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Operator: Welcome to Verona Pharma Second Quarter 2023 Financial Results and Operating Highlights Conference Call. At this time all participants are in listen-only mode. Earlier this morning, Verona Pharma issued a press release announcing its financial results for the 3-months ended on June 30th, 2023. 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 the management’s current expectations. These statements are neither promise, be guaranteed and involves known and unknown risks, uncertainties and other important factors that may cause the actual results, performance and achievements to be materially different from the expectations expressed in implanting for forward-looking statements.

Any such forward-looking statements represented management existing on the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it declaims 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 conference over to Dr. David Zaccardelli, Chief Executive Officer.

David Zaccardelli: 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. During the second quarter, we made substantial progress towards our goal of bringing ensifentrine to COPD patients with the submission of a new drug application to the FDA for nebulized ensifentrine for the maintenance treatment of COPD. The NDA submission is comprised of data from the successful Phase 3 ENHANCE program and other ensifentrine clinical studies, including safety data from approximately 3,000 subjects. We look forward to working with the FDA on the submission and providing an update in the third quarter.

In May, we presented additional analyses from the ENHANCE studies at the American Thoracic Society International Conference across 12 abstracts and a clinical trial symposium on subgroup data and pooled analyses from ENHANCE 1 and ENHANCE 2 covering exacerbations, symptoms, quality of life, use of rescue medication, health care utilization and safety. In addition, an overview of the ENHANCE trial results was presented as part of the clinical trial symposium reserved for highlighting new breakthrough drugs. In June, the results of the ENHANCE trials evaluating ensifentrine in COPD were published in the peer-reviewed publication, American Journal of Respiratory and Critical Care Medicine. In parallel with our regulatory progress, we continue to advance our pre-commercial medical affairs and marketing activities as we prepare for the potential U.S. launch of ensifentrine in the second half of 2024, pending FDA approval.

These efforts are critical in setting the stage for ensifentrine, which if approved, has the potential to be the first novel mechanism of action launched for the maintenance treatment of COPD in over 10-years. Turning to our global partnering strategy. In the second quarter, Nuance Pharma, our development partner in Greater China announced they enrolled the first subject in their Phase 3 trial evaluating ensifentrine for the maintenance treatment of COPD in China. Nuance Pharma has exclusive rights to develop and commercialize ensifentrine in Greater China, and as such, will play a key role in addressing the global need for a novel treatment for COPD. We look forward to providing updates as the trial progresses. We believe ensifentrine, if approved, has the potential to change the treatment paradigm for COPD.

The data from our Phase 3 ENHANCE program was highly positive and ensifentrine successfully met the primary endpoints in both ENHANCE 1 and ENHANCE 2, demonstrating statistically significant and clinically meaningful improvements in lung function and also successfully met secondary and other endpoints, including reductions in the rate and risk of exacerbation. The success of these trials and our recent NDA submission for ensifentrine brings us closer to providing ensifentrine to a patient population in urgent need of a new effective treatment options. 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 experienced 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 selective PDE3 and PDE4 inhibitor, we believe ensifentrine, if approved, will be a transformational advance in the treatment of COPD. Looking ahead, we plan to present new analysis of the ENHANCE trials at the upcoming European Respiratory Society International Congress and at the CHEST Annual Meeting. Also, later this year, we plan to host an Analyst Meeting in New York, providing an overview of our launch plans and we’ll announce further details once finalized. I will now turn the call over to Mark to review our financial results for the second quarter.

Mark Hahn: Thank you Dave, and good morning. We ended the second quarter of 2023 with $270.7 million in cash and equivalents. We believe our balance sheet remains strong, and with the current cash currently on hand expected receipts from the U.K. tax credit program and funding expected to be available under the Oxford loan facility, we expect to have sufficient runway at least through the end of 2025, including the planned commercial launch of ensifentrine in the U.S., pending regulatory approval. For the quarter ended June 30, 2023, the net loss after tax was $8.8 million compared to a net loss after tax was $17.8 million for the same period in 2022. This represents a loss of $0.01 per ordinary share or $0.11 per ADS for the quarter, compared to a loss of $0.04 per ordinary share or $0.29 per ADS for the second quarter of 2022.

Research and development costs were a net reversal of expense of $2.5 million for the 3-months ended June 30, 2023 compared to costs of $15 million for the 3-months ended June 30, 2022, a decrease of $17.5 million. As study conduct under the Phase 3 ENHANCE program was essentially complete late in 2022, R&D expense was dramatically lower in Q2 2023 compared to Q2 2022 when the program was in full operation. In addition, we favorably resolved the matter with the supplier as well as certain disputed invoices in Q2 2023, resulting in the reversal of approximately $6.3 million of costs accrued in prior periods. This resulted in net negative R&D expense for the 3-months ended June 30, 2023. Selling, general and administrative expenses were $12.4 million for the quarter ended June 30, 2023 compared to $5.5 million reported for the same period in 2022, an increase of $6.9 million.

This increase was primarily due to a $5 million increase in people-related costs, including share-based compensation, as well as an increase of $1.7 million in costs related to the build-out of our commercial infrastructure as we prepare for a potential commercial launch. We expect SG&A expenses to continue to be the main driver of expense for Verona Pharma as we prepare for commercial launch in 2024. In the aggregate, we expect total expenses to be in the range of $20 million to $25 million per quarter until we add sales reps at FDA approval. I’ll now turn the call back to the operator for the Q&A.

Operator: [Operator Instructions] We will now begin the question-and-answer session. at this time, we will pause momentarily to assemble our roster. Yasmeen [Ph] Rahimi, your line is open.

Unidentified Analyst: Good morning team and congrats on all the updates. Maybe two questions. The first one would be directed to Chris. We would love to just sort of get an update on what are some of the key priorities on your to-do list between, I guess, now and the PDUFA date? And then second, why is it so critical for you to really implement these strategies early on. I guess a lot of investors may not recognize the importance of building product awareness and all the prep that goes. So I guess what I’m trying to get at is, why is the work needed to do Visa now to ensure that launch is highly successful? And I appreciate really the color around these two questions, but I’ll jump back into the queue.

Christopher Martin: Thanks Yas on the questions. I’ll start really with the priorities between now and PDUFA. And it really falls into three categories. One is, as we think about how we need to build the organization to get ready for launch, there’s a variety of things we need to do across market access and trades operations and systems and then in marketing and sales. So if I take each one of those individually and I look at market access and trade between now and PDUFA, a vast majority of our work will be spent setting up our channel and our distribution pathway to ensure that ensifentrine can get from our 3PL, our third-party logistics organization to the patient in an efficient and effective manner. That takes time. That takes integration of systems, and it also leaves us time to test to make sure that the channel is working appropriately before launch.

The other thing that we’ll be doing during that time is really continuing to evolve our payer discussions. As we know, ensifentrine is, we believe, will be primarily reimbursed through a medical benefit, and that can come through either traditional Medicare Part B, but also through Medicare Advantage as they have to follow the Medicare Part B pathway as well. So our team from a payer standpoint, has really been focusing on those Medicare Advantage plans and getting out there and engaging in conversations around the disease and what potentially ensifentrine could bring to the marketplace there. If I switch gears now to operations and IT, as an organization that’s transitioning from a clinical development organization to really a commercially focused organization, there’s many systems that we have to put in place.

Probably the biggest system that we’re implementing and actually has already gone live is a data warehouse. And the reason why I highlight this is the importance of the data warehouse is it provides the flexibility for us to analyze and look at our data on a — really a minute-by-minute basis. This internal capability is so important when it comes to launch because we can effectively look at all our tactics that we’re putting out to the field through non-personal channels and personal channels and see what are more effective and what tactics maybe are less effective and redistribute our spend in a very quick manner. We’ve actually started testing this already as we did some social media campaigns at ATS Conference where we’re able to get some physician interaction data and now can start to use that to test the system as we speak.

And then on the third area is really the marketing side, ensifentrine will be the first new product launched and mechanism in over a decade. And when we think about that, the market has become very used to LAMA, LABA and ICS products. So conducting disease shape, disease state market shaping work is essential to ensure that when ensifentrine comes to market, that the physicians are receptive to the drug when it comes out. And specifically, when we look at some of our research we see some disconnects between the burden of COPD in the patient and how the physician feels the patient is actually feeling. What you can see in the freezer [Ph] data is that the patients are experiencing symptoms up to between 24 and 30 days a month and almost 50% of these patients.

So there’s a significant symptom burden that affects their overall quality of life and ability to interact with members of their families that maybe the physicians are underestimating. And this is some work that we’ll be doing very — we’re finalizing that work and we’ll be launching towards the back half of the year into 2024. So I really think about the work that we need to do between now and PDUFA and those three functions. And then you mentioned why it is critical to implement these now. If we don’t do this today or if we’re slow in doing these activities, it can affect the ramp, specifically sometimes biotech launch without market shaping or doing some pre-marketing work for a new product. And that potentially limits the physicians’ receptivity to the product when it comes to launch.

So all this work is essential to ensure that smooth transition from product to patients and then the physician uptake at launch.

Unidentified Analyst: Great. Thank you so much, Chris. I’ll jump back into the queue.

Operator: The next question comes from Andreas Argyrides from Wedbush. Please, go ahead.

Andreas Argyrides: Hi, good morning guys and thanks for taking my questions and congrats on the progress as well. Just two from us to start here, what additional analyses from ENHANCE we expect to see at ERS and CHEST? And then can you provide any updates on where you stand with the combination product to ensifentrine and LAMA. Is there a certain amount that you think will best in conjunction with ascension? Thanks.

Christopher Martin: Hi, good morning. Thanks Andreas. Yes, so let me take the second one first, and then I’ll turn it over to Kathy to talk about ERS and CHEST. We continue to work on a combination nebulized product, a LAMA plus ensifentrine , which we think will work extremely well, well suited for the COPD space, give us a dual bronchodilator as well as anti-inflammatory in a nebulized delivery. So as far as the next product, we think that, that makes a lot of sense. We are currently in the earlier stages of formulation development, making sure that we have a formulation that can stand up and be stable, of course, before we launch into clinical activities. We’ll be much more informed on that later this year. And so I think as we get towards the end of 2023, we’ll be articulating where we are with that, a little bit clear for everyone as well as our plans for 2024 in that development.

So I would stand by for that. And then, Kathy, you want to comment on ERS and CHEST.

Kathleen Rickard: Sure. So I’ll take ERS first. So for ERS, which is going to be in the early to mid-part of September, we have a number of abstracts — the first abstract is the 48-week exacerbation data, again, further confirming that over 48-weeks, we continue to see a 44% decrease in exacerbation’s rate and a 52% decrease in risk, which is the time the prefers — that is a poster presentation. We have an oral presentation, again, looking at health and resource utilization and more severe exacerbations. And again, we continue to show, again, the decrease in rate and risk of exhausted basis, but we’re also showing the decrease in position of visits and hospitalizations over the 24-weeks of the study. And for CHEST, which is in October, we have a couple of abstracts being shown.

These are all in a — somewhat of a short-form oral format — so we have the full results by exacerbation history, again, demonstrating that the — despite exacerbation history, we continue to see a strong decrease in exacerbations and then side-by-side symptoms from the 2 Pivotal trials, which again show consistently that we are able to decrease symptoms in these 2 trials. We also have a full efficacy data looking at whether patients were originally on LAMA or LABA again, demonstrating that equal efficacy occurs, whether they’re on LAMA or LABA. And then lastly, there’s a pooled safety from both large studies, again, showing the consistency of our very good safety profile. So those are the ones that you’ll expect to see at the ERS and CHEST.

Andreas Argyrides: Okay. Great. Thanks for all the color. What’s going on, looking for hard to progress? So I’ll back in the queue. Thank you.

Operator: The next question comes from Andrew Tsai from Jefferies. Please go ahead.

Andrew Tsai: Hi, good morning. Thanks for taking my questions. and again, congrats on the progress. So two questions on our side. Maybe one on the on-going filing as we wait for the potential acceptance from the FDA. Has the agency — what kinds of questions has the agency maybe set you since you’ve submitted the filing? What’s the correspondence been like? And if there haven’t been any correspondent, would you then say no news is good news? And then secondly, as we think about the sales trajectory of ensifentrine and think about launch precedents, are there any relevant launch comps that you think applies to ensifentrine, not necessarily within the COPD space, but maybe even in the neuro space in general. Any other kind of SMID Cap type launches with a similar situation? You’ve got it like a novel MOA for a big market, strong efficacy, clean safety and so forth. So what would be the best case studies for investors? Thank you.

David Zaccardelli: Thanks, Andrew, for the questions. I’ll take the first and then hand it over to Chris to take the second on launch comps. As you’d expect, we’re not going to comment on regulatory interactions in detail. But just to say that the submission is in, as you know, and that we are in a proper communication with the FDA. I think that is from my perspective, normal course of business, with them. And I think that we will see where they stand right now near the end of August would be our target expectation of around day-60. And as you know, they will also deliver a day-74 letter as well. That provides additional detail on the submission and it includes the PDUFA date, etcetera. So I would say, normal course of business from my perspective. And with that, I’ll turn it over to Chris.

Christopher Martin: Thanks, Andrew, on the question on sales trajectory and comp. In the COPD space, there’s really not a comp that fits the ensifentrine profile because — as we think about the launch for ensifentrine, ensifentrine is not a drug that needs to replace another drug in the treatment armamentarium. It’s a drug that can be added to what the patient is currently taking. And so it provides that extra benefit. But if I look more broadly at other categories and diseases where you have a mid-tech — mid-sized biotech competing against larger Pharma. I really go back to the most recent example of Biohaven in the migraine space where they were able to successfully launch an oral drug for migraine indication against a large competitor and do it very effectively.

And I think part of the — what we’ve learned and got an insight from around that is part of the work that we’re doing that was explained with Yas around how you set up the launch beforehand with market shaping, how you use data to be more efficient in your deployment are things that we’ve learned from that launch to make us very competitive and overly competitive against the larger Pharma players within there. So I really look at that example as a precedent for Verona and ensifentrine.

Andrew Tsai: Makes sense, thanks.

Operator: The next question comes from Edward Nash from Canaccord Genuity. Please go ahead.

Edward Nash: Hi, good morning. Thanks for taking the question. Could you just remind us, I think you’ve spoken to this before, but how quickly do patients move from first-line therapy to the point of needing ensifentrine? And then another question I have is just — I guess, just on the — as far as the future R&D development besides combo therapy, ensifentrine being applied, applied?

David Zaccardelli: Great. Thanks for the question. Let me take the second one first, and then I’ll turn it over to Chris on sort of the patient journey. Besides our combination product, which we’re definitely focused on, and we think is another advance for ensifentrine. We are looking at other diseases as potentials. We also think other indications may require different formulations as well, possibly different dosing. So I think that some of that is going to be helpful to be informed in our partnering strategy and working with partners that may have IP on different devices and expertise on different devices. And so some of that is staged and going to be following as we progress the nebulized formulation. But we are attentive to it.

And again, I’d expect more clarity on that as we get through 2023 and into 2024. And as we have an eye towards the approval of ensifentrine then the launch in COPD, I think other indications open up as well. So that’s our general plan on R&D. So Chris, do you want to comment on the patient journey?

Christopher Martin: Yes. Thanks, Dave. As we think about the patient journey, the patients are typically treated based on two pathways. The first pathway is really a symptom-based pathway where if they have disease the primary driver of symptoms and issues, then a physician moves down a treatment algorithm there. The other pathway is exacerbations. What we know from our market research is that the patient typically sees the physician between 2 times and 4 times a year and that the overall symptomatology of the patient will drive therapy changes. So if a patient is having increased inability to breathe and really what the physician talks about not only is the inability to breathe, but it’s the inability to do certain activities or if their activity level is changing, the physicians will make therapeutic changes.

So when I look at that, journey, there are significant opportunities for ensifentrine to be inserted into a patient’s treatment algorithm over the course of a year. I think the important thing there is ensifentrine, you don’t have to wait until the patient is on a dual or triple ensifentrine can be inserted into the treatment paradigm very early, and the data supports ensifentrine being added to a LAMA or LABA or a LABA/ICS in a very early situation for these patients. And the great thing is that physicians are looking for products that can help the patient kind of continue to keep some sense of normalcy in their life through either a reduction in symptoms or improvement in quality of life, an improvement in FEV1 or the potential for help with exacerbations as well.

So as I look at the treatment journey, we see multiple intervention points over the course of the year, both early in their treatment cycle but also late in a patient’s treatment cycle where ensifentrine can be inserted.

Edward Nash: Great. That’s very helpful, thank you.

Operator: The next question comes from Joon Lee from Truist Securities. Please go ahead.

Unidentified Analyst: This is Jeremy [Ph] on for Joon. Thanks for taking my question. Two quick ones for me. What do you see as the greatest risk to the approvability of ensifentrine? And what do you expect the SG&A ramp as you prepare for commercial launch? Thanks.

David Zaccardelli: Great. Thanks for the question. When it comes to risk in the submission, I think the regulatory process is inherently has its underlying risks that are quite broad and consistent across any new chemical entity. We feel we’ve handled that very comprehensively in the submission, all the way from how we view and data package and CNC, non-clinical, clinical data and, of course, the overall safety. So we spent an enormous amount of time to make sure that we were looking at that broadly, comprehensively. And I think we’re as confident as we can be that we’ve addressed all of those areas. Of course, during the regulatory process and feedback from the FDA. Of course, we’ll be highly responsive to items that may need to be addressed, if any.

And so we will handle that as this team has been through the process numerous times previously. So early days in the submission, and so much more to come. But I think for where we are right now, I think we’re in as good a place as we can be. With that, I’ll turn it over to Mark.

Operator: We take the next question from Tom Shrader from BTIG. Please go ahead.

Thomas Shrader: Hi, good morning. Thanks for taking the question. This is really for Chris. On approval, Chris, what are the steps to get a drug through the Medicare Part B pathway? How long does it take? And is it exactly the same for Medicare Advantage? Or is there another step? And then a temporary J code, is that your price? Or is that kind of an agreed upon price for a nebulized drug. Thanks.

Christopher Martin: Yes. I’ll start with kind of the process on the Medicare Part B pathway. So if we think about the Medicare Part B pathway, we’ve that pathway as a medical benefit for these patients. So at launch, as you discussed, we get — we launched with a temporary J code. In our research and work with our consultants within CMS, we believe that ensifentrine falls under existing coverage policies or would fall under existing coverage policies for nebulized products for COPD delivered through nebulizer. So during that time that you’re working under a nonspecific J-code, you’re also working to make sure that the coverage policies are updating to ensure ensifentrine in there. We would apply for a product-specific J-code as quickly as possible.

That product-specific J-code now can be submitted quarterly. So depending on the approval date, we could have between a 3-month and 6-month lag between when we get a product-specific J-code and using that non-specific J-code. The other important thing here is that when we think about Medicare Advantage, Medicare Advantage has to follow the Medicare Part B pathway. And so they have to provide coverage for these drugs under the Medicare Advantage plans. However, Medicare Advantage can put use criteria in place unlike Medicare Part B, traditional Medicare Part B. And what I mean by use criteria is like that have simple step edits or prior authorizations that are needed before a patient could use a product. In our early discussions with the major Medicare Advantage plans, they see highly differentiated data with ensifentrine because they control both the pharmacy and medical benefit side of the business, they’re very interested in some of the data that Kathy talked about that’s being presented at ERS like health care utilization and the exacerbation data.

And that makes ensifentrine potentially attractive to them from a payer standpoint so that in most conversations that we’ve had, really a worst-case scenario is that you’d have to step through a generic LAMA or LABA before going to ensifentrine. And if we think about the patient we’re trying to target with ensifentrine, which is a patient that’s symptomatic, that’s on therapy that needs additional help. It’s a very low hurdle for many of these providers in that setting. As far as the non-specific J-code, the reimbursement is tied back to WAC pricing. So it’s more of a WAC pricing reimbursement related to ensifentrine versus a set price there. So the other process during the non-specific J-Code is a manual adjudication, which takes a couple more days than when you have your product-specific J-code.

Thomas Shrader: Okay. Great. Thanks for the color.

Christopher Martin: Yes.

Operator: [Operator Instructions] The next question comes from Boobalan Pachaiyappan from H.C. Wainwright. Please go ahead.

Boobalan Pachaiyappan: Hi, this is Boobalan. Thanks for taking my questions. So assuming the FDA accepts your NDA, and ensifentrine gets approved next year. So what are your preliminary thoughts about ensifentrine subgroup usage during the early period of launch, given ENHANCE studies were primarily conducted in gold B patients with moderate to severe.

David Zaccardelli: Chris, do you want to just talk about where we see the uptake?

Christopher Martin: Yes. Boobalan, thanks for the question. If we look at our market research, what we see is ensifentrine being added to patients that remain symptomatic on current therapies. And I’ll bucket this into two groups of patients, one of the groups of patients that are on a single LAMA or LABA or LABA/ICS- and based on the ENHANCE data, you would say that the next logical choice for a physician to choose is ensifentrine, our data is outstanding in those patients. It provides a new mechanism of action for the physician to layer on to these patient therapies. And we see from a market research significant uptake within that patient population. The second group of patients are patients that are on potentially dual or triple therapy that remain symptomatic.

And we know there’s at least 40% to 50% of these patients that are just having tremendous symptom burden. And when we think about how the physicians treating those patients today, when they come into an office, they’re getting oral steroids, oral antibiotics, dilute and potentially referred for surgery. And so the physician’s options are very limited. And given the benefit to risk profile of ensifentrine, we see physicians also adding ensifentrine to those patients as well. If we think about the potential for what’s the first patient, most physicians will prescribe ensifentrine in, it’s more than likely the latter patient because that patient is in the most immediate need. But as we see in our market research and our conversations with HCPs, their use of ensifentrine moves earlier and earlier into the treatment paradigm because they see the potential that ensifentrine could provide this non-steroidal anti-inflammatory effect that they’ve been really looking for within the COPD classes over the course of the last decade or so.

Boobalan Pachaiyappan: Thanks so much.

Operator: Gentlemen, so far there no more questions from the phone.

David Zaccardelli: Great. So thank you, everyone, for your questions today, and thank you to the patients and health care professionals that participated in the ENHANCE program, enabling us to submit a new drug application to the FDA for nebulized ensifentrine for the maintenance treatment of COPD. We are very excited about the potential of ensifentrine and look forward to providing further updates. 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.

Operator: Ladies and gentlemen, the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Goodbye.