vrna-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number: 001-38067

Verona Pharma plc

(Exact name of Registrant as specified in its Charter)


United Kingdom									98-1489389
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

3 More London Riverside London SE1 2RE United Kingdom									Not Applicable
(Address of principal executive offices)									(Zip Code)

Registrant’s telephone number, including area code: +44 203 283 4200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, nominal value £0.05 per share*	VRNA	The Nasdaq Stock Market LLC (Nasdaq Global Market)

* The ordinary shares are represented by American Depositary Shares (each representing 8 ordinary shares), which are exempt from the operation of Section 12(a) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12a-8 thereunder.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2021, the registrant had 480,082,966 ordinary shares, nominal value £0.05 per share, outstanding, which if all held in ADS form, would be represented by 60,010,371 American Depositary Shares, each representing eight (8) ordinary shares.


		Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	2
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4	Controls and Procedures	31
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3	Defaults Upon Senior Securities	34
Item 4	Mine Safety Disclosure	34
Item 5	Other Information	34
Item 6	Exhibits	35
Signatures		36

PART I - FINANCIAL INFORMATION

Item 1. Financial statements


	September 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	166,547	$	187,986


Prepaid expenses	6,672		4,538
Tax and tax incentive receivable	10,606		8,260


Other current assets	667		1,720
Total current assets	184,492		202,504

Non-current assets:
Furniture and equipment, net	88		107
Goodwill	545		545
Equity interest	15,000		—
Right-of-use assets	1,435		1,050
Total non-current assets	17,068		1,702
Total assets	$	201,560	$	204,206

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9	$	178
Accrued expenses	26,457		10,863

Operating lease liability	690		798
Warrants	2		2,246
Taxes payable	397		—
Other current liabilities	185		118
Total current liabilities	27,740		14,203

Non-current liabilities:

Term loan	4,821		4,635
Operating lease liability	797		514
Total non-current liabilities	5,618		5,149
Total liabilities	33,358		19,352

Commitments and contingencies

Shareholders' equity:
Ordinary £0.05 par value shares; 489,177,550 and 488,304,446 issued, and 477,649,646 and 463,304,446 outstanding, at September 30, 2021 and December 31, 2020, respectively	31,855		31,794
Additional paid-in capital	382,005		366,411
Ordinary shares held in treasury	(770)		(1,700)
Accumulated other comprehensive loss	(4,601)		(4,601)
Accumulated deficit	(240,287)		(207,050)
Total shareholders' equity	168,202		184,854
Total liabilities and shareholders' equity	$	201,560	$	204,206

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Operations and Comprehensive Profit/(Loss)

(unaudited)

(in thousands, except per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenue	$	40,000	$	—	$	40,000	$	—


Operating expenses
Research and development	22,560		12,820		56,697		28,259
Selling, general and administrative	10,883		8,284		28,150		18,318
Total operating expenses	33,443		21,104		84,847		46,577
Operating profit/(loss)	6,557		(21,104)		(44,847)		(46,577)
Other income/(expense)
Research and development tax credit	4,749		2,338		10,655		5,809
Interest income	4		13		11		116
Interest expense	(86)		—		(255)		—
Fair value movement on warrants	40		(978)		2,244		(747)
Foreign exchange (loss)/gain	(86)		844		117		1,188
Total other income, net	4,621		2,217		12,772		6,366
Profit/(loss) before income taxes	11,178		(18,887)		(32,075)		(40,211)
Income tax expense	(127)		(44)		(232)		(110)
Net profit/(loss)	11,051		(18,931)		(32,307)		(40,321)
Other comprehensive profit/(loss):
Foreign currency translation adjustments	—		—		—		(2,321)
Total comprehensive profit/(loss) attributable to shareholders of the Company	$	11,051	$	(18,931)	$	(32,307)	$	(42,642)

Profit/(loss) per ordinary share - basic	$	0.02	$	(0.05)	$	(0.07)	$	(0.20)
Profit/(loss) per ordinary share - diluted	$	0.02	$	(0.05)	$	(0.07)	$	(0.20)

Weighted-average shares outstanding - basic	475,334,354		344,809,792		471,159,171		197,049,240
Weighted-average shares outstanding - diluted	515,819,439		344,809,792		471,159,171		197,049,240

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands except share data)


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at January 1, 2021	488,304,446	$	31,794	$	366,411	$	(1,700)	$	(4,601)	$	(207,050)	$	184,854
Net loss	—	—		—		—		—		(21,290)		(21,290)


Share-based compensation	—	—		8,850		—		—		—		8,850
Restricted share units vested	—	—		—		30		—		(30)		—





Balance at March 31, 2021	488,304,446	$	31,794	$	375,261	$	(1,670)	$	(4,601)	$	(228,370)	$	172,414
Net loss	—	—		—		—		—		(22,068)		(22,068)


Share-based compensation	—	—		7,450		—		—		—		7,450
Restricted share units vested	—	—		—		827		—		(827)		—

Common shares withheld for taxes on vested stock awards	—	—		(3,782)		—		—		—		(3,782)
Issuance of common shares under at-the-market sales agreement	434,704	30		353		—		—		—		383


Balance at June 30, 2021	488,739,150	$	31,824	$	379,282	$	(843)	$	(4,601)	$	(251,265)	$	154,397
Net profit	—	—		—		—		—		11,051		11,051


Share-based compensation	—	—		4,938		—		—		—		4,938
Restricted share units vested	—	—		—		73		—		(73)		—

Common shares withheld for taxes on vested stock awards	—	—		(2,167)		—		—		—		(2,167)
Issuance of common shares under at-the-market sales agreement	438,400	31		319		—		—		—		350
Equity settled share-based compensation reclassified as cash-settled	—	—		(367)		—		—		—		(367)

Balance at September 30, 2021	489,177,550	$	31,855	$	382,005	$	(770)	$	(4,601)	$	(240,287)	$	168,202

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands except share data)


	Ordinary shares			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at January 1, 2020	105,326,638	$	7,265	$	179,535	$	(2,280)	$	(141,779)	$	42,741
Net loss	—	—		—		—		(12,346)		(12,346)

Retranslation of foreign operations	—	—		—		(2,157)		—		(2,157)
Share-based compensation	—	—		1,867		—		—		1,867

Issuance of ordinary shares from restricted share units	887,080	52		—		—		—		52




Balance at March 31, 2020	106,213,718	$	7,317	$	181,402	$	(4,437)	$	(154,125)	$	30,157
Net loss	—	—		—		—		(9,044)		(9,044)

Retranslation of foreign operations	—	—		—		(164)		—		(164)
Share-based compensation	—	—		950		—		—		950

Issuance of ordinary shares from restricted share units	267,288	16		—		—		(68)		(52)




Balance at June 30, 2020	106,481,006	$	7,333	$	182,352	$	(4,601)	$	(163,237)	$	21,847
Net loss	—	—		—		—		(18,931)		(18,931)


Share-based compensation	—	—		6,486		—		—		6,486

Issuance of ordinary shares from restricted share units	322,296	21		—		—		(21)		—



Issuance of ordinary shares, net of issuance costs	355,831,184	22,700		164,660		—		—		187,360
Balance at September 30, 2020	462,634,486	$	30,054	$	353,498	$	(4,601)	$	(182,189)	$	196,762

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine months ended September 30,
	2021		2020
Operating activities:
Net loss:	$	(32,307)	$	(40,321)
Adjustments to reconcile net income to net cash used in operating activities:
Foreign exchange loss/(gain)	556		(1,282)
Amortization of debt issue costs	92		—
Accretion of redemption premium on debt	94		—
Fair value movement on warrants	(2,244)		747
Impairment of right-of-use asset	—		289
Share-based compensation	21,238		9,303
Depreciation and amortization	467		472
Equity interest	(15,000)		—
Changes in operating assets and liabilities:


Prepaid expenses	(2,134)		(2,444)
Tax incentive receivable	(2,677)		3,336
Other current assets	1,053		1,151
Right-of-use asset	(823)		—
Accounts payable	(169)		(983)
Accrued expenses	15,595		3,916
Lease liabilities	177		(461)
Taxes payable	451		—
Other current liabilities	(300)		(4)
Net cash used in operating activities	(15,931)		(26,281)
Cash flows from investing activities:
Purchases of furniture and equipment	(11)		(73)
Sale of short-term investments	—		9,792
Net cash (used in)/provided by investing activities	(11)		9,719
Cash flows from financing activities:
Proceeds from issuance of ordinary shares	—		200,156
Payment of offering costs in connection with the issuance of ordinary shares	—		(11,763)


Payments of withholding taxes from share-based awards	(5,949)		—

Proceeds from at-the-market sales agreement	733		—
Net cash (used in)/provided by financing activities	(5,216)		188,393
Effect of exchange rate changes on cash and cash equivalents	(281)		(291)
Net change in cash and cash equivalents	(21,439)		171,540
Cash and cash equivalents at beginning of the period	187,986		30,428
Cash and cash equivalents at end of the period	$	166,547	$	201,968
Supplemental disclosure of cash flow information:
Income taxes paid	$	—	$	—
Interest paid	$	162	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 - Organization and description of business operations

Verona Pharma plc (the “Company”) is incorporated and domiciled in the United Kingdom. Verona Pharma plc has one wholly-owned subsidiary, Verona Pharma, Inc., a Delaware corporation. Rhinopharma Limited, a Canadian company that was previously a non-operating, wholly-owned subsidiary, was dissolved in June 2021. The address of the registered office is 1 Central Square, Cardiff, CF10 1FS, United Kingdom.

The Company is a clinical-stage biopharmaceutical group focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical needs. The Company’s American Depositary Shares (“ADSs”) are listed on Nasdaq and trade under the symbol “VRNA”.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception, and has an accumulated deficit of $240.3 million as of September 30, 2021. The Company expects to incur additional losses and negative cash flows from operations until its products potentially gain regulatory approval and reach commercial profitability, if at all.

The Company expects that its cash and cash equivalents as of September 30, 2021, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance.

In March, 2021, the Company entered into an open market sale agreement with respect to an at-the-market offering program (the “ATM Program”) under which the Company may issue and sell its ordinary shares in the form of ADSs, with an aggregate offering price of up to $100.0 million.

SEC Form 10-Q filed by Verona Pharma plc