TIDMVRP
LONDON, Feb. 26, 2019 (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, 2018 and provides a clinical development update.
OPERATIONAL AND DEVELOPMENT HIGHLIGHTS
Solid clinical progress with ensifentrine (RPL554) nebulizer
formulation; demonstrating efficacy and tolerability in chronic
obstructive pulmonary disease (COPD).
-- Reported positive top-line data from a Phase 2b four-week, 403 patient
clinical trial for maintenance treatment of COPD:
-- ensifentrine met the primary endpoint at all doses (P<0.001),
showing a clinically meaningful and statistically significant
bronchodilator effect after 4 weeks of dosing;
-- this peak bronchodilator effect was sustained over four weeks
(p<0.001);
-- ensifentrine demonstrated a clinically meaningful and
statistically significant, progressive improvement in daily COPD
symptoms, using the recognized patient-reported measure of COPD
symptoms (E-RS) and the quality of life score St George's
Respiratory Questionnaire (SGRQ-C);
-- ensifentrine was well tolerated at all doses with an adverse event
profile similar to placebo.
Demonstrated efficacy and tolerability in CF.
-- Reported positive top-line data from a Phase 2a clinical trial in CF:
-- ensifentrine was well tolerated and demonstrated a statistically
significant bronchodilator effect;
-- PK profile was consistent with that observed in patients with
COPD;
-- data provides a solid foundation for further development of
ensifentrine for the treatment of CF.
Advanced DPI and MDI formulations of ensifentrine, with the potential to
reach a substantially larger number of COPD patients.
-- Selected dry powder inhaler ("DPI") and pressured metered dose inhaler
("pMDI") formulations of ensifentrine.
-- First DPI clinical trial in COPD patients initiated in December 2018;
initial results expected in the first quarter of 2019.
Scientific presentations and Investor R&D forum well received.
-- Presented two posters at the American Thoracic Society 2018 International
Conference, and two presentations at the NACF conference 2018.
-- Published full results from two ensifentrine Phase 2 clinical studies in
COPD in the high-impact, peer reviewed European Respiratory Journal.
-- Presented an expanded dataset from its Phase 2b study evaluating
ensifentrine as a maintenance treatment for COPD in an oral presentation
at the European Respiratory Society International Congress.
-- Hosted an "Investor and Analyst R&D Forum" in New York City, featuring a
panel of Key Opinion Leaders in the field of COPD, as well as
representatives from the COPD Foundation and a COPD patient, providing
insights into the unmet medical need and the challenges of treating COPD
and the need for a novel mechanism of action such as ensifentrine.
FINANCIAL HIGHLIGHTS
-- Cash, cash equivalents and short-term investments at December 31, 2018
amounted to GBP64.7 million (December 31, 2017: GBP80.3 million);
-- For the year ended December 31, 2018, reported operating loss of GBP25.6
million (full year 2017: GBP29.8 million) and reported loss after tax of
GBP19.9 million (full year 2017: loss after tax of GBP20.5 million),
reflecting the preparation and initiation of clinical trials and
pre-clinical activities;
-- Reported loss per share of 18.9 pence for the year ended December 31,
2018 (full year 2017: loss per share 23.4 pence);
-- Net cash used in operating activities for the year ended December 31,
2018 of GBP18.1 million (full year 2017: GBP20.7 million).
POST PERIOD
Demonstrated that ensifentrine produces additional bronchodilation in
patients already receiving maximum bronchodilator treatment with
LAMA/LABA therapy.
-- Reported top-line data from its 79 patient, three-day Phase 2a trial to
explore whether nebulized ensifentrine, with its unique mechanism of
action, could add further bronchodilation in patients already receiving
maximum standard-of-care dual bronchodilator therapy with an inhaled
LAMA/LABA for COPD maintenance treatment:
-- ensifentrine demonstrated additional bronchodilation in patients
already receiving maximum bronchodilator treatment with LAMA/LABA
therapy;
-- although the primary endpoint of improvement in peak forced
expiratory volume in one second (FEV1) after morning dose on day
three of treatment was not statistically significant when added on
top of Stiolto(R) Respimat(R) compared to placebo, statistically
significant improvements in evening peak FEV1 on the third day of
dosing, and significant reductions in lung volume after the
evening dose of ensifentrine were observed with both the 1.5 mg
and 6 mg dose groups, compared to placebo, when administered on
top of Stiolto(R) Respimat(R);
-- this improvement in FEV1 with the 1.5 mg dose was maintained
throughout the 24-hour period as measured on day 3.
Completed enrollment in Part 1 of the Company's two-part Phase 2
clinical study using the DPI formulation to treat approximately 30 COPD
patients.
-- The Company expects to report interim efficacy and safety data from Part
1 of this study in the first quarter of 2019. Part 1 of this study
comprises of measurement of lung function, safety and pharmacokinetic
profiling in COPD patients following a single dose of inhaled
ensifentrine over a dose range.
-- Part 2 of this study will comprise of a crossover study evaluating a
range of ensifentrine doses in this same patient cohort dosed over 1
week. The Company expects to initiate Part 2 of the study in the first
quarter of 2019, and to report data in the second half of 2019.
Strengthened the management team through the additions of Kathleen
Rickard, MD, as Chief Medical Officer, and Tara Rheault, PhD, MPH, as
Vice President of Research and Development Operations and Global Project
Management.
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
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)
Darcie Robinson Tel: +1 203-919-7905
Darcie.Robinson@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 (
https://www.globenewswire.com/Tracker?data=Sq50R6SNPTg9wPf9SCVf4dMapuwEDdYY9Srh5z2PKv4OYuxR92B9FeaYavn79DU4Y5wCY105Kw09nT_o9ssu72cjWRisDEJ2N5kAAFz-KZGIU6MFDS8Pqo1CvDNOyzf_bStf0F6lts6QlLO0MlY8n-vI6fhQFuUNx0L7Ag0PkesKfBk-U-m0UkdcFjvT5IajRIevZZx_05i9rrdaDtiF_cQ2IcA4gmXx_12JHZTCsGHekfTatR-_boTtk3T2Oa72kIOMWiGyBJ9-Mc6r6So80A==
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, ensifentrine, is an investigational
first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase
3 and 4 that is designed to act as both a bronchodilator and an
anti-inflammatory agent in a single compound. In previous clinical
trials, the nebulized formulation of ensifentrine has been observed to
result in bronchodilator effects when used alone or as an add-on
treatment to other COPD bronchodilators. It has shown clinically
meaningful and statistically significant improvements in lung function
when administered in addition to frequently used short- and long-acting
bronchodilators, such as tiotropium (Spiriva(R) ), compared with such
bronchodilators administered as a single agent. Ensifentrine improved
FEV(1) over four weeks in patients with moderate-to-severe COPD when
compared to placebo and improved COPD symptoms and quality of life in a
Phase 2b multicenter European study performed in 403 patients. In
addition, ensifentrine has shown anti-inflammatory effects in a standard
challenge study with COPD-like inflammation in human subjects.
Ensifentrine has been well tolerated in these studies, having been
administered to more than 800 subjects in 13 clinical trials. Verona
Pharma is developing ensifentrine for the treatment of COPD, CF, and
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 that there is an opportunity
for additional bronchodilator and symptomatic improvement via the novel
mechanism of action of ensifentrine and Verona Pharma's plans to carry
out further long-term clinical studies of ensifentrine as an add-on to
both single and dual bronchodilator therapy and the expectation that
even more profound anti-inflammatory effects, leading to improvements in
lung function, as well as improvements in symptoms will result.
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 ensifentrine,
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 ensifentrine, 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 ensifentrine, which could adversely affect our ability to develop
or commercialize ensifentrine; potential delays in enrolling patients,
which could adversely affect our research and development efforts; we
may not be successful in developing ensifentrine for multiple
indications; our ability to obtain approval for and commercialize
ensifentrine in multiple major pharmaceutical markets; misconduct or
other improper activities by our employees, consultants, principal
investigators, and third-party service providers; 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 ensifentrine; and lawsuits related to patents covering
ensifentrine and the potential for our patents to be found invalid or
unenforceable. These and other important factors under the caption "Risk
Factors" in our Annual Report on Form 20-F filed with the Securities and
Exchange Commission ("SEC") on February 27, 2018, 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
Significant progress in development and identification of compelling
market opportunities
We are initially developing ensifentrine as a nebulized formulation for
the maintenance treatment of uncontrolled, symptomatic, moderate to
severe COPD patients. Our market research shows that nebulized delivery
is the preferred route of administration for more severe COPD patients,
especially in the US, thus providing an attractive commercial
opportunity. The regulatory pathway for the development of nebulized
drug products is well-established.
COPD is a progressive respiratory disease with no cure. Our market
research demonstrates that, in the US alone, approximately two million
patients remain uncontrolled and symptomatic despite taking currently
available medications. Few therapeutic alternatives are available for
these patients.
Ensifentrine is potentially a treatment alternative for these
symptomatic COPD patients. The past year has seen significant clinical
progress with the successful completion of the first four-week phase 2b
study with nebulized ensifentrine in 403 patients with COPD.
Ensifentrine produced a clinically meaningful bronchodilator effect and
a progressive improvement in symptoms suggesting an anti-inflammatory
effect in these COPD patients. A further Phase 2 study initiated last
year, and reported in January this year, demonstrated that ensifentrine
provides further bronchodilation when added on top of what was formerly
presumed to be maximum bronchodilator treatment with dual or triple COPD
standard-of-care treatment.
In our clinical program, which to date has consisted of 13 studies which
have enrolled over 800 human subjects, we have demonstrated that
ensifentrine is an effective bronchodilator in COPD patients with or
without concurrent bronchodilator therapy. In addition, many Key Opinion
Leaders in the field of COPD support our view that the progressive
improvement in COPD symptoms observed over a four-week treatment period
with ensifentrine is due to an anti-inflammatory effect, attesting to
its dual activity.
Taken together, these new data support the inclusion of patients on dual
and triple therapy into the later stage clinical development program.
Thus, we believe that nebulized ensifentrine could potentially be used
to treat symptomatic COPD patients despite taking either a single
bronchodilator or dual or triple therapy; an attractive market
opportunity estimated to be about 2 million patients in the US alone.
The successful development of DPI and MDI formulations of ensifentrine
and the initiation late last year of the DPI Phase 2 clinical trial in
COPD patients is another important development milestone. In the US, our
market research shows that about 5.5 million moderate to severe COPD
patients currently use these types of devices. We expect the DPI
formulation to produce a bronchodilator effect in COPD, which we believe
would open up another attractive market opportunity. We anticipate that
we would partner the DPI/MDI formulations later in development in order
to realize the potential of this multi-billion dollar opportunity.
In addition to COPD, we believe ensifentrine could become an attractive
development candidate also in cystic fibrosis and severe asthma.
To support the later stage development of ensifentrine, we have
strengthened our team with the appointment of Kathleen Rickard, MD, as
Chief Medical Officer, and Tara Rheault, PhD, MPH, as VP Research and
Development Operations and Global Project Management, who together have
extensive expertise in respiratory drug development, regulatory affairs
and commercialization.
Ensifentrine - first-in-class bronchodilator and anti-inflammatory agent
We are a clinical-stage biopharmaceutical company focused on developing
and commercializing innovative therapeutics for the treatment of
respiratory diseases with significant unmet medical need. Our product
candidate, ensifentrine (RPL554), is an investigational, potential
first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase
3 and 4, or PDE3 and PDE4, that is designed to act as both a
bronchodilator and an anti-inflammatory agent. We are not aware of any
other product formulated 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 as both a bronchodilator and anti-inflammatory agent. We
believe ensifentrine has the potential to be the first novel class of
bronchodilator in over 40 years. A nebulized formulation of ensifentrine
is currently in Phase 2 clinical development for the treatment of COPD.
Successful Phase 1 and 2 studies have been completed with nebulized
ensifentrine in healthy volunteers and in patients with cystic fibrosis,
or CF, chronic asthma and allergic rhinitis, in addition to COPD. A
Phase 2 study in COPD with ensifentrine formulated in a dry powder
inhaler is ongoing, and a Phase 2 study in COPD with ensifentrine
formulated in a pressurized metered dose inhaler is planned to commence
in 2019. We intend to first develop ensifentrine as a nebulized therapy
for the treatment of COPD.
For the past 40 years, the treatment of COPD has been dominated by three
classes of inhaled therapies approved for use by the FDA or EMA:
antimuscarinic agents and beta2-agonists, both available as either
short-acting or long-acting bronchodilators, and inhaled corticosteroids,
or ICS, known for their anti-inflammatory effects. However, despite
existing treatment with one or multiple combinations of these therapies,
and owing to the progressive and incurable nature of COPD, many COPD
patients on maximum inhaled therapy still experience significant lung
function impairment and symptoms for which limited further approved
treatment options are available. One such treatment is an oral
formulation of a PDE4 inhibitor with anti-inflammatory properties,
although frequency of adverse events has limited its use in COPD
patients.
We have completed 13 Phase 1 and Phase 2 clinical trials with
ensifentrine which have enrolled over 800 subjects with COPD, asthma,
cystic fibrosis, or allergic rhinitis or healthy volunteers. In our
clinical trials, treatment with ensifentrine has been repeatedly
observed to result in statistically significant improvements in lung
function as compared to placebo, whether dosed alone or in combination
with commonly used short- and long-acting classes of bronchodilators,
with or without ICS. Statistically significant means that there is a low
statistical probability, typically less than 5%, that the observed
results occurred by chance alone. In our Phase 2b clinical trial of
nebulized ensifentrine as a maintenance treatment for COPD, patients
with moderate-to-severe COPD treated with ensifentrine showed clinically
meaningful and statistically significant improvements in daily reported
COPD symptom scores. In addition, our clinical trials have also shown
clinically meaningful and statistically significant additional
improvements in certain measures of lung function following combined
treatment with ensifentrine as add-on to other approved bronchodilators;
COPD patients experienced a marked reduction in residual lung volume,
which is believed to be related to one of the most debilitating symptoms,
breathlessness. The rapid onset of action observed when adding
ensifentrine on top of tiotropium, a commonly used LAMA, was also
notable, and may be particularly helpful to those patients suffering
from morning breathlessness. We believe that the clinical effects
observed with ensifentrine are driven by its bronchodilator,
anti-inflammatory and mucociliary clearance mechanisms.
High unmet medical need in symptomatic COPD patients despite treatment
with current standard-of-care
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 ensifentrine may be
beneficial. We believe ensifentrine, 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 ensifentrine 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.
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
ensifentrine 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.
Severe asthma
Asthma is widely seen as a result of chronic inflammation in the lungs.
In the United States 18 million people are diagnosed with asthma and the
2015 prescription medicine market sales totaled $13 billion. Established
treatments include those adopted from the treatment of COPD (for example,
bronchodilators and ICS), anti-IgE agents and leukotriene inhibitors.
Approximately 1 million patients in the United States are refractory
asthmatic patients who remain uncontrolled on established therapies.
These patients are the target for injectable biologic anti-IL-5 agents.
Sales of biologics in the United States for the treatment of asthma are
forecast to exceed $1.0 billion by 2025.
DEVELOPMENT OF NEBULIZED ENSIFENTRINE
Clinical development of ensifentrine in COPD
In March 2018, which was earlier than expected, we announced top-line
data from a Phase 2b four-week, double-blind, placebo-controlled,
parallel group, multi-center European study, in 403 patients with
moderate-to-severe COPD evaluating the efficacy, safety, and
dose-response of nebulized ensifentrine administered twice-daily as a
maintenance treatment for COPD.
The study met its primary endpoint, with ensifentrine producing a
clinically and statistically significant improvement in peak forced
expiratory volume in one second (FEV(1) ) at four weeks in patients with
moderate-to-severe COPD compared to placebo. Furthermore, the peak
FEV(1) was significantly improved at all time points over the four weeks
of dosing. Secondary endpoints measuring 12 hour average FEV(1) , COPD
symptoms and Quality of Life were also met and support the potential
clinical benefits of ensifentrine for the treatment of COPD.
Primary endpoint:
-- Ensifentrine met the primary endpoint at all doses, showing a
statistically significant difference vs. placebo (p<0.001) with absolute
changes from baseline >200mL in peak FEV1 after 4 weeks of dosing. No
minimum effective dose could be determined.
-- This peak bronchodilator effect was observed at the first dose and was
sustained over four weeks (p<0.001).
Secondary endpoints include:
-- Statistically significant improvements in average FEV1 over 12 hours were
observed at all doses after the first administration, and this effect was
sustained over four weeks.
-- This study did not demonstrate consistent improvements in trough FEV1.
-- Recording of daily COPD symptoms, using E-RS (EXACT-PRO), a recognized
patient-reported outcome measure for use in clinical studies of COPD,
demonstrated a significant improvement in total COPD symptoms (p<0.002),
including improvements in breathlessness (p<0.02), chest symptoms
(p<0.02), and cough and sputum (p<0.02).
-- Strong trend of improvement in St. George's Respiratory Questionnaire
(SGRQ-C) designed to measure impact on overall health, daily life, and
perceived well-being in patients with COPD of >2.5 units was observed in
all dose groups after four weeks.
-- Patients' Global Impression of Change, a scale reflecting the patient's
belief about the efficacy of treatment, indicates that patients felt
better on ensifentrine compared to placebo (p<0.01).
-- Ensifentrine was well tolerated at all doses with an adverse event
profile similar to placebo.
On January 14, 2019 we announced top-line data from an exploratory Phase
2a double blind, placebo-controlled, three way cross-over trial in 79
subjects with COPD, which included two different doses of ensifentrine,
1.5 mg and 6 mg, or placebo, dosed twice-daily for three days, in
addition to a dual bronchodilator therapy comprising tiotropium and
olodaterol, a commonly used LAMA/LABA, dosed once daily. This clinical
trial evaluated the efficacy and safety of ensifentrine dosed on top of
LAMA/LABA and LAMA/LABA/ICS, a high hurdle as patients already on
maximum bronchodilator treatment have very few treatment alternatives,
which was conducted at sites in the United States and in the United
Kingdom. We reported top-line data from this trial earlier than expected,
in January 2019. The data from this Phase 2a trial demonstrated
significantly improved evening peak lung function when ensifentrine was
added to tiotropium and olodaterol in patients with moderate-to-severe
COPD, although the data did not achieve statistical significance in
respect of an improvement in the morning peak lung function.
-- Improvement in average FEV1 (additional bronchodilation) following
morning dose on the third day (0 - 4 hours) with 1.5 mg of ensifentrine
was statistically significant when added on top of Stiolto(R) (tiotropium
plus olodaterol or LAMA/LABA) compared to placebo (1.5 mg, p=0.039)
although the improvement in morning peak FEV1 on the third day of dosing,
the primary endpoint, was not statistically significant;
-- Ensifentrine, compared to placebo, produced a statistically significant
improvement in evening peak FEV1 on the third day of dosing (additional
bronchodilation) when administered on top of the standard bronchodilator
tiotropium plus olodaterol (Stiolto(R)) (1.5 mg, p<0.001; 6 mg p=0.002);
-- Ensifentrine, compared to placebo, produced a statistically significant
improvement in residual volume following the evening dose on the third
day of dosing when administered on top of the standard bronchodilator
tiotropium plus olodaterol (Stiolto(R)) (1.5 mg, p<0.002; 6 mg p<0.036).
COPD - successful development of DPI and pMDI formulations
In addition to our nebulized formulation of ensifentrine, we have
developed both pressurized metered dose inhaler, or pMDI, and dry powder
inhaler, or DPI, formulations of ensifentrine for the maintenance
treatment of COPD. Development of pMDI and DPI formulations could enable
us to expand the ensifentrine clinical development program to include
those patients with moderate to severe COPD for whom nebulizer treatment
is less attractive.
Delivery of orally inhaled drugs by pMDI or DPI is a mainstay of
maintenance treatment for patients with moderate to severe COPD. 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. It
is estimated that, in the United States, approximately 5.5 million
patients with moderate to severe COPD use inhalers for maintenance
therapy. Successful development of a pMDI or DPI formulation of
ensifentrine for moderate disease would greatly expand the addressable
market for the drug and represents a multi-billion dollar potential
opportunity.
We have completed enrollment in Part 1 of our 2-part Phase 2 clinical
study using the DPI formulation to treat COPD patients, and we now
expect interim efficacy and safety data from Part 1 of this study in the
first quarter of 2019. Part 1 of this study comprises measurement of
lung function, safety and pharmacokinetic profiling in COPD patients
following a single dose of inhaled ensifentrine over a dose range. Part
2 of this study will comprise a crossover study evaluating a range of
ensifentrine doses in this same patient cohort dosed over one week. We
expect to initiate Part 2 of the study in the first quarter of 2019, and
to report data in the second half of 2019.
We expect to initiate a Phase 2 clinical study using the pMDI
formulation to treat COPD patients during the first half of 2019, with
data expected in 2020; the clinical trial design will be similar to the
DPI clinical trial.
We may also explore the development of ensifentrine in pMDI and/or DPI
formulations for the treatment of asthma and other respiratory diseases.
Ensifentrine is effective in a short proof-of-concept study in patients
with Cystic Fibrosis
In March 2018 we also announced top-line data from a Phase 2a clinical
trial to study pharmacokinetic and pharmacodynamic profile of nebulized
ensifentrine in CF patients:
-- Ensifentrine demonstrated a statistically significant bronchodilator
effect.
-- PK profile was consistent with that observed in patients with COPD.
-- Ensifentrine was well tolerated.
With a strong focus on moving towards Phase 3 clinical trials with
nebulized ensifentrine for the maintenance treatment of COPD we are
prioritizing our resources and funding initially on the maintenance
market in the short term, over progressing our planned trials to
evaluate nebulized ensifentrine as a treatment for acute exacerbations
of COPD in hospitalized patients and as a treatment for CF patients.
CORPORATE
Ensifentrine is protected by granted and pending patents. We believe
that medicinal products containing ensifentrine are protected by our IP
beyond 2035. We have worldwide commercialization rights for
ensifentrine. 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, Flutiform, Advair, Breo Ellipta and Anoro
Ellipta.
FINANCIALS
The operating loss for the year ended December 31, 2018 was GBP25.6
million (2017: GBP29.8 million) and the loss after tax for the year
ended December 31, 2018 was GBP19.9 million (2017: GBP20.5 million).
Research and Development Costs
Research and development costs were GBP19.3 million for the year ended
December 31, 2018 as compared to GBP23.7 million for the year ended
December 31, 2017, a decrease of GBP4.4 million. The cost of clinical
trials reduced by GBP5.9 million as there were four active trials in the
year ended December 31, 2017, including a four week Phase 2b trial for
COPD maintenance treatment, compared to two clinical trials in the year
ended December 31, 2018. Pre-clinical costs also reduced by GBP0.4
million. These reductions were offset by a GBP2.0 million increase in
contract manufacturing and formulation development costs. Personnel
related costs increased by GBP0.1 million in the year ended December 31,
2018, compared to the prior year.
General and Administrative Costs
General and administrative costs were GBP6.3 million for the year ended
December 31, 2018 as compared to GBP6.0 million for the year ended
December 31, 2017, an increase of GBP0.3 million. The increase was
primarily attributable to a GBP0.3 million increase in the non-cash
share-based payment charge, a GBP0.2 million increase in personnel
related costs and a GBP0.4 million increase in other overhead costs.
This was offset by a GBP0.6 million decrease in commercial research
costs and a decrease in professional fees related to the global offering
and shareholder private placement, which occurred in 2017.
Finance Income and Expense
Finance income was GBP2.8 million for the year ended December 31, 2018
and GBP7.0 million for the year ended December 31, 2017. The decrease
was primarily due to an increase in the fair value of the warrant
liability in the year ended December 31, 2018 (which is a non-cash item,
recorded as a finance expense) compared to a decrease in the liability
in the year ended December 31, 2017, which resulted in a non-cash gain
(recorded as finance income) of GBP6.7 million in 2017. There was a
foreign exchange gain on cash and short term investments of GBP1.9
million in the year ended December 31, 2018, and a loss in the prior
year (recorded in finance expense). Furthermore, GBP0.9 million of
interest was received in the year ended December 31, 2018 (2017: GBP0.3
million).
Finance expense was GBP1.3 million for the year ended December 31, 2018
as compared to GBP2.5 million for the year ended December 31, 2017. The
movement was due to an increase in the fair value of the warrant
liability of GBP1.2 million, recorded in finance expense, compared to a
reduction in the value of the liability in 2017 (recorded in finance
income), both non-cash items. In addition, there was a foreign exchange
loss on cash and short-term investments in 2017 of GBP2.4 million. In
the year ended December 31, 2018, there was a foreign exchange gain
(recorded in finance income).
As at December 31, 2018, there was approximately GBP19.8 million in cash
and cash equivalents (2017: GBP31.4 million) and GBP44.9 million in
short-term investments (2017: GBP48.8 million).
Taxation
Taxation for the year ended December 31, 2018 amounted to a credit of
GBP4.2 million as compared to a credit of GBP4.7 million for the year
ended December 31, 2017, a decrease in the credit amount of GBP0.5
million. The credits are obtained at a rate of 14.5% of 230% of our
qualifying research and development expenditure, and the decrease in the
credit amount was primarily attributable to our reduced expenditure on
research and development.
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 ensifentrine for the
maintenance treatment of COPD in moderate and severe patients.
-- For the maintenance treatment of COPD patients, we plan to conduct a
further four-week dose-range finding Phase 2b clinical trial to evaluate
ensifentrine when dosed in addition to LAMA therapy, compared to placebo.
We expect to commence this study in the second quarter of 2019, with
top-line data expected by the end of 2019. We will discuss the outcome
with the FDA prior to the planned initiation of Phase 3 clinical trials
in 2020.
-- Ensifentrine 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
ensifentrine in plastic ampules, which is also more cost effective for
manufacturing in larger volumes. This development work is ongoing.
-- For the treatment of COPD patients who may prefer the more convenient
administration of an inhaler device, we are developing ensifentrine in
inhaler formulations. We have commenced a clinical trial in COPD patients
with a DPI formulation of ensifentrine and in the first half of 2019 we
plan to commence a clinical trial in COPD patients with a pMDI
formulation of ensifentrine.
-- Proceeding more rapidly towards Phase 3 clinical trials with nebulized
ensifentrine 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 ensifentrine in the short term,
which may alter our timing to commence further trials using ensifentrine
in other indications.
-- Advance the development of nebulized ensifentrine for the treatment of
acute exacerbations of COPD. We are developing ensifentrine 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 will remain
subject to our decision to move more rapidly towards Phase 3 clinical
trials with nebulized ensifentrine for the maintenance treatment of COPD.
-- Develop ensifentrine for the treatment of CF. The timing for future
studies in this indication will remain subject to our decision to move
more rapidly towards Phase 3 clinical trials with nebulized ensifentrine
for the maintenance treatment of COPD.
-- Pursue development of ensifentrine for other respiratory diseases. We
believe that ensifentrine's properties as an inhaled, dual inhibitor of
PDE3 and PDE4 give it broad potential applicability in the treatment of
other respiratory diseases, such as severe asthma. We may explore
development of ensifentrine to treat other forms of respiratory disease
following development of ensifentrine 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 ensifentrine. We believe these collaborations could
provide significant funding to advance the development of ensifentrine
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 26, 2019 February 26, 2019
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED DECEMBER 31, 2018
Year ended Year ended
December December
Notes 31, 2018 31, 2017
----- ------------ ------------
GBP'000s GBP'000s
Research and development costs (19,294) (23,717)
General and administrative costs (6,297) (6,039)
-------- --------
Operating loss 7 (25,591) (29,756)
Finance income 9 2,783 7,018
Finance expense 9 (1,325) (2,465)
-------- --------
Loss before taxation (24,133) (25,203)
Taxation -- credit 10 4,232 4,706
-------- --------
Loss for the year (19,901) (20,497)
Other comprehensive income / (loss):
Items that might be subsequently reclassified to profit
or loss
------------ ------------
Exchange differences on translating foreign operations 38 (29)
-------- --------
Total comprehensive loss attributable to owners of
the Company (19,863) (20,526)
======== ========
Loss per ordinary share -- basic and diluted (pence) 5 (18.9) (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, 2018
As of As of
December December
Notes 31, 2018 31, 2017
----- -----------
GBP'000s GBP'000s
ASSETS
Non-current assets:
Goodwill 11 441 441
Intangible assets 12 2,134 1,969
Property, plant and equipment 13 21 16
Total non-current assets 2,596 2,426
-------- --------
Current assets:
Prepayments and other receivables 15 2,463 1,810
Current tax receivable 4,499 5,006
Short term investments 44,919 48,819
Cash and cash equivalents 19,784 31,443
Total current assets 71,665 87,078
-------- --------
Total assets 74,261 89,504
======== ========
EQUITY AND LIABILITIES
Capital and reserves attributable to
equity holders:
Share capital 16 5,266 5,251
Share premium 118,862 118,862
Share-based payment reserve 7,923 5,022
Accumulated loss (69,117) (49,254)
Total equity 62,934 79,881
-------- --------
Current liabilities:
Derivative financial instrument 18 2,492 1,273
Trade and other payables 19 7,733 7,154
Tax payable--U.S. Operations -- 169
-------- --------
Total current liabilities 10,225 8,596
-------- --------
Non-current liabilities:
Assumed contingent obligation 20 996 875
Deferred income 106 152
Total non-current liabilities 1,102 1,027
-------- --------
Total equity and liabilities 74,261 89,504
======== ========
The accompanying notes form an integral part of these consolidated
financial statements.
VERONA PHARMA PLC
COMPANY ONLY STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2018
As of As of
December December
Notes 31, 2018 31, 2017
----- --------- -----------
GBP'000s GBP'000s
ASSETS
Non-current assets:
Goodwill 11 441 441
Intangible assets 12 2,134 1,969
Property, plant and equipment 13 21 16
Investments 14 913 877
Total non-current assets 3,509 3,303
-------- --------
Current assets:
Prepayments and other receivables 15 2,602 1,970
Current tax receivable 4,290 5,006
Short term investments 44,919 48,819
Cash and cash equivalents 19,596 31,313
Total current assets 71,407 87,108
-------- --------
Total assets 74,916 90,411
======== ========
EQUITY AND LIABILITIES
Capital and reserves attributable to
equity holders:
Share capital 16 5,266 5,251
Share premium 118,862 118,862
Share-based payment reserve 7,923 5,022
Accumulated loss (68,998) (49,084)
Total equity 63,053 80,051
-------- --------
Current liabilities:
Derivative financial instrument 18 2,492 1,273
Trade and other payables 19 8,269 8,060
-------- --------
Total current liabilities 10,761 9,333
-------- --------
Non-current liabilities:
Assumed contingent obligation 20 996 875
Deferred income 106 152
Total non-current liabilities 1,102 1,027
-------- --------
Total equity and liabilities 74,916 90,411
======== ========
The Parent 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 GBP19.9m (2017: loss of
GBP20.3m), which has been included in the Group's income statement.
The financial statements were approved by the Company's board of
directors on February 26, 2019 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 CHANGES IN EQUITY
YEARED DECEMBER 31, 2018
Share-based Total
Share Share Payment Accumulated Total
Capital Premium Reserve Losses Equity
-------- -------- ----------- -------------- ----------
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------- -------- ----------- -------------- ----------
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
year -- -- -- (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
year 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
======== ======= =========== ========= =======
Balance at
January 1,
2018 5,251 118,862 5,022 (49,254) 79,881
-------- ------- ----------- --------- -------
Loss for the
year -- -- -- (19,901) (19,901)
Other
comprehensive
income for the
year:
Exchange
differences
on
translating
foreign
operations -- -- -- 38 38
-------- ------- ----------- --------- --- -------
Total
comprehensive
loss for the
year -- -- -- (19,863) (19,863)
New share
capital
issued 15 -- -- -- 15
Share-based
payments -- -- 2,901 -- 2,901
-------- ------- ----------- --------- --- -------
Balance at
December 31,
2018 5,266 118,862 7,923 (69,117) 62,934
======== ======= =========== ========= =======
The currency translation reserve for 2017 and 2018 is not considered
material and as such is not presented in a separate reserve but is
included in the total accumulated losses reserve.
VERONA PHARMA PLC
COMPANY ONLY STATEMENT OF CHANGES IN EQUITY
YEARED DECEMBER 31, 2018
Share-based Total
Share Share Payment Accumulated Total
Capital Premium Reserve Losses Equity
-------- -------- ----------- -------------- ----------
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------- -------- ----------- -------------- ----------
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
year -- -- -- (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
year 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
======== ======= =========== ========= =======
Balance at
January 1,
2018 5,251 118,862 5,022 (49,084) 80,051
-------- ------- ----------- --------- -------
Loss for the
year -- -- -- (19,914) (19,914)
Other
comprehensive
income for the
year:
-------- -------- ----------- -------------- ----------
Total
comprehensive
loss for the
year -- -- -- (19,914) (19,914)
New share
capital
issued 15 -- -- -- 15
Share-based
payments
recognized as
an expense -- -- 2,865 -- 2,865
Share-based
payments
recognized as
an
investment -- -- 36 -- 36
-------- ------- ----------- --------- --- -------
Balance at
December 31,
2018 5,266 118,862 7,923 (68,998) 63,053
======== ======= =========== ========= =======
VERONA PHARMA PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARED DECEMBER 31, 2018
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Cash used in operating activities:
Loss before taxation (24,133) (25,203)
Finance income (2,783) (7,018)
Finance expense 1,325 2,465
Share-based payment charge 2,901 2,919
Increase in prepayments and other receivables (640) (161)
Increase in trade and other payables 531 5,363
Depreciation of property, plant and equipment 8 7
Amortization of intangible assets 90 116
--------- ---------
Cash used in operating activities (22,701) (21,512)
Cash inflow from taxation 4,590 816
--------- ---------
Net cash used in operating activities (18,111) (20,696)
--------- ---------
Cash flow from investing activities:
Interest received 883 128
Purchase of plant and equipment (13) (9)
Payment for patents and computer software (255) (208)
Purchase of short term investments (59,700) (54,465)
Maturity of short term investments 64,366 5,085
--------- ---------
Net cash generated from / (used in) investing
activities 5,281 (49,469)
--------- ---------
Cash flow from financing activities:
Gross proceeds from the April 2017 Global Offering -- 70,032
Transaction costs on April 2017 Global Offering -- (6,786)
--------- ---------
Net cash generated from financing activities -- 63,246
--------- ---------
Net decrease in cash and cash equivalents (12,830) (6,919)
Cash and cash equivalents at the beginning of the
year 31,443 39,785
Effect of exchange rates on cash and cash
equivalents 1,171 (1,423)
--------- ---------
Cash and cash equivalents at the end of the year 19,784 31,443
========= =========
VERONA PHARMA PLC
COMPANY ONLY STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 31, 2018
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Cash used in operating activities:
Loss before taxation (24,191) (25,357)
Finance income (2,783) (7,018)
Finance expense 1,325 2,465
Share-based payment charge 2,865 2,285
Increase in prepayments and other receivables (654) (327)
Increase in trade and other payables 164 5,953
Depreciation of property, plant and equipment 8 7
Amortization of intangible assets 90 116
--------- ---------
Cash used in operating activities (23,176) (21,876)
Cash inflow from taxation 4,992 1,078
--------- ---------
Net cash used in operating activities (18,184) (20,798)
--------- ---------
Cash flow from investing activities:
Interest received 883 151
Purchase of plant and equipment (13) (9)
Payment for patents and computer software (255) (208)
Purchase of short term investments (59,700) (54,465)
Maturity of short term investments 64,366 5,085
--------- ---------
Net cash generated from / (used in) investing
activities 5,281 (49,446)
--------- ---------
Cash flow from financing activities:
Gross proceeds from issue of shares and warrants 15 --
Gross proceeds from the April 2017 Global Offering -- 70,032
Transaction costs on April 2017 Global Offering -- (6,786)
--------- ---------
Net cash generated from financing activities 15 63,246
--------- ---------
Net decrease in cash and cash equivalents (12,888) (6,998)
Cash and cash equivalents at the beginning of the
year 31,313 39,734
Effect of exchange rates on cash and cash
equivalents 1,171 (1,423)
--------- ---------
Cash and cash equivalents at the end of the year 19,596 31,313
========= =========
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED DECEMBER 31, 2018
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 AIM,
a market of the London Stock Exchange, and The 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 trade on The Nasdaq Global Market under the symbol "VRNA" and
Verona Pharma's ordinary shares trade on 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 of the Group and the financial
statements of the Company 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, 2018, the Group had a loss of GBP19.9
million (2017: GBP20.5 million). As of December 31, 2018, the Company
had net assets of GBP62.9 million (2017: GBP79.9 million) of which
GBP64.7 million (2017: GBP80.3 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. In April and May 2017, the
Company raised $90.3 million (GBP70.3 million) from the Global Offering
and the Shareholder Private Placement. 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 being used
primarily to support the development of ensifentrine in chronic
obstructive pulmonary disease ("COPD") and 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 date 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 financial statements
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 Company'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 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 ("IP R&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 or where
there is an impairment indicator 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").
2.8 Impairment of intangible assets, goodwill and non-financial assets
(continued)
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 Group 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 Pharmaceuticals Limited ("Vernalis"), which was subsequently
acquired by Ligand Pharmaceuticals, Inc. ("Ligand"), under an assignment
and license agreement (the "assumed contingent consideration") following
the sale of IP by Vernalis to Rhinopharma. In October 2018, Vernalis was
acquired by, and became a wholly owned subsidiary of, Ligand
Pharmaceuticals, Inc., or Ligand). The Group refers to the assignment
and license agreement as the Ligand Agreement and now refers to Vernalis
as Ligand.
Pursuant to the agreement Ligand (i) assigned to the Group all of its
rights to certain patents and patent applications relating to
ensifentrine and related compounds (the "Ligand Patents") and (ii)
granted to the Group an exclusive, worldwide, royalty-bearing license
under certain Ligand know-how to develop, manufacture and commercialize
products (the "Licensed Products") developed using Ligand Patents,
Ligand 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 Ligand Patents and
for Ligand 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.
2.14 Financial instruments -- initial recognition and subsequent
measurement
The Group 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 Group 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 using the effective interest method, less
loss allowance. The Group does not hold any financial assets at fair
value through profit or loss or fair value through other comprehensive
income.
(b) Financial liabilities, initial recognition and measurement and
subsequent measurement
Financial liabilities are classified as measured at amortized cost or
FVTPL.
A financial liability is classified as at FVTPL if it is a derivative.
Financial liabilities at FVTPL are measured at fair value and net gains
and losses, including any interest expense, are recognized in profit or
loss.
Other financial liabilities are subsequently measured at amortized cost
using the effective interest method. Interest expense and foreign
exchange gains and losses are recognized in profit or loss. Any gain or
loss on derecognition is also recognized in profit or loss.
The Group'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 Group 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 Group 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
International Accounting Standard ("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 January 1, 2018:
-- IFRS 9 "Financial instruments"
-- IFRS 15 "Revenue from contracts with customers"
IFRS 9 had no material impact on the accounting or measurement of any of
the financial instruments the Group currently holds.
IFRS 15 had no impact on the financial statements of the Group as it is
not currently revenue generating.
2.20 New standards, amendments and interpretations issued but not
effective for the financial year beginning January 1, 2018 and not early
adopted
New standards and amendments to standards and interpretations have been
issued but are not yet effective for annual periods beginning after
January 1, 2018 (noted below), and have not been adopted in preparing
these consolidated financial statements.
IFRS 16 "Leases" (effective for annual periods beginning on or after
January 1, 2019)
IFRS 16 is effective for accounting periods beginning on or after
January 1, 2019 and will replace IAS 17 "Leases". It eliminates the
classification of leases as either operating leases or finance leases
and, instead, introduces a single lessee accounting model.
The Group will recognize new assets and liabilities for its operating
leases of office leases (see Note 20). The nature of expenses related to
those leases will now change because the Group will recognize a
depreciation charge for right-of-use assets and interest expense on
lease liabilities. Previously, the Group recognized operating lease
expense on a straight-line basis over the term of the lease, and
recognize assets and liabilities only to the extent that there was a
timing difference between actual lease payments and the expense
recognized. Instead, the Group will include the payments due under the
lease in its lease liability. Based on the information currently
available, using the modified retrospective method, the Group estimates
that it will recognize additional lease liabilities of GBP316 thousand
and assets of GBP325 thousand as of January 1, 2019. There will be no
material impact on other lines in the financial statements.
3. Financial Instruments
3.1 Financial Risk Factors
The Group'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 Group'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
Group'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 pounds sterling values of balances
in each currency:
December 31, 2018 December 31, 2017
USD EUR USD EUR
------------- -------- ------------- ----------
GBP'000s GBP'000s GBP'000s GBP'000s
------------- -------- ------------- ----------
Cash and cash
equivalents 8,470 21 16,806 301
Short term
Investments 25,069 -- 19,718 --
Trade and
other
payables 4,329 532 276 403
Sensitivity Analysis
A reasonably possible strengthening (weakening) of the Euro, U.S. dollar,
or pounds sterling against all other currencies as of December 31, 2018
and 2017 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, 2018 GBP'000s GBP'000s
------------------- -----------
EUR (5% movement) (26) 26
USD (5% Movement) 1,461 (1,461)
December 31, 2017 GBP'000s GBP'000s
------------------- -----------
EUR (5% movement) 35 (35)
USD (5% Movement) 1,840 (1,840)
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, 2018, and December 31, 2017, cash and cash
equivalents and short term investments were placed at the following
banks:
Year ended Year ended
Cash and Cash December Credit December Credit
Equivalents 31, 2018 rating 31, 2017 rating
---------- ------- ---------- -------
GBP'000 GBP'000
Banks
Royal Bank of Scotland 150 A1 16,623 A2
Lloyds Bank 15,862 Aa3 13,448 Aa3
Standard Chartered -- A1 1,242 A1
Citibank 3,135 A1 -- --
Barclays 449 A2 -- --
Wells Fargo 188 Aa1 130 Aa1
---------- ----------
Total 19,784 31,443
========== ==========
Year ended Year ended
December Credit December Credit
Short Term Investments 31, 2018 rating 31, 2017 rating
---------- ------- ---------- -------
GBP'000 GBP'000
Banks
Royal Bank of Scotland 9,186 A1 15,316 A2
Lloyds Bank 1,567 Aa3 11,036 Aa3
Standard Chartered 15,450 A1 22,467 A1
Citibank 7,053 A1 -- --
Barclays 11,663 A2 -- --
Total 44,919 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 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, 2018, the Group had cash deposits of GBP19.8 million
(2017: GBP31.4 million) and short term investments of GBP44.9 million
(2017: GBP48.8 million). The rates of interest received during 2018
ranged between 0.0% and 2.87%. 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, 2018 December 31, 2017
Floating Fixed Floating Fixed
interest rate Interest rate interest rate Interest rate
-------------- -------------- -------------- ----------------
GBP'000s GBP'000s GBP'000s GBP'000s
Financial
asset
Cash
deposits 15,082 4,702 25,720 5,723
Short Term
Investments -- 44,919 -- 48,819
Total 15,082 49,621 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 18.
LESS BETWEEN BETWEEN
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, 2018
Trade payables 2,839 -- -- --
Other payables 12 -- -- --
Accruals 4,882 -- -- --
Contingent obligation -- -- -- 1,807
-------- -------- -------- -----------
Total 7,733 -- -- 1,807
======== ======== ======== ===========
(1) This table includes the undiscounted amount of the assumed
contingent obligation. See note 20.
LESS BETWEEN BETWEEN
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 20.
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, 2018, and 2017, fair value adjustments
to financial instruments through profit and loss resulted in the
recognition of finance loss of GBP1.2 million in 2018 and a finance
income of GBP6.7 million in 2017.
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, 2018
Derivative financial instrument 2,492 2,492
Total 2,492 2,492
======== ========
Movements in Level 3 items during the years ended December 31, 2018, and
2017 are as follows:
Derivative financial instrument 2018 2017
-------- ----------
GBP'000s GBP'000s
At January 1 1,273 7,923
Fair value adjustments recognized in profit and loss 1,219 (6,650)
At December 31 2,492 1,273
======== =======
Further details relating to the derivative financial instrument are set
out in notes 4 and 18 of these financial statements.
In determining the fair value of the derivative financial instrument,
the Group 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 18.
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.
2018
Derivative
financial
instrument
GBP'000s
At January 1 1,273
Fair value adjustments - non cash 1,219
At December 31 2,492
===========
See note 18 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 ensifentrine,
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 20). The
estimates for the assumed contingent obligation are based on a
discounted cash flow model. Key estimates 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.
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, 2018
amounted to GBP1.0 million. (2017: GBP0.9 million). The increase in
value of the assumed contingent obligation during 2018 amounted to
GBP0.1 million (2017: GBP0.1 million) and the movement relates to
unwinding the discount on the liability and retranslating for changes in
U.S. dollar exchange rates. The expense relating to the unwinding of the
discount 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 12,401,262 ordinary shares.
In accordance with IAS 32 and the Group's 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 18.
(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. Costs
relating to clinical research organization expenses in the year were
GBP14.0 million. The related accruals and prepayments were GBP3.4
million and GBP0.7 million, respectively.
(d) Transaction costs related to the Global Offering
In 2017, 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 18.9p (2017: 23.4p) for the Group is
calculated by dividing the loss for the year ended December 31, 2018 by
the weighted average number of ordinary shares in issue of 105,110,504
as of December 31, 2018 (2017: 87,748,031). 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 year.
All non-current assets are based in the United Kingdom.
7. Operating loss
Group
Year ended Year ended
December December
31, 2018 31, 2017
------------ ----------
GBP'000s GBP'000s
Operating Loss is stated after charging /
(crediting):
Research and development costs:
Employee benefits (note 8) 3,360 3,435
Amortization of patents (note 12) 85 111
Legal, professional consulting and listing fees 161 331
Other research and development expenses 15,688 19,840
-------- ----------
Total research and development costs 19,294 23,717
-------- ----------
General and administrative costs:
Employee benefits (note 8) 3,240 2,857
Legal, professional consulting and listing fees 1,296 2,045
Amortization of computer software (note 12) 5 5
Depreciation of property, plant and equipment (note
13) 8 7
Operating lease charge -- land and buildings 384 294
(Gain) / Loss on variations in foreign exchange rate (9) 36
Other general and administrative expenses 1,373 795
-------- ----------
Total general and administrative costs 6,297 6,039
-------- ----------
Operating loss 25,591 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, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Audit of Verona Pharma plc and consolidated financial
statements 114 117
Audit related services 68 333
Other services 86 150
---------- ----------
Total 268 600
========== ==========
Audit-Related Services
For the year ended December 31, 2018, audit related services include
fees for quarterly interim reviews.
For the year ended December 31, 2017, audit related services include
fees for quarterly interim reviews and assurance on information included
in the Group's U.S. registration statement for the Global Offering.
Other Services
For the year ended December 31, 2018, other fees related to a review of
the Group's F-3 shelf registration statement.
For the year ended December 31, 2017, the Group incurred other services
related to advice on compliance with Sarbanes-Oxley legislation.
8. Directors' emoluments and staff costs
Group
Year ended Year ended
December December
31, 2018 31, 2017
---------- ----------
The average number of employees (excluding directors)
of the Group during the year:
Research and Development 7 7
General and Administrative 7 5
Total 14 12
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ----------
GBP'000s GBP'000s
Aggregate emoluments of directors:
Salaries and other short-term employee benefits 830 897
Social security costs 94 103
Incremental payment for additional services 27 --
Other pension costs 10 17
---------- ----------
Total directors' emoluments 961 1,017
Share-based payment charge 1,337 1,037
---------- ----------
Directors' emoluments including share-based payment
charge 2,298 2,054
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ----------
GBP'000s GBP'000s
Aggregate executive officers costs:
Wages and salaries 857 864
Social security costs 83 81
Share-based payment charge 769 1,332
Other pension costs 19 17
---------- ----------
Total executive officers costs 1,728 2,294
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ----------
GBP'000s GBP'000s
Aggregate other staff costs:
Wages and salaries 1,622 1,272
Social security costs 150 101
Share-based payment charge 795 550
Other pension costs 34 21
---------- ----------
Total other staff costs 2,601 1,944
========== ==========
The Group considers key management personnel to comprise directors and
executive officers.
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, 2018 was GBP63 thousand (2017: GBP55 thousand).
There were no prepaid or accrued contributions to the scheme at December
31, 2018 (2017: GBPnil).
Company
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
The average number of employees (excluding directors)
of the Company during the year:
Research and Development 4 4
General and Administrative 7 4
Total 11 8
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Aggregate emoluments of directors:
Salaries and other short-term employee benefits 830 897
Social security costs 94 103
Incremental payment for additional services 27 --
Other pension costs 10 17
---------- ----------
Total directors' emoluments 961 1,017
Share-based payment charge 1,337 1,037
---------- ----------
Directors' emoluments including share-based payment
charge 2,298 2,054
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Aggregate executive officers costs:
Wages and salaries 532 515
Social security costs 73 71
Share-based payment charge 957 829
Other pension costs 19 17
Total executive officers costs 1,581 1,432
========== ==========
Year ended Year ended
December December
31, 2018 31, 2017
---------- ------------
GBP'000s GBP'000s
Aggregate other staff costs:
Wages and salaries 984 758
Social security costs 118 91
Share-based payment charge 571 419
Other pension costs 34 21
Total other staff costs 1,707 1,289
========== ==========
The Company considers key management personnel to comprise directors and
executive officers.
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, 2018 was GBP63 thousand (2017: GBP55 thousand).
There were no prepaid or accrued contributions to the scheme at December
31, 2018 (2017: GBPnil).
In respect of Directors' remuneration, the Group 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 of the statutory accounts,
9. Finance income and expense
Year ended Year ended
December 31, December 31,
2018 2017
------------- -------------
GBP'000s GBP'000s
Finance income:
Interest received on cash balances 861 345
Foreign exchange gain on translating foreign currency
denominated balances 1,922 --
Fair value adjustment on derivative financial instruments
(note 18) -- 6,650
Other Income -- 23
Total finance income 2,783 7,018
============= =============
Year ended Year ended
December 31, December 31,
2018 2017
------------- -------------
GBP'000s GBP'000s
Finance expense:
Fair value adjustment on derivative financial instruments
(note 18) 1,219 --
Foreign exchange loss on translating foreign currency
denominated balances -- 2,392
Unwinding of discount factor related to the assumed
contingent arrangement (note 20) 106 73
------------- -------------
Total finance expense 1,325 2,465
============= =============
10. Taxation
Year ended Year ended
December 31, December 31,
2018 2017
--------------- ---------------
GBP'000s GBP'000s
Analysis of tax credit for the year
Current tax:
U.K. tax credit (4,290) (5,006)
U.S. tax charge 30 306
Adjustment in respect of prior periods 28 (6)
--------- ---- --------- ---
Total tax credit (4,232) (4,706)
========= === ========= ===
Factors affecting the tax credit for the year
Loss on ordinary activities before taxation (24,133) (25,203)
========= === ========= ===
Multiplied by standard rate of corporation tax of
19% (2017: 19.25%) (4,585) (4,852)
Effects of:
Non-deductible expenses 540 675
Fair value adjustment on derivative financial
instruments 232 (1,280)
Research and development incentive (1,846) (2,116)
Temporary differences not recognized (3) (2)
Difference in overseas tax rates 8 136
Tax losses carried forward not recognized 1,394 2,739
Adjustment in respect of prior periods 28 (6)
--------- ---- --------- ---
Total tax credit (4,232) (4,706)
========= === ========= ===
U.K. corporation tax is charged at 19% (2017: 19.25%) and U.S. federal
and state tax at 27.6% (2017 : 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.
As at As at
December December
31, 2018 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 U.K. tax losses available for offset against future
profits in the United Kingdom. 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, 2018, the unrecognized
deferred tax asset at 17% is estimated to be GBP6.65 million (2017:
GBP5.43 million at 17%).
11. Goodwill
Group and Company
As of As of
December 31, December 31,
2018 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.
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 and
goodwill with reference to the Group's market capitalization as of
December 31, 2018, the date of testing of IP R&D and goodwill
impairment. The market capitalization of the Group was approximately
GBP92.2 million as of December 31, 2018, (2017: GBP109.7 million)
compared to the Group's net assets of GBP62.9 million (2017: GBP79.9
million). Therefore, no impairment was recognized.
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, 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
======== ========= ====== =======
Computer
IP R&D software Patents Total
-------- --------- ---------- ----------
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
At January 1, 2018 1,469 11 727 2,207
Additions -- 4 251 255
Disposals -- -- (6) (6)
-------- --------- ------ -------
At December 31, 2018 1,469 15 972 2,456
-------- --------- ------ -------
Accumulated
amortization
At January 1, 2018 -- 6 232 238
Charge for year -- 5 85 90
Disposals -- -- (6) (6)
-------- --------- ------ -------
At December 31, 2018 -- 11 311 322
-------- --------- ------ -------
Net book value
At December 31, 2018 1,469 4 661 2,134
======== ========= ====== =======
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 ensifentrine.
IP R&D is currently not amortized and is reviewed for impairment on an
annual basis, together with goodwill, 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 and
goodwill with reference to the Group's market capitalization as of
December 31, 2018, the date of testing of IP R&D and goodwill
impairment. The market capitalization of the Group was approximately
GBP92.2 million as of December 31, 2018, (2017: GBP109.7 million)
compared to the Group's net assets of GBP62.9 million (2017: GBP79.9
million). Therefore, no impairment was recognized.
The Group notes that after the reduction in the share price since
December 31, 2018, and as of February 21, 2019 the market value of the
Group was GBP6.6 million less than the net book value as at 31 December
2018. The Group judges that the decline in the share price was a
reaction to recent clinical trial results and was driven by relatively
low trading volumes. The Group believes that the trial data was
encouraging and notes that this has not resulted in a significant change
in development plans, timelines, potential market share or pricing.
13. Property, plant and equipment
Group and Company
Computer
hardware Total
--------- ----------
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
========= ========
Computer
hardware Total
--------- ----------
GBP'000s GBP'000s
Cost
At January 1, 2018 26 26
Additions 13 13
At December 31, 2018 39 39
--------- --------
Accumulated depreciation
At January 1, 2018 10 10
Charge for the year 8 8
--------- --------
At December 31, 2018 18 18
--------- --------
Net book value
At December 31, 2018 21 21
========= ========
14. Investment in subsidiaries
Company
The Company has two wholly owned subsidiaries, Rhinopharma Limited and
Verona Pharma Inc.
As of As of
December December
31, 2018 31, 2017
--------- -----------
GBP'000s GBP'000s
Net book value:
At the start of the year 877 243
Capital contribution arising from share-based
payments 36 634
--------- ---------
Net book amount at the end of year 913 877
--------- ---------
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:
Verona Pharma Rhinopharma
Name of undertaking Inc. 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.
15. Prepayments and other receivables
Group
As of As of
December December
31, 2018 31, 2017
--------- -----------
GBP'000s GBP'000s
Prepayments 1,362 1,138
Other receivables 1,101 672
--------- ---------
Total prepayments and other receivables 2,463 1,810
========= =========
The prepayments balance includes prepayments for insurance and clinical
activities.
Company
As of As of
December December
31, 2018 31, 2017
--------- -----------
GBP'000s GBP'000s
Prepayments 1,346 1,135
Other receivables 1,069 663
Amounts due from group undertakings 187 172
--------- ---------
Total prepayments and other receivables 2,602 1,970
========= =========
Amounts due from group undertakings are unsecured, interest free and
repayable on demand.
The prepayments balance includes prepayments for insurance and clinical
activities.
16. Share Capital
Group and Company
The movements in the Company's share capital are summarized below:
Share
Capital
amounts in
------------------- ------------------- -----------
Number of
Date Description shares GBP'000
------------------- ------------------- ----------- -------------
January 1, 2017 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
As at December 31, 2017 105,017,400 5,251
----------- -----------
August 9, 2018 Vesting of RSUs 58,112 3
September 20, 2018 Vesting of RSUs 251,125 12
As at December 31, 2018 105,326,637 5,266
----------- -----------
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
105,326,637 ordinary shares at December 31, 2018 are allotted,
unrestricted, called up and fully paid.
As at December 31, 2018, the number of ordinary shares in issue was
105,326,637. All new ordinary shares rank pari passu with existing
ordinary shares.
During 2018, the Company issued 309,237 ordinary shares upon vesting of
employee restricted share units.
On April 26, 2017, the Group announced the closing of the Global
Offering of an aggregate of 47,399,001 new ordinary shares, comprising
5,768,000 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 (GBP70.0
million).
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 GBP0.3 million.
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 Group
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 Group.
On February 8, 2017, the board of directors of the Group approved a
share consolidation where every 50 existing ordinary shares of GBP0.001
were consolidated into one ordinary share of GBP0.05.
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, 2018, the Group recognized a
share-based payment expense of GBP2.90 million (2017: GBP2.92 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 granted share options under an Unapproved Share Option Scheme
(the "Unapproved Scheme"). Under the Unapproved Scheme, options were
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 were issued to advisors under the Unapproved Scheme. Such
options generally vested immediately and were 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 were 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.
Under its 2017 Incentive Award Plan, the Group grants RSUs to employees
and directors. The RSUs vest over a period of 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.
In the year ended December 31, 2018, under the 2017 Incentive Award Plan,
the Group granted 2,090,847 (2017: 4,656,828 ) share options and 273,390
RSUs (2017: 1,052,236 ). 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 GBP2.32 million (2017:
GBP5.33 million). The cost is amortized over the vesting period of the
options and RSUs on a straight-line basis.
The following assumptions were used for the Black-Scholes valuation of
share options and RSUs granted in 2017 and 2018. 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 and RSUs.
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 1 to 4 years 1 to 4 years
Unapproved Restricted Stock
Issued in 2018 Scheme Units
------------------------- ---------------- ----------------
Options granted 2,090,847 273,390
Risk-free interest rate 1.08% - 1.22% 1.08% - 1.22%
Expected life of options 5.5 - 7 years 5.5 - 7 years
Annualized volatility 69.88% -71.35% 69.88% -71.35%
Dividend rate 0.00% 0.00%
Vesting period 1 to 4 years 1 to 4 years
The Group had the following share options movements in the year ended
December 31, 2018:
Year of Exercise At January Options Options Options At December Expiry
issue price (GBP) 1, 2018 granted forfeited expired 31, 2018 date
-------- ------------ ---------- --------- ---------- -------- ----------- ---------
June 1,
2012 2.50 - 7.50 99,993 -- -- -- 99,993 2022
April 15,
2013 2 99,990 -- -- -- 99,990 2023
July 29,
2013 2.00 159,999 -- -- -- 159,999 2023
May 15,
2014 1.75 109,998 -- -- -- 109,998 2024
May 15,
2014 1.75 49,998 -- -- -- 49,998 2024 *
August 6,
2014 1.10 - 1.75 66,667 -- -- (66,667) -- 2018 **
January
2015 1.25 41,997 -- -- -- 41,997 29, 2025 *
January
2015 1.25 549,999 -- -- -- 549,999 29, 2025
February
2016 2 260,000 -- (20,000) -- 240,000 2, 2026
February
2016 2.00 21,996 -- -- -- 21,996 2, 2026 *
August 3,
2016 1.80 809,996 -- (133,332) -- 676,664 2026
September
2016 1.89 299,997 -- -- -- 299,997 13, 2026
September
2016 2.04 300,000 -- -- -- 300,000 16, 2026
April 26,
2017 1.32 - 1.525 4,656,828 -- (563,664) -- 4,093,164 2027
March 8,
2018 1.46 -- 2,090,847 (82,528) -- 2,008,319 2028
--------- ------------ ---------- --------- --------- ------- ----------- ---------
Total 7,527,458 2,090,847 (799,524) (66,667) 8,752,114
========= ============ ========== ========= ========= ======= =========== =========
* Options granted under the EMI Scheme.
* * Valued based on fair value of services received.
The Company had the following RSU movements in the year ended December
31, 2018:
Exercise At
Year of price At January Units Units Units December Expiry
issue (GBP) 1, 2018 granted vested forfeited 31, 2018 date
-------- -------- ------------ ---------- --------- ------------ --------- ----------
April
26,
2017 n/a 1,052,236 -- (309,237) (13,012) 729,987 2027
March 8,
2018 n/a -- 273,390 -- (140,904) 132,486 2028
---------- -------- --------- --------- --------- -------- ---
Total 1,052,236 273,390 (309,237) (153,916) 862,473
======== ======== ========== ======== ========= ========= ========= ======== ===
Outstanding and exercisable share options by scheme as of December 31,
2018:
Weighted Weighted
average exercise average exercise
price in GBP for price in GBP for
Plan Outstanding Exercisable Outstanding Exercisable
------------ ----------- ----------- ----------------- -------------------
Unapproved 8,538,130 3,336,232 1.49 1.57
EMI 213,984 206,652 3.06 3.09
Total 8,752,114 3,542,884 1.53 1.66
============ =========== =========== ================= =================
As of December 31, 2018, there were no restricted share options
exercisable (2017: nil) and there is no exercise price for restricted
share options.
The options outstanding at December 31, 2018 had a weighted average
remaining contractual life of 8 years (2017: 8.6 years). For 2017 and
2018, 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, 2017 3,037,296 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 expired in the year (33,333) 1.90
--------- ----------------
At December 31, 2017 7,527,458 1.53
========= ================
Exercisable at December 31, 2017 797,333 2.04
========= ================
Weighted average
Number of exercise price
options (GBP)
---------- ------------------
At January 1, 2018 7,527,458 1.53
Options granted in 2018:
Employees 1,222,089 1.46
Directors 868,758 1.46
Options forfeited in the year (799,524) 1.43
Options expired in the year (66,667) 1.75
--------- ----------------
At December 31, 2018 8,752,114 1.53
========= ================
Exercisable at December 31, 2018 3,542,884 1.66
========= ================
The following table shows the number of RSUs issued in 2017. There were
no RSUs forfeited, cancelled or vested in 2017. 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 following table shows the number of RSUs issued, exercised and
forfeited in 2018. The fair value of each unvested RSU granted in 2018
was GBP1.46.
Number of
RSUs
------------
At January 1, 2018 1,052,236
Granted:
Employees 136,404
Directors 136,986
RSUs vested in the year (309,237)
RSUs forfeited in the year (153,916)
---------
At December 31, 2018 862,473
=========
The cost is amortized over the vesting period of the options on a
straight-line basis. The expense for the Group during 2018 amounted to
GBP2.9m and GBP0.04m in relation to Verona Pharma Inc is held as an
investment.
18. Derivative financial instrument
Group and Company
Pursuant to the July 2016 Placement, on July 29, 2016, the Group 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 12,401,262 shares. The warrants can be exercised on the
"Commencement Date" which is defined as the earlier of the consummation
of the Global Offering (being May 2, 2017) or the first anniversary of
the grant, and the exercise period shall end on the fifth anniversary of
the commencement date (being May 2, 2022).
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 Group 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 December 31, 2018, no warrants were forfeited (2017:
45,108).
The table below presents the assumptions in applying the Black-Scholes
model to determine the fair value of the warrants.
As of December As of December
31, 2018 31, 2017
------------------ ------------------
Shares available to be issued under
warrants 12,401,262 12,401,262
Exercise price GBP 1.7238 GBP 1.7238
Risk-free interest rate 0.760% 0.420%
Expected term to exercise 3.34 years 1.79 years
Annualized volatility 60.72% 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 in 2017 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 Group updated the underlying assumptions
and calculated a fair value of these warrants amounting to GBP2.5
million. The variance of GBP1.2 million is recorded as finance expense
in the Consolidated Statement of Comprehensive Income.
Derivative Derivative
financial financial
instrument instrument
----------- -------------
2018 2017
----------- -------------
GBP'000s GBP'000s
At January 1 1,273 7,923
Fair value adjustments recognized in profit or
loss 1,219 (6,650)
----------- ----------
At December 31 2,492 1,273
=========== ==========
For the amount recognized at December 31, 2018, the effect when the
following parameter deviates up or down is presented in the below table.
Volatility
(up / down
10% pts)
-------------
GBP'000s
Variable up 3,262
Base case, reported fair value 2,492
Variable down 1,738
19. Trade and other payables
Group
As of As of
December December
31, 2018 31, 2017
--------- -----------
GBP'000s GBP'000s
Trade payables 2,839 1,214
Other payables 12 74
Accruals 4,882 5,866
--------- ---------
Total trade and other payables 7,733 7,154
========= =========
Company
As of As of
December December
31, 2018 31, 2017
--------- -----------
GBP'000s GBP'000s
Trade payables 2,839 1,213
Other payables 12 74
Amount due to group undertakings 722 1,044
Accruals 4,696 5,729
--------- ---------
Total trade and other payables 8,269 8,060
========= =========
Amounts due to group undertakings are unsecured, interest free and
repayable on demand.
20. Assumed contingent obligation related to the business combination
Group and Company
The value of the assumed contingent obligation as of December 31, 2018
amounts to GBP996 thousand (2017: GBP875 thousand). The increase in
value of the assumed contingent obligation during 2018 amounted to
GBP121 thousand (2017: GBP73 thousand ) and the unwinding of the
discount on the liability was recorded in finance expense. Periodic
re-measurement is triggered by changes in the probability of success.
The discount percentage applied is 12%. In 2018 there were no events
that triggered remeasurement.
2018 2017
-------- ----------
GBP'000s GBP'000s
January 1, 2018 875 802
Impact of changes in foreign exchange rates 15 (23)
Unwinding of discount factor 106 96
-------- ------
December 31, 2018 996 875
======== ======
For the amount recognized December 31, 2018 of GBP121 thousand (2017:
GBP73 thousand) the effect if underlying assumptions were to deviate up
or down is presented in the following table (assuming the probability of
success does not change):
Discount rate Revenue
(up / down (up / down
1 % pt) 10 % pts)
GBP'000s GBP'000s
Variable up 954 1,026
Base case, reported fair value 996 996
Variable down 1,040 966
21. Financial commitments
Group
As of December 31, 2018, and 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
2018 2017
---------- ------------
GBP'000s GBP'000s
Operating lease obligations:
Within one year 572 291
Between one and five years 28 277
---------- ----------
Total 600 568
========== ==========
Company
As of December 31, 2018, the Company was committed to making the
following payments under non-cancellable operating leases related to its
facilities.
Land and Land and
Buildings Buildings
2018 2017
---------- ------------
GBP'000s GBP'000s
Operating lease obligations:
Within one year 337 263
Between one and five years 28 277
---------- ----------
Total 365 540
---------- ----------
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 and they therefore comprise
key management personnel as defined by IAS 24, ("Related Party
Disclosures").
(ii) Other shareholder matters
The Group has entered into the following arrangements with parties who
are significant shareholders of the Group, though they are not classed
as related parties.
The Group entered into relationship agreements with Vivo Ventures Fund
VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund
VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. (collectively, "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 Group
as part of the July 2016 Placement, and the Group 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, and Dr. Andrew Sinclair and who was, prior to the
termination of the appointment rights in the Arix and Arthurian
relationship agreement described below, 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 agreed to continue to serve on the Group'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 Group also entered into a management rights agreement with Novo A/S
under which Novo A/S was entitled to appoint an observer to the Board.
The appointment rights within the management rights agreement terminated
on closing of the Global Offering on April 26, 2017.
Dr. Jan-Anders Karlsson, Chief Executive Officer of the Group, purchased
3,250 ordinary shares for GBP5 thousand from the market in the year
ended December 31, 2018 (2017: GBPnil).
Dr. David Ebsworth, Chairman of the Group, purchased 12,000 ordinary
shares for GBP14 thousand from the market in the year ended December 31,
2018 (2017: GBP28 thousand).
During the year ended December 31, 2017, Vikas Sinha, a Non-Executive
Director, purchased of GBP234 thousand of our ordinary shares, in the
form of ADSs, as part of the Global Offering.
At December 31, 2018, there was a receivable of GBP126 thousand (2017:
nil) due from one director and two key management personnel relating to
tax due on RSUs that vested in the year ended December 31, 2018.
In the year ended December 31, 2018, a director provided consultancy
services for GBP26 thousand (2017: GBPnil).
VERONA PHARMA PLC
CONVENIENCE TRANSLATION
CONVENIENCE TRANSLATION
We maintain our books and records in pounds sterling and we prepare our
financial statements in accordance with IFRS, as issued by the IASB. We
report our results in pounds sterling. For the convenience of the reader
we have translated pound sterling amounts in the tables below as of
December 31, 2018, into US dollars at the noon buying rate of the
Federal Reserve Bank of New York on December 31, 2018, which was GBP1.00
to $1.2763. These translations should not be considered representations
that any such amounts have been, could have been or could be converted
into US dollars at that or any other exchange rate as of that or any
other date.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARED DECEMBER 31, 2018 (UNAUDITED)
Year Ended December 31,
2018 2017
---------------
GBP000's $000's GBP000's
Research and development costs GBP (19,294) $(24,625) GBP (23,717)
General and administrative costs (6,297) (8,037) (6,039)
------------ -------- ------------
Operating loss (25,591) (32,662) (29,756)
Finance income 2,783 3,552 7,018
Finance expense (1,325) (1,691) (2,465)
------------ -------- ------------
Loss before taxation (24,133) (30,801) (25,203)
Taxation -- credit 4,232 5,401 4,706
------------ -------- ------------
Loss for the year (19,901) (25,400) (20,497)
Other comprehensive income / (loss):
Items that might be subsequently reclassified to profit
or loss
Exchange differences on translating foreign operations 38 48 (29)
------------ -------- ------------
Total comprehensive loss attributable to owners of
the company GBP (19,863) $(25,352) GBP (20,526)
=== ======= ======= === =======
Loss per ordinary share -- (pence / cents) GBP (18.9) $ (24.1) GBP (23.4)
============ ======= ============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER
31, 2018, AND DECEMBER 31, 2017 (UNAUDITED)
As of As of As of
December December December
31, 2018 31, 2018 31, 2017
-----------
GBP'000s $'000s GBP'000s
ASSETS
Non-current assets:
Goodwill 441 564 441
Intangible assets 2,134 2,724 1,969
Property, plant and equipment 21 27 16
Total non-current assets 2,596 3,315 2,426
-------- -------- --------
Current assets:
Prepayments and other receivables 2,463 3,144 1,810
Current tax receivable 4,499 5,742 5,006
Short term investments 44,919 57,330 48,819
Cash and cash equivalents 19,784 25,250 31,443
Total current assets 71,665 91,466 87,078
-------- -------- --------
Total assets 74,261 94,781 89,504
======== ======== ========
EQUITY AND LIABILITIES
Capital and reserves attributable
to equity holders:
Share capital 5,266 6,721 5,251
Share premium 118,862 151,704 118,862
Share-based payment reserve 7,923 10,112 5,022
Accumulated loss (69,117) (88,214) (49,254)
Total equity 62,934 80,323 79,881
-------- -------- --------
Current liabilities:
Derivative financial instrument 2,492 3,181 1,273
Trade and other payables 7,733 9,870 7,154
Tax payable--U.S. Operations -- -- 169
-------- -------- --------
Total current liabilities 10,225 13,051 8,596
-------- -------- --------
Non-current liabilities:
Assumed contingent obligation 996 1,271 875
Deferred income 106 135 152
Total non-current liabilities 1,102 1,406 1,027
-------- -------- --------
Total equity and liabilities 74,261 94,780 89,504
======== ======== ========
(END) Dow Jones Newswires
February 26, 2019 02:00 ET (07:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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