Verona Pharma - Q2 2024

Executive Summary

• FDA approved Ohtuvayre (ensifentrine) for maintenance treatment of COPD on June 26; U.S. launch began via an exclusive specialty pharmacy network with early uptake from 100+ prescribers and >2,000 HCP visits, positioning VRNA for commercialization in Q3 2024.
• Q2 operating expenses surged on one-time items (Ligand milestones and performance RSUs): R&D $19.4M vs Q2’23 net reversal ($2.5M); SG&A $49.0M vs $12.4M YoY; normalized R&D+SG&A would have been ~$37M, consistent with prior guidance.
• Balance sheet strengthened to $404.6M cash at 6/30/24 after drawing $70M under debt and $100M under RIPSA; management reiterates cash runway beyond 2026 and expects product-specific J-code effective January 2025 (application submitted June 27).
• Pricing set at WACC $22,950 annually, justified by pharmacoeconomic analyses and payer feedback; near-term catalysts include November launch metrics, ERS/CHEST data, J-code decision, and Phase II initiations (fixed-dose combo and bronchiectasis) in Q3.
• Estimates context: S&P Global consensus data was unavailable at time of request; note analyst remark on the call of ~$1.5M Q3 revenue “consensus,” with CFO cautioning channel inventory will affect reported revenue early in launch.

What Went Well and What Went Wrong

What Went Well

• FDA approval and broad label: “Ohtuvayre is the first inhaled COPD treatment to provide both bronchodilation and nonsteroidal anti-inflammatory effects,” with broad use across COPD regardless of background meds or eosinophils.
• Commercial execution starts strong: Sales and reimbursement teams fully hired by late July; >2,000 HCP interactions, >100 prescribers in first days; robust omnichannel marketing with ~7,000 highly engaged physicians.
• Financing and runway: $404.6M cash post-approval draws; access to remaining Oaktree facility provides runway beyond 2026 to fund launch and Phase II programs.

What Went Wrong

• Elevated OpEx from one-time items: $6.3M approval milestone (R&D) and $15.0M first-sale milestone (SG&A), plus RSU expenses drove sharp YoY increases; normalized OpEx ~ $37M highlights the one-off nature.
• Early-launch revenue recognition caution: CFO flagged initial channel inventory that won’t immediately reach patients, dampening near-term reported revenue vs script activity.
• Longer path for bronchiectasis data: Event-driven Phase II will likely take ~2 years to reach endpoint set given smaller patient population, delaying readouts.

Transcript

Operator (participant)

Welcome to Verona Pharma's Second Quarter 2024 Financial Results and Operating Highlights Conference Call. At this time, all participants are in a listen-only mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the three months ended June 30th, 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 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 (CEO)

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. This second quarter was exceptional for Verona Pharma, marked by the U.S. FDA approval of Ohtuvayree for the treatment... for the maintenance treatment of COPD. Ohtuvayree is the first inhaled COPD treatment to provide both bronchodilation and non-steroidal anti-inflammatory effects, and we believe this approval can redefine the treatment paradigm for COPD in the U.S. Today, we announced Ohtuvayree 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 preparations position us for the successful commercialization of Ohtuvayree in the U.S.

As a reminder, Ohtuvayree's label supports broad use across all COPD patients without restriction to background medications, COPD etiology, including chronic bronchitis or emphysema, or blood eosinophil levels. The label also describes Ohtuvayree's mechanism of action, which differentiates it from all other approved COPD treatments. Based on Ohtuvayree's novel mechanism of action and compelling benefit to risk profile, our market research shows HCPs have significant interest in prescribing Ohtuvayree broadly across all symptomatic COPD patient types. Initially, our launch efforts are focused on promoting Ohtuvayree 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 Ohtuvayree. In addition to the U.S. launch of Ohtuvayree, we plan to initiate two new phase II programs in the third quarter. First, we are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, LAMA, for the maintenance treatment of COPD delivered via a 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, one-week crossover trial to assess lung function, safety, and the pharmacokinetic profile of glycopyrrolate 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 mg 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 the required 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 (CFO)

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 facilities, we expect to have sufficient cash runway beyond 2026, including the commercial launch of Ohtuvayree in the U.S. and our two 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 one-time expenses for milestone payments due to Ligand and performance-based RSUs.

Excluding these one-time 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, re-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 the 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 and 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 (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Tsai with Jefferies. Please go ahead.

Andrew Tsai (Analyst)

Hey, thanks. Good morning, and congratulations on the execution and launch. Thanks for taking my question. So, first one is, as we tweak 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 free drug? Thanks.

David Zaccardelli (CEO)

Good morning, Andrew. Thanks for the questions. With regard to free drug, you know, 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 Ohtuvayree 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 the economics, at least from a modeling standpoint.

As you know, it's incredibly early in the launch to understand that based on current prescriptions that have been written.

Chris Martin (Chief Commercial Officer)

Andrew, this is Chris. Thank you for the question. When we think about the overall payer abandonment and rejection, I, you know, as Dave mentioned, we're very early in the launch here, but, you know, I'm gonna go back to using older analog within the nebulizer space. What you see within those spaces, keep in mind that Ohtuvayre will be primarily reimbursed under a medical benefit. Within our historical analog 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... you know, patient dynamic that some patients, regardless of copay, even if it's low and zero, may walk away from a, 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, 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 LCB. We did that on June 27th. 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, appreciate it.

Andrew Tsai (Analyst)

No. Yep. And secondly, you know, consensus for Q3 is $1.5 million. If we assumed patients who get reimbursed this quarter maybe get treated for an average of half 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 30th? Thanks.

Mark Hahn (CFO)

Yeah, 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 doing your math, you do have to consider there will be some inventory making its way into the channel, not actually getting to patients quite yet. That will impact revenue.

Andrew Tsai (Analyst)

Okay, great. Thank you.

Mark Hahn (CFO)

Thanks, Andrew.

Operator (participant)

The next question comes from Yasmeen Rahimi with Piper Sandler. Please go ahead.

Speaker 9

Hi, this is Emma on for Yasmeen. Thanks for taking our questions. Firstly, can you provide any color on patient starting forms and how that ties into how you're thinking about patient uptake? With that, what type of matrix do you plan to share at next earnings in November to help us track the launch progress and guide future expectations?

David Zaccardelli (CEO)

Yes, good morning, Emma. Thanks, thanks for the question. You know, I think I'll start with the latter part. You know, 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 Ohtuvayree, 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.

Speaker 9

Thank you.

Operator (participant)

Our next question comes from Thomas Shrader with BTIG. Please go ahead.

Tom Shrader (Analyst)

Hi, good morning, and 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 (CEO)

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.

Chris Martin (Chief Commercial Officer)

Yeah, Tom, thanks for the question. And just, just for clarity, we have over 100 writers of prescript-

David Zaccardelli (CEO)

Okay

Chris Martin (Chief Commercial Officer)

... or prescribers of Ohtuvayree. 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 one and segment two physicians that our reps are calling on. But we're also hearing very clearly from our early field conversations, is the unmet need that we've expressed throughout the last year, year and a half, is very high within these offices. The doctors are reporting back to our reps. They have significant numbers of patients who continually have persistent symptoms, and they look at Ohtuvayree as, 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 those 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.

Tom 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?

Tara Rheault (Chief Development Officer)

Yeah, I think, the way that-

... 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.

Tom Shrader (Analyst)

Got it. Okay. Thank you very much.

Tara Rheault (Chief Development Officer)

Yep.

David Zaccardelli (CEO)

Thanks, Tom.

Operator (participant)

The next question comes from Joon Lee with Truist. Please go ahead.

Speaker 10

Hi. Thank you. This is Jing for Joon, and thanks for taking my questions, and also congratulate you on your progress. So I have other questions regarding about your, can you give, you know, give more color on the drug can treat, compare with treating the non-CF bronchiectasis, especially compare with your competitors, like, Insmed's potential Brensocatib? And then also, could you give some, provide some unique of this mechanism for this drug can be offer better, you know, competitive edge over other drugs? Thanks.

Tara Rheault (Chief Development Officer)

Yeah. So, you know, 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 macrophage-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 exacerbations. So our trial, of course, is designed to assess the effect of ensifentrine on pulmonary exacerbations. We saw very strong data against pulmonary exacerbations and 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.

Speaker 10

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

Tara Rheault (Chief Development Officer)

Well, I'm not aware of any models 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.

Speaker 10

Okay. Thank you so much. Thanks for taking my question.

Operator (participant)

The next question comes from Ram Selvaraju with H.C. Wainwright. Please go ahead.

Ram Selvaraju (Analyst)

Thanks so much for taking my questions. 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. Also, when you anticipate involving direct-to-consumer advertising as part of the overall commercial process for Ohtuvayree? If so, you know, what forms that might potentially take? 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 Ohtuvayree within the COPD community?

David Zaccardelli (CEO)

Thanks, Ram. Go ahead, Chris.

Chris Martin (Chief Commercial Officer)

Yeah, thanks, Ram. I'm gonna, I'm gonna take these kind of step-wise on just our promotion through a marketing standpoint. One of the things that the team did a very good job of is, 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 our over 50,000 physicians multiple times through emails, 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.

What I mean by highly engaged means they're clicking on emails, 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 Ohtuvayree 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 omni-channel promotion. Omni-channel promotion is not only digital, but as you talked about some speaker programs and other things.

Today, if you go on the Ohtuvayree HCP website, it is 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 to with physicians in their location. So that is part of that omni-channel 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 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 in physician offices where the doctors are already prescribing. 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.

Ram 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, you know, that great a read on that yet?

Tara Rheault (Chief Development Officer)

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

Ram Selvaraju (Analyst)

Thank you.

Operator (participant)

Again, if you have a question, please press star, then one. Our next question comes from Edward Thomason with Kempen. Please go ahead.

Edward Thomason (Analyst)

Good afternoon, good morning, and thank you for taking my question. I had a quick question just about the pricing. There was in recent weeks, we've seen a news how the pricing differences differs from the ICER cost-effective pricing, on an annual basis. Does that have any implications on reimbursement, and how does that play into your strategy, for the Ohtuvayree launch?

David Zaccardelli (CEO)

Edward, thank you for the question, and appreciate that. Yeah, I think we believe that we have priced Ohtuvayree at the appropriate value to both the healthcare system and the patient. If we look, we've done significant pharmacoeconomic analyses on Ohtuvayree and the benefit it provides the system. We've had ranges of prices per month, upwards of $5,000 a month, that you could have charged for Ohtuvayree. As you know, our WAC price is $22,950. We feel like that represents an appropriate value for what Ohtuvayree brings to the overall healthcare 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 that price is dictating how it will be covered.

Keep in mind, Ohtuvayree 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, thank you. 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 from those releases, whether that be subgroup analysis or, I don't know, patient populations or, background therapies, just so we can whet the appetite ahead of that?

Tara Rheault (Chief Development Officer)

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, pooled patient-reported outcome assessments, and a look at exacerbation effects by COPD phenotypes, so 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 pooled lung function, and also a look at healthcare resource utilization over 48 weeks.

Edward Thomason (Analyst)

Okay. That's very clear. Thank you so much.

Operator (participant)

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 (CEO)

Thank you, everyone, for joining today's call. As you can see, we are very excited about Ohtuvayree'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. So I look forward to seeing you all soon at various meetings and investor conferences. Thanks very much.

Operator (participant)

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