Verona Pharma PLC (VRNA) 2024 Q1 法說會逐字稿

Hello, and welcome to Verona Pharma's first-quarter 2024 financial results and operating highlights conference call.

(Operator Instructions) Earlier this morning, Verona Pharma issued a press release announcing its financial results for the three months ended March 31, 2024. A copy can be found in the Investor Relations tab on the corporate website, www.veronapharma.com.

Before we begin, I'd like to remind you that 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 its views to change. As a reminder, this call is being recorded and will remain available for 90 days.

I would now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead.

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

In the first quarter, we continued to make excellent progress on preparations for the planned commercialization of ensifentrine for the maintenance treatment of COPD. As you know, the FDA assigned a PDUFA target action date for ensifentrine of June 26 and has indicated they are not planning to hold an advisory committee meeting.

We are finalizing our activities for a potential US launch of ensifentrine in the third quarter of this year and look forward to continuing our work with the FDA during their review. If approved, ensifentrine is expected to be the first novel inhaled mechanism available for the maintenance treatment of COPD in over 20 years. We believe its dual mechanism providing bronchodilator and nonsteroidal anti-inflammatory effects has the potential to change the treatment paradigm for COPD. Currently more than 390 million patients suffer from COPD worldwide.

And it is the third leading cause of death globally. Despite the availability of existing COPD treatments in the US, approximately 50% of the 8.6 million maintenance treated patients experience persistent symptoms for more than 24 days per month. In addition, approximately 60% of patients who could be considered maximally treated on dual bronchodilators or triple therapy are dissatisfied with their treatment. This highlights healthcare providers' continued need for new and effective COPD therapies to provide relief to patients.

We continue to make excellent progress on our commercial launch preparations and are now finalizing key aspects, including sales force deployment strategy, pricing, distribution, patient services programs, health care professional and patient engagement plans, and strengthening our internal data infrastructure capabilities to enable quick and actionable insights during launch. We have also advanced our disease awareness campaign, unspoken COPD.

This campaign is actively highlighting the severe impact of COPD on patients' lives and encourages HCPs to engage patients in better dialogue to help optimize their care. Through the first quarter of this year, unspoken COPD reached 85% of targeted HCPs and over 2000 HCPs engaged with the campaign website.

In summary, we are in a strong position to successfully launch ensifentrine pending approval in June. Our confidence is based on the novel profile of ensifentrine, the significant unmet need in COPD, our extensive commercial preparations, and the deep experience and capabilities of the Verona team.

As announced last week, we will present pooled analyses from the ENHANCE Phase 3 study in eight posters, including two oral symposia at the ATS conference later this month. The posters will highlight additional pooled analyses of the Phase 3 ENHANCE study with ensifentrine for the treatment of COPD, demonstrating improvements in lung function, symptoms, and quality of life measures.

A pooled analysis demonstrating reductions in the rate and risk of exacerbations with ensifentrine will be presented as part of the late-breaking mini symposium designed to highlight new breakthroughs. We will also host an exhibition booth exploring the role of phosphodiesterase in inflammation and lung function impairment in COPD, as well as three innovation hub presentations lead by clinical expert.

In addition to the planned US launch of ensifentrine, we are working to initiate two Phase 2 programs with ensifentrine in the second half of this year. First, we are developing a fixed dose combination formulation with ensifentrine and glycopyrrolate a LAMA for the maintenance treatment of COPD delivered via another nebulizer. Upon confirmation of an adequate fixed dose combination formulation, we plan to submit an IND to the FDA in the second half of 2024 and initiate a Phase 2 clinical study intending to support dose escalation for Phase 3.

Additionally, based on the clinical profile of ensifentrine observed in COPD patients, including a reduction in exacerbation rate and risk and improvement in symptoms of cough and sputum, we believe ensifentrine can potentially be an effective treatment for non-cystic fibrosis bronchiectasis. This is a severe chronic condition that affects up to 500,000 patients in the US, and there is currently no approved therapy. We plan to start a Phase 2 clinical trial to assess the efficacy and safety of nebulized ensifentrine in patients with non-CF bronchiectasis in the second half of 2024.

Moving on to our finances, I'm pleased to report on our strong balance sheet. In addition to over $250 million of cash on hand at the end of March, we recently strengthened our balance sheet and enhanced our financial flexibility through a $650 million strategic financing arrangement with Oaktree Capital and OMERS.

We refinanced our $400 million debt facility to one with a lower overall cost of capital and more favorable financial covenants. In addition, we entered into a $250 million capped revenue interest sales transaction with repayment based on a percentage of future ensifentrine revenue. With draws available under this facility at approval, we expect to have approximately $400 million at [launch] and potential access to an additional $425 million, giving us a runway beyond 2026.

Lastly, and before I turn the call over to Mark to review our financial results for the first quarter of 2024, I'd like to mention, we'll be entering a quiet period leading into the June 26 PDUFA date. And so we welcome your questions in the Q&A session. With that, Mark, please go ahead.

Thank you, Dave. We ended the first quarter of 2024 with $254.9 million in cash and equivalents. We believe that our balance sheet remains strong and with the current cash currently on hand and funding anticipated to be available under the $650 million strategic financing with Oaktree and OMERS, we expect to have sufficient runway beyond 2026, including the planned commercial launch of ensifentrine in the US, and our two new Phase 2 programs, Dave discussed a few moments ago.

Let me spend a minute discussing key terms of the financing package. Our primary goals in establishing this new package were to provide additional financial flexibility to the company as we look to launch ensifentrine, increase the quantum of cash on hand at launch while decreasing covenant risk and without diluting our shareholders, and providing lower cost of capital. The financing consists of a refinance of the existing $400 million facility we have in place with Oxford and Hercules and provides for a $250 million cap revenue interest sale, which we refer to as the RIPSA.

Under the terms of the debt facility, we are drawing $55 million at close in order to repay and retire the Oxford Hercules loan facility. We will be eligible to draw an additional $70 million at approval with $175 million available in two separate milestone-based tranches, and $100 million in future availability to support strategic initiatives.

Draws under the facility bear interest at 11% per annum with interest-only payments for five years and 100% of the principal due thereafter. Additionally, the covenant structure has been simplified and eased compared with the existing facility. Under the RIPSA, we will receive $100 million of non-approval with an additional $150 million available to draw at our discretion upon achieving certain commercial milestones. The revenue interest financing rate ranges from 5% of proceeds we receive from ex-US licensees that we may engage during the term of the RIPSA outside of the US, to 6.5% of global net sales of ensifentrine made by the company.

Total revenue interest financing payable by the company to Oaktree and OMERS is capped at 1.75 times the amount funded, with the ability to redeem the RIPSA at much lower multiples within the first three years from funding. This facility was designed with an expectation that if drawn in full it would be retired in approximately six years.

Now back to the results. For the quarter ended March 31, 2024, net loss after tax was $25.8 million compared to a net loss after tax of $16.7 million for the same period in 2023. This represents a loss of $0.04 per ordinary share or $0.32 per ADS for the quarter compared to a loss of $0.03 per ordinary share or $0.22 per ADS for the first quarter of 2023.

Research and development costs were $6.8 million for the quarter ended March 31, 2024, compared to the $12.6 million reported for the first quarter of 2023. This decrease was primarily due to expenses of $7.2 million in the first quarter of 2023 for finalizing all matters related to the Phase 3 ENHANCE program. As the program was completed in 2023, no similar costs were incurred in 2024.

This decrease was partially offset by $1.5 million of preapproval API and manufacturing related costs as well as an increase of $0.7 million in people related costs, including share-based compensation. Selling, general, and administrative expenses were $20.4 million for the quarter ended March 31, 2024, compared to $9.6 million reported for the same period in 2023.

This increase was driven primarily by increases of $4.6 million related to marketing, commercial preparations, and other precommercial activities; $1.1 million related to professional fees, consulting costs and other administrative expenses, which support our continued growth and evolution of the business; and $0.7 million related to the continued build-out of our information technology infrastructure.

Additionally, people-related costs increased by $4.1 million, including share-based compensation as we increased our headcount in our commercial and support functions ahead of the planned commercial launch.

I'll now turn the call back to the operator for the Q&A.

(Operator Instructions) Andrew Tsai, Jefferies.

Hi, thanks. Good morning. A couple of questions on our side. So the first one is on the review. Regeneron, they have a PDUFA after yours, recently said, the FDA notified Regeneron's PDUFA could be extended because FDA wanted more information. I know you're in discussions with the FDA routinely. Maybe they ask you questions a lot, but just wanted to confirm the FDA has not given you any inclination and sees PDUFA could be extended as well.

Good morning, Andrew. Thanks for the question. I would just say that we are continuing to work towards the June 26 PDUFA. And so that's what we know and what we're doing.

Okay. And the estimates for Dupixent is very high, the sell-side estimates. So the question is if Dupi does get approved around the same time as you do, do you think physicians will be writing more scripts for ensifentrine or Dupixent on a volume basis immediately upon launch? And why do you think that's the case.

So thanks. I'll give my general thoughts and then Chris can weigh in as well. You know, I think that as everybody knows, Dupixent, and data supports its use in a subset of patients. Those with higher eosinophil counts, which I think has been estimated in the US to involve around 300,000 patients that are currently treated, they know best of the 8.6 million that are under maintenance treatment in the US. So it does look like it's targeted at a fairly small portion of the overall patient population. And of course, ensifentrine, we view it, as you said, much broader, as it was studied. And actually studied in patients that were on LAMA or LABA and around 20% on a LABA/ICS. And that makes up the bulk of the majority of the patients that are treated in the US, so we see its application quite wide. And so we expect utilization across that spectrum of patients.

Chris, you want to add anything to that?

Yeah. I think the only thing I would add, Dave, is as we look at our market research, which again, Andrew, is over 1,000 physicians today is as Dave described a CMC conference utility across the spectrum in patients that have persistent symptoms.

One thing that is a very important feature of ensifentrine is because it has both PDE3 and PDE4 activity, you get both bronchodilation and anti-inflammatory effects. That bronchodilation effect is extremely important for both physicians and patients because these patients, number one symptom, they complain about is dyspnea.

So the ability to help these patients breathe better has a much broader application across this patient set and physician set than we believe Dupixent does, as Dave say, that -- stated, ensifentrine has broad utility across the 8.6 million patients that exist and are treated with maintenance therapies today. And remember, at least half of those patients are still symptomatic. So we believe that ensifentrine based on our market research fits in very nicely to the treatment algorithm for the physicians at that point.

Okay, got it. And last really quick question is how much do you think it will take for the launch to breakeven?

Mark, you want to comment?

Yeah. Andrew, I think we've addressed this on previous calls. And I think it's not just ensifentrine, I think it's any company like [Toronto] that has a single asset, no discovery engine, no lab space, a relatively lean overhead structure. I think in that situation, sales in the range of $250 million to $300 million run rate is what it takes to get to breakeven and profitability.

Great. Okay. Good luck. I'm excited for you.

Thanks so much.

Yasmeen Rahimi, Piper Sandler.

Sorry about that. I was on mute. Team, I guess the first question I have is you're going to enter a quiet period at the end of today and it appears and in between now and June 26, we have like two more months left. So why enter a quiet period so early?

What was the rationale for kind of stopping the communication here, that's one. Is that because you're going to have more interactions with the agency and you don't want to give us a play-by-play, like what's the rationale? That's one.

Second one is with the strategic financing, also makes me think it's a great deal. But what were the optionalities of doing this now versus you know, an equity raise, and not later point of time. Do you think that this financing will give you sufficient capital till full successful launch?

So just again, timing of this deal. And maybe more on why now and why versus say there is maybe other optionalities? And then the third one is, is there any new data points or key things that we're going to learn from ATS from the lineup of presentations that are going to be. Appreciate taking my three questions. Sorry, I'll move back to the queue.

Good morning, Yasmeen. Thanks very much for the questions. So maybe I'll just touch on the quiet period, and I'll turn it over to Mark for the strategic financing, and then Tara can talk about the data at ATS. I think that with this call, we have been reviewing exactly where we are on our commercial launch plans and where we are on our development programs.

Of course, just announcing the financing as well. As you point out, the last couple of months can be quite active with the FDA as well, and so I think we've covered everything and hopefully are up to speed on where we are. And so I think that overall it's been okay, it's a time where we're going to be focused on our execution and really have no substantial updates until really PDUFA. So that's our perspective on the quiet period. I don't know, Mark, you want to talk about the strategic financing timing?

Sure. So I think I've spoken in the past as people have asked me about our financing strategy and what we'd like to do. And part of it is that we want to make sure that we always have sufficient capital. We never get into a situation where there's a financing overhang.

There's been talk amongst investors over the past couple of quarters, you know, do you have enough cash on hand those types of questions. And so we wanted to address that situation, make sure that there was no, no financing overhang, at least as far as we are concerned. And one of the things that we did, so we exploratorily -- I don't know if that's a word, but on exploratory basis, we went out and talked to a royalty lenders.

This financing package presented itself and the terms are, in my opinion, quite nice. And one of the things that we're doing is we will have at launch an additional almost $100 million of cash because of the bringing the RIPSA in and yet we're lowering the amount of debt, that debt was fixed repayment terms and subject to covenant structures is actually being lowered by about $25 million.

And we've also taken those covenants and significantly made them more favorable for the company. So I think you take that whole package of rationale together, and that's what we did. And that's why we did it now. And when we get to approval, we will be 100% focused on launch. We won't be focused on raising capital, distracting the team as we're in those early days of launch. Tara?

Thanks, Mark. So I think what's coming at ATS that we're quite excited about, talking more about this data is more analyses of our exacerbation data, including exacerbation reduction across all baseline eosinophilic subgroups. So I think that's important data to get out there. Progression from Gold Group B to Gold Group E. And what this analysis is looking at is essentially progression of patients from an infrequent exacerbator to a frequent exacerbator and showing a strong signal for delayed progression there with ensifentrine through our enhanced data.

In the ATS presentations, we're also doing a deep dive into our data lung function symptoms, quality of life and exacerbation in the subgroup already taking a LAMA background medication for the LAMA subgroup. And also separately, the LABA/ICS subgroup, as these do represent the two largest classes of therapies that are being used today at the United States.

And then finally, we have some additional data looking at the dyspnea impact with ensifentrine of course, showing a very large and significant improvement in dyspnea across the studies in the ENHANCE program. So please do follow our ATS presentations and have a look at that.

Great. Thank you so much.

Tom Shrader, BTIG.

Good morning, thanks for taking the question. Back to the deal a little bit. Are you required to take anything other than the 55 to refinance the other deal? And should we assume that you're going to take, I think it's 100 plus 70 at approval or would you say the odds are very high, you take all of that at approval? And then I have a disease question.

Yeah. So actually, nothing is really required. I think the expectation should be that we will take the 100 [drawn] at RIPSA at approval and the $70 million under the debt deal and approve all the other milestones and potential draws are completely at our discretion.

Great. Thank you. And then a quick question for Chris. The big focus on disease awareness, is that exacerbation focused? Where do you think patients are given there's really no good drug for exacerbations now and understanding that they might be able to treat these things early. Is that kind of the focus from your ATS headline? It seems like it might be, but is that really what you're focused on with the disease awareness?

Yes, Tom, thank you for the question. I think when we think about the insights that we've learned from patients and physicians is over the course of the last year, it's really about persistent symptoms with these patients.

And one of the things that we see in the data in the literature is that patients report that they are persistently symptomatic for up to, as Dave described earlier, at least 24 days a month, you have 60% of patients on maximal treatment that are dissatisfied with their current therapies.

And the point of the unspoken COPD campaign is to really highlight how persistent these symptoms exist in these patients and how they're existing and get the physician to engage in a more meaningful dialogue with the patient to understand if there needs to be a treatment change and how that patient wants to progress within the treatment algorithm.

The important thing here is what we've learned about exacerbations and symptoms is exacerbations are just a worsening of symptoms. And when we talk to patients, what they tell us is they care about the day-to-day activities. They care about being able to walk outside to the mailbox, they care about being able to play with a grandchild. These activities are things that are dealt with by the ability to breathe. And our -- the effect that ensifentrine as a PDE3/PDE4 mechanism allows for both the long term nonsteroidal anti-inflammatory effects to potentially occur, but also allows the physician and the patient to experience bronchodilation through that PDE3 mechanism, which that bronchodilation should open the airways up and allow that patient to breathe better and potentially get back to some of the activities that he or she is hoping to gain.

Great. Thank you. That's very useful.

Raghuram Selvaraju, H.C. Wainwright.

Thanks very much for taking my questions. Just a couple of clarificatory points around the RIPSA, it was stated in the press release that the total repayment amount will be modified if you wind up repaying it ahead of schedule. Could you just give us some additional clarity on precisely how that mechanism works, and what formula applies in such a case?

Sure, Ram. So that the -- there's a hard cap on repayments, so they'll get 6.5% of sales here in the US and 5% of any monies we bring in from ex-US partners until they receive a return of 1.75x there -- their investment. Now if we pay the -- if we want to repay it earlier, we can do that.

And it's -- there is a different level of repayment amount each year. So that cap becomes much lower depending on how early it is. So in the 1st year, the cap is lowest; second year is a little bit higher; third year is a little bit higher; and then beyond that, it's at the 1.75x. I don't think we've disclosed the specific caps in those earlier years, but it could be at our choice, it could be paid at a much lower cost in the first couple of years.

But at least where things currently stand right now, especially given the royalty percentage, the base case scenario would probably be that you hold the debt until maturity. Is that correct?

Yes. I think that depends on how you have your sales ramp built in your model. But I think as you look at the ramp and launch of ensifentrine, first you have to make the decision as to whether you think will take both draws or just one, and then how quickly and revenue will be coming in from the ensifentrine sales [to repay it].

Also related to the facility, this kind of echoes questions that were asked earlier, but were there any specific factors as you look at the overall market and the need for the launch that led you to put this in place now, just wanted to see if there was any new information that indicated to you, commercial activities would need to be more intensive in any way or anything like that?

Yes. Great. Great question. So we've said over the last couple of years that when we designed the financing strategy for Verona, we did that based on understanding the four operating model and the expectation of the cost of launch, the field deployment, the amount of marketing support that it would take, and we felt that even before this financing that we are very adequately capitalized in order to execute on that.

This financing, I think you should look at as really providing additional financial flexibility for us in terms of if we are early in the launch and we say, oh, we could accelerate sales by stepping on the gas in this area, it provides us a little bit more capital to do that. Or have other assets present themselves that we are interested in pursuing to broaden the portfolio, it provides us flexibility to do that as well.

And then just lastly, following on from that, I wanted to know whether is there anything we should read into this with respect to how you folks are thinking about the DTC advertising elements of the commercialization equation?

And if we should be thinking about this as being potentially indicative of your examination of a scenario in which you'd elect to bring in DTC advertising earlier rather than later, or if that really -- one really doesn't have anything to do with the other. And if you could comment at all on, you know, what you expect the triggers to be for your deciding to begin DTC advertising, and at what stage of the ensifentrine launch we might see that? Thank you.

Okay. So maybe I'll start on it from the financial perspective. And then Chris can talk about the DTC components. And I'd say around -- with respect to the financing element of the question, this financing had really nothing to do with any known plans or ideas about any additional DTC other than what's on plan. But maybe, Chris, you can talk about how you're thinking about DTC.

Yeah. Ram, appreciate the question. You know, when we -- over the last year, I think we've talked to thousands of patients now either through looking at charts or through quantitative research.

And what we continue to see is just like we see with the physicians, there's tremendous unmet need for something novel and new that can help the patient potentially breathe better and prevent some of the long-term effects of inflammation within the patient as well. As we think about going into launch, we have always planned to be able to reach the patient in various channels.

I consider DTC, as you described, potentially as TV ads on your local cable or satellite TV networks, but reaching the patient exists in a lot of other ways today. We plan it to be able to reach the patient today in a more direct to patient manner, which is if you think about that, it's banner advertisements on the right internet places, it's reaching patients potentially through social channels.

And that is something that we've always planned to do over the course of the last 18 months. And I think what we continue to see over the course of our research is the tremendous interest that exists with ensifentrine. You know, the interest with HCPs is very high, but the interest with patients is also very high. So our launch plans have always included engaging the patient in some form or fashion over the course of the next 12 to 18 months.

I think the important thing as we think about how and when you engage patients is you have to think about making sure that our physicians understand what the molecule is, how the molecule works, and then how to get the molecule for their patients. Because if we do have patients going in asking for ensifentrine, we need that doctor to be able to actually prescribe it. And so that's something that when it comes to a timing standpoint, we have to make sure that the physicians have the right awareness before we fully engage all patient activation across the launch.

Thank you very much.

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to David Zaccardelli for closing remarks.

Thank you, everyone, for joining us today and for your questions. I think in conclusion, we are very confident that our data support the approval of ensifentrine for the maintenance treatment of COPD.

And as you've heard today, we're very well positioned for a successful launch. We look forward to the upcoming PDUFA date of June 26 and updating you as we proceed. So have a great day.

The conference has now concluded.

Thank you for attending today's presentation. You may now disconnect your lines.