Verona Pharma plc (VRNA) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Verona Pharma Company presentation. My name is Ethan Taylor. I'm an Associate in JPMorgan's Healthcare Investment Banking Group. It is my pleasure to introduce David Zaccardelli, President and CEO of Verona Pharma. A quick note, there will be some time at the end of the presentation for audience Q&A. So please have some questions ready. And with that, David, please take it away.

Great. Thank you so much, and good afternoon, everyone. It's a pleasure to be here to give you an update on Verona Pharma and our lead compound, ensifentrine. With that, I just want to remind you we'll be making forward-looking statements and referring to our SEC filings for all risk factors. So ensifentrine has been developed for the maintenance treatment of COPD. It is under FDA review, and we'll talk more about that today. There are a few things I'd like to remind you as we talk about ensifentrine today, 3 things. One, it's a very large market with unmet need, for sure. The market in the U.S. is about $10 billion, and they're really, literally are millions of patients that still are symptomatic on the current standard of treatment. Ensifentrine has a very novel profile, which is critically important to understand its uptake and its utilization in the treatment of COPD. It is a novel selective PDE3, PDE4 inhibitor. It has extensive positive Phase 3 data, which we'll review briefly today, and is very well tolerated. The third thing to keep in mind, it's a very targeted commercial opportunity with some very unique features. First is, we have a very clear vision of how we're going to deploy and market ensifentrine, and you'll hear more about that in the second half of the talk as well as it is reimbursed primarily through Medicare Part B, which has a number of advantages we'll cover today. Ensifentrine also is being studied in multiple diseases, including non-CF bronchiectasis, cystic fibrosis and asthma. We also have started a development program for the maintenance of treatment of COPD with a combination product, that is ensifentrine plus a LAMA. And of course, we have also done preliminary work and proof-of-concept of ensifentrine in different dosage forms, including DPI and MDI. So you can see that there is a tremendous opportunity beyond the initial indication for ensifentrine. We are in a very strong financial position at Verona Pharma. At the end of September, we had $257 million in cash. We have just recently announced that we had expanded our debt facility to $400 million, taking down $50 million upon closing. So we have great access to capital and are funded through 2026. Let's take a moment and talk about the landscape of the treatment of COPD in the U.S. There are really 3 types of products that are used to treat COPD: that is a LAMA, which is long-acting muscarinic antagonist; LABA, long-acting beta agonist; and ICS, or inhaled corticosteroids. And all the products on the market today are really variations of these 3 pharmacologic classes. This has been the case for quite some time in COPD, and there's been very little innovation other than variations of combinations and devices for these products. When you take a look at ensifentrine more directly, with its novel mechanism as a PDE3, PDE4 inhibitor, it exhibits some very specific characteristics. That -- first, it is an acute bronchodilator, and that's primarily through PDE3 inhibition. It also is an anti-inflammatory, of course, nonsteroidal, which is important, primarily through PDE4 inhibition, and also through activation of CFTR increases ciliary function. As you can imagine, ensifentrine with this profile of bronchodilation, anti-inflammatory and increased ciliary function could be used for multiple diseases -- respiratory diseases, as we've discussed already. If we take a turn towards the Phase 3 program that was completed last year for ensifentrine, it was very compelling, and remarkable results from the trials. Here it just depicts the lung function improvement at week 12 in the ensifentrine group. And you can see that not only the primary endpoint, which was FEV1, AUC at week 12, meeting that statistically and significantly important improvements in lung function, also peak and trough FEV1 at week 12 were improved in the ensifentrine group. So very consistent data on the improvement of lung function, which also was demonstrated across the spectrum of subgroup analysis in both these trials. In addition to lung function improvement, there was a remarkable reduction in exacerbation rate and risk with ensifentrine. And on a combined basis, you see now a 40% reduction in the exacerbation rate. Again, very compelling, important, clinically significant results with ensifentrine. If you take a look at all the data, or the key data, I should say, within the ENHANCE trials, you can see at the top, of course, improvement in lung function, as I've talked about already, also improvement of symptoms and quality of life through measures of ERS and SGRQ scoring systems, as well as, as we've discussed, the exacerbation rate reduction and risk. Importantly, in addition to the efficacy, is a very favorable safety profile, with a safety profile that's essentially comparable to placebo with really no AEs of interest identified in the program. So when you combine the efficacy that was demonstrated along with the safety, you have a very strong benefit-to-risk with ensifentrine, which I think, as you'll hear more about, will play very well in the commercial uptake. And specifically, as I mentioned before, we have the NDA already under review. We have a PDUFA date of June 26 of this year and a planned launch for ensifentrine in the second half. And with that, I'm going to turn over the talk to our Chief Commercial Officer, Chris Martin.

Thanks, Dave, and I appreciate the time to present to you all today. As we think about COPD, one of the things that's really important about this market, and Dave talked about how many patients exist in the market, with $10 billion in sales, there's well over 8 million patients that are treated within the maintenance class of COPD. But one thing that remains consistent, regardless of the drugs that these patients are, persistent symptoms exist across all lines of therapy. What you see on the left-hand side of this slide is data that looks at over 2,000 patients. And what you can see here is about half these patients are having symptoms between 24 and 30 days a month. These are patients that are on current therapies. Additionally, on the right-hand side, as you look at this, these are patients that are maintained on dual or triple therapy, what doctors would consider maximal therapy in the COPD class today. And you can see -- when patients are surveyed and discussed, you see that about 2/3, 60% of these patients are dissatisfied. And the reason why they're dissatisfied is related to symptoms that they deal with every day, things that cause them to not be able to do the activities that we all probably take for granted in this room. So this is an important aspect when we think about why a new mechanism, why a new molecule is needed within COPD. The other thing that we know about COPD today is that nebulizers in the United States are extraordinarily common. They are a device that patients regularly use. They are device that patients regularly have at their house. In fact, at least 50% of patients have a nebulizer today and are actively using them. When we talk to physicians about nebulizers, there are certain behaviors or characteristics that they like about them. One is they believe that because the nebulizer is delivering directly to the lungs, that it helps with efficacy and onset in action. The other thing indirectly because of the reimbursement channel, they believe that nebulizers have lower out-of-pocket costs, and we'll talk a little bit more about the reimbursement channel and how that's affected. So now if we think about what's going on today in the marketplace in the United States, there are 8.6 million treated patients for COPD. These are maintenance treated patients. And as you can see on the graph, there's about a breakdown of -- there's about 1.8 million patients on what would be considered a single bronchodilator. There's about 4.2 million patients on LABA/ICS. This is our direct ENHANCE population. The data that Dave described in our clinical trial, these are the patients that we studied within that study population. Additionally, you can see that there are other patients that have been progressed to LABA/LAMA or dual bronchodilator or triple therapy as well. There's about 2.6 million in that category there. But again, regardless of what therapy they're on, there's -- about 50% of these patients are symptomatic. And when we talk to physicians, what the doctors do to treat these patients is, when the symptoms are persistent, they continue to look for ways that they can help them or add new therapies to make them feel better and get back to some sense of quality of life that they had before. So when we ask doctors and introduce ensifentrine to them, we want to understand how ensifentrine would fit into this marketplace. And you can see here from the slide that ensifentrine's adoption here in the United States, if approved, would be extraordinarily high. Remember, ensifentrine is the first novel mechanism that's been approved in the U.S. in over a decade. Everything up until this point, the last 14 launches, have been a LAMA, a LABA or an ICS therapy. They're either alone or in combination. So the doctors have continually told us in research that these patients need some other way to bronchodilate or to provide a nonsteroidal anti-inflammatory. And we see that reflected in the shares here. You can see in the ENHANCE population, the majority of patients that exist in the United States that between 15% and 20-plus percent of the patients could be added -- ensifentrine could be added to. Additionally, when we think of those patients maximally treated, you see those shares go up. And the question can be, is why do the shares go up in that patient population? And in our discussions with physicians, the reason why the share increases, because in that patient population today, their choices are extraordinarily limited. They use oral steroids, oral antibiotics, Daliresp, which is a PDE4 inhibitor, and they sometimes refer these patients to surgery. So when they see the risk-benefit profile of ensifentrine, they believe this is a very likely add-on choice for all patients that are on current maintenance therapy, regardless of what their initial therapy is. It revolves around having persistent symptoms. And again, this market research has been validated across several studies. We've talked to over 1,000 physicians over the course of the last 2 years. So we feel very confident that ensifentrine's profile is not only something that will be highly adopted, but will produce very good outcomes for the patients and the physicians that use it. So now the second part of the equation always is, when we go into a launch, we worry about physician adoption, we worry about how the patients are going to do on the product. But ultimately, access in the United States is critically important. And when we think about the current payer dynamics for the nebulized products, it's very different than what you traditionally see within COPD or in other drug launches. Most drug launches that you see in the United States are dominated by commercial payers and Medicare Part D. And in those launches, you walk into step-edits, NDC blocks and other dynamics that potentially prevent a drug for utilization to be matched with its uptake. With ensifentrine though, because it is delivered through a standard jet nebulizer, it is primarily reimbursed through Medicare Part B. And if it's in Medicare Advantage, it actually gets reimbursed under the medical benefit side as well. And so when we look at this, what is the characteristics and what is the difference there? Well, within the Medicare Part B and the Medicare Advantage side, there's 100% access. There the access is generated through nonspecific or product-specific J-Codes and local coverage determinations. Those all exist today. Those are all in place for ensifentrine to be able to be used at launch and to be able to be utilized in the physicians' minds how they want to use it with their patients. On the other side of the equation, which is, again, a much smaller portion of the business, we've talked to all the major plans here in the United States, either Medicare Part D, Medicare Advantage. And ensifentrine's profile is extraordinarily compelling. It's a compelling profile because it's a novel MOA. They haven't seen this when they've had a COPD drug come into their payer or their system up until this point. They're also excited because of the data. As Dave described, you have a drug that provides bronchodilation effects, you have a drug that provides symptom improvement, and you have a drug that potentially provides exacerbation rate and risk reduction. That profile for a payer is extraordinarily compelling, and it's something that they are very likely to add in our discussions with the payers as well. So as we think about payer dynamics, we also think about how are we going to price, or potentially price ensifentrine, if it's approved. And this slide, what you can see is the current COPD pricing dynamics in the market. And the way products are priced in all therapeutic categories are priced of HCP and patient value. On the far left of this slide, you can see that the current DPI or MDI products that are delivered through that device and reimbursed through Medicare Part D are typically priced somewhere between $400 and $650 a month. However, when you move to nebulization and Medicare Part B, you can see that the pricing for PERFOROMIST, BROVANA, Lonhala and YUPELRI changes. These are single LAMAs or LABAs. They're not dual, they're not -- they're undifferentiated products. The pricing moves between $1,100 and $1,300 a month. And then on the far right, you can see Dupixent or dupilumab there. That is a product that is in development for COPD, but currently is priced well over $3,500 a month. When we think about the pricing for ensifentrine, we believe that the value of the product with the MOA, the data is much different than where the current nebulized products sit. So somewhere in that range, you can see how ensifentrine could be priced at an appropriate value to the HCP, to the patient and the system. So the next question for us as we get ready for the PDUFA date on June 26 is, how do we go out and reach a COPD opportunity? Many in this room probably have heard COPD is a large market, a lot of prescribers out there, and that is a true statement. If you surveyed all the doctors that write one prescription of a COPD drug in the United States, it's actually about over 400,000 providers. However, how many of those doctors actually write the majority of the business. And these 3 examples are really good. So on the left, what you see is TRELEGY, which has an asthma and COPD indication. $4 billion-plus in sales, 70% of their business is generated by 23,000 doctors. That's not a lot of prescribers to reach to reach the majority of that business. That drug launched in 2017. So these 23,000 doctors didn't occur on day 1. They occurred now 5, 6 years, 7 years later. So as we move down the line, BREZTRI launched in 2020. It's around $1 billion run rate and it's about 11,000 doctors that write 70% of that business. And the most recent nebulized launch is YUPELRI, which is about $320 million, $350 million run rate here in the U.S., an undifferentiated LAMA and 1,500 doctors write 70% of that business. So when you look at that, you realize that a company like Verona can take a very targeted approach and reach the opportunity in a very systematic approach with our reps that we'll put in the field. If we boil down all these physicians here, what you see is there's about 26,000 unique physicians in that universe. Majority of these doctors or health care providers are pulmonologists, nurse practitioners or PAs. And then the other doctors are internal medicine primary care. Where we see internal medicine primary care play is in areas where pulmonology is not as largely available. We have rural areas of the country where a pulmonologist may not live very close and the internal medicine primary care doctor acts as that provider in that area. And so we will be calling on them. And if we think about how we're going to promote, we will promote to the busiest physicians. This is claims data, and we've divided our doctors into a very simple algorithm of what we would call A, B, C and D targets. And what you see on this graph is the number of patients that they see in a month. And as you can see, over this graph, the number of patients a physicians sees slowly declines as we move further and further away from our target audience. In fact, there's only -- about 3,000 doctors that see 150 patients a month. That's a small group of doctors seeing a lot of patients. Then as you move to these "B" targets, those patients -- those doctors are seeing about 1.5 patients a month with COPD or 1.5 patients a day for COPD. These doctors, these 15,000 are those that we will directly promote with -- our reps with. And then you can move to what we call a C target or C doctor, and they can see that, that number of patients they see in a month declines even further. Within that group, we can reach them with telesales or virtual detailing. COVID has taught us a lot, that we can reach doctors not by just personal promotion anymore, we can reach them through digital engagements and virtual engagements, and that's what we plan to do. This is all also supported by omnichannel or digital marketing to provide a cover or additional messaging to these physicians within the marketplace. So when we think about that deployment, the majority of these doctors and nurse practitioners live in the pulmonology office. And we believe about a 100 sales representatives are appropriate to reach the opportunity. Those will consist of our respiratory sales specialists, virtual sales specialists and field reimbursement managers to help the physicians manage the process of getting the product to the patient. We also can see from this map that the majority of our patients, HCPs and our territories live in about 6 states. These 6 states will have about 50% of the opportunity. And this is the map of our deployment. So our approximate 100 territories actually cover the majority of the patients and the physicians that exist in the marketplace. We get the question often of, if you were to add more reps, where would you add them? And the map wouldn't change. The places where we have territories today is where we would have territories if we had more people, they would just shrink slightly. And we believe that the number of physicians that we're calling on is very appropriate for a sales force of about 100 reps. So now if we think about ensifentrine as a whole in our whole strategy for the molecule, we in the United States believe, Verona believes that we are prepared to commercialize ensifentrine ourselves. The market is large, but the opportunity is very targeted. It's a small group of physicians providing a large care to a large number of patients. In China, we have a partner in Nuance Pharma, who is actively developing and working to get ensifentrine approved in that marketplace. And in Europe, we will look to continue our out-licensing strategy and look for partners that have capabilities within regulatory, marketing expertise in those areas to help us bring ensifentrine to the patients in need in that area. As we sum this all up, we are very well positioned to launch ensifentrine, if approved. As Dave mentioned and I've mentioned, the PDUFA date is June 26 of this year, and the market is extraordinarily large. When I think about launch success and what's needed, there's really 3 things: we need unmet need; we did need a differentiated molecule; and we need access. Those 3 things exist for ensifentrine at launch. It's very clear. The other thing that is very clear is that as a commercial team and as an organization, we've been committed to making sure that we're ready for launch. Our medical affairs team has been in place for well over 1 year. Our commercial infrastructure has been built, and we're now working on integrations and testing the system. And we've been given the financial resources through our cash and our debt facility to launch this product in an appropriate fashion. So we are very excited about what 2024 will bring and how the potential launch of ensifentrine can proceed. So with that, I'll stop. We'll open it up to questions for Dave and I, but appreciate the time.

So I guess to kick off the Q&A. You touched a bit on this in the presentation. But how has ensifentrine differentiated from available COPDs on the market, those under development, and potentially Dupixent which is under FDA review?

Sure. And I'll try to summarize that. I mean, as I mentioned in the presentation, I think the key element for ensifentrine is its novel mechanism of action as a PDE3, PDE4 inhibitor and possessing bronchodilation and anti-inflammatory activity. Clearly, the 2 products, LAMAs and LABAs are specific bronchodilators only. ICS, of course, is an anti-inflammatory, although fairly broad-acting and comes with its own safety issues, especially a risk of pneumonia with it. And so we think it's highly differentiated compared to those current inhaled products that are on the market. With regard to Dupixent, I think that, again, any progress in treatment of COPD is good. I think the Dupixent has a role in the treatment of COPD, as demonstrated by the data to date. As many of you know, its role, I think, is a bit limited even by everyone's estimation that approximately maybe around 300,000 patients of the 8.5 million or so in the U.S. it's applicable for. So again, I think it's good, but it doesn't really impact on how we view ensifentrine more broadly.

And can you give an update on some of your other pipeline programs? And if there are any upcoming milestones?

Yes. No, happy to. And I briefly referred to it, but I'd like to highlight 2 of our programs that we have underway for 2024. First is a combination product of ensifentrine plus a LAMA as a nebulized product. Again, has not been seen in the treatment of COPD, having what we would call a dual bronchodilator and a nonsteroidal anti-inflammatory agent in 1 formulation. And so we are progressing the formulation development and what, I would say, the CMC section of that program as we speak. We expect to start a dose-ranging Phase 2 work in the second half of 2024. And we think it makes great sense for the treatment of COPD as combination products are well entrenched in the treatment paradigm. In addition to the combination for COPD, we are also looking to explore ensifentrine as a nebulized product for non-CF bronchiectasis. Again, another disease with high unmet medical need, currently no approved therapies. Current standard of care for non-CF bronchiectasis is bronchodilators, steroids. And so we think the underlying pharmacology of ensifentrine would work very well with that. Again, working through the regulatory process, working with KOLs in the first half of 2024 to start some Phase 2 work -- dose-ranging work in the second half in non-CF bronchiectasis.

Any questions from the audience?

Guys, firstly, congratulations. I've followed Verona for years since the days I sat down with Clive, it has office in King's, right? So, well done, it's lovely to see that success. A couple of questions, having built a respiratory company myself and moved that on, COPD is usually given by a breath-actuated nebulizer. You said it was a jet nebulizer for a particular reason. Any comments on that, on how you might be able to switch that out over time and maybe what reduces what is quite a large dose at 3 milligrams compared to the other products on the shelf?

You want to talk about jet nebulizer?

Yes. In the United States, jet nebulizers are very common. If you think about the drugs that are approved from a long-acting standpoint, BROVANA,PERFOROMIST, YUPELRI, those are all in standard jet nebulizers. What we see in the marketplace right now is that the patients are readily accessible and have jet nebulizers. We also have done market research that looks at -- I mean, it doesn't matter with ensifentrine if the patients have had experience with a nebulizer or not. What we see from doctors is that the novel MOA is driving utilization. And doctors will use ensifentrine regardless of nebulizer experience or not. And that's an exciting thing because that's telling us that a novel MOA can actually drive a route of administration change or acceptance. And you guys have seen this in many other categories right now. I think the other thing from a patient perspective or a patient experience thing is ensifentrine's nebulization time we believe, is going to be between 5 and 7 minutes. So it's not a long nebulization time for the patient at all. And when we've done patient research, if they get that effect, that we believe they will with the bronchodilation, symptoms, quality of life and as well as the exacerbation, that's something that they -- that isn't a burdensome hurdle for them to take when they're thinking about their day and what they're doing over the course of that day.

Can I ask you a couple of more questions? Is that all right? Look, I've seen the development of this come into play. And back in the day as well, there were some thoughts about how you would build out the IP protection for this product because it's a dual-acting product, but actually this matter went a long time ago, I think. How have you been able to achieve that? Because it's a really interesting closure for me to understand how you've done that.

Yes, great question. And as -- I think as you alluded to, the composition of matter for ensifentrine did expire in 2020. So not that long ago, but yes. And our IP, though, is very well structured and has been tested and analyzed externally by multiple law firms. But it is grounded in a few patents as the center core and then various patents around that, the -- versus a polymorph patent. And just as a reference, ensifentrine is given as a solid dose as a suspension. So having the correct polymorph is important. And as well as our formulation patent, again, as a solid dose suspension, you can have a lot of protection around particle size distribution. And we know it's incredibly important to give ensifentrine as a solid versus a solution based on all the previous work. Those patents take us out into the mid-2030s with extension on the formulation patent around 2038. In addition to those 2 core patents, we have a real thicket of other patents that have been filed related to the Phase 3 studies, that is its effect on exacerbation rate, its effect in moderate COPD, for example. We also have other patents that have been filed related to impurity profiles both in the API and the drug product. And so we think we have a very strong patent position going forward.

And one final technical question, then I'll hand over. 3 milligrams is a big dose, but obviously, you could give it by a nebulizer. As you go down into changing the dosage form, which I think was at the bottom of the slide, delivering 3 milligrams of a dry powder. Actively just having done that is a challenge. So are you confident you can meet that -- the physical chemical challenge of that and maintain the -- particularly if you go to the LAMA and ensifentrine combination, where there may well be a mismatch in dose and -- dose from one to the other? Do you feel that you might be able to back off on the dose with the dry powder to solve that challenge or you'll be relying on physical, chemical techniques to make that work for you?

It's sort of yes and yes across the board. I mean, I think we have done the preliminary work proof-of-concept. We can formulate at in an MDI and a DPI. You're correct, we constantly have more work to do on dose and having -- whether in MDI is 1 puff, 2 puffs, 3 puffs. So clearly, you have to keep that at a reasonable level in order for it to be utilized properly. As a dry powder inhaler, we think that we can get the dose into that dosage form. You're also correct that the dose equivalency is not a 1:1. And so we think that, again, more work to be done, but probably, there is less of a dose given by dry powder inhaler or an MDI.

I have one last question for you. So -- and you touched on this at the very end of the presentation, but why raise the $400 million debt financing now?

Yes. I think that really, it comes down to financial flexibility and optionality. Clearly, we had a previous debt facility in place at about $150 million. We had the opportunity to expand that at very favorable terms. And it really just gives us great optionality moving forward. As we do that, we will all constantly look for other ways that we can make sure that we're well capitalized, whether that's through other types of form or royalty transactions, for example, equity raise is -- always is assessed, but it really allows us great financial flexibility and optionality.

Any final questions from the audience? Okay. Well, thank you very much for your time and excellent presentation.

Thanks so much.