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Edited Transcript of VRP.L earnings conference call or presentation 6-Aug-19 12:00pm GMT

Half Year 2019 Verona Pharma PLC Earnings Call

Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Verona Pharma PLC earnings conference call or presentation Tuesday, August 6, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jan-Anders Karlsson

Verona Pharma plc - CEO & Executive Director

* Piers John Morgan

Verona Pharma plc - CFO

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Conference Call Participants

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* Fang-Ke Huang

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Jens Harry Lindqvist

Nplus1 Singer Capital Markets Limited, Research Division - Senior Life Sciences Analyst

* Julian Reed Harrison

BTIG, LLC, Research Division - Analyst

* Lucy-Emma Mary Sarah Codrington-Bartlett

Jefferies LLC, Research Division - Equity Analyst

* Neil Eric Carnahan

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Patrick Ralph Trucchio

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Vasiliana Vireen Moussatos

Wedbush Securities Inc., Research Division - MD of Equity Research

* Stephanie Carrington

ICR, LLC - SVP

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Second Quarter 2019 Verona Pharma Earnings Conference Call. (Operator Instructions) I would now like to turn the conference over to your host, Ms. Stephanie Carrington, Investor Relations. You may begin.

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Stephanie Carrington, ICR, LLC - SVP [2]

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Thank you, operator. Good morning or afternoon, depending on where you are, and welcome to today's call to review Verona Pharma's results for the 3 and 6 months ended June 30, 2019.

On this call, I am joined by Jan-Anders Karlsson, Chief Executive Officer; and Piers Morgan, Chief Financial Officer. I trust you have seen the press release that was -- that included the results for the 3 and 6 months ended June 30, 2019, as well as the operational update and the press release with the data from the Phase II study with a dry powder inhaler formulation of ensifentrine.

If you have not, the press releases are also available on the Investor Relations portion of Verona Pharma's website. A slide presentation related to the DPI Phase II trial data has been posted to the Investor Relations section of the website. On today's call, Jan-Anders will first provide a clinical development and business update. Piers will then review the financial results for the 3 and 6 months ended June 30, 2019. We will then open the call to your questions and expect this call to last approximately 60 minutes. As a reminder, the conference call is being recorded and will be available on Verona Pharma's Investor Relations website shortly following the conclusion of today's call.

During the call today, the team will be making forward-looking statements, and we remind you of the company's safe harbor language. All statements that do not relate to matters of historical facts should be considered forward-looking statements, including, but not limited to, statements regarding ensifentrine as a potent bronchodilator and anti-inflammatory agent; the company's ability to provide a promising therapeutic effect through the delivery of ensifentrine and timing of the top line data for its ongoing clinical trials; timing of the end of Phase II meeting with the FDA and planned Phase III trials; changes in its clinical development plans based on additional data; and the potential for certain formulations of ensifentrine to address larger markets and expand the commercial opportunity of ensifentrine, partnering, further development and commercialization of these formulations and the company's plan to explore these formulations in cystic fibrosis and asthma.

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 the company's results and performance or achievements to be materially different from our expectations expressed or implied by the forward-looking statements. Any such forward-looking statements represent management's estimates as of the date of this conference call. While the company may elect to update such forward-looking statements at some point in the future, it disclaims any obligation to do so even if subsequent events cause its views to change.

With that, I'll turn the line over to Jan-Anders. Go ahead.

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [3]

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Thank you, Stephanie. It's a pleasure to have the opportunity to provide you with a clinical development and business update today. 2019 is a very busy year for Verona Pharma with a number of important value-creating clinical milestones. Today's update will naturally focus on the new and exciting data with the dry powder formulation of ensifentrine. As a reminder, ensifentrine, or as it used to be called RPL554, is a unique first-in-class dual PDE3 and PDE4 inhibitor, which we believe will boost lung function, reduce symptoms and improve quality of life in the millions of patients with moderate-to-severe COPD in the U.S. and globally.

Ensifentrine has the potential to be the first novel class of bronchodilator in over 40 years and the first therapy for the treatment of respiratory diseases that combines both bronchodilator and anti-inflammatory activities in one compound.

We believe that it's truly differentiated from all existing COPD medications and importantly has the potential to produce sustained bronchodilation and anti-inflammatory effects in the large number of patients who remain symptomatic and with a decline in lung function, despite being on maximum standard of care therapy.

First of all, I'm very happy to share with you some more details around the very positive Phase II data with a dry powder inhaler, or DPI, formulation of ensifentrine on COPD that we announced yesterday. In conjunction with my comments, I will be referencing the slides that were posted as a PDF to the Events page of the Investor Relations section of our website, as Stephanie was also mentioning.

The study was conducted by Joseph Boscia III, an MD and pulmonary physician and principal investigator at the VitaLink Research Union in South Carolina, U.S.

He was very encouraged by the data, and I quote his remarks on the press release, "This highlights the potential for ensifentrine's unique mechanism of action to provide lung function improvement and meet the urgent clinical need for new treatments for patients with this progressive and debilitating disease."

In this Phase II study with a DPI formulation around sifentrine -- ensifentrine in 35 moderate-to-severe COPD patients, all primary and secondary lung function endpoints were met and the drug was well tolerated at all doses. This was a randomized, double-blind, placebo-controlled crossover study, evaluating efficacy and tolerability of twice daily dosing for 7 days of this novel dry powder formulation and the study details are provided in Slide 3 of the attached PDF. As you may recall, we reported positive efficacy and safety data also from the single dose part of the first part of the study in early March of this year. The primary endpoint of this 7-day study now is on Slide 4. There was improvement in lung function as measured by peak forced expiratory volume in one second, or we call it FEV1 during the first 4 hours of the dosing and as a standard measure of exhaled breath volume, as you heard before and the endpoint was taken on day 7. This was highly statistically significant with a P-value actually of less than 0.0001, for all 4 doses, 150, 550, 1,500 and 3,000 microgram. And you can see a substantial bronchodilator response on the slide, of course, clinically meaningful as we have observed in previous studies with a nebulizer formulation.

Importantly, the data does demonstrate the dose-dependent improvement in lung function. The average FEV1 during the 12-hour dosing interval on the last day on day 7, together with a very good trough data also on day 7, you can see in Slides 5 and 6, demonstrates clearly the durability of the effect during the 12-hour dosing interval and the dry power ensifentrine is very suitable for twice daily dosing. Once again, ensifentrine was shown to be well tolerated at all doses with an adverse event profile similar to placebo and a safety profile consistent with other ensifentrine studies that tested a nebulizer formulation. And some of the statements you see on the last slide on Slide 7.

In addition to this trial with a DPI formulation, we are conducting a Phase II dose-ranging trial to evaluate the PK, or pharmacokinetic, profile, efficacy and safety of ensifentrine now delivered by a metered-dose inhaler, MDI inhaler, in patients with moderated-to-severe COPD. The MDI trial is a randomized double-blind, placebo-controlled and crossover design 2-part design, and we anticipate reporting data from the first part of this trial. So at the single part in the second half of 2019 and final data in the first quarter of next year. These data would have prototype dry powder formulation supporting ensifentrine's potential to be delivered via a handheld device. As most patients with COPD, and asthma for that matter, use convenient DPI and MDI devices for their medications, we believe the availability of ensifentrine in these inhaler formats could greatly expand the market potential for ensifentrine to the millions of COPD patients who prefer to use such devices. It is estimated there are over 5 million COPD patients in the U.S. alone that use DPI and/or MDI devices and the market was valued at approximately $6 billion in 2017. Similarly, in the 5 main countries in Europe, there were about $1.8 billion of sales of drugs in DPI and MDI devices for COPD. So a substantial market opportunity.

Our dry powder, proof-of-concept formulation can be adapted to different inhalers used in the market today. And to fully realize its value, we plan to partner a further development and commercialization of inhaler formulations of ensifentrine. We believe that these data have led to significantly enhanced ensifentrine's commercial potential. However, as you know, our lead formulation of ensifentrine is the nebulizer formulation, which is in Phase IIb, and we expect that the Phase III pivotal trials next year for the maintenance treatment of symptomatic COPD patients. COPD is a progressive inflammatory respiratory disease, it's no cure. Few therapeutic alternatives are available for these patients, the bronchodilator and anti-inflammatory properties of ensifentrine maybe be particularly helpful for these symptomatic patients that suffer from chronic cough, sputum production and breathlessness with a very high unmet medical need. Our markets and payer research show that nebulized delivery is the preferred route of an administration for more severe COPD patients, especially in the U.S. were approximately 2 million patients remain symptomatic and with a deteriorating lung function, despite taking currently available medicines, few treatment options remain for these patients and there are few, if any, new treatments in development for these severe COPD patients. In addition, the regulatory pathway for the development on nebulized drug products is well established, and again, particularly in U.S. under auspice of FDA.

In May 2019, we initiated a Phase IIb dose-ranging study, evaluating nebulized ensifentrine as an add-on treatment with a long-acting bronchodilator in patients with moderate-severe COPD. This 4-week randomized double-blind placebo-controlled dose-ranging trial is designed to evaluate the safety and the efficacy of nebulized ensifentrine as an add-on to inhaled tiotropium, or Spiriva, a LAMA very commonly used to treat COPD and to establish the dosing regimen for a potential Phase III program in COPD. The Phase IIb study will enroll approximately 400 patients with COPD at about 50 sites in the U.S. The primary endpoint of this study is improvement in lung function as measured by Peak FEV1, key additional endpoints include measurements of respiratory symptoms and quality of life by different patient-reported outcome tools.

We continue to expect to complete patient dosing in this 4-week Phase IIb study around year-end to progress into pivotal Phase III trials next year, following an expected end of Phase II meeting with the U.S. FDA. Based on the totality of the information obtained with ensifentrine, we plan to conduct 2 regulatory pivotal Phase III trials, each of 6 months' duration, and one of them with a 12-month safety extension; expect to conduct the studies in COPD patients with no background treatment or in patients using only one bronchodilator; and FEV1 to be an important endpoint for a broad label. Separately, we plan to conduct additional market positioning studies for decisions and payers in more severe patients on dual and triple COPD therapy. And we expect to start, as I mentioned, the 2 Phase III regulatory trials in 2020. We anticipate key data readouts over the second half of this year before we go to Phase III that will potentially have a very significant impact on the development program and commercial value of ensifentrine. Based on today's update, the DPI formulation of ensifentrine we did talk about has shown a very good bronchodilator effect, sustained and to be well tolerated. And we believe this data has significantly enhanced ensifentrine's commercial potential. We do expect to report data from the ongoing 400-patient dose-ranging Phase IIb study around year-end, the data from this study will provide guidance for our end of Phase II meeting with FDA, followed by a start to Phase III next year.

And the first Phase II trial with an MDI formulation that commenced in June of this year, we anticipate to report single dose data from the first partner trial in the second half of this year and a final multiple dose data, 7-day dosing period, expect in the first quarter of 2020. We believe that all these events are important value-creating clinical milestones, providing additional treatment alternatives for patients with COPD.

I will now turn the call over to our CFO, Piers Morgan, to provide a financial overview. Piers, please.

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Piers John Morgan, Verona Pharma plc - CFO [4]

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Thank you, Jan-Anders. Good day, everyone, and thank you for joining the call today. I will provide a brief recap of our financial position, our results for the 3 months and 6 months ended June 30, 2019, as well as our financial outlook. I want to refer you to the press release that we issued this morning, which we are filing with the 6K. The release includes income, balance sheet and cash flow statements for the 3 months and 6 months ended June 30, 2019. Given that we are headquartered in the United Kingdom, our financial results are in pounds sterling. For your convenience, we have included a translation to U.S. dollars using the period-end exchange rate on June 30, 2019, at a rate of $1.2704 per British pound.

Turning to the income statement for the 6 months ended June 30, 2019, the loss after tax for the 6 months ended June 30, 2019, was GBP 14.4 million or $18.3 million compared to GBP 14.6 million for the prior year period. This represents a loss of 13.7p per diluted share or a loss of $1.39 per ADS for the 6 months ended June 30, 2019, compared to a loss of 13.9p per diluted share for the prior year. The total comprehensive income and loss for the 6 months ended June 30, 2019, was calculated as follows: Research and development costs were GBP 15.8 million or $20.1 million for the 6 months ended June 30, 2019, compared to GBP 8.3 million for the 6 months ended June 30, 2018, an increase of GBP 7.5 million. Increase was predominantly attributable to a GBP 6.9 million increase in clinical trial expenses relating to full clinical trials either ongoing or in preparation for ensifentrine in the 6 months ended June 30, 2019, compared to 2 trials in the 6 months ended June 30, 2018. Salary costs increased by GBP 0.5 million, reflecting the expansion of the clinical team. General and administrative costs were GBP 4 million or $5 million for the 6 months ended June 30, 2019, compared to GBP 3.2 million for the 6 months ended June 30, 2018, which is an increase of GBP 0.8 billion. This increase was primarily attributable to GBP 0.4 million increase in professional and market research fees and a GBP 0.2 million increase in other overhead expenses. Consequently, our operating loss of GBP 19.8 million or $25.2 million compared to a loss of GBP 11.5 million for the prior year period.

Finance income was GBP 2.2 million or $2.8 million for the 6 months ended June 30, 2019, compared to GBP 1.1 million for the 6 months ended June 30, 2018. The increase in finance income was primarily due to a decrease in the fair value of the warrant liability of GBP 1.7 million compared to an increase in the liability in the 6 months ended June 30, 2018, which is recorded in the finance expense in that period. In the prior period, there was also a foreign exchange gain on cash and short-term investments of GBP 0.7 million compared to a loss for the 6 months ended June 30, 2019, which is also recorded in finance expense. The finance expense for the period for 6 months ended June 30, 2019, was GBP 0.2 million or $0.2 million compared to a finance expense of GBP 6 million for the 6 months ended June 30, 2018. The decrease in finance expense was because of the decrease in the fair value of the warrant liability is recorded in finance income and that compares to an increase of GBP 6 million in the value of the liability in the prior year period, 6 months ended June 30, 2018. Foreign exchange losses on cash and short-term investments during the 6 months ended June 30, 2019, resulted in a loss of GBP 0.1 million. Taxation for the 6 months ended June 30, 2019, amounted to a credit of GBP 3.4 million or $4.3 million compared to a credit of GBP 1.8 for the 6 months ended June 30, 2018, which is an increase of GBP 1.6 million in the credit.

Our credits are obtained on our qualifying research and development expenditure. The increase in the credit amount in 2019 was attributable to our increased expenditure on research and development compared to the prior period and a change in the mix of the recoverable spend.

Moving now to the 3 months' period ended June 30, 2019, the loss after tax was GBP 9.0 million or $11.4 million compared to a profit after tax of GBP 0.6 million for the prior year period. This represents a loss of 8.5p per diluted share or a loss of $0.87 per ADS for the 3 months ended June 30, 2019. The total comprehensive income and loss in 3 months ended June 30, 2019, is calculated as follows. Research and development costs for the 3 months ended June 30, 2019, were GBP 9.9 million or $12.6 million, which is an increase of GBP 6.0 million compared to $3.9 million for the prior year period. The movement was predominantly attributable to a GBP 5.6 million increase in clinical trial expenses relating to clinical trials of ensifentrine either ongoing or in preparation in the current year period.

In addition, salary costs increased by GBP 0.2 million, reflecting the expansion of our clinical team. General and administrative costs for the 3 months ended June 30, 2019, were GBP 2.1 million or $2.7 million, which is an increase of GBP 0.3 million compared to GBP 1.8 million for the prior year period. The increase was primarily attributable to a GBP 0.2 million increase in other overhead.

Finance income for the 3 months ended June 30, 2019, was GBP 1.0 million or $1.3 million compared to GBP 5.3 million for the same period last year. Finance income in the 3 months ended June 30, 2019, comprised GBP 0.1 million in relation to the decrease in the fair value of the warrant liability compared to a GBP 3 million (sic) [GBP 3.2 million] decrease in the prior period. Together with GBP 0.7 million on foreign exchange gain on cash and short-term investments in the 3 months ended June 30, 2019, which compares to a GBP 2.1 million gain in the prior period. Finance expense for the 3 months ended June 30, 2019, were GBP 36,000 or $46,000 compared to GBP 35,000 for the same period last year.

Taxation for the 3 months ended June 30, 2019, amounted to a credit of GBP 2.1 million or $2.7 million compared to the credit amount of GBP 1.0 million in the prior year period. The credits are related to our qualifying research and development expenditures and the increase in the credit amount was primarily attributable to the increased level of research and development in the second quarter as compared to the prior year, which was just described.

We ended the second quarter 2019 with GBP 46.5 million or $59.1 million in cash, cash equivalents and short-term investments, which comprise cash deposits with maturity of more than 3 months. Post June 30, 2019, the company received GBP 4.4 million cash in respect to the 2018 tax credit on qualifying research and development expenditure. Net cash used in operating activities increased to GBP 18.1 million for the 6 months ended June 30, 2019 from GBP 12.3 million for the 6 months ended June 30, 2018, and this is due to an increase in operating costs, driven as I mentioned, by higher research and development costs as well as differences in the timing of supplier payments. We expect that our cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through the end of our Phase IIb development and nebulized inventory for the treatment of COPD, and our proof-of-concept studies with both DPI and MDI formulations of ensifentrine for the treatment of COPD. And with that, we would like to turn the call back to the operator, and open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Lucy Codrington with Jefferies.

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Lucy-Emma Mary Sarah Codrington-Bartlett, Jefferies LLC, Research Division - Equity Analyst [2]

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Just a couple from me. A couple relating to the DPI data. I was just wondering were these -- what patients -- were the patients on any form of background therapy or were they taken off the -- any therapy prior to starting the trial?

And then secondly, what device did you use in the trial? And do you have permission to continue using that device in any further studies?

And then my last question relates to the OpEx. There's quite a jump in R&D spend in the second quarter. And I was just wondering if we should be using that quarter as a run rate for the rest of the year or whether we should be thinking more about the first quarter run rate.

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [3]

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Thank you, Lucy. Let me start with the 2 questions before I let Piers response as well. So background treatment. So these patients are normally on treatment, different treatments. They were taken off the treatment before start of this study. So we actually did study the DPI formulation on patients, COPD patients moderate-to-severe with no background treatment, and this is similar, how we did, for example, the 4-week study, remember, from last year with a nebulized formulation. And we were very pleased to see that both from a potency efficacy perspective and also the magnitude of the response and the safety as well is very similar to what we have seen also with a nebulizer combination before. So that was very positive. We also saw a dose-dependent effect, which I know people have asked about, we of course, know it's there. And this was again confirmed in this as we saw with the single-dose data in March this year.

You asked about the device. So yes, this is a commercially available device and a simple capture device. And of course, we can continue to use that actually up to commercialization. And that's, of course, where we said we would like to use a partner to work with and perhaps also a partner that has a more comprehensive and advanced, perhaps, device than what we have used in this particular study. But let me just point out, I think the proof-of-concept formulation that we have can be adapted to any type, that we believe, dry powder device that's available out there. So it should be possible to also fit it into potential partners' devices essentially, whichever type they have. So we think that's also a very important aspect of the data that we showed today.

Piers, did you want to talk about OpEx and run rate?

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Piers John Morgan, Verona Pharma plc - CFO [4]

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Sure. Yes, thanks, Lucy. So you're absolutely right, expenditure did step-up in the second quarter. And in particular, as you know, we have been preparing in the second quarter and then initiated the 400-patient study that Jan-Anders referred to earlier. So yes, expenditure for the remainder of the year is more likely to be closer to that seen in the second quarter than in the first quarter. That said, in the first quarter, we did still have some residual costs from the 3-day add-on study to do LAMA/LABA. And obviously, we had the DPI study was ongoing, which we've now completed. But overall, I think the second quarter is a better guide than the first quarter to our OpEx.

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Lucy-Emma Mary Sarah Codrington-Bartlett, Jefferies LLC, Research Division - Equity Analyst [5]

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Great. That's really helpful. And just one follow-up, if I may. Will we be possible -- would it be possible eventually to see the kind of improvements in FEV1, how they relate to their baseline level of lung function before they'll be taken off the background therapy, is this something you'll be looking at?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [6]

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Yes. So we -- so normally, as we express baseline is from the start of the study. We don't usually record before they are -- when they're on their own standard medication and how that changes during or during the run-in. So it usually, the baseline just before they start treatment with ensifentrine. So I'm not sure we have all that data that you were suggesting. And of course, if you're hinting that it may be difficult to make any comparison in these patients to their standard medications, that we cannot do, but I think we have seen from publications, we have seen from other chemical trials, and we believe that the size or the magnitude of effect is pretty impressive and certainly clinically meaningful. And of course, highly statistically significant as well. So we are very happy with this data and that we can replicate what we have seen actually very positive on the nebulized formulation as well.

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Operator [7]

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Your next question comes from the line Liana Moussatos with Wedbush Securities.

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Vasiliana Vireen Moussatos, Wedbush Securities Inc., Research Division - MD of Equity Research [8]

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They are all around potential partnerships for the DPI and MDI. Would you consider partnering the DPIs formulation? I understand different companies focus on MDI versus DPI. And so now that you have the DPI data, would you consider partnership discussions before the MDI data comes out? Or are you going to wait?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [9]

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Yes. First question, Liana. I think we will certainly not wait talking to people, although we cannot give a time line, of course, but we are interested, of course, in talking to people about what we think are very exciting data with the dry powder formulation. But you are correct. Some companies prefer a dry powder for their franchise, if you wish, and others have MDI formulations rather for their COPD version of drugs. So there is some variability out there. And we wanted to make sure that before we partner the one or the other thing that we fully understand both the DPI and the MDI, we think, of course, both will be highly effective and very interesting propositions. So in the end, I do think that there will have to be information on both the DPI and MDI, before we will do any agreements with anybody. So in that respect, we would need to wait for the MDI data. And I think we would not expect to partner with 2 different companies. I think one partner would then have the handheld inhaler device formulation and then focus more on the 1 or the other or maybe both but that, of course, depends on the partner and their interests.

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Operator [10]

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Your next question comes from the line of Tom Shrader with BTIG.

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Julian Reed Harrison, BTIG, LLC, Research Division - Analyst [11]

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This is Julian on for Tom. Congrats on all the recent progress. First, just curious how we should be thinking about the upcoming MDI and 4-week add-on readouts in light of yesterday's data, I guess, more specifically, is it reasonable to expect read through to 1 or both considering the dose-dependent activity we saw in yesterday's data?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [12]

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Yes, thanks for the question. The MDI data, I think we believe will show -- we believe it will show a very similar pattern, if you wish, as to what you're are seeing with the dry powder formulation, that's the working hypothesis. Clearly, we believe it will be dose-dependent, that it will be also of a sufficient magnitude that we will be seeing excellent data and that we also have a duration of activity for suitable for twice daily dosing as we now have seen. And of course, there is no reason as we see it that the good tolerability profile would be any different in an MDI formulation. But of course, we do the study to find out.

You also asked about the neb formulation, nebulized formulation, and the data reading out from our much larger Phase IIb study towards year-end. And correct, we would expect that even if it's an add-on now to tiotropium, or Spiriva, in that particular study is a little different. We still would expect to see a dose-dependent effect. But as you see, the curve is quite flat. So while there's a dose dependent effect, I don't think that we will see a no-effect dose. So we will see a smaller effect with the lowest dose and in the nebulized formulation that's 0.3 milligram, or 0.375 milligram to be precise. And we expect that to be having a smaller effect than the larger doses. But of course, we do the study to figure that out.

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Operator [13]

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Your next question comes from the line of Joon Lee with SunTrust Robinson Humphrey.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [14]

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Congratulations on the positive PPI data, this is Fang-Ke on for Joon. And just looking at the peak FEV1 versus average FEV1 data, there seems quite significant differences in terms of the magnitude of effect. And maybe just to further on that dataset. So you basically have a 2 dosing per day? And do you see any differences in terms of the peak FEV1 during the morning and evening?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [15]

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So good question. The -- all the data that we have reported now is of course for the morning dose and morning dose also the trough data is usually the level of activity before you dose in the morning, and then what you see on the slide, 4, 5, 6 -- or 4 and 5, actually, is really the effect of the morning dose. We haven't really published the -- here, the afternoon dose, and we are still getting more data from this study, but from previous studies, and for example, a study we reported earlier this year, the magnitude of effect is probably quite similar in the evening and in the morning. It may vary a little bit because you also have your inherent diurnal variation in patients. But in essence, we would expect it to be quite similar both in the morning and in the afternoon.

And what we really like to highlight is, of course, the dose dependency and the trough effect, which was about 100 milligrams or so for the higher 3 doses, which we think really confirms that there is sufficient activity to cover during the day, obviously, and even more so during the evening, which is most important. That's when the patients are worse off. So we believe that it will be quite similar, and we have seen that with the nebulized formulation, we think, is a compound property. It's a new mechanism of action as PDE3 PDE4 inhibitor, bronchodilator, anti-inflammatory and we know both properties exist at the same time, but here, of course, in a short 1-week study. We only look for the bronchodilator response that we expect, of course, also that there's the beginning of an anti-inflammatory effect in these studies that we are not picking up in the measurements of lung function here.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [16]

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Really helpful. And then secondly, so on your Slide 6 for the morning FEV level and then including the placebo levels in the slide. Can you just give us the number for the placebo? It's obviously a significant difference of the 500 and 1,500 and 3,000.

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [17]

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So what's happened normally is that placebo is sinking a little bit below baseline. And I do remember it does so here as well, and that the active doses stays above baseline. So -- and then the difference between the 2. So what the FDA is looking for is, of course, the difference versus placebo, not the difference versus baseline, normally, in these types of studies. And that's why we reported the data in this way. And the same with the peak effect and the same with the area under the curve for 12 hours. So that's why we reported a trough data in this particular fashion. And of course, we will -- so we will publish the data in strike form, of course. And as we will in the other studies as well. And manuscript eventually as well.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [18]

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Got it. So basically this is the differences between the dose versus the placebo?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [19]

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Correct.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [20]

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Got it. And then lastly, if I may. And so given the ongoing divestment of the respiratory asset by GSK. So what do you think is the outlook for the COPD space going forward? And what do you think about the appetite for partnership, while GSK acted to create an opportunity for differentiated assets? But on the other hand, if, you know, pending headwinds in pricing reimbursement. Maybe can -- maybe if you can give us your thoughts there and your strategy going into Phase III.

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [21]

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Yes. So I think this is, of course, a multi-faceted question. Let me at first celebrate to say our strategy is to have a broad label for nebulized ensifentrine so it can be used by all COPD patients. And we aim to do it as other compounds before us have obtained labels of maintenance treatment for COPD, and we are replicating what others have used in a relatively benign testing with COPD patients with little background treatment or no background treatment, and that has been sufficient for that sort of label. And of course, that's our ambition right now.

We do believe we have a particular usefulness of ensifentrine as a new mechanism different from what's out there today, as an add-on treatment. Of course, it will work, as you have seen from all this slide as a first-line treatment. It will work very well for patients. But the real need in the market and the more differentiated profile is, of course, as an add-on to symptomatic patients that are already on max treatment. And it is with regret, I think we see that GSK makes these decisions and others perhaps similarly because the magnitude of the problem, the unmet medical need for COPD patients is not going away. It is there. And it's, if anything, increasing because patients have access to 3 groups or maybe 4 types of medications.

So we believe that we have shown, and we will continue to demonstrate that our compound ensifentrine, actually adds meaningful activity, both in terms of anti-inflammatory, bronchodilator and symptom improvement effects for patients already on max treatment. And that group of patients, this is millions of patients in U.S. already. And there's very little for them, that is not that people haven't understood their existence. So both GSK and AstraZeneca were running large trials and Phase III programs for the anti-IL-5 antibodies that are, of course, approved for asthma but they both failed in exactly the population that really needs new drugs, unfortunately. So that means there's very little options for these patients.

There are a few new things in development, and of course, we think ensifentrine is most attractive. And we think there is a very attractive commercial potential for ensifentrine as a nebulized treatment for severe patients that really like it. That's mostly a U.S. market, but now also for some patients that maybe like to use an MDI or a DPI. And that's why we think this really expands the commercial opportunities of ensifentrine with these new dosage forms. But the patients are not going away. And the medical need is unfortunately not taken care of. And if others are leaving this space that's their decision, we believe that we have this opportunity to really bring a compound forward in a meaningful way to these patients.

And we think that there's a fantastic market opportunity, not only in U.S. but globally. And that's where we hope to find the partner that will help us to bring at least a dry powder MDI formulation forward. The nebulized formulation, we have a plan to take it through to NDA approval and for commercialization, but that's, of course, a few years away. Does that in a long-winded way explain?

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Operator [22]

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Your next question comes from the line of Adam Walsh with Stifel.

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Neil Eric Carnahan, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [23]

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Neil Carnahan on for Adam. 2 quick questions on the DPI and MDI formulations. Can you talk to us about your plan going forward as far as defining how it will fit into the COPD treatment paradigm? Do you plan to do further Phase II studies on top of other treatments?

And then my second question is on the pivotal study for the nebulized formulation. Are you going to run two 6-month Phase III trials, one will have a 12-month extension, if I understand them correctly? Do you plan to file on the data from the two 6-month studies? Or do you think you'll need data from the 12-month extension safety study to file?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [24]

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So let me take that question first. It's -- I think we absolutely need to have both the 6 months and one study with 12 months extension before we can file. That is the standard requirement in COPD from FDA. And I think that will apply to us also. So one study will obviously finish before the second study.

And then your first question was the DPI or MDI formulations. What do we plan to do next? So if I understood it correctly. And otherwise, please shout. So today we are waiting, we are very pleased with the DPI, obviously data. We are waiting for very similar data from the MDI formulation, and we will then discuss if there is an opportunity to bring 1 or the other this formulation. If one of them looks different from a duration or magnitude of effect, so that initial effect will be quite similar and very good to take one of them forward in additional positioning studies. I think that's what you were asking for how to use it. So we could see that there is use for this DPI or handheld devices MDI, DPI, also in patients that are a little broader classified as moderate-to-severe, not only the very severe end or severe end. And that's why we need a partner for a bigger program to satisfy that.

There could be, of course, opportunities to do some positioning studies, and we will carefully look into that to maybe make it more attractive or clearer identify exactly what the favorable positioning would be in combination with other drugs or as an add-on to some particular combination. That we can do. I think we need to wait for the final formulation. So there's more work before you have a device and the drug together ready for Phase III and commercialization. That is a relatively large piece of work that we would rather do together with a partner. As we would then have to use also a partner's device or dry powder or perhaps the partner is also particularly interested in MDI device. So therefore it makes sense for us to evaluate the two formulations, when we have all the data in hand, understand if there is 1 or 2 studies that would enhance the value or make it clear where to position it and then, of course, we will prefer to use the final drug-device combination when we have the partner actually, instead of guessing who could be a partner. That usually doesn't make sense. Is that clear, Neil?

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Operator [25]

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(Operator Instructions) Your next question comes from the line of Patrick Trucchio with Berenberg Capital.

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Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26]

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Regarding that positioning study to inform clinicians and payers in the nebulized formulation. Can you give us a sense of what the design of the study could look like? And specifically, will the background therapy be similar to the Phase III -- the Phase II 3-day study that readout earlier this year? Or would there be different background therapy in terms of the bronchodilator, would this be a dose-ranging study, et cetera?

And then is the intention to conduct this study with further learnings from the pivotal program or with the study initiated during the pivotal program?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [27]

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Yes, good question. I think we have learned quite a bit. We're very pleased with the data we saw earlier this year from the add-on study to Spiriva. The LAMA/LABA still at background. And we understood clearly where the compound works well and what should be changed in the next study. So clearly, we will look into a smaller dose range. I think now we are talking about an add-on study where we understand which dose or doses we start in Phase III. So it will not be a dose-ranging study, it will be a similar dose to what we are testing on the pivotal trials. We hope it's 1 dose but it could be 2 doses, of course.

We also have learned about the importance of the stability of the background treatment. So we will take patients that are on stable treatment that they use normally for their disease. And then in such it's just an add-on, so it's not the experimental 3-day crossover study. And we will also look probably at patients with different types of background medication. So not only Spiriva but the range of treatments that are applicable to the market as such, because actually, that's what we are trying to mimic, and we will, of course, look at the endpoint, where we think it makes no sense and where our compounds can be most valuable to patients. And clearly, one of those situations is during the night, where we know that patients suffer, of course, they have symptoms through the day, but also during the night, there is a slowdown in lung function and their abilities through diurnal changes. And then, of course, on top of that, you have the disease. So that is this time when the patients are very vulnerable. So that, we will be interested in. And then, of course, making sure that we fully understand how to best design the study.

And then, of course, having an outcome that we expect will be positive this time.

You asked, should we do this stated before, during or after the pivotal trials? I think this is a study that we intend to do for the market. This is a study that we would want to do for payers, for KOLs, for physicians, for patients to inform them of the value of ensifentrine as an add-on treatment for those patients that really have a declining lung function and symptomatic. And therefore, it is not part necessarily of the pivotal program for FDA. And if that's the case, we do not need to do the study before we start the pivotal trials. So we may not even have to have the data towards the end of the NDA filing, but maybe beyond, but that we need to understand better as we design the pivotal trials, our resources and put it all together in a plan that makes sense for us. And of course, more importantly for investors and for the patients. But we are very clear. This works as an add-on treatment, and it can be a very attractive commercial positioning for all those patients. And that's, of course, where we think that patients that are on the available treatment, still symptomatic, they need something more. Ensifentrine, we believe could be the answer to these patients.

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Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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Can you tell us, if it does or does not make sense to conduct this positioning study exclusively in nonreversible patients, given the learnings from the Phase II 3-day study from early this year? That's where the data pointed to an additional response at the 1.5 milligram dose in those patients?

And then, separately, can you tell us what proportion of the moderate-to-severe COPD patient populations divided between those who are reversible to albuterol and ipratropium versus those who are nonreversible to those therapies?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [29]

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Yes. Thank you, very good point. I think the non-rever -- there are more patients that are less reversible. I mean they're not none, but they're less reversible, maybe 70% or so, but we have to check that number. So the more that respond less well or vigorously to existing medications. And interestingly, you raised the point because they are, of course, the patients that would need more treatment. They are more symptomatic, they certainly have less response, less magnitude of response to bronchodilators. And of course, if we in those patients can add both the bronchodilator and as we've shown, as you remember, these patients are also the ones that seem to respond very well to symptom improvement. So that is an interesting group of patients, in the studies only those patients or if it's stratified, perhaps to cover both reversible and non-reversible but certainly you raised a very good point, and we are very interested in that group of patients that we believe are, of course, those that need something new and different, a new mechanism of action, not more LABA/LAMAs, but something completely different. And that's where we are positing ensifentrine fits perfectly in that spot.

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Operator [30]

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Our next question comes from the line of Jens Lindqvist with N1 Singer (sic) [Nplus1 Singer].

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Jens Harry Lindqvist, Nplus1 Singer Capital Markets Limited, Research Division - Senior Life Sciences Analyst [31]

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A couple of things already answered. I was wondering if you could just remind me please on where the U.S. and the patent protection that you have in place for the special formulation for ensifentrine for a nebulized version? But could you just remind me, please, what IP protection you have in place for the DPI and MDI assets?

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [32]

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Yes, Jens. So correct. We believe that there are a couple of important families of patents that are being filed globally. And for the DPI and for the MDI and for the nebulizer, they're all particle suspensions or, of course, the dry power is particle, straight off. We think it's particularly important here that we had a patent that covers this particular crystalline form that is used. There is one basic form of ensifentrine, and we have a patent on that going out to 2031. So that should cover all of the existing formulations that we are working with. And of course, we have already tried in the beginning of the project, many years ago, a solution formulation. So it's not well soluble. And therefore, we believe we have to go to the suspension formulation of particles.

So there's a patent to 2031, the formulation patent covers partly, of course, the nebulizer but perhaps also other aspects of our formulations, just beyond 2035, and then we have other patents that we have filed or are filing on both the MDI and the dry powder and manufacturing. So there is a family of patents or to say there are patent families, sorry, that goes beyond 2035 on ensifentrine and its use in different settings. And that is a global portfolio that we think is protecting the compound very well. And it's granted in many of the major countries already.

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Operator [33]

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I'm showing no further question at this time. I would now like to turn the conference back to Jan-Anders Karlsson.

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Jan-Anders Karlsson, Verona Pharma plc - CEO & Executive Director [34]

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Thank you. So concluding remarks. So 2019, it's a very important year for Verona Pharma, obviously, there'll be important value-creating clinical milestones before -- especially with a nebulizer formulation with -- before the end of Phase II meeting with FDA and start of Phase III pivotal or regulatory trials for COPD that we talked about already for next year. We believe that the broad set of data obtained with the nebulized ensifentrine formulation, including the ongoing Phase IIb study, and our plan for regulatory Phase III trials will improve our chances of an attractive label for ensifentrine, and that is very important.

Additional data with the MDI formulation, as we talked about, has the potential to provide further alternatives for COPD patients that are symptomatic and are looking for normal treatments with a different mode of action from what their currently used medications have. And most importantly, the new data with the DPI formulation that we just talked about, demonstrated a very good bronchodilator effect, a dose-dependent effect and a very nice trough effect, demonstrating durability over 12-hour dosing period and of course, it was well tolerated. And we believe these data that significantly enhances ensifentrine's commercial potential. So we look forward to catching up with some of you next week in New York City. We will be at the BTIG Biotech Conference on Monday, August 12 and then we're presenting at the Wedbush PacGrow Healthcare Conference on Tuesday, August 13. So thank you, operator.

This concludes today's call.

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Operator [35]

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Ladies and gentlemen, this concludes today's conference. Thank you for participation, and have a wonderful day. You may all disconnect.