Verona Pharma plc (NASDAQ:VRNA) Q1 2024 Earnings Call Transcript May 9, 2024
Verona Pharma plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to Verona Pharma’s First Quarter 2024 Financial Results and Operating Highlights Conference Call. At this time, all participants are in a listen-only mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the 3 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’d now like to turn the call over to Dr. David Zaccardelli, Chief Executive Officer. Please go ahead.
David Zaccardelli: Thank you, and welcome to 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 with the planned commercialization [indiscernible] for the maintenance treatment of COPD. As you know, the FDA assigned [indiscernible] target action date for MC central of June 26. And has indicated they are not planning to hold an advisory committee meeting. We are finalizing our activities for our potential U.S launch of MC central in the third quarter of this year, and look forward to continuing our work with FDA during the review.
It’s approved MC central 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 U.S., approximately 50% of the 8.6 million maintenance-treated patients experienced 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 health care providers’ continued need for new and effective COPD therapies to provide relief to patients. We continue to make excellent progress on our commercial launch preparation and are now finalizing key aspects, including sales force deployment strategy, pricing, distribution, patient services programs, health care professional and patient engagement plan 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 2,000 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 III studies in 8 posters, including 2 oral symposia, at the ATS conference later this month. The posters will highlight additional pooled analyses of the Phase III ENHANCE studies, 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’ll also host an exhibition booth exploring the role of phosphodiesterase in inflammation and lung function impairment in COPD, as well as 3 innovation hub presentations led by clinical experts. In addition to the planned U.S. launch of ensifentrine, we are working to initiate 2 Phase II programs with ensifentrine in the second half of this year. First, we are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, Kalama, for the maintenance treatment of COPD delivered via a 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 II clinical study intending to support dose escalation for Phase III. 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 U.S., and there is currently no approved therapy. We plan to start a Phase II 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 revenues.
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 fit 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.
Mark Hahn: 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 U.S. and our 2 new Phase II programs Dave discussed a few moments ago. Let me spend a minute discussing key terms of the financing package. Our primary goal in establishing this new package will be 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 a 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 of approval, with $175 million available in 2 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 5 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 nonapproval, 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 received from ex-U.S. licensees that we may engage during the term of the RIPSA outside of the U.S. to 6.5% of global net sales of ensifentrine made by the company. The 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 3 years from funding. This facility was designed with an expectation that if drawn in full, it would be retired in approximately 6 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 III 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 pre-approval API 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 preparation and other pre-commercial 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.
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