Final Results

VERONA PHARMA PLC - Final Results

PR Newswire

London, April 10

Verona Pharma plc (AIM: VRP), ("Verona Pharma" or the "Company") the drugdevelopment company focused on "first-in-class" medicines to treat respiratorydiseases, today announces its preliminary unaudited results for the twelvemonths ended 31 December 2012.

2012 OPERATIONAL HIGHLIGHTS

2012 FINANCIAL HIGHLIGHTS

POST PERIOD HIGHLIGHTS

Dr. Jan-Anders Karlsson, CEO of Verona Pharma commented, "We are very pleasedby the clinical successes achieved to date in the development of both RPL554and VRP700. While we remain excited by these unique drugs' broad potential inthe treatment of respiratory diseases, the Board's refined strategy for theCompany focuses us on developing RPL554 to treat patients with severe COPD, andVRP700 to treat chronic, severe cough. It is the Board's view that this focuson significant unmet market needs will potentially shorten the path tocommercialisation and afford the greatest opportunity of acceleratingshareholder value.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT

INTRODUCTION

Verona Pharma is a development stage company focused on novel, "first-in-class"drugs for patients suffering from respiratory diseases with high unmet medicalneed.

In the second half of 2012, the Board undertook a comprehensive review of theCompany's strategy with the objective of accelerating shareholder valuecreation. While it was decided to retain a focus on "first-in-class" medicinesto treat respiratory diseases, there is now an increased emphasis on optimisingvalue by concentrating initially on therapeutic indications with a clear pathto commercialisation and a high unmet medical need. At a later stage, we willseek to widen the use of our medicines via novel formulations and furtherindications. The Board believes that targeting patients with high unmet medicalneed will accelerate access to multi-billion dollar commercial markets andincrease the flexibility in the timing for achieving attractive commercialpartnerships.

Verona Pharma has demonstrated that its lead compound, the dualphosphodiesterase 3 and 4 inhibitor RPL554, is well tolerated and deliversclinically significant bronchodilation in patients with COPD or asthma, and hasa unique mechanism of action providing both bronchodilator andanti-inflammatory effects which are expected to be complementary or alternativeto existing treatments.

In the revised strategy, the Company plans to bring RPL554 to market with speedand focus. Therefore, it is developing a nebulised formulation of RPL554 as abronchodilator for patients with severe COPD. COPD is one of the most commonlung disorders. Despite regular treatment, these patients currently cost theNHS about £1 billion per annum and around 23,000 patients die every year. COPDis common not only in the UK, but in the rest of the world, and WHO expectsthis to be the third most common cause of death worldwide by 2020. Patientswith severe COPD are not well controlled on existing treatments and RPL554 haspotential to be a novel therapy for these patients. To the best of theCompany's knowledge, there is no new treatment in development in the same classof drugs, thereby providing RPL554 a unique competitive positioning.

Verona Pharma has also demonstrated that VRP700 has significant anti-tussiveactivity in the treatment of chronic, severe cough. Cough is the most commonsymptom in many lung diseases and existing treatments have limited activity.VRP700 has a unique mechanism of action that is different from currentlyavailable treatments and, as far as the Company is aware, there are nocompounds in development in the same class as VRP700, thereby providing afavorable competitive and commercial position. The Company will thereforecontinue to develop VRP700 for chronic, severe cough.

RPL554

RPL554 is a dual phosphodiesterase 3 and 4 inhibitor that was selected forclinical development as pre-clinical studies had demonstrated both potentbronchodilator and anti-inflammatory properties. RPL554 is currently beingdeveloped as a potential "first-in-class" treatment for patients with chronicrespiratory diseases such as COPD and asthma.[DEL::DEL]

RPL554 has successfully passed through a number of early clinical Phase I andII studies. These single and multiple dose studies suggest that RPL554, wheninhaled across a range of doses, is an effective bronchodilator in patientswith COPD or asthma and is an excellent candidate for further development as anew class of bronchodilator.

The clinical trial with RPL554 in patients with mild to moderate COPD at theTor Vergata Clinic at the University of Rome was expanded during the reportingperiod to incorporate more patients to provide further data. Consistent withthe initial part of the study completed in 2011, the magnitude ofbronchodilator response produced by the drug was significantly larger than thatproduced by placebo and appeared to be at least equivalent to that produced bya standard dose of the reference bronchodilator beta2-agonist salbutamol inthese patients. Importantly, no safety issues were observed. The data from thetrial were reported in an oral presentation by the Principal Investigator,Professor Mario Cazzola, at the European Respiratory Society Annual Congress inVienna on 4 September 2012.

A separate randomized, double blind, placebo-controlled clinical trial toexamine the potential anti-inflammatory effects of RPL554 was conducted at MEUin Manchester during the last year. The trial was conducted in healthysubjects, treated once daily for 6 consecutive days with either inhaled RPL554or inhaled placebo before being challenged on the last day by an irritant agentthat provokes an inflammatory response in their airways.

The primary end point chosen for this exploratory trial was a reduction in theproportion of neutrophil cells, an inflammatory cell type recognised for itscentral role in COPD and severe asthma, to total inflammatory cells in thesputum, and secondary endpoints included reductions in total inflammatory cellnumbers. While there was a strong trend in favour of the primary endpoint, thestudy narrowly missed reaching statistical significance even though there was ahighly significant reduction in the absolute number of neutrophils.

The total number of inflammatory cells in the airways was reduced by over 30%when normalized for sample weight. Furthermore, certain types of inflammatorycells, including neutrophils, macrophages, lymphocytes and eosinophils, werereduced by up to around 75% (normalized for sample weight). Most important inthis study however, was the demonstration of a broad and pronouncedanti-inflammatory effect after short term (one week) treatment.

The clinical data obtained for RPL554 to date indicate that the drug has aunique combination of bronchodilator and anti-inflammatory properties.Importantly, RPL554 was well tolerated and, consistent with earlier clinicalstudies, there were no clinically significant cardiovascular orgastrointestinal side effects. The Company plans to continue the development ofRPL554, initially as a nebulised drug for severe COPD patients.

VRP700

Cough is the most common symptom of lung disease. Chronic cough of more thaneight weeks duration can be a debilitating symptom when associated with severelung diseases such as asthma, COPD, interstitial lung disease and lung cancer.Unfortunately, currently available cough remedies are recognised as beingrelatively ineffective, often with significant side effects. There is no noveland effective therapy for treating the severe, dry cough in patients withinterstitial lung disease, pulmonary fibrosis or lung cancer. The Company isinitially evaluating VRP700 as a possible novel "first-in-class" treatment inpatients with chronic cough due to severe lung disease.

During the reporting period, the clinical trial of VRP700 at the University ofFlorence, Italy that was completed in the second half of 2011 was furtheranalyzed. In this study, inhalation of VRP700 for about 10 minutes veryeffectively reduced chronic cough in a small group of patients with variousforms of severe lung disease. As the result of the study was very positive, afollow-on study in patients with severe, chronic cough due to a different typeof underlying lung disease is being planned. Preparations for such study arenearing completion and the study is expected to start in the first half of 2013with results expected in the first half of 2014.

NAIPs

The Company undertook limited work on the NAIPS programme during the reportingperiod. This is in line with the Company's primary objective to focus itsresources on the clinical stage assets RPL554 and VRP700. However, three newpatent filings have been made to secure ownership and intellectual propertyaround these novel anti-inflammatory principles.

FINANCIALS

The loss from operations for the year ended 31 December, 2012 was £2.52m (2011:£1.72m). Research and development expenditure, which was expensed as incurred,amounted to £1.67m (2011: £0.94m). The increase in research and developmentexpenditure was primarily due to an increase in the expenditures on the RPL554programme by £0.56m to £1.31m (2011: £0.75m) and the VRP700 programme by £0.25mto £0.35m (2011: £0.10m). The increase in expenditures on the RPL554 programmewas primarily due to: (a) cost associated with the clinical trial at MEU inManchester to test the anti-inflammatory properties of RPL554 with respect toCOPD; and (b) nebulised formulation development with the aim to improvedelivery. The increase in expenditures in the VRP700 programme was due to: (a)an increase in the scope of development of the VRP700 series; and (b) costassociated with preparation for the planned confirmatory anti-cough study.

Administrative expenses for the year were £0.91m (2011: £0.90m). The marginalincrease of £0.01m over the previous period was primarily due to an increase ingeneral corporate overhead which was partly offset by a decrease in theshare-based payments charge.

As at 31 December 2012, the Company had approximately £0.96 million in cash andcash equivalents.

On 31 January 2013, the Company announced that it had raised £1.1 million(gross) from a placing of new shares, and entered into a £5.0 million equityfinancing facility with Darwin Strategic Limited, a company majority owned by asubsidiary of Henderson Global Investors. In order to fund the futuredevelopment of the RPL554 and VRP700 programmes, it is expected that theCompany will either draw down on such facility or secure financing from othersources.

OUTLOOK

Taking into account the progress achieved in the development of RPL554 andVRP700 and the significant unmet medical need in respiratory diseases, theBoard has refined the Company's strategy to focus initially on developingRPL554, with nebulised delivery, to treat patients with severe COPD, and ondeveloping VRP700 to treat chronic, severe cough. It is our view that thisfocus on significant unmet market needs will afford the greatest prospect ofaccelerating shareholder value growth.

To implement this revised strategy, the Board has considered it necessary tostrengthen the Company's later stage development capabilities. The Company hastherefore recently engaged experienced consultants with indepth expertise indeveloping and bringing new medicines to market, especially novel inhaledtreatments for lung disease such as asthma and COPD.

The recently demonstrated significant anti-inflammatory properties of RPL554 inhuman subjects supports its use in a wider group of patients, and whilstbronchodilation represents the near term focus of Verona Pharma, the Companyintends in due course to broaden the therapeutic use of RPL554, including itsanti-inflammatory potential and potential for the treatment of asthma.

The dual bronchodilator and anti-inflammatory properties of RPL554 sets itapart from the most commonly used medications for COPD and asthma that havepredominantly bronchodilator (beta2 agonists or anti-muscarinic drugs) oranti-inflammatory (inhaled glucocorticosteroids, oral phosphodiesterase4inhibitor) activities. Thus, RPL554 is the first in a new class of respiratorydrugs that combines two important activities in one molecule and therefore mayprovide unique benefits to patients with respiratory disorders.

The Company believes that RPL554 ultimately has the potential to benefit a muchwider group of patients and to be used either alone or in combination withexisting medicines. The Company recognises that an experienced and resourcefulcommercial partner could bring significant value to the development of RPL554and therefore continues to be involved in business development discussionsaround the RPL554 programme. However, the Company intends to partner its drugcandidates only when it can extract a commercially attractive return for theCompany and its Shareholders.

It is recognized that there is a desire for more data around RPL554 in thescientific and medical community and, to that end, the Company will publish andpresent new pre-clinical and clinical data around RPL554 in scientific meetingsin 2013.

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2012

GROUP STATEMENT OF FINANCIAL POSITION

The preliminary announcement was approved by the Board on 8 April 2013.

Prof. Clive Page

Chairman

GROUP STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2012

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

At 1 January 2011 239,906 9,373,526 359,008 (6,521,891) 3,450,549

At 31 December 2011 285,844 11,466,229 510,499 (8,211,826) 4,050,746

At 31 December 2012 307,203 12,447,364 470,577 (10,621,672) 2,603,472

NOTES TO THE FINANCIAL INFORMATION

FOR THE YEAR ENDED 31 DECEMBER 2012

1. Accounting policies

1. General information

The unaudited financial information set out above does not constitute statutoryaccounts for the purposes of Section 435 of the Companies Act 2006 but isderived from those financial statements and as such, does not contain allinformation required to be disclosed in the financial statements prepared inaccordance with International Financial Reporting Standards ("IFRS"). Statutoryaccounts for 2012 will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. The auditors have agreed to the issue ofthese results and expect to issue an unqualified audit report on the 2012accounts following formal completion of the audit.

The financial information in respect of the year ended 31 December 2011 hasbeen produced using extracts from the statutory accounts prepared underInternational Financial Reporting Standards. The statutory accounts for thisperiod have been filed with the Registrar of Companies. The auditors' report onthese accounts was unqualified.

The financial information presented in this statement has been prepared usingaccounting policies consistent with International Financial Reporting Standardsas endorsed by the European Union. The accounting policies are the same asthose published by the Group in the Annual Report & Accounts for the year ended31 December 2011.

These results were approved by the directors on 8 April 2013. Copies of the2012 Report and Accounts are being sent to shareholders in due course.

1.2 Basis of consolidation

This group financial information includes the accounts of Verona Pharma plc(the "Company" or the "Parent") and its wholly-owned subsidiary RhinopharmaLimited. The Parent and Rhinopharma Limited are collectively referred to as the"Group". The purchase method of accounting is used for consolidation.

The cost of an acquisition is measured as the fair value of the assets given,equity instruments issued and liabilities incurred or assumed at the date ofexchange, plus costs directly attributable to the acquisition. Identifiableassets acquired and liabilities and contingent liabilities assumed in abusiness combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill. Goodwill arisingon acquisitions is capitalised and subject to an impairment review, bothannually and when there are indications that the carrying value may not berecoverable.

Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated on consolidation.

Rhinopharma Limited adopts the same accounting policies as the Company.

1.3 Cash and cash equivalents

The Company considers all highly liquid investments, with a maturity of 90 daysor less to be cash equivalents, carried at the lower of cost or market value.

2. Loss per share

Basic loss per share of 0.82p (2011: loss of 0.71p) for the Group is calculatedby dividing the loss for the period by the weighted average number of ordinaryshares in issue of 306,620,807 (2011: 243,445,223). Diluted loss per share forthe current period has not been presented since the Company's share options areanti-dilutive.

3. Segmental information

The Group has determined that its operating segments be reported on a productpipeline basis as this best reflects the Group's activity cycle. Operatingsegments are reported in a manner consistent with the internal reportingprovided to the chief operating decision-maker. The chief operatingdecision-maker has been identified as the Board of Directors.

The Group's product pipeline is dedicated to the research, discovery anddevelopment of new therapeutic drugs for the treatment of acute and chronicrespiratory diseases. At present there are three products: RPL554, VRP700 andNAIPs. RPL554 and VRP700 are in the clinical phase, RPL554 having successfullycompleted early Phase I and II trials, VRP700 having successfully completed aPhase II trial, and NAIPs is in the basic research phase.

Segment information by operating segment is as follows:

At the end of the financial year, the Group was still in the early developmentstage and therefore had no turnover in either 2011 or 2012.

Segment information by geographical segment for 2012 is as follows:

Segment information by geographical segment for 2011 is as follows:

The Company currently has one wholly owned subsidiary, Rhinopharma Limited.Rhinopharma Limited is incorporated under the laws of the Province of BritishColumbia, Canada.

5. Cost of issuing share options

Included within administration expenses is a charge of £67,335 (2011: £181,343)for issuing share options. The share based payment charge represents thecurrent year's allocation of the expense for relevant share options issued in2012, 2010, and 2009. All options issued prior to 2009 were fully expensedprior to 2009. The Company grants share options under the Unapproved ShareOption Plan (the 'Unapproved Plan') and under tax efficient EnterpriseManagement Incentive arrangements (the 'EMI Plan').

Under the Unapproved Plan, options are granted to employees, directors andconsultants to acquire shares at a price to be determined by the Board. Ingeneral, options vest after three years and are exercisable during a periodending ten years after the date of grant. Under the EMI Plan, options aregranted to employees and directors who are contracted to work at least 25 hoursa week for the Company. The options granted under the EMI Plan will beexercisable at a price and in accordance with a vesting schedule determined bythe Board at the time of grant and will have an exercise period of 10 yearsfrom the date of grant.

The Company granted 5,000,000 (2011: Nil) share options under the EMI Plan and600,000 (2011: Nil) share options under the Unapproved Plan during the currentyear with total fair values estimated using the Black-Scholes option-pricingmodel of £110,680 (2011: £Nil). The cost is amortised over three years and £18,955 is included in the charge to administration expenses noted above.

On 11 January 2012, 1,950,604 ordinary share options were issued to WH Ireland,the Company's nominated adviser and broker, with an exercise price of 5 penceper option. The options were issued under a Placing agreement and are fullyvested and exercisable on or before 7 December 2013.

The following assumptions were used for the Black-Scholes valuation of shareoptions granted in 2012, 2010, and 2009.

Goodwill represents the excess of the purchase price over the fair value of thenet assets acquired in connection with the acquisition of Rhinopharma Limitedin September 2006. The Company has elected to test goodwill for impairment asof 31 December of each year. Based on the evaluation performed as of 31December 2012 the Company concluded that no impairment was required.

7. Subsequent events

In February 2013, the Company completed a placing by issuing 29.0 millionshares at 4p per share to raise total gross proceeds of £1.16 million. TheCompany intends to use the proceeds of the placing to finance the clinicaldevelopment of the RPL554 and VRP700 programmes and for general corporatepurposes.

The Company has entered into a £5.0 million equity financing facility ("EFF")with Darwin Strategic Limited ("Darwin"), a company majority owned by asubsidiary of Henderson Global Investors. The agreement is subject to certainlimited restrictions and at the sole discretion of the Company the facility canbe drawn down at any time over the next three years. Darwin is entitled tosubscribe for shares at the average of the three lowest closing bid prices ofthe Ordinary Shares over the 15 trading days following the subscription notice.In doing so Darwin could acquire a maximum of up to 25% of the Company'senlarged issued share capital following completion of the relevantsubscription, or four times the average daily trading volume over the 15trading days preceding the issue of the relevant subscription notice. As partof this agreement, Darwin was issued warrants entitling it to subscribeseparately for up to 5 million Ordinary Shares at 4.8p per share. The warrantsare exercisable at any time prior to the expiry of 36 months from the date ofthe warrant agreement.

8. Directors' report and accounts

Copies of the full report and accounts will be posted to shareholders on oraround 1 May 2013. A copy will be made available on the Company's website (www.veronapharma.com) at the same time.

9. Annual General Meeting

The Company intends to convene an annual general meeting of shareholders on 3June 2013 at 11:30 am at One America Square, Crosswall, London EC3N 2SG. Anotice to convene the AGM will be dispatched to shareholders at the same timethe full report and accounts are dispatched.

For further information please visit www.veronapharma.com or contact:

Julia Phillips/Simon Conway, FTI Consulting: 020 7831 3113