Half-yearly Report

Verona Pharma plc ("Verona Pharma" or the "Company") 2013 Interim Results Significant clinical progress London, UK, 30September 2013 - Verona Pharma plc (AIM:VRP), the drugdevelopment company focused on "first-in-class" medicines to treat respiratorydiseases, today announces its interim results for the six months ended 30 June2013. Operational Highlights * Lead molecule, RPL554 - a "first-in-class", inhaled, dual PDE3/4 inhibitor, demonstrates anti-inflammatory effects in man + Consistent with profile as a unique drug for the treatment of COPD & asthma * VRP700 administered to first patient in Phase 2 clinical trial to further evaluate efficacy + Continue to expect data in 1H 2014 * Peer-reviewed paper highlights potential for synergy by combining RPL554 with muscarinic receptor antagonists as drugs for the treatment of COPD * Clinical data presented on the potent bronchodilator effects of RPL554 at the high profile American Thoracic Society (ATS) International conference in Philadelphia, USA * Formation of a Clinical and Scientific Advisory Board (CSAB) to help guide the clinical development of RPL554 + Nebulised bronchodilator for treatment of patients with severe COPD in the hospital and home healthcare setting remains initial focus Financial Highlights * Loss after tax of £1.02 million (2012: £1.06 million) or 0.31 pence (2012: 0.35 pence) per ordinary share * Net cash outflows from operating activities £1.29m (2012: £1.18m) + Cash and cash equivalents as at 30 June 2013 of £0.93 million (2012: £ 2.36 million) * Completed a £1.1m share placing and entered into a £5m equity financing facility with Darwin Strategic Post Period Highlights * Appointed Richard Bungay as Chief Financial Officer at the beginning of September * RPL554 anti-inflammatory data presented at the European Respiratory Society meeting * The Company is in discussions with potential strategic investors to cornerstone an equity issue to further progress the RPL554 and VRP700 programmes Dr. Jan-Anders Karlsson, CEO of Verona Pharma, commented: "Last year we changedVerona Pharma's strategy to focus on opportunities of significant unmet medicalneed. As a result, we tailored development of our "first-in-class" lead drug,RPL554, a PDE3 and 4 inhibitor, to treat patients with severe COPD, and VRP700to treat chronic, severe cough. We are pleased to report important progress inthe clinic on both programmes during the period. "Data from the RPL554 anti-inflammatory clinical study suggested that it has abroader-based anti-inflammatory effect than we had expected. We have begun topresent our clinical results with RPL554 in peer-reviewed publications and alsoat scientific conferences where the data has been met with great interest. Wehave also begun a further Phase 2 clinical study of VRP700 in patientspresenting with chronic severe cough as the result of underlying idiopathicpulmonary fibrosis. We look forward to reporting results from this study in 1H2014 where data will hopefully confirm the potent cough suppressing effect seenin the earlier pilot study." "We believe that the data on our key asset, RPL554, positions the compound as aunique, "first-in-class" drug with both bronchodilator and anti-inflammatoryproperties and support its further development as a differentiated treatmentthat will provide both meaningful benefit to patients with COPD and significantshareholder value in the near to medium term." -Ends- For further information please contact: Verona Pharma plc Tel: 020 7863 3300Clive Page, ChairmanJan-Anders Karlsson, CEORichard Bungay, CFO WH Ireland Limited Tel: 020 7220 1666Chris FieldingNick Field FTI Consulting Tel: 020 7831 3113Julia PhillipsSimon Conway Notes to Editors About Verona Pharma plc Verona Pharma is developing "first-in-class" drugs to treat respiratorydisease, such as COPD, asthma and chronic, severe cough. The Company has threedrug programmes, two of which are in Phase 2. The lead programme, RPL554, is aninnovative dual phosphodiesterase (PDE) 3 and 4 inhibitor with bothbronchodilator and anti-inflammatory properties. VRP700 is an innovativeproduct for suppressing chronic, severe cough in patients with underlying lungdisease. In its third programme, Verona Pharma is investigating novelanti-inflammatory molecules, called NAIPs, for a wide range of respiratory andinflammatory diseases. About RPL554 for the treatment of COPD and Asthma Verona's lead drug, RPL554, is a dual phosphodiesterase (PDE) 3 and 4 inhibitorbeing developed as a novel treatment for chronic obstructive airways diseasesuch as COPD and asthma with bronchodilator and anti-inflammatory effects. Botheffects are essential to improve symptoms in patients with COPD or asthma.RPL554 is currently in phase 2 for both diseases. COPD is a chronic lung disease with significant unmet need for which currenttreatment is far from optimal, as it often has unwanted side-effects and/orlimited effectiveness. COPD is most commonly characterised by fixed airflowobstruction and chronic airways inflammation resulting from exposure toirritants like tobacco smoke. Asthma, which remains one of the most commonchronic diseases in the world, is characterised by recurrent breathing problemsand symptoms such as breathlessness, wheezing, chest tightness, and coughing.The market for COPD and asthma drugs is currently estimated to be GBP20 billion[source: visiongain]. About VRP700 for the treatment of Cough VRP700 is Verona Pharma's lead drug compound for the treatment of cough, havinga novel mechanism of action involving the suppression of cough initiatingsignals originating from cough sensory nerve endings located in the lungs. Aclinical trial completed at the University of Florence, Italy in September 2011demonstrated significant anti-tussive effects with nebulised VRP700 inhospitalized patients with chronic severe cough. Cough can be a very debilitating comorbidity reported by patients, especiallythose with respiratory conditions such as asthma, COPD, lung cancer,interstitial lung disease, fibrosis or lung infections. It is a neglectedsymptom which is often self-medicated. Consumer spending on OTC medications,including those for cough, grew by 10% over 2005-10, to reach GBP532 million inthe UK [source: Mintel]. However, there is very little clinical evidence forsuch OTC cough medications being really effective and it is widely recognisedby the medical community that there is a large need for more effective drugs tocontrol and prevent pathologically induced coughing. Chairman and Chief Executive Officer's Joint Statement Introduction Verona Pharma is a biopharmaceutical company focused on the development of highvalue, "first-in-class" drugs for specialist-treated respiratory diseases. TheCompany has two drug programmes in Phase 2, both of which are initially beingdeveloped for use in a hospital setting. The lead programme, RPL554, is aninnovative inhaled dual phosphodiesterase (PDE) 3 and 4 inhibitor with bothbronchodilator and anti-inflammatory properties, initially focused on patientswith COPD. The second programme is VRP700, an innovative inhaled product forsuppressing intractable, chronic cough in patients with underlying severe lungdisease. Both drugs address specific medical needs in patients that currentlyare not optimally treated. There is little competition in the form of noveltypes of bronchodilator or anti-cough drugs for these patient groups and theBoard therefore believes that these are very attractive commercial markets forVerona Pharma. During the first 6 months of 2013, the Company completed an anti-inflammatorystudy with RPL554 and reported the first headline data. It also commenced asecond Phase 2 study with VRP700 in patients with chronic, severe cough andstreamlined operations by closing down the Company's office in Vancouver,Canada. The Company continued to implement the new strategy to accelerate shareholdervalue creation that was announced at the end of last year. Further steps havebeen taken to focus the initial development of RPL554 as a nebulised treatmentfor patients in hospital with severe COPD. Most of these patients are inhospital because of exacerbations of COPD that cannot be prevented by currentmedications and are in need of more intensive care and treatment. Thebronchodilator and anti-inflammatory properties of RPL554 should be beneficialto these patients and the Company is strongly encouraged by the recent datashowing the synergistic effect of RPL554 and the anti-muscarinic drugs (animportant drug class currently used in the treatment of patients with COPD) onhuman airway smooth muscle, published in the prestigious peer-reviewedscientific journal, the Journal of Pharmacology and Experimental Therapeutics.The Board believes that the new strategy will accelerate access tomulti-billion dollar commercial markets and increase the flexibility in thetiming for achieving attractive commercial partnerships. The Company presented scientific data on the bronchodilator effects of RPL554in patients with asthma and COPD at the American Thoracic Society's annualconference in Philadelphia in May, and data on the anti-inflammatory effects ofthe drug at the European Respiratory Society meeting in Barcelona in September,further enhancing the profile of these innovative agents. RPL554 RPL554 is a novel inhaled dual phosphodiesterase 3 and 4 inhibitor that wasselected for clinical development following pre-clinical studies whichdemonstrated both potent bronchodilator and anti-inflammatory properties.RPL554 is currently being developed as a potential "first-in-class" treatmentfor patients with chronic respiratory diseases such as COPD and asthma. RPL554 has successfully completed a number of early clinical Phase 1 and 2clinical studies. These single and multiple dose studies suggest that RPL554,when inhaled across a range of doses, is an effective bronchodilator inpatients with COPD or asthma and is an excellent candidate for furtherdevelopment as a new class of bronchodilator. Importantly for the positioningof RPL554 as a novel inhaled treatment for patients with COPD, in anexperimental clinical trial at the Tor Vergata Clinic at the University ofRome, the magnitude of the bronchodilator response produced by the drug showeda statistically significant difference to placebo and was at least equivalentto that produced by a standard dose of the reference bronchodilatorbeta2-agonist salbutamol in these patients. Importantly, no safety issues wereobserved. A randomized, double blind, placebo-controlled clinical trial to examine thepotential anti-inflammatory effects of RPL554 was completed at MEU inManchester and reported in March 2013. 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 a COPD-like inflammatory response in their airways. The primary end point chosen for this exploratory trial was a reduction in theproportion of neutrophils (an inflammatory cell type recognised for its centralrole in COPD or severe asthma), to total inflammatory cells in the sputum, andsecondary endpoints included reductions in total inflammatory cell numbers.While there was a strong trend in favour of the primary endpoint, the studynarrowly missed reaching statistical significance as there was a highlysignificant reduction not only in the absolute numbers of neutrophils but alsoin the total inflammatory cells in sputum, with no clinically significantadverse events reported. Most important for the further development of RPL554,the absolute numbers of all types of inflammatory cells were statisticallysignificantly reduced in the 6 hour sputum sample after only one week ofonce-daily treatment: neutrophils (p=0.002), eosinophils (p=0.001), lymphocytes(p=0.001), and macrophages (p=0.04), in addition to the total number ofinflammatory cells (p=0.002). These data indicate that RPL554 hasanti-inflammatory properties, most likely due to inhibition of PDE4 (or perhapsthe combined inhibition of PDE3 and 4), and it is believed that this adds tothe direct bronchodilator effect of the drug and contributes to the improvementof symptoms of COPD. A novel nebulised formulation of RPL554 is under development and it isanticipated that this will become available around the year-end. This willallow the further development of this unique drug with both bronchodilator andanti-inflammatory properties for the treatment of hospitalized patients withsevere COPD. VRP700 Cough is the most common symptom of many lung diseases. Chronic cough of morethan eight weeks duration can be a debilitating symptom when associated withsevere lung diseases such as interstitial lung disease, including idiopathicpulmonary fibrosis (IPF), lung cancer, cystic fibrosis, asthma and COPD.Currently available cough remedies are widely considered to be relativelyineffective, often with significant side effects. To the best of the Company'sknowledge, there are no novel and effective inhaled therapies for treating thesevere, intractable cough associated with these lung diseases in clinicaldevelopment. The Company is initially evaluating VRP700 as a potential"first-in-class" treatment in patients with chronic cough due to severe lungdisease. A clinical trial of VRP700 at the University of Florence, Italy, showed a veryeffective reduction in chronic cough in a small group of patients with variousforms of severe lung disease. A follow-on study in patients with IPF wascommenced at the Respiratory and Allergy Centre at the University ofManchester, UK, during the reporting period. In this randomised, double-blind,placebo-controlled clinical study with inhaled VRP700, IPF patients are treatedwith a single dose of either VRP700 or placebo and the effect on cough andother symptoms are recorded. The study is expected to be completed in the firsthalf of 2014. NAIPS The Company retains its interest in the NAIPs program, including recent patentfilings as a basis for securing ownership and creating value from this researchprogram in the longer term. Financials The loss from operations after tax for the six months period ended 30 June,2013 (the "Period") was £1.02 million (2012: £1.06 million) or 0.31 pence(2012: 0.35 pence) per ordinary share. The loss includes a non-cash share basedpayment charge of £0.03 million (2012 £0.04 million) and a research anddevelopment tax credit of £0.29 million (2012: £Nil). Research and development expenditure, which was expensed as incurred, amountedto £0.80 million (2011: £0.59 million). Programme expenditures incurred duringthe Period for RPL554 amounted to £0.50 million (2012: £0.44 million) and forVRP700 programme amounted to £0.30 million (2012: £0.15 million). Expenditures in RPL554 increased by £0.06 million, primarily due to the costassociated with planning and preparing for further RPL554 clinical trials. Theincrease of £0.15 million in expenditure in the VRP700 programme is due tocosts associated with the ongoing Phase 2 clinical trial at the Respiratory andAllergy Centre, Manchester. Administrative expenses for the six months period were £0.51 million (2012: £0.49 million). The increase of £0.02 million over the prior period reflected asmall increase in general and administrative expense of £0.03 million,partially offset by a decrease in share based payment of £0.01 million. 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. The Company is in discussions withpotential strategic investors to cornerstone an equity issue to furtherprogress the RPL554 and VRP700 programmes. As at 30 June 2013, the Company had approximately £0.93 million (2012: £2.36million) in cash and cash equivalents. The Board and Management Post period end, at the beginning of September, the Company appointed RichardBungay as Chief Financial Officer, initially on a part-time basis. Richard hasclose to 20 years' experience in corporate and senior finance roles within R&D-based companies within the biotechnology and pharmaceutical sector. He wasalso Director of Corporate Communications and Strategic Planning at CelltechGroup plc until its acquisition by UCB in 2004. Richard qualified as aChartered Accountant with Deloitte. His experience will be invaluable as thekey clinical programmes move forward and the Company grows. Outlook During the reporting period, Verona Pharma has taken further steps to implementthe new strategy of creating a biopharmaceutical company focused on developinghigh value, "first-in-class" drugs for specialist-treated respiratory diseases.The initial focus of the RPL554 programme is to develop a nebulised treatmentfor hospitalized patients with severe COPD, and to develop VRP700 as a novelinhaled treatment for patients with intractable, chronic cough due to severelung disease. The Board believes that both drugs address specific patientgroups that are currently under-treated, that there is little competition, andtherefore very attractive commercial opportunities that will afford thegreatest prospect of generating significant shareholder value for VeronaPharma. The Company will continue to operate with a strong focus and financialdiscipline, and remains very positive about its progress to date and theopportunities for its two lead drug development programmes. Professor Clive P. Page Dr. Jan-Ander KarlssonChairman Chief Executive Officer Group Statement of Comprehensive Income For the six months ended 30 June 2013 6 months 6 months Year ended 31 ended ended December 30 June 2013 30 June 2012 2012 Notes (unaudited) (unaudited) (audited) £ £ £ Revenue - - - Cost of sales - - - Gross profit/(loss) - - - Research and development (800,036) (587,890) (1,674,977) Administration expenses (508,866) (487,667) (910,372) Operating loss (1,308,902) (1,075,557) (2,585,349) Finance revenue 1,875 12,826 20,177 Loss before taxation (1,307,027) (1,062,731) (2,565,172) Taxation - credit 2 289,400 - 48,069 Total comprehensive loss for (1,017,627) (1,062,731) (2,517,103)the period Loss per ordinary share - 3 (0.31)p (0.35)p (0.82)pbasic and diluted Group Statement of Financial Position As at 30 June 2013 As at As at As at 30 June 2013 30 June 2012 31 December 2012 (unaudited) (unaudited) (audited) £ £ £ ASSETS Non current assets Plant and equipment 33,519 11,870 39,484 Intangible assets - patents 160,321 106,251 125,280 Goodwill 1,469,112 1,469,112 1,469,112 1,662,952 1,587,233 1,633,876 Current assets Trade and other receivables 208,070 191,111 208,051 Cash and cash equivalents 930,753 2,355,789 960,870 1,138,823 2,546,900 1,168,921 Total assets 2,801,775 4,134,133 2,802,797 EQUITY AND LIABILITIES Capital and reservesattributable to equityholders Share capital 336,175 307,203 307,203 Share premium 13,434,648 12,447,364 12,447,364 Share-based payment reserve 494,520 554,158 470,577 Retained losses (11,638,056) (9,274,557) (10,621,672) Total equity 2,627,287 4,034,168 2,603,472 Current liabilities Trade and other payables 174,488 99,965 199,325 Total liabilities 174,488 99,965 199,325 Total equity and liabilities 2,801,775 4,134,133 2,802,797 Group Statement of Cash Flows For the six months ended 30 June 2013 6 months 6 months Year ended 31 ended ended December 30 June 2013 30 June 2012 2012 £ £ £ Net cash outflow from (1,291,199) (1,183,937) (2,573,609)operating activities Cash inflow from taxation 289,400 - 48,069 Cash flow from investingactivities Interest received 1,827 3,586 20,194 Purchase of plant and (1,197) (9,623) (46,594)equipment Payment for patents (45,204) - (27,953) Net cash outflow from (44,574) (6,037) (54,353)investing activities Cash flow from financingactivities Financing costs - 17,074 12,074 Net proceeds from issue of 1,016,256 1,002,494 1,002,494shares Net cash inflow from 1,016,256 1,019,568 1,014,568financing activities Net decrease in cash and cash (30,117) (170,406) (1,565,325)equivalents Cash and cash equivalents at 960,870 2,526,195 2,526,195the beginning of the period Cash and cash equivalents at 930,753 2,355,789 960,870the end of the period Reconciliation of operatingloss to net cash outflow fromoperating activities Operating loss (1,308,902) (1,075,557) (2,585,349) Cost of issuing share options 25,186 43,659 67,335 Decrease/(increase) in trade 29 (108,087) (129,284)and other receivables (Decrease)/increase in trade (24,837) (56,044) 43,316and other payables Depreciation of tangible 7,162 3,774 13,131assets Amortisation of intangible 10,163 8,318 17,242assets Net cash outflow from (1,291,199) (1,183,937) (2,573,609)operating activities Group Statement of Changes in Equity For the six months ended 30 June 2013 Share Share Option Retained capital premium reserve losses Total £ £ £ £ £ Balance at 1 January 2013 307,203 12,447,364 470,577 (10,621,672) 2,603,472 Total comprehensive loss - - - (1,017,627) (1,017,627)for the period Issue of shares 307,203 12,447,364 470,577 (11,639,299) 1,585,845 Issue costs 28,972 1,129,889 - - 1,158,861 - (142,605) - - (142,605) Share based payment - - 25,186 - 25,186 Transfer of previously - - (1,243) 1,243 - expensed share basedpayment charge upon lapse ofoptions Balance at 30 June 2013 336,175 13,434,648 494,520 (11,638,056) 2,627,287(unaudited) Balance at 1 January 2012 285,844 11,466,229 510,499 (8,211,826) 4,050,746 Total comprehensive loss - - - (1,062,731) (1,062,731)for the period 285,844 11,466,229 510,499 (9,274,557) 2,988,015 Issue of shares 21,359 1,046,607 - - 1,067,966 Issue costs - (65,472) - - (65,472) Share based payment - - 43,659 - 43,659 Balance at 30 June 2012 307,203 12,447,364 554,158 (9,274,557) 4,034,168(unaudited) Balance at 1 January 2012 285,844 11,466,229 510,499 (8,211,826) 4,050,746 Total comprehensive loss - - - (2,517,103) (2,517,103)for the year 285,844 11,466,229 510,499 (10,728,929) 1,533,643 Issue of shares 21,359 1,046,607 - - 1,067,966 Issue costs - (65,472) - - (65,472) Share based payment - - 67,335 - 67,335 Transfer of previously - - (107,257) 107,257 - expensed share basedpayment charge upon lapse ofoptions Balance at 31 December 307,203 12,447,364 470,577 (10,621,672) 2,603,4722012 (audited) Notes to the financial information For the six months ended 30 June 2013 1. Publication of non-statutory accounts i) This interim financial information for the six months ended 30 June 2013 isunaudited and does not constitute statutory accounts within the meaning ofSection 434 of the Companies Act 2006. It was approved by the board ofdirectors on 27 September 2013. The figures for the year ended 31 December 2012have been extracted from the statutory accounts which have been reported on bythe Company's auditor. The financial statements for the year ended 31 December2012 have been delivered to the Registrar of Companies and the auditor's reporton those financial statements was unqualified and did not contain a statementmade under section 498 (2) or section 498 (3) of the Companies Act 2006. ii) Accounting policies The interim financial information for the six months ended 30 June 2013includes the results of Verona Pharma plc and its wholly-owned subsidiaryRhinopharma Limited. The unaudited results for the period have been prepared onthe basis of accounting policies adopted in the audited accounts for the yearended 31 December 2012. iii) The directors do not recommend the payment of a dividend (period to 30June 2012 - £Nil; year ended 31 December 2012 - £Nil). iv) A copy of the interim report is available on the Company's websitewww.veronapharma.com. 2. Taxation The £289,400 research and development tax credit recognised in 2013 wasreceived during the six months period ended 30 June 2013. The tax credit is acash refundable tax credit of 11% on the enhanced qualifying research anddevelopment expenditures made by the Company in fiscal year 2012. The taxcredit of £48,069 recognised in fiscal year 2012 is a cash refundable taxcredit for the enhanced qualifying research and development expenditures madeby the Company in fiscal year 2011. 3. Loss per share i) The basic loss per share of 0.31p (30 June 2012: loss of 0.35p; 31 December2012: loss of 0.82p) for the Group is calculated by dividing the loss for theperiod by the weighted average number of ordinary shares in issue of329,133,121 (30 June 2012: 306,030,806; 31 December 2012: 306,620,807). ii) The diluted loss per share has not been presented since the Company's stockoptions are anti-dilutive. 4. Comparatives The comparatives include audited figures for the year ended 31 December 2012and unaudited figures for the six months ended 30 June 2012.