Placing and Equity Finance Facility

VERONA PHARMA PLC - Placing and Equity Finance Facility

PR Newswire

London, January 31

Dr. Jan-Anders Karlsson, CEO of Verona Pharma said, "The combination ofproceeds from the placing and drawdowns from the equity financing facility willallow us to meaningfully progress both our lead programme, RPL554, and VRP700in the clinic. We are confident that the refinements to our strategy to focusdevelopment of RPL554 to initially address severe COPD, and VRP700 on chronicsevere cough - both areas of significant unmet medical need - will lead to anacceleration of shareholder value creation."

31 January 2013 - London, UK- Verona Pharma plc announces a placing (the"Placing") of approximately 29.0 million Ordinary Shares of 0.1 pence in thecapital of the Company ("Shares") at 4 pence each (the "Placing Price") toraise approximately £1.1 million before expenses.

The Board also announces that the Company has entered into a £5.0 millionequity financing facility ("EFF") with Darwin Strategic Limited ("Darwin"), acompany majority owned by funds managed by the Henderson Volantis Capital Team,a subsidiary of Henderson Global Investors who also hold a 9.35 per centinterest in the Company.

The Board is seeking authority from Shareholders to issue Shares to Darwinunder the EFF.

Background to the Fund Raising

Following his appointment as Chief Executive Officer of Verona on 1 June 2012,Jan-Anders Karlsson undertook a comprehensive review of the Company'soperations with the objective of accelerating shareholder value creation.

Since its admission to trading on AIM in 2006, the Company has raised £10.6million of equity capital from its Shareholders. With these funds it hasdeveloped two "first in class" drugs to treat unmet needs in respiratorydisease; RPL554, which is targeted at Chronic Obstructive Pulmonary Disease("COPD") and asthma, and VRP700, which is targeted at chronic, severe cough.Each of these drugs has passed into Phase IIa trials, having successfullyconcluded pre-clinical and clinical Phase I studies.

Verona has demonstrated that RPL554 delivers clinically significantbronchodilation in COPD and asthma, and has a unique mechanism of action whichis expected to be complementary to existing treatments. It has also beendemonstrated to be well tolerated by patients with no evidence, at currentdosage levels, of beta2-agonist-like side effects, anti-cholinergic drug-likeside effects or PDE-4-like side effects.

Verona has also demonstrated in an investigator led Phase IIa study thatVRP700, with a novel mechanism of action, creates significant activity in thetreatment of chronic, severe cough.

COPD is estimated to be the third leading cause of death globally by 2020.There are currently at least 10 million diagnosed sufferers in the US, whichresults each year in approximately 8 million primary care visits, 1.5 millionemergency room visits, 750,000 hospitalisations and 119,000 deaths.

Cough is the most common symptom in most lung diseases. There are currentlyapproximately 35 million prescriptions in the US for cough and cold each year,notwithstanding that current therapies are ineffective or have significant sideeffects.

Taking into account the progress achieved in the development of its proposeddrugs and the significant unmet respiratory disease needs described above, theBoard has refined Verona's strategy to focus initially on developing RPL554,with nebulised delivery, to treat severe COPD, and on developing VRP700 totreat chronic, severe cough. The Directors believe that this focus onsignificant unmet market needs will afford the greatest prospect ofaccelerating shareholder value accretion.

Whilst these target indications will represent the near term focus of Verona,the Company will in due course focus on broadening the therapeutic use ofRPL554, including its anti-inflammatory potential and use in treating asthma,and on progressing its early stage NAIPS research programme, any of which couldlead to significant further value accretion, albeit in the longer term.

The Board recognises the value an experienced and resourceful commercialpartner could bring to the development of its drug candidates. However, it doesnot intend to partner these drug candidates until it can extract a commerciallyattractive return for the Company and its Shareholders.

The ongoing work programme described below has been designed by the Board tofurther de-risk the two drug candidates and to enable the Company to develop astronger commercial argument and articulate a more comprehensive valueproposition in future partnering discussions.

Use of Proceeds

The Directors intend that the net proceeds of the Placing and drawdowns underthe EFF will be used:

Principal Terms of the Placing

The Company has raised approximately £1.16 million before expenses by the issueof 28,971,528 Shares (the "Placing Shares"), under the Placing.

The Placing Shares will be issued free of all liens, charges and encumbrancesand will, when issued and fully paid, rank pari passu in all respects with theexisting ordinary shares, including the right to receive all dividends andother distributions declared, made or paid after the date of their issue.

Application has been made to the London Stock Exchange for the admission of thePlacing Shares to trading on AIM ("Admission"). It is expected that Admissionwill occur and that dealings will commence at 8.00 a.m. on 14 February 2013, atwhich time it is also expected that the Placing Shares will be enabled forsettlement in CREST.

Following Admission, the Company's enlarged issued share capital will comprise336,175,923 Ordinary Shares. From Admission, this figure of 336,175,923Ordinary Shares may be used by Shareholders in the Company as the denominatorfor the calculations by which they will determine if they are required tonotify their interest in, or a change in their interest in, the share capitalof the Company under the FSA's Disclosure and Transparency Rules.

Subscriptions by Directors

Jan-Anders Karlsson, Chief Executive of the Company, Claire Poll, and ProfessorTrevor Jones have agreed to subscribe respectively for 500,000, 250,000 and25,000 Placing Shares at the Placing Price.

Principal terms of the EFF

The EFF agreement with Darwin provides Verona with a facility of up to £5mwhich (subject to certain limited restrictions) can be drawn down at any timeover the next three years. The timing and floor subscription price of any drawdown is at the sole discretion of the Company.

Verona is under no obligation to make a draw down and may make drawdowns at itsdiscretion, up to the total value of the EFF, by way of issuing subscriptionnotices to Darwin. Following delivery of a subscription notice, Darwin willsubscribe and the Company will allot to Darwin new Ordinary Shares.

The subscription price for any Ordinary Shares to be subscribed by Darwin undera subscription notice will be the average of the three lowest closing bidprices of the Ordinary Shares over the 15 trading days following thesubscription notice.

Verona is also obliged to specify in each subscription notice a minimum pricebelow which Ordinary Shares will not be issued to Darwin. The Company will havethe right (with the consent of Darwin) to modify that minimum price at any timeduring the relevant Pricing Period.

The number of Ordinary Shares which may be issued under any individualsubscription notice may be up to the lower of 25 per cent of the Company'sissued share capital following completion of the relevant subscription, or fourtimes the average daily trading volume of Verona's Ordinary Shares over the 15trading days preceding the issue of the relevant subscription notice. This maybe reduced in certain circumstances, including where the minimum price is notmaintained or the trading volume is less than 10,000 shares. The maximum amountof a subscription notice may not exceed £500,000 without Darwin's permission.Darwin is entitled to a commission of up to 5 per cent of amounts subscribedbut may agree with Verona in lieu thereof for the subscription price for theOrdinary Shares to be discounted by 5 per cent.

There is also an over-allotment facility available to Verona, under which theCompany may authorise Darwin, at Darwin's discretion, to increase the amount ofthe draw down by up to the aggregate undrawn amount under the EFF. Darwin maydirect allotments under the EFF to its parent fund, Henderson Global Investors'AlphaGen Volantis Fund.

Darwin and Verona may mutually agree at the end of the pricing period to avariation of subscription price. This may allow for a larger subscription viaany over-allotment facility authorised by the Company.

The issuance of a Subscription Notice is conditional upon the satisfaction ofcertain Subscription Notice Conditions which have been agreed between Darwinand Verona. Any subscription notice which Verona may issue will only be validto the extent that it has the requisite shareholder authority to issue themaximum number of Ordinary Shares that Darwin may be required to subscribeunder the relevant subscription notice.

Darwin and Verona may terminate the EFF agreement if certain conditions are notmet.

The Directors are seeking the approval of Shareholders to allot 125 million newOrdinary Shares which represents the maximum number of shares issuable toDarwin assuming such shares are issued at the Placing Price.

In conjunction with the EFF, Verona has entered into a warrant agreement withDarwin dated 31 January 2013 to subscribe for up to 5,000,000 Ordinary Shares,such warrants to be exercisable at a price of 4.8p and to be exercisable at anytime prior to the expiry of 36 months from the date of the warrant agreement.

Current Trading and Prospects

The Company continues to trade in line with the Board's expectations, with amonthly overhead of approximately £100,000, before taking into accountexpenditure on potential drug trials.

The Board anticipates that the Company will have a cash balance at 1 February2013 of approximately £800,000 before taking into account the net proceeds ofthe Placing and any draw down under the EFF.

In the course of 2013, the Board anticipates that the Company will announce theresults of the RPL554 anti-inflammatory study in the first quarter and thefurther VRP700 study in the fourth quarter. In 2014, it expects the Company toannounce the results of the RPL554 COPD dose response study in the first halfand the larger and longer duration RPL554 COPD study in the second half.

Circular

A circular convening a general meeting to approve the issue of Ordinary Sharesto Darwin pursuant to the EFF is being sent to shareholders and will beavailable on the Company's website today.

Recommendation and voting intentions

The Directors, acting in good faith, believe that the terms of the EFF and thepassing of the Resolutions are most likely to promote the success of theCompany for the benefit of its members as a whole. The Directors unanimouslyrecommend Shareholders to vote in favour of the Resolutions as they intend todo in respect of their aggregate beneficial holdings of 20,162,389 OrdinaryShares representing approximately 6.6 per cent. of the Existing OrdinaryShares.

For further information please contact:

Verona Pharma is developing first-in-class drugs to treat respiratory disease,such as COPD, asthma and chronic, severe cough. The Company has three drugprogrammes, two of which are in Phase II. 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 (chronic obstructive pulmonary disease) and asthma withbronchodilator and anti-inflammatory effects. Both effects are essential to aidbreathing, especially in sufferers of COPD. There is currently no drugcombining both effects in a single molecule. In addition, current treatmentshave unwanted side effects and/or limited effectiveness. The product iscurrently in phase II for both diseases.

COPD is a chronic lung disease with significant unmet need and for whichcurrent treatment is far from optimal. COPD is most commonly characterised byfixed airflow obstruction and chronic airways inflammation resulting fromexposure to tobacco smoke. Asthma, which remains one of the most common chronicdiseases in the world, is characterised by recurrent breathing problems andsymptoms such as breathlessness, wheezing, chest tightness, and coughing. Themarket 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 2011clearly demonstrated 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[source: Mintel]. However, there is very little clinical evidence for such OTCcough medications being really effective and it is widely recognised by themedical community that there is a large need for more effective drugs tocontrol and prevent pathologically induced coughing.