ:VRNA

Earnings Call Analysis

Corporate Overview and Forward-Looking Statements

Verona Pharma conducted an earning call for its fourth quarter and full year quarter of 2023, presenting its financial results and operating highlights. As with the previous calls, the company provided caution regarding forward-looking statements which are based on current management expectations and might be impacted by risks and uncertainties.

Strategic and Regulatory Milestones

2023 marked a pivotal year for Verona Pharma, highlighted by the submission of a New Drug Application (NDA) to the FDA for ensifentrine intended for the maintenance treatment of COPD. The FDA accepted the NDA and set a Prescription Drug User Fee Act (PDUFA) target action date of June 26, 2024. No advisory committee meeting is anticipated by the FDA. The company is optimally positioned for ensifentrine's potential launch as the first new inhaled treatment for COPD in two decades, pending approval.

Clinical Progress and Expectations

Verona Pharma is progressing with the development of a fixed-dose combination of ensifentrine and glycopyrrolate via nebulizer and a Phase II clinical trial for non-CF bronchiectasis. The company aims to address the unmet needs in these areas, banking on ensifentrine's dual bronchodilator and nonsteroidal anti-inflammatory properties to make a significant treatment impact.

Financial Health and Funding

The company finished 2023 with a strong balance sheet, boasting $271.8 million in cash and equivalents, and secured a $400 million debt facility to fund commercialization efforts and pipeline expansion. Verona Pharma expects to have sufficient capital to cover operations at least through the end of 2026.

Operating Expenses and Milestone Payments

The net loss for the year was $54.4 million, a decrease from $68.7 million in the previous year. Significant increases in expenses were due to commercial and IT infrastructure buildouts, marketing, and expanding team capabilities in medical affairs and commercial positions. The company anticipates a sequential uptick in operating expenses throughout 2024 and is prepared for milestone payments following potential FDA approval and product launch.

Market Positioning and Commercial Launch Preparation

Verona Pharma maintains confidence in a robust commercial launch plan for ensifentrine, based on market research and physician feedback. The drug has been well-received in terms of its broad applicability to the COPD patient population. Despite a potentially close launch timing with Dupixent's sBLA for COPD, Verona Pharma does not foresee any shifts in its commercial strategy.

Complementary Therapy Potential

There is strong indication from market research that ensifentrine could be adopted widely due to its innovative mechanism of action that remains effective across a variety of patient profiles. Almost 90% of surveyed physicians intend to adopt ensifentrine within the first 12 months of launch. This figure remains stable even with the introduction of other products in the COPD treatment landscape.

Progress Toward Potential New Combination Therapies

Further, ensifentrine's potential in the fixed-dose combination form, particularly with a LAMA, presents synergies that would offer an alternative to current triple therapies. The existing clinical data support the possibility of a distinctive product profile that could benefit a wide range of COPD patients.

Closing Remarks

In concluding the earning call, Verona Pharma expressed gratitude to its shareholders for their steadfast support and trust in the company's strategic pathway for addressing COPD treatment, indicating a strong collective optimism for the future.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to Verona Pharma's Fourth Quarter and Full Year Quarter 2023 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 and full year ended December 31, 2023. A copy can be found in the Investor Relations tab on the corporate website, www.veronapharma.com.

Before we begin, I'd like to remind you that during today's call, statements about the company's future expectations, plans and prospects are forward-looking statements. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from our expectations expressed or implied by the forward-looking statements.

Any such forward-looking statements represent management's estimates as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligation to do so even if subsequent events cause its views to change.

As a reminder, this call is being recorded and will remain available for 90 days.

I'd now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead.

[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.

2023 was a pivotal year for Verona Pharma and importantly, for millions of patients suffering from COPD. Following a very positive data from our Phase III ENHANCE program, we submitted a new drug application to the FDA seeking U.S. approval of ensifentrine for the maintenance treatment of patients with COPD. As you know, the FDA accepted our NDA for review and assigned a PDUFA target action date of June 26, 2024, and indicated they are not planning to hold an advisory committee meeting to discuss the NDA.

We continue to advance our preparations for the planned commercial launch of ensifentrine in the U.S. and look forward to continuing our work with the FDA during their review. If approved, ensifentrine is expected to be the first novel inhaled mechanism available for the treatment of COPD in over 20 years.

We believe its dual mechanism providing bronchodilator and nonsteroidal anti-inflammatory activity has the potential to change the treatment paradigm for COPD. Currently, more than 390 million patients suffer from COPD worldwide, and it is the third leading cause of death globally. Despite the availability of existing COPD treatments in the U.S., approximately 50% of patients experienced persistent symptoms for more than 24 days per month. In addition, approximately 60% of patients, who could be considered maximally treated on dual bronchodilators or triple therapy, are dissatisfied.

This highlights HCP's continued need for new and effective COPD therapies to provide relief to their patients. In October, we hosted an investor event where we presented a comprehensive update on our commercial launch preparation. We continue to make excellent progress on this front, including strengthening our commercial and sales team and continuing to finalize key tactics, including our distribution and patient service programs, our branded HCP and patient engagement plans, and our internal data infrastructure capabilities to allow quick and actionable insights during launch.

We have also continued the rollout of our disease awareness campaign, Unspoken COPD, which launched at the CHEST Meeting. The campaign is actively highlighting the severe impact of COPD on patients' lives and encourages HCPs to engage patients in a better dialogue to help optimize their care. Overall, we believe we are in a strong position to successfully launch ensifentrine pending approval in June.

This confidence is based on the novel profile of ensifentrine, the significant unmet need in COPD, our commercial preparation, and the deep experience and capabilities of the Verona team. In addition to the planned U.S. launch of ensifentrine, we progressed development of 2 new Phase II programs.

First, we are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, a LAMA, for the maintenance treatment of COPD delivered via nebulizer. Fixed-dose combination therapies are commonly used in the treatment of COPD historically in DPI and pMDI formulations. Based on market research, an unmet need exists for a nebulized fixed-dose combination therapy, we believe the combination of ensifentrine with a LAMA could provide COPD patients with the first nebulized fixed-dose combination that provides bronchodilation through 2 complementary mechanisms and also nonsteroidal anti-inflammatory effects.

This combination was assessed in the ENHANCE program where ensifentrine added on to a LAMA demonstrated robust efficacy and safety compared with placebo added on to a LAMA. Upon confirmation of an adequate fixed-dose combination formulation, we plan to submit an investigational new drug application to the FDA in the second half of 2024 and plan to start a Phase IIb clinical program intending to support dose selection for Phase III.

In this program, we anticipate a dose-ranging trial in patients with COPD to identify the appropriate dose of nebulized glycopyrrolate in the fixed-dose combination, and a second dose-ranging trial with a fixed-dose combination versus individual components using a factorial design. Both trials are planned as randomized double-blind crossover trials in approximately 50 patients, each with lung function endpoints.

Additionally, based on the clinical profile of ensifentrine observed in COPD patients, including a reduction in exacerbation rate and risk, an improvement in symptoms of cough and sputum, we believe ensifentrine could potentially be an effective treatment for noncystic fibrosis bronchiectasis. This is a severe chronic condition where the airways of the lung become abnormally white, leading to a cycle of infection, inflammation and exacerbations that cause lung tissue damage. The condition affects up to 500,000 patients in the U.S., and there is currently no approved therapy.

Despite the lack of approved treatments, HCPs use bronchodilators, antibiotics, steroids, mucus thinners and surgery to treat patients. We plan to commence a Phase II clinical trial to assess the efficacy and safety of nebulized ensifentrine in patients with non-CF bronchiectasis in the second half of 2024. The trial is planned as a randomized, double-blind, placebo-controlled trial in approximately 180 patients with non-CF bronchiectasis over approximately 24 weeks. Endpoints including exacerbations, symptoms and lung function will be assessed in this trial.

Moving on to our finances, I am pleased to report on our strong balance sheet. In support of our commercialization activity as well as our continued pipeline expansion, in December, we enhanced our financial flexibility through a debt financing facility providing access to up to $400 million. We borrowed $50 million at closing and may draw an additional $100 million upon approval of ensifentrine. Future draws are available upon certain commercial milestones and other conditions.

With our current cash balance and the expected proceeds available under this debt facility, we believe we are in a strong financial position as we prepare to launch ensifentrine in the U.S. and advance new clinical programs.

Turning to our global partnering strategy. Our development partner, Nuance Pharma, is continuing enrollment in a pivotal Phase III trial of ensifentrine for the maintenance treatment of COPD in China. As a reminder, Nuance Pharma has exclusive right to develop and commercialize ensifentrine in Greater China, and as such, will play a key role in addressing the global need for a novel treatment for COPD.

We look forward to providing updates as Nuance's trial progresses. We are pleased with our progress in important areas, including regulatory accomplishments, commercial preparation, and new program development.

I will now turn the call over to Mark to review our financial results for 2023.

[Mark Hahn, executive]

Thank you, Dave. We ended 2023 with $271.8 million in cash and equivalents. We believe our balance sheet remains strong, and with the cash currently on hand and funding anticipated to be available under the recently closed $400 million debt facility, we expect to have sufficient runway at least through the end of 2026, including the planned commercialization of ensifentrine in the U.S., if approved, and the 2 Phase II development programs Dave discussed a few moments ago.

For the year ended December 31, 2023, net loss after tax was $54.4 million compared to a net loss after tax of $68.7 million for the prior year. This represents a loss of $0.09 per ordinary share or $0.69 per ADS for the year compared to a loss of $0.13 per ordinary share or $1.04 per ADS in 2022. Research and development costs were $17.2 million for the year ended December 31, 2023, compared to the $49.3 million reported for 2022. This decrease was driven by less cost incurred on the ENHANCE Phase III program, which completed study conduct and analysis early in 2023, whereas in 2022, significant costs were incurred associated with the then ongoing study conduct.

Selling, general and administrative expenses were $50.4 million for the year ended December 31, 2023, compared to $26.6 million reported for the prior year. This increase was driven primarily by a $15.6 million increase in depot related costs as we expanded our head count with key hires in medical affairs and commercial positions inclusive of share-based compensation, as well as an increase of $9.7 million related to the build-out of the commercial and information technology infrastructures, marketing and market development expenses, and costs associated with our medical affairs team's increased presence at local, regional and national medical conferences.

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

[Operator]

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

[Lin Tsai, analyst]

Appreciate the update. So a couple on our side. And I guess for the first one for the ongoing NDA review, I know the FDA continues to indicate no Ad Comm. But since we're basically 3 to 4 months away from the PDUFA, I'm just curious how realistic is this scenario at this juncture? Is it fair to essentially rule out a potential Ad Comm or not yet? And secondly, how has the FDA dialogue been? Have they finished with CMC inspections? And if there seems to be no real issues with the review, could an early approval be a possibility? And would you be ready to launch if that was the case?

[David Zaccardelli, executive]

Andrew, thanks for the questions. So let me talk about the Ad Comm. I think, of course, anything is possible. But as you sort of outlined, time continues to move forward. And the FDA has communicated to us twice that they're not planning to have an Ad Comm. So that's our operating philosophy on that. But again, let's be aware that anything can happen.

With regard to the review, I mean, I think I would just say it continues and is ongoing. And I think that with regard to inspections, we've had clinical inspections. I think that both our API and drug product manufacture facilities that are known to the agency, and so how they're managing inspections is in their court. And with regard to early approvals, I would just say that the PDUFA is June 26. That's how we think about it, and we'll adjust accordingly.

Are we prepared to launch? In many ways, yes. I think that some of the things that affect that timing always at the end are the label, the final artwork, packaging, labeling, distribution aspects that happen no matter when an approval occurs. But overall, we're very pleased with where we are with our supply chain.

[Lin Tsai, analyst]

Okay. Very good. And maybe just one more is, let's just say you guys are approved and are launching in second half. Hypothetically speaking, if the launch trajectory doesn't ramp up immediately, it doesn't look strong right off of that. Why would that be the case? Just curious how you think what could go wrong and how you're thinking about these potential risks?

[David Zaccardelli, executive]

Yes. So I'll make a general statement. I think that -- I think based on all our work we've done to date, all the market research, the work that we have done with HCPs, we feel confident that the need is there and that the launch will go well in our view. But I'll ask Chris to comment on anything that is on his mind with regard to risk.

[Christopher Martin, executive]

Yes. Thank you, Dave, and Andrew, I appreciate the question as well. If we think about launches, what you typically see in a lot of launches that are slower, challenges with market access, I think we've been able to mitigate that risk partly due to the channel that ensifentrine will flow through being that it is primarily a Medicare Part B medical reimbursement pathway, that risk of slower uptake of new product launches is not essentially eliminated, but is mitigated by the pathway of reimbursement of ensifentrine.

And I think internally, we've done a very good job of ensuring that we understand that pathway. Our limited distribution network that we talked about in the October meeting allows for those specialty DME accredited pharmacies to really understand and adjudicate prescriptions the appropriate way. And we think -- when we think about how ensifentrine's launch would be versus potentially other launches that people are familiar with, that market access dynamic is something that always is in the back of your mind.

But because of the reimbursement channel, we believe that ensifentrine will flow through the channel in an appropriate fashion and in a fashion that meets what we've seen in market research, which is physicians' willingness to add ensifentrine across the spectrum in a variety of patients who remain persistently symptomatic. That dynamic, I think, is very favorable for us as we move forward into launch.

[Operator]

The next question comes from Yasmeen Rahimi with Piper Sandler.

[Yasmeen Rahimi, analyst]

Thank you so much for all your possible comments. A few questions for you. I guess the first question is, have you started the discussion with the agency in regards to label negotiations? What is your perspective on what your ask is in regards to the label? That's part 1. Part 2 is, as we go into June 26, obviously, once the label is available, you will host a call. Could you tell us if you're going to be able to be in a position to also share pricing at that junction and maybe the pricing range that you guys have given us has been quite wide.

So would love to get your perspective how you're thinking about it and how payers are perceiving that range? And then the third question is for Mark, which is how should we be thinking about OpEx over this year and next year as you're building a commercial infrastructure? And thank you again, team for allowing me to ask these 3-part questions.

[David Zaccardelli, executive]

I'll start with the first one with regard to labeling. Again, we won't really comment on all the review back and forth with the agency. I would point out that it is fairly early still in the process with, maybe around 4 months or so to go. And so I think that from my experience and past reviews were about where we need to be, but of course, they're all different in their own right. But I think that it is a little early in the process right now on the labeling end of things.

And with regard to what's in the label, I mean, I think that we put forward many of the aspects that I think everyone knows with regard to the indication for the maintenance treatment of COPD, and of course, we represented comprehensively the results from the clinical trials, of course, with the emphasis from the ENHANCE program and, of course, all the other important elements that you would expect in a label from CMC to nonclinical that are included. So I think our submission was comprehensive in nature.

With regard to pricing, yes, I think that with approval, we'll have our -- we'll be well-versed in how we're pricing ensifentrine. But I'll ask Chris just to comment on the range of pricing.

[Christopher Martin, executive]

Thanks, Dave. And Yas, I appreciate the question as well. When it comes to pricing, we have provided a fairly large range there. I think when we think about the market today, we know that the current nebulized products like Yupelri are somewhere in the $1,400 a month range. And then we also use Dupixent upwards of $3,800 a month as kind of an upper bound of pricing.

The other thing that we have done from a work standpoint is understand kind of the value that ensifentrine brings to the marketplace, to patients, to physicians in the system. We believe that value is substantial. When we think about exacerbation data, lung function data, symptom improvement data, and the benefit-risk profile that Dave described numerous times, we believe that value is very high.

And so when we've had discussions with primarily on the Medicare Advantage side, with those payers, what they've told us is they expect ensifentrine to be a premium to the current nebulized products. Remember, the current nebulized products are single LAMAs or LABAs. So the profile of ensifentrine with bronchodilation nonsteroidal anti-inflammatory is very different.

So we believe we do have some pricing flexibility based on the value ensifentrine brings to the marketplace. I think we are also looking at other dynamics that are in play, including Inflation Reduction Act to ensure that we're pricing ensifentrine appropriate to the value that it provides to patients and the physicians and the system. And as Dave said, we'll be in a very good place come PDUFA to be able to provide specifics around that. Mark, OpEx?

[Mark Hahn, executive]

Yes, I'll take the OpEx question. So yes, the OpEx for Q4 was about $19 million, a little over $19 million. I think you can expect that over the course of 2024 to tick up sequentially with a couple of caveats and get to maybe a little bit more than double where it is today by the end of the year. Along the way, there will be a couple of bumps in spend.

One is upon approval, we have a [ GBP 5 ] million milestone payment that's due to Ligand. So that will be an incremental onetime expense in Q2, presumably. And then upon launch, we have a $15 million milestone payment due to Ligand as well. So another onetime payment expense in the period of launch.

[Operator]

The next question comes from Caroline Pocher with Wedbush Securities.

[Caroline Kimberly Pocher, analyst]

This is Caroline on for Andreas. So just one for us. We noticed the Dupixent sBLA for COPD has a PDUFA date of June 27, which happens to be the day after ensifentrine's PDUFA date. Even though Dupixent can only be used in a subset of COPD patients and ensifentrine more broadly, does this proximity and potential approval and launch change anything about your commercial strategy?

[David Zaccardelli, executive]

Caroline, I think the short answer is, no. I think also we noted that, and I think it's good for COPD in general, and the attention this severe disease is getting. And I think it's great for the patients that Dupixent applies to as well, as you mentioned, is a fairly small subset of the entire COPD population in the U.S. that's under treatment. But it doesn't change our view of ensifentrine, how ensifentrine would be utilized in patients who are symptomatic across the spectrum of the disease.

And for that matter, I don't know if there's anything that really conflicts with ensifentrine and Dupixent from a pharmacology basis as well. So we see ensifentrine's application the same as we did before.

[Operator]

The next question comes from Xinwei An with Canaccord Genuity.

[Xinwei An, analyst]

This is Xinwei An, on for Edward. Sort of a follow-up question after the Dupixent one. We would like to ask about the physicians' mindshare. So based on the feedback that you have collected from prescribers, do you maybe project it -- or do you foresee if they would have a preference in how they would use different therapies?

[David Zaccardelli, executive]

Yes. So thank you so much for the question. Maybe I'll have Chris comment on that in general.

[Christopher Martin, executive]

Thanks, Dave. When we look at our market research, I mean, the market research that we've done is extraordinarily expensive. I think we're close to well over 1,000 physicians surveyed across all specialties, both pulmonology, primary care, and we've also spent a lot of focus on nurse practitioners and PAs. What we see in that market research is I'm going to boil it down to really 2 things.

One is we see consistency in the unmet need that exists. And we see this both from patients and physicians. We see that patients are complaining, as Dave described in his opening comments, of persistent symptoms. At least half of these patients are having persistent symptoms regardless of therapy.

And then we also hear from the physicians when a patient is persistently symptomatic, they lack options or newer ways to treat these patients. What they're excited about in our market research is how broad of a utilization ensifentrine can have. They see this drug in a very wide variety of places, and they see it as -- potentially as an add-on to all therapeutic classes that exist today when a patient remains persistently symptomatic, but they also continue to express to us why this drug couldn't be potentially used on its own and maybe push ICS and the steroids to a later line therapy.

Across all of our research, what we see is that the adoption and the willingness to try ensifentrine is very high. I think when we did represent in October, we talked about almost 90% of the physicians surveyed talking about adopting ensifentrine within the first 12 months. That doesn't change with entry of Dupixent or even potentially either other products that are in the pipeline.

Because foundationally, what ensifentrine provides them is the first novel mechanism that works broadly across all their patient populations. Regardless of background therapy, regardless of eosinophil counts, it allows them really a new foundational therapy that their patients and the doctors desire to have within their practice.

[Operator]

The next question comes from Joon Lee with Truist Securities.

[Joon Lee, analyst]

Congrats on the quarter. What are your expectations for this fixed-dose nebulized ensifentrine plus LAMA in COPD space? Are there any specific populations being unlocked with this combo? Any color would be helpful.

[David Zaccardelli, executive]

Thanks so much for the question. I'll just make a brief comment and then ask Dr. Tara Rheault to comment as well. I think that our view is that it's a natural progression with regard to products for the treatment in COPD as you may know the combination products are very commonly used in combining different bronchodilators and anti-inflammatories together.

And combining ensifentrine with a LAMA, I think, makes natural sense. I think our view is that it would address a fairly broad population COPD as well as this is a typical treatment. And with that, I'll turn it over to Tara to make any comments.

[Tara Rheault, executive]

Sure. I think 1 of the real important features of the fixed-dose combination that we're preparing is that you've got ensifentrine with bronchodilatory and anti-inflammatory pharmacology combined with another bronchodilator. So you have essentially 2 bronchodilator mechanisms in an anti-inflammatory mechanism that's nonsteroidal, essentially giving you the profile of a triple in the fixed-dose combination. So we think it will be a very important alternative to triple therapy for quite a few patients.

[Joon Lee, analyst]

And sorry, I forgot to mention. This was, maybe on for June.

[Operator]

[Operator Instructions] The next question comes from Tom Shrader with BTIG. Please go ahead.

[Thomas Shrader, analyst]

Good luck on the PDUFA date. We've been waiting for this forever. I have a follow-up on the mixed product. You're doing an awful lot of dosing when you've already shown it's safe and efficacious at doses. Are you trying to -- is the hope that this would really be a different product than the combination and that you would maybe get at some of the synergies that you saw in your early data?

[David Zaccardelli, executive]

Thanks so much, Tom, for that question. Tara, if you'd like to comment on our strategy on dose selection and exploring that in these trials.

[Tara Rheault, executive]

Sure. Yes. So this is a new product. It's a new formulation. That's the requirement in order to feasibly combine ensifentrine and a LAMA. And so -- let's see. What was the second part of your question again?

[Thomas Shrader, analyst]

Well, there are some interesting synergies between ensifentrine and LAMAs in the early preclinical data about rapidity of action. The question is, are you hoping to capture some of that?

[Tara Rheault, executive]

Of course. That early data did show some synergistic effects with ensifentrine and glycopyrrolate and other muscarinic antagonists, and that certainly was mirrored in the Phase III data we saw on top of long-acting muscarinic antagonists.

[Thomas Shrader, analyst]

Okay. And if I could follow up quickly on bronchiectasis. Would you try to develop a second product? Would it look different than the COPD product because you're kind of in an orphan indication, so the price points might be very different?

[David Zaccardelli, executive]

Yes. No, I think, Tom, our strategy is actually to progress with the current formulation. Of course, that's very efficient, as you can imagine. And I think as an incremental indication, while it's not technically an orphan, I appreciate that the number is closer to orphan, but what we're addressing is just another indication, which is great in helping patients, that ensifentrine in its current formulation could [ be dosed ].

[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]

Great. Thank you, everyone, for your questions today. And in addition, I'd like to thank our shareholders for their continued support. And the dedicated and talented team at Verona for all their work and commitment. And we look forward to updating you on our progress over the next few months. Have a great day.

[Operator]

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