Verona Pharma PLC (VRNA) 2022 Q3 法說會逐字稿

Welcome to Verona Pharma's Third Quarter 2022 Financial Results and Operating Highlights Conference Call. (Operator Instructions) Earlier this morning, Verona Pharma issued a press release announcing its financial results for the 3 months ended September 30, 2022. A copy can be found in the Investor Relations tab on the corporate website, www.veronapharma.com. Before we begin, I'd like to remind you that during today's call, statements about the company's future expectations, plans and prospects are forward-looking statements. These forward-looking statements are based on management's current expectations.

These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from our expectations expressed or implied by the forward-looking statements. Any such forward-looking statements represent management's estimates as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligation to do so, even if subsequent events cause views to change. As a reminder, this call is being recorded and will remain available for 90 days. I'd now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer; Dr. Zaccardelli, the floor is yours, sir.

Thank you, and welcome, everyone, to today's call. With me today are Mark Hahn, our Chief Financial Officer; Dr. Kathy Rickard, our Chief Medical Officer; and Chris Martin, our Senior Vice President of Commercial.

It's been another quarter of solid progress and execution for Verona Pharma. During the third quarter, we announced positive top-line results from our Phase III ENHANCE-3 clinical trial of nebulized ensifentrine for the maintenance treatment of COPD, and we are looking forward to the top-line data readout of ENHANCE-1 trial expected around the end of this year. We have significantly strengthened our financial position with access up to approximately $400 million, including our upsized $150 million equity offering in August and $150 million debt financing facility with Oxford Finance in October. The nondilutive $150 million debt facility replaces the existing $30 million facility with Silicon Valley Bank and is available upon achievement of certain clinical and regulatory milestones and other conditions. We expect these funds to extend our cash runway through at least the end of 2025, supporting the ongoing pre-commercialization activities and the planned future commercial launch of ensifentrine in the United States. 

First, I'd like to take a step back and provide a brief overview of our Phase III ENHANCE clinical program. As a reminder, the ENHANCE-1 and ENHANCE-2 trials were each designed to enroll approximately 800 moderate to severe symptomatic COPD patients for a total of approximately 1,600 subjects across sites, primarily in the United States and Europe. The trials replicate measurements of efficacy and safety data over 24 weeks with ENHANCE-1 also evaluating longer-term safety in approximately 400 subjects over 48 weeks. Subjects received ensifentrine or placebo as either monotherapy or added on to a single long-acting bronchodilator with approximately 50% of subjects receiving either a long-acting muscarinic antagonist, corona or a long-acting beta-agonist or lava.

Additionally, up to approximately 20% of subjects may receive held corticosteroids with their concomitant glamour lab. As previously announced, the ENHANCE-2 trial successfully met primary and secondary endpoints, demonstrating statistically significant improvements in lung function. And ensifentrine was well tolerated with safety results similar to the placebo. Importantly, ensifentrine demonstrated a 42% reduction in the rate of moderate and severe COPD exacerbations over the course of the study compared to those receiving placebo. And recently reported subgroup analyses confirm these positive effects in the overall population across all subgroups analyzed over 24 weeks. Remember, ENHANCE-2 was not powered for investigations overall or in subgroups. 

We are very encouraged by these results and look forward to reporting top-line data from ENHANCE-1 around the end of 2022. The top-line data from ENHANCE-1 are expected to include the following: the primary endpoint, improvement of lung function is measured by average forced expiratory volume in 1 second for FEV1 area under the curve 0 to 12 hours post-dose at week 12. Key secondary endpoints comprising measurements of COPD symptoms and health-related quality of life, including ERS and SGRQ endpoints as well as peak and trough FEV1, exacerbation data and finally, overall safety results. Conditional upon positive results from the ENHANCE-1 trial, we plan to submit a new drug application to the U.S. FDA in the first half of 2023.

Our U.S. commercial launch activities are accelerating as planned. Following our outstanding ENHANCE-2 data, initial steps were taken in the third quarter with the addition of key leadership positions in commercial, HR, IT and finance. We plan to continue to accelerate preparations after top-line ENHANCE-1 data are announced and through the NDA submission, so we are fully prepared to potentially launch Tencent in 2024. Turning to our global partnering strategy. In the third quarter, Nuance Pharma received clearance from China's Center for Drug Evaluation to begin Phase I and Phase III studies of ensifentrine for COPD in China. As a reminder, Nuance Pharma is responsible for developing and commercializing ensifentrine in Greater China. And this clearance represents an important milestone in expanding the potential of ensifentrine to address the global need for a novel treatment for COPD. 

We look forward to providing further updates as these studies progress. Today, over 380 million patients suffer from COPD worldwide, and it is the third leading cause of death. Despite the availability of existing COPD treatments, more than 1 million patients in the U.S. remain symptomatic on maximal therapy, highlighting the urgent need for novel medications to provide relief to these patients. We are encouraged by our progress throughout 2022 and are excited about the upcoming ENHANCE-1 top-line data readout. We remain committed to our goal of delivering ensifentrine, a novel inhaled PDE3 and PDE4 inhibitor and a first-in-class product candidate for the maintenance treatment of COPD. I will now turn the call over to Mark to review our financial results for the third quarter.

Thank you, Dave. We ended the third quarter of 2022 with $231.7 million in cash and equivalents. As Dave mentioned, we have significantly strengthened our financial position and expect our funds to extend our cash runway through at least the end of 2025, including the planned commercial launch of ensifentrine in the United States. For the 3 months ended September 30, 2022, the net loss after tax was $15.6 million compared to a net profit after tax of $11.1 million for the same period in 2021. This represents a loss of $0.03 per ordinary share or $0.24 per ADS for the quarter compared to a profit of $0.02 per ordinary share or $0.16 per ADS in the third quarter of 2021.

Research and development costs were $9.8 million for the 3 months ended September 30, 2022, compared to $22.6 million reported from the same period in 2021. The decrease of $12.8 million was primarily due to a $12.5 million decrease in the clinical trials and other development costs as we progressed to the later stages of the ENHANCE program and decreases in share-based compensation. Selling, general and administrative expenses were $5.3 million for the 3 months ended September 30, 2022, compared to $10.9 million reported for the same period in 2021. 

The decrease of $5.6 million was primarily due to a $4 million nonrecurring expense associated with the nuance agreement in 2021 and a $1.6 million decrease in share-based compensation. The U.K. R&D tax credit for the 3 months ended September 30, 2022, was $2.1 million compared to a credit of $4.7 million for the same period in 2021. The decrease of $2.6 million is in line with our lower R&D spend this quarter. We have submitted a claim for approximately $13 million related to our 2021 R&D spend and expect to receive the reimbursement payment by the end of 2022. As we have discussed before, this nondilutive source of capital continues to be an important element in our financing strategy. I will now turn the call back over to the operator for the Q&A.

(Operator Instructions) And the first question we have Suji Jeong of Jefferies.

I have a few quick questions. So for ENHANCE-1 trial, could you tell us when you expect to have the last patient visit and also based on that, do you think that data could be still too early 2023? And another question is for your European commercialization strategy. A long time ago, I think you guys said that EMA might require a comparator study. So I'm just wondering, based on the AHII trial data you had in August, whether you had any discussions with the EMA and your current thoughts on the strategy to commercial licenses in Europe.

I guess, first, I'll start with the last patient in the study. Well, it's still a bit of a variable because there are visit windows, et cetera, that happen. We're endeavouring that, as you know by the calendar, to happen in November, and we're tracking towards that. I think that with regard to the data readout, we're doing everything we can to have it as soon as possible. But at the same time, we're transitioning across a holiday or 2 and patient visits, et cetera, that come in through there. So we'll see how that goes.

But our intention is to do everything we can to do that in 2022, but we're not sure exactly where it will land. With that said, with regard to European strategy, we purposefully not with the EMA yet. We intend to do so with the ENHANCE-1 and ENHANCE-2 data to meet with them, review the results in totality. And based on that, discuss the plans forward there. As you know, we do have a background therapy comparator within the context of ENHANCE-1 and ENHANCE-2. And so I think we have variations of data they may be interested in based on precedent. And so we'll be reviewing all that with them and understand the plan going forward. We expect that to happen as soon as we practically can with their calendar in 2023.

Next, we have Yasmeen Rahimi of Piper Sandler.

This is [Emma] on for Yas. First, what type of commercial activity payer discussions will occur post the ENHANCE-1 data set? And how many salespeople have been hired, -- what's the game plan over the next 12 months? And secondly, is there a reason to believe that the data and ENHANCE-1 might be misaligned from ENHANCE-2 -- and if yes, what could be contributing factors?

Thanks so much for the question. Maybe I'll just answer the second part first and then turn it over to Chris to review the aspects of commercial planning. And so with regard to ENHANCE-1, the studies of ENHANCE-1 to our design are essentially identical with regard to include an exclusion criteria, and we expect the patient population to be highly comparable between the 2 studies. And so, at this time, there's no reason to believe there is any misalignment in results. With that said, the study is still ongoing. And, of course, we all look forward to the readout. But there's nothing by intent and study design to think that there should be any misalignment from a study structure standpoint. With that, I'll turn it over to Chris and make an outline of the commercial plans.

Thanks, Dave, and Emma, I appreciate the questions. If we -- I'll start with the payer discussions and our plans with payers. I think as we think about payers, I think we have to look at the landscape for nebulized ensifentrine and how it will be reimbursed. And just as a reminder, a nebulized ensifentrine will be primarily reimbursed through Medicare Part B as in boy, versus Medicare Part D. Medicare Part D would be the second channel that ensifentrine would be reimbursed in the second most likely channel. And what we've done so far is we've actually had significant payer discussions across the network to begin with. We've talked to over 35 payers covering over 200 million lives.

And they've continually told us that ensifentrine novel mechanism of action, the efficacy that we've seen with lung function improvement, symptoms and exacerbation is an extremely appealing profile to them and something that they would feel like they need to cover to provide a group of patients that are at high risk because COPD is a high health care utilization scenario for a payer. So in that research, what we see is about -- over 85% of the lives will be covered with ensifentrine at launch around launch based on that data. I think as we continue to move into 2023, we'll continue to reach out and discuss more on an individual plan level to discuss how that coverage will take place. 

Additionally, since ensifentrine is covered through Medicare Part B, we'll be working through that channel and that distribution strategy, which is through DME pharmacies, to ensure that we're able to get ensifentrine to the patients at launch. So I feel like we've done a lot of work to date within the payer community that really shows and highlights the value of ensifentrine to them, and we'll continue to expand on that in 2023. The second part of your question was around salespeople. Given the size of the opportunity for ensifentrine, we believe the majority of the initial use will be driven by pulmonologists. We still believe that about 100 sales reps is the appropriate launch size for our sales force. That sales force is gated toward key organizational milestones.

So we wouldn't anticipate hiring any salespeople till around the PDUFA date for ensifentrine. I think, of course, as we get ready for the salesforce, we're still internally prepping with marketing, market access, medical affairs. So those individuals will come on, again, gated toward milestones. The first being ENHANCE-2, second, being ENHANCE-1and so on. So we've structured the organization to grow as we achieve significant milestones within the community within our process and development. I think the one key thing just going back is the 100 sales reps that we think we need would be a PDUFA timing for ensifentrine.

The next question we have will come from Joon Lee of Truist Securities.

This is [Les] on for Joon. Can you just remind us, is there an option to retain rights from Nuance in China market at the latter stages of launch? And what terms? And then separately, what is your checklist for an EU partner? And when can we expect an announcement on that selection? And then, finally, what's your manufacturing progress looking like and readiness for launch?

Great. Thanks so much for the question. I'll start in reverse order, and maybe we'll take the manufacturing first, and then I'll turn it over to Mark to talk about the agreement with Nuance. On the manufacturing CMC front, I think we're very well progressed from my perspective. We have progressed into validation processes for both API and drug product. We understand the characteristics of both the API and the drug product very well. The stability data is very well advanced and allow us some great exploration dating on the product. So I think, overall, we're in a very good shape on the CMC and our planning, of course, are probably so at the right time to make sure we make the commercial batches, which is all tied to our validation strategy. So I think we're in very good shape there. So with that, I'll turn it over to Mark.

Yes. Great. I hope you're doing well. With respect to Nuance, you're right, there are clawback rights in that relationship. And the way it's structured is that essentially while they're in development, if there is an acquisition or a partnership opportunity that would include the U.S. or Europe, and that partner wants to have rights to China, then we can claw back. There is a mechanism, it's a multiple of what they have incurred in cost. It's a single-digit multiple of what they've incurred in cost with a cap that -- I'd characterize it as a cap that if the Chinese market is anything near what people think it's worth, that capped amount is really inconsequential. I think you also asked about a timeline for a European partnership, and that's something we're working on. I think in line with Dave's comments about the EMA review, I think that would be an important element in the discussions that we would be having with any type of EU partner.

The next question we have will come from Raghuram Selvaraju, Wainwright.

Two from us. So firstly, so I've seen some publications that highlighted that COPD patients with cancer patient exhibited increased serum levels of C-reactive protein, also called CRP. So have you noticed any impact of ensifentrine on CRP?

Great. Thanks so much for the question. Let me turn that over to Kathy for her perspective on that.

Yes. So we have looked at CRP actually for a long time in COPD, and quite frankly, the results are not always consistent about whether they show a significant response or not. Some of them do show increased levels, and there are some indications that may have shown decreases. Antifactor, we have looked at the initial data on the CRP. We did measure it, and we do see a trend to decrease CRP. But again, with the scientific data, there's no clear indication of how to interpret that data as of yet.

And then I have one more on the subgroup analysis. So clearly, Enticentral is more effective in reducing exacerbations in current smokers versus nonsmokers, so 56% reduction versus 26%. Is there any reason for this observed trend like maybe from a mechanistic standpoint?

Well, first, I think we just want to level set on that. I think we need to be careful about making conclusions on some set analysis that weren't prospectively powered appropriately to make any assessment of whether one is different than the other. I think we wanted to provide the subset analysis to show that the effect of exacerbation reduction was not being controlled by any one group that the positive effects of ensifentrine were shown across all the subgroups. But whether there's actually any real differences between, in this example, smokers or nonsmokers, for example, is not really we're looking at conclusions based on the data. So I'd be careful about that. I don't know if Kathy you want to provide additional thoughts on it.

Yes. I think actually what my takeaway is that we actually show a significant decrease in exacerbation no matter what group we look at, including smokers, the reduction we see is very significant, especially in a group of people who continue to have this effect from ongoing smoking. So if you can reduce exacerbation by level of such smokers, I think that's a direct result. And as Dave said, I don't think you can make a lot of comparisons between the groups because it wasn't powered to do that.

And next, we have Tom Shrader of BTIG.

On the commercial front, I'm wondering if you've thought about commercial partners, maybe to do some of the lifting, maybe a limited-time engagement. We see that sometimes when smaller companies tackle what could be huge markets. And the second question is the one part of ENHANCE-2 that still is curious if some of the quality of life readouts. As you've had more time to think about that, do you understand that? Is there something driving that? Should we think of it as a Wild Point error? Or is there some information there?

Yes. Thanks, Tom, for the question. I mean, I'll take the latter one first. I think that we're still looking into it. And of course, I think we'll be additionally informed by ENHANCE-1 data as well, which as we talked about, is coming soon. So I think that right now, the discontinuation rates, which happen in studies of duration and also tend to happen more in placebo groups in studies where drugs are effective, could be a contributing factor to the observation of the placebo group over time on patient-reported outcomes as you end up with potentially more patients in the placebo group who feel better than those that had discontinued for various reasons during the period, and that may be a contributing factor. So that's one thing we're looking at carefully, and I think we'll look at as well with ENHANCE-1 in hand. And then maybe, Chris, if you want to comment on our strategy commercially on partnering.

Yes. Yes. So, Tom, I appreciate the question. Let me start with just our general strategy on partnering. Organizationally, we've been very clear that in the U.S., we'll prepare to commercialize an outside the U.S. partner. I think Mark talked a little bit about EU partnership and our Chinese partnership with Nuance. So we continue to execute against that. I think when we think about the U.S., an important feature of the U.S. is what will drive utilization of ensifentrine and what target -- what does that target or physician look like? And based on our market research, what we understand about the patient dynamics and the patient flow is those patients that remain symptomatic on either single, dual or triple therapy start to migrate out of primary care and move into pulmonology. 

And the pulmonology community is not a large community. In fact, we believe there's about 12,000 to 13,000 physicians that we would need to target. So that commercial footprint is a very limited -- a very targeted footprint of about 100 reps. And I think one of the other things that gives us a lot of confidence in our ability to do this ourselves is when we look at the data that's out there on other products and launches that have occurred, that footprint is not -- the number of prescribers needed to generate a significant portion of their business is not very large. So I'll give 2 examples here. One is YUPELRI, reblifenacin. If we look at the data there, there's about 70% of their TRX volume comes from about 1,200 doctors. 

And then, if I go to the opposite end of the spectrum, which is Trelegy, which has asthma and COPD indication, which means it's moving more into primary care because of the asthma indication. There's only about 19,000 doctors that do 70% of that business. So even in those 2 very diverse examples, the number of physicians needed to reach the opportunity is a very limited number.

So again, we are very confident that 100 reps going to about 12,000 to 13,000 physicians is an effective launch plan. Additionally, with COVID, we found new ways to interact with physicians that can allow smaller biotech like Verona to be very effective in a launch. Those methods can be interacting on Zoom or digitally that were not as readily accepted by physicians, but it become more the norm with many physicians now, too. So this allows us biotech to be a lot more effective and nimble in reaching physicians that we think will drive ensifentrine uptake with the patients we need them to use it in.

(Operator Instructions)The next question now will come from Suji Jeong of Jefferies.

So firstly, for ENHANCE 1 and 2, you mentioned -- well, firstly, you mentioned that your target patients are pulmonologists and the patients that might create from the primary care because they're progressing on single, dual, triple therapy. If you look at the baseline characteristics of the ENHANCE-1 ENHANCE-2 trial, how many of those patients remain symptomatic despite dual or triple before enrolling on the study? And my second question is about the impact of the inflation reduction. Have you guys thought about what the potential impact might be coming from that deal?

Thanks, Suji for the follow-up. Yes, the inflation Reduction Act, I think, just quickly, we have looked at it. Of course, it is not the most straightforward Bill. So we're looking at it from all the respect, getting outside inputs as well. And we're looking to see how that impacts ensifentrine , specifically around different formulations, different indications as you would expect. So we're in the front end of evaluating that, and we'll continue to do so and have a, I think, a more formed opinion as we get into 2023 and its impact, which I think still gives us plenty of time to understand the best strategy for moving forward with it. 

So I think as far as patients being enrolled in the study and how many were symptomatic on dual or triple. I think that is a complicated question to answer. I think what we have done is enrolled patients in the study who are either not on background or on a LAMA/LABA plus/minus an ICS who are all symptomatic. So in a sense, we have patients who are on single or dual, if you call IACS as the second product who are all symptomatic coming into the study. As we talked about, background therapy will probably land between an enhanced around 55% to 65%. And ENHANCE-2 was at 52% background therapy with about 15% on ICS for ENHANCE-2, and we expect somewhere between 5% and 20% -- 15% and 20% or they're around 20% on ICS and ENHANCE-1. So all of those patients, of course, are on or symptomatic.

Well, so no further questions at this time. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Dr. David Zaccardelli for any closing remarks. Sir?

Thanks very much. So we'd like to thank you for your questions today, and thank the patients and healthcare professionals for participating in ENHANCE program. As a reminder, our near-term milestones include reporting top-line data from ENHANCE-1 around the end of 2022 and, of course, conditional upon positive results, submitting an NDA to the FDA in the first half of 2023. We are presenting at several upcoming investor conferences, including Stifel, Jefferies, London, Piper Sandler, and we look forward to speaking with many of you then. Finally, I'd like to thank our shareholders for their continued support and the dedicated and talented team at Verona for their commitment. Operator, that concludes today's call.

And we also thank you and the rest of the management team for your time today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you, everyone. Take care, and have a blessed day.