Verona Pharma plc (AIM:VRP) (Nasdaq:VRNA) (Verona Pharma), a
clinical-stage biopharmaceutical company focused on developing and
commercializing innovative therapies for respiratory diseases,
announces its unaudited results for the full year ended December
31, 2019, and provides a corporate update.
“We believe that 2020 will be a transformative
year for Verona Pharma. Both Mark Hahn and I are very pleased to
have joined Verona, where we can leverage our experience in leading
pharmaceutical companies through late-stage clinical trials and
into commercialization of innovative therapeutics like
ensifentrine,” said David Zaccardelli, Pharm. D., President and
Chief Executive Officer. “We are looking forward to our planned
End-of-Phase 2 meeting with the U.S. FDA in the second quarter and
initiating our Phase 3 program for ensifentrine in the treatment of
COPD later this year.”
“We believe that ensifentrine, with its novel
mechanism of action possessing both bronchodilation and
anti-inflammatory activity in a single agent, has the potential to
significantly benefit COPD patients. In the US alone, over 1.2
million COPD patients remain symptomatic despite treatment with
current maximal therapy. We believe ensifentrine will be an
important therapy for these patients. Beyond the first indication
for nebulized ensifentrine, we continue progressing both dry powder
inhaler (“DPI”) and pressurized metered dose inhaler (“pMDI”)
formulations for COPD patients and ultimately advancing into asthma
and cystic fibrosis indications.”
OPERATIONAL AND DEVELOPMENT HIGHLIGHTS
Clinical development progress with ensifentrine
demonstrating efficacy and tolerability in COPD patients.
Nebulizer formulation:
In January 2020, the Company reported positive
top-line data from a Phase 2b clinical study in symptomatic
patients with moderate to severe COPD. The study met the primary
endpoint at all doses, as well as meeting clinically relevant
secondary endpoints:
- The 4 week, 416 patient, Phase 2b dose-ranging study evaluated
nebulized ensifentrine (0.375 mg, 0.75 mg, 1.5 mg and 3.0 mg) or
placebo as an add-on treatment to tiotropium
(Spiriva® Respimat®), a long acting anti-muscarinic antagonist
(“LAMA”).
- The primary endpoint of improved lung function as measured by
increase in morning peak forced expiratory volume in one
second (FEV1)1 at week 4 was met at all doses. Statistically
significant and clinically meaningful improvements ranged from 78
mL for the 0.375 mg dose (p=0.0368) to 124 mL for the 3.0 mg dose
(p=0.0008). Effects were maintained over 4 weeks.
- Dose-dependent improvements in lung function were observed on
both FEV1 and FEV1 AUC(0-12hr)2.
- Statistically significant improvement in average
FEV1 AUC(0-12hr) of 87 mL for the 3.0 mg dose (p=0.0111) is
supportive of twice daily dosing.
- Clinically meaningful improvements in health-related quality of
life (mean SGRQ-C3) were observed when added to tiotropium
treatment with the two highest doses also achieving statistical
significance.
- Ensifentrine was well tolerated at all doses with an adverse
event profile similar to placebo.
- These data provide support for dose selection in Phase 3
trials.
In January 2019, the Company reported top-line
data from an exploratory Phase 2a clinical trial in patients with
moderate to severe COPD. While the study did not meet the primary
endpoint of an increase in morning peak FEV1, ensifentrine did
produce additional bronchodilation when added to an inhaled long
acting anti-muscarinic antagonist/long acting beta2 agonist
("LAMA/LABA") therapy.
- The three-day, 79 patient, Phase 2a trial, evaluated nebulized
ensifentrine (1.5 mg or 6.0 mg) or placebo as an add-on treatment
to tiotropium/olodaterol (Spiriva® Respimat®), a LAMA/LABA
therapy.
- The primary endpoint of statistically significant improvement
in peak FEV1 (over 4 hours) on day 3 of treatment was not met,
although the morning dose of ensifentrine 1.5 mg improved peak FEV1
by 46 mL, compared to placebo.
- In a post hoc analysis, greater lung function improvements were
observed in patients less responsive to existing dual
bronchodilator therapy. More than 40% of patients observed improved
morning peak FEV1 by >100 mL.
- Statistically significant improvements in evening peak FEV1
after the evening dose of ensifentrine were observed with both the
1.5 mg and 6 mg dose groups, with ensifentrine 1.5 mg showing a 130
mL improvement (p<0.001) and ensifentrine 6.0 mg showing an 81
mL improvement (p=0.002), compared to placebo.
Inhaler formulations:
In August 2019, positive Phase 2 clinical data
with a DPI formulation for the maintenance treatment of COPD met
all primary and secondary lung function endpoints.
- The two-part, 35 patient, Phase 2 trial evaluated DPI
ensifentrine compared to placebo. In Part A, patients received a
single dose of ensifentrine (150 µg4, 500 µg, 1500 µg, 3000 µg, or
6000 µg) or placebo. In Part B, patients were randomized to receive
one of four dose levels (150 µg, 500 µg, 1500 µg, or 3000 µg) of
ensifentrine or placebo, administered twice daily over one
week.
- The primary endpoint of improvement in peak bronchodilator
effect of repeat doses of ensifentrine, as measured by FEV1, was
met. Peak FEV1 corrected for placebo demonstrated improvements over
baseline of 102 mL for the 150 µg dose, 175 mL for the 500 µg dose,
180 mL for the 1500 µg dose and 260 mL for the 3000 µg dose,
(p<0.0001 for all doses), all highly statistically
significant.
- Statistically significant improvements in average FEV1 over 12
hours (average FEV1 AUC(0-12hr)) corrected for placebo were
observed over 7 days with all doses: 36 mL for the 150 µg dose, 90
mL for the 500 µg dose, 80 mL for the 1500 µg dose and 147 mL for
the 3000 µg dose (p<0.05 for all doses).
- Ensifentrine in a handheld dry powder format was well tolerated
at all doses with an adverse event profile similar to placebo. The
safety profile was comparable to that observed in clinical studies
with nebulized ensifentrine.
We have initiated a Phase 2 clinical trial with
a pMDI formulation of ensifentrine. Single dose data are expected
early in the second quarter of 2020, and multiple dose data are
expected in the second half of 2020.
ORGANIZATION
Major organization changes:
David Zaccardelli, Pharm. D., appointed
President and Chief Executive Officer, and Mark W. Hahn appointed
Chief Financial Officer, following the end of the period.
Strengthened the management team through the
additions of Kathleen Rickard, MD, as Chief Medical Officer, and
Tara Rheault, PhD, MPH, as Vice President of Research and
Development Operations and Global Project Management. Expanded the
clinical team through the addition of senior experts with many
years of experience in late-stage clinical development of COPD
therapies.
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1 FEV1: Forced Expiratory Volume in one second, a standard measure
of lung function2 FEV1 AUC(0-12hr): Area Under the Curve 0-12 hours
calculated using the trapezoidal rule, divided by the observation
time (12 hours) to report in mL, a measure of the aggregate effect
over 12 hours3SGRQ-C: St. George’s Respiratory Questionnaire is a
validated instrument that measures impact on overall health, daily
life, and perceived well-being in patients with COPD (i.e. change
in frequency and severity of COPD symptoms, and impact on
activities, social functioning and psychological disturbances
related to airways disease).4µg: microgram, or mcg |
FINANCIAL HIGHLIGHTS
- Cash, cash equivalents and short-term investments at
December 31, 2019 amounted to £30.8 million (December 31,
2018: £64.7 million);
- For the year ended December 31, 2019, reported operating
loss of £41.1 million (full year 2018: £25.6 million) and reported
loss after tax of £31.9 million (full year 2018: loss after tax of
£19.9 million), reflecting the preparation and initiation of
clinical trials and pre-clinical activities;
- Reported loss per share of 30.3 pence for the year ended
December 31, 2019 (full year 2018: loss per share 18.9
pence);
- Net cash used in operating activities for the year ended
December 31, 2019 of £33.8 million (full year 2018: £18.1
million).
The company today published its audited accounts
for the year ended December 31, 2019.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014.
For further information, please contact:
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Verona Pharma plc |
Tel: +44 (0)20 3283 4200 |
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info@veronapharma.com |
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David Moskowitz, VP Capital Markets Strategy & Investor
Relations (Investor Enquiries) Victoria Stewart, Director of
Communications (Media Enquiries) |
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N+1 Singer (Nominated Adviser and UK Broker) |
Tel: +44 (0)20 3283 4200 |
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Aubrey Powell / George Tzimas / Iqra Amin (Corporate Finance) |
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Tom Salvesen (Corporate Broking) |
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Optimum Strategic Communications (European Media
and Investor Enquiries) |
Tel: +44 (0)20 950 9144 verona@optimumcomms.com |
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Mary Clark / Eva Haas / Hollie Vile |
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Argot Partners (US Investor Enquiries) |
Tel: +1 212-600-1902 verona@argotpartners.com |
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Stephanie Marks / Kimberly Minarovich / Michael Barron |
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An electronic copy of the annual report and
accounts will be made available today on the Company's website
(http://www.veronapharma.com). Also, a copy of the Form 20-F will
be filed with the SEC today. This press release does not constitute
an offer to sell or the solicitation of an offer to buy securities,
and shall not constitute an offer, solicitation or sale in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of that jurisdiction.
About Verona PharmaVerona
Pharma is a clinical-stage biopharmaceutical company focused on
developing and commercializing innovative therapies for the
treatment of respiratory diseases with significant unmet medical
needs. If successfully developed and approved, Verona Pharma’s
product candidate, ensifentrine, has the potential to be the first
therapy for the treatment of respiratory diseases that combines
bronchodilator and anti-inflammatory activities in one compound.
Verona Pharma is currently in Phase 2 development with three
formulations of ensifentrine for the treatment of COPD: nebulized,
dry powder inhaler, and pressurized metered-dose inhaler.
Ensifentrine also has potential applications in cystic fibrosis,
asthma and other respiratory diseases. For more information, please
visit www.veronapharma.com.
Forward-Looking StatementsThis
press release contains forward-looking statements. All statements
contained in this press release that do not relate to matters of
historical fact should be considered forward-looking statements,
including, but not limited to, 2020 being a transformative year for
Verona Pharma, the Company’s incoming CEO and CFO leveraging their
experience in leading pharmaceutical companies through late-stage
clinical trials and into commercialization of innovative
therapeutics like ensifentrine, the development of different
formulations of ensifentrine, the progress and timing of clinical
trials and data, Phase 3 readiness of nebulized ensifentrine, the
potential for ensifentrine to be the first therapy for the
treatment of respiratory diseases to combine bronchodilator and
anti-inflammatory activities in one compound, the potential for
ensifentrine to significantly benefit COPD patients, and potential
applications and advancing the development of ensifentrine into
cystic fibrosis, asthma and other respiratory diseases.
These forward-looking statements are based on
management's current expectations. These statements are neither
promises nor guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from our expectations expressed or implied by the forward-looking
statements, including, but not limited to, the following: our
limited operating history; our need for additional funding to
complete development and commercialization of ensifentrine, which
may not be available and which may force us to delay, reduce or
eliminate our development or commercialization efforts; the
reliance of our business on the success of ensifentrine, our only
product candidate under development; economic, political,
regulatory and other risks involved with international operations;
the lengthy and expensive process of clinical drug development,
which has an uncertain outcome; serious adverse, undesirable or
unacceptable side effects associated with ensifentrine, which could
adversely affect our ability to develop or commercialize
ensifentrine; potential delays in enrolling patients, which could
adversely affect our research and development efforts and the
completion of our clinical trials; we may not be successful in
developing ensifentrine for multiple indications; our ability to
obtain approval for and commercialize ensifentrine in multiple
major pharmaceutical markets; misconduct or other improper
activities by our employees, consultants, principal investigators,
and third-party service providers; our future growth and ability to
compete depends on retaining our key personnel and recruiting
additional qualified personnel; material differences between our
“top-line” data and final data; our reliance on third parties,
including clinical investigators, manufacturers and suppliers, and
the risks related to these parties’ ability to successfully develop
and commercialize ensifentrine; and lawsuits related to patents
covering ensifentrine and the potential for our patents to be found
invalid or unenforceable. These and other important factors under
the caption “Risk Factors” in our Annual Report on Form 20-F filed
with the Securities and Exchange Commission (“SEC”) on March 19,
2019, and our other reports filed with the SEC, could cause actual
results to differ materially from those indicated by the
forward-looking statements made in this press release. Any such
forward-looking statements represent management's estimates as of
the date of this press release. While we may elect to update such
forward-looking statements at some point in the future, we disclaim
any obligation to do so, even if subsequent events cause our views
to change. These forward-looking statements should not be relied
upon as representing our views as of any date subsequent to the
date of this press release.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S
JOINT STATEMENT
OVERVIEW
Verona Pharma is a clinical-stage biopharmaceutical company
developing life enhancing treatments for respiratory diseases with
significant unmet medical needs. We are focused on the development
of our first-in-class inhaled candidate, ensifentrine, for the
treatment of chronic obstructive pulmonary disease (COPD).
Ensifentrine has a unique dual mode of action. It acts as a
bronchodilator and an anti-inflammatory in the same molecule. We
are in Phase 2 development with three formulations of ensifentrine
for COPD: nebulized, dry powder inhaler (DPI) and pressurized
metered-dose inhaler (MDI).
During the year and post year-end, we made significant clinical
progress, reporting positive Phase 2 clinical data from trials with
nebulized and DPI formulations. In addition, we expanded our
understanding of the market opportunities, retaining our focus on
the US as the initial market for nebulized ensifentrine.
OUTLOOK AND STRATEGY
We intend to become a leading biopharmaceutical company focused
on the treatment of respiratory diseases with significant unmet
medical needs. Our key 2020 goals are:
- Rapidly advance the development of nebulized ensifentrine for
the maintenance treatment of COPD in moderate and severe
patients
- Raise funding to advance the development of ensifentrine and
supporting business activities
- Agree an End of Phase 2 meeting with the FDA to provide
guidance on the design of the Phase 3 program with nebulized
ensifentrine
- Start our Phase 3 program with nebulized ensifentrine in
moderate to severe COPD patients
- Report results from a Phase 2 trial with a pressured metered
dose inhaler (MDI) formulation of ensifentrine for the treatment of
COPD
- Longer term we aim to develop ensifentrine for acute
exacerbations of COPD as well as additional respiratory indications
such as CF and severe asthma, and to seek strategic collaborations
with market leading biopharmaceutical companies
We would like to thank the staff and Board members for all their
contributions and shareholders for their continued support during a
successful year.
Significant progress in development and identification of
compelling market opportunities
We are initially developing ensifentrine as a nebulized
formulation for the maintenance treatment of uncontrolled,
symptomatic, moderate to severe COPD patients. Our market research
shows that nebulized delivery is the preferred route of
administration for more severe COPD patients, especially in the US.
The regulatory pathway for the development of nebulized drug
products is well-established.
COPD is a progressive respiratory disease with no cure. Our
market research demonstrates that, in the US alone, approximately
two million patients remain uncontrolled and symptomatic despite
taking currently available medications. Few therapeutic
alternatives are available for these patients.
Ensifentrine is potentially a treatment alternative for these
symptomatic COPD patients. The past year has seen significant
clinical progress with the successful completion in January 2020 of
our second four-week Phase 2b clinical trial with nebulized
ensifentrine in over 400 patients with COPD. In this trial
ensifentrine demonstrated statistically and clinically meaningful
improvements in lung function when dosed on top of tiotropium, a
LAMA which is a mainstay of current COPD chronic maintenance
therapy.
Ensifentrine produced both a clinically meaningful
bronchodilator effect and a progressive improvement in symptoms,
suggesting an anti-inflammatory effect in these COPD patients. A
further exploratory Phase 2 study that reported in January 2019
demonstrated that ensifentrine provides additional bronchodilation
when added on top of what was formerly presumed to be maximum
bronchodilator treatment with dual or triple COPD standard-of-care
treatment.
In our clinical program, which has enrolled over 1,300 human
subjects, we have demonstrated that ensifentrine is an effective
bronchodilator in COPD patients with or without concurrent
bronchodilator therapy. In addition, many Key Opinion Leaders in
the field of COPD support our view that the progressive improvement
in COPD symptoms observed over a four-week treatment period with
ensifentrine is due to an anti-inflammatory effect, attesting to
its dual activity.
We believe that nebulized ensifentrine could potentially be used
to treat symptomatic COPD patients who already take either a single
bronchodilator or dual or triple therapy. This is an attractive
market opportunity estimated to be about 3 million patients in the
US alone.
The successful development of DPI and MDI formulations of
ensifentrine and the completion last year of the DPI Phase 2
clinical trial in COPD patients are further important development
milestones. In August 2019, we announced positive results from our
Phase 2 clinical trial evaluating a DPI formulation of ensifentrine
for the maintenance treatment of patients with COPD. The magnitude
of improvement in lung function, as measured by FEV1, was highly
statistically significant and we believe this supports twice daily
dosing of ensifentrine for COPD treatment.
In June 2019, we announced the initiation of a Phase 2 trial to
evaluate a pressurized MDI formulation of ensifentrine in patients
with moderate-to-severe COPD. We anticipate reporting data from the
single-dose portion of this trial (Part A) early in the second
quarter of 2020, and reporting results from the second portion of
the trial (Part B), which evaluates multiple doses of the MDI
formulation of ensifentrine, in the second half of
2020. In the US, our market research shows
that about 5.5 million moderate to severe COPD patients currently
use these types of devices. We expect that developing DPI and MDI
formulations would open up another attractive market opportunity.
We anticipate that we would partner the DPI/MDI formulations later
in development in order to realize the potential of this
multi-billion dollar opportunity. In addition to COPD,
we believe ensifentrine could become an attractive development
candidate in cystic fibrosis and severe asthma.
Senior executive changes bring substantial leadership,
operational and clinical expertise
With effect from February 1, 2020, Verona Pharma appointed Dr.
David Zaccardelli as President and Chief Executive Officer (CEO)
and executive director. He succeeded Dr. Jan-Anders Karlsson
following his retirement after 8 years of dedicated service to the
Company. Dr. Zaccardelli brings substantial specialty
pharmaceutical leadership and operational expertise, including most
notably, serving as President and CEO of Dova Pharmaceuticals, Inc.
until its acquisition by Swedish Orphan Biovitrum AB (Sobi) in
November 2019. Previously, Dr. Zaccardelli held several senior
management roles including Chief Operating Officer at United
Therapeutics Corporation.
We have also appointed Mark Hahn, a seasoned pharmaceutical
finance executive, as Chief Financial Officer (CFO), with effect
from March 1, 2020. Mr. Hahn previously served as the CFO of Dova
Pharmaceuticals, Inc. and Cempra, Inc. and raised over $600 million
to support product development and commercialization activities of
those companies. Mr. Piers Morgan will continue to serve as CFO of
Verona Pharma through February 28, 2020 to ensure a smooth
transition and continue support on financial reporting, before
leaving to pursue other interests. We are grateful to Dr. Karlsson
and Mr. Morgan for their contributions to the Company.
To support the later stage development of ensifentrine, in early
2019, we strengthened our team with the appointment of Kathleen
Rickard, MD, as Chief Medical Officer (CMO,) and Tara Rheault, PhD,
MPH, as VP Research and Development Operations and Global Project
Management. Together they have extensive expertise in respiratory
drug development, regulatory affairs and commercialization. We also
expanded our team hiring experts with significant experience of
late-stage clinical trials in COPD.
Ensifentrine - first-in-class bronchodilator and
anti-inflammatory agent
We are a clinical-stage biopharmaceutical company focused on
developing and commercializing innovative therapeutics for the
treatment of respiratory diseases with significant unmet medical
need. Our product candidate, ensifentrine (RPL554) is an
investigational, potential first-in-class, inhaled, dual inhibitor
of the enzymes phosphodiesterase 3 and 4, or PDE3 and PDE4, that is
designed to act as both a bronchodilator and an anti-inflammatory
agent. We are not aware of any other single compound in clinical
development or approved by the U.S. Food and Drug Administration,
or FDA, nor the European Medicines Agency, or EMA, for the
treatment of respiratory diseases that acts as both a
bronchodilator and anti-inflammatory agent. We believe ensifentrine
has the potential to be the first novel class of bronchodilator in
over 40 years. A nebulized formulation of ensifentrine has
currently completed Phase 2 clinical development for the treatment
of chronic obstructive pulmonary disease, or COPD, and we are
preparing to meet with the FDA to discuss plans for Phase 3
clinical trials, which we expect to commence in the third quarter
of 2020, subject to FDA feedback and to funding.
Successful Phase 1 and 2 studies have been completed with
nebulized ensifentrine in healthy volunteers and in patients with
cystic fibrosis, or (CF), chronic asthma and allergic rhinitis, in
addition to COPD. A Phase 2 study in COPD with ensifentrine
formulated in a dry powder inhaler, or DPI, has been completed,
with positive clinical results reported in August 2019. A Phase 2
study in COPD with ensifentrine formulated in a pressurized metered
dose inhaler, or MDI, is ongoing with clinical results expected in
the second half of 2020. We intend to develop ensifentrine as a
nebulized therapy for the treatment of COPD.
For the past 40 years, the treatment of COPD has been dominated
by three classes of inhaled therapies approved for use by the FDA
or EMA: antimuscarinic agents and beta2-agonists, both available as
either short-acting or long-acting bronchodilators, and inhaled
corticosteroids, or ICS, known for their anti-inflammatory effects.
However, despite existing treatment with one or multiple
combinations of these therapies, and owing to the progressive and
incurable nature of COPD, many COPD patients on maximum inhaled
therapy still experience significant lung function impairment and
symptoms for which limited further approved treatment options are
available. One such treatment is an oral formulation of a PDE4
inhibitor (roflumilast) with anti-inflammatory properties, although
frequency of adverse events has limited its use in COPD patients.
Clinicians have expressed desire to use this oral PDE4 inhibitor in
more patients were it not for the adverse events. We believe this
suggests that ensifentrine has potential to become an important
treatment for COPD and other respiratory diseases if our late-stage
clinical program demonstrates favorable efficacy, safety and
tolerability results for the compound.
In our clinical trials, treatment with ensifentrine has been
repeatedly observed to result in statistically significant
improvements in lung function as compared to placebo, whether dosed
alone or in combination with commonly used short- and long-acting
classes of bronchodilators, with or without ICS. Statistically
significant means that there is a low statistical probability,
typically less than 5%, that the observed results in a study or a
trial occurred by chance alone. In two Phase 2b
clinical trials of nebulized ensifentrine as a maintenance
treatment for COPD, patients with moderate-to-severe COPD treated
with ensifentrine showed clinically meaningful and statistically
significant improvements in reported COPD symptom scores. In
addition, our clinical trials have also shown clinically meaningful
and statistically significant improvements in certain measures of
lung function following combined treatment with ensifentrine as
add-on to other approved bronchodilators; COPD patients experienced
a marked reduction in residual lung volume, which is believed to be
related to one of the most debilitating symptoms, breathlessness.
The rapid onset of action observed when adding ensifentrine on top
of tiotropium, a commonly used LAMA, was also notable, and may be
particularly helpful to those patients suffering from morning
breathlessness. We believe that the clinical effects observed with
ensifentrine are driven by its bronchodilator, anti-inflammatory
and mucociliary clearance mechanisms.
High unmet medical need in symptomatic COPD patients despite
treatment with current standard-of-care
We believe there is an urgent and unmet medical need for new and
more effective treatments for COPD to reduce the number and burden
of symptoms, acute periods of worsening symptoms, or exacerbations,
and establish a consistent and durable response to treatment.
According to the World Health Organization (WHO), over one
billion people suffer from chronic respiratory diseases. Among the
most common of these afflictions is COPD, which is a progressive
respiratory disease for which there is no cure. COPD damages the
airways and the lungs and leads to shortness of breath, impacting a
person's ability to perform daily activities. Chronic inflammation
plays a central role in the pathology of the disease and is
particularly prominent in the airways of COPD patients. COPD
includes chronic bronchitis, which refers to the inflammation of
the lung and airways that results in coughing and sputum
production, and emphysema, which refers to a destruction of distal
lung tissue, or air sacs.
In some cases, patients with COPD experience exacerbations,
which are estimated to cause approximately 1.5 million
emergency department visits, 687,000 hospitalizations and 129,000
deaths per year in the United States alone. According to the WHO,
COPD is expected to become the third leading cause of death
globally by 2030, with 384 million people worldwide suffering
from the disease. It is estimated that there are 24 million
people with COPD in the United States, only half of whom have been
diagnosed. Of those diagnosed with COPD in the United States, more
than 2 million suffer from severe or very severe forms of the
disease. Total annual medical costs relating to COPD in the United
States are projected to rise to $49 billion in 2020. Whereas
the number of patients diagnosed with COPD in the United States
continues to increase annually, the growth in numbers in more
developing countries, like China, is significantly higher.
The prevalence of COPD in China is expected to be about 8% of
patients over 40 years of age and is expected to increase in coming
years. Global sales of drugs used for chronic maintenance therapy
of COPD were $13.6 billion in 2019, of which $9.6 billion were in
the US.
Cystic fibrosis and severe asthma
In CF, a fatal inherited disease, we believe the bronchodilatory
and anti-inflammatory effects of ensifentrine may be beneficial
and, if approved, has the potential to become an additional
important and novel treatment for patients. Furthermore, we aim to
explore, alone or with a collaborator, the development of
ensifentrine to treat severe asthma and other respiratory
diseases.
CF is the most common fatal inherited disease in the United
States and Europe. CF causes impaired lung function and is commonly
associated with repeat and persistent lung infections often
resulting in frequent exacerbations and hospitalizations. There is
no cure for CF and although current therapies are leading to longer
lifespans the median age of death for CF patients is still only
around 40 years.
CF is considered a rare, or orphan, disease by both the FDA and
the EMA. According to the Cystic Fibrosis Foundation, more than
30,000 people in the United States and more than 70,000 people
worldwide are living with CF and approximately 1,000 new cases of
CF are diagnosed each year. The FDA and the EMA provide incentives
for sponsors to develop products for orphan diseases, and we may
seek orphan drug designation for ensifentrine from both regulators
in treating CF. CF patients take an average of seven medications
daily. Global sales of drugs used for the treatment of CF were $3.5
billion in 2019, of which $2.0 billion were in the US.
Asthma is widely seen as a result of chronic inflammation in the
lungs. Worldwide 300 million people suffer from asthma with about
25 million diagnosed in the US alone. Global sales of drugs used
for the treatment of asthma were $16.5 billion in 2019, with $9.7
billion in the US alone. Established treatments include those
adopted from the treatment of COPD (for example, bronchodilators
and ICS), anti-IgE agents and leukotriene inhibitors. Approximately
1 million patients in the United States are refractory asthmatic
patients who remain uncontrolled on established therapies. These
patients are the target for injectable biologic anti-IL-5 agents.
Annual sales of biologics in the United States for the treatment of
asthma exceed $1.0 billion. We see potential for ensifentrine as an
inhaled product for such patients.
We may also explore the development of ensifentrine in MDI
and/or DPI formulations for the treatment of asthma and other
respiratory diseases.
DEVELOPMENT OF ENSIFENTRINE
Clinical development of ensifentrine in COPD
In January 2020, we reported top-line results from our 4 week
416-patient Phase 2b dose-ranging clinical trial. This trial
evaluated four doses of nebulized ensifentrine (0.375 mg, 0.75 mg,
1.5 mg and 3.0 mg) or placebo as an add-on treatment to tiotropium
(Spiriva® Respimat®), a commonly used LAMA bronchodilator, in
symptomatic patients with moderate-to-severe COPD who required
additional treatment. The trial met its primary endpoint of
improved lung function, with ensifentrine plus tiotropium producing
a clinically and statistically significant dose-dependent
improvement in FEV1 at week 4, compared to placebo plus tiotropium.
Additionally, clinically meaningful improvements in health-related
quality of life (mean SGRQ-C) were observed on top of tiotropium.
Ensifentrine was well tolerated at all doses with an adverse event
profile similar to placebo. We believe that these data support dose
selection for our planned Phase 3 program, which we anticipate
initiating in the third quarter of 2020, subject to FDA feedback
and funding.
In January 2019, we announced results from our exploratory
pharmacological Phase 2 clinical trial evaluating nebulized
ensifentrine administered twice daily on top of treatment with
tiotropium and olodaterol. Although we did not meet the primary
endpoint, treatment with ensifentrine showed statistically
significant improvements in FEV1, including when measured over 24
hours, and after the second dose in the evening. We believe this
suggests that ensifentrine could be an effective addition to dual
bronchodilator therapy, in particular during the second half of the
day following treatment, when patients may derive less benefit from
their LAMA/LABA dual bronchodilator therapy.
COPD – successful development of DPI and pMDI formulations
In addition to our nebulized formulation of ensifentrine, we
have developed both MDI and DPI formulations of ensifentrine for
the maintenance treatment of COPD.
Delivery of orally inhaled drugs by pMDI or DPI is a mainstay of
maintenance treatment for patients with moderate to severe COPD. We
believe that over 90% of patients with diagnosed COPD use inhalers,
such as a pMDI or DPI, rather than a nebulizer.It is estimated
that, in the United States, approximately 5.5 million patients with
moderate to severe COPD use inhalers for maintenance therapy.
Successful development of a pMDI or DPI formulation of ensifentrine
for moderate disease would greatly expand the addressable market
for the drug and represents a multi-billion dollar potential
opportunity.
In August 2019, we announced results from our Phase 2 clinical
trial evaluating a DPI formulation of ensifentrine for the
maintenance treatment of patients with COPD. The magnitude of
improvement in lung function, as measured by FEV1 was highly
statistically significant and we believe this supports twice daily
dosing of ensifentrine for COPD treatment. Secondary lung function
endpoints were also met, and ensifentrine was well tolerated at all
dose levels. We believe that delivery of ensifentrine with a
hand-held inhalation device, such as the DPI format, could
substantially expand the clinical utility and commercial
opportunity in COPD treatment.
In June 2019, we announced the initiation of a Phase 2
dose-ranging trial to evaluate the pharmacokinetic, or PK profile,
efficacy, and safety of a pressurized MDI formulation of
ensifentrine in patients with moderate-to-severe COPD. We
anticipate reporting data from the single-dose portion of this
trial (Part A) early in the second quarter of 2020, and reporting
results from the second portion of the trial (Part B), which
evaluates multiple doses of the MDI formulation of ensifentrine, in
the second half of 2020.
We may also explore the development of ensifentrine in pMDI
and/or DPI formulations for the treatment of asthma and other
respiratory diseases.
CORPORATEEnsifentrine is protected by granted
and pending patents. We believe that medicinal products containing
ensifentrine are protected by our IP beyond 2035. We have worldwide
commercialization rights for ensifentrine. We raised $90 million in
gross proceeds from investors from our April 2017 global offering
comprising an initial public offering (“IPO”) on the Nasdaq Global
Market (“Nasdaq”), and a concurrent European private placement,
together with a shareholder private placement. Members of our
management team, which we have strengthened and expanded during the
year, and our board of directors have extensive experience in large
pharmaceutical and biotechnology companies, particularly in
respiratory product development from drug discovery through
commercialization and have played important roles in the
development and commercialization of several approved respiratory
treatments, including Symbicort, Daliresp/Daxas, Flutiform, Advair,
Breo Ellipta and Anoro Ellipta.
FINANCIALS
The operating loss for the year ended
December 31, 2019 was £41.1 million (2018: £25.6 million) and
the loss after tax for the year ended December 31, 2019 was
£31.9 million (2018: £19.9 million).
Research and Development Costs
Research and development costs were £33.5
million for the year ended December 31, 2019 as compared to
£19.3 million for the year ended December 31, 2018, an
increase of £14.2 million. The cost of clinical trials increased by
£12.7 million as there were two active trials in the year ended
December 31, 2018, compared to four clinical trials in the year
ended December 31, 2019. Pre-clinical costs increased by £0.3
million which was offset by a reduction in Chemistry,
Manufacturing, and Controls of £0.4 million. Personnel related
costs increased by £1.3 million in the year ended December 31,
2019, compared to the prior year.
General and Administrative Costs
General and administrative costs were £7.6
million for the year ended December 31, 2019 as compared to
£6.3 million for the year ended December 31, 2018, an increase
of £1.3 million. The increase was primarily attributable to a £0.9
million increase in costs relating to commercial market research, a
£0.3 million increase in personnel related costs and a £0.6 million
increase in other overhead costs. This was offset by a £0.5 million
decrease in share based payments.
Finance Income and Expense
Finance income was £2.4 million for the year
ended December 31, 2019 and £2.8 million for the year ended
December 31, 2018. The decrease was due to a loss in foreign
exchange on cash and short term investments (recorded as a finance
expense) compared to £1.9 million gain in the prior year. This was
offset by a £1.6 million decrease in the fair value of the warrant
liability in the year ended December 31, 2019 compared to an
increase in the liability in the year ended December 31, 2018
(which is a non-cash item, recorded as a finance expense).
Finance expense was £0.5 million for the
year ended December 31, 2019, as compared to £1.3 million for
the year ended December 31, 2018. The movement was due to a
decrease in the fair value of the warrant liability (recorded in
finance income), compared to an increase of £1.2 million December
31, 2018, both non-cash items. In addition, there was a foreign
exchange loss on cash and short-term investments in December 31,
2019 of £0.3 million. In the year ended December 31, 2018, there
was a foreign exchange gain (recorded in finance income).
As at December 31, 2019, there was
approximately £22.9 million in cash and cash equivalents (2018:
£19.8 million) and £7.8 million in short-term investments (2018:
£44.9 million).
Taxation
Taxation for the year ended December 31,
2019 amounted to a credit of £7.3 million as compared to a credit
of £4.2 million for the year ended December 31, 2018, an
increase in the credit amount of £3.1 million. The credits are
obtained at a rate of 14.5% of 230% of our qualifying research and
development expenditure, and the increase in the credit amount was
primarily attributable to our increased expenditure on research and
development.
We would like to thank the staff and Board members for all their
contributions and shareholders for their continued support during a
successful year.
| Dr.
David EbsworthChairmanFebruary
27, 2020 |
Dr.
David ZaccardelliChief Executive
Officer February 27,
2020 |
VERONA PHARMA PLCCONSOLIDATED STATEMENT
OF COMPREHESIVE INCOMEFOR THE YEAR ENDED DECEMBER
31, 2019
| |
Notes |
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
|
|
£'000s |
|
£'000s |
|
Research and development costs |
|
|
(33,476 |
) |
|
(19,294 |
) |
| General and administrative
costs |
|
|
(7,607 |
) |
|
(6,297 |
) |
| Operating
loss |
7 |
|
(41,083 |
) |
|
(25,591 |
) |
| Finance income |
9 |
|
2,351 |
|
|
2,783 |
|
| Finance expense |
9 |
|
(474 |
) |
|
(1,325 |
) |
| Loss before
taxation |
|
|
(39,206 |
) |
|
(24,133 |
) |
| Taxation — credit |
10 |
|
7,265 |
|
|
4,232 |
|
| Loss for the
year |
|
|
(31,941 |
) |
|
(19,901 |
) |
| Other comprehensive
income / (loss): |
|
|
|
|
|
| Items that might be
subsequently reclassified to profit or loss |
|
|
|
|
|
| Exchange differences on
translating foreign operations |
|
|
(33 |
) |
|
38 |
|
| Total comprehensive
loss attributable to owners of the Company |
|
|
(31,974 |
) |
|
(19,863 |
) |
| Loss per ordinary share —
basic and diluted (pence) |
5 |
|
(30.3 |
) |
|
(18.9 |
) |
The accompanying notes form an integral part of these
consolidated financial statements.
VERONA PHARMA PLCCONSOLIDATED STATEMENT
OF FINANCIAL POSITIONAS OF DECEMBER 31,
2019
| |
Notes |
|
As of December 31, 2019 |
|
Restated As of December 31, 2018 |
| |
|
|
£'000s |
|
£'000s |
| ASSETS |
|
|
|
|
|
| Non-current
assets: |
|
|
|
|
|
|
Goodwill |
11 |
|
441 |
|
|
441 |
|
| Intangible assets |
12 |
|
2,757 |
|
|
2,618 |
|
| Property, plant and
equipment |
13 |
|
43 |
|
|
21 |
|
| Right-of-use assets |
14 |
|
971 |
|
|
— |
|
| Total non-current
assets |
|
|
4,212 |
|
|
3,080 |
|
| |
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
| Prepayments and other
receivables |
15 |
|
2,770 |
|
|
2,463 |
|
| Current tax receivable |
|
|
7,396 |
|
|
4,499 |
|
| Short term investments |
|
|
7,823 |
|
|
44,919 |
|
| Cash and cash equivalents |
|
|
22,934 |
|
|
19,784 |
|
| Total current
assets |
|
|
40,923 |
|
|
71,665 |
|
| Total
assets |
|
|
45,135 |
|
|
74,745 |
|
| |
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
|
|
| Capital and reserves
attributable to equity holders: |
|
|
|
|
|
| Share capital |
17 |
|
5,266 |
|
|
5,266 |
|
| Share premium |
|
|
118,862 |
|
|
118,862 |
|
| Share-based payment
reserve |
|
|
10,364 |
|
|
7,923 |
|
| Accumulated loss |
|
|
(100,627 |
) |
|
(68,633 |
) |
| Total
equity |
|
|
33,865 |
|
|
63,418 |
|
| |
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
| Derivative financial
instrument |
19 |
|
895 |
|
|
2,492 |
|
| Lease liability |
14 |
|
460 |
|
|
— |
|
| Trade and other payables |
20 |
|
8,261 |
|
|
7,733 |
|
| Total current
liabilities |
|
|
9,616 |
|
|
10,225 |
|
| |
|
|
|
|
|
| Non-current
liabilities: |
|
|
|
|
|
| Assumed contingent
obligation |
21 |
|
1,103 |
|
|
996 |
|
| Non-current lease
liability |
14 |
|
491 |
|
|
— |
|
| Deferred income |
|
|
60 |
|
|
106 |
|
| Total non-current
liabilities |
|
|
1,654 |
|
|
1,102 |
|
| Total equity and
liabilities |
|
|
45,135 |
|
|
74,745 |
|
The accompanying notes form an integral part of these
consolidated financial statements.
VERONA PHARMA PLCCOMPANY ONLY
STATEMENT OF FINANCIAL POSITIONAS OF
DECEMBER 31, 2019
| |
Notes |
|
As of December 31, 2019 |
|
Restated As of December 31, 2018 |
| |
|
|
£'000s |
|
£'000s |
| ASSETS |
|
|
|
|
|
| Non-current
assets: |
|
|
|
|
|
|
Goodwill |
11 |
|
441 |
|
|
441 |
|
| Intangible assets |
12 |
|
2,757 |
|
|
2,618 |
|
| Property, plant and
equipment |
13 |
|
43 |
|
|
21 |
|
| Right-of-use asset |
14 |
|
731 |
|
|
— |
|
| Investments |
16 |
|
1,342 |
|
|
913 |
|
| Total non-current
assets |
|
|
5,314 |
|
|
3,993 |
|
| |
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
| Prepayments and other
receivables |
15 |
|
3,093 |
|
|
2,602 |
|
| Current tax receivable |
|
|
7,249 |
|
|
4,290 |
|
| Short term investments |
|
|
7,823 |
|
|
44,919 |
|
| Cash and cash equivalents |
|
|
22,823 |
|
|
19,596 |
|
| Total current
assets |
|
|
40,988 |
|
|
71,407 |
|
| Total
assets |
|
|
46,302 |
|
|
75,400 |
|
| |
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
|
|
| Capital and reserves
attributable to equity holders: |
|
|
|
|
|
| Share capital |
17 |
|
5,266 |
|
|
5,266 |
|
| Share premium |
|
|
118,862 |
|
|
118,862 |
|
| Share-based payment
reserve |
|
|
10,364 |
|
|
7,923 |
|
| Accumulated loss |
|
|
(100,259 |
) |
|
(68,514 |
) |
| Total
equity |
|
|
34,233 |
|
|
63,537 |
|
| |
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
| Derivative financial
instrument |
19 |
|
895 |
|
|
2,492 |
|
| Lease Liability |
14 |
|
335 |
|
|
— |
|
| Trade and other payables |
20 |
|
9,256 |
|
|
8,269 |
|
| Total current
liabilities |
|
|
10,486 |
|
|
10,761 |
|
| |
|
|
|
|
|
| Non-current
liabilities: |
|
|
|
|
|
| Assumed contingent
liability |
21 |
|
1,103 |
|
|
996 |
|
| Non-current lease
liability |
14 |
|
419 |
|
|
— |
|
| Deferred income |
|
|
61 |
|
|
106 |
|
| Total non-current
liabilities |
|
|
1,583 |
|
|
1,102 |
|
| Total equity and
liabilities |
|
|
46,302 |
|
|
75,400 |
|
The accompanying notes form an integral part of these
consolidated financial statements.
The Parent has taken advantage of the exemption permitted by
Section 408 of the Companies Act 2006 not to present an income
statement for the year. The Parent Company's loss for the year was
£31.7 million (2018: loss of £19.9 million), which has been
included in the Company’s income statement.
The financial statements were approved by the Company's board of
directors on February 27, 2020 and signed on its behalf
by Dr. David Zaccardelli, Chief Executive Officer of the
Company.
Dr. David ZaccardelliChief Executive Officer of the
Company.Company number: 05375156
VERONA PHARMA PLCCONSOLIDATED
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED
DECEMBER 31, 2019
| |
Share Capital |
|
Share Premium |
|
Share-based Payment Reserve |
|
Total Accumulated Losses |
|
Total Equity |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018, as previously
reported |
5,251 |
|
|
118,862 |
|
|
5,022 |
|
|
(49,254 |
) |
|
79,881 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impact of change in accounting
policy |
— |
|
|
— |
|
|
— |
|
|
484 |
|
|
484 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1,
2018 (Restated) |
5,251 |
|
|
118,862 |
|
|
5,022 |
|
|
(48,770 |
) |
|
80,365 |
|
| Loss for the year |
— |
|
|
— |
|
|
— |
|
|
(19,901 |
) |
|
(19,901 |
) |
| |
|
|
|
|
|
|
|
|
|
| Other comprehensive income for
the year: |
|
|
|
|
|
|
|
|
|
| Exchange differences on
translating foreign operations |
— |
|
|
— |
|
|
— |
|
|
38 |
|
|
38 |
|
| Total comprehensive loss for
the year |
— |
|
|
— |
|
|
— |
|
|
(19,863 |
) |
|
(19,863 |
) |
| New share capital issued |
15 |
|
|
— |
|
|
— |
|
|
— |
|
|
15 |
|
| Share-based payments |
— |
|
|
— |
|
|
2,901 |
|
|
— |
|
|
2,901 |
|
| Balance at December
31, 2018 (Restated) |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,633 |
) |
|
63,418 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1,
2019 |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,633 |
) |
|
63,418 |
|
| Impact of change in accounting
policy |
— |
|
|
— |
|
|
— |
|
|
(20 |
) |
|
(20 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted Balance at
January 1, 2019 |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,653 |
) |
|
63,398 |
|
| Loss for the year |
— |
|
|
— |
|
|
— |
|
|
(31,941 |
) |
|
(31,941 |
) |
| |
|
|
|
|
|
|
|
|
|
| Other comprehensive loss for
the year: |
|
|
|
|
|
|
|
|
|
| Exchange differences on
translating foreign operations |
— |
|
|
— |
|
|
— |
|
|
(33 |
) |
|
(33 |
) |
| Total comprehensive loss for
the year |
— |
|
|
— |
|
|
— |
|
|
(31,974 |
) |
|
(31,974 |
) |
| Share-based payments |
— |
|
|
— |
|
|
2,441 |
|
|
— |
|
|
2,441 |
|
| Balance at December
31, 2019 |
5,266 |
|
|
118,862 |
|
|
10,364 |
|
|
(100,627 |
) |
|
33,865 |
|
The currency translation reserve for 2018 and 2019 is not
considered material and as such is not presented in a separate
reserve but is included in the total accumulated losses
reserve.
VERONA PHARMA PLCCOMPANY ONLY
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED
DECEMBER 31, 2019
| |
Share Capital |
|
Share Premium |
|
Share-based Payment Reserve |
|
Total Accumulated Losses |
|
Total Equity |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018, as previously
reported |
5,251 |
|
|
118,862 |
|
|
5,022 |
|
|
(49,084 |
) |
|
80,051 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impact of change in accounting
policy |
— |
|
|
— |
|
|
— |
|
|
484 |
|
|
484 |
|
| Balance at January 1,
2018 (Restated) |
5,251 |
|
|
118,862 |
|
|
5,022 |
|
|
(48,600 |
) |
|
80,535 |
|
| Loss for the year |
— |
|
|
— |
|
|
— |
|
|
(19,914 |
) |
|
(19,914 |
) |
| Other comprehensive income for
the year: |
|
|
|
|
|
|
|
|
|
| Total comprehensive loss for
the year |
— |
|
|
— |
|
|
— |
|
|
(19,914 |
) |
|
(19,914 |
) |
| New share capital issued |
15 |
|
|
— |
|
|
— |
|
|
— |
|
|
15 |
|
| Share-based payments
recognized as an expense |
— |
|
|
— |
|
|
2,865 |
|
|
— |
|
|
2,865 |
|
| Share-based payments
recognized as an investment |
— |
|
|
— |
|
|
36 |
|
|
— |
|
|
36 |
|
| Balance at December
31, 2018 (Restated) |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,514 |
) |
|
63,537 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1,
2019 |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,514 |
) |
|
63,537 |
|
|
Impact of change in accounting policy |
— |
|
|
— |
|
|
— |
|
|
(20 |
) |
|
(20 |
) |
| Adjusted Balance at
January 1, 2019 |
5,266 |
|
|
118,862 |
|
|
7,923 |
|
|
(68,534 |
) |
|
63,517 |
|
| Loss for the year |
— |
|
|
— |
|
|
— |
|
|
(31,725 |
) |
|
(31,725 |
) |
| Other comprehensive income for
the year: |
|
|
|
|
|
|
|
|
|
| Total comprehensive loss for
the year |
— |
|
|
— |
|
|
— |
|
|
(31,725 |
) |
|
(31,725 |
) |
| Share-based payments
recognized as an expense |
— |
|
|
— |
|
|
2,012 |
|
|
— |
|
|
2,012 |
|
| Share-based payments
recognized as an investment |
— |
|
|
— |
|
|
429 |
|
|
— |
|
|
429 |
|
| Balance at December
31, 2019 |
5,266 |
|
|
118,862 |
|
|
10,364 |
|
|
(100,259 |
) |
|
34,233 |
|
VERONA PHARMA PLCCONSOLIDATED
STATEMENT OF CASH FLOWSFOR THE YEAR ENDED
DECEMBER 31, 2019
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Cash used in operating
activities: |
|
|
|
|
Loss before taxation |
(39,206 |
) |
|
(24,133 |
) |
| Finance income |
(2,351 |
) |
|
(2,783 |
) |
| Finance expense |
474 |
|
|
1,325 |
|
| Share-based payment
charge |
2,441 |
|
|
2,901 |
|
| Increase in prepayments and
other receivables |
(484 |
) |
|
(640 |
) |
| Increase in trade and other
payables |
449 |
|
|
531 |
|
| Depreciation of property,
plant, equipment and right of use asset |
398 |
|
|
8 |
|
| Unrealised FX gains /
losses |
(8 |
) |
|
— |
|
| Amortization of intangible
assets |
106 |
|
|
90 |
|
| Cash used in operating
activities |
(38,181 |
) |
|
(22,701 |
) |
| Cash inflow from taxation |
4,361 |
|
|
4,590 |
|
| Net cash used in
operating activities |
(33,820 |
) |
|
(18,111 |
) |
| Cash flow from
investing activities: |
|
|
|
| Interest received |
887 |
|
|
883 |
|
| Purchase of plant and
equipment |
(38 |
) |
|
(13 |
) |
| Payment for patents and
computer software |
(244 |
) |
|
(255 |
) |
| Purchase of short term
investments |
(7,940 |
) |
|
(59,700 |
) |
| Maturity of short term
investments |
45,134 |
|
|
64,366 |
|
| Net cash generated
from investing activities |
37,799 |
|
|
5,281 |
|
| Cash flow used in
financing activities: |
|
|
|
| Repayment of finance lease
liabilities |
(426 |
) |
|
— |
|
| Net cash used in
financing activities |
(426 |
) |
|
— |
|
| Net increase /
(decrease) in cash and cash equivalents |
3,553 |
|
|
(12,830 |
) |
| Cash and cash equivalents at
the beginning of the year |
19,784 |
|
|
31,443 |
|
| Effect of exchange rates on
cash and cash equivalents |
(403 |
) |
|
1,171 |
|
| Cash and cash
equivalents at the end of the year |
22,934 |
|
|
19,784 |
|
VERONA PHARMA PLCCOMPANY ONLY
STATEMENT OF CASH FLOWSFOR THE YEAR ENDED
DECEMBER 31, 2019
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Cash used in operating
activities: |
|
|
|
|
Loss before taxation |
(39,046 |
) |
|
(24,191 |
) |
| Finance income |
(2,351 |
) |
|
(2,783 |
) |
| Finance expense |
463 |
|
|
1,325 |
|
| Share-based payment
charge |
2,012 |
|
|
2,865 |
|
| Increase in prepayments and
other receivables |
(624 |
) |
|
(654 |
) |
| Increase in trade and other
payables |
935 |
|
|
164 |
|
| Depreciation of property,
plant, equipment and right of use asset |
329 |
|
|
8 |
|
| Unrealised FX gains/
losses |
(5 |
) |
|
— |
|
| Amortization of intangible
assets |
105 |
|
|
90 |
|
| Cash used in operating
activities |
(38,182 |
) |
|
(23,176 |
) |
| Cash inflow from taxation |
4,361 |
|
|
4,992 |
|
| Net cash used in
operating activities |
(33,821 |
) |
|
(18,184 |
) |
| Cash flow from
investing activities: |
|
|
|
| Interest received |
887 |
|
|
883 |
|
| Purchase of plant and
equipment |
(38 |
) |
|
(13 |
) |
| Payment for patents and
computer software |
(244 |
) |
|
(255 |
) |
| Purchase of short term
investments |
(7,940 |
) |
|
(59,700 |
) |
| Maturity of short term
investments |
45,134 |
|
|
64,366 |
|
| Net cash generated
from investing activities |
37,799 |
|
|
5,281 |
|
| Cash flow used in
financing activities: |
|
|
|
| Gross proceeds from issue of
shares and warrants |
— |
|
|
15 |
|
| Repayment of finance lease
liabilities |
(348 |
) |
|
— |
|
| Net cash (used in) /
generated from financing activities |
(348 |
) |
|
15 |
|
| Net increase /
(decrease) in cash and cash equivalents |
3,630 |
|
|
(12,888 |
) |
| Cash and cash equivalents at
the beginning of the year |
19,596 |
|
|
31,313 |
|
| Effect of exchange rates on
cash and cash equivalents |
(403 |
) |
|
1,171 |
|
| Cash and cash
equivalents at the end of the year |
22,823 |
|
|
19,596 |
|
VERONA PHARMA PLCNOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR
ENDED DECEMBER 31, 2019
1. General information
Verona Pharma plc (the Company”) and its subsidiaries
(together the "Group") are a clinical-stage biopharmaceutical group
focused on developing and commercializing innovative therapeutics
for the treatment of respiratory diseases with significant unmet
medical needs.
The Company is a public limited company, which is dual listed on
the AIM, a market of the London Stock Exchange, and The Nasdaq
Global Market ("Nasdaq"). The company is incorporated and domiciled
in the United Kingdom. The address of the registered office is 1
Central Square, Cardiff, CF10 1FS, United Kingdom.
The Company has two subsidiaries, Verona Pharma Inc. and
Rhinopharma Limited ("Rhinopharma"), both of which are wholly
owned.
The Company listed its American Depositary Shares ("ADS") on
Nasdaq in April 2017 ("the 2017 Global Offering").
The ADSs trade on The Nasdaq the symbol “VRNA” and Verona
Pharma’s ordinary shares trade on AIM under the symbol “VRP”.
2. Accounting policies
A summary of the principal accounting policies, all of which
have been applied consistently throughout the year, is set out
below.
2.1 Basis of preparation
The consolidated financial statements of the Group and the
financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRSs") as issued by the International Accounting Standards Board
and IFRS Interpretations Committee applicable to companies
reporting under IFRS.
The consolidated financial statements of the Group and the
financial statements of the Company have been prepared under the
historical cost convention, with the exception of derivative
financial instruments which have been measured at fair value.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of
applying the Group’s and Company's accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 4.
Going concern
The Group has incurred recurring losses since inception,
including net losses of £31.9 million, £19.9 million and £20.5
million for the years ended December 31, 2019, 2018 and 2017,
respectively. In addition, as of December 31, 2019, the Group
had an accumulated loss of £100.6 million. The Group expects to
continue to generate operating losses for the foreseeable future.
As of the issuance date of the annual consolidated financial
statements, the Group expects that its cash and cash equivalents,
would be sufficient to fund its operating expenses and capital
expenditure requirements for at least 12 months from the issuance
date of these annual consolidated financial statements.
Accordingly, the consolidated financial statements have been
prepared on a basis that assumes the Group will continue as a going
concern and which contemplates the realization of assets and
satisfaction of liabilities and commitments in the ordinary course
of business.
The Group intends to initiate its Phase 3 program for the
maintenance treatment of COPD once it believes it has alignment
with the FDA on its planned design for the Phase 3 clinical
program. The Group will require significant additional funding to
initiate and complete this Phase 3 program and will need to secure
the required capital to fund the program. The
Group will seek additional funding through public or private
financings, debt financing, collaboration or licensing agreements
and other arrangements. However, there is no guarantee that
the Group will be successful in securing additional finance on
acceptable terms, or at all, and should the Group be unable to
raise sufficient additional funds it will be required to defer the
initiation of Phase 3 clinical trials, until such funding can be
obtained. This could also force the Group to delay, reduce or
eliminate some or all of its research and development programs,
product portfolio expansion or commercialization efforts, or pursue
alternative development strategies that differ significantly from
its current strategy, which could have a material adverse effect on
the Group’s business, results of operations and financial
condition.
Business combination
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. The excess of the cost of
acquisition over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill. Goodwill
arising on acquisitions is capitalized and is subject to an
impairment review, both annually and when there are indications
that the carrying value may not be recoverable.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred and included in
administrative expenses.
Basis of consolidation
These consolidated financial statements include the financial
statements of Verona Pharma plc and its wholly owned
subsidiaries Verona Pharma, Inc. and Rhinopharma. The
acquisition method of accounting was used to account for the
acquisition of Rhinopharma.
Inter-company transactions, balances and unrealized gains on
transactions between group companies are eliminated.
Verona Pharma Inc. and Rhinopharma adopt the same
accounting policies as the Group.
2.2 Foreign currency translation
Items included in the Group's consolidated financial statements
are measured using the currency of the primary economic environment
in which the entity operates ("the functional currency"). The
consolidated financial statements are presented in pounds sterling
("£"), which is the functional and presentational currency of the
Group.
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the rate of exchange ruling at the balance sheet date and the
gains or losses on translation are included in the Consolidated
Statement of Comprehensive Income. Non-monetary items that are
measured in terms of historical cost in a foreign currency are
translated using the exchange rates at the dates of the original
transactions. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the
date when the fair value was determined.
The assets and liabilities of foreign operations are translated
into pounds sterling at the rate of exchange ruling at the balance
sheet date. Income and expenses are translated at weighted average
exchange rates for the period. The exchange differences arising on
translation for consolidation are recognized in Other Comprehensive
Income.
2.3 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less.
2.4 Deferred taxation
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax is determined using tax rates
and laws that have been enacted or substantially enacted by the
balance sheet date and expected to apply when the related deferred
tax is realized or the deferred liability is settled.
Deferred tax assets are recognized to the extent that it is
probable that the future taxable profit will be available against
which the temporary differences can be utilized.
2.5 Research and development
costs
Capitalization of expenditure on product development commences
from the point at which technical feasibility and commercial
viability of the product can be demonstrated and the Group is
satisfied that it is probable that future economic benefits will
result from the product once completed. No such costs have been
capitalized to date.
Expenditure on research and development activities that do not
meet the above criteria is charged to the Consolidated Statement of
Comprehensive Income as incurred.
2.6 Property, plant and
equipment
Property, plant and equipment are stated at cost, net of
depreciation and any provision for impairment. Cost includes the
original purchase price of the asset and the costs attributable to
bringing the asset to its working condition for its intended use.
Depreciation is calculated to write off the cost less their
estimated residual values, on a straight-line basis over the
expected useful economic lives of the assets concerned. The
principal annual periods used for this purpose are:
|
Computer hardware |
3 years |
2.7 Intangible assets and
goodwill
(a) Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
fair value of the identifiable net assets acquired.
(b) Patents
Patent costs associated with the preparation, filing, and
obtaining of patents are capitalized and amortized on a
straight-line basis over the estimated useful lives of ten
years.
(c) Computer software
Amortization is calculated so as to write off the cost less
estimated residual values, on a straight-line basis over the
expected useful economic life of two years.
(d) In-process research & development ("IP
R&D")
The IP R&D asset acquired through a business combination,
that had not reached technical feasibility, was initially
recognized at fair value. Subsequent movements in the assumed
contingent liability (see 2.12) that relate to changes in estimated
cashflows or probabilities of success are recognized as additions
to the IP R&D asset that it relates to. There were no changes
in estimated cashflows or probabilities of success in the years
ended 31 December, 2019, or 2018.
This is a change in accounting policy as prior to January 1,
2019 movements in the assumed contingent liability were taken to
the Statement of Comprehensive Income (see note 2.18). As a result
of the change in accounting policy £484 thousand was restated from
Accumulated Loss to the IP R&D asset.
The asset is subject to impairment testing until completion,
abandonment of the project or when the research findings are
commercialized through a revenue generating project. The Group
determines whether intangible assets are impaired on an annual
basis or when there is an indication of impairment.
2.8 Impairment of intangible assets, goodwill
and non-financial assets
The Group holds intangible assets relating to acquired IP
R&D, patent costs and goodwill. Goodwill and intangible assets
are tested annually for impairment or if there is an indication of
impairment. The Group is a single cash generating unit ("CGU") so
all intangibles are allocated to the Group as one CGU.
As at 31 December, 2019, and 2018 the Group carried out
impairment reviews with reference to its market capitalization. At
points during the year ended 31 December 2019, the Group's market
capitalization was less than its net assets. As a result, the Group
carried out an impairment review by forecasting expected sales of
ensifentrine, delivered by nebulizer for the maintenance treatment
of chronic COPD, and associated costs. This cashflow forecast was
then discounted to its net present value to demonstrate that the
value in use of the ensifentrine was greater than the Group's net
assets. The Group was required to make various estimates and
assumptions as inputs for this model including, but not limited
to:
- market size and product acceptance by clinicians, patients and
reimbursement bodies;
- gross and net selling price;
- costs of manufacturing, product distribution and marketing
support;
- costs of the Group's overhead;
- size and make up of a sales force;
- probabilities of success; and
- discount rate.
2.9 Employee Benefits
(a) Pension
The Group operates defined contribution pension schemes for its
employees. Contributions payable for the year are charged to the
Consolidated Statement of Comprehensive Income. The Group has no
further liability once the contributions have been paid.
(b) Bonus plans
The Group recognizes a liability and an expense for bonus plans
if contractually obligated or if there is a past practice that has
created a constructive liability.
2.10 Share-based payments
The Group operates a number of equity-settled, share-based
compensation schemes. The fair value of share based payments is
determined using the Black-Scholes model and requires several
assumptions and estimates as disclosed in note 18.
The fair value of share-based payments under these schemes is
expensed on a straight-line basis over the share based payments'
vesting periods, based on the Group's estimate of shares that will
eventually vest.
2.11 Provisions
Provisions are recognized when the Group has a present legal or
constructive liability as a result of past events, it is probable
that an outflow of resources will be required to settle the
liability, and the amount can be reliably estimated. Provisions are
measured at the present value of the expenditures expected to be
required to settle the liability using a pre-tax rate that reflects
current market assessments of the time value of money and the risks
specific to the liability.
2.12 Assumed contingent liability related to
the business combination
In 2006 the Group acquired Rhinopharma and assumed contingent
liabilities owed to Vernalis Pharmaceuticals Limited which was
subsequently acquired by Ligand Pharmaceuticals, Inc. (“Ligand”).
The Group refers to the assignment and license agreement as the
Ligand Agreement.
Ligand assigned to the Group all of its rights to certain
patents and patent applications relating to ensifentrine and
related compounds (the "Ligand Patents") and an exclusive,
worldwide, royalty-bearing license under certain Ligand know-how to
develop, manufacture and commercialize products (the "Licensed
Products") developed using Ligand Patents, Ligand know-how and the
physical stock of certain compounds.
The assumed contingent liability comprises a milestone payment
on obtaining the first approval of any regulatory authority for the
commercialization of a Licensed Product, low to mid-single digit
royalties based on the future sales performance of all Licensed
Products and a portion equal to a mid-twenty percent of any
consideration received from any sub-licensees for the Ligand
Patents and for Ligand know-how.
The liability was initially recognized at fair value and
subsequently measured at amortized cost. The assumed contingent
liability is estimated as the expected value of the milestone
payment and royalty payments. This expected value is based on
estimated future royalties payable, derived from sales forecasts,
and an assessment of the probability of success using standard
market probabilities for respiratory drug development. The
risk-weighted value of the assumed contingent arrangement is
discounted back to its net present value applying an effective
interest rate of 12%.
Royalties payable are based on the future sales performance so
the amount payable is unlimited. Sales that may be achieved are
difficult to predict and subject to estimate, which is inherently
uncertain.
The assumed contingent liability is accounted for as a liability
and its value is measured at amortized cost using the effective
interest rate method, and is re-measured for changes in estimated
cash flows or when the probability of success changes.
Remeasurements relating to changes in estimated cash flows and
probabilities of success are recognized in the IP R&D asset it
relates to ("see 2.7"). This is a change in accounting policy for
the year ended December 1, 2019 (see 2.18). The unwind of the
discount is recognized in finance expense.
2.13 Financial instruments — initial
recognition and subsequent measurement
The Group classifies a financial instrument, or its component
parts, as a financial liability, a financial asset or an equity
instrument in accordance with the substance of the contractual
arrangement and the definitions of a financial liability, a
financial asset and an equity instrument.
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
(a) Financial assets, initial recognition and measurement
and subsequent measurement
The Group has no financial assets recorded at fair value through
profit or loss ("FVPTL"). All assets are initially recognized
initially at fair value plus transaction costs and subsequently
measured at amortized cost using the effective interest method.
(b) Financial liabilities, initial recognition and
measurement and subsequent measurementFinancial liabilities are
classified as measured at amortized cost or FVTPL.
The Group's warrants are classified as FVTPL and fair value
gains and losses are recognized in profit or loss.
Other financial liabilities are initially recognized at fair
value and subsequently measured at amortized cost using the
effective interest method. Interest expense and foreign exchange
gains and losses are recognized in profit or loss. Any gain or loss
on derecognition is also recognized in profit or loss.
The Group's financial liabilities include trade and other
payables, the Group’s warrants and the assumed contingent
liability.
(c) Derivative financial instruments
Derivatives are initially recognized at fair value on the date a
derivative contract is entered into and are subsequently
re-measured at fair value at the end of each reporting date. The
Group holds one type of derivative financial instrument, the
warrants, as explained in Note 2.14.
The full fair value of the derivative is classified as a
non-current liability when the warrants are exercisable in more
than 12 months and as a current liability when the warrants
are exercisable in less than 12 months.
Changes in fair value of a derivative financial liability when
related to a financing arrangement are recognized in the
Consolidated Statement of Comprehensive Income within Finance
Income or Finance Expense.
2.14 Derivative financial instrument -
warrants
Warrants issued by the Group to investors as part of a share
subscription are compound financial instruments where the warrant
meets the definition of a financial liability.
The financial liability component is initially measured at fair
value in the Consolidated Statement of Financial Position. Equity
is measured at the residual between the subscription price for the
entire instrument and the liability component. The financial
liability component is remeasured. Equity is not remeasured.
2.15 Short Term Investments
Short term investments include fixed term deposits held at banks
with original maturities between three months and a year. They are
classified as loans and receivables and are measured at amortized
cost using the effective interest method.
2.16 Transaction costs
Qualifying transaction costs might be incurred in anticipation
of an issuance of equity instruments and may cross reporting
periods. The entity defers these costs on the balance sheet until
the equity instrument is recognized. Deferred costs are
subsequently reclassified as a deduction from equity when the
equity instruments are recognized, as the costs are directly
attributable to the equity transaction. If the equity instruments
are not subsequently issued, the transaction costs are expensed.
Any costs not directly attributable to the equity transaction are
expensed.
Transaction costs that relate to the issue of a compound
financial instrument are allocated to the liability and equity
components of the instrument in proportion to the allocation of
proceeds. Where the liability component is held at fair value
through profit or loss, the transaction costs are expensed to the
Consolidated Statement of Comprehensive Income. For liabilities
held at amortized cost, transaction costs are deducted from the
liability and subsequently amortized. The amount of transaction
costs accounted for as a deduction from equity in the period is
disclosed separately in accordance with International Accounting
Standard (“IAS 1”).
2.17 Investments in subsidiaries
Investments in subsidiaries are shown at cost less any provision
for impairment.
2.18 Changes in accounting policy
Accounting for the assumed contingent
liability
As discussed in note 2.12, in 2006 the Group acquired
Rhinopharma and assumed contingent liabilities owed to Vernalis
Pharmaceuticals Limited which was subsequently acquired by Ligand
Pharmaceuticals, Inc. ("Ligand").
Ligand assigned to the Group all of its rights to certain
patents and patent applications relating to ensifentrine and
related compounds and an exclusive, worldwide, royalty-bearing
license to develop, manufacture and commercialize products. The
assumed contingent liability comprises a milestone payment on
obtaining the first approval of any regulatory authority and
royalties based on the future sales of ensifentrine.
The initial fair value of the assumed contingent liability was
estimated as the expected value of the milestone payment and
royalty payments. This expected value is based on estimated future
royalties payable, derived from sales forecasts, an assessment of
the probability of success using standard market probabilities for
respiratory drug development discounted to net present value
applying an effective interest rate of 12%.
The assumed contingent liability is accounted for as a liability
and its value is measured at amortized cost using the effective
interest rate method, and is re-measured for changes in estimated
cash flows or when the probability of success changes.
Up to the year ended December 31, 2018, movements in the
liability relating to re-measurements of cash flows or changes in
the probabilities of success were taken to the Consolidated
Statement of Comprehensive Income. During the year ended December
31, 2019, the Company reviewed the accounting for this item and has
determined that these movements in the liability will now be
recognized in the cost of the corresponding asset. The
corresponding asset is the intangible IP R&D asset.
The Group believes that this change in accounting policy results
in the Consolidated Financial Statements providing a more relevant
and reliable view of its financial position and performance because
without an adjustment to the IP R&D asset on the
re-measurement of the liability, the cost of the asset would not be
fairly reflected on the Consolidated Statement of Financial
Position. The Consolidated Statement of Financial Position more
faithfully represents the financial position of the Group if the
intangible asset is adjusted by any re-measurement of the liability
for changes in estimated cash flows, to give a fairer reflection of
the cost of the intangible asset.
The Group has reviewed the International Financial Reporting
Interpretations Committee ("IFRIC") discussion of accounting for
variable payments made for the purchase of an intangible asset that
is not part of a business combination that concluded that it was
too broad for it to address within the confines of existing IFRS
standards. As a result, practice in this area is mixed and many
pharmaceutical companies follow a cost accumulation model. The
Group also noted that adjusting the cost of the asset when a
liability is remeasured for changes in estimated cash flows is
consistent with the guidance in IFRIC 1 for decommissioning
liabilities and IFRS 16 for lease liabilities.
There were no such re-measurements of the liability in the years
ended December 31, 2019, 2018 and 2017. Movements in the liability
in these periods related to the unwinding of the discount and
movements in exchange rates.
IAS 8 requires the opening balance of each affected component of
equity to be adjusted for the earliest prior period presented and
the other comparative amounts disclosed for each prior period
presented as if the new accounting policy had always been
applied.
The impact to the Group, therefore, is the restatement of £484
thousand from Accumulated Loss to the IP R&D asset, which
relates to re-measurements recorded prior to January 1, 2017. As
there were no re-measurements in the years ended December 31, 2019,
2018 and 2017 the £484 thousand adjustment is the same at each
reporting period.
The following table is a summary of the restatement:
| Financial statement
line item |
|
As reported |
|
Adjustment for the change in accounting
policy |
|
As adjusted |
| January 1,
2017 |
|
£'000s |
|
£'000s |
|
£'000s |
| |
|
|
|
|
|
|
|
Accumulated loss |
|
28,728 |
|
|
(484 |
) |
|
28,244 |
|
| Intangible assets - IP
R&D |
|
1,469 |
|
|
484 |
|
|
1,953 |
|
This adjustment also increases non-current assets, total assets
and total equity by £484 thousand in each of the years
presented.
Adoption of IFRS 16
IFRS 16 ‘Leases’ is effective for accounting
periods beginning on or after January 1, 2019 and replaces IAS 17
‘Leases’. It eliminates the classification of leases as either
operating leases or finance leases and, instead, introduces a
single lessee accounting model. The adoption of IFRS 16 resulted in
the Group recognizing lease liabilities within current liabilities,
and corresponding right-of-use assets.
The Group’s principal lease arrangements are for
office space. The Group has adopted IFRS 16 retrospectively with
the cumulative effect of initially applying the standard as an
adjustment to the opening balance of retained earnings at January
1, 2019. The standard permits a choice on initial adoption, on a
lease-by-lease basis, to measure the right-of-use asset at either
its carrying amount as if IFRS 16 had been applied since the
commencement of the lease, or an amount equal to the lease
liability, adjusted for any accrued or prepaid lease payments as at
the time of adoption. The Group has elected to measure the
right-of-use asset at its carrying value as if IFRS 16 had been
applied since the commencement of the lease, with the result of a
£20 thousand reduction in opening total accumulated losses.
Initial adoption resulted in the recognition of
right-of-use assets of £326 thousand and lease liabilities of £316
thousand.
| |
£'000s |
|
Lease commitments (including prepayments) disclosed as at December
31, 2018 |
600 |
|
| Less: adjustments relating to
prepaid lease payments |
(28 |
) |
| Lease commitments as at
December 31, 2018 |
572 |
|
| Discounted using the group’s
incremental borrowing rate |
526 |
|
| Less: short-term leases
recognized on a straight-line basis as expense |
(210 |
) |
| Lease liability
recognized as at January 1, 2019 |
316 |
|
In applying IFRS 16 for the first time, the
group has used the following practical expedients permitted by the
standard:
- the use of a single discount rate of 8% to a portfolio of
leases with reasonably similar characteristics;
- accounting for leases with a remaining lease term of less than
12 months as at January 1, 2019, as short-term leases; and
- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group is applying IFRS 16’s low-value and short-term
exemptions. The adoption of IFRS 16 has had no impact on the
Group’s net cash flows, although a presentation change has been
reflected in 2019 whereby cash outflows of £426 thousand are now
presented as financing, instead of operating. General and
administrative costs are £123 thousand lower than if IFRS 16 not
been adopted, as depreciation of the right of use asset is less
than the lease costs. There is a £50 thousand increase in finance
expense from the presentation of a portion of lease costs as
interest costs. There is no significant impact on overall loss
before tax and loss per share.
At the time of adoption it was not reasonably certain that the
Group would extend the leases. However, in the period the Group
determined that this was the case and agreed extensions. As a
result it recognized an additional liability and right-of-use asset
of £1,047 thousand.
2.19 New standards, amendments and interpretations
adopted by the Group
The following standard has been adopted by the Group for the
first time for the financial year beginning on or after January 1,
2019:
The Group adopted IFRS 16 on January 1, 2019, and, as a
consequence, changed its accounting policies. See note 2.18.
2.20 New standards, amendments and interpretations
issued but not effective for the financial year beginning
January 1, 2019 and not early adopted
There are no IFRS standards or interpretations not yet effective
that would be expected to have a material impact on the Group.
3. Financial Instruments
3.1 Financial Risk Factors
The Group's activities have exposed it to a variety of financial
risks: market risk (including currency risk and interest rate
risk), credit risk, and liquidity risk. The Group's overall risk
management program is focused on preservation of capital and the
unpredictability of financial markets and has sought to minimize
potential adverse effects on the Group's financial performance and
position.
(a) Currency risk
Foreign currency risk reflects the risk that the Group's net
assets will be negatively impacted due to fluctuations in exchange
rates. The Group has not entered into foreign exchange contracts to
hedge against gains or losses from foreign exchange
fluctuations.
The summary data about the Group's exposure to currency risk is
as follows. Figures are the pound sterling values of balances in
each currency:
| |
December 31, 2019 |
|
December 31, 2018 |
| |
GBP |
|
USD |
|
EUR |
|
GBP |
|
USD |
|
EUR |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
|
Cash and cash equivalents |
18,517 |
|
|
4,399 |
|
|
18 |
|
|
11,293 |
|
|
8,470 |
|
|
21 |
|
| Short term Investments |
6,316 |
|
|
1,507 |
|
|
— |
|
|
19,850 |
|
|
25,069 |
|
|
— |
|
| Trade and other payables |
3,226 |
|
|
4,306 |
|
|
728 |
|
|
2,872 |
|
|
4,329 |
|
|
532 |
|
Sensitivity Analysis
A reasonably possible strengthening or weakening of the Euro or
U.S. dollar against pounds sterling as of December 31, 2019
and 2018 would have affected the measurement of the financial
instruments denominated in a foreign currency (excluding the
assumed contingent liability).
The following table shows how a movement in a currency would
give rise to a profit or (loss) and a corresponding entry in
equity.
| |
Profit or loss and equity |
| |
Strengthening |
|
Weakening |
| December 31,
2019 |
£'000s |
|
£'000s |
|
EUR (5% movement) |
(36 |
) |
|
36 |
|
| USD (5% Movement) |
80 |
|
|
(80 |
) |
| December 31,
2018 |
£'000s |
|
£'000s |
| EUR (5% movement) |
(26 |
) |
|
26 |
|
| USD (5% Movement) |
1,461 |
|
|
(1,461 |
) |
Foreign currency denominated trade payables are short term in
nature (generally 30 to 45 days). The Group has a U.S. operation,
the net assets of which are exposed to foreign currency translation
risk.
Estimated cashflows relating to the assumed contingent liability
are predominantly denominated in US dollars. In the years ended
December 31, 2019, and 2018, movements in foreign exchange rates
were not material and no sensitivity analysis is therefore
provided.
(b) Credit risk
Credit risk reflects the risk that the Group may be unable to
recover contractual receivables. As the Group is still in the
development stage no policies are currently required to mitigate
this risk.
For banks and financial institutions, only independently rated
parties with a minimum rating of "B+" are accepted. The Directors
recognize that this is an area in which they may need to develop
specific policies should the Group become exposed to further
financial risks as the business develops.
As of December 31, 2019, and December 31, 2018, cash
and cash equivalents and short term investments were placed at the
following banks:
| Cash and Cash
Equivalents |
Year ended December 31, 2019 |
|
Creditrating |
|
Year ended December 31, 2018 |
|
Creditrating |
| |
£'000 |
|
|
|
£'000 |
|
|
| Banks |
|
|
|
|
|
|
|
|
Royal Bank of Scotland |
1 |
|
|
A1 |
|
150 |
|
|
A1 |
| Lloyds Bank |
8,355 |
|
|
Aa3 |
|
15,862 |
|
|
Aa3 |
| Citibank |
6,529 |
|
|
Aa3 |
|
3,135 |
|
|
A1 |
| Barclays |
1,968 |
|
|
A1 |
|
449 |
|
|
A2 |
| Wells Fargo |
111 |
|
|
Aa1 |
|
188 |
|
|
Aa1 |
| Close Brothers |
5,970 |
|
|
Aa3 |
|
— |
|
|
— |
| Total |
22,934 |
|
|
|
|
19,784 |
|
|
|
| Short Term
Investments |
Year ended December 31, 2019 |
|
Credit rating |
|
Year ended December 31, 2018 |
|
Credit rating |
| |
£'000 |
|
|
|
£'000 |
|
|
| Banks |
|
|
|
|
|
|
|
|
Royal Bank of Scotland |
5,616 |
|
|
A1 |
|
9,186 |
|
|
A1 |
| Lloyds Bank |
— |
|
|
Aa3 |
|
1,567 |
|
|
Aa3 |
| Standard Chartered |
— |
|
|
A1 |
|
15,450 |
|
|
A1 |
| Citibank |
— |
|
|
Aa3 |
|
7,053 |
|
|
A1 |
| Barclays |
2,207 |
|
|
A1 |
|
11,663 |
|
|
A2 |
| Total |
7,823 |
|
|
|
|
44,919 |
|
|
|
(c) Management of capital
The Group considers capital to be its equity reserves. At the
current stage of the Group's life cycle, the Group's objective in
managing its capital is to ensure funds raised meet the research
and operating requirements until the next development stage of the
Group 's suite of projects.
The Group ensures it is meeting its objectives by reviewing its
Key Performance Indicators to ensure the research activities are
progressing in line with expectations, costs are controlled and
unused funds are placed on deposit to conserve resources and
increase returns on surplus cash held.
(d) Interest rate risk
As of December 31, 2019, the Group had cash deposits of
£22.9 million (2018: £19.8 million) and short term investments of
£7.8 million (2018: £44.9 million). The rates of interest received
during 2019 ranged between 0.0% and 2.87%. A 0.25% increase in
interest rates would not have a material impact on finance income.
The Group's exposure to interest rate risk, which is the risk that
the interest received will fluctuate as a result of changes in
market interest rates on classes of financial assets and financial
liabilities, was as follows:
| |
December 31, 2019 |
|
December 31, 2018 |
| |
Floatinginterest rate |
|
Fixedinterest rate |
|
Floatinginterest rate |
|
Fixedinterest rate |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
| Financial
asset |
|
|
|
|
|
|
|
|
Cash deposits |
10,006 |
|
|
12,928 |
|
|
15,082 |
|
|
4,702 |
|
| Short Term Investments |
— |
|
|
7,823 |
|
|
— |
|
|
44,919 |
|
| Total |
10,006 |
|
|
20,751 |
|
|
15,082 |
|
|
49,621 |
|
(e) Liquidity risk
The Group periodically prepares working capital forecasts for
the foreseeable future, allowing an assessment of the cash
requirements of the Group, to manage liquidity risk. The following
table provides an analysis of the Com Group's financial
liabilities. The carrying value of all balances approximates to
their fair value. The Group's maturity analysis for the derivative
financial instrument from the issue of warrants is given in note
19.
| |
LESS THAN1 YEAR |
|
BETWEEN1 AND
2YEARS |
|
BETWEEN2 AND
5YEARS |
|
OVER5 YEARS |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
| At December 31,
2019 |
|
|
|
|
|
|
|
|
Trade payables |
1,455 |
|
|
— |
|
|
— |
|
|
— |
|
| Accruals |
6,806 |
|
|
— |
|
|
— |
|
|
— |
|
| Lease
liability(2) |
476 |
|
|
557 |
|
|
— |
|
|
— |
|
| Assumed contingent
liability(1) |
— |
|
|
— |
|
|
— |
|
|
1,807 |
|
| Total |
8,737 |
|
|
557 |
|
|
— |
|
|
1,807 |
|
(1) This table includes the undiscounted amount of the
assumed contingent liability. See note 21.
(2) This table includes the undiscounted amount of the
finance lease liability. See note 2.18.
| |
LESS THAN1 YEAR |
|
BETWEEN1 AND
2YEARS |
|
BETWEEN2 AND
5YEARS |
|
OVER5 YEARS |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
| At December 31,
2018 |
|
|
|
|
|
|
|
|
Trade payables |
2,839 |
|
|
— |
|
|
— |
|
|
— |
|
| Other payables |
12 |
|
|
— |
|
|
— |
|
|
— |
|
| Accruals |
4,882 |
|
|
— |
|
|
— |
|
|
— |
|
| Assumed contingent
liability(1) |
— |
|
|
— |
|
|
— |
|
|
1,807 |
|
| Total |
7,733 |
|
|
— |
|
|
— |
|
|
1,807 |
|
(1) This table includes the undiscounted amount of the
assumed contingent liability. See note 21.
3.2 Fair value estimation
The carrying amounts of cash and cash equivalents, receivables,
accounts payable and accrued liabilities approximate to fair value
due to their short-term nature. The carrying amount of the assumed
contingent liability approximates to fair value as the underlying
assumptions are currently similar.
For financial instruments that are measured in the Consolidated
Statement of Financial Position at fair value, IFRS 7 requires
disclosure of fair value measurements by level of the following
fair value measurement hierarchy:
- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1);
- Inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly or
indirectly (level 2); and
- Inputs for the asset or liability that are not based on
observable market data (level 3).
For the year ended December 31, 2019, and 2018, fair value
adjustments to financial instruments measured at fair value through
profit and loss resulted in the recognition of finance income of
£1.6 million in 2019 and a finance loss of £1.2 million in
2018.
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. These
valuation techniques maximize the use of observable market data
where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to ascertain
the fair value of an instrument are observable, the instrument is
included in level 2. If one or more of the significant inputs
are not based on observable market data, the instrument is included
in level 3.
| |
Level 3 |
|
Total |
| |
£'000s |
|
£'000s |
| At December 31,
2019 |
|
|
|
|
Derivative financial instrument |
895 |
|
|
895 |
|
| Total |
895 |
|
|
895 |
|
Movements in Level 3 items during the years ended
December 31, 2019, and 2018 are as follows:
| Derivative financial
instrument |
2019 |
|
2018 |
| |
£'000s |
|
£'000s |
|
At January 1 |
2,492 |
|
|
1,273 |
|
| Fair value adjustments
recognized in profit and loss |
(1,597 |
) |
|
1,219 |
|
| At December
31 |
895 |
|
|
2,492 |
|
Further details relating to the derivative financial instrument
are set out in notes 4 and 19 of these financial
statements.
In determining the fair value of the derivative financial
instrument, the Group applied the Black Scholes model; key inputs
include the share price at reporting date, estimations on
timelines, volatility and risk-free rates. These assumptions and
the impact of changes in these assumptions, where material, are
disclosed in note 19.
3.3 Change in liabilities arising from
financing activities
The Group has provided a reconciliation so that changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes can be
evaluated.
| |
2019 |
| |
Derivative financial instrument |
| |
£'000s |
|
At January 1 |
2,492 |
|
| Fair value adjustments - non
cash |
(1,597 |
) |
| At December 31 |
895 |
|
See note 19 for information relating to the derivative financial
instrument.
| |
2019 |
| |
Lease liability |
| |
£'000s |
|
At January 1 |
316 |
|
| Capitalization of rental
leases - non cash |
1,061 |
|
| Payment of lease liability -
cash |
(426 |
) |
| At December 31 |
951 |
|
See note 14 and note 2.18 for information relating to
capitalized leases.
4. Critical accounting estimates and
judgments
The preparation of financial statements in conformity with IFRS
requires the use of accounting estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of income and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of current events and actions,
actual results ultimately may differ from those estimates. IFRS
also requires management to exercise its judgment in the process of
applying the Group's accounting policies.
The areas involving a higher degree of judgment or complexity,
or areas where assumptions and estimates are significant to the
consolidated financial statements are as follows:
(a) Assumed contingent liability
The Group has a material liability for the future payment of
royalties and milestones associated with contractual liabilities on
ensifentrine, acquired as part of the acquisition of Rhinopharma.
The estimation of the amounts and timing of future cashflows
requires the forecast of royalties payable and the estimation of
the likelihood that the regulatory approval milestone will be
achieved (see notes 2.12 and 21). The estimates for the assumed
contingent liability are based on a discounted cash flow model. Key
estimates included the calculation of deferred consideration
are:
- development, regulatory and marketing risks associated with
progressing the product to market approval in key target
territories;
- market size and product acceptance by clinicians, patients and
reimbursement bodies;
- gross and net selling price;
- launch of competitive products;
- probabilities of success; and
- time to crystallization of contingent consideration.
When there is a change in the expected cash flows or
probabilities of success, the assumed contingent liability is
re-measured with the change in value recognized in the IP R&D
asset it relates to. This is a change in accounting policy for the
year ended December 1, 2019, (see 2.18). The assumed contingent
liability is measured at amortized cost with the discount unwinding
in finance expense throughout the year. Actual outcomes could
differ significantly from the estimates made.
The Group has judged that the probabilities of success will
change when it moves from one stage of clinical development to
another. Management have determined that, for the purposes of
assessing probabilities of success, the Group will move from Phase
2 to Phase 3 after an End of Phase 2 Meeting with the Food and Drug
Administration ("FDA") in the US that provides confidence over
ensifentrine's historical development program and planned Phase 3
program. A remeasurement of the liability at this time is likely to
result in a significant increase in both the liability and the
corresponding IPR&D asset. The Group has previously announced
that it expects to meet with the FDA in the first half of 2020. The
Group notes that there is no guarantee that the meeting will take
place in the timeframe anticipated or that there will be a
successful outcome.
Should the probabilities of success and estimates of cash flows
change there will be a material increase in the assumed contingent
liability and corresponding IP R&D asset. The amount will be
dependent on feedback from the FDA and the probabilities of success
applied. Should the Company determine that it has moved from Phase
2 to Phase 3 then the value of the liability could increase by
between £15 million and £30 million; the increase in the value of
the liability will give rise to an approximately equivalent
increase in the value of the IP R&D asset, as described further
in Note 2.7.
The value of the assumed contingent liability as of
December 31, 2019 amounted to £1.1 million. (2018:
£1.0 million).
(b) Valuation of the Derivative Financial Liability
In July 2016, the Company issued 31,115,926 units to new and
existing investors at the placing price of £1.4365 per unit. Each
unit comprises one ordinary share and one warrant. The warrants
entitle the investors to subscribe for in aggregate a maximum of
12,401,262 ordinary shares.
In accordance with IAS 32 and the Group’s accounting
policy, as disclosed in note 2.14, the Group classified the
warrants as a derivative financial liability to be presented on the
Group's Consolidated Statement of Financial Position.
The fair value of these warrants is determined by applying the
Black-Scholes model. Assumptions are made on inputs such as term,
volatility and risk free rate in order to determine the fair value
per warrant. For further details see note 19.
5. Earnings per share
Basic loss per ordinary share of 30.3p (2018: 18.9p) for the
Group is calculated by dividing the loss for the year ended
December 31, 2019 by the weighted average number of ordinary shares
in issue of 105,326,638 as of December 31, 2019 (2018:
105,110,504). Potential ordinary shares are not treated as dilutive
as the entity is loss making and such shares would be
anti-dilutive.
6. Segmental reporting
The Group’s activities are covered by one operating and
reporting segment: Drug Development. There have been no changes to
management’s assessment of the operating and reporting segment of
the Group during the year.
All non-current assets are based in the United Kingdom.
7. Operating loss
Group
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Operating Loss is
stated after charging / (crediting): |
|
|
|
| Research and
development costs: |
|
|
|
|
Employee benefits (note 8) |
4,688 |
|
|
3,360 |
|
| Amortization of patents
(note 12) |
102 |
|
|
85 |
|
| Legal, professional consulting
and listing fees |
537 |
|
|
161 |
|
| Other research and development
expenses |
28,149 |
|
|
15,688 |
|
| Total research and development
costs |
33,476 |
|
|
19,294 |
|
| General and
administrative costs: |
|
|
|
|
| Employee benefits
(note 8) |
3,093 |
|
|
3,240 |
|
| Legal, professional consulting
and listing fees |
2,155 |
|
|
1,296 |
|
| Amortization of computer
software (note 12) |
4 |
|
|
5 |
|
| Depreciation of property,
plant and equipment (note 13) |
16 |
|
|
8 |
|
| Depreciation of right-of-use
assets (note 14) |
382 |
|
|
- |
|
| Operating lease charge —
land and buildings |
- |
|
|
384 |
|
| Loss / (gain) on variations in
foreign exchange rate |
345 |
|
|
(9 |
) |
| Other general and
administrative expenses |
1,612 |
|
|
1,373 |
|
| Total general and
administrative costs |
7,607 |
|
|
6,297 |
|
| Operating loss |
41,083 |
|
|
25,591 |
|
During the periods indicated, the Group obtained the services
from and paid the fees of the Group's auditors and their associates
as detailed below:
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Audit of Verona Pharma plc and consolidated financial
statements |
148 |
|
|
114 |
|
| Audit related services |
52 |
|
|
68 |
|
| Other services |
67 |
|
|
86 |
|
| Total |
267 |
|
|
268 |
|
Audit-Related Services
For the year ended December 31, 2019, audit related
services include fees for quarterly interim reviews.
For the year ended December 31, 2018, audit related
services include fees for quarterly interim reviews.
Other Services
For the year ended December 31, 2019, other services
related to advice relating to fund raising.
For the year ended December 31, 2018, other services
related to a review of the Company’s F-3 shelf registration
statement.
8. Directors' emoluments and staff costs
Group
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| The average number of
employees (excluding directors) of the Group during the year: |
|
|
|
|
|
Research and development |
13 |
|
|
7 |
|
|
| General and
administrative |
9 |
|
|
7 |
|
|
| Total |
22 |
|
|
14 |
|
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Aggregate emoluments
of directors: |
|
|
|
|
|
Salaries and other short-term employee benefits |
850 |
|
|
830 |
|
|
| Social security costs |
112 |
|
|
94 |
|
|
| Incremental payment for
additional services |
26 |
|
|
26 |
|
|
| Other pension costs |
10 |
|
|
10 |
|
|
| Total directors'
emoluments |
998 |
|
|
960 |
|
|
| Share-based payment
charge |
925 |
|
|
1,337 |
|
|
| Directors' emoluments
including share-based payment charge |
1,923 |
|
|
2,297 |
|
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Aggregate executive
officers costs: |
|
|
|
|
|
Wages and salaries |
1,150 |
|
|
857 |
|
|
| Social security costs |
98 |
|
|
83 |
|
|
| Share-based payment
charge |
751 |
|
|
769 |
|
|
| Other pension costs |
21 |
|
|
19 |
|
|
| Total executive officers
costs |
2,020 |
|
|
1,728 |
|
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Aggregate other staff
costs: |
|
|
|
|
|
Wages and salaries |
2,788 |
|
|
1,622 |
|
|
| Social security costs |
265 |
|
|
150 |
|
|
| Share-based payment
charge |
765 |
|
|
795 |
|
|
| Other pension costs |
46 |
|
|
34 |
|
|
| Total other staff costs |
3,864 |
|
|
2,601 |
|
|
The Group considers key management personnel to comprise
directors and executive officers.
The Group operates defined contribution pension schemes for its
employees and executive director. The total pension cost during the
year ended December 31, 2019 was £77 thousand (2018: £63
thousand). There were no prepaid or accrued contributions to the
scheme at December 31, 2019 (2018 £nil)
Company
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| The average number of
employees (excluding directors) of the Company during the
year: |
|
|
|
|
Research and Development |
5 |
|
|
4 |
|
| General and
Administrative |
8 |
|
|
4 |
|
| Total |
13 |
|
|
8 |
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Aggregate emoluments
of directors: |
|
|
|
|
Salaries and other short-term employee benefits |
850 |
|
|
830 |
|
| Social security costs |
112 |
|
|
94 |
|
| Incremental payment for
additional services |
26 |
|
|
26 |
|
| Other pension costs |
10 |
|
|
10 |
|
| Total directors'
emoluments |
998 |
|
|
960 |
|
| Share-based payment
charge |
925 |
|
|
1,337 |
|
| Directors' emoluments
including share-based payment charge |
1,923 |
|
|
2,297 |
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Aggregate executive
officers costs: |
|
|
|
| Wages and salaries |
592 |
|
|
532 |
|
| Social security costs |
75 |
|
|
73 |
|
| Share-based payment
charge |
639 |
|
|
957 |
|
| Other pension costs |
21 |
|
|
19 |
|
|
Total executive officers costs |
1,327 |
|
|
1,581 |
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Aggregate other staff
costs: |
|
|
|
|
Wages and salaries |
1,241 |
|
|
984 |
|
| Social security costs |
172 |
|
|
118 |
|
| Share-based payment
charge |
447 |
|
|
571 |
|
| Other pension costs |
46 |
|
|
34 |
|
| Total other staff costs |
1,906 |
|
|
1,707 |
|
The Group considers key management personnel to be the aggregate
of directors and executive officers.
The Company operates a defined contribution pension schemes for
its. employees and executive director. The total pension cost
during the year ended December 31, 2019 was £77 thousand
(2018: £63 thousand). There were no prepaid or accrued
contributions to the scheme at December 31, 2019 (2018:
£nil).
In respect of Directors’ remuneration, the Company has taken
advantage of the permission in Paragraph 6(2) of Statutory
Instrument 2008/410 to omit aggregate information that is capable
of being ascertained from the detailed disclosures in the audited
section of the Directors’ Remuneration Report which form part of
these Consolidated Financial Statements.
9. Finance income and expense
| Group |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Finance
income: |
|
|
|
|
|
Interest received on cash balances |
754 |
|
|
861 |
|
|
| |
|
|
|
|
|
|
| Foreign exchange gain on
translating foreign currency denominated balances |
— |
|
|
1,922 |
|
|
| Fair value adjustment on
derivative financial instruments (note 19) |
1,597 |
|
|
— |
|
|
| Total finance income |
2,351 |
|
|
2,783 |
|
|
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Finance
expense: |
|
|
|
|
|
Fair value adjustment on derivative financial instruments (note
19) |
— |
|
|
1,219 |
|
|
| Interest on discounted lease
liability |
50 |
|
|
— |
|
|
| |
|
|
|
|
|
|
| Foreign exchange loss on
translating foreign currency denominated balances |
305 |
|
|
— |
|
|
| Unwinding of discount factor
related to the assumed contingent arrangement (note 21) |
119 |
|
|
106 |
|
|
| Total finance expense |
474 |
|
|
1,325 |
|
|
Company
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Finance
income: |
|
|
|
| Interest received on cash
balances |
754 |
|
861 |
| |
|
|
|
| Foreign exchange gain on
translating foreign currency denominated balances |
— |
|
1,922 |
| Fair value adjustment on
derivative financial instruments (note 19) |
1,597 |
|
— |
| Total finance income |
2,351 |
|
2,783 |
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Finance
expense: |
|
|
|
| Fair value adjustment on
derivative financial instruments (note 19) |
— |
|
1,219 |
| Interest on discounted lease
liability |
39 |
|
— |
| |
|
|
|
| Foreign exchange loss on
translating foreign currency denominated balances |
305 |
|
— |
| Unwinding of discount factor
related to the assumed contingent arrangement (note 21) |
119 |
|
106 |
| Total finance expense |
463 |
|
1,325 |
10. Taxation
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
| |
£'000s |
|
£'000s |
|
| Analysis of tax credit
for the year |
|
|
|
|
| Current tax: |
|
|
|
|
|
U.K. tax credit |
(7,250 |
) |
|
(4,290 |
) |
|
| U.S. tax charge |
56 |
|
|
30 |
|
|
| Adjustment in respect of prior
periods |
(71 |
) |
|
28 |
|
|
| Total tax
credit |
(7,265 |
) |
|
(4,232 |
) |
|
| |
|
|
|
|
| Factors affecting the
tax credit for the year |
|
|
|
|
| Loss on ordinary activities
before taxation |
(39,206 |
) |
|
(24,133 |
) |
|
| |
|
|
|
|
| Multiplied by standard rate of
corporation tax of 19% (2018: 19%) |
(7,449 |
) |
|
(4,585 |
) |
|
| Effects of: |
|
|
|
|
| Non-deductible expenses |
515 |
|
|
540 |
|
|
| Fair value adjustment on
derivative financial instruments |
(303 |
) |
|
232 |
|
|
| Research and development
incentive |
(3,119 |
) |
|
(1,846 |
) |
|
| Temporary differences not
recognized |
(6 |
) |
|
(3 |
) |
|
| Difference in overseas tax
rates |
16 |
|
|
8 |
|
|
| Tax losses carried forward not
recognized |
3,152 |
|
|
1,394 |
|
|
| Adjustment in respect of prior
periods |
(71 |
) |
|
28 |
|
|
| Total tax
credit |
(7,265 |
) |
|
(4,232 |
) |
|
U.K. corporation tax is charged at 19% (2018: 19.00%) and U.S.
federal and state tax at 27.6% (2018: 27.6%).
The following tables represent deferred tax balances recognized
in the Consolidated Statement of Financial Position. There were no
movements in either the deferred tax asset or the deferred tax
liability.
| |
As at December 31, 2019 |
|
As at December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Deferred tax assets |
332 |
|
|
250 |
|
| Deferred tax liabilities |
(332 |
) |
|
(250 |
) |
| Net balances |
— |
|
|
— |
|
The deferred tax liability relates to the difference between the
accounting and tax bases of the IP R&D intangible asset. A
deferred tax asset relating to UK tax losses has been recognized
and offset against the liability.
Factors that may affect future tax charges
The Group has U.K. tax losses available for offset against
future profits in the United Kingdom. However an additional
deferred tax asset has not been recognized in respect of such items
due to uncertainty of future profit streams. As of
December 31, 2019, the unrecognized deferred tax asset at 17%
is estimated to be £9.27 million (2018: £6.65 million at 17%).
11. Goodwill
Group and Company
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Goodwill at January 1 and December 31 |
441 |
|
|
441 |
|
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in connection with the
acquisition of Rhinopharma in September 2006. Goodwill is not
amortized, but is tested annually for impairment.
The Group has one CGU so goodwill is tested for impairment
together with its intangible assets. It was tested with reference
to the Group's market capitalization as of December 31, 2019,
the date of testing of IP R&D and goodwill impairment. The
market capitalization of the Group was approximately £65.3 million
as of December 31, 2019, (2018: 92.2 million) compared to the
Group's net assets of £33.9 million (2018: £63.4 million).
Therefore, no impairment was required.
The Group notes that after the reduction in its share price
since December 31, 2018, and before the increase by December 31,
2019, at various points in the three months to March 31, 2019, the
market value of the Group was less than its net book value. The
Group therefore carried out an impairment review as at March 31,
2019. From market research the Group assessed, among other inputs,
potential patient numbers from likely physician prescribing
patterns, price points, the time from possible launch to peak
sales, script rejection, attrition rates and probability of
success. The Group also carried out a sensitivity analysis on key
assumptions and assessed that a reasonable change in these
assumptions would not lead to the value in use falling below net
book value. Consequently, management determined that the Group's
value in use exceeded the carrying value of the Group's assets and
that no impairment was required.
At various other points in the year ended December 31, 2019, the
market value of the Group was less than its net book value.
Consequently, management re-performed the impairment review
quarterly, and identified no changes to market conditions, the
competitive landscape, market research insights or other factors
that would change its conclusions. As a result, management
determined that the Group's value in use exceeded the carrying
value of the Group's assets and that no impairment was required at
those dates.
12. Intangible assets
Group and Company
| |
IP R&D |
|
Computersoftware |
|
Patents |
|
Total |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
| Cost |
|
|
|
|
|
|
|
|
At January 1, 2018 (Restated) |
1,953 |
|
|
11 |
|
|
727 |
|
|
2,691 |
|
| Additions |
— |
|
|
4 |
|
|
251 |
|
|
255 |
|
| Disposals |
— |
|
|
— |
|
|
(6 |
) |
|
(6 |
) |
| At December 31, 2018
(Restated) |
1,953 |
|
|
15 |
|
|
972 |
|
|
2,940 |
|
| Accumulated
amortization |
|
|
|
|
|
|
|
| At January 1, 2018 |
— |
|
|
6 |
|
|
232 |
|
|
238 |
|
| Charge for year |
— |
|
|
5 |
|
|
85 |
|
|
90 |
|
| Disposals |
— |
|
|
— |
|
|
(6 |
) |
|
(6 |
) |
| At December 31, 2018 |
— |
|
|
11 |
|
|
311 |
|
|
322 |
|
| Net book
value |
|
|
|
|
|
|
|
| At December 31, 2018
(Restated) |
1,953 |
|
|
4 |
|
|
661 |
|
|
2,618 |
|
| |
IP R&D |
|
Computersoftware |
|
Patents |
|
Total |
| |
£'000s |
|
£'000s |
|
£'000s |
|
£'000s |
| Cost |
|
|
|
|
|
|
|
|
At January 1, 2019 |
1,953 |
|
|
15 |
|
|
972 |
|
|
2,940 |
|
| Additions |
— |
|
|
3 |
|
|
242 |
|
|
245 |
|
| At December 31, 2019 |
1,953 |
|
|
18 |
|
|
1,214 |
|
|
3,185 |
|
| Accumulated
amortization |
|
|
|
|
|
|
|
| At January 1, 2019 |
— |
|
|
11 |
|
|
311 |
|
|
322 |
|
| Charge for year |
— |
|
|
4 |
|
|
102 |
|
|
106 |
|
| At December 31, 2019 |
— |
|
|
15 |
|
|
413 |
|
|
428 |
|
| Net book
value |
|
|
|
|
|
|
|
| At December 31, 2019 |
1,953 |
|
|
3 |
|
|
801 |
|
|
2,757 |
|
Intangible assets comprise patents, computer software and an IP
R&D asset that arose on the acquisition of Rhinopharma and
investment in patents to protect ensifentrine.
The IP R&D asset acquired through the business combination
was initially recognized at fair value. Subsequent movements in the
assumed contingent liability that relate to changes in estimated
cash flows or probabilities of success are recognized as additions
to the IP R&D asset that it relates to. This is a change in
accounting policy (see note 2.18). The asset is not amortized and
is tested annually for impairment.
Patents are amortized over a period of ten years and are tested
annually for impairment.
Intangible assets are tested for impairment with goodwill, as
the Group has only one CGU. See note 11 for information about the
impairment review.
13. Property, plant and equipment
Group and Company
| |
Computerhardware |
|
Total |
| |
£'000s |
|
£'000s |
| Cost |
|
|
|
|
At January 1, 2018 |
26 |
|
|
26 |
|
| Additions |
13 |
|
|
13 |
|
| At December 31, 2018 |
39 |
|
|
39 |
|
| Accumulated
depreciation |
|
|
|
| At January 1, 2018 |
10 |
|
|
10 |
|
| Charge for the year |
8 |
|
|
8 |
|
| At December 31, 2018 |
18 |
|
|
18 |
|
| Net book
value |
|
|
|
| At December 31, 2018 |
21 |
|
|
21 |
|
| |
Computerhardware |
|
Total |
| |
£'000s |
|
£'000s |
| Cost |
|
|
|
|
At January 1, 2019 |
39 |
|
|
39 |
|
| Additions |
38 |
|
|
38 |
|
| At December 31, 2019 |
77 |
|
|
77 |
|
| Accumulated
depreciation |
|
|
|
| At January 1, 2019 |
18 |
|
|
18 |
|
| Charge for the year |
16 |
|
|
16 |
|
| At December 31, 2019 |
34 |
|
|
34 |
|
| Net book
value |
|
|
|
| At December 31, 2019 |
43 |
|
|
43 |
|
14. Right-of-use assets - property leases
The right-of-use asset relates to rented office space in London
and New York where the Group generally enters in to leases for
terms of less than three years. Before the adoption of IFRS 16
these leases were classified as operating leases.
Group
The Consolidated Statement of Financial Position shows the
following amounts relating to leases:
| |
Year ended December 31, 2019 |
|
As of January 1, 2019* |
| |
£'000s |
|
£'000s |
| Right-of-use
assets |
|
|
|
|
Right-of-use assets |
971 |
|
|
326 |
|
| |
971 |
|
|
326 |
|
| |
|
|
|
| Lease
liabilities |
|
|
|
| Current |
(460 |
) |
|
(316 |
) |
| Non Current |
(491 |
) |
|
— |
|
| |
(951 |
) |
|
(316 |
) |
Additions to the right-of-use assets were £1,047,000 and were
recognized when the Group was reasonably certain to extend the
leases. The additions related to both of the Group's office
locations, both of which agreements have similar terms and
conditions.
To calculate the value of the lease liabilities the Group
applied a discount rate of 8%.
The leases end in 2021 and 2022 and include options to extend
them. The Group has determined it is not yet reasonably certain to
operate the option to extend the leases and so has recognized lease
payments only to these points in its calculation of the lease
liabilities.
The right-of-use lease assets are depreciated over the term of
the leases.
The Consolidated Statement of Comprehensive Income includes the
following amounts relating to leases:
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Depreciation charge of
right-of-use assets |
|
|
|
|
Right-of-use assets |
(382 |
) |
|
— |
|
| |
(382 |
) |
|
— |
|
| |
|
|
|
| Interest expense (including
finance cost) |
50 |
|
|
— |
|
| Expense relating to short-term
leases (included in general and administrative expenses) |
78 |
|
|
— |
|
The total cash outflow for leases in 2019 was £492,000.
Company
The right-of-use asset relates to rented office space in London
where the Company generally enters in to leases for terms of less
than three years. Before the adoption of IFRS 16 these leases were
classified as operating leases.
The Company’s Statement of Financial Position shows the
following amounts relating to leases:
| |
Year ended December 31, 2019 |
|
As of January 1, 2019* |
| |
£'000s |
|
£'000s |
| Right-of-use
assets |
|
|
|
|
Right-of-use assets |
731 |
|
|
326 |
|
| |
731 |
|
|
326 |
|
| |
|
|
|
| Lease
liabilities |
|
|
|
| Current |
(335 |
) |
|
(316 |
) |
| Non Current |
(419 |
) |
|
— |
|
| |
(754 |
) |
|
(316 |
) |
Additions to the right-of-use assets were £718,000 and were
recognized when the Company was reasonably certain to extend the
leases. The additions related to the Company's office location.
To calculate the value of the lease liabilities the Company
applied a discount rate of 8%.
The leases end in 2022. The Company has determined it is not yet
reasonably certain to operate the option to extend the leases and
so has recognized lease payments only to these points in its
calculation of the lease liabilities.
The right-of-use lease assets are depreciated over the term of
the leases.
The Consolidated Statement of Comprehensive Income includes the
following amounts relating to leases:
| |
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
| |
£'000s |
|
£'000s |
| Depreciation charge of
right-of-use assets |
|
|
|
|
Right-of-use assets |
(313 |
) |
|
— |
|
| |
(313 |
) |
|
— |
|
| |
|
|
|
| Interest expense (including
finance cost) |
39 |
|
|
— |
|
The total cash outflow for leases in 2019 was £348,000.
15. Prepayments and other receivables
Group
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Prepayments |
1,309 |
|
|
1,362 |
|
| Other receivables |
1,461 |
|
|
1,101 |
|
| Total prepayments and other
receivables |
2,770 |
|
|
2,463 |
|
The prepayments balance includes prepayments for insurance and
clinical activities.
Company
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Prepayments |
1,331 |
|
|
1,346 |
|
| Other receivables |
1,437 |
|
|
1,069 |
|
| Amounts due from group
undertakings |
325 |
|
|
187 |
|
| Total prepayments and other
receivables |
3,093 |
|
|
2,602 |
|
Amounts due from group undertakings are unsecured, interest free
and repayable on demand.
The prepayments balance includes prepayments for insurance and
clinical activities.
16. Investment in subsidiaries
The Company has two wholly owned subsidiaries, Rhinopharma
Limited and Verona Pharma Inc.
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
| Net book value: |
|
|
|
|
At the start of the year |
913 |
|
|
877 |
|
| Capital contribution arising
from share-based payments |
429 |
|
|
36 |
|
| Net book amount at the end of
year |
1,342 |
|
|
913 |
|
A capital contribution arises where share-based payments are
provided to employees of the subsidiary undertaking, Verona Pharma
Inc, settled with equity to be issued by the Company.
The Company’s investments comprise interests in Group
undertakings, details of which are shown below:
|
Name of undertaking |
Verona Pharma Inc. |
|
Rhinopharma Limited |
| Country of incorporation |
Delaware |
|
British Columbia |
| |
USA |
|
Canada |
| Description of shares
held |
$0.001 |
|
Without Par Value |
| |
Common stock |
|
Common shares |
| Proportion of shares held by
the Company |
100% |
|
100% |
Verona Pharma Inc. was incorporated on the 12 December 2014
under the laws of the State of Delaware, USA and has its registered
office at 2711 Centerville Road, Suite 400, City of Wilmington
19808, County of New Castle, Delaware, United States of
America.
Rhinopharma Limited is incorporated under the laws of the
Province of British Columbia, Canada and has its registered office
at Suite 700, 625 Howe Street, Vancouver, British Columbia, Canada
V6C 2T6. Rhinopharma Limited was a drug discovery and
development company focused on developing proprietary drugs to
treat allergic rhinitis and other respiratory diseases prior to its
acquisition by the Company on September 18, 2006.
17. Share Capital
Group and Company
The movements in the Company's share capital are summarized
below:
|
Date |
|
Description |
|
Number ofshares |
|
Share Capitalamounts in
£'000s |
|
| |
|
January 1, 2018 |
|
|
|
105,017,401 |
|
|
5,251 |
|
|
|
August 9, 2018 |
|
Vesting of RSUs |
|
58,112 |
|
|
3 |
|
|
|
September 20, 2018 |
|
Vesting of RSUs |
|
251,125 |
|
|
12 |
|
|
|
As at December 31, 2018 |
|
|
|
105,326,638 |
|
|
5,266 |
|
|
|
As at December 31, 2019 |
|
|
|
105,326,638 |
|
|
5,266 |
|
|
The total number of authorized ordinary shares, with a nominal
value of £0.05 each, is 200,000,000 (share capital of £10,000,000).
All 105,326,638 ordinary shares at December 31, 2019 are
allotted, unrestricted, called up and fully paid. All issued shares
rank pari passu.
During 2018, the Company issued 309,237 ordinary shares upon
vesting of employee restricted share units.
18. Share-based payments charge
Group and Company
The Group operates various share based payment incentive schemes
for its staff.
In accordance with IFRS 2 "Share Based Payments," the cost
of equity-settled transactions is measured by reference to their
fair value at the date at which they are granted. Where
equity-settled transactions were entered into with third party
service providers, fair value is determined by reference to the
value of the services provided. For other equity-settled
transactions fair value is determined using the Black-Scholes
model. The cost of equity-settled transactions is recognized over
the period until the award vests. No expense is recognized for
awards that do not ultimately vest. At each reporting date, the
cumulative expense recognized for equity-based transactions
reflects the extent to which the vesting period has expired and the
number of awards that, in the opinion of the Directors at that
date, will ultimately vest.
The costs of equity-settled share-based payments to employees
are recognized in the Statement of Comprehensive Income, together
with a corresponding increase in equity during the vesting period.
During the twelve months ended December 31, 2019, the Group
recognized a share-based payment expense of £2.44 million (2018:
£2.90 million). The charge is included within both general and
administrative costs as well as in research and development costs
and represents the current year's allocation of the expense for
relevant share options.
The Group operates an Unapproved Share Option Scheme under which
options were issued before 31 December 2016. The Group also
operates a tax efficient EMI Option Scheme under which options were
issued before 31 December 2016. In 2017 the Group commenced the
2017 Incentive Award Plan under which the Group grants share
options and Restricted Stock Units ("RSUs") to employees and
directors.
Since 2017 options are issued with an exercise price at the
share price the evening before the date of issue. They vest over
terms of one to four years.
RSUs also vest over terms of one to four years. In the year
ended December 31, 2019, the Company modified the terms of all the
RSUs issued prior January 1, 2019, to include a market based
performance condition. The Company's share price must be maintained
above £2 for thirty days for the RSUs to vest, in addition to the
existing service condition. The RSUs vest after a five year term
irrespective of whether the £2 market condition was met. This
modification did not result in an increase in the fair value of the
RSUs. The RSUs issued in the year ended December 31, 2019, also
include the same market condition and five year term.
In the year ended December 31, 2019, under the 2017 Incentive
Award Plan, the Group granted 5,569,050 (2018: 2,090,847) share
options and 740,496 RSUs (2018: 273,390). The total fair
values of the options and RSUs were estimated using the
Black-Scholes option-pricing model for equity-settled transactions
and amounted to £2.25 million (2018: £2.32 million). The cost is
amortized over the vesting period of the options and RSUs on a
straight-line basis.
The following assumptions were used for the Black-Scholes
valuation of share options and RSUs granted in 2018 and 2019. For
the options granted under the Unapproved Scheme the table indicates
the ranges used in determining the fair-market values, aligning
with the various dates of the underlying grants. The volatility is
calculated using historical weekly averages of the Group's share
price over a period that is in line with the expected life of the
options and RSUs.
|
Issued in 2018 |
|
Unapproved Scheme |
|
Restricted Stock Units |
| Options granted |
|
2,090,847 |
|
273,390 |
| Risk-free interest rate |
|
1.08% - 1.22% |
|
1.08% - 1.22% |
| Expected life of options |
|
5.5 - 7 years |
|
5.5 - 7 years |
| Annualized volatility |
|
69.88% -71.35% |
|
69.88% -71.35% |
| Dividend rate |
|
0.00% |
|
0.00% |
| Vesting period |
|
1 to 4 years |
|
1 to 4 years |
| |
|
|
|
|
|
Issued in 2019 |
|
Unapproved Scheme |
|
Restricted Stock Units |
| Options granted |
|
5,569,050 |
|
740,496 |
| Risk-free interest rate |
|
0.39% - 0.82% |
|
0.76% - 0.82% |
| Expected life of options |
|
5.5 - 7 years |
|
5.5 - 7 years |
| Annualized volatility |
|
67.98% - 69.71% |
|
63.82% - 69.71% |
| Dividend rate |
|
0.00% |
|
0.00% |
| Vesting period |
|
1 to 4 years |
|
1 to 4 years |
The Group had the following share options movements in the year
ended December 31, 2019:
|
Year of issue |
|
Exercise price (£) |
|
At January 1, 2019 |
|
Optionsgranted |
|
Optionsforfeited |
|
Optionsexpired |
|
At December 31, 2019 |
|
Expiry date |
|
| 2012 |
|
2.50 - 7.50 |
|
|
99,993 |
|
|
— |
|
|
— |
|
|
— |
|
|
99,993 |
|
|
June 1, 2022 |
|
|
2013 |
|
2 |
|
|
99,990 |
|
|
— |
|
|
— |
|
|
(19,998 |
) |
|
79,992 |
|
|
April 15, 2023 |
|
| 2013 |
|
2.00 |
|
|
159,999 |
|
|
— |
|
|
— |
|
|
— |
|
|
159,999 |
|
|
July 29, 2023 |
|
| 2014 |
|
1.75 |
|
|
109,998 |
|
|
— |
|
|
— |
|
|
— |
|
|
109,998 |
|
|
May 15, 2024 |
|
| 2014 |
|
1.75 |
|
|
49,998 |
|
|
— |
|
|
— |
|
|
— |
|
|
49,998 |
|
|
May 15, 2024 |
* |
| 2015 |
|
1.25 |
|
|
41,997 |
|
|
— |
|
|
— |
|
|
— |
|
|
41,997 |
|
|
January 29, 2025 |
* |
| 2015 |
|
1.25 |
|
|
549,999 |
|
|
— |
|
|
— |
|
|
— |
|
|
549,999 |
|
|
January 29, 2025 |
|
| 2016 |
|
2 |
|
|
240,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
240,000 |
|
|
February 2, 2026 |
|
| 2016 |
|
2.00 |
|
|
21,996 |
|
|
— |
|
|
— |
|
|
— |
|
|
21,996 |
|
|
February 2, 2026 |
* |
| 2016 |
|
1.80 |
|
|
676,664 |
|
|
— |
|
|
— |
|
|
— |
|
|
676,664 |
|
|
August 3, 2026 |
|
| 2016 |
|
1.89 |
|
|
299,997 |
|
|
— |
|
|
— |
|
|
— |
|
|
299,997 |
|
|
September 13, 2026 |
|
| 2016 |
|
2.04 |
|
|
300,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
300,000 |
|
|
September 16, 2026 |
|
| 2017 |
|
1.32 - 1.525 |
|
|
4,093,164 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,093,164 |
|
|
April 26, 2027 |
|
| 2018 |
|
1.46 |
|
|
2,008,319 |
|
|
— |
|
|
(34,614 |
) |
|
— |
|
|
1,973,705 |
|
|
March 8, 2028 |
|
| 2019 |
|
570.00 |
|
|
— |
|
|
3,903,050 |
|
|
(87,356 |
) |
|
— |
|
|
3,815,694 |
|
|
March 29, 2029 |
|
| 2019 |
|
595.00 |
|
|
— |
|
|
346,000 |
|
|
— |
|
|
— |
|
|
346,000 |
|
|
June 11, 2029 |
|
| 2019 |
|
457.00 |
|
|
— |
|
|
100,000 |
|
|
— |
|
|
— |
|
|
100,000 |
|
|
August 22, 2029 |
|
| 2019 |
|
0.436 |
|
|
— |
|
|
720,000 |
|
|
— |
|
|
— |
|
|
720,000 |
|
|
November 6, 2029 |
|
| 2019 |
|
445.00 |
|
|
— |
|
|
500,000 |
|
|
— |
|
|
— |
|
|
500,000 |
|
|
November 26, 2029 |
|
|
Total |
|
|
|
8,752,114 |
|
|
5,569,050 |
|
|
(121,970 |
) |
|
(19,998 |
) |
|
14,179,196 |
|
|
|
|
* Options granted under the EMI Scheme.
The Company had the following RSU movements in the year ended
December 31, 2019:
|
Year ofissue |
|
Exercise price (£) |
|
At January 1, 2019 |
|
Units granted |
|
Units vested |
|
Units forfeited |
|
At December 31, 2019 |
|
Expiry date |
|
|
2017 |
|
|
|
729,987 |
|
|
— |
|
|
— |
|
|
— |
|
|
729,987 |
|
|
April 26, 2027 |
|
| 2018 |
|
|
|
132,486 |
|
|
— |
|
|
— |
|
|
— |
|
|
132,486 |
|
|
March 8, 2028 |
|
| 2019 |
|
|
|
|
|
740,496 |
|
|
— |
|
|
— |
|
|
740,496 |
|
|
March 29, 2027 |
|
|
Total |
|
|
|
862,473 |
|
|
740,496 |
|
|
— |
|
|
— |
|
|
1,602,969 |
|
|
|
|
Outstanding and exercisable share options by scheme as of
December 31, 2019:
|
Plan |
Outstanding |
|
Exercisable |
|
Weighted average exercise price in £ for
Outstanding |
|
Weighted average exercise price in £ for
Exercisable |
|
Unapproved |
13,965,212 |
|
|
5,552,293 |
|
|
1.12 |
|
|
1.55 |
|
| EMI |
213,984 |
|
|
213,984 |
|
|
3.06 |
|
|
3.06 |
|
|
Total |
14,179,196 |
|
|
5,766,277 |
|
|
1.15 |
|
|
1.61 |
|
As of December 31, 2019 there were no restricted share
options exercisable (2018: nil) and there is no exercise price for
restricted share options.
The options outstanding at December 31, 2019 had a weighted
average remaining contractual life of 7.7 years (2018: 8.0
years). For 2018 and 2019, the number of options granted and
expired and the weighted average exercise price of options were as
follows:
| |
|
Number ofoptions |
|
Weighted averageexercise
price(£) |
|
At January 1, 2018 |
|
7,527,458 |
|
|
1.53 |
|
|
Options granted in 2018: |
|
|
|
|
|
Employees |
|
1,222,089 |
|
|
1.46 |
|
|
Directors |
|
868,758 |
|
|
1.46 |
|
|
Options forfeited in the year |
|
(799,524 |
) |
|
1.43 |
|
|
Options expired in the year |
|
(66,667 |
) |
|
1.75 |
|
| At December 31,
2018 |
|
8,752,114 |
|
|
1.53 |
|
| Exercisable at
December 31, 2018 |
|
3,542,884 |
|
|
1.66 |
|
| |
|
Number ofoptions |
|
Weighted averageexercise
price(£) |
|
At January 1, 2019 |
|
8,752,114 |
|
|
1.53 |
|
|
Options granted in 2019: |
|
|
|
|
|
Employees |
|
4,042,106 |
|
|
0.55 |
|
|
Directors |
|
1,526,944 |
|
|
0.53 |
|
|
Options forfeited in the year |
|
(121,970 |
) |
|
0.82 |
|
|
Options expired in the year |
|
(19,998 |
) |
|
2.00 |
|
| At December 31,
2019 |
|
14,179,196 |
|
|
1.15 |
|
| Exercisable at
December 31, 2019 |
|
5,766,277 |
|
|
1.60 |
|
The following table shows the number of RSUs issued, exercised
and forfeited in 2018. The fair value of each unvested RSU at grant
date was £1.46.
| |
|
Number of RSUs |
|
At January 1, 2018 |
|
1,052,236 |
|
|
Granted: |
|
|
|
Employees |
|
136,404 |
|
|
Directors |
|
136,986 |
|
|
RSUs vested in the year |
|
(309,237 |
) |
|
RSUs forfeited in the year |
|
(153,916 |
) |
| At December 31,
2018 |
|
862,473 |
|
The following table shows the number of RSUs issued in 2019.
There were no RSUs forfeited, canceled or vested in 2019. The fair
value of each unvested RSU granted in 2019 was £0.57.
| |
|
Number of RSUs |
|
At January 1, 2019 |
|
862,473 |
|
|
Granted: |
|
|
|
Employees |
|
474,072 |
|
|
Directors |
|
266,424 |
|
|
RSUs vested in the year |
|
— |
|
|
RSUs forfeited in the year |
|
— |
|
| At December 31,
2019 |
|
1,602,969 |
|
The cost is amortized over the vesting period of the options on
a straight-line basis. The expense for the Group during 2019
amounted to £2.9m and £0.04m in relation to Verona Pharma Inc is
held as an investment.
19. Derivative financial instrument
Group and Company
On July 29, 2016, the Group issued 31,115,926 units to new and
existing investors at the placing price of £1.4365 per unit. Each
unit comprises one ordinary share and one warrant.
The warrant holders can subscribe for 0.4 of an ordinary share
at a per share exercise price of £1.7238. The warrant holders can
opt for a cashless exercise of their warrants, whereby the warrant
holders can choose to exchange the warrants held for reduced number
of warrants exercisable at nil consideration. The reduced number of
warrants is calculated based on a formula considering the share
price and the exercise price of the warrants. The warrants are
therefore classified as a derivative financial liability, since
their exercise could result in a variable number of shares to be
issued.
The warrants entitled the investors to subscribe for, in
aggregate, a maximum of 12,401,262 shares. The warrants can be
exercised until May 2, 2022.
In the year ended December 31, 2019, no warrants were
forfeited (2018: nil).
The table below presents the assumptions in applying the
Black-Scholes model to determine the fair value of the
warrants.
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| Shares available to be issued
under warrants |
12,401,262 |
|
|
12,401,262 |
|
|
Exercise price |
£ |
1.7238 |
|
|
£ |
1.7238 |
|
| Risk-free interest rate |
0.540 |
% |
|
0.760 |
% |
| Expected term to exercise |
2.34 years |
|
|
3.34 years |
|
| Annualized volatility |
65.56 |
% |
|
60.72 |
% |
| Dividend rate |
0.00 |
% |
|
0.00 |
% |
As per the reporting date, the Group updated the underlying
assumptions and calculated a fair value of these warrants amounting
to £0.9 million. The variance of £(1.6) million is recorded as
finance income in the Consolidated Statement of Comprehensive
Income.
| |
Derivativefinancialinstrument |
|
Derivativefinancialinstrument |
| |
2019 |
|
2018 |
| |
£'000s |
|
£'000s |
|
At January 1 |
2,492 |
|
|
1,273 |
|
| Fair value adjustments
recognized in profit or loss |
(1,597 |
) |
|
1,219 |
|
| At December
31 |
895 |
|
|
2,492 |
|
For the amount recognized at December 31, 2019, the effect
when the following parameter deviates up or down is presented in
the below table.
| |
Volatility(up / down10%
pts) |
| |
£'000s |
|
Variable up |
1,306 |
|
| Base case, reported
fair value |
895 |
|
| Variable down |
535 |
|
20. Trade and other payables
Group
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Trade payables |
1,455 |
|
|
2,839 |
|
| Other payables |
— |
|
|
12 |
|
| Accruals |
6,806 |
|
|
4,882 |
|
| Total trade and other
payables |
8,261 |
|
|
7,733 |
|
Company
| |
As of December 31, 2019 |
|
As of December 31, 2018 |
| |
£'000s |
|
£'000s |
|
Trade payables |
1,455 |
|
|
2,839 |
|
| Other payables |
— |
|
|
12 |
|
| Amount due to group
undertakings |
1,474 |
|
|
722 |
|
| Accruals |
6,327 |
|
|
4,696 |
|
| Total trade and other
payables |
9,256 |
|
|
8,269 |
|
Amounts due to group undertakings are unsecured, interest free
and repayable on demand.
21. Assumed contingent liability related to the business
combination
Group and Company
The value of the assumed contingent liability as of
December 31, 2019 is £1.1 million (2018: £1.0 million). The
increase in value of the assumed contingent liability during 2019
amounted to £0.1 million (2018: £0.1 million).
The assumed contingent liability relates to the acquisition, in
2006, of rights to certain patents and patent applications relating
to ensifentrine and related compounds under which the Group is
obliged to pay royalties to Ligand (see 2.12).
The assumed contingent liability is measure at the expected
value of the milestone payment and royalty payments. This expected
value is based on estimated future royalties payable, derived from
sales forecasts, and an assessment of the probability of success
using standard market probabilities for respiratory drug
development. The risk-weighted value of the assumed contingent
arrangement is discounted back to its net present value applying an
effective interest rate of 12%.
The assumed contingent liability is accounted for as a liability
and its value is measured at amortized cost using the effective
interest rate method, and is re-measured for changes in estimated
cash flows or when the probability of success changes.
Re-measurements relating to changes in estimated cash flows and
probabilities of success are recognized in the IP R&D asset it
relates to ("see 2.7"). This is a change in accounting policy for
the year ended December 1, 2019 (see 2.18). The unwind of the
discount is recognized in finance expense.
The Group considers that probabilities of success will change
when it moves from one stage of clinical development to another.
See note 4 for a further discussion of this.
| |
2019 |
|
2018 |
| |
£'000s |
|
£'000s |
|
January 1 |
996 |
|
|
875 |
|
| Impact of changes in foreign
exchange rates |
(12 |
) |
|
15 |
|
| Unwinding of discount
factor |
119 |
|
|
106 |
|
| December 31 |
1,103 |
|
|
996 |
|
There is no material difference between the fair
value and carrying value of the financial liability.
For the amount recognized as at
December 31, 2019, of £1,103 thousand, the effect if
underlying assumptions were to deviate up or down is presented in
the following table (assuming the probability of success does not
change):
|
|
Discount rate(up / down1
% pt) |
Revenue(up / down10 %
pts) |
| |
£'000s |
£'000s |
| Variable up |
1,067 |
1,135 |
| Base case, reported fair
value |
1,103 |
1,103 |
| Variable down |
1,141 |
1,071 |
22. Related parties transactions and other shareholder
matters
(i) Related party transactions
The Directors have authority and responsibility for planning,
directing and controlling the activities of the Group and they
therefore comprise key management personnel as defined by
IAS 24, ("Related Party Disclosures").
Directors and key management personnel remuneration is disclosed
in note 8.
(ii) Other shareholder matters
The Group has entered into the following arrangements with
parties who are significant shareholders of the Group, though they
are not classed as related parties.
The Group entered into relationship agreements with Vivo
Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P.,
Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P.
(collectively, "Vivo Capital"), Orbimed Private Investments
VI L.P. ("Orbimed") and Abingworth Bioventures
VI L.P. ("Abingworth"). As agreed in these relationship
agreements, the above parties invested in the Group as part of the
July 2016 Placement, and the Group agreed to appoint
representatives designated by Vivo Capital, OrbiMed and Abingworth
to the board of directors, who are Dr. Mahendra Shah,
Mr. Rishi Gupta, and Dr. Andrew Sinclair.
The appointment rights within the relationship agreement with
Arix and Arthurian terminated on closing of the Global Offering on
April 26, 2017. Dr Cunningham agreed to continue to serve on the
Group's board of directors as an independent director. The
respective appointment rights under the remaining relationship
agreements will automatically terminate upon (i) Vivo Capital,
OrbiMed or Abingworth (or any of their associates), as applicable,
ceasing to beneficially hold 6.5% of the issued ordinary shares, or
(ii) the ordinary shares ceasing to be admitted to AIM.
Piers Morgan, Chief Financial Officer of the Group, and his
spouse purchased 88,415 ordinary shares in total for £53 thousand
from the market in the year ended December 31, 2019 (2018:
£nil).
Dr. Jan-Anders Karlsson, Chief Executive Officer of the Group,
purchased 3,250 ordinary shares for £5 thousand from the market in
the year ended December 31, 2018. There was no similar transaction
as at December 31, 2019.
Dr. David Ebsworth, Chairman of the Group, purchased 247,600
ordinary shares for £124 thousand from the market in the year ended
December 31, 2019 (2018: £14 thousand).
At December 31, 2018, there was a receivable of £126 thousand
due from one director and two key management personnel relating to
tax due on RSUs that vested in the year ended December 31, 2018.
This receivable was repaid, together with interest at a rate of
3.9% per annum, by March 6, 2019. There was no such balance as at
December 31, 2019.
In the year ended December 31, 2019, a director provided
consultancy services for £26 thousand (2018: £26 thousand).
23. Events after the reporting date
On February 3, 2020, the Group announced the appointment of
David Zaccardelli as chief executive officer with effect from
February 1, 2020, following the retirement of Jan-Anders Karlsson,
PhD. The Group also announced the appointment of Mark Hahn as chief
financial officer with effect from March 1, 2020, as successor to
Piers Morgan.
VERONA PHARMA PLCCONVENIENCE
TRANSLATION
We maintain our books and records in pounds
sterling and we prepare our financial statements in accordance with
IFRS, as issued by the IASB. We report our results in pounds
sterling. For the convenience of the reader we have translated
pound sterling amounts in the tables below as of December 31, 2019,
and for the year ended December 30, 2019 into US dollars at the
noon buying rate of the Federal Reserve Bank of New York on
December 31, 2019, which was £1.00 to $1.3269. These translations
should not be considered representations that any such amounts have
been, could have been or could be converted into US dollars at that
or any other exchange rate as of that or any other date.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019 (UNAUDITED)
| |
Year Ended
December 31, |
| |
2019 |
|
|
2018 |
|
| |
£’
000s |
|
|
|
$’000s |
|
|
£’000s |
|
| Research and development costs |
£(33,476 |
) |
|
$ |
(44,419 |
) |
|
£(19,294 |
) |
| General and
administrative costs |
(7,607 |
) |
|
|
(10,094 |
) |
|
(6,297 |
) |
| Operating loss |
(41,083 |
) |
|
|
(54,513 |
) |
|
(25,591 |
) |
| Finance income |
2,351 |
|
|
|
3,120 |
|
|
2,783 |
|
| Finance expense |
(474 |
) |
|
|
(629 |
) |
|
(1,325 |
) |
| Loss before taxation |
(39,206 |
) |
|
|
(52,022 |
) |
|
(24,133 |
) |
| Taxation — credit |
7,265 |
|
|
|
9,640 |
|
|
4,232 |
|
| Loss for the year |
(31,941 |
) |
|
|
(42,382 |
) |
|
(19,901 |
) |
| Other comprehensive (loss) / income |
|
|
|
|
|
| Exchange differences on translating foreign operations |
(33 |
) |
|
|
(44 |
) |
|
38 |
|
| Total comprehensive loss attributable to owners of the
company |
£(31,974) |
|
$ |
(42,426 |
) |
|
£(19,863) |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 2019, AND DECEMBER 31, 2018
(UNAUDITED)
| |
As of
December 31, 2019 |
|
As of
December 31, 2019 |
|
As of
December 31, 2018 |
| |
£’000s |
|
|
$’000s |
|
|
£’000s |
|
| ASSETS |
|
|
|
|
|
| Non-current assets: |
|
|
|
|
|
| Goodwill |
441 |
|
|
586 |
|
|
441 |
|
| Intangible assets |
2,757 |
|
|
3,658 |
|
|
2,618 |
|
| Property, plant and equipment |
43 |
|
|
57 |
|
|
21 |
|
| Right-of-use asset |
971 |
|
|
1,288 |
|
|
— |
|
| Total non-current assets |
4,212 |
|
|
5,589 |
|
|
3,080 |
|
| |
|
|
|
|
|
| Current assets: |
|
|
|
|
|
| Prepayments and other receivables |
2,770 |
|
|
3,676 |
|
|
2,463 |
|
| Current tax receivable |
7,396 |
|
|
9,814 |
|
|
4,499 |
|
| Short term investments |
7,823 |
|
|
10,380 |
|
|
44,919 |
|
| Cash and cash equivalents |
22,934 |
|
|
30,431 |
|
|
19,784 |
|
| Total current assets |
40,923 |
|
|
54,301 |
|
|
71,665 |
|
| Total assets |
45,135 |
|
|
59,890 |
|
|
74,745 |
|
| |
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
|
|
| Capital and reserves attributable to equity
holders: |
|
|
|
|
|
| Share capital |
5,266 |
|
|
6,987 |
|
|
5,266 |
|
| Share premium |
118,862 |
|
|
157,718 |
|
|
118,862 |
|
| Share-based payment reserve |
10,364 |
|
|
13,752 |
|
|
7,923 |
|
| Accumulated loss |
(100,627 |
) |
|
(133,522 |
) |
|
(68,633 |
) |
| Total equity |
33,865 |
|
|
44,935 |
|
|
63,418 |
|
| |
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
| Derivative financial instrument |
895 |
|
|
1,188 |
|
|
2,492 |
|
| Lease liability |
460 |
|
|
610 |
|
|
— |
|
| Trade and other payables |
8,261 |
|
|
10,961 |
|
|
7,733 |
|
| Total current liabilities |
9,616 |
|
|
12,759 |
|
|
10,225 |
|
| |
|
|
|
|
|
| Non-current liabilities: |
|
|
|
|
|
| Assumed contingent liability |
1,103 |
|
|
1,464 |
|
|
996 |
|
| Non-current lease liability |
491 |
|
|
652 |
|
|
— |
|
| Deferred income |
60 |
|
|
80 |
|
|
106 |
|
| Total non-current liabilities |
1,654 |
|
|
2,196 |
|
|
1,102 |
|
| Total equity and liabilities |
45,135 |
|
|
59,890 |
|
|
74,745 |
|
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