Verona Pharma plc (VRNA) Earnings Call Transcript & Summary

Welcome to Verona Pharma's Fourth Quarter and Full Year 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 and full year ended December 31, 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 its use 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.

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. 2022 was a momentous year for Verona Pharma and first and foremost, for the millions of patients suffering from COPD. Supported by the groundbreaking results from our Phase III ENHANCE trials, we believe ensifentrine, if approved, has the potential to change the treatment paradigm for COPD. We are on track to submit a new drug application to the FDA in the second quarter of 2023. Over the past year, we announced positive top line results from our Phase III ENHANCE trials evaluating nebulized ensifentrine for the maintenance treatment of COPD in moderate to severe COPD patients. Ensifentrine successfully met the primary endpoint in both ENHANCE-1 and ENHANCE-2, demonstrating statistically significant and clinically meaningful improvements in lung function as well as remarkable reduction in rate and risk of exacerbations. The success of these trials advances us closer to providing ensifentrine to a patient population in urgent need of new effective treatment options. Additionally, this strong clinical data allowed us to significantly strengthen our financial position through an upsized $150 million equity offering in August and a $150 million non-dilutive debt financing facility with Oxford Finance in October as well as through March 3, $58.6 million from ADS sales under our ATM program. With that said, let me take a step back and provide a brief review of our ENHANCE program. As a reminder, the ENHANCE-1 and ENHANCE-2 trials were each designed to enroll approximately 800 moderate to severe symptomatic COPD subjects for a total of approximately 1,600 subjects across sites, primarily in the United States and Europe. The trials replicated measurements of efficacy and safety over 24 weeks and ENHANCE-1 also evaluated 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 69% of subjects across ENHANCE-1 and 55% in ENHANCE-2 receiving either a LAMA, long-acting muscarinic antagonist or LABA, long-acting beta agonist. Additionally, approximately 20% of subjects in ENHANCE-1 and 15% in ENHANCE-2 received inhaled corticosteroids with concomitant LAMA or LABA. As previously announced, both the ENHANCE-1 and ENHANCE-2 trials successfully met primary and key secondary endpoints, demonstrating statistically significant improvements in lung function. In addition, ensifentrine substantially improved symptoms and quality of life, as well as reducing the rate and risk of COPD exacerbations in both trials and was well tolerated over 24 and 48 weeks. Importantly, pooled exacerbation data from ENHANCE-1 and ENHANCE-2 demonstrated that ensifentrine treatment resulted in a statistically significant 40% reduction in the rate of COPD exacerbations compared with placebo over 24 weeks. Further, ensifentrine significantly decreased the risk of an exacerbation as measured by time to first exacerbation when compared with placebo by 41%. Based on the study population, we believe this magnitude of reduction in exacerbation rate and risk is unprecedented in Phase III COPD trials and further validates the importance of ensifentrine's novel mechanism, delivering nonsteroidal anti-inflammatory activity in addition to bronchodilation for the treatment of patients with COPD. I'd also like to reiterate the consistency of the positive results between ENHANCE-1 and ENHANCE-2 trials. The totality of the data from both studies, coupled with favorable safety profile of ensifentrine, support our belief that ensifentrine will change the treatment paradigm for COPD. With this positive data in hand, we plan to submit an NDA to the FDA in the second quarter of this year. In parallel, our pre-commercialization efforts and U.S. launch activities are proceeding as planned. Following our strong ENHANCE-2 data in August, we began filling key leadership positions across commercial, HR, IT and finance. We are accelerating our efforts as we prepare for NDA submission and beyond, and we are confident that we will be well positioned for a potential U.S. launch of ensifentrine in 2024. Turning to our global partnering strategy. In 2022, 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 as such, they will play a key role in addressing the global need for a novel treatment for COPD. We look forward to providing further updates as these studies progress. Currently, more than 380 million patients suffer from COPD worldwide, and it is the third leading cause of death. Despite the availability of existing COPD treatments, approximately 50% of patients experience symptoms for more than 24 days per month, and physicians require new and effective COPD therapies to provide relief to their patients. With its novel mechanism of action as a selected PDE3 and PDE4 inhibitor, we believe ensifentrine, if approved, will be groundbreaking in the field of COPD management. We expect 2023 to be another pivotal year for Verona as we advance towards our mission of delivering ensifentrine to patients with COPD. I will now turn the call over to Mark to review our financial results for 2022.

Thank you, Dave. Good morning. We ended 2022 with $227.8 million in cash and equivalents. Starting in January, we ran the ATM program through last Friday, and during that time, we raised net proceeds of approximately $56.9 million. After giving effect to the proceeds from the ATM facility, our pro forma cash and equivalents at December 31, 2022, was $284.7 million. Between the cash currently on hand, the expected receipts from the U.K. tax credit program and funding expected to be available under the $150 million Oxford loan facility, we believe our cash runway will extend through at least the end of 2025, including the planned commercial launch of ensifentrine in the United States. For the year ended December 31, 2022, the net loss after tax was $68.7 million compared to a net loss after tax of $55.6 million for the prior year. The loss in 2022 was higher primarily due to $40 million of nonrecurring revenue related to the Nuance agreement, which more than offset the higher R&D spend in 2021. This represents a loss of $0.13 per ordinary share or $1.04 per ADS for the year compared to a loss of $0.12 per ordinary share or $0.96 per ADS in 2021. Research and development costs were $49.3 million for the year ended December 31, 2022, compared to $79.4 million reported for the year 2021. The decrease was primarily due to lower clinical trials and other development costs of $27.9 million, resulting from the ENHANCE studies nearing completion in 2022 and a $4.2 million decrease in share-based compensation charges. Selling, general and administrative expenses were $26.6 million for the year ended December 31, 2022, compared to $33.9 million reported for the prior year. The decrease of $7.3 million was primarily due to lower share-based compensation charges. The U.K. R&D tax credit for 2022 was $9.6 million compared to a credit of $15.6 million for the year ended December 31, 2021. The decrease of $6 million is in line with our lower qualifying R&D expenditure incurred with the ENHANCE program in 2022. I'll now turn the call back over to the operator for the Q&A.

[Operator Instructions] Our first question will come from Andreas Argyrides with Wedbush Securities.

Just 1 from us here. So Sanofi and Regeneron have guided to top line results from the Phase III study of Dupixent in moderate to severe COPD type 2 inflammation later this month. The KOLs we've spoken with have about a 20% reduction in exacerbations as being clinically meaningful, which is well below the 40% ensifentrine showed. So curious to get your thoughts on their readout and what impact positive data may have on the commercial landscape and ensifentrine's positioning in exacerbations.

Andreas, thanks for the question. I'm going to ask Kathy to give her perspective as a pulmonologist on Dupixent and its impact. Overall, I think that we are intrigued by the study. But I think we need to keep in mind that patient population is much more limited than that we address with ensifentrine and so we don't really see a big impact. But Kathy, you may want to comment on it?

Sure. So as Dave said, the population would be different because this would be a much smaller population of COPD patients. In general, they're looking for patients who have high eosinophils and so forth and without actually having a protocol in front of you, I can't tell you all the differences. But then generally, they're looking at a niche area to affect patients for that. And certainly 20% might be good in that population since they're usually taking a whole bunch of other medications also. But what's remarkable about ensifentrine is that we have about 40% in a total COPD population. So it doesn't matter whether you have high eosinophils or not or whether you have chronic bronchitis or not, whether you're on inhaled steroids or not. We see this remarkable decrease in exacerbations in a general COPD population. So I think that's what makes the difference between ensifentrine and looking at a compound like Dupixent.

And would -- just a quick follow-up there. Would positive data, I'm assuming Dupixent maybe on the market, would that impact any pricing, especially given the benefit that ensifentrine has shown in exacerbations compared to Dupixent?

I don't know, Chris, do you want to comment in general on where we are with pricing?

Yes, I can do that. Andreas, I think, when we think about pricing with ensifentrine, we've used the current nebulized products as kind of a baseline floor for ensifentrine. Those products by the time we launch will be somewhere around $1,400 a month. One of the things that we realize and you just mentioned there, the results on exacerbations are very impactful, not only to the physician community but to the payer community. And when we've talked to payers to date within Medicare Part D, Medicare Advantage, they expect ensifentrine to be priced at a premium versus those current products. I think some of the other dynamics that we have in play as we think about pricing or the impact of the Inflation Reduction Act, and that legislation on how we might price ensifentrine going into the market. But the important thing here is that the profile of ensifentrine, which provides bronchodilation, improvements in symptoms and the marketable market results on exacerbation, provide a lot of price flexibility for us as we think about what that value would be as we get to launch. So I think we feel very confident that ensifentrine's value is great within the marketplace. And we also feel like from a payer perspective, the receptivity to pricing ensifentrine at a premium versus the current products is a very positive reception as well.

Okay. Great. Congrats on all the progress. Thanks.

Thanks, Andreas.

Our next question will come from Joon Lee with Truist Securities.

This is Asim on for Joon. First question is about the NDA. Just wondering how the NDA process is going. And then just also wondering what's the rate limiting step to getting a European partner on board, your strategy for your European regulatory process and sort of that nature?

Sure. Thanks so much for the question. The NDA is progressing very well. And as we guided, we're tracking to have a submission in the second quarter. All the components to it are coming together, not only, of course, the clinical, which is always important. And in this case, it was one of the rate-limiting steps, but also, of course, the CMC, the nonclinical and other aspects of the NDA. So we're very pleased where we're at with it and looking forward to that submission. As far as partnering goes, our strategy remains the same in that we are looking to partner ensifentrine outside the United States. As you know, we have done that already in Greater China with Nuance Pharma. These conversations are all different, as partners are different. Their needs are different, their size, their scope, et cetera. And so some of these timing, we can't control other than sticking with our strategy, which we're very confident in. And so I expect partnering to be a focus of 2023, as I've mentioned before. And we look forward to updating everyone as we have more to report on our partnering but it is definitely our articulated strategy.

Our next question will come from Tom Shrader with BTIG.

Some general questions. Do you expect to launch on approval? Do you expect that will be your level of preparedness? And then for Chris, can you give us a sense of what a good payer acceptance ramp would look like in this area? We're a little less experienced. What should you have in terms of, I would say, at a year or something like that? And then also, what do you expect for the co-pay to be for this drug?

Chris, do you want to go ahead and take those?

Yes. Tom, I'll start on launch on approval. Across the organization, we've been working a very comprehensive launch readiness plan that involves not only the commercial department but as Dave mentioned in his talk, other departments to support commercial as we get ready for launch, including CMC, finance, and that plan is progressing very well. We -- our plan is to launch as soon as possible after approval. It is an important point that once we get approval, we will have to get product into the channel, that does take a couple of weeks. And then we also will be hiring reps at the time of approval. We're not going to bring reps on before approval. So there will be training. But our plan is to launch as quickly after approval as possible. And the organization is working toward those plans, and we're in a very good shape to launch as quickly as possible after approval. As far as your second question on payer acceptance, I think it's really important to think about ensifentrine differently than what you typically see with launches today because launches today typically launch within Medicare Part D, as in dog or commercial. And those payer channels tend to have very tight restrictions for new products at launch. Ensifentrine's primary reimbursement channel is Medicare Part B, as in boy. And we know within Medicare Part B that our access will be available at launch for physicians. And we can see that with what will happen with YUPELRI. YUPELRI had very high access and acceptance rates at launch, with YUPELRI in that channel, and that caused the product to be able to be used by the physicians. There are some important steps that we have to go through within the Medicare Part B channel. But those are things that we're working on today. Those include ensuring that we're covered under existing coverage policies, which we believe that will be the case with ensifentrine. We also are establishing and getting our paperwork ready for a product-specific J-code. That J-code submission will go in immediately upon approval. And then we should expect to get that product-specific J-code within 3 to 6 months. In the meantime, you use the existing nonspecific J-code to get coverage and get payment to the pharmacies. So we feel very, very confident that ensifentrine coverage and overall ability to be used by the physicians is going to be high at launch and high throughout the first year. The other side of that story is what you discussed there, is what are copays for patients. And when we look at the Medicare Part B channel and Medicare in general, what we see for the nebulized products over the last year is that 80% of these patients are paying less than $10 for their prescriptions of branded nebulized products. This is an extremely attractive proposition for physicians. So not only do they get access, but they have low out-of-pocket costs. So I think those dynamics allow us to be very excited about how we anticipate the uptake for ensifentrine to be when we launch in 2024.

And maybe just 1 quick clarification. You can talk to payers before approval? Or does everything start at approval?

We can have early discussions with payers before approval. Some of that is about the disease state and their needs, but we can have early discussions with payers as we move through the process.

Our next question will come from Boobalan Pachaiyappan with H.C. Wainwright.

This is Boobalan. Can you hear me okay?

Yes, perfectly.

All right, right. So 3 from us. So firstly, can you speak to how efficiently ensifentrine can be manufactured and expected COGS related to traditional LAMA and LABA therapeutics?

Sure, I'll make a general statement and Mark can comment on COGS, ensifentrine is a small molecule and its manufacturing has been very well sorted over the years. We believe we have an extremely efficient manufacturing process for the drug substance or API. The drug product is manufactured in the blow-fill-seal into plastic ampoules. Again, a process that's very well described, and we're very comfortable with the scale-up that has occurred. And I think the cost is, again, in line with other products that are manufactured in the same way. I don't know, Mark, do you want to comment?

Yes. I'll just echo your comments, Dave, that it is a small molecule. So the cost of manufacturing, those are generally fairly consistent across compounds. And I think the way you should expect or think about COGS is low single-digit percentage of sales, at least for manufacturing COGS.

All right. Great. What will be the role of combination versus monotherapy for ensifentrine in your estimation?

Well, I think, to make sure I understand the question. Are you asking how often we would see it in combination? Or maybe you can clarify your question specifically?

Yes. With respect to combination.

Yes. Well, I think that -- as we saw in the trial, ensifentrine has been used and can be used as monotherapy, as well as we studied in combination with LAMA and LABA. I think it works in all these settings and even in addition to ICS. So we're very comfortable with ensifentrine's use along the complete treatment paradigm in COPD. And that's why I mentioned in my remarks that because of its effect both in efficacy and safety and overall benefit to risk, we think ensifentrine is going to change exactly how COPD is treated, where you're going to see ensifentrine utilized earlier in the treatment paradigm. And we think avoiding ICS is always a positive attribute especially in those patients who don't require ICS. And in addition, those that are on triple therapy who have really limited to no other choices, ensifentrine, again, with its benefit to risk can play a role in helping those patients. And so we see it used a little everywhere, again in some of the -- in the treatment paradigm.

One final question from me. So given your substantial cash balance and recent success of the ensifentrine program, can you talk about the strategic vision for the company over the next 3 to 5 years?

Yes, sure. Very good question. Clearly, as we've been focused over the past 2, 3 years, execution on ensifentrine for COPD has been critical and will continue to be so. So in the short term, of course, we have an NDA. In the medium term, we're looking for approval and launch in the COPD space. As I mentioned, that's going to be groundbreaking in the field of COPD, and we look forward to helping millions of patients with ensifentrine in that space, specifically in the U.S. but also throughout the world. And I think that's an incredible opportunity over the coming years. In addition to that, we have mentioned previously, we are moving forward and in the early stages of a combination product development of a LAMA plus ensifentrine, which we think makes incredible amount of sense. We know the field is set up for combination therapy as well, and we look forward to updating everybody on the progress of that. In addition, of course, ensifentrine has a lot of opportunity in other respiratory diseases, asthma, for example, cystic fibrosis, possibly IPF and so there are a lot of opportunities for us to explore. We are looking to our partnership strategy with regard to these other indications because they will probably include other delivery devices, MDI or DPI. We think leveraging a partner's experience or own proprietary devices makes a lot of sense. And so we look forward to expanding into these other indications via a partnership primarily while we continue to create the value for Verona Pharma through ensifentrine and COPD in the nebulized route, and as I mentioned, through the combination product development.

All right. Congrats.

Thanks so much.

Our next question will come from Yasmeen Rahimi with Piper Sandler.

This is Lauren on for Yas. Just a few questions. The first, based on physician feedback at the moment, which patients would they want to put on ensifentrine? And then second, have payers commented at all about the potential for ensifentrine to reduce overall COPD health care utilization? Or is the focus more narrow in short term?

Chris, do you want to take down those 2?

Yes, I can do that. Lauren, thanks for the question. I think when we think about physician feedback and the market research, which we've done, which is very extensive, I think, in the past year, we've talked to well over 200 physicians, both pulmonologists, primary care physicians, but also nurse practitioners and PAs. And the thing that they continue to reiterate to us is this idea that ensifentrine, as Dave talked about, can be used very broadly across the treatment paradigm. They reiterate to us that if we look at patients that are -- they have today in their practice, many of them remain symptomatic and at risk for exacerbations. And the addition of a new mechanism to these patients is something they haven't been able to do in 14 plus -- 14 to 20 years. So this gives them ability to do something very different. So if we think about how many patients are treated today, we know there's about 8.5 million treated patients. We also know that there's about 6 million of those patients on what you would consider the ENHANCE trial population, which is either LAMA or LABA or LABA/ICS patients. And in those patients, you see physicians adding ensifentrine on at a very high rate. The other group of patients are what Dave described earlier, which are these patients on dual bronchodilator or triple therapy, where the physicians have no options, and we know these patients are still symptomatic. And in those patients, the physicians look at ensifentrine as an add-on as well at a very high rate in those patients because it gives them the ability to layer on an additional mechanism to the patients that could provide them this early and sustained response on bronchodilation symptoms and then the risk and rate of exacerbation. So we feel very confidently based on the market research and our interactions with KOLs that ensifentrine will be used broadly across the patient population and really change the treatment paradigm that is occurring within COPD today. I think your second question was around payers and health care utilization. I think that's -- when we go back to a question earlier, which is around pricing, one of the reasons why the payers are believing ensifentrine would be priced at a premium versus the current products is because of that benefit that ensifentrine has on exacerbations and potentially overall health care utilization within their plans. We know that COPD is a high burden to the payer in the system. I think there's -- at the last data check, over $50 billion worth of indirect or direct costs are associated with COPD and complications of COPD. So the ability for ensifentrine to reduce the rate and risk of exacerbations and help improve patient symptoms and lung function is a very attractive benefit. So they're not looking at it just as a short term, but they're also looking at those implications long term, as they think about how to cover it and what they would accept as a price for ensifentrine as well.

It appears there are no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to David Zaccardelli for any closing remarks.

Great. Thank you, everyone, for your questions, and thank you to the patients and health care professionals who participated in ENHANCE program. We are attending several upcoming conferences, including Jefferies Biotech on the Bay Summit and ATS and look forward to speaking to many of you then. As a reminder, our near-term milestones include submitting our NDA to the FDA in the second quarter and continuing preparations for our planned U.S. commercial launch of ensifentrine. 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.

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