vrna-20230930

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, 2023

☐ 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 October 27, 2023, the registrant had 639,520,054 ordinary shares, nominal value £0.05 per share, outstanding, which if all held in ADS form, would be represented by 79,940,007 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	11
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4	Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	68
Item 3	Defaults Upon Senior Securities	68
Item 4	Mine Safety Disclosure	68
Item 5	Other Information	68
Item 6	Exhibits	69
Signatures		70

PART I - FINANCIAL INFORMATION

Item 1. Financial statements

Verona Pharma plc

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)


	September 30,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	257,366	$	227,827

Prepaid expenses	3,332		2,499
Tax incentive receivable	9,510		9,282


Other current assets	6,319		3,388
Total current assets	276,527		242,996

Non-current assets:
Furniture and equipment, net	10		73
Goodwill	545		545
Equity interest	15,000		15,000
Right-of-use assets	388		854
Total non-current assets	15,943		16,472
Total assets	$	292,470	$	259,468

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	823	$	2,910
Accrued expenses	7,397		13,752

Current operating lease liabilities	376		675
Taxes payable	—		283
Other current liabilities	416		1,409
Total current liabilities	9,012		19,029

Non-current liabilities:

Term loan	19,905		9,768
Non-current operating lease liabilities	20		205
Total non-current liabilities	19,925		9,973
Total liabilities	28,937		29,002

Commitments and contingencies

Shareholders' equity:
Ordinary £0.05 par value shares; 651,659,630 and 631,338,246 issued, and 639,520,054 and 606,301,054 outstanding, at September 30, 2023 and December 31, 2022, respectively	41,753		40,526
Additional paid-in capital	601,180		529,187
Ordinary shares held in treasury	(746)		(1,549)
Accumulated other comprehensive loss	(4,601)		(4,601)
Accumulated deficit	(374,053)		(333,097)
Total shareholders' equity	263,533		230,466
Total liabilities and shareholders' equity	$	292,470	$	259,468

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

Verona Pharma plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022



Operating expenses:
Research and development (Note 8)	$	2,958	$	9,838	$	13,094	$	42,445
Selling, general and administrative	13,353		5,290		35,381		18,256
Total operating expenses	16,311		15,128		48,475		60,701
Operating loss	(16,311)		(15,128)		(48,475)		(60,701)
Other income/(expense):
Research and development tax credit	(309)		2,127		70		8,838
Interest income	3,390		779		9,469		959
Interest expense	(401)		(116)		(1,434)		(291)
Foreign exchange (loss)/gain	(1,012)		(3,245)		660		(6,830)
Total other income/(expense), net	1,668		(455)		8,765		2,676
Loss before income taxes	(14,643)		(15,583)		(39,710)		(58,025)
Income tax expense	(44)		(64)		(527)		(225)
Net loss	$	(14,687)	$	(15,647)	$	(40,237)	$	(58,250)




Loss per ordinary share - basic and diluted	$	(0.02)	$	(0.03)	$	(0.06)	$	(0.12)


Weighted-average shares outstanding - basic and diluted	638,238,749		544,134,136		631,447,851		503,751,844

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 December 31, 2022	631,338,246	$	40,526	$	529,187	$	(1,549)	$	(4,601)	$	(333,097)	$	230,466
Net loss	—	—		—		—		—		(16,743)		(16,743)
Issuance of ordinary shares	20,321,384	1,227		55,682		—		—		—		56,909
Restricted share units vested	—	—		—		270		—		(270)		—

Share options exercised	—	—		1,756		71		—		—		1,827


Share-based compensation	—	—		4,290		—		—		—		4,290
Balance at March 31, 2023	651,659,630	$	41,753	$	590,915	$	(1,208)	$	(4,601)	$	(350,110)	$	276,749
Net loss	—	—		—		—		—		(8,807)		(8,807)



Restricted share units vested	—	—		—		226		—		(226)		—

Share options exercised	—	—		70		7		—		—		77


Share-based compensation	—	—		5,074		—		—		—		5,074
Balance at June 30, 2023	651,659,630	$	41,753	$	596,059	$	(975)	$	(4,601)	$	(359,143)	$	273,093
Net loss	—	—		—		—		—		(14,687)		(14,687)


Restricted share units vested	—	—		—		223		—		(223)		—

Share options exercised	—	—		42		6		—		—		48


Share-based compensation	—	—		5,079		—		—		—		5,079
Balance at September 30, 2023	651,659,630	$	41,753	$	601,180	$	(746)	$	(4,601)	$	(374,053)	$	263,533

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


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at December 31, 2021	489,177,550	$	31,855	$	385,070	$	(603)	$	(4,601)	$	(263,716)	$	148,005
Net loss	—	—		—		—		—		(24,837)		(24,837)
Issuance of common shares under at-the-market sales agreement	80,696	5		62		—		—		—		67
Restricted share units vested	—	—		—		186		—		(186)		—
Issuance of ordinary shares to treasury	4,800,000	322		—		(322)		—		—		—
Common shares withheld for taxes on vested stock awards	—	—		(793)		—		—		—		(793)
Equity settled share-based compensation reclassified as cash-settled	—	—		118		—		—		—		118
Share-based compensation	—	—		3,747		—		—		—		3,747
Balance at March 31, 2022	494,058,246	$	32,182	$	388,204	$	(739)	$	(4,601)	$	(288,739)	$	126,307
Net loss	—	—		—		—		—		(17,766)		(17,766)
Restricted share units vested	—	—		—		148		—		(148)		—
Common shares withheld for taxes on vested stock awards	—	—		(689)		—		—		—		(689)
Equity settled share-based compensation reclassified as cash-settled	—	—		(25)		—		—		—		(25)
Share-based compensation	—	—		3,053		—		—		—		3,053
Balance at June 30, 2022	494,058,246	$	32,182	$	390,543	$	(591)	$	(4,601)	$	(306,653)	$	110,880
Net loss	—	—		—		—		—		(15,647)		(15,647)
Issuance of ordinary shares, net of issuance costs	114,080,000	6,906		133,242		—		—		—		140,148
Restricted share units vested	—	—		—		142		—		(142)		—
Issuance of ordinary shares from restricted share units or share options	—	31		340		—		—		—		371
Common shares withheld for taxes on vested stock awards	—	—		(900)		—		—		—		(900)
Equity settled share-based compensation reclassified as cash-settled	—	—		(182)		—		—		—		(182)
Share-based compensation	—	—		2,815		—		—		—		2,815
Balance at September 30, 2022	608,138,246	$	39,119	$	525,858	$	(449)	$	(4,601)	$	(322,442)	$	237,485

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,
	2023		2022
Cash flows from operating activities:
Net loss:	$	(40,237)	$	(58,250)
Adjustments to reconcile net income to net cash used in operating activities:
Foreign exchange (gain)/loss	(660)		7,105
Other non-cash items	103		67
Accretion of redemption premium on debt	84		94


Share-based compensation	14,443		9,617
Depreciation	469		485

Changes in operating assets and liabilities:


Prepaid expenses	(833)		682
Tax incentive receivable	(70)		(9,113)
Other current assets	(2,260)		(1,014)
Right-of-use asset	—		(351)
Accounts payable	(2,087)		(2,042)
Accrued expenses	(6,355)		722
Lease liabilities	(484)		(141)
Income taxes	(954)		138
Other current liabilities	(979)		(123)
Net cash used in operating activities	(39,820)		(52,124)
Cash flows from investing activities:
Purchases of furniture and equipment	—		(29)

Net cash used in investing activities	—		(29)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares	56,909		149,797
Payment of offering costs in connection with the issuance of ordinary shares	—		(9,582)
Proceeds from draw under the Oxford Term Loan	9,996		—



Payments of withholding taxes from share-based awards	—		(2,382)
Proceeds from exercise of share options	1,952		371

Net cash provided by financing activities	68,857		138,204
Effect of exchange rate changes on cash and cash equivalents	502		(2,730)
Net change in cash and cash equivalents	29,539		83,321
Cash and cash equivalents at beginning of the period	227,827		148,380
Cash and cash equivalents at end of the period	$	257,366	$	231,701
Supplemental disclosure of cash flow information:
Income taxes paid	$	1,215	$	90
Interest paid	$	1,228	$	190

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. 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 the Nasdaq Global Market (“Nasdaq”) and trade under the symbol “VRNA”.

In August 2023, the U.S. Food and Drug Administration (“FDA”) accepted for review the Company’s New Drug Application (“NDA”) seeking approval of ensifentrine for the maintenance treatment of chronic obstructive pulmonary disease (“COPD”) and assigned a Prescription Drug User Fee Act (“PDUFA”) target action date of June 26, 2024. The FDA filing stated it is not currently planning to hold an advisory committee meeting to discuss the application. The Company is preparing for a potential commercial launch in 2024, subject to approval of the NDA.

In conjunction with the submission of the NDA in June 2023, the Company paid a $3.2 million PDUFA application fee to the FDA. The Company requested a small business waiver of this application fee which was approved by the FDA and, as such, the amount has been recorded within Other current assets in the Condensed Consolidated Balance Sheets.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception, and has an accumulated deficit of $374.1 million as of September 30, 2023. 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, 2023, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance.

During the nine months ended September 30, 2023, the Company sold 20,321,384 ordinary shares (equivalent to 2,540,173 ADSs) under the at-the-market offering program entered into in March 2021 (the “2021 ATM Program”). The shares sold were at an average price of approximately $2.88 per share (equivalent to $23.08 per ADS), raising aggregate net proceeds of approximately $56.9 million after deducting issuance costs.

In March 2023, through a registration statement on Form S-3, the Company replaced the 2021 ATM Program, with an open market sale agreement with Jefferies LLC (“Jefferies”) to sell its ordinary shares, in the form of ADSs, with aggregate gross proceeds of up to $200.0 million, from time-to-time, through an “at the market” equity offering program under which Jefferies will act as sales agent (the “2023 ATM Program”). Jefferies is entitled to a commission at a rate of up to 3.0% of the gross proceeds.

The Company’s commercial revenue, if any, will be derived from sales of products that are not expected to be commercially available until the second half of 2024, if ever. Additionally, the Company may enter into out-licensing transactions from time to time but there can be no assurance that the Company can secure such transactions in the future. Accordingly, the Company may need to obtain substantial additional funds to achieve its business objectives including to further advance clinical and regulatory activities, to fund launch related costs and to create an effective sales and marketing organization to commercialize ensifentrine, if approved. Any such funding will need to be obtained through public or private financings, debt financing, collaboration or licensing arrangements or other arrangements. However, there is no guarantee the Company will be successful in securing additional capital on acceptable terms, or at all.

Note 2 - Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation

The unaudited condensed consolidated financial statements include the accounts of Verona Pharma plc and its wholly-owned subsidiary Verona Pharma, Inc. All inter-company balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed on March 7, 2023 (the “2022 Form 10-K”). The Consolidated Balance Sheet as of December 31, 2022, was derived from audited consolidated financial statements included in the 2022 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and shareholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

Segment reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company has one operating and reportable segment, pharmaceutical development.

Use of estimates

The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the accrual and prepayment of research and development expenses and the fair value of share-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known, and actual results could differ from the Company’s estimates.

Recently adopted accounting standards and recent accounting standards not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology.

Under this model, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This update became effective for the Company on January 1, 2023 and the adoption of this update did not have a material impact on the Company’s financial statements and related disclosures.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 - Equity interest

The Company entered into a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma Limited (“Nuance Pharma”) effective June 9, 2021 (the “Effective Date”), under which the Company granted Nuance Pharma the exclusive rights to develop and commercialize ensifentrine in Greater China (China, Taiwan, Hong Kong and Macau). In return, the Company received an unconditional right to consideration aggregating $40.0 million consisting of $25.0 million in cash and an equity interest, valued at $15.0 million as of the Effective Date, in Nuance Biotech, the parent company of Nuance Pharma.

The equity interest is recorded at cost as the Company has elected to use the measurement alternative for equity investments without readily determinable fair values. The Company evaluates this investment for indicators of impairment quarterly. The Company did not identify events or changes in circumstances that may have a significant effect on the fair value of the investment during the nine months ended September 30, 2023.

Note 4 - Accrued expenses

Accrued expenses consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Clinical trial and other development costs	$	1,486	$	12,314
Professional fees and general corporate costs	2,245		1,364
People related costs	3,666		74
Total accrued expenses	$	7,397	$	13,752

Note 5 - Term loan

On October 14, 2022 (the “Effective Date”), the Company entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance Luxembourg S.À R.L. (“Oxford”) for an aggregate amount of up to $150.0 million (the “Oxford Term Loan”). The Oxford Term Loan provides for an initial term loan advance in an aggregate amount of $10.0 million, which was funded on the Effective Date (the “Oxford Term A Loan”), and up to

SEC Form 10-Q filed by Verona Pharma plc