Interim Results

Verseon Corporation

("Verseon" or the "Company")

Interim Results

Fremont, Calif.-Verseon (AIM:VSN), a technology-based pharmaceutical company employing a computer-driven platform to develop a diverse drug pipeline, today announces its Interim Results for the six months ended June 30, 2017. The report and accounts are available for download from the Company's website (www.verseon.com).

Adityo Prakash, CEO of Verseon Corporation, commented: "Our pipeline continues to pick up momentum. We are finalizing phase I preparations for our first anticoagulant, have presented efficacy results in our diabetic macular edema program, and initiated a new program in which we are developing oral therapeutics for hereditary angioedema, a rare, life-threatening disease."

"We believe that our drug candidates provide the best evidence of the power of our innovative, computer-driven drug discovery platform. With our new research and administrative facility in place, we are well-positioned to further grow shareholder value by generating a steady stream of novel high-quality drug candidates for a variety of diseases."

Professor John Deanfield, Chair of Verseon's Cardiovascular Clinical Advisory Board, commented on the Company's anticoagulation program: "Verseon's platelet-sparing anticoagulants look very promising. These precision drugs prevent clot formation without disrupting platelet function, which substantially reduces bleeding risk. This provides an exciting 'precision medicine' opportunity to develop a new long-term combination therapy approach with antiplatelet drugs."

Highlights

Finance: Building a solid foundation for Verseon's platform

· Verseon continues to prudently manage its resources as the Company invests in infrastructure, including new facilities, laboratory equipment, and a high-performance computing cluster.

· As of June 30, 2017, total assets on the balance sheet stood at $60.2 million, including cash, cash equivalents, and short-term investments of $30.8 million, compared to $69.6 million and $46.9 million, respectively, at December 31, 2016.

· Operating expenses totaled $9.5 million for the six months ended June 30, 2017, compared to $7.9 million for the six months ended June 30, 2016.

· The resultant net loss was $8.8 million or $0.06 per basic share for the six months ended June 30, 2017, compared to a net loss of $9.3 million or $0.06 per basic share for the six months ended June 30, 2016.

Anticoagulation: Heading to the clinic

· Confirmed unique hemostasis-preserving profile

· Established CVD Clinical Advisory Board

· Scheduled phase I start for VE-1902 (Q1 2018)

· Progressing second development candidate toward clinical trials in 2018

Completion of CMC scale-up and regulatory toxicology studies for VE-1902 is expected by the end of 2017. A second, chemically distinct development candidate with promising preclinical profile, including good in vitro and preliminary in vivo toxicology, is being prepared for regulatory toxicology studies.

Hereditary angioedema: Developing oral therapy for a rare, life-threatening disease

· Established in vivo efficacy with oral dosing

Several compounds are being optimized for oral bioavailability to identify the candidates best suited for oral treatment.

Diabetic macular edema: Efficacy results established

· Presented in vivo efficacy with systemic dosing

· Demonstrated good pharmacokinetics after eye-drop dosing

Multiple lead candidates spanning chemotypes suitable for development as either eye-drop or oral treatments are being optimized for efficacy and safety.

Oncology: Developing novel anticancer agents

· Tested on drug-resistant cancer cell lines

· Improved potency and pharmacokinetics

Several candidates are being assessed for their potency against tumor cell lines that are resistant to various existing anticancer therapies.

Computational platform: Generating novel candidates

· Delivered results across multiple programs

Positive preclinical results across the pipeline are proving the power of Verseon's computer-driven drug discovery platform. We continue to develop a range of chemically diverse drug candidates for our programs.

Facilities development: A framework for a growing pipeline

· Closed clean-energy financing

· Moving into new research and administrative facility

A Property Assessed Clean Energy (PACE) program provides Verseon with access to convenient long-term financing for energy-related improvements. The transition of all departments into the new facility is underway.

About Verseon

Verseon Corporation (www.verseon.com, AIM: VSN) is a technology-based pharmaceutical company that employs its proprietary, computational drug discovery platform to develop novel therapeutics that are unlikely to be found using conventional methods. The Company is applying its platform to a growing drug pipeline and currently has four active drug programs in the areas of anticoagulation, diabetic macular edema, hereditary angioedema, and oncology.

For further information, please contact:

For financial and business media enquiries, please contact:

For trade and pharma media enquiries, please contact:

Cautionary Note on Forward-Looking Statements

This press release contains forward-looking statements, which are generally statements that are not historical facts. Forward-looking statements can be identified by the words "expects," "anticipates," "believes," "intends," "estimates," "plans," "will," "outlook," and similar expressions. Forward-looking statements are based on management's current plans, estimates, assumptions, and projections, and speak only as of the date they are made. We undertake no obligation to update any forward-looking statement in light of new information or future events, except as otherwise required by law. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Actual results or outcomes may differ materially from those implied by the forward-looking statements as a result of the impact of a number of factors. 

Chairman's statement

For many years, there has been a documented decline in the number of truly new drugs approved by the FDA. Of the fifteen novel molecular entities approved in 2016 (down from 53 in 1996), only five represent new chemical matter. Now more than ever, a new approach to drug discovery is needed that can deliver the much-needed innovation in designing chemical scaffolds.

Verseon recognized this need years ago and has established a unique platform capable of generating an ongoing stream of novel drug candidates optimized for each specific target protein. In an industry that is notorious for time-consuming trial-and-error testing, Verseon leverages computer technology where it is most useful: to generate new chemical starting points for drug development and to identify and optimize drug candidates. Combining advanced computational modeling with comprehensive in-house chemistry and biology labs, the Company has established an efficient drug design and development workflow.

Importantly, the future of Verseon's pipeline doesn't rely on just one single drug candidate per program. In contrast to traditional drug discovery, Verseon's unique platform allows the Company to develop a range of chemically distinct compounds. This process enables the Company to redistribute resources to the most promising candidates in each program, thereby improving the probability of success as well as reducing cost and cycle time.

During the first half of this year, Verseon has made excellent progress in all of its drug programs. The anticoagulation program is leading the way with two candidates heading toward clinical trials. In addition, Verseon has pushed into the field of rare diseases with its new hereditary angioedema program, based on the Company's novel class of plasma kallikrein inhibitors.

Completing Verseon's new research and administrative facility has been a priority for the management team. The buildout has been pushed forward with keen attention to quality of work and cost. As the whole team moves in over the next few months, the Board anticipates a further gain in productivity.

Verseon believes that its continued efforts to improve the design and development process will help the Company achieve its goal of becoming a leading supplier of novel medicines. The Board remains confident in the Company's ability to capture the increasing value of its drug pipeline.

Thomas A. Hecht, PhD

Chairman of the Board

Chief Executive's statement

As anticipated at the end of 2016, our drug development pipeline continues to pick up momentum. We are finalizing phase I preparations for our first anticoagulant, VE-1902. We identified Australia as the ideal location to perform early-stage clinical trials, selected experienced contract research organizations, and expect regulatory toxicology testing to be completed by the end of this year. In cooperation with our Cardiovascular Clinical Advisory Board, we are now developing clinical trial strategies that will demonstrate the unique capabilities of our precision anticoagulants.

At the same time, we continue to optimize a number of lead anticoagulation candidates with distinct chemotypes to manage the risk of the clinical process. In fact, we nominated a second development candidate earlier this year, which is only a few months behind VE-1902 in preclinical development.

Another highlight during this period was the announcement of promising in vivo efficacy results in our diabetic macular edema program. Our plasma kallikrein inhibitors are being developed for eye-drop or oral dosing, which distinguishes them from current treatments that rely on injection into the eye.

Plasma kallikrein inhibitors have also demonstrated potential as treatments for hereditary angioedema, a rare, life-threatening genetic disease. To address this additional market, we have dedicated resources to develop an orally bioavailable plasma kallikrein inhibitor for this indication, which could complement or even replace the current injectable therapies.

We believe that our drug candidates provide the best evidence of the power of our innovative, computer-driven drug discovery platform. A unique platform like ours requires the right infrastructure that can host high-performance computing, chemistry, biology, and administrative functions under one roof.

Over the last two years, we have designed a multifunctional facility to best serve our needs. I am excited that as this report is published, we are in the process of moving into the new facility.

With our expanded infrastructure in place, we are well-positioned to further grow shareholder value by providing a steady stream of novel high-quality drug candidates for a variety of diseases.

Adityo Prakash

Chief Executive Officer

Anticoagulation: Heading to the clinic

We have developed a novel class of anticoagulants that do not disrupt platelet function while effectively targeting coagulation in preclinical tests. This unique profile has the potential to change the standard of care for the millions of patients in need of long-term combined anticoagulant-antiplatelet therapy.

Precision anticoagulants needed

Cardiovascular disease (CVD) affects more than 90 million people in the United States[1]. This includes patients diagnosed with acute coronary syndrome (ACS), coronary artery disease (CAD), and peripheral artery disease (PAD), who typically require long-term treatment with antiplatelet agents (aspirin, Plavix®, or Brilinta®) to prevent further complications. Moreover, many of these patients are at a higher risk of developing abnormal heart rhythms, for instance non-valvular atrial fibrillation (NVAF), which require treatment with an anticoagulant. Conversely, a significant fraction of patients with atrial fibrillation also have CAD. In both cases, patients benefit from combination therapy with an anticoagulant in addition to one or two antiplatelet agents.

For these patient populations, management of bleeding risk is a major concern that is reflected in current treatment guidelines. The conventional anticoagulants (e.g., warfarin and NOACs) are known to significantly increase the risk of bleeding events, which is further elevated in patients already receiving antiplatelet therapy.

Recent clinical trials have shown that a combination therapy of aspirin with sub-therapeutic doses of Xarelto® effectively decreases the incidence of heart attack and stroke in patients with ACS. However, they have also confirmed an increased risk of major bleeding events. While life-long therapy combining an oral anticoagulant with one or two antiplatelet drugs is desired, current treatment guidelines limit such therapy to a maximum of six months to a year due to safety concerns.

Verseon anticoagulants may fill the gap

Our preclinical studies have shown that the Verseon anticoagulants selectively target the coagulation cascade without affecting platelet function. This is reflected in a substantially reduced bleeding risk of the Verseon drug candidates compared to the NOACs. Owing to their novel pharmacological profile, the Verseon anticoagulants may become the first to be suitable for long-term combination anticoagulant-antiplatelet therapy with a significantly reduced risk of major adverse cardiovascular events and bleeding.

Preparing for the clinic

We are currently preparing the first development candidate, VE-1902, for clinical trials. In addition to good efficacy and low bleeding risk in preclinical models, the candidate shows very low renal excretion. This further improves its therapeutic potential in comparison to existing NOACs, which rely on renal clearance and require dose adjustments in patients with kidney disease. Additionally, VE-1902 has been well tolerated even at high doses in preclinical in vivo toxicology studies.

GLP regulatory toxicology studies for VE-1902 are scheduled to be completed by the end of the year while formulation and drug product development are ongoing. Presently, we are synthesizing the GMP drug substance and preparing the final GMP drug product for clinical trials to commence in Q1 2018.

Second development candidate

While our first development candidate is heading to the clinic, we continue to optimize a number of other lead candidates with distinct chemotypes. Moving additional candidates into human trials will de-risk the clinical process and increase the odds that our anticoagulation program produces a marketable drug.

In early 2017, we nominated the second development candidate, VE-2851. Like VE‑1902, this candidate exhibits a promising pharmacokinetic profile, good oral bioavailability, clean in vitro tox, and similarly low bleeding liability. An initial assessment of in vivo toxicology also looks promising. Notably, this candidate is significantly more potent than VE‑1902, which may allow for lower dosing.

VE-2851 is expected to smoothly advance into the clinic by leveraging already-established relationships with contract research organizations. Additionally, VE-2851 is expected to follow similar clinical development strategies as VE-1902 and is also projected to enter clinical trials in 2018.

Clinical trial location chosen

Advancing a pipeline with multiple development candidates requires us to run more than one early-stage clinical trial per program. We have identified Australia as the best-suited location to conduct cost-effective and efficient phase I trials for our anticoagulants.

Australia has an excellent reputation for clinical trials with a good clinical infrastructure. Furthermore, results of clinical trials conducted in Australia are readily accepted by the FDA and EMA. The country also offers attractive R&D credits and tax incentives for international pharmaceutical companies that help mitigate cost. Together, these factors make Australia an appealing clinical trial location, and have led to more and more Australian early-stage clinical trials are being sponsored by US-based pharmaceutical companies.

Cardiovascular Clinical Advisory Board

To best position the Verseon anticoagulants in clinical trials, we have recruited a panel of eminent cardiologists with extensive anticoagulant clinical trial experience. Together with our in-house team, the Cardiovascular Clinical Advisory Board is developing strategies for phase I and phase II trials-.

· Professor John Deanfield - Chair

British Heart Foundation Vandervell Professor of Cardiology and Director of the National Centre for Cardiovascular Disease Prevention and Outcomes (University College Hospital, London)

Professor Deanfield is a pioneer in cardiology and one of the leading investigators in cardiovascular disease. He is an author on over 500 papers and serves on numerous advisory and journal editorial boards.

· Professor Keith A. A. Fox

British Heart Foundation and Duke of Edinburgh Professor of Cardiology (University of Edinburgh) and one of four 'Legends in Cardiology' (American College of Cardiology and the European Society of Cardiology)

Professor Fox is an award-winning cardiologist and founding fellow of the European Society of Cardiology. He is an expert in acute coronary artery disease and has been the lead investigator on multiple novel anticoagulant trials.

· Professor C. Michael Gibson

Professor of Medicine (Harvard Medical School), Interventional Cardiologist and Cardiovascular Researcher (Beth Israel Deaconess Medical Center)

Professor Gibson is a distinguished clinical researcher and interventional cardiologist. He has pioneered novel measures of coronary blood flow that are widely used today and has been the lead investigator on several large antiplatelet and anticoagulant trials.

· Professor Gregory YH Lip

Consultant Cardiologist and Professor of Cardiovascular Medicine (University of Birmingham), member of the European Heart Rhythm Association and of the ESC Thrombosis and Cardiovascular Pharmacology Committees

Professor Lip is one of the leading experts in the understanding and treatment of atrial fibrillation and was the sole cardiologist on the Thomson Reuters Science Watch list of "The World's Most Influential Scientific Minds 2014."

Hereditary angioedema: Developing oral drugs for a rare, life-threatening disease

Hereditary angioedema (HAE) is a rare genetic disease in which a mutation of the C1 inhibitor gene leads to overactivation of several serine proteases, including plasma kallikrein. The disease is associated with recurring episodes of severe swelling, which can affect a patient's face, extremities, intestinal tract, and airways. Upper airway edema is considered especially dangerous and can even be life-threatening.

HAE has an estimated prevalence of 1 in every 50,000 persons and a growing global market that is expected to increase to $3.8 billion in 2025 from $1.7 billion in 2016.[2] Additionally, the orphan disease status of HAE allows for more rapid preclinical and clinical development due to reduced regulatory requirements and a well-established regulatory path.

Providing an alternative to injections

All currently available HAE treatments are injectables, either intravenous or subcutaneous. They include the C1 esterase inhibitors Cinryze®, Berinert®, and Ruconest®, the bradykinin B2 receptor antagonist Firazyr®, and the plasma kallikrein inhibitor Kalbitor®.

The use of Kalbitor®, as well as the positive phase III results for Lanadelumab®, Shire's subcutaneous monoclonal antibody plasma kallikrein inhibitor, provide strong evidence that plasma kallikrein is an important target central to the HAE disease pathway. Our platform has enabled us to develop several small-molecule plasma kallikrein inhibitors with good oral pharmacokinetics exposure, which is critical for convenient, once-a-day oral dosing.

Efficacy shown

In a well-established disease model for HAE, the carrageenan-induced paw edema (CPE) model, our compounds have shown excellent reduction of edema when administered orally. The Verseon plasma kallikrein inhibitors reduce swelling over several hours, similar to a positive control (indomethacin, a nonsteroidal anti-inflammatory).

We have recently accelerated the scale-up for a number of candidates in the HAE program. This will provide enough material to continue optimization and efficient testing of these compounds.

Diabetic macular edema: Efficacy results established

We are developing plasma kallikrein inhibitors for the treatment of diabetic macular edema (DME), a major cause of blindness affecting 21 million people worldwide[3]. By focusing on drugs for topical eye-drop or oral administration, we aim to provide much-needed alternatives to the current standard of recurring intravitreal injections (anti-VEGF agents or corticosteroids) and laser treatments.

More convenient administration desired

The current first-line therapies for DME are anti-VEGF agents, intravitreal injections that are typically administered once every four to eight weeks. Studies have shown widely varying vision improvements following anti-VEGF therapy with about 50% of patients reporting at most moderate vision improvements[4]. At the same time, intravitreal injections are associated with side effects such as inflammation, infections, and cataracts. Despite the established efficacy of anti-VEGF agents, there is a clear need for DME drugs with a more convenient mode of administration that can serve as monotherapy or in combination with current treatments.

Optimizing candidates for eye-drop or oral dosing

Using Verseon's computer-driven drug discovery platform, we have designed a number of potent, selective plasma kallikrein inhibitors from distinct chemical families and optimized multiple lead candidates for activity, permeability, and solubility.

Pharmacokinetic studies indicate that our class of plasma kallikrein inhibitors spans compounds suitable for eye-drop or oral delivery. When administered as single eye drops in preclinical experiments, several of our compounds show favorable exposure in the relevant tissues of the eye (vitreous, retina, choroid). Other compounds show good oral pharmacokinetics in preclinical studies.

In vivo efficacy established

During the first half of 2017, we have designed in-house an advanced preclinical in vivo model that well-represents the progression of DME. This allows us to assess the efficacy of our drug candidates in a highly controlled manner. At the 2017 BIO International Conference, we presented initial results from this in vivo efficacy model demonstrating significantly reduced retinal leakage following systemic dosing. These results strongly suggest that the Verseon inhibitors can successfully slow down the progression of DME.

Optimizing multiple lead candidates

As with the other programs, we continue to optimize and test a range of chemically diverse compounds. This will provide us with multiple lead candidates to choose from when moving into the clinic. Topical formulation development for our lead candidates is ongoing as well as extensive testing in efficacy and safety models.

Oncology: Developing novel anticancer agents

We have developed a range of novel compounds with improved potency against a variety of cancer cell lines, including liver, breast, ovarian, and lung. Several candidates show good stability in liver microsomes and intact liver cells (hepatocytes), suggesting that they will be sufficiently stable in vivo. Consistent with these findings, some recent compounds have demonstrated significantly improved in vivo pharmacokinetics.

Studying drug resistance

In today's oncology market, drug resistance is a major challenge. Efflux pumps are transport proteins that move organic substances, including neurotransmitters, toxic substances, but also drugs, out of cells. This is a common way for cancer cells to develop multidrug resistance, which can drastically limit the effectiveness of therapeutics.

To address this issue, our drug candidates are undergoing extensive testing to determine whether they are affected by different efflux pumps. In functional assays on cancer cell lines that overexpress these major pumps, Verseon's drug candidates have shown comparable potency independent of the activity of the pumps. This indicates that our drug candidates are not affected by the overexpression of these efflux pumps in cancer cells.

Promising initial findings

In preliminary testing against cancer cell lines resistant to common chemotherapy agents, the Verseon drug candidates retain their efficacy.

Building on these promising results, we have recently initiated a scale-up for the most potent compounds, which will enable us to perform further testing in drug-resistant cell lines as well as in vivo dosing tolerability studies.

Facilities development: A framework for growth

Our new research and administrative facility, located at 47071 Bayside Parkway, Fremont, CA, has undergone an extensive buildout to provide the optimal environment for our interdisciplinary teams. It consolidates computing, chemistry and biology labs, and administrative functions in a single location and will allow us to efficiently handle our growing pipeline of drug programs. The transition of all departments into the new facility is currently underway and is expected to be completed by the end of the year.

Ideally supporting the Verseon workflow

With its brand-new exterior and well-thought-out interior with offices, shared meeting spaces, break areas, and laboratories, the approx. 87,500 square-foot building will enable us to streamline our processes and foster collaboration.

The in-house chemistry labs feature workspace for exploratory synthesis, chemical purification, process chemistry and scale-up, as well as a nuclear magnetic resonance suite. Our extensive biology labs are equipped with an analytical lab, microscopy, cell culture, and bacterial culture suites, and a complex bioassays lab with state-of-the-art procedures suites. In addition, the building hosts our high-performance computing cluster and computational molecular modeling team.

Financing for energy efficiency

At the end of September, we entered into a Property Assessed Clean Energy (PACE) program for the new facility, which gives us access to a $8.65 million loan for energy efficiency and renewable energy projects. PACE is a state-legislated framework that provides long-term financing repaid through property assessments. Among other things, we will use the PACE program to fund the installation of a clean, natural-gas-driven co-generation system, which is expected to lower energy costs and Verseon's carbon footprint, while reducing our reliance on the electrical grid.

Finance review

During the six months ended June 30, 2017, Verseon has continued to fund its drug programs in anticoagulation, diabetic macular edema, and oncology. In addition, a hereditary angioedema program based on orally bioavailable plasma kallikrein inhibitors was initiated.

In parallel, the Company has made substantial investments in an infrastructure buildout that includes new facilities, laboratory equipment, and a high-performance computing cluster. As expected, the infrastructure buildout has been mostly completed. The Verseon team is currently moving into the new facilities, and expect the transition to be completed by the end of the year.

· Total assets on the balance sheet stood at $60.2 million, compared to $69.6 million as of December 31, 2016.

· Cash, cash equivalents, and short-term investments stood at $30.8 million, compared to $46.9 million as of December 31, 2016.

· Property and equipment totaled $28.6 million, compared to $22.3 million as of December 31, 2016.

· Research and development expenses were $6.6 million for the six months ended June 30, 2017, compared to $5.1 million for the six months ended June 30, 2016, which is primarily attributed to a further acceleration of the Company's drug programs.

· General and administrative expenses were $3.0 million for the six months ended June 30, 2017, compared to $2.8 million for the six months June 30, 2016.

· Non-cash expenses included stock-based compensation expense of $0.1 million for the six months ended June 30, 2017, compared to $0.4 million for the six months ended June 30, 2016, and also a currency exchange loss of $0.4 million for the six months ended June 30, 2017, compared to a loss of $1.6 million for the six months ended June 30, 2016.

· Net loss was $8.8 million or $0.06 per basic share for the six months ended June 30, 2017, compared to a net loss of $9.3 million or $0.06 per basic share for the six months ended June 30, 2016.

Research and development facility ownership subsidiary

In August 2015, we purchased a property in Fremont, California under our wholly owned subsidiary, VRH1 LLC. The property includes a building that has been undergoing a buildout to tailor it to our specific laboratory needs. The facility houses chemistry and biology laboratories, computational infrastructure, and corporate offices.

Capital structure

At June 30, 2017, Verseon's issued share capital consisted of 151,409,974 shares of common stock and the Company held 42,917 shares in treasury, as compared to 151,414,659 shares of common stock outstanding with no shares in treasury at December 31, 2016.

Independent auditor's report

To the Directors of Verseon Corporation

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended June 30, 2017 which comprises the Consolidated balance sheets, the Consolidated statements of operations and comprehensive loss, the Consolidated statements of cash flows, the Consolidated statements of stockholders' equity, and the related notes A to K. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note A, the annual financial statements of the company are prepared in accordance with the accounting principles generally accepted in the United States of America. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with accounting principles generally accepted in the United States of America.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended June 30, 2017 is not prepared, in all material respects, in accordance with accounting principles generally accepted in the United States of America and the AIM Rules of the London Stock Exchange.

Deloitte LLP

Statutory Auditor

Reading, United Kingdom

September 25, 2017

Condensed consolidated balance sheets

As of June 30, 2017 and December 31, 2016

See accompanying notes to the condensed consolidated financial statements.

These condensed consolidated financial statements were approved by the Board of Directors on September 25, 2017 and signed on its behalf by:

Adityo Prakash

Chief Executive Officer

Condensed consolidated statement of operations and comprehensive loss

For the six months ended June 30, 2017 and 2016

Condensed consolidated statements of cash flows

For the six months ended June 30, 2017 and 2016

Interest payments made were $0 and $83 thousand during the six months ended June 30, 2017 and 2016, respectively.

No income taxes paid during the six months ended June 30, 2017 and 2016.

See accompanying notes to the condensed consolidated financial statements.

Condensed consolidated statements of stockholders' equity

For the six months ended June 30, 2017 and the year ended December 31, 2016

* Amount less than $1,000 and insignificant after rounding.

See accompanying notes to the condensed consolidated financial statements.

Condensed consolidated statements of stockholders' equity

For the six months ended June 30, 2017 and the year ended December 31, 2016 (continued)

See accompanying notes to the condensed consolidated financial statements. 

Notes to the condensed consolidated financial statements

A. Basis of presentation and principles of consolidation

The condensed consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") applicable to interim financial statements. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, operating results, and cash flows for the interim period have been included in these condensed consolidated financial statements.

These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2016.

The financial information is presented in United States Dollars ("US$"). All intercompany amounts have been eliminated in consolidation.

These condensed consolidated financial statements include the financial position and performance of Nirog Therapeutics LLC ("Nirog"), a Delaware limited liability company, and VRH1 LLC ("VRH1"), a wholly owned California limited liability company. VRH1 was established in August 2015 to acquire a property in Fremont, California to house the Company's drug discovery and development operations as well as the corporate headquarters. Nirog was established in September 2009 as a vehicle to fund the research and development of the Company's anticoagulation program. The Company owned 78.44% of the outstanding equity of Nirog as of June 30, 2017 as compared to 76.8% as of December 31, 2016.

The Company has formed Verseon India Private Limited ("VIPL") together with a Mauritius based private equity investor. VIPL was incorporated in Andhra Pradesh, India in March 2006 to manage and maintain the Company's supercomputing cluster. The Company has since closed this operation in 2009 and is in the process of dissolving the legal entity.

The accounting policies applied are consistent with those that were applied to the consolidated financial statements for the year ended December 31, 2016.

B. Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 "Revenue from Contracts with Customers (Topic 606)". The standard's core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB decided to postpone the effective date of the new standard by one year. The standard will be effective for fiscal years (including interim reporting periods within those fiscal years) beginning after December 15, 2017. Early adoption is permitted for fiscal years (including interim reporting periods within those fiscal years) beginning after December 15, 2016. Entities will have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. Since the Company has yet to report revenue, the Company does not expect that the adoption of this standard will have an impact on its consolidated interim report. 

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities", which eliminates the requirement for public companies to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. Additionally, the standard requires public entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Furthermore, the standard requires presentation of financial assets and liabilities by measurement category and form of financial asset on the balance sheet or accompanying notes to the financial statements. The standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance on its consolidated interim report.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. It requires lessees to recognize the lease assets and lease liabilities that arise from leases on the balance sheet and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. The new standard will be effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of adopting of this guidance on its consolidated interim report.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation- Stock Compensation (Topic 178): Improvements to Employee Share-Based Payment Account", which offers simplifications of several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact of adopting of this guidance on its consolidated interim report.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which aims to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. It replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated interim report.

In May 2017, the FASB issued ASU No. 2017-09 (ASC Topic 718), "Stock Compensation: Scope of Modification Accounting". The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company is required to adopt the guidance in the first quarter of fiscal year 2019. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated interim report.

During the six months ended June 30, 2017, there were many accounting standard updates issued by FASB. However, only the updates that are relevant to the Company have been included here.

C. Net loss per share

In accordance with the provisions of Accounting Standards Codification ("ASC") Topic 260, "Earnings per Share", basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of common stock equivalents.

Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the sum of the weighted-average number shares of common stock outstanding and dilutive common stock equivalent shares outstanding for the period. Potentially dilutive common stock equivalent shares, which include incremental shares of common stock issuable upon (i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units (RSUs), are only included in the calculation of diluted net loss per share when their effect is dilutive.

For the six months ended June 30, 2017 and 2016, the following potentially dilutive securities were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

D. Stock-based compensation

During the six months ended June 30, 2017, the Company granted stock options and warrants to employees and consultants to purchase 80,000 shares of common stock, as compared to 269,000 shares of common stock during the same period in 2016. The weighted-average fair value of each option and warrant issued during the six months ended June 30, 2017 and 2016 was estimated at the date of grant using the Black-Scholes valuation model with the following assumptions:

Total stock-based compensation expense recognized associated with stock options, warrants, and restricted stock units during the six months ended June 30, 2017 and 2016, respectively, was as follows:

E. Cash, cash equivalents and investments

The amortized cost and fair value of cash equivalents and investments at June 30, 2017 and December 31, 2016 were as follows:

*Cash and cash equivalents at June 30, 2017 of $16,393 thousand comprises cash of $7,541 thousand and cash equivalents of $8,852 thousand, as compared to cash and cash equivalents of $29,225 thousand comprising cash of $11,678 thousand and cash equivalents of $17,547 thousand at December 31, 2016.

The Company invested the funds raised from the IPO in May 2015 into instruments with the goals of preservation of principal and sufficient liquidity to meet its operating and investment cash requirements. All available-for-sale securities held as of June 30, 2017 had contractual maturities of less than two years with high quality investment grade ratings. Realized gains on available-for-sale securities for the six months ended June 30, 2017 were $74 thousand, as compared to $70 thousand during the second half year of 2016.

As of June 30, 2017, there was no unrealized loss on available-for-sale investments and the Company has not recorded any impairment charges on marketable securities related to other-than temporary declines in market value.

In accordance with the guidance of Accounting Standards Codification ("ASC") Top 820, "Fair Value Measurement", fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1-Quoted prices in active markets for identical assets or liabilities.

Level 2-Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3-Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability.

The Company's financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements are as follows as of June 30, 2017 and December 31, 2016:

F. Segment reporting

ASC Topic 280 "Segment Reporting" establishes standards for the way that public business enterprises report information about business segments and related disclosures about products and services, geographical areas and major customers.

The Chief Executive Officer ("CEO") of the Company has been identified as the Chief Operating Decision Maker as defined by ASC Topic 280. The CEO of the Company allocates resources based upon information related to its one operating segment, pharmaceutical research. Accordingly, the Company has concluded it has one reportable segment.

G. Income tax

As the Company continues to incur pre-tax losses through operations, it has determined that it is more likely than not that the benefit of deferred tax assets will not be realized and therefore, the Company continues to maintain a full valuation allowance offsetting any change in deferred taxes.

H. Related-party transactions

Warrants issued to Mr. Bhatia previously to acquire a total of 42,104 shares of common stock were outstanding at June 30, 2017 and June 30, 2016 respectively.

Loan receivable from stockholders refers to employees and consultants who purchased the Company's stock through the issuance of promissory notes by the Company. As of June 30, 2017, total loan receivable from stockholders was $15.0 million as compared to $14.8 million as of December 31, 2016.

Warrants issued to Mr. Cade and Chaka to acquire a total of 537,388 shares of common stock were outstanding at June 30, 2017 and June 30, 2016 respectively. The Company also engaged Chaka to provide consulting services that totaled to $0.1 million in each of the six-month periods ended June 30, 2017 and 2016.

I. Commitments and contingencies

Rental expense for operating leases amounted to $0.4 million for the six months ended June 30, 2017 and 2016, respectively. Other than the operating leases disclosed in the annual report for the year ended December 31, 2016, there were no other commitments and contingencies for the six months ended June 30, 2017.

J. Stockholders' equity

The total number of shares of Common Stock that the Company is authorized to issue is 300,000,000 shares at a par value of $0.001 per share, and the total number of shares of Preferred Stock that is authorized to issue is 30,000,000 shares at a par value of $0.001 per share.

The Verseon Corporation 2015 Equity Incentive Plan ("2015 Plan") provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, cash-based awards, and other stock-based awards to non-employee directors, officers, employees, advisors, consultants, and independent contractors. An aggregate of 15,000,000 shares of common stock is available for delivery pursuant to awards under the 2015 Plan. The 2015 Plan contains a provision that provides annual increases in the number of common stock available for delivery pursuant to awards on each January 1st beginning January 1, 2016, and ending on (and including) January 1, 2025. Such annual increase equals to 2% of the total shares of common stock outstanding on December 31st of the preceding calendar year; provided, that the Board has the authority to decide, prior to the first day of any calendar year, that there will be no increase or a lesser increase for such calendar year. In September 2015, the plan was amended to limit the annual increase of number shares of incentive stock options ("ISO") available for grant to a maximum of 3,000,000 shares. Accordingly, the total number of shares of common stock available for grant under the 2015 Plan increased on January 1, 2016 by 3,017,576 shares, including 3,000,000 shares available for ISO grants as in accordance with the September 2015 plan amendment. The total number of shares of common stock available for grant under the 2015 Plan increased on January 1, 2017 by 3,028,293 shares, including 3,000,000 shares available for ISO grants as in accordance with the September 2015 plan amendment. As of June 30, 2017, a total of 19,691,715 shares of common stock were available for grant under the 2015 Plan compared to 16,420,666 shares available for grant as of December 31, 2016.

During the first six month ended on June 30 2017 and 2016, 38,232 shares and 31,910 shares of common stock were issued from the vesting of restricted stock units (RSUs); 0 shares and 456,116 shares of common stock were issued from exercises of certain warrants in connection of long-term convertible notes; and 0 shares and 20,050 shares were issued from exercises of previously granted options, respectively.

During the first six months ended on June 30 2017 and 2016, the Company repurchased 42,917 and 0 of common shares respectively.

During the first six months ended on June 30 2017, the Company granted certain employees and consultants options to purchase an aggregate of 80,000 shares of common stock and no RSUs. During the same period in 2016, the Company granted employees and consultants options to purchase an aggregate of 269,000 shares of common stock and 13,888 RSUs.

As of June 30, 2017, the Company had 151,409,974 shares of common stock outstanding (excluding Treasury Stock of 42,917) and no shares of preferred stock outstanding compared to 151,414,659 shares of common stock outstanding (no Treasury Stock) and no shares of preferred stock outstanding as of December 31, 2016.

K. Subsequent event

In September 2017, VRH1 secured $8.65 million to finance energy-related upgrades to its property via the Property Assessed Clean Energy (PACE) program. PACE is a state-legislated framework providing long-term financing for energy efficiency, renewable energy, and water conservation projects that is repaid through property assessments. PACE is non-recourse financing that is also non-accelerating and transferable upon property sale. The financing carries a fixed 6.50% interest for 25 years and the term of the property assessment is 25 years. These funds will be used for building and installation of a natural gas plant and solar power panels along with other energy efficiency upgrades, all of which will allow the Company to significantly reduce its ongoing power-related operational costs.

- Ends -