TIDMVRP
LONDON, Feb. 27, 2018 (GLOBE NEWSWIRE) -- Verona Pharma plc (AIM:VRP)
(Nasdaq:VRNA) (Verona Pharma), a clinical-stage biopharmaceutical
company focused on developing and commercializing innovative therapies
for respiratory diseases, announces its audited results for the full
year ended December 31, 2017.
OPERATIONAL AND DEVELOPMENT HIGHLIGHTS
-- Initiated four clinical studies, two of which have been successfully
completed ahead of schedule: -- Reported in September 2017 positive
top-line data from a Phase 2a clinical trial in COPD with RPL554 when
dosed in addition to tiotropium (Spiriva(R)), compared to placebo:
-- Demonstrated statistical significance across all primary and
secondary efficacy outcome measures, as well as a clear dose response;
-- Achieved significant and clinically meaningful additional
improvement in peak lung function when added to tiotropium, a widely used
drug to treat COPD; -- Produced a marked reduction in Functional
Residual Capacity and in Residual Volume (both measures of trapped air in
the lung) as compared to tiotropium alone; -- Achieved faster
onset-of-action when added to tiotropium; and -- Confirmed that
both study doses of RPL554 were well tolerated as add-on treatments to
tiotropium; adverse reactions were consistent with previous studies with
RPL554 and tiotropium. No cardiovascular-related or gastrointestinal
related adverse reactions were reported; -- Positive top-line data
from U.S. pharmacokinetic ("PK") trial demonstrated that inhalation of
nebulized RPL554 provides optimal delivery of a clinical dose to the
lungs of patients: -- Completed IND-opening study in US;
-- Confirmed inhaled RPL554 is an appropriate route of administration
for patients with chronic COPD and other respiratory disorders; --
Demonstrated absorption occurs primarily in the lungs following inhaled
administration, consistent with inhalation being the optimal form of
delivery of medications for the treatment of COPD and asthma; and
-- Low oral bioavailability of swallowed medication and low blood
levels of RPL554 after inhalation, suggest limited contribution to
systemic effects by inhaled RPL554; -- Provided update related to
ongoing 4-week, Phase 2b dose-ranging clinical trial in Europe in
approximately 400 patients to investigate the efficacy, safety, and
dose-response of nebulized RPL554 for the maintenance treatment of COPD:
-- Announced that study enrollment progressed ahead of
expectations and completed patient enrollment, as announced on February
13, 2018 (after the year end); -- Expect to report top-line data
early in the second quarter of 2018, earlier than previous guidance of
mid-2018 and original guidance of second-half of 2018; -- Provided
update related to ongoing Phase 2a clinical study to evaluate the PK and
pharmacodynamic ("PD") profile and tolerability of RPL554 in up to 10 CF
patients as well as examine the effect on lung function: --
Expect to report top-line data in late first quarter of 2018, earlier
than previous guidance of the first half of 2018;
-- Initiated development of RPL554 as dry powder inhaler ("DPI") and
pressurized metered dose inhaler ("pMDI") formulations for maintenance
treatment of COPD;
-- Strengthened the management team through the addition of Richard Hennings
as Commercial Director and Dr Desiree Luthman as VP Regulatory Affairs;
and
-- Entered into a global strategic services agreement with IQVIA (formerly
known as QuintilesIMS), in which IQVIA agreed to serve as sole provider
of core clinical trial services for Verona Pharma's RPL554 clinical
development programs.
FULL YEAR FINANCIAL HIGHLIGHTS
-- Successfully raised GBP70 million ($90 million) gross, through a global
offering comprising an initial public offering ("IPO") on the Nasdaq
Global Market ("Nasdaq"), and a concurrent European private placement,
together with a shareholder private placement;
-- Verona Pharma American Depositary Shares ("ADSs") now listed on Nasdaq
under the symbol VRNA; each ADS represents 8 Verona Pharma ordinary
shares;
-- Reported operating loss for the year ended December 31, 2017 of GBP29.8
million (full year 2016: GBP7.0 million) and reported loss after tax of
GBP20.5 million (full year 2016: loss after tax of GBP5.0 million),
reflecting the preparation and initiation of clinical trials and
pre-clinical activities;
-- Reported loss per share of 23.4 pence for the year ended December 31,
2017 (full year 2016: loss per share 15.0 pence);
-- Net cash used in operating activities for the year ended December 31,
2017 of GBP20.7 million (full year 2016: GBP5.6 million);
-- Cash, cash equivalents and short-term investments at December 31, 2017
amounted to GBP80.3 million (December 31, 2016: GBP39.8 million);
POST PERIOD
-- Plan to conduct a further Phase 2a clinical trial in Europe to evaluate
RPL554 when dosed in addition to LAMA/LABA therapy, compared to placebo:
-- Anticipate commencing in the second half of 2018, with top-line
data expected in 2019.
Jan-Anders Karlsson, PhD, CEO of Verona Pharma, commented: "2017 brought
another very successful year with further highly encouraging clinical
data for RPL554 together with additional strengthening of our cash
resources through our Nasdaq IPO. We look forward to reporting top-line
data from the CF and COPD trials in the coming weeks. In the second half
of 2018, we plan to commence a Phase 2a clinical trial in Europe to
evaluate RPL554 when dosed in addition to LAMA/LABA therapy."
For further information, please contact:
Verona Pharma plc Tel: +44 (0)20 3283 4200
Jan-Anders Karlsson, Chief Executive Officer info@veronapharma.com
Stifel Nicolaus Europe Limited (Nominated Adviser Tel: +44 (0) 20 7710 7600
and UK Broker)
Stewart Wallace / Jonathan Senior / Ben Maddison SNELVeronaPharma@stifel.com
FTI Consulting (UK Media and Investor enquiries) Tel: +44 (0)20 3727 1000
Simon Conway / Natalie Garland-Collins veronapharma@fticonsulting.
com
ICR, Inc. (US Media and Investor enquiries)
James Heins Tel: +1 203-682-8251
James.Heins@icrinc.com
Stephanie Carrington Tel. +1 646-277-1282
Stephanie.Carrington@icrinc
.com
An electronic copy of the annual report and accounts will be made
available today on the Company's website (http://www.veronapharma.com).
A copy of the Form 20-F will be filed with the SEC as soon as possible.
This press release does not constitute an offer to sell or the
solicitation of an offer to buy securities, and shall not constitute an
offer, solicitation or sale in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of that jurisdiction.
About Verona Pharma plc
Verona Pharma is a clinical-stage biopharmaceutical company focused on
developing and commercializing innovative therapies for the treatment of
respiratory diseases with significant unmet medical needs. Verona
Pharma's product candidate, RPL554, is a first-in-class, inhaled, dual
inhibitor of the enzymes phosphodiesterase 3 and 4 that acts as both a
bronchodilator and an anti-inflammatory agent in a single compound. In
clinical trials, treatment with RPL554 has been observed to result in
statistically significant improvements in lung function as compared to
placebo, and has shown clinically meaningful and statistically
significant improvements in lung function when administered in addition
to frequently used short- and long-acting bronchodilators as compared to
such bronchodilators administered as a single agent. Verona Pharma is
developing RPL554 for the treatment of chronic obstructive pulmonary
disease (COPD), cystic fibrosis (CF), and potentially asthma.
Forward-Looking Statements
This press release contains forward-looking statements. All statements
contained in this press release that do not relate to matters of
historical fact should be considered forward-looking statements,
including, but not limited to, statements regarding the design of the
Phase 2b clinical trial of RPL554, the importance of the Phase 2b
clinical trial to our development plans for RPL554, the potential of
RPL554 as a promising first-in-class treatment option for COPD, and the
value of the data and insights that may be gathered from the Phase 2b
clinical trial.
These forward-looking statements are based on management's current
expectations. These statements are neither promises nor guarantees, but
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, including, but not limited to, the
following: our limited operating history; our need for additional
funding to complete development and commercialization of RPL554, which
may not be available and which may force us to delay, reduce or
eliminate our development or commercialization efforts; the reliance of
our business on the success of RPL554, our only product candidate under
development; economic, political, regulatory and other risks involved
with international operations; the lengthy and expensive process of
clinical drug development, which has an uncertain outcome; serious
adverse, undesirable or unacceptable side effects associated with
RPL554, which could adversely affect our ability to develop or
commercialize RPL554; potential delays in enrolling patients, which
could adversely affect our research and development efforts; we may not
be successful in developing RPL554 for multiple indications; our ability
to obtain approval for and commercialize RPL554 in multiple major
pharmaceutical markets; misconduct or other improper activities by our
employees, consultants, principal investigators, and third-party service
providers; delays in analyzing our top-line data; material differences
between our top-line data and final data; our reliance on third parties,
including clinical investigators, manufacturers and suppliers, and the
risks related to these parties' ability to successfully develop and
commercialize RPL554; and lawsuits related to patents covering RPL554
and the potential for our patents to be found invalid or unenforceable.
These and other important factors under the caption "Risk Factors" in
our final prospectus filed with the Securities and Exchange Commission
("SEC") on April 28, 2017 relating to our Registration Statement on Form
F-1, and our other reports filed with the SEC, could cause actual
results to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management's estimates as of the date of this press
release. While we may elect to update such forward-looking statements at
some point in the future, we disclaim any obligation to do so, even if
subsequent events cause our views to change. These forward-looking
statements should not be relied upon as representing our views as of any
date subsequent to the date of this press release.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT
OVERVIEW
We are a clinical-stage biopharmaceutical company focused on developing
and commercializing innovative therapeutics for the treatment of
respiratory diseases with significant unmet medical needs. Our product
candidate, RPL554, is a first-in-class, inhaled, dual inhibitor of the
enzymes phosphodiesterase 3 and 4, or PDE3 and PDE4, that acts as both a
bronchodilator and an anti-inflammatory agent in a single compound. We
are not aware of any therapy in a single compound in clinical
development or approved by the U.S. Food and Drug Administration, or FDA,
or the European Medicines Agency, or EMA, for the treatment of
respiratory diseases that acts as both a bronchodilator and
anti-inflammatory agent. We believe RPL554 has the potential to be the
first novel class of bronchodilator in over 40 years. We have clinically
completed twelve Phase 1 and 2 clinical trials for RPL554 with over 700
subjects enrolled; ten of these studies have been reported, one study is
expected to report late in the first quarter of 2018 and one study is
expected to report early in the second quarter of 2018. In our clinical
trials, treatment with RPL554 has been observed to result in
statistically significant improvements in lung function as compared to
placebo. Statistically significant means that there is a low statistical
probability, typically less than 5%, that the observed results occurred
by chance alone. Our clinical trials also have shown clinically
meaningful and statistically significant improvements in lung function
when RPL554 is added to commonly used short- and long-acting
bronchodilators as compared to either bronchodilator administered as a
single agent. RPL554 also has shown anti-inflammatory effects and been
well tolerated in our clinical trials, and has not been observed to
result in the gastrointestinal or other side effects commonly associated
with roflumilast, the only PDE4 inhibitor currently on the market for
the treatment of chronic obstructive pulmonary disease, or COPD. We are
developing RPL554 for the treatment of patients with COPD and for the
treatment of patients with cystic fibrosis, or CF.
We believe there is an urgent and unmet medical need for new and more
effective treatments for COPD to reduce the number and burden of
symptoms, reduce acute periods of worsening symptoms, or exacerbations,
and establish a consistent and durable response to treatment. In
addition, in CF, a fatal inherited disease, we believe the
bronchodilatory and anti-inflammatory effects of RPL554 may be
beneficial. We believe RPL554, if approved, has the potential to become
an important and novel treatment and standard of care for COPD and CF
patients. We may also explore, alone or with a collaborator, the
development of RPL554 to treat asthma and other respiratory diseases.
According to the World Health Organization (WHO), over one billion
people suffer from chronic respiratory diseases. Among the most common
of these afflictions is COPD, which is a progressive respiratory disease
for which there is no cure. COPD damages the airways and the lungs and
leads to shortness of breath, impacting a person's ability to perform
daily activities. Chronic inflammation plays a central role in the
pathology of the disease, and is particularly prominent in the airways
of COPD patients. COPD includes chronic bronchitis, which refers to the
inflammation of the lung and airways that results in coughing and sputum
production, and emphysema, which refers to a destruction of distal lung
tissue, or air sacs. In some cases, patients with COPD experience
exacerbations, which are estimated to cause approximately 1.5 million
emergency department visits, 687,000 hospitalizations and 129,000 deaths
per year in the United States alone. According to the WHO, COPD is
expected to become the third leading cause of death globally by 2030,
with 210 million people worldwide suffering from the disease. It is
estimated that there are 24 million people with COPD in the United
States, only half of whom have been diagnosed. Of those diagnosed with
COPD in the United States, more than 2 million suffer from severe or
very severe forms of the disease. Total annual medical costs relating to
COPD in the United States were estimated to be $32 billion in 2010 and
are projected to rise to $49 billion in 2020. Whereas the number of
patients diagnosed with COPD in the US continues to increase annually,
the growth in numbers in more developing countries, like China, is
significantly higher. The prevalence of COPD in China is expected to be
about 8% of patients over 40 years of age and is expected to increase in
coming years. Global sales of drugs currently indicated for COPD in
major markets were approximately $15 billion in 2015 and are expected to
grow to $20 billion by 2025.
COPD patients are commonly treated with bronchodilators, which seek to
relieve airway constriction and make it easier to breathe, and inhaled
corticosteroids, which seek to reduce lung inflammation. For patients
with more severe disease who experience recurrent exacerbations, and for
whom inhaled corticosteroids are not effective, an oral formulation of a
PDE4 inhibitor, which is an anti-inflammatory agent, may also be used as
treatment. Despite the wide availability of these therapies, many COPD
patients continue to suffer exacerbations and have continued respiratory
symptoms, which limit their daily activities. Furthermore, current
therapies have not demonstrated an ability to change the progressive
decline in lung function or reduce the mortality associated with COPD.
We believe there is an urgent and unmet medical need for new and more
effective treatments for COPD to reduce the number and burden of
symptoms, reduce exacerbations and establish a consistent and durable
treatment response.
CF is the most common fatal inherited disease in the United States and
Europe. CF causes impaired lung function and is commonly associated with
repeat and persistent lung infections due to the inability to clear
thickened phlegm, or mucus, from the lung. This condition often results
in frequent exacerbations and hospitalizations. There is no cure for CF
and although current therapies are leading to longer lifespans the
median age of death for CF patients is still only around 40 years. CF is
considered a rare, or orphan, disease by both the FDA and the EMA.
According to the Cystic Fibrosis Foundation, more than 30,000 people in
the United States and more than 70,000 people worldwide are living with
CF and approximately 1,000 new cases of CF are diagnosed each year. The
FDA and the EMA provide incentives for sponsors to develop products for
orphan diseases, and we plan to seek orphan drug designation for RPL554
from both regulators in treating CF. CF patients require lifelong
treatment with multiple daily medications, frequent hospitalizations and,
ultimately, lung transplants in some end-stage patients. The quality of
life for CF patients is compromised as a result of spending significant
time on self-care every day and frequent outpatient doctor visits and
hospitalizations. CF patients take an average of seven medications
daily. In the 12-month period ended June 30, 2016, global sales of drugs
currently indicated for CF totaled $4.1 billion. The global market for
CF drugs is expected to increase to $7.0 billion by 2020.
RPL554 is a first-in-class, inhaled, dual inhibitor of PDE3 and PDE4.
Phosphodiesterases, or PDEs, are well known and validated therapeutic
targets, and many PDE inhibitors, with different specificities, are
currently available in the market for other indications. PDE3 is present
in airways and the lung, and inhibition of this enzyme is primarily
responsible for the bronchodilatory action of RPL554. PDE4 is found in
inflammatory and epithelial cells, and inhibition of this enzyme
contributes to RPL554's anti-inflammatory activity. PDEs metabolize the
critical signaling molecules, cyclic adenosine monophosphate, or cAMP,
and cyclic guanosine monophosphate, or cGMP. By inhibiting PDE3 and
PDE4, RPL554 increases the levels of cAMP and cGMP, resulting in
bronchodilator and anti-inflammatory effects. RPL554 also stimulates the
cystic fibrosis transmembrane conductance regulator, or CFTR, which is
an ion channel in the epithelial cells lining the airways. Mutations in
the CFTR protein result in poorly or non-functioning ion channels, which
cause CF and are potentially important in COPD. CFTR stimulation leads
to improved electrolyte balance in the lung and thinning of the mucus,
which facilitates mucociliary clearance and leads to improved lung
function and potentially a reduction in lung infections. Dual inhibition
of PDE3 and PDE4 has been observed to be more effective than inhibition
of either PDE alone at relaxing airway smooth muscle cells and
suppressing the activation and functions of pro-inflammatory cells
residing in the lung, both of which are commonly understood to play a
significant role in COPD and CF.
CLINICAL DEVELOPMENT IN 2017
COPD - nebulized formulation
We are developing RPL554 in a nebulized formulation for the maintenance
treatment of COPD patients. We also are developing RPL554 in a nebulized
formulation as an add-on therapy to short acting bronchodilators and
other commonly used therapies for the treatment of hospitalized patients
with acute exacerbations of COPD.
To evaluate RPL554 in a nebulized formulation for COPD, we commenced
four clinical trials in 2017, with two completed during the year and two
ongoing. Our completed studies included our IND-opening study in the US.
In September 2017, we reported positive data from a Phase 2a clinical
trial evaluating RPL554 compared to placebo in approximately 30 patients
with COPD as an add-on therapy to tiotropium, a commonly used long
acting bronchodilator:
-- RPL554 demonstrated a significant and clinically meaningful additional
improvement in peak lung function when added to tiotropium, a widely used
drug to treat COPD;
-- RPL554 achieved a faster onset-of-action when added to tiotropium vs
tiotropium alone;
-- RPL554 opened peripheral airways as measured by improvements in airway
resistance and compliance, suggesting that RPL554 treatment may reduce
dyspnea (shortness of breath), a major debilitating symptom of COPD; and
-- RPL554 demonstrated statistical significance across all primary and
secondary efficacy outcome measures, as well as a clear dose response at
6 mg dose compared to 1.5 mg dose.
Also in September 2017, we reported positive data from a Phase 1
single-dose pharmacokinetic, or PK, trial in 12 healthy volunteers. A PK
trial involves the study of the process of bodily absorption,
distribution, metabolism and excretion of a drug. Our IND-opening study,
conducted in the United States, confirmed that:
-- RPL554 absorption occurs primarily via the lungs following inhaled
administration, consistent with optimal inhaled delivery of medications
for the treatment of COPD and asthma; and
-- Low oral bioavailability and blood levels following inhalation of RPL554
suggest that swallowed medication contributes little to systemic effects
of RPL554.
On February 13, 2018, we provided an update on enrollment in our
four-week Phase 2b dose ranging clinical trial in approximately 400
patients, for which dosing is now completed, with data now anticipated
early in the second quarter of 2018, which is earlier than previous
guidance of mid-2018.
COPD - pMDI and DPI formulations
In addition to our nebulized formulation of RPL554, we are developing
RPL554 in both pressurized metered dose inhaler, or pMDI, and dry powder
inhaler, or DPI, formulations for the maintenance treatment of COPD. We
plan to select a pMDI and a DPI formulation as part of an expansion to
the RPL554 clinical development program to the treatment of patients
with moderate to severe chronic obstructive pulmonary disease (COPD).
It is estimated that, in the United States, approximately 4.5 million
patients with moderate to severe COPD use inhalers for maintenance
therapy.
Delivery of orally inhaled drugs by pMDI or DPI is a mainstay of
maintenance treatment for patients with moderate to severe COPD.
Successful development of a pMDI or DPI formulation of RPL554 for
moderate disease would greatly expand the addressable market for the
drug and represents a multi-billion dollar potential opportunity. We
believe that over 90% of patients with diagnosed COPD use inhalers, such
as a pMDI or DPI, rather than a nebulizer, to administer treatment.
We plan to commence pre-clinical studies for RPL554 in these
formulations in 2018, followed by the first clinical trials in healthy
subjects or patients with COPD.
We may also explore the development of RPL554 in pMDI and/or DPI
formulations for the treatment of asthma and other respiratory diseases.
Cystic Fibrosis
In April 2017, we announced the commencement of a Phase 2a single dose
PK and pharmacodynamics, or PD, trial evaluating RPL554 in approximately
ten CF patients. A PD trial involves the study of the biochemical and
pharmacological effects of a drug and its mechanism of action, including
the correlation of the drug's actions and effects with its mechanism of
action.
On February 13, 2018, we provided an update on enrollment in this Phase
2a PK and PD trial, with data now anticipated in late first quarter of
2018, which is earlier than previous guidance of first half of 2018.
PREVIOUS STUDIES WITH RPL554
In our clinical trials, RPL554 has shown rapid onset and durable
bronchodilation in healthy subjects and patients with COPD or asthma
when inhaled from a nebulizer. In addition, RPL554 has been observed to
be complementary and additive when administered as an add-on therapy to
other currently marketed bronchodilators. In 2017 we announced the
results of a Phase 2a clinical trial of RPL554 in 30 patients with COPD.
Our primary objective in this clinical trial was to evaluate the
improvement in lung function, as measured by the maximal volume of air a
person can forcefully exhale in one minute, FEV(1) , and the duration of
action of RPL554. We evaluated RPL554 administered as an add-on therapy
to a commonly used bronchodilator tiotropium, marketed as Spiriva. We
observed clinically meaningful and statistically significant improvement
in lung function, as measured by FEV(1) , when RPL554 was administered
as an add-on therapy to a standard dose of tiotropium as compared to a
standard dose of tiotropium alone. In this clinical trial, we observed
the effect size, or peak improvement was 127 ml and 104 ml for 1.5mg and
6mg doses respectively over tiotropium alone. P-value is a conventional
statistical method for measuring the statistical significance of
clinical results. A p-value of 0.05 or less represents statistical
significance, meaning that there is a less than 1-in-20 likelihood that
the observed results occurred by chance. In addition, RPL554
administered as an add-on therapy to tiotropium resulted in a
statistically significant reduction in time of onset of bronchodilation
as compared to tiotropium alone. The data from this study was highly
consistent with the results of a previous Phase 2a clinical trial we
announced in 2016 of RPL554 in 36 patients with COPD. Our primary
objective in that clinical trial was to evaluate the improvement in lung
function, as measured by the maximal volume of air a person can
forcefully exhale in one minute, FEV(1) , and the duration of action of
RPL554. We evaluated RPL554 administered as a single agent as compared
to placebo and two commonly used bronchodilators, albuterol, also known
as salbutamol and marketed as Ventolin, and ipratropium, marketed as
Atrovent. We also evaluated RPL554 administered as an add-on therapy to
either albuterol or ipratropium, in each case as compared to albuterol
or ipratropium alone. We observed that RPL554 administered as a single
agent produced statistically significant improvements in lung function,
as measured by FEV(1) , as compared to placebo, with a p-value of less
than 0.001. P-value is a conventional statistical method for measuring
the statistical significance of clinical results. We also observed
clinically meaningful and statistically significant improvement in lung
function, as measured by FEV(1) , when RPL554 was administered as an
add-on therapy to standard doses of albuterol and ipratropium as
compared to standard doses of either bronchodilator alone. In this
clinical trial, we observed the effect size, or peak improvement minus
placebo improvement, was 51% higher for the add-on-therapy of RPL554
with albuterol as compared to albuterol alone, and 66% higher for the
add-on-therapy of RPL554 with ipratropium as compared to ipratropium
alone. In addition, RPL554 administered as an add-on therapy to either
albuterol or ipratropium resulted in a statistically significant
reduction in time of onset of bronchodilation as compared to albuterol
or ipratropium alone.
CORPORATE
RPL554 is protected by granted and pending patents. We believe that
medicinal products containing RPL554 are protected by our IP beyond
2035. We have worldwide commercialization rights for RPL554.
We raised GBP70m in gross proceeds from investors from our April 2017
global offering comprising an initial public offering ("IPO") on the
NASDAQ Global Market ("Nasdaq"), and a concurrent European private
placement, together with a shareholder private placement.
Members of our management team, which we have strengthened and expanded
during the year, and our board of directors have extensive experience in
large pharmaceutical and biotechnology companies, particularly in
respiratory product development from drug discovery through
commercialization and have played important roles in the development and
commercialization of several approved respiratory treatments, including
Symbicort, Daliresp/Daxas, Spiriva and Flutiform.
FINANCIALS
The operating loss for the year ended December 31, 2017 was GBP29.8
million (2016: GBP7.0 million) and the loss after tax for the year ended
December 31, 2017 was GBP20.5 million (2016: GBP5.0 million).
Research and Development Costs
Research and development costs were GBP23.7 million for the year ended
December 31, 2017, as compared to GBP4.5 million for the year ended
December 31, 2016, an increase of GBP19.2 million. The increase was
attributable to a GBP12.3 million increase in clinical trial expenses
related to the initiation of four, and completion of two, Phase 2
clinical trials of RPL554. In addition, we increased spending on
contract manufacturing and other formulation work by GBP2.7 million and
toxicology and other pre-clinical development by GBP1.2m. Our salary
costs increased by GBP0.3m and our share-based payment charge rose by
GBP1.2 million as we expanded our team and initiated a new long term
incentive plan to drive development of RPL 554. Furthermore, our spend
on third party consultants increased by GBP0.8 million and patent and
other costs by GBP0.3 million.
General and Administrative Costs
General and administrative costs were GBP6.0 million for the year ended
December 31, 2017, as compared to GBP2.5 million for the year ended
December 31, 2016, an increase of GBP3.5 million. The increase was
attributable to GBP0.8 million increase in our salary costs and a GBP1.1
million increase in our share-based payment charge as we built the team
to support the activities of the Group. There was an increase of GBP1.3
million of costs in preparation for and relating to the Global Offering,
as well as ongoing compliance and other costs due to listing our ADSs on
the NASDAQ stock market. We also incurred costs of GBP0.4 million
developing our commercial strategy for RPL 554.
Finance Income and Expense
Finance income was GBP7.0 million for the year ended December 31, 2017
and GBP1.8 million for the year ended December 31, 2016. The increase in
finance income was primarily due to a decrease in the fair value of the
warrant liability of GBP6.6 million caused by changes in the underlying
assumptions for measuring the liability of the warrants issued in the
July 2016 Placement, including the price and volatility of our ordinary
shares and the unwinding of the expected life of the warrants.
Finance expense was GBP2.5 million for the year ended December 31, 2017
as compared to GBP0.8 million for the year ended December 31, 2016. The
increase was primarily due to the foreign exchange loss on translation
of foreign currency denominated cash and cash equivalents and short term
investments.
Taxation
Taxation for the year ended December 31, 2017 amounted to a credit of
GBP4.7 million as compared to a credit of GBP1.0 million for the year
ended December 31, 2016, an increase in the credit amount of GBP3.7
million. The credits are obtained at a rate of 14.5% of 230% of our
qualifying research and development expenditure, and the increase in the
credit amount was primarily attributable to our increased expenditure on
research and development.
Cash Flows
The decrease in net cash used in operating activities to GBP20.7 million
for the year ended December 31, 2017 from GBP5.6 million for the year
ended December 31, 2016 was primarily due to an increase in loss before
taxation driven by higher research and development costs.
The increase in net cash used in investing activities to GBP49.5 million
for the year ended December 31, 2017 from GBP41 thousand for the year
ended December 31, 2016 was due to placing funds raised in the Global
Offering on term deposits with maturities of more than three months at
inception.
The net cash of GBP63.2 million received from financing activities to
for the year ended December 31, 2017 was the cash raised from the Global
Offering. The GBP41.2 million received for the year ended December 31,
2016 was the cash received from the sale of our equity securities and
warrants in connection with the July 2016 Placement.
Cash, cash equivalents and short-term investments
Net cash, cash equivalents and short-term investments at December 31,
2017 increased to GBP80.3 million from GBP39.8 million at December 31,
2016 primarily due to the global offering offset by cash spent on
research and development activities.
Net assets
Net assets increased to GBP79.9 million at the year ended December 31,
2017 from GBP34.5 million at the year ended December 31, 2016. This
increase was primarily due to the net cash of GBP63.2 million raised
from the issue of shares, offset by the increased expenditure from
research and development costs.
OUTLOOK AND STRATEGY
We intend to become a leading biopharmaceutical company focused on the
treatment of respiratory diseases with significant unmet medical needs.
The key elements of our strategy to achieve this goal include:
-- Rapidly advance the development of nebulized RPL554 for the maintenance
treatment of COPD in moderate and severe patients.
-- For the maintenance treatment of severe COPD patients, we are progressing
the development of RPL554 in a nebulized formulation. We are currently
conducting a four-week Phase 2b dose ranging clinical trial in
approximately 400 patients; data from this study is now expected early in
the second quarter of 2018.
-- Following completion of this ongoing 4-week Phase 2b clinical trial, we
will evaluate and possibly adjust the overall and near-term development
plans for RPL554. Depending on the data from all clinical trials
conducted with RPL554 to date, future interactions with regulatory
authorities and our commercial assessment of different development
options for RPL554, we will consider any opportunity to focus and
accelerate our development plans for RPL554, including proceeding more
rapidly towards Phase 3 clinical trials, particularly with nebulized
RPL554 for the maintenance treatment of COPD.
-- For the maintenance treatment of severe COPD patients, we also plan to
conduct a further Phase 2a clinical trial in Europe to evaluate RPL554
when dosed in addition to LAMA/LABA therapy, compared to placebo. We
expect to commence this study late in the second half of 2018, with
top-line data expected in 2019.
-- RPL554 for nebulized administration is currently presented in a glass
vial with a flip, tear-up cap. This format is adequate for clinical
trials but patient acceptance in a commercial setting is expected to be
improved by a switch to presenting the suspension formulation of RPL554
in plastic ampules. We will investigate the feasibility to manufacture
and supply RPL554 nebulized suspension formulation in plastic ampules. In
addition to patient acceptance, switching to plastic ampules may also be
more cost-effective for manufacturing in larger volumes. A decision on
presentation form will be made before the start of Phase 3 clinical
trials; during this evaluation process we will also review and optimize
the nebulized suspension formulation as part of a quality by design
program.
-- For the treatment of COPD patients who may prefer the more convenient
administration of an inhaler device, we are developing RPL554 in inhaler
formulations. We plan to commence pre-clinical studies for RPL554 in
these formulations in 2018, followed by the first clinical trials in
healthy subjects or patients with COPD.
-- Proceeding more rapidly towards Phase 3 clinical trials with nebulized
RPL554 for the maintenance treatment of COPD may require us to focus our
financial and other resources on maintenance treatment of COPD with
nebulized and inhaled formulations of RPL554 in the short term, which may
alter our timing to commence further trials using RPL554 in other
indications.
-- Advance the development of nebulized RPL554 for the treatment of acute
exacerbations of COPD. We are developing RPL554 as an add-on therapy to
short acting bronchodilators and other commonly used therapies for the
treatment of hospitalized patients with acute exacerbations of COPD. The
timing for future studies in this indication may be dependent on any
decision to move more rapidly towards Phase 3 clinical trials with
nebulized RPL554 for the maintenance treatment of COPD.
-- Develop RPL554 for the treatment of CF. The timing for future studies in
this indication may be dependent on any decision to move more rapidly
towards Phase 3 clinical trials with nebulized RPL554 for the maintenance
treatment of COPD.
-- Pursue development of RPL554 in other forms of respiratory disease. We
believe that RPL554's properties as an inhaled, dual inhibitor of PDE3
and PDE4 give it broad potential applicability in the treatment of other
respiratory diseases. We may explore development of RPL554 to treat other
forms of respiratory disease following development of RPL554 for the
treatment of COPD and CF.
-- Seek strategic collaborative relationships. We may seek strategic
collaborations with market leading biopharmaceutical companies to develop
and commercialize RPL554. We believe these collaborations could provide
significant funding to advance the development of RPL554 while allowing
us to benefit from the development or commercialization expertise of our
collaborators.
-- Acquire or in-license product candidates for the treatment of respiratory
diseases. We plan to leverage our respiratory disease expertise to
identify and in-license or acquire additional clinical stage product
candidates that we believe have the potential to become novel treatments
for respiratory diseases with significant unmet medical needs.
We would like to thank the staff and Board members for all their
contributions and shareholders for their continued support during a
successful year.
Dr. David Ebsworth Dr. Jan-Anders Karlsson
Chairman Chief Executive Officer
February 27, 2018 February 27, 2018
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED DECEMBER 31, 2017
Year ended Year ended
December December
Notes 31, 2016 31, 2017
GBP'000s GBP'000s
Research and development costs (4,522) (23,717)
General and administrative costs (2,498) (6,039)
Operating loss 7 (7,020) (29,756)
Finance income 9 1,841 7,018
Finance expense 9 (794) (2,465)
Loss before taxation (5,973) (25,203)
Taxation - credit 10 954 4,706
Loss for the year (5,019) (20,497)
Other comprehensive income / (loss):
Items that might be subsequently reclassified to profit
or loss
Exchange differences on translating foreign operations 43 (29)
Total comprehensive loss attributable to owners of
the Company (4,976) (20,526)
Loss per ordinary share - basic and diluted (pence) 5 (15.0) (23.4)
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2017
As of As of
December December
Notes 31, 2016 31, 2017
GBP'000s GBP'000s
ASSETS
Non-current assets:
Goodwill 11 441 441
Intangible assets 12 1,877 1,969
Property, plant and equipment 13 14 16
Total non-current assets 2,332 2,426
Current assets:
Prepayments and other receivables 14 2,959 1,810
Current tax receivable 1,067 5,006
Short term investments 3 - 48,819
Cash and cash equivalents 39,785 31,443
Total current assets 43,811 87,078
Total assets 46,143 89,504
EQUITY AND LIABILITIES
Capital and reserves attributable to
equity holders:
Share capital 16 2,568 5,251
Share premium 58,526 118,862
Share-based payment reserve 2,103 5,022
Accumulated loss (28,728) (49,254)
Total equity 34,469 79,881
Current liabilities:
Derivative financial instrument 20 7,923 1,273
Trade and other payables 18 2,823 7,154
Tax payable-U.S. Operations 126 169
Total current liabilities 10,872 8,596
Non-current liabilities:
Assumed contingent obligation 19 802 875
Deferred income - 152
Total non-current liabilities 802 1,027
Total equity and liabilities 46,143 89,504
The financial statements were approved by the Company's board of
directors on February 27, 2018 and signed on its behalf by Dr.
Jan-Anders Karlsson, Chief Executive Officer of the Company. The
accompanying notes form an integral part of these consolidated financial
statements.
Dr. Jan-Anders Karlsson
Chief Executive Officer of the Company. Company number: 05375156
VERONA PHARMA PLC
COMPANY STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2017
As of As of
December 31, December 31,
Notes 2016 2017
GBP'000s GBP'000s
ASSETS
Non-current assets:
Goodwill 11 441 441
Intangible assets 12 1,877 1,969
Property, plant and equipment 13 14 16
Investments 15 243 877
Total non-current assets 2,575 3,303
Current assets:
Prepayments and other
receivables 14 2,953 1,970
Current tax receivable 1,067 5,006
Short term investments 3 - 48,819
Cash and cash equivalents 39,734 31,313
Total current assets 43,754 87,108
Total assets 46,329 90,411
EQUITY AND LIABILITIES
Capital and reserves
attributable to equity
holders:
Share capital 16 2,568 5,251
Share premium 58,526 118,862
Share-based payment reserve 2,103 5,022
Accumulated loss (28,743) (49,084)
Total equity 34,454 80,051
Current liabilities:
Derivative financial instrument 20 7,923 1,273
Trade and other payables 18 3,150 8,060
Total current liabilities 11,073 9,333
Non-current liabilities:
Assumed contingent obligation 19 802 875
Deferred income - 152
Total non-current liabilities 802 1,027
Total equity and liabilities 46,329 90,411
The Parent Company has taken advantage of the exemption permitted by
Section 408 of the Companies Act 2006 not to present an income statement
for the year. The Parent Company's loss for the year was GBP20.3m (2016:
loss of GBP5.0m), which has been included in the Group's income
statement.
The financial statements on were approved by the Company's board of
directors on February 27, 2018 and signed on its behalf by Dr.
Jan-Anders Karlsson, Chief Executive Officer of the Company.
Dr. Jan-Anders Karlsson
Chief Executive Officer of the Company.
Company number: 05375156
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 31, 2017
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Cash used in operating activities:
Loss before taxation (5,973) (25,203)
Finance income (1,841) (7,018)
Finance expense 794 2,465
Share-based payment charge 577 2,919
Increase in prepayments and other receivables (1,809) (161)
Increase in trade and other payables 1,068 5,363
Depreciation of property, plant and equipment 10 7
Loss on disposal of property, plant and equipment 3 -
Amortization of intangible assets 52 116
Cash used in operating activities (7,119) (21,512)
Cash inflow from taxation 1,533 816
Net cash used in operating activities (5,586) (20,696)
Cash flow from investing activities:
Interest received 87 128
Purchase of plant and equipment (13) (9)
Payment for patents and computer software (115) (208)
Transfer to short term investments - (54,465)
Maturity of short term investments - 5,085
Net cash used in investing activities (41) (49,469)
Cash flow from financing activities:
Gross proceeds from issue of shares and warrants 44,750 -
Gross proceeds from the April 2017 Global Offering - 70,032
Transaction costs on issue of shares and warrants (2,910) -
Transaction costs on April 2017 Global Offering (636) (6,786)
Net cash generated from financing activities 41,204 63,246
Net increase / (decrease) in cash and cash
equivalents 35,577 (6,919)
Cash and cash equivalents at the beginning of the
year 3,524 39,785
Effect of exchange rates on cash and cash
equivalents 684 (1,423)
Cash and cash equivalents at the end of the period 39,785 31,443
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 31, 2017
Year ended Year ended
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Cash used in operating activities:
Loss before taxation (6,048) (25,357)
Finance income (1,841) (7,018)
Finance expense 794 2,465
Share-based payment charge 414 2,285
Increase in prepayments and other receivables (1,803) (327)
Increase in trade and other payables 1,231 5,953
Depreciation of property, plant and equipment 10 7
Loss on disposal of property, plant and equipment 3 -
Amortization of intangible assets 52 116
Cash used in operating activities (7,188) (21,876)
Cash inflow from taxation 1,551 1,078
Net cash used in operating activities (5,637) (20,798)
Cash flow from investing activities:
Interest received 87 151
Purchase of plant and equipment (13) (9)
Payment for patents and computer software (115) (208)
Transfer to short term investments - (54,465)
Maturity of short term investments - 5,085
Net cash used in investing activities (41) (49,446)
Cash flow from financing activities:
Gross proceeds from issue of shares and warrants 44,750 -
Gross proceeds from the April 2017 Global Offering - 70,032
Transaction costs on issue of shares and warrants (2,910) -
Transaction costs on April 2017 Global Offering (636) (6,786)
Net cash generated from financing activities 41,204 63,246
Net increase / (decrease) in cash and cash
equivalents 35,526 (6,998)
Cash and cash equivalents at the beginning of the
year 3,523 39,734
Effect of exchange rates on cash and cash
equivalents 685 (1,423)
Cash and cash equivalents at the end of the period 39,734 31,313
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED DECEMBER 31, 2017
Total
Share Share Share-based Accumulated Total
Capital Premium Expenses Losses Equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Balance at
January 1,
2016 1,010 26,650 1,526 (23,752) 5,434
Loss for the
year - - - (5,019) (5,019)
Other
comprehensive
income for the
year:
Exchange
differences
on
translating
foreign
operations - - - 43 43
Total
comprehensive
loss for the
period - - - (4,976) (4,976)
New share
capital
issued 1,556 34,151 - - 35,707
Transaction
costs on
share capital
issued - (2,325) - - (2,325)
Share options
exercised
during the
period 2 50 - - 52
Share-based
payments - - 577 - 577
Balance at
December 31,
2016 2,568 58,526 2,103 (28,728) 34,469
Balance at
January 1,
2017 2,568 58,526 2,103 (28,728) 34,469
Loss for the
year - - - (20,497) (20,497)
Other
comprehensive
loss for the
year:
Exchange
differences
on
translating
foreign
operations - - - (29) (29)
Total
comprehensive
loss for the
period - - - (20,526) (20,526)
New share
capital
issued 2,677 67,648 - - 70,325
Transaction
costs on
share capital
issued - (7,453) - - (7,453)
Share options
exercised
during the
period 6 141 - - 147
Share-based
payments - - 2,919 - 2,919
Balance at
December 31,
2017 5,251 118,862 5,022 (49,254) 79,881
The currency translation reserve for 2016 and 2017 is not considered
material and as such is not presented in a separate reserve but is
included in the total accumulated losses reserve.
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED DECEMBER 31, 2017
Total
Share Share Share-based Accumulated Total
Capital Premium Expenses Losses Equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Balance at
January 1,
2016 1,010 26,650 1,526 (23,779) 5,407
Loss for the
year - - - (4,964) (4,964)
Other
comprehensive
income for the
year: - - - - -
Total
comprehensive
loss for the
period - - - (4,964) (4,964)
New share
capital
issued 1,556 34,151 - - 35,707
Transaction
costs on
share capital
issued - (2,325) - - (2,325)
Share options
exercised
during the
period 2 50 - - 52
Share-based
payments
recognized as
an expense - - 414 - 414
Share-based
payments
recognized as
an
investment - - 163 - 163
Balance at
December 31,
2016 2,568 58,526 2,103 (28,743) 34,454
Balance at
January 1,
2017 2,568 58,526 2,103 (28,743) 34,454
Loss for the
year - - - (20,341) (20,341)
Other
comprehensive
income for the
year:
Total
comprehensive
loss for the
period - - - (20,341) (20,341)
New share
capital
issued 2,677 67,648 - - 70,325
Transaction
costs on
share capital
issued - (7,453) - - (7,453)
Share options
exercised
during the
period 6 141 - - 147
Share-based
payments
recognized as
an expense - - 2,285 - 2,285
Share-based
payments
recognized as
an
investment - - 634 - 634
Balance at
December 31,
2017 5,251 118,862 5,022 (49,084) 80,051
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED DECEMBER 31, 2017
1. General information
Verona Pharma plc (the "Company") and its subsidiaries (together, the
"Group") are 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 is a public limited company, which is dual listed on the
Alternative Investment Market of the London Stock Exchange and on April
27, 2017, American Depositary Shares began trading on NASDAQ Global
Market. The company is incorporated and domiciled in the United Kingdom.
The address of the registered office is 1 Central Square, Cardiff, CF10
1FS, United Kingdom.
The Company has two subsidiaries, Verona Pharma, Inc. and Rhinopharma
Limited ("Rhinopharma"), both of which are wholly owned.
On February 10, 2017 the Company effected a 50-for-1 consolidation of
its shares. All references to ordinary shares, options and warrants, as
well as share, per share and related information in these consolidated
financial statements have been adjusted to reflect the consolidation as
if it had occurred at the beginning of the earliest period presented.
On April 26, 2017, the Company announced the closing of its global
offering of an aggregate of 47,399,001 new ordinary shares, consisting
of the initial public offering in the United States of 5,768,000
American Depositary Shares ("ADSs") at a price of $13.50 per ADS and the
private placement in Europe of 1,255,001 ordinary shares at a price of
GBP1.32 per ordinary share, for gross proceeds of $80 million (the
"Global Offering"). Each ADS offered represents eight ordinary shares of
the Company. The ordinary shares offered were allotted and issued in a
concurrent private placement in Europe and other countries outside of
the United States and Canada.
In addition, the Chairman of Verona Pharma's board of directors, Dr
David Ebsworth, and an existing shareholder agreed to subscribe for
254,099 new ordinary shares at a price of GBP1.32 per ordinary share in
a shareholder private placement separate from the Global Offering (the
"Shareholder Private Placement"), contingent on and concurrent with the
Global Offering and generating additional gross proceeds of GBP0.3
million.
On May 15 and May 23, 2017, pursuant to the Global Offering, the
underwriters purchased an additional 733,738 ADSs, representing
5,869,904 ordinary shares, at a price of $13.50 per ADS, for additional
gross proceeds of $9.9 million bringing the total gross proceeds in the
Global Offering to $89.9 million (GBP70.0 million). Including the
Shareholder Private Placement, the total gross proceeds of the capital
raising amounted to $90.3 million (GBP70.3 million).
The ADSs began trading on the NASDAQ Global Market under the ticker
symbol "VRNA" on April 27, 2017. Verona Pharma's ordinary shares
continue to trade on the AIM market of the London Stock Exchange ("AIM")
under the symbol "VRP".
2. Accounting policies
A summary of the principal accounting policies, all of which have been
applied consistently throughout the year, is set out below.
2.1 Basis of preparation
The consolidated financial statements of the Group and the financial
statements of the Company have been prepared in accordance with
International Financial Reporting Standards ("IFRSs") as issued by the
European Union and the Companies Act 2006 applicable to companies
reporting under IFRS. The consolidated financial statements have been
prepared under the historical cost convention, with the exception of
derivative financial instruments which have been measured at fair value.
The preparation of financial statements in conformity with IFRS requires
the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the
Group's and Company's accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements are
disclosed in note 4.
Going concern
During the year ended December 31, 2017, the Group had a loss of GBP20.5
million (2016: GBP5.0 million). As of December 31, 2017, the Group had
net assets of GBP79.9 million (2016: GBP34.5 million) of which GBP80.3
million (2016: GBP39.8 million) was cash and cash equivalents and short
term investments.
The operation of the Group is currently being financed from funds that
the Company raised from share placings. On May 2nd, 2017, the company
raised $89.9 million (GBP70 million) from the initial public offering in
the United States. On July 29, 2016, the Company raised gross proceeds
of GBP44.7 million from a placing, subscription and open offer (the
"July 2016 Placement"). These funds are expected to be used primarily to
support the development of RPL554 in chronic obstructive pulmonary
disease ("COPD"), other chronic respiratory diseases as well as
corporate and general administrative expenditures.
The Directors believe that the Group has sufficient funds to complete
the current clinical trials, to cover corporate and general
administration costs and for it to comply with all commitments for at
least 12 months from the end of the reporting period and, accordingly,
are satisfied that the going concern basis remains appropriate for the
preparation of these consolidated financial statements.
Business combination
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities
incurred to the former owners of the acquiree and the equity interests
issued by the Group. The consideration transferred includes the fair
value of any asset or liability resulting from a contingent
consideration arrangement and the fair value of any pre-existing equity
interest in the subsidiary. The excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets
acquired is recorded as goodwill. Goodwill arising on acquisitions is
capitalized and is subject to an impairment review, both annually and
when there are indications that the carrying value may not be
recoverable.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair
values at the acquisition date. Acquisition-related costs are expensed
as incurred and included in administrative expenses.
Basis of consolidation
These consolidated financial statements include the accounts of Verona
Pharma plc and its wholly owned subsidiaries Verona Pharma, Inc. and
Rhinopharma. The acquisition method of accounting was used to account
for the acquisition of Rhinopharma.
Inter-company transactions, balances and unrealized gains on
transactions between Group companies are eliminated.
Verona Pharma Inc. and Rhinopharma adopt the same accounting policies as
the Company.
2.2 Foreign currency translation
Items included in the Group's consolidated financial statements are
measured using the currency of the primary economic environment in which
the Entity operates ("the functional currency"). The consolidated
financial statements are presented in pounds sterling ("GBP"), which is
the functional and presentational currency of the Company and the
presentational currency of the Group.
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the balance sheet date and the gains or
losses on translation are included in the Consolidated Statement of
Comprehensive Income. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange
rates at the dates of the original transactions. Non-monetary items
measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
The assets and liabilities of foreign operations are translated into
pounds sterling at the rate of exchange ruling at the balance sheet
date. Income and expenses are translated at weighted average exchange
rates for the period. The exchange differences arising on translation
for consolidation are recognized in Other Comprehensive Income.
2.3 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call
with banks and other short-term highly liquid investments with original
maturities of three months or less.
2.4 Deferred taxation
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. Deferred tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the balance sheet date and
expected to apply when the related deferred tax is realized or the
deferred liability is settled.
Deferred tax assets are recognized to the extent that it is probable
that the future taxable profit will be available against which the
temporary differences can be utilized.
2.5 Research and development costs
Capitalization of expenditure on product development commences from the
point at which technical feasibility and commercial viability of the
product can be demonstrated and the Group is satisfied that it is
probable that future economic benefits will result from the product once
completed. No such costs have been capitalized to date, given the early
stage of the Group's product candidate development.
Expenditure on research and development activities that do not meet the
above criteria is charged to the Consolidated Statement of Comprehensive
Income as incurred.
2.6 Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation
and any provision for impairment. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset to
its working condition for its intended use. Depreciation is calculated
so as to write off the cost less their estimated residual values, on a
straight-line basis over the expected useful economic lives of the
assets concerned. The principal annual periods used for this purpose
are:
Computer hardware 3 years
Office equipment 5 years
2.7 Intangible assets and goodwill
(a) Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the
excess of the consideration transferred over the fair value of the
identifiable net assets acquired.
(b) Patents
Patent costs associated with the preparation, filing, and obtaining of
patents are capitalized and amortized on a straight-line basis over the
estimated useful lives of the patents of ten years.
(c) Computer software
Amortization is calculated so as to write off the cost less estimated
residual values, on a straight-line basis over the expected useful
economic life of two years.
(d) In-process research & development ("IPR&D")
IP R&D assets acquired through business combinations which, at the time
of acquisition, have not reached technical feasibility are recognized at
fair value. The amounts are capitalized and are not amortized but are
subject to impairment testing until completion, abandonment of the
projects or when the research findings are commercialized through a
revenue generating project. The Group determines whether intangible
assets (including goodwill) are impaired on an annual basis and this
requires the estimation of the higher of fair value less costs of
disposal and value in use. Upon successful completion or
commercialization of the relevant project, IP R&D will be reclassified
to developed technology. The Group will make a determination as to the
then useful life of the developed technology, generally determined by
the period in which the substantial majority of the cash flows are
expected to be generated, and begin amortization. In case of abandonment
the asset will be impaired.
2.8 Impairment of intangible assets, goodwill and non-financial assets
Goodwill and intangible assets that have an indefinite useful life and
intangible assets not ready to use are not subject to amortization.
These assets are tested annually for impairment or more frequently if
impairment indicators exist. Non-financial assets that are subject to
amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset's
carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value (less costs of disposal) and
value in use.
For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows,
which are largely independent of the cash flows from other assets or
group of assets (cash generating units "CGUs").
Goodwill is allocated to CGUs for the purpose of impairment testing. The
allocation is made to those CGUs or groups of CGUs that are expected to
benefit from the business combination in which the goodwill arose. The
units or group of units are identified at the lowest level at which
goodwill is monitored for internal management purposes, being the
operating segments.
The Group is a single cash generating unit. Goodwill that arose on the
acquisition of Rhinopharma has been thus allocated to this single CGU.
IP R&D is tested for impairment at this level as well, since it is the
lowest level at which independent cash flows can be identified.
Non-financial assets, other than goodwill, that have been previously
impaired are reviewed for possible reversal of the impairment at each
subsequent reporting date.
2.9 Employee Benefits
(a) Pension
The Group operates a defined contribution pension scheme for UK
employees. Contributions payable for the year are charged to the
Consolidated Statement of Comprehensive Income. The contributions are
recognized as employee benefit expense when they are due. Differences
between contributions payable in the year and contributions actually
paid are shown as either accruals or prepayments in the Consolidated
Statement of Financial Position. The Group has no further payment
obligation once the contributions have been paid.
(b) Bonus plans
The Company recognizes a liability and an expense for bonus plans if
contractually obligated or if there is a past practice that has created
a constructive obligation.
2.10 Share-based payments
The Group operates a number of equity-settled, share-based compensation
schemes. The fair value of share-based payments under such schemes is
expensed on a straight-line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest.
Where equity settled transactions are entered into with third party
service providers, fair value is determined by reference to the value of
the services provided in lieu of payment. The expense is measured based
on the services received at the date of receipt of those services and is
charged to the Consolidated Statement of Comprehensive Income over the
period for which the services are received and a corresponding credit is
made to reserves. For other equity-settled transactions fair value is
determined using the Black-Scholes model and requires several
assumptions and estimates as disclosed in note 17.
2.11 Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation, and
the amount can be reliably estimated. Provisions are measured at the
present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the obligation.
2.12 Assumed contingent obligation related to the business combinations
On September 19, 2006, the Group acquired Rhinopharma for a total
consideration of GBP1.52 million payable in ordinary shares. In addition,
the Group assumed certain contingent obligations owed by Rhinopharma to
Vernalis under an assignment and license agreement (the "assumed
contingent consideration") following the sale of IP by Vernalis to
Rhinopharma. Pursuant to the agreement Vernalis (i) assigned to the
Company all of its rights to certain patents and patent applications
relating to RPL554 and related compounds (the "Vernalis Patents") and
(ii) granted to the Company an exclusive, worldwide, royalty-bearing
license under certain Vernalis know-how to develop, manufacture and
commercialize products (the "Licensed Products") developed using
Vernalis Patents, Vernalis know-how and the physical stock of certain
compounds.
The assumed contingent obligation comprises (a) a milestone payment on
obtaining the first approval of any regulatory authority for the
commercialization of a Licensed Product; (b) low to mid single digit
royalties based on the future sales performance of all Licensed
Products; and (c) a portion equal to a mid twenty percent of any
consideration received from any sub-licensees for the Vernalis Patents
and for Vernalis know-how. On the date of acquisition, the fair value of
the assumed contingent obligation was estimated as the expected value of
the milestone payment, royalty payments and sub-license payments, based
on an assessment of the probability of success using standard market
probabilities for respiratory drug development. The risk-weighted value
of the assumed contingent arrangement was then discounted back to its
net present value applying an effective interest rate of 12%. The
initial fair value of the assumed contingent obligation as of December
31, 2006 was deemed to be insignificant at the date of the acquisition,
so it was not recorded.
The amount of royalties payable under the agreement is based on the
future sales performance of certain products, and so the total amount
payable is unlimited. The level of sales that may be achieved under the
agreement is difficult to predict and subject to estimate, which is
inherently uncertain. The value of this assumed contingent obligation is
measured at amortized cost using the effective interest rate method, and
is re-measured for changes in estimated cash flows, when the probability
of success changes. The assumed contingent obligation is accounted for
as a liability, and any adjustments made to the value of the liability
will be recognized in the Consolidated Statement of Comprehensive Income
for the period.
2.13 Government and other grants
The Group may receive government, regional or charitable grants to
support its research efforts in defined projects where these grants
provide for reimbursement of approved costs incurred as defined in the
respective grants. Income in respect of such grants would include
contributions towards the costs of research and development. Income
would be recognized when costs under each grant are incurred in
accordance with the terms and conditions of the grant and the
collectability of the receivable is reasonably assured. Government,
regional and charitable grants relating to costs would be deferred and
recognized in the Consolidated Statement of Comprehensive Income over
the period necessary to match them with the costs they are intended to
compensate. When the cash in relation to recognized government, regional
or charitable grants is not yet received the amount is included as a
receivable on the Consolidated Statement of Financial Position.
Where the grant income is directly related to the specific items of
expenditure incurred, the income would be netted against such
expenditure. Where the grant income is not a specific reimbursement of
expenditure incurred, the Group would include such income under "Other
income" in the Consolidated Statement of Comprehensive Income. Grants or
investment credits may be repayable if the Group successfully
commercializes a relevant program that was funded in whole or in part by
the grant or investment credit within a particular timeframe. Prior to
successful commercialization, the Group would not make any provision for
repayment.
2.14 Financial instruments - initial recognition and subsequent
measurement
The Company classifies a financial instrument, or its component parts,
as a financial liability, a financial asset or an equity instrument in
accordance with the substance of the contractual arrangement and the
definitions of a financial liability, a financial asset and an equity
instrument.
The Company evaluates the terms of the financial instrument to determine
whether it contains an asset, a liability or an equity component. Such
components shall be classified separately as financial assets, financial
liabilities or equity instruments.
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
(a) Financial assets, initial recognition and measurement and
subsequent measurement
All financial assets not recorded at fair value through profit or loss,
such as receivables and deposits, are recognized initially at fair value
plus transaction costs. Financial assets carried at fair value through
profit or loss are initially recognized at fair value, and transaction
costs are expensed in the income statement.
The measurement of financial assets depends on their classification.
Financial assets such as receivables and deposits are subsequently
measured at amortized cost. The Company does not hold any financial
assets at fair value through profit or loss or available for sale
financial assets.
(b) Financial liabilities, initial recognition and measurement and
subsequent measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, or payables, as appropriate. All financial liabilities are
recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs.
The measurement of financial assets and financial liabilities depends on
their classification. Financial liabilities at fair value through profit
or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through
profit or loss. These are subsequently measured at fair value with any
gains or losses recognized in profit or loss. All other financial
liabilities are measured at amortized cost using the effective interest
method.
The Company's financial liabilities include trade and other payables and
derivative financial instruments.
(c) Derivative financial instruments
Derivatives are initially recognized at fair value on the date a
derivative contract is entered into and are subsequently re-measured at
fair value at the end of each reporting date. The Company holds only one
type of derivative financial instrument, the warrants, as explained in
Note 2.15.
The full fair value of the derivative is classified as a non-current
liability when the warrants are exercisable in more than 12 months and
as a current liability when the warrants are exercisable in less than 12
months.
Changes in fair value of a derivative financial liability when related
to a financing arrangement are recognized in the Consolidated Statement
of Comprehensive Income within Finance income or Finance expense. Fair
value gains or losses on derivatives used for non-financing arrangements
are recognized in other operating income or expense.
2.15 Warrants
Warrants issued by the Company to investors as part of a share
subscription are compound financial instruments where the warrant meets
the definition of a financial liability.
The financial liability component is initially measured at fair value in
the Consolidated Statement of Financial Position. Equity is measured at
the residual between the subscription price for the entire instrument
and the liability component. The financial liability component is
remeasured depending on its classification. Equity is not remeasured.
2.16 Short Term Investments
Short term investments include fixed term deposits held at banks with
original maturities of more than three months but less than a year. They
are classified as loans and receivables and are measured at amortized
cost using the effective interest method.
2.17 Transaction costs
Qualifying transaction costs might be incurred in anticipation of an
issuance of equity instruments and may cross reporting periods. The
entity defers these costs on the balance sheet until the equity
instrument is recognized. Deferred costs are subsequently reclassified
as a deduction from equity when the equity instruments are recognized,
as the costs are directly attributable to the equity transaction. If the
equity instruments are not subsequently issued, the transaction costs
are expensed. Any costs not directly attributable to the equity
transaction are expensed.
Transaction costs that relate to the issue of a compound financial
instrument are allocated to the liability and equity components of the
instrument in proportion to the allocation of proceeds. Where the
liability component is held at fair value through profit or loss, the
transaction costs are expensed to the Consolidated Statement of
Comprehensive Income. For liabilities held at amortized cost,
transaction costs are deducted from the liability and subsequently
amortized. The amount of transaction costs accounted for as a deduction
from equity in the period is disclosed separately in accordance with IAS
1.
2.18 Investments in subsidiaries
Investments in subsidiaries are shown at cost less any provision for
impairment.
2.19 New standards, amendments and interpretations adopted by the Group
The following amendments have been adopted by the Group for the first
time for the financial year beginning on or after 1 January, 2017. It
did not materially impact the Group's results:
-- Annual Improvements to IFRS Standards 2014-2016 Cycle,
-- Disclosure initiative - amendments to IAS 7, and
-- Recognition of Deferred Tax Assets for Unrealized Losses - Amendments to
IAS 12.
The amendments to IAS 7 require disclosure of changes in liabilities
arising from financing activities, see note 3.3.
2.20 New standards, amendments and interpretations issued but not
effective for the financial year beginning January 1, 2017 and not early
adopted
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective for annual
periods beginning after January 1, 2017 (noted below), and have not been
adopted in preparing these consolidated financial statements.
-- IFRS 9 "Financial instruments" (effective for annual periods beginning on
or after January 1, 2018)
-- IFRS 15 "Revenue from contracts with customers" (effective for annual
periods beginning on or after January 1, 2018)
-- IFRS 16 "Leases" (effective for annual periods beginning on or after
January 1, 2019)
IFRS 9 will have no material impact on the accounting or measurement of
any of the financial instruments the group or company currently holds.
IFRS 15 will have no impact on the financial statements of the Group or
company as they are not currently revenue generating.
IFRS 16 is effective for accounting periods beginning on or after 1
January 2019 and will replace IAS 17 'leases'. It will eliminate the
classification of leases as either operating leases or finance leases
and, instead, introduce a single lessee accounting model. The adoption
of IFRS 16 will result in the Group and Company recognizing lease
liabilities and corresponding 'right to use' assets for agreements that
are currently classified as operating leases. See note 21 for further
details on operating leases held.
3. Financial Instruments
3.1 Financial Risk Factors
The Company's activities have exposed it to a variety of financial
risks: market risk (including currency risk and interest rate risk),
credit risk, and liquidity risk. The Company's overall risk management
program is focused on preservation of capital and the unpredictability
of financial markets and has sought to minimize potential adverse
effects on the Company's financial performance and position.
(a) Currency risk
Foreign currency risk reflects the risk that the Group's net assets will
be negatively impacted due to fluctuations in exchange rates. The Group
has not entered into foreign exchange contracts to hedge against gains
or losses from foreign exchange fluctuations.
The summary quantitative date about the Group's exposure to currency
risk is as follows. Figures are the sterling values of balances in each
currency:
Year Ended December Year Ended December
31, 2016 31, 2017
USD EUR USD EUR
GBP'000s GBP'000s GBP'000s GBP'000s
Cash and cash
equivalents 10,631 242 16,806 301
Short term
Investments - - 19,718 -
Trade and
other
payables 305 180 276 403
Sensitivity Analysis
A reasonably possible strengthening (weakening) of the Euro, US dollar,
or Sterling against all other currencies at 31 December would have
affected the measurement of the financial instruments denominated in a
foreign currency and affected equity and profit and loss by the amounts
shown below. This analysis assumes that all other variables remain
constant.
Profit or loss and equity
Strengthening Weakening
December 31, 2017 GBP'000s GBP'000s
EUR (5% movement) 35 (35)
USD (5% Movement) 1,840 (1,840)
December 31, 2016 GBP'000s GBP'000s
EUR (5% movement) 21 (21)
USD (5% Movement) 547 (547)
Foreign currency denominated trade payables are short term in nature
(generally 30 to 45 days). The Group has a U.S. operation, the net
assets of which are exposed to foreign currency translation risk.
(b) Credit risk
Credit risk reflects the risk that the Group may be unable to recover
contractual receivables. As the Group is still in the development stage
no policies are currently required to mitigate this risk.
For banks and financial institutions, only independently rated parties
with a minimum rating of "B+" are accepted. The Directors recognize that
this is an area in which they may need to develop specific policies
should the Group become exposed to further financial risks as the
business develops.
As of December 31, 2017, and December 31, 2016, cash and cash
equivalents and short term investments were placed at the following
banks:
Year ended Year ended
December Credit December Credit
Cash and Cash Equivalents 31, 2016 rating 31, 2017 rating
GBP'000 GBP'000
Banks
Royal Bank of Scotland 11,287 A3 16,623 A2
Lloyds Bank 28,447 A1 13,448 Aa3
Standard Chartered - - 1,242 A1
Wells Fargo 51 Aa1 130 Aa1
Total 39,785 31,443
Credit Credit
Year ended Year ended
December December
Short Term Investments 31, 2016 rating 31, 2017 rating
GBP'000 GBP'000
Banks
Royal Bank of Scotland - - 15,316 A2
Lloyds Bank - - 11,036 Aa3
Standard Chartered - - 22,467 A1
Wells Fargo - - - Aa1
Total - 48,819
(c) Management of capital
The Group considers capital to be its equity reserves. At the current
stage of the Group's life cycle, the Group's objective in managing its
capital is to ensure funds raised meet the research and operating
requirements until the next development stage of the Group's suite of
projects.
The Group ensures it is meeting its objectives by reviewing its Key
Performance Indicators ("KPIs") to ensure the research activities are
progressing in line with expectations, costs are controlled and unused
funds are placed on deposit to conserve resources and increase returns
on surplus cash held.
(d) Interest rate risk
As of December 31, 2017, the Group had cash deposits of GBP31.4 million
(2016: GBP39.8 million) and short term investments of GBP48.8 million
(2016: nil). The rates of interest received during 2017 ranged between
0.0% and 1.73%. A 0.25% increase in interest rates would not have a
material impact on finance income. The Group's exposure to interest rate
risk, which is the risk that the interest received will fluctuate as a
result of changes in market interest rates on classes of financial
assets and financial liabilities, was as follows:
December 31, 2016 December 31, 2017
Floating Fixed Floating Fixed
interest Interest interest Interest
rate rate rate rate
GBP'000s GBP'000s GBP'000s GBP'000s
Financial asset
Cash deposits 11,338 28,447 25,720 5,723
Short Term
Investments - - - 48,819
Total 11,338 28,447 25,720 54,542
(e) Liquidity risk
The Group prepares periodic working capital forecasts for the
foreseeable future, allowing an assessment of the cash requirements of
the Group, to manage liquidity risk. The following table provides an
analysis of the Group's financial liabilities. The carrying value of all
balances is equal to their fair value. The Group's maturity analysis for
the derivative financial instrument from the issue of warrants is given
in note 20.
BETWEEN BETWEEN
LESS THAN 1 AND 2 2 AND 5 OVER
1 YEAR YEARS YEARS 5 YEARS(1)
GBP'000s GBP'000s GBP'000s GBP'000s
At December 31, 2016
Trade payables 719 - - -
Other payables 54 - - -
Accruals 2,050 - - -
Contingent
obligation - - - 1,807
Total 2,823 - - 1,807
(1) This table includes the undiscounted amount of the assumed
contingent obligation. See note 19.
BETWEEN BETWEEN
LESS THAN 1 AND 2 2 AND 5 OVER
1 YEAR YEARS YEARS 5 YEARS(1)
GBP'000s GBP'000s GBP'000s GBP'000s
At December 31, 2017
Trade payables 1,214 - - -
Other payables 74 - - -
Accruals 5,866 - - -
Contingent
obligation - - - 1,807
Total 7,154 - - 1,807
(1) This table includes the undiscounted amount of the assumed
contingent obligation. See note 19.
3.2 Fair value estimation
The carrying amounts of cash and cash equivalents, receivables, accounts
payable and accrued liabilities approximate to fair value due to their
short-term nature. The carrying amount of the assumed contingent
liability approximates to fair value as the underlying assumptions are
currently similar.
For financial instruments that are measured in the Consolidated
Statement of Financial Position at fair value, IFRS 7 requires
disclosure of fair value measurements by level of the following fair
value measurement hierarchy:
-- Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1);
-- Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly or indirectly
(level 2); and
-- Inputs for the asset or liability that are not based on observable market
data (level 3).
For the year ended December 31, 2017, and 2016, fair value adjustments
to financial instruments through profit and loss resulted in the
recognition of finance income of GBP6.7 million and GBP1.1 million
respectively.
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. These valuation
techniques maximize the use of observable market data where it is
available and rely as little as possible on entity specific estimates.
If all significant inputs required to ascertain the fair value of an
instrument are observable, the instrument is included in level 2. If one
or more of the significant inputs are not based on observable market
data, the instrument is included in level 3.
Level 3 Total
GBP'000s GBP'000s
At December 31, 2017
Derivative financial instrument 1,273 1,273
Total 1,273 1,273
Movements in Level 3 items during the years ended December 31, 2016, and
2017 are as follows:
Derivative financial instrument 2016 2017
GBP'000s GBP'000s
At January 1 - 7,923
Initial recognition of derivative financial
instrument 8,991 -
Fair value adjustments recognized in profit and loss (1,068) (6,650)
At December 31 7,923 1,273
Further details relating to the derivative financial instrument are set
out in notes 4 and 19 of these financial statements.
In determining the fair value of the derivative financial instrument,
the Company applied the Black Scholes model; key inputs include the
share price at reporting date, estimations on timelines, volatility and
risk-free rates. These assumptions and the impact of changes in these
assumptions, where material, are disclosed in note 20.
3.3 Change in liabilities arising from financing activities
The group has provided a reconciliation so that changes in liabilities
arising from financing activities, including both changes arising from
cash flows and non-cash changes can be evaluated.
December
31, 2017
Derivative
financial
instrument
GBP'000s
At January 1 7,923
Fair value adjustments - non-cash (6,650)
At December 31 1,273
See note 20 for information relating to the derivative financial
instrument.
4. Critical accounting estimates and judgments
The preparation of financial statements in conformity with IFRS requires
the use of accounting estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Although these estimates are based on management's
best knowledge of current events and actions, actual results ultimately
may differ from those estimates. IFRS also requires management to
exercise its judgment in the process of applying the Group's accounting
policies.
The areas involving a higher degree of judgment or complexity, or areas
where assumptions and estimates are significant to the consolidated
financial statements are as follows:
(a) Assumed contingent obligation
The Group has a material obligation for the future payment of royalties
and milestones associated with contractual obligations on RPL554, a
development product acquired as part of the acquisition of Rhinopharma.
The estimation of the fair value of the assumed contingent obligation on
acquisition requires the selection of an appropriate valuation model,
consideration as to the inputs necessary for the valuation model chosen,
the estimation of the likelihood that the regulatory approval milestone
will be achieved and estimates of the future cash flows and their timing
(for further detail see note 19). The estimates for the assumed
contingent obligation are based on a discounted cash flow model. Key
assessments and judgments included in the fair value calculation of
deferred consideration are:
-- development, regulatory and marketing risks associated with progressing
the product to market approval in key target territories;
-- market size and product acceptance by clinicians, patients and
reimbursement bodies;
-- gross and net selling price;
-- costs of manufacturing, product distribution and marketing support;
-- launch of competitive products; and
-- discount rate and time to crystallization of contingent consideration.
In accordance with IAS 39 ("Financial Instruments Recognition and
Measurement" (para AG8)), when there is a change in the expected cash
flows, the assumed contingent obligation is re-measured with the change
in value going through the Consolidated Statement of Comprehensive
Income. Cash flow estimates are revised when the probability of success
changes. The assumed contingent obligation is measured at amortized cost
with the discount unwinding in the Consolidated Statement of
Comprehensive Income throughout the year. Actual outcomes could differ
significantly from the estimates made.
The value of the assumed contingent obligation as of December 31, 2017
amounts to GBP0.9 million. (2016: GBP0.8 million). The increase in value
of the assumed contingent obligation during 2017 amounted to GBP0.1
million (2016: GBP0.2 million) and the movement relates to unwinding the
discount on the liability and retranslating for changes in US$ exchange
rates. The increase was recorded in finance expense. There was no change
in the year to the probability of success and consequently cash flow
estimates were not revised. The discount percentage applied is 12%.
(b) Valuation of the July 2016 warrants
Pursuant to the July 2016 Placement, the Company issued 31,115,926 units
to new and existing investors at the placing price of GBP1.4365 per
unit. Each unit comprises one ordinary share and one warrant. The
warrants entitle the investors to subscribe for in aggregate a maximum
of 12,446,370 ordinary shares.
In accordance with IAS 32 and Group accounting policy, as disclosed in
note 2.15, the Group classified the warrants as a derivative financial
liability to be presented on the Group's Consolidated Statement of
Financial Position.
The fair value of these warrants is determined by applying the
Black-Scholes model. Assumptions are made on inputs such as time to
maturity, the share price, volatility and risk free rate in order to
determine the fair value per warrant. For further details see note 20.
Transaction costs arising on the issues of these shares and warrants are
allocated to the equity and warrant liability components in proportion
to the allocation of proceeds.
(c) Recognition of research and development expenditure
The Group incurs research and development expenditure from third
parties. The Group recognizes this expenditure in line with the
management's best estimation of the stage of completion of each research
and development project. This includes the calculation of accrued costs
at each period end to account for expenditure that has been incurred.
This requires management to estimate full costs to complete for each
project and also to estimate its current stage of completion. The costs
related to these expenses in the year was GBP18.5 million. The related
accruals and prepayments were GBP4.6 million and GBP0.5 million
respectively.
(d) Transaction costs related the Global Offering
The Group incurred various transaction costs relating to the Global
Offering, including commissions, professional advisor fees, financial
advice, listing fees and other costs. When management judged them to be
incremental costs directly attributable to the transaction they were
accounted for as a deduction from equity. Otherwise the costs were
expensed to the consolidated income statement as incurred.
5. Earnings per share
Basic loss per ordinary share of 23.4p (2016: 15.0p) for the Group is
calculated by dividing the loss for the year ended December 31, 2017 by
the weighted average number of ordinary shares in issue of 87,748,031 as
of December 31, 2017 (2016: 33,499,413). Potential ordinary shares are
not treated as dilutive as the entity is loss making and such shares
would be anti-dilutive.
6. Segmental reporting
The Group's activities are covered by one operating and reporting
segment: Drug Development. There have been no changes to management's
assessment of the operating and reporting segment of the Group during
the period.
All non-current assets are based in the United Kingdom.
7. Operating loss
Group
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Operating Loss is stated after charging:
Research and development costs:
Employee benefits (note 8) 2,037 3,435
Amortization of patents (note 12) 51 111
Legal, professional consulting and listing fees - 331
Other research and development expenses 2,434 19,840
Total research and development costs 4,522 23,717
General and administrative costs:
Employee benefits (note 8) 865 2,857
Legal, professional consulting and listing fees 884 2,045
Amortization of computer software (note 12) 1 5
Loss on disposal of property, plant and equipment
(note 13) 3 -
Depreciation of property, plant and equipment (note
13) 10 7
Operating lease charge - land and buildings 169 294
Loss on variations in foreign exchange rate 139 36
Other general and administrative expenses 427 795
Total general and administrative costs 2,498 6,039
Operating loss 7,020 29,756
During the periods indicated, the Group obtained the services from and
paid the fees of the Group's auditors and their associates as detailed
below:
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Audit of Verona Pharma plc and consolidated financial
statements 80 117
Audit related services 525 333
Other services - 150
Total 605 600
For the year ended December 31, 2017, audit related services include
fees for quarterly interim reviews and assurance on information included
in the Company's U.S. registration statement for the April 2017 Global
Offering. For the year ended December 31, 2017 an amount of GBP256
thousand in relation to these services was offset against share premium
on completion of the Global Offering. For the year ended December 31,
2017, other services related to advice on compliance with Sarbanes-Oxley
legislation.
For the year ended December 31, 2016, audit related services include
assurance reporting on historical financial information included in the
Company's U.S. registration statement for Global Offering. As at
December 31, 2016 an amount of GBP466 thousand in relation to these
services was booked in deferred IPO costs that was offset against share
premium on completion of the Global Offering.
8. Directors' emoluments and staff costs
Group
Year
ended Year ended
December December
31, 2016 31, 2017
The average number of employees (excluding directors)
of the Group during the year:
Research and Development 5 7
General and Administrative 2 5
Total 7 12
Year
ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Aggregate emoluments of directors:
Salaries and other short-term employee benefits 951 897
Social security costs 118 103
Incremental payment for additional services 44 -
Other pension costs 19 17
Total directors' emoluments 1,132 1,017
Share-based payment charge 257 1,037
Directors' emoluments including share-based payment
charge 1,389 2,054
Year
ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Aggregate other staff costs:
Wages and salaries 1,027 2,136
Social security costs 98 182
Incremental payment for additional services 58 -
Share-based payment charge 319 1,882
Other pension costs 11 38
Total other staff costs 1,513 4,238
The Group operates a defined contribution pension scheme for U.K.
employees and executive directors. The total pension cost during the
year ended December 31, 2017 was GBP55 thousand (2016: GBP30 thousand).
There were no prepaid or accrued contributions to the scheme at December
31, 2017(2016: GBPnil).
Company
Year ended Year ended
December December
31, 2016 31, 2017
The average number of employees (excluding directors)
of the Company during the year:
Research and Development 2 4
General and Administrative 2 4
Total 4 8
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Aggregate emoluments of directors:
Salaries and other short-term employee benefits 951 897
Social security costs 118 103
Incremental payment for additional services 44 -
Other pension costs 19 17
Total directors' emoluments 1,132 1,017
Share-based payment charge 257 1,037
Directors' emoluments including share-based payment
charge 1,389 2,054
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Aggregate other staff costs:
Wages and salaries 493 1,273
Social security costs 61 162
Incremental payment for additional services 58 -
Share-based payment charge 156 1,248
Other pension costs 11 38
Total other staff costs 779 2,721
The Company operates a defined contribution pension scheme for U.K.
employees and executive directors. The total pension cost during the
year ended December 31, 2017 was GBP55 thousand (2016: GBP30 thousand).
There were no prepaid or accrued contributions to the scheme at December
31, 2017 (2016: GBPnil).
In respect of Directors' remuneration, the Company has taken advantage
of the permission in Paragraph 6(2) of Statutory Instrument 2008/410 to
omit aggregate information that is capable of being ascertained from the
detailed disclosures in the audited section of the Directors'
Remuneration Report which form part of these Consolidated Financial
Statements.
9. Finance income and expense
Group
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Finance income:
Interest received on cash balances 86 345
Foreign exchange gain on translating foreign currency
denominated bank balances 687 -
Fair value adjustment on derivative financial instruments
(note 20) 1,068 6,650
Other Income - 23
Total finance income 1,841 7,018
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Finance expense:
Transaction costs allocated to the issue of warrants
(note 20) 586 -
Foreign exchange loss on translating foreign currency
denominated balances - 2,392
Remeasurement of assumed contingent arrangement (note
19) 122 -
Unwinding of discount factor and foreign exchange
movements related to the assumed contingent arrangement
(note 19) 86 73
Total finance expense 794 2,465
10. Taxation
Group
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Analysis of tax credit for the year
Current tax:
UK tax credit (1,067) (5,006)
US tax charge 129 306
Adjustment in respect of prior periods (16) (6)
Total tax credit (954) (4,706)
Factors affecting the tax charge for the year
Loss on ordinary activities (5,973) (25,203)
Multiplied by standard rate of corporation tax of
19.25% (2016: 20%) (1,195) (4,852)
Effects of:
Non-deductible expenses 292 675
Fair value adjustment on derivative financial
instruments (214) (1,280)
Research and development incentive (427) (2,116)
Temporary differences not recognized (4) (2)
Difference in overseas tax rates 56 136
Tax losses carried forward not recognized 554 2,739
Adjustment in respect of prior periods (16) (6)
Total tax credit (954) (4,706)
UK corporation tax is charged at 19.25% (2016: 20.00%) and U.S. federal
tax at 35% (2016: 35%).
The following tables represent deferred tax balances recognized in the
Consolidated Statement of Financial Position. There were no movements in
either the deferred tax asset or the deferred tax liability.
Year ended Year ended
December December
31, 2016 31, 2017
GBP'000s GBP'000s
Deferred tax assets 250 250
Deferred tax liabilities (250) (250)
Net balances - -
The deferred tax liability relates to the difference between the
accounting and tax bases of the IP R&D intangible asset. A deferred tax
asset relating to UK tax losses has been recognized and offset against
the liability.
Factors that may affect future tax charges
The Group has UK tax losses available for offset against future profits
in the UK. However an additional deferred tax asset has not been
recognized in respect of such items due to uncertainty of future profit
streams. As of December 31, 2017, the unrecognized deferred tax asset at
17% is estimated to be GBP5.43 million (2016: GBP3.15 million at 17%).
11. Goodwill
Group and company
As of As of
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Goodwill at January 1 and December 31 441 441
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired in connection with the acquisition of
Rhinopharma in September 2006. Goodwill is not amortized, but is tested
annually for impairment. Annual impairment testing is performed by
comparing the expected recoverable amount of the CGU to the carrying
amount of the CGU to which goodwill has been allocated to the carrying
amount of the CGU. See note 2.8 to the consolidated financial
statements.
12. Intangible assets
Group and Company
Computer
IP R&D software Patents Total
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
At January 1, 2016 1,469 25 482 1,976
Additions - 5 110 115
Disposals - (24) - (24)
At December 31, 2016 1,469 6 592 2,067
Accumulated
amortization
At January 1, 2016 - 24 138 162
Charge for year - 1 51 52
Disposals - (24) - (24)
At December 31, 2016 - 1 189 190
Net book value
At December 31, 2016 1,469 5 403 1,877
Computer
IP R&D software Patents Total
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
At January 1, 2017 1,469 6 592 2,067
Additions - 5 203 208
Disposals - - (68) (68)
At December 31, 2017 1,469 11 727 2,207
Accumulated
amortization
At January 1, 2017 - 1 189 190
Charge for year - 5 111 116
Disposals - - (68) (68)
At December 31, 2017 - 6 232 238
Net book value
At December 31, 2017 1,469 5 495 1,969
Intangible assets comprise patents, computer software and an IP R&D
asset that arose on the acquisition of Rhinopharma and investment in
patents to protect RPL554.
IP R&D is currently not amortized and is reviewed for impairment on an
annual basis or where there is an indication that the assets might be
impaired until the asset is brought into use. Patents are amortized over
a period of ten years and are regularly reviewed for impairment to
ensure the carrying amount exceeds the recoverable amount in accordance
with note 2.8.
Recognizing that the Group is still in its pre-revenue phase and that
the research projects are not yet ready for commercial use, the Group
assesses the recoverable amount of the CGU containing the IP R&D with
reference to the Group's market capitalization as of December 31, 2017,
the date of testing of goodwill impairment. The market capitalization of
the Group was approximately GBP109.7 million as of December 31, 2017,
(2016: GBP80.0 million) compared to the Group's net assets of GBP79.9
million (2016: GBP34.5 million). Therefore, no impairment was
recognized.
The business within Rhinopharma was hived up to the Company immediately
after the acquisition of Rhinopharma by the group. The hive up was
accounted for in the Company's separate financial statements using the
acquisition values for Rhinopharma.
13. Property, plant and equipment
Group and Company
Computer Office
hardware equipment Total
GBP'000s GBP'000s GBP'000s
Cost
At January 1, 2016 43 36 79
Additions 13 - 13
Disposals (39) (36) (75)
At December 31, 2016 17 - 17
Accumulated depreciation
At January 1, 2016 39 27 66
Charge for the year 3 7 10
Disposals (39) (34) (73)
At December 31, 2016 3 - 3
Net book value
At December 31, 2016 14 - 14
Computer Office
hardware equipment Total
GBP'000s GBP'000s GBP'000s
Cost
At January 1, 2017 17 - 17
Additions 9 - 9
At December 31, 2017 26 - 26
Accumulated depreciation
At January 1, 2017 3 - 3
Charge for the year 7 - 7
At December 31, 2017 10 - 10
Net book value
At December 31, 2017 16 - 16
14. Prepayments and other receivables
Group
As of As of
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Prepayments 1,361 1,138
Deferred IPO costs 1,527 -
Other receivables 71 672
Total prepayments and other receivables 2,959 1,810
Deferred IPO costs related to the Global Offering. These costs were
offset against share premium in 2017 when the Global Offering was
completed.
The prepayments balance includes prepayments for insurance and clinical
activities.
There are no impaired assets within prepayments and other receivables.
Company
As of As of
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Prepayments 1,354 1,135
Deferred IPO costs 1,527 -
Other receivables 71 663
Amounts due from group undertakings 1 172
Total prepayments and other receivables 2,953 1,970
Deferred IPO costs relate to the Global Offering. These costs were
offset against share premium in 2017 when the Global Offering completed.
Amounts due from subsidiary undertakings are unsecured, interest free
and repayable on demand. The prepayments balance includes prepayments
for insurance and clinical activities. There are no impaired assets
within prepayments and other receivables.
15. Investment in subsidiaries
Company
The Company has two wholly owned subsidiaries, Rhinopharma Limited and
Verona Pharma Inc.
As of December As of December
31, 2016 31, 2017
GBP'000s GBP'000s
Net book value:
At the start of the year 80 243
Capital contribution arising from
share-based payments 163 634
Net book amount at the end of year 243 877
A capital contribution arises where share-based payments are provided to
employees of the subsidiary undertaking, Verona Pharma Inc, settled with
equity to be issued by the Company.
The Company's investments comprise interests in Group undertakings,
details of which are shown below:
Name of undertaking Verona Pharma Inc. Rhinopharma Limited
Country of incorporation Delaware British Columbia
USA Canada
Description of shares held $0.001 Without Par Value
Common stock Common shares
Proportion of shares held by the
Company 100% 100%
Verona Pharma Inc. was incorporated on the 12 December 2014 under the
laws of the State of Delaware, USA and has its registered office at 2711
Centerville Road, Suite 400, City of Wilmington 19808, County of New
Castle, Delaware, United States of America.
Rhinopharma Limited is incorporated under the laws of the Province of
British Columbia, Canada and has its registered office at Suite 700, 625
Howe Street, Vancouver, British Columbia, Canada V6C 2T6. Rhinopharma
Limited was a drug discovery and development company focused on
developing proprietary drugs to treat allergic rhinitis and other
respiratory diseases prior to its acquisition by the Company on
September 18, 2006.
16. Share Capital
Group and Company
On February 8, 2017, the board of the Company approved a share
consolidation where every 50 existing ordinary shares of GBP0.001 were
consolidated into one ordinary share of GBP0.05. The movements in the
Company's share capital are summarized below:
Share Capital
Number of amounts in
Date Description shares GBP'000
January 1, 2016 20,198,469 1,010
July 29, 2016 Issuance of shares 31,115,926 1,556
September 12, 2016 Exercise of options 3,334 -
October 24, 2016 Exercise of options 3,334 -
December 28, 2016 Exercise of options 40,000 2
As at December 31, 2016 51,361,063 2,568
May 2, 2017 Issuance of shares 47,653,100 2,383
May 18, 2017 Issuance of shares 5,539,080 277
May 26, 2017 Issuance of shares 330,824 17
September 13, 2017 Exercise of options 133,333 6
December 31, 2017 105,017,400 5,251
The total number of authorized ordinary shares, with a nominal value of
GBP0.05 each, is 200,000,000 (share capital of GBP10,000,000). All
105,017,400 ordinary shares at December 31, 2017 are allotted,
unrestricted, called up and fully paid.
On April 26, 2017, the Company announced the closing of its Global
Offering of an aggregate of 47,399,001 new ordinary shares, comprising
5,768,000 American Depositary Shares ("ADSs") at a price of $13.50 per
ADS and 1,255,001 ordinary shares at a price of GBP1.32 per ordinary
share. During May 2017 the underwriters purchased an additional 733,738
ADSs, representing 5,869,904 ordinary shares, at a price of $13.50 per
ADS. The total gross proceeds in the Global Offering amounted to $89.9
million (GBP70.0million).
In addition, the Chairman of Verona Pharma's board of directors, Dr
David Ebsworth, and an existing shareholder agreed to subscribe for
254,099 new ordinary shares at a price of GBP1.32 per ordinary share in
the Shareholder Private Placement, contingent on and concurrent with the
Global Offering and generating gross proceeds of GBP0.3m.
Where there is a time and foreign exchange difference between proceeds
from a share issue becoming due and being received, the movement is
taken to Finance income or Finance expense as appropriate. In respect of
the Global Offering and Shareholder Private Placement, the Company
recorded a finance expense of GBP439 thousand arising from movements in
exchange rates on funds receivable, offset by a saving on commission
payable of GBP31 thousand, for a net finance expense of GBP408 thousand.
On September 13, 2017, the company issued 133,333 new shares upon
exercise of share options at 110p per share, resulting in proceeds of
GBP147 thousand to the Company.
On July 29, 2016, the Company issued 31,115,926 units to new and
existing investors at the placing price of GBP1.4365 per unit. Each unit
comprises one ordinary share and one warrant (see note 20).
During 2016, the Company issued 46,668 ordinary shares upon exercise of
employee share options.
As at December 31, 2017, the number of ordinary shares in issue was
105,017,400. All new ordinary shares rank pari passu with existing
ordinary shares.
17. Share-based payments charge
Group and Company
In accordance with IFRS 2 "Share Based Payments," the cost of
equity-settled transactions is measured by reference to their fair value
at the date at which they are granted. Where equity-settled transactions
were entered into with third party service providers, fair value is
determined by reference to the value of the services provided. For other
equity-settled transactions fair value is determined using the
Black-Scholes model. The cost of equity-settled transactions is
recognized over the period until the award vests. No expense is
recognized for awards that do not ultimately vest. At each reporting
date, the cumulative expense recognized for equity-based transactions
reflects the extent to which the vesting period has expired and the
number of awards that, in the opinion of the Directors at that date,
will ultimately vest.
The costs of equity-settled share-based payments to employees are
recognized in the Statement of Comprehensive Income, together with a
corresponding increase in equity during the vesting period. During the
twelve months ended December 31, 2017, the Group recognized a
share-based payment expense of GBP2.92 million (2016: GBP0.58 million).
The charge is included within both general and administrative costs as
well as in research and development costs and represents the current
year's allocation of the expense for relevant share options.
The Group grants share options under an Unapproved Share Option Scheme
(the "Unapproved Scheme"). Under the Unapproved Scheme, options are
granted to employees, directors and consultants to acquire shares at a
price to be determined by the Directors. In general, options granted
prior to December 31, 2016 were granted at a premium to the share price
at the date of grant and vested over a period of three years from the
date of grant, one third vesting on the first anniversary of grant, a
further third vesting on the second anniversary of grant and the
remainder vesting on the third anniversary of grant.
Options granted since January 1, 2017 generally vest over three or four
years from the date of the grant using two different methods. The first
method is one third vesting over one year, the second third vesting over
two years and the final third vesting over three years. The second
method is one quarter vesting over one year, the second quarter vesting
over two years, the third quarter vesting over three years and the final
quarter vesting over four years. The vesting period is defined as the
period between the date of grant and the date when the options become
exercisable. The options are exercisable during a period ending ten
years after the date of grant.
Options are also issued to advisors under the Unapproved Scheme. Such
options generally vest immediately and are exercisable between one and
two years after grant.
In 2016 the Group issued options under its tax efficient EMI Option
Scheme (the "EMI Scheme"). Under the EMI Scheme, options were granted to
employees and directors who are contracted to work at least 25 hours a
week for the Group or for at least 75% of their working time. The
options granted under the EMI Scheme are exercisable at a price that is
above the share price at the date of the grant and in accordance with a
vesting schedule determined by the Directors at the time of grant and
have an exercise period of ten years from the date of grant.
The Group grants Restricted Stock Units to employees and directors. The
RSUs vest over a period of three or four years from the date of the
grant using 2 different methods. The first method is one third vesting
over one year, the second third vesting over two years and the final
third vesting over three years. The second method is one quarter vesting
over one year, the second quarter vesting over two years, the third
quarter vesting over three years and the final quarter vesting over four
years.
In the year ended December 31, 2017, the Group granted 4,656,828 (2016:
1,670,000) share options, nil (2016: 32,000) share options under the EMI
Scheme and 1,052,236 Restricted Stock Units ("RSUs") (2016: nil). The
total fair values of the Options and RSUs were estimated using the
Black-Scholes option-pricing model for equity-settled transactions and
amounted to GBP5.33 million (2016: GBP1.93 million). The cost is
amortized over the vesting period of the options on a straight-line
basis.
Prior to the July 2016 Placement in 2016, management determined to take
an option's contractual maximum life as an input into the Black-Scholes
option-pricing model. Starting from the July 2016 Placement and in line
with the continued development of the Group's clinical trials, the Group
determined the time to maturity to be used in the valuation model to be
better represented by the weighted-average life of the options granted.
The following assumptions were used for the Black-Scholes valuation of
share options granted in 2016 and 2017. For the options granted under
the Unapproved Scheme the table indicates the ranges used in determining
the fair-market values, aligning with the various dates of the
underlying grants. The volatility is calculated using historic weekly
averages of the Group's share price over a period that is in line with
the expected life of the options.
Unapproved
Issued in 2016 EMI Scheme Scheme
Options granted 32,000 1,670,000
Risk-free interest rate 1.42% 0.23% - 1.42%
Expected life of options 10 years 5.5 - 10 years
Annualized volatility 88.0% 74.3% - 88.0%
Dividend rate 0.00% 0.00%
Vesting period 3 years 3 years
Unapproved Restricted Stock
Issued in 2017 Scheme Units
Options granted 4,656,828 1,052,236
Risk-free interest rate 0.29% - 0.62% 0.42% - 0.62%
Expected life of options 5.5 - 7.0 years 5.5 - 7.0 years
Annualized volatility 71.3% - 73.3% 71.3% - 73.3%
Dividend rate 0.00% 0.00%
Vesting period 3 and 4 years 3 and 4 years
The Group had the following share options movements in the year ended
December 31, 2017:
Year
of Exercise At January Options Options Options Options At December Expiry
issue price (GBP) 1, 2017 granted exercised forfeited expired 31, 2017 date
June 1,
2012 2.50 - 7.50 100,000 - - - - 100,000 2022
April 15,
2013 2.00 100,000 - - - - 100,000 2023
June 1,
2013 2.00 20,000 - - - (20,000) - 2023 *
July 29,
2013 2.00 160,000 - - - - 160,000 2023
May 15,
2014 1.75 110,000 - - - - 110,000 2024
May 15,
2014 1.75 63,333 - - - (13,333) 50,000 2024 *
August 6,
2014 1.10 - 1.75 200,000 - (133,333) - - 66,667 2018 **
January
2015 1.25 82,000 - - - - 82,000 29, 2025 *
January
2015 1.25 510,000 - - - - 510,000 29, 2025
February
2016 2.00 260,000 - - - - 260,000 2, 2026
February
2016 2.00 22,000 - - - - 22,000 2, 2026 *
August 3,
2016 1.80 810,000 - - - - 810,000 2026
September
2016 1.89 300,000 - - - - 300,000 13, 2026
September
2016 2.04 300,000 - - - - 300,000 16, 2026
April 26,
2017 1.32 - 1.525 - 4,656,828 - - - 4,656,828 2027
Total 3,037,333 4,656,828 (133,333) - (33,333) 7,527,495
* Options granted under the EMI Scheme.
** Valued based on fair value of services received.
The Group had the following Restricted Share Units movements in the year
ended December 31, 2017:
Year Exercise
of price At January Units Units Units Units At December Expiry
issue (GBP) 1, 2017 granted exercised forfeited expired 31, 2017 date
April
26,
2017 - 1,052,236 - - - 1,052,236 2027
Total - 1,052,236 - - - 1,052,236
The average fair value at grant date, by year of grant and plan, of the
exercisable options as per December 31, 2017 is presented in the below
table.
Unapproved
Year of issue EMI Scheme (GBP) Scheme (GBP) RSU (GBP)
2012 0.63 - 1.20 - -
2013 0.83 0.79 - 0.95
2014 0.76 0.23 - 0.76
2015 0.57 0.57
2016 1.35 0.93 - 1.35
2017 - 0.84 1.33
Outstanding and exercisable share options by scheme as of December 31,
2017:
Weighted Weighted
average exercise average exercise
price in GBP for price in GBP for
Plan Outstanding Exercisable Outstanding Exercisable
Unapproved 7,313,473 773,333 1.50 1.64
EMI 213,984 185,333 3.06 3.28
Total 7,527,457 958,666 1.54 1.95
As at December 31, 2017 there were no restricted share options
exercisable (2016: nil) and there is no exercise price for restricted
share options.
The options outstanding at December 31, 2017 had a weighted average
remaining contractual life of 8.6 years (2016: 8.2 years). For 2016 and
2017, the number of options granted and expired and the weighted average
exercise price of options were as follows:
Weighted average
Number of exercise price
options (GBP)
At January 1, 2016 1,792,000 1.78
Options granted in 2016:
Employees 1,002,000 1.92
Directors 700,000 2.05
Options exercised in the year (46,666) 1.12
Options forfeited in the year (150,001) 1.24
Options expired in the year (260,000) 2.46
At December 31, 2016 3,037,333 1.87
Exercisable at December 31, 2016 846,667 2.25
Weighted average
Number of exercise price
options (GBP)
At January 1, 2017 3,037,333 1.87
Options granted in 2017:
Employees 3,150,846 1.32
Directors 1,505,982 1.32
Options exercised in the year (133,333) 1.10
Options forfeited in the year - -
Options expired in the year (33,333) 1.90
At December 31, 2017 7,527,495 1.53
Exercisable at December 31, 2017 797,333 2.04
The following table shows the number of RSUs issued in 2017. No RSUs
were granted in 2016 and none of the RSUs granted in 2017 were forfeited,
cancelled or vested in the year. The fair value of each unvested RSU at
grant date was GBP1.32.
Number of
RSUs
At January 1, 2017 -
Granted:
Employees 705,841
Directors 346,395
At December 31, 2017 1,052,236
The cost is amortized over the vesting period of the options on a
straight-line basis. The expense for the Group during 2017 amounted to
GBP2.3m and the balance of GBP0.6m is in relation to Verona Pharma Inc.
and is held as an investment.
18. Trade and other payables
Group
As of As of
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Trade payables 719 1,214
Other payables 54 74
Accruals 2,050 5,866
Total trade and other payables 2,823 7,154
As of December 31, 2016, accruals included GBP0.89 million related to
expenses associated with the Global Offering which was fully paid during
the year ended December 31, 2017.
Company
As of As of
December 31, December 31,
2016 2017
GBP'000s GBP'000s
Trade payables 719 1,213
Other payables 54 74
Amount due to group undertakings 461 1,044
Accruals 1,916 5,729
Total trade and other payables 3,150 8,060
As of December 31, 2016, accruals included GBP0.89 million related to
expenses associated with the Global Offering. These were fully paid in
2017. Amounts due to subsidiary undertakings are unsecured, interest
free and repayable on demand.
19. Assumed contingent obligation related to the business combination
Group and Company
The value of the assumed contingent obligation as of December 31, 2017
amounts to GBP875 thousand (2016: GBP802 thousand). The increase in
value of the assumed contingent obligation during 2017 amounted to GBP73
thousand (2016: GBP208 thousand) and was recorded in finance expense as
it related to the unwind of the discount on the liability and
retranslation for changes in US$ exchange rates. Periodic re-measurement
is triggered by changes in the probability of success. In 2016 the
re-measurement was triggered by the success of the Company's Phase 2a
clinical trial, presented in March 2016. The discount percentage applied
is 12%. In 2017 there were no events that triggered re-measurement.
2016 2017
GBP'000s GBP'000s
January 1 594 802
Re-measurement of assumed contingent obligation 86 -
Impact of changes in foreign exchange rates 37 (23)
Unwinding of discount factor 85 96
December 31 802 875
The table below describes the reported change to the value of the
liability during 2017 of GBP73 thousand (2016: GBP208 thousand) compared
to what this number would be following the presented variations to the
underlying assumptions (assuming the probability of success does not
change):
2016 2017
GBP'000s GBP'000s
Change in value of the assumed contingent obligation 208 73
10% lower revenue assumption 202 72
10% higher revenue assumption 215 73
1% lower risk assumption 205 69
1% higher risk assumption 211 76
20. Warrants
Group and Company
Pursuant to the July 2016 Placement, on July 29, 2016 the Company issued
31,115,926 units to new and existing investors at the placing price of
GBP1.4365 per unit. Each unit comprises one ordinary share and one
warrant.
The warrant holders can subscribe for 0.4 of an ordinary share at a per
share exercise price of 120% of the placing price or GBP1.7238. The
warrant holders can opt for a cashless exercise of their warrants,
whereby the warrant holders can choose to exchange the warrants held for
reduced number of warrants exercisable at nil consideration. The reduced
number of warrants is calculated based on a formula considering the
share price and the exercise price of the warrants. The warrants are
therefore classified as a derivative financial liability, since their
exercise could result in a variable number of shares to be issued.
The warrants entitled the investors to subscribe for in aggregate a
maximum of 12,446,370 shares. The warrants can be exercised on the
earlier of the consummation of the Global Offering (being April 26,
2017) or the first anniversary of the grant, and the exercise period
shall end on the fifth anniversary of the date of grant (being July 29,
2021).
The ordinary shares and warrants were accounted for as a compound
financial instrument. The warrants component of the instrument issued at
the July 2016 Placement was classified as a derivative financial
liability and was initially measured at fair value of GBP9.0 million.
The residual amount of proceeds totaling GBP35.7 million was recognized
within equity. Subsequently the financial liability was re-measured at
the reporting date at fair value through profit or loss.
The total of transaction costs the Company incurred for the above
transactions amounted to GBP2.9 million of which GBP0.6 million was
allocated to the warrants and the remaining GBP2.3 million was presented
as a reduction to share premium, by reference to the proceeds allocated
to each component. The amount assigned to the financial liability of the
warrants was subsequently presented as finance expense in the
Consolidated Statement of Comprehensive Income.
In the year ended 31 December 2017 warrants over 45,108 shares were
forfeited (2016: nil).
The table below presents the assumptions in applying the Black-Scholes
model to determine the fair value of the warrants.
As of As of
December 31, December 31,
2016 2017
Shares available to be issued under
warrants 12,446,370 12,401,262
Exercise price GBP 1.7238 GBP 1.7238
Risk-free interest rate 0.088% 0.420%
Expected term to exercise 2.43 years 1.79 years
Annualized volatility 73.53% 47.35%
Dividend rate 0.00% 0.00%
The figures disclosed above relating to the issue of the shares and
warrants have been retrospectively adjusted to reflect the 50-for-1
share consolidation as described in note 1. The original number of units
issued to new and existing investors was 1,555,796,345 units at a
placing price of 2.873 pence per unit and an exercise price of 3.4476
pence per share. This entitled the investors to subscribe for in
aggregate a maximum of 622,318,538 shares.
As per the reporting date the Company updated the underlying assumptions
and calculated a fair value of these warrants amounting to GBP1.3
million. The variance of GBP6.7 million is recorded as finance income in
the Consolidated Statement of Comprehensive Income.
Derivative Derivative
financial financial
instrument instrument
2016 2017
GBP'000s GBP'000s
At January 1 - 7,923
On issuance of shares 8,991 -
Fair value adjustments recognized in profit or
loss (1,068) (6,650)
At December 31 7,923 1,273
For the amount recognized at December 31, 2017, the effect when some of
these underlying parameters would deviate up or down is presented in the
below table.
Time to
Volatility maturity
(up / down (up / down
10% pts) 6 months)
GBP'000s GBP'000s
Variable up 1,921 1,677
Base case, reported fair value 1,273 1,273
Variable down 694 843
21. Financial commitments
Group
As of December 31, 2017, the Group was committed to making the following
payments under non-cancellable operating leases related to its
facilities.
Land and Land and
Buildings Buildings
2016 2017
GBP'000s GBP'000s
Operating lease obligations:
Within one year 270 291
Between one and five years - 277
Total 270 568
Company
As of December 31, 2017, the Company was committed to making the
following payments under non-cancellable operating leases related to its
facilities.
Land and Land and
Buildings Buildings
2016 2017
GBP'000s GBP'000s
Operating lease obligations:
Within one year 249 263
Between one and five years - 277
Total 249 540
22. Related parties transactions and other shareholder matters
(i) Related party transactions
The Directors have authority and responsibility for planning, directing
and controlling the activities of the Group. Remuneration of Directors
is disclosed in the Directors' Remuneration Report.
(ii) Other shareholder matters
The Company has entered into the following arrangements with parties who
are significant shareholders of the Company, though they are not classed
as related parties.
The Company entered into relationship agreements with Vivo Capital Fund
VIII ("Vivo Capital"), OrbiMed Private Investments VI L.P. ("OrbiMed"),
Abingworth Bioventures VI L.P. ("Abingworth"), and Arix Bioscience plc
("Arix") and Arthurian Life Sciences SPV GP Limited, ("Arthurian"). As
agreed in these relationship agreements, the above parties invested in
the Company as part of the July 2016 Placement, and the Company agreed
to appoint representatives designated by Vivo Capital, OrbiMed,
Abingworth, and Arix and Arthurian, to the board of directors, who are
Dr. Mahendra Shah, Mr. Rishi Gupta, Dr. Andrew Sinclair and Dr. Ken
Cunningham respectively.
The appointment rights within the relationship agreement with Arix and
Arthurian terminated on closing of the Global Offering on April 26,
2017. Dr Cunningham has agreed to continue to serve on the Company's
board of directors as an independent director. The respective
appointment rights under the remaining relationship agreements will
automatically terminate upon (i) Vivo Capital, OrbiMed or Abingworth (or
any of their associates), as applicable, ceasing to beneficially hold
6.5% of the issued ordinary shares, or (ii) the ordinary shares ceasing
to be admitted to AIM.
The Company also entered into management rights agreements with Novo A/S
and Aisling Capital under which Novo A/S and Aisling Capital were
entitled to appoint an observer to the Board. The appointment rights
within the management rights agreements terminated on closing of the
Global Offering on April 26, 2017.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Verona Pharma plc via Globenewswire
http://www.veronapharma.com/
(END) Dow Jones Newswires
February 27, 2018 02:00 ET (07:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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