UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31, 2021~~June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number: 001-38067

Verona Pharma plc

(Exact name of Registrant as specified in its Charter)


United Kingdom									98-1489389
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

3 More London Riverside London SE1 2RE United Kingdom									Not Applicable
(Address of principal executive offices)									(Zip Code)

Registrant’s telephone number, including area code: +44 203 283 4200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, nominal value £0.05 per share*	VRNA	The Nasdaq Stock Market LLC (Nasdaq Global Market)

* The ordinary shares are represented by American Depositary Shares (each representing 8 ordinary shares), which are exempt from the operation of Section 12(a) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12a-8 thereunder.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April~~July 27, ~~2021,~~2023, the registrant had ~~463,745,750~~635,875,302 ordinary shares, nominal value £0.05 per share, outstanding, which if all held in ADS form, would be represented by ~~57,968,219~~79,484,413 American Depositary Shares, each representing eight (8) ordinary shares.


		Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	2
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2023
Item 4	Controls and Procedures	2023
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	2124
Item 1A.	Risk Factors	2124
Item 2	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	2125
Item 3	Defaults Upon Senior Securities	2125
Item 4	Mine Safety Disclosure	2125
Item 5	Other Information	2125
Item 6	Exhibits	2126
Signatures		2327

PART I - FINANCIAL INFORMATION

Item 1. Financial statements

Verona Pharma plc

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share ~~amounts and par value of shares)~~amounts)


		March 31,		December 31,			June 30,		December 31,
		2021		2020			2023		2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	169,598	$	187,986	Cash and cash equivalents	$	270,727	$	227,827

Prepaid expenses	Prepaid expenses	7,247		4,538		Prepaid expenses	894		2,499
Tax and tax incentive receivables		10,272		8,260
Tax incentive receivable						Tax incentive receivable	10,150		9,282

Other current assets	Other current assets	1,484		1,720		Other current assets	6,060		3,388
Total current assets	Total current assets	188,601		202,504		Total current assets	287,831		242,996

Non-current assets:	Non-current assets:					Non-current assets:
Furniture and equipment, net	Furniture and equipment, net	98		107		Furniture and equipment, net	11		73
Goodwill	Goodwill	545		545		Goodwill	545		545
Equity interest						Equity interest	15,000		15,000
Right-of-use assets	Right-of-use assets	906		1,050		Right-of-use assets	542		854
Total non-current assets	Total non-current assets	1,549		1,702		Total non-current assets	16,098		16,472
Total assets	Total assets	$	190,150	$	204,206	Total assets	$	303,929	$	259,468

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	541	$	178	Accounts payable	$	2,493	$	2,910
Accrued expenses	Accrued expenses	8,514		10,863		Accrued expenses	7,467		13,752

Operating lease liability		757		798
Warrants		2,753		2,246
Current operating lease liabilities						Current operating lease liabilities	545		675
Taxes payable						Taxes payable	—		283
Other current liabilities	Other current liabilities	133		118		Other current liabilities	444		1,409
Total current liabilities	Total current liabilities	12,698		14,203		Total current liabilities	10,949		19,029

Non-current liabilities:	Non-current liabilities:					Non-current liabilities:

Term loan	Term loan	4,685		4,635		Term loan	19,857		9,768
Operating lease liability		353		514
Non-current operating lease liabilities						Non-current operating lease liabilities	30		205
Total non-current liabilities	Total non-current liabilities	5,038		5,149		Total non-current liabilities	19,887		9,973
Total liabilities	Total liabilities	17,736		19,352		Total liabilities	30,836		29,002

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies

Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Ordinary £0.05 par value shares; 488,304,446 and 488,304,446 issued, and 463,745,750 and 463,304,446 outstanding, at March 31, 2021 and December 31, 2020, respectively		31,794		31,794
Ordinary £0.05 par value shares; 651,659,630 and 631,338,246 issued, and 635,787,302 and 606,301,054 outstanding, at June 30, 2023 and December 31, 2022, respectively						Ordinary £0.05 par value shares; 651,659,630 and 631,338,246 issued, and 635,787,302 and 606,301,054 outstanding, at June 30, 2023 and December 31, 2022, respectively	41,753		40,526
Additional paid-in capital	Additional paid-in capital	375,261		366,411		Additional paid-in capital	596,059		529,187
Ordinary shares held in treasury	Ordinary shares held in treasury	(1,670)		(1,700)		Ordinary shares held in treasury	(975)		(1,549)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,601)		(4,601)		Accumulated other comprehensive loss	(4,601)		(4,601)
Accumulated deficit	Accumulated deficit	(228,370)		(207,050)		Accumulated deficit	(359,143)		(333,097)
Total shareholders' equity	Total shareholders' equity	172,414		184,854		Total shareholders' equity	273,093		230,466
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	190,150	$	204,206	Total liabilities and shareholders' equity	$	303,929	$	259,468

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share amounts)


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2021		2020				2023		2022		2023		2022
Operating expenses
Research and development		$	13,574	$	7,622
General and administrative		9,282		6,862

Operating expenses:							Operating expenses:
Research and development (Note 8)							Research and development (Note 8)	$	(2,474)	$	14,982	$	10,136	$	32,607
Selling, general and administrative							Selling, general and administrative	12,439		5,526		22,028		12,966
Total operating expenses	Total operating expenses	22,856		14,484			Total operating expenses	9,965		20,508		32,164		45,573
Operating loss	Operating loss	(22,856)		(14,484)			Operating loss	(9,965)		(20,508)		(32,164)		(45,573)
Other income / (expense)
Benefit from research and development tax credit		2,070		1,685
Other income/(expense):							Other income/(expense):
Research and development tax credit							Research and development tax credit	(1,934)		5,409		379		6,711
Interest income	Interest income	4		69			Interest income	3,402		165		6,079		180
Interest expense	Interest expense	(84)		0			Interest expense	(740)		(91)		(1,033)		(175)
Fair value movement on warrants		(507)		142
Foreign exchange gain		163		293
Foreign exchange gain/(loss)							Foreign exchange gain/(loss)	740		(2,662)		1,672		(3,585)
Total other income, net	Total other income, net	1,646		2,189			Total other income, net	1,468		2,821		7,097		3,131
Loss before income taxes	Loss before income taxes	(21,210)		(12,295)			Loss before income taxes	(8,497)		(17,687)		(25,067)		(42,442)
Income tax expense	Income tax expense	(80)		(51)			Income tax expense	(310)		(79)		(483)		(161)
Net loss	Net loss	$	(21,290)	$	(12,346)		Net loss	$	(8,807)	$	(17,766)	$	(25,550)	$	(42,603)
Other comprehensive (loss) / income:
Foreign currency translation adjustments		0		(2,157)
Total comprehensive loss attributable to shareholders of the Company		$	(21,290)	$	(14,503)

Loss per ordinary share - basic and diluted	Loss per ordinary share - basic and diluted	$	(0.05)	$	(0.12)		Loss per ordinary share - basic and diluted	$	(0.01)	$	(0.04)	$	(0.04)	$	(0.09)

Weighted-average shares outstanding - basic and diluted	Weighted-average shares outstanding - basic and diluted	469,465,085		105,453,364			Weighted-average shares outstanding - basic and diluted	634,469,423		484,777,837		627,996,124		483,226,039

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands except share data)

Ordinary shares Additional paid-in capital Ordinary shares held in treasury Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity
Number Amount
Balance at January 1, 2021 488,304,446 $ 31,794 $ 366,411 $ (1,700) $ (4,601) $ (207,050) $ 184,854
Net loss — — — — (21,290) (21,290)
Restricted share units vested — — — 30 — (30) 0
Share-based compensation — — 8,850 — — — 8,850
Balance at March 31, 2021 488,304,446 $ 31,794 $ 375,261 $ (1,670) $ (4,601) $ (228,370) $ 172,414

Ordinary shares Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity
Number Amount
Balance at January 1, 2020 105,326,638 $ 7,265 $ 179,535 $ (2,280) $ (141,779) $ 42,741
Net loss — — — — (12,346) (12,346)
Retranslation of foreign operations — — — (2,157) — (2,157)
Share options exercised during the period 887,080 52 — — — 52
Share-based compensation — — 1,867 — — 1,867
Balance at March 31, 2020 106,213,718 $ 7,317 $ 181,402 $ (4,437) $ (154,125) $ 30,157


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at December 31, 2022	631,338,246	$	40,526	$	529,187	$	(1,549)	$	(4,601)	$	(333,097)	$	230,466
Net loss	—	—		—		—		—		(16,743)		(16,743)
Issuance of ordinary shares	20,321,384	1,227		55,682		—		—		—		56,909
Restricted share units vested	—	—		—		270		—		(270)		—

Share options exercised	—	—		1,756		71		—		—		1,827


Share-based compensation	—	—		4,290		—		—		—		4,290
Balance at March 31, 2023	651,659,630	$	41,753	$	590,915	$	(1,208)	$	(4,601)	$	(350,110)	$	276,749
Net loss	—	—		—		—		—		(8,807)		(8,807)



Restricted share units vested	—	—		—		226		—		(226)		—

Share options exercised	—	—		70		7		—		—		77


Share-based compensation	—	—		5,074		—		—		—		5,074
Balance at June 30, 2023	651,659,630	$	41,753	$	596,059	$	(975)	$	(4,601)	$	(359,143)	$	273,093

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands except share data)


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at December 31, 2021	489,177,550	$	31,855	$	385,070	$	(603)	$	(4,601)	$	(263,716)	$	148,005
Net loss	—	—		—		—		—		(24,837)		(24,837)
Issuance of common shares under at-the-market sales agreement	80,696	5		62		—		—		—		67
Restricted share units vested	—	—		—		186		—		(186)		—
Issuance of ordinary shares to treasury	4,800,000	322		—		(322)		—		—		—
Common shares withheld for taxes on vested stock awards	—	—		(793)		—		—		—		(793)
Equity settled share-based compensation reclassified as cash-settled	—	—		118		—		—		—		118
Share-based compensation	—	—		3,747		—		—		—		3,747
Balance at March 31, 2022	494,058,246	$	32,182	$	388,204	$	(739)	$	(4,601)	$	(288,739)	$	126,307
Net loss	—	—		—		—		—		(17,766)		(17,766)
Restricted share units vested	—	—		—		148		—		(148)		—
Common shares withheld for taxes on vested stock awards	—	—		(689)		—		—		—		(689)
Equity settled share-based compensation reclassified as cash-settled	—	—		(25)		—		—		—		(25)
Share-based compensation	—	—		3,053		—		—		—		3,053
Balance at June 30, 2022	494,058,246	$	32,182	$	390,543	$	(591)	$	(4,601)	$	(306,653)	$	110,880

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


		Three months ended March 31,					Six months ended June 30,
		2021		2020			2023		2022
Operating activities:
Cash flows from operating activities:						Cash flows from operating activities:
Net loss:	Net loss:	$	(21,290)	$	(12,346)	Net loss:	$	(25,550)	$	(42,603)
Adjustments to reconcile net income to net cash used in operating activities:	Adjustments to reconcile net income to net cash used in operating activities:					Adjustments to reconcile net income to net cash used in operating activities:
Foreign exchange gain		(155)		(234)
Amortization of debt issue costs		19		0
Foreign exchange (gain)/loss						Foreign exchange (gain)/loss	(1,672)		3,256
Other non-cash items						Other non-cash items	88		44
Accretion of redemption premium on debt	Accretion of redemption premium on debt	31		0		Accretion of redemption premium on debt	51		63
Fair value movement on warrants		507		(142)
Impairment of right-of-use asset		0		289

Share-based compensation	Share-based compensation	8,850		1,867		Share-based compensation	9,364		6,801
Depreciation and amortization		153		160
Depreciation						Depreciation	314		328

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:

Prepaid expenses	Prepaid expenses	(2,709)		195		Prepaid expenses	1,605		(694)
Tax and tax incentive receivables		(2,012)		(1,632)
Tax incentive receivable						Tax incentive receivable	(380)		(6,461)
Other current assets	Other current assets	236		845		Other current assets	(2,016)		(143)
Non-current assets		0		(716)

Accounts payable	Accounts payable	363		(1,106)		Accounts payable	(417)		(680)
Accrued expenses	Accrued expenses	(2,349)		(1,343)		Accrued expenses	(6,285)		6,347
Lease liabilities	Lease liabilities	(210)		575		Lease liabilities	(305)		(338)
Other liabilities		15		364
Income taxes						Income taxes	(939)		164
Other current liabilities						Other current liabilities	(951)		(113)
Net cash used in operating activities	Net cash used in operating activities	(18,551)		(13,224)		Net cash used in operating activities	(27,093)		(34,029)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of furniture and equipment	Purchases of furniture and equipment	0		(5)		Purchases of furniture and equipment	—		(29)
Sale of short-term investments		0		9,792
Net cash provided by investing activities		0		9,787

Net cash used in investing activities						Net cash used in investing activities	—		(29)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of ordinary shares						Proceeds from issuance of ordinary shares	56,909		67

Proceeds from draw under the Oxford Term Loan						Proceeds from draw under the Oxford Term Loan	9,996		—

Payments of withholding taxes from share-based awards						Payments of withholding taxes from share-based awards	—		(1,482)
Proceeds from exercise of share options						Proceeds from exercise of share options	1,904		—

Net cash provided by financing activities		0		0
Net cash provided by/(used in) financing activities						Net cash provided by/(used in) financing activities	68,809		(1,415)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	163		(2,008)		Effect of exchange rate changes on cash and cash equivalents	1,184		(1,397)
Net increase in cash and cash equivalents		(18,388)		(5,445)
Net change in cash and cash equivalents						Net change in cash and cash equivalents	42,900		(36,870)
Cash and cash equivalents at beginning of the period	Cash and cash equivalents at beginning of the period	187,986		30,428		Cash and cash equivalents at beginning of the period	227,827		148,380
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period	$	169,598	$	24,983	Cash and cash equivalents at end of the period	$	270,727	$	111,510
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Income taxes paid	Income taxes paid	$	0	$	0	Income taxes paid	$	1,215	$	1
Interest paid	Interest paid	$	55	$	0	Interest paid	$	685	$	115

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 - Organization and description of business operations

Verona Pharma plc (the “Company”) is incorporated and domiciled in the United Kingdom. Verona Pharma plc has 2one wholly-owned ~~subsidiaries,~~subsidiary, Verona Pharma, Inc., a Delaware ~~corporation, and Rhinopharma Limited (“Rhinopharma”), a Canadian company.~~corporation. The address of the registered office is 1 Central Square, Cardiff, CF10 1FS, United Kingdom.

The Company is 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’s American Depositary Shares (”(“ADSs”) are listed on the Nasdaq ~~which~~Global Market (“Nasdaq”) and trade under the symbol “VRNA”.

In June 2023, the Company submitted a New Drug Application (“NDA”) to the U.S. Food and Drug Administration for approval of ensifentrine for the maintenance treatment of patients with chronic obstructive pulmonary disease (“COPD”) and is preparing for a potential commercial launch in 2024, subject to approval of the NDA. In conjunction with the submission, the Company paid a $3.2 million Prescription Drug User Fee Act (“PDUFA”) application fee to the FDA. The Company has requested a small business waiver of this application fee and, as such, the amount has been recorded within Other current assets in the Condensed Consolidated Balance Sheets.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception, and has an accumulated deficit of ~~$228.4~~$359.1 million as of ~~March 31, 2021.~~June 30, 2023. The Company expects to incur additional losses and negative cash flows from operations until its products potentially gain regulatory approval and reach commercial profitability, if at all.

The Company expects that its cash and cash equivalents as of ~~March 31, 2021,~~June 30, 2023, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance.

~~On March 19, 2021,~~During the six months ended June 30, 2023, the Company sold 20,321,384 ordinary shares (equivalent to 2,540,173 ADSs) under the at-the-market offering program entered into in March 2021 (the “2021 ATM Program”). The shares sold were at an average price of approximately $2.88 per share (equivalent to $23.08 per ADS), raising aggregate net proceeds of approximately $56.9 million after deducting issuance costs.

In March 2023, through a registration statement on Form S-3, the Company replaced the 2021 ATM Program, with an open market sale agreement with ~~respect~~Jefferies LLC (“Jefferies”) to sell its ordinary shares, in the form of ADSs, with aggregate gross proceeds of up to $200.0 million, from time-to-time, through an ~~at-the-market~~“at the market” equity offering program ~~(the “ATM Program”)~~ under which Jefferies will act as sales agent (the “2023 ATM Program”). Jefferies is entitled to a commission at a rate of up to 3.0% of the gross proceeds.

The Company’s commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available within the next year, if ever. Additionally, the Company may ~~issue~~enter into out-licensing transactions from time to time but there can be no assurance that the Company can secure such transactions in the future. Accordingly, the Company may need to obtain substantial additional funds to achieve its business objectives including to further advance clinical and ~~sell its ADSs, with~~regulatory activities, to fund prelaunch and launch related costs and to create an ~~aggregate offering price of up~~effective sales and marketing organization to ~~$100.0 million.~~commercialize ensifentrine, if approved. Any such funding will need to be obtained through public or private financings, debt financing, collaboration or licensing arrangements or other arrangements. However, there is no guarantee the Company will be successful in securing additional capital on acceptable terms, or at all.

Note 2 - Basis of ~~Presentation~~presentation and ~~Summary~~summary of ~~Significant Accounting~~significant accounting policies

Basis of presentation and consolidation

The unaudited condensed consolidated financial statements include the accounts of Verona Pharma plc and its wholly-owned ~~subsidiaries~~subsidiary Verona Pharma, Inc. ~~and Rhinopharma.~~ All inter-company balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q ~~and~~ have been prepared in conformity with accounting principles generally accepted in the U.S. (“USU.S. GAAP”).

~~The unaudited condensed consolidated financial statements presented in this Quarterly Report~~ and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed ~~with the SEC~~ on ~~February 25, 2021~~March 7, 2023 (the ~~“2020~~“2022 Form 10-K”). The ~~balance sheet~~Consolidated Balance Sheet as of December 31, ~~2020~~2022, was derived from audited consolidated financial statements included in the ~~2020~~2022 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and ~~stockholders'~~shareholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

Segment reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company has 1one operating and reportable segment, pharmaceutical development.

~~Verona Pharma plc~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Use of estimates

The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, the accrual and prepayment of research and development expenses and the fair value of share-based ~~compensation and the fair value of warrants.~~compensation. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become ~~known. Actual~~known, and actual results could differ from the Company’s estimates.

Recently adopted accounting standards and recent accounting standards not yet adopted

~~There are no recently adopted accounting standards~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology.

Under this model, on initial recognition and ~~recent accounting standards not yet adopted~~at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This update became effective for the Company ~~believes will~~on January 1, 2023 and the adoption of this update did not have a material impact on the Company’s ~~consolidated~~ financial ~~statements.~~statements and related disclosures.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 - ~~Prepaid expenses~~Equity interest

~~Prepaid expenses consisted~~The Company entered into a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma Limited (“Nuance Pharma”) effective June 9, 2021 (the “Effective Date”), under which the Company granted Nuance Pharma the exclusive rights to develop and commercialize ensifentrine in Greater China (China, Taiwan, Hong Kong and Macau). In return, the Company received an unconditional right to consideration aggregating $40.0 million consisting of $25.0 million in cash and an equity interest, valued at $15.0 million as of the ~~following (in thousands):~~Effective Date, in Nuance Biotech, the parent company of Nuance Pharma.

March 31, December 31,
2021 2020
Clinical trial and other development costs $ 6,296 $ 2,551
Insurance 574 1,701
Other 377 286
Total prepaid expenses and other current assets $ 7,247 $ 4,538

~~Note 4 - Tax and tax incentive receivables~~

~~Taxes receivable consisted~~The equity interest is recorded at cost as the Company has elected to use the measurement alternative for equity investments without readily determinable fair values. The Company evaluates this investment for indicators of impairment quarterly. The Company did not identify events or changes in circumstances that may have a significant effect on the fair value of the ~~following (in thousands):~~

March 31, December 31,
2021 2020
Research and development tax credit receivable - U.K. $ 10,272 $ 8,202
Tax receivable - U.S. 0 58
Total tax receivable $ 10,272 $ 8,260
investment during the six months ended June 30, 2023.

Note 54 - Accrued expenses

Accrued expenses consisted of the following (in thousands):

March 31, December 31,
2021 2020
Clinical trial and other development costs $ 6,536 $ 8,607
Professional fees and general corporate costs 1,454 2,149
People related costs 524 107
Total accrued expenses $ 8,514 $ 10,863

~~Other costs include people costs, professional fees and other accrued costs.~~

~~Verona Pharma plc~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Note 6 - Warrants~~

~~In the periods ended March 31, 2021, and December 31, 2020, 0 warrants were exercised or forfeited. The warrants had 0 intrinsic value as at March 31, 2021.~~

There have been no changes in valuation techniques or transfers between fair value measurement levels during the period ended March 31, 2021. They are measured at fair value and included at level 3 in the fair value hierarchy. The warrants are valued using the Black-Scholes model and the table below presents the assumptions used:

March 31, December 31,
2021 2020
Shares potentially issued under warrants 12,401,262 12,401,262
Exercise price in pounds sterling £ 1.7238 £ 1.7238
Risk-free interest rate 0.08 % 0 %
Expected term to exercise 1.09 1.33
Annualized volatility 109.1 % 105.4 %
Dividend rate 0 % 0 %
Calculated value of the warrants, in thousands of U.S. dollars $ 2,753 $ 2,246

~~For the amount recognized at March 31, 2021, the effect when the following parameter deviates up or down is presented in the below table (in thousands):~~


~~10% volatility increase~~	$	~~3,282~~
~~Base case, reported fair value~~	~~2,753~~
~~10% volatility decrease~~	$	~~2,234~~


	June 30,		December 31,
	2023		2022
Clinical trial and other development costs	$	3,609	$	12,314
Professional fees and general corporate costs	1,377		1,364
People related costs	2,481		74
Total accrued expenses	$	7,467	$	13,752

Note 75 - Term loan

~~In November 2020,~~On October 14, 2022 (the “Effective Date”), the Company entered into a ~~term~~ loan ~~facility~~and security agreement (the “Loan Agreement”) with Oxford Finance Luxembourg S.À R.L. (“Oxford”) for an aggregate amount of up to ~~$30.0~~$150.0 million (the ~~“Term~~“Oxford Term Loan”). The Oxford Term Loan provides for an initial term loan advance in an aggregate amount of $10.0 million, which was funded on the Effective Date (the “Oxford Term A Loan”), ~~consisting~~and up to four additional term loan advances in an aggregate amount of ~~advances~~$140.0 million. The Oxford Term Loan has a maturity date of ~~$5.0 million funded at closing and~~October 1, 2027. On March 24, 2023, the Company received $10.0 million ~~and $15.0 million contingent upon achievement of certain clinical development milestones and other specified conditions. As at March 31, 2021, the Company had $5.0 million principal outstanding~~ under the second term loan advance (the “Oxford Term ~~Loan.~~B Loan”).

AsThe Oxford Term A Loan and Oxford Term B Loan (together, the “Oxford Term Loan Advances”) bear interest at ~~March 31, 2021,~~a variable rate equal to (a) the greater of (i) the 1-Month CME Term SOFR reference rate on the last day of the month that immediately precedes the month in which the interest will accrue and (ii) 2.38%, plus (b) 5.50% (the “Basic Rate”) and shall not increase by more than 2.00% above the Basic Rate as of the funding date of each such term loan. For the six months ended June 30, 2023, the effective interest rate was approximately 11% per annum. There was no material difference between the carrying value and the estimated fair value of the Oxford Term Loan was approximately $4.7 million, of which all was due in more than 12 months. The debt balance has been categorized within Level 3 of the fair value hierarchy. The carrying amount of the debt approximates its fair value based on prevailing interest rates as at the balance sheet date.Advances outstanding.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 86 - Share-based compensation

The following table shows the allocation of share-based compensation between research and development and selling, general and administrative costs (in thousands):


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2021		2020				2023		2022		2023		2022
Research and development	Research and development	$	3,432	$	493		Research and development	$	1,123	$	1,330	$	2,226	$	2,869
General and administrative		5,418		1,374
Selling, general and administrative							Selling, general and administrative	3,951		1,723		7,138		3,932
Total	Total	$	8,850	$	1,867		Total	$	5,074	$	3,053	$	9,364	$	6,801

Share options

The following table shows share option activity, in ordinary shares, in the period:

2021
Number of share options outstanding
Weighted average exercise price
Outstanding at January 1 13,125,672 $ 1.41
Forfeited (996,720) 1.17
Outstanding at March 31 12,128,952 $ 1.43


						Number of share options outstanding
Balance as of December 31, 2022						19,276,496
Granted						1,320,000
Forfeited						(240,000)

Exercised						(1,050,192)
Balance as of March 31, 2023						19,306,304
Granted						2,824,000

Expired						(80,000)
Exercised						(120,000)
Balance as of June 30, 2023						21,930,304

Restricted stock units activity

The following table shows restricted stock unit (“RSU”) activity, in ordinary shares, in the period:

2021
Number of RSUs outstanding Weighted average remaining contractual term (years)
Outstanding at January 1 61,992,360 1.5
Granted 750,928
Vested (441,304)
Outstanding at March 31 62,301,984 1.3


						Number of RSUs outstanding
Balance as of December 31, 2022						34,542,344


Vested						(4,305,120)
Balance as of March 31, 2023						30,237,224


Vested						(3,680,224)
Balance as of June 30, 2023						26,557,000

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 97 - Net loss per share

Net loss per share is calculated on an ordinary share basis. The Company’s ADSs that are listed on ~~the~~ Nasdaq ~~Global Market~~ each represent eight ordinary ~~shares.The~~shares. The following table shows the computation of basic and diluted ~~earnings~~net loss per share for the ~~periods~~three and six months ended ~~March 31, 2021~~June 30, 2023 and ~~2020 (net loss in~~2022 (in thousands ~~loss~~except per share ~~in dollars)~~amounts):


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2021		2020				2023		2022		2023		2022
Numerator:	Numerator:						Numerator:
Net loss	Net loss	$	21,290	$	12,346		Net loss	$	(8,807)	$	(17,766)	$	(25,550)	$	(42,603)
Net loss available to ordinary shareholders - basic and diluted		$	21,290	$	12,346
Denominator:	Denominator:						Denominator:
Weighted-average shares outstanding - basic and diluted	Weighted-average shares outstanding - basic and diluted	469,465,085		105,453,364			Weighted-average shares outstanding - basic and diluted	634,469		484,778		627,996		483,226
Net loss per share - basic and diluted	Net loss per share - basic and diluted	$	(0.05)	$	(0.12)		Net loss per share - basic and diluted	$	(0.01)	$	(0.04)	$	(0.04)	$	(0.09)

During the ~~periods~~three and six months ended ~~March 31, 2021~~June 30, 2023 and ~~2020,~~2022, outstanding share options, RSUs and warrants ~~of 77,584,846~~over 48.5 million and ~~35,669,750,~~46.2 million ordinary shares, respectively, were not included in the computation of diluted earnings per ordinary share, because to do so would be antidilutive.

Note 8 - Commitments and contingencies

The Company had previously accrued up to the maximum exposure of $6.9 million related to a matter with a supplier and also had certain invoices in the amount of $1.5 million in accounts payable to the same supplier. Both items were settled for $2.1 million in the three months ended June 30, 2023 resulting in a reversal of $6.3 million in Research and development costs in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

Item 2. Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2022 filed with the Securities and Exchange Commission on ~~February 25, 2021~~March 7, 2023 (the ~~“2020~~“2022 Form 10-K”).

In addition to historical information, this Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.

All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, the development of ensifentrine or any other product candidates, including statements regarding the expected initiation, timing, progress and availability of data from our clinical trials and potential regulatory approvals and commercialization, research and development costs, timing and likelihood of success, the potential impact and benefits of ensifentrine or any other product candidates, potential collaborations, ~~the duration of our patent portfolio,~~ our estimates regarding expenses, future revenues, capital requirements, debt service obligations and our need for additional financing, the funding we expect to become available from cash receipts from U.K. tax credits and under the $150.0 million debt facility secured in October 2022 and related timing, and the sufficiency of our cash and cash equivalents to fund operations, are forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties, assumptions, and other important factors including, but not limited to, those set forth under Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors” and Part I, Item 1A of the ~~2020~~2022 Form 10-K under the heading “Risk Factors”. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events.

Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report on Form 10-Q to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Overview

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, is an investigational, ~~potential~~ first-in-class, inhaled, selective, dual inhibitor of the enzymes phosphodiesterase 3 and 4 ~~or PDE3~~(“PDE3” and ~~PDE4, that is designed to act as both a~~“PDE4”), combining bronchodilator and annon-steroidal anti-inflammatory ~~agent.~~ activities in one compound.

Initially, we are developing inhaled ensifentrine for the treatment of chronic obstructive pulmonary disease (“COPD”), a common, chronic, progressive, and life-threatening respiratory disease without a cure. If successfully developed and approved, ensifentrine would be the first therapeutic with a novel mode of action for COPD in over a decade.

In June 2023, we submitted a New Drug Application (“NDA”) to the ~~third quarter~~U.S. Food and Drug Administration (“FDA”) for approval of ~~2020, we commenced~~ensifentrine for the maintenance treatment of COPD. Based on the results from our successful Phase 3 ENHANCE (“Ensifentrine as a Novel inHAled Nebulized COPD thErapy”) program, we believe ensifentrine, if approved, has the potential to change the treatment paradigm for COPD.

Also, in June 2023, the ENHANCE results were published in the peer reviewed publication, American Journal of Respiratory and Critical Care Medicine (“AJRCCM”). Ensifentrine met the primary endpoint in both the ENHANCE-1 and ENHANCE-2 trials demonstrating statistically significant and ifclinically meaningful improvements in measures of lung function. In addition, ensifentrine substantially reduced the rate and risk of COPD exacerbations in ENHANCE-1 and ENHANCE-2. Ensifentrine was well tolerated in both trials.

In May 2023, we presented 12 abstracts and a symposium on expanded analyses of the ENHANCE trials including subgroup and pooled data covering exacerbations, use of rescue medication and healthcare utilization, at the American Thoracic Society International Conference ("ATS") 2023. The abstracts were published on the ATS website and in AJRCCM.

If approved, we intend to commercialize inhaled ensifentrine for the maintenance treatment of ~~chronic obstructive pulmonary disease (“COPD”) for the nebulized formulation~~COPD in the United ~~States.~~States (“U.S.”). Although we believe ensifentrine will not be regulated as a drug device combination, patients use a readily available standard jet nebulizer to take ensifentrine. Outside the U.S., we intend to license ensifentrine to companies with expertise and experience in developing and commercializing products in those regions. To that end, we have entered into a strategic collaboration with Nuance Pharma Limited, a Shanghai-based specialty pharmaceutical company (“Nuance Pharma”), to develop and commercialize ensifentrine in Greater China.

In Phase 2 clinical trials, ensifentrine has demonstrated positive results in patients with COPD, asthma and cystic fibrosis (“CF”). Two additional formulations of ensifentrine have been evaluated in Phase 2 trials for the treatment of COPD: dry powder inhaler (“DPI”) and pressurized metered-dose inhaler (“pMDI”).

We have incurred recurring losses and negative cash flows from operations since inception, and have an accumulated deficit of ~~$228.4~~$359.1 million as of ~~March 31, 2021.~~June 30, 2023. We expect to incur additional losses and negative cash flows from operations until our product candidates potentially gain regulatory approval and reach commercial profitability, if at all.

We anticipate ~~that our~~significant expenses ~~will increase significantly~~ in connection with our ongoing activities, ~~as we:~~

•~~continue to invest in the clinical development of ensifentrine for the treatment of COPD;~~

•~~manufacture ensifentrine and engage in other Chemistry, Manufacturing and Control activities;~~

•~~maintain, expand and protect our intellectual property portfolio; and~~

•~~enhance our commercial insights and capabilities.~~

We believe that our cash and cash equivalents as of March 31, 2021, together with funding expected to become available under the $30.0 million debt financing facility secured in November 2020 and from cash receipts from U.K. tax credits, will enable us to fund our planned operating expenses and capital expenditure requirements into 2023.

~~Clinical development update~~

In February 2021, we announced positive Phase 2 efficacy and safety data with a pressurized metered-dose inhaler (“pMDI”) formulation of ensifentrine in patients with moderate to severe COPD. The primary and secondary lung function endpoints were achieved and the data support twice-daily dosing. The ensifentrine pMDI formulation was well tolerated at each dose with an adverse event profile similar to placebo.

On April 23, 2021, we announced that data from a pilot study of the ensifentrine pMDI formulation showed that ensifentrine was well tolerated in patients infected with SARS-CoV-2, the virus that causes COVID-19. The trial was not powered to identify statistically significant efficacy outcomes and no clinical efficacy benefit with ensifentrine treatment added on to standard of care was observed in the trial. One patient death was reported in the ensifentrine treatment group. We do not currently plan to conduct further studies of ensifentrine in the treatment of COVID-19.

We have continued to enroll patients in the two Phase 3 trials underway in our ENHANCE program, and based on our projections, we continue to expect to complete enrollment in both studies in the second half of 2021 and to report top-line data from ENHANCE-2 in the first half of 2022 and from ENHANCE-1 in the second half of 2022. With the pandemic and government and other measures in response impacting a number of clinical trial activities, we are continuing to monitor these timelines.

~~Intellectual property update~~

We hold rights in the major markets relating to certain respirable formulations comprising ensifentrine for treating respiratory disorders, as well as a crystalline form of ensifentrine, combinations of ensifentrine with certain respiratory drugs, certain salts of ensifentrine, ensifentrine for use in the treatment of cystic fibrosis, and a method of making ensifentrine.

As of March 31, 2021, our patent portfolio consisted of nine issued U.S. patents, three pending U.S. patent applications, forty-eight issued foreign patents and fifty-three pending foreign applications including three patent applications made under the Patent Cooperation Treaty. These patents and patent applications include claims directed to certain respirable formulations comprising ensifentrine, a crystalline form of ensifentrine, combinations of ensifentrine with certain respiratory drugs, certain salts of ensifentrine, ensifentrine for use in the treatment of cystic fibrosis, and a method of making ensifentrine, with expected expiry dates up to 2041.

~~COVID-19 impact~~

We are closely monitoring the potential impact of the COVID-19 pandemic on our operations and clinical trials, in particular the timelines and costs of our Phase 3 clinical program. The pandemic and government and other measures in response are impacting a number of clinical trial activities and we will provide an update if we become aware of any meaningful disruption caused by the pandemic to our clinical trials.

To help protect the health and safety of the patients, caregivers and healthcare professionals involved in our clinical trials, as well as our employees and independent contractors, we continue to follow guidance from the FDA and other health regulatory authorities regarding the conduct of clinical trials during the COVID-19 pandemic to ensure the safety of study participants, minimize risks to study integrity, and maintain compliance with good clinical practice.

We are closely monitoring activities at our contract manufacturers associated with clinical supply for our clinical trials, and are satisfied that appropriate plans and procedures are in place to ensure uninterrupted future supply of ensifentrine to the clinical trial sites, subject to potential limitations on their operations and on the supply chain due to the COVID-19 pandemic. We continue to monitor this situation and will provide an update if we become aware of any meaningful disruption caused by the pandemic to the clinical supply of ensifentrine for our clinical trials.

~~We have also implemented measures to help keep the our employees, families, and local communities healthy and safe. All employees are working remotely and all business travel has been restricted.~~

~~Significant contracts~~

~~Ligand agreement~~

In 2006 we acquired Rhinopharma and assumed contingent liabilities owed to Ligand UK Development Limited (“Ligand”) (formerly Vernalis Development Limited). We refer to the assignment and license agreement as the Ligand Agreement.

Ligand assigned to us 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 contingent liability comprises a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a Licensed Product, low 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.

At time of the acquisition the contingent liability was not recognized as part of the acquisition accounting as it was immaterial. We will therefore record as a research and development expense the milestone payment or royalties when they are payable.

~~Warrants~~

On July 29, 2016, as part of a private placement we issued warrants to investors. The warrant holders can subscribe for an ordinary share at a per share exercise price of £1.7238. They can also opt for a cashless exercise of their warrants whereby they can choose to exchange the warrants held for a reduced number of warrants exercisable at nil consideration.

If, after a transaction, should the warrants be exercisable for unlisted securities, the warrant holders may demand a cash payment instead of the delivery of the underlying securities. Accordingly, they are accounted for as a liability under ASC 480 “Distinguishing Liabilities from Equity” and recorded at fair value using the Black-Scholes valuation methodology, on recognition and at each reporting date. The warrants are currently exercisable and may be exercised by the holders until April 2022 when the warrant instruments may either be exercised, cashlessly exercised, or expire.

~~Loan and security agreement~~

~~In November 2020 we entered into the Term Loan. See “Indebtedness” for additional information.~~

~~Critical accounting policies and significant judgments and estimates~~

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual and prepayment of research and development expenses, the fair value of share-based compensation and the fair value of warrants. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from our estimates. The accounting policies considered to be critical to the judgments and estimates used in the preparation of our financial statements are disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Form 10-K. There have been no material changes to that information disclosed in our 2020 Form 10-K during the three months ended March 31, 2021.

~~Components of results of operations~~

~~We anticipate that our expenses will increase substantially~~ if and as we:

•~~conduct~~establish a sales, marketing and distribution infrastructure, ramp up production to commercial scale with our ~~ongoing Phase 3 clinical trials~~manufacturing and other Chemistry, Manufacturing and Controls activities to potentially commercialize any products for ~~ensifentrine for the maintenance treatment of COPD;~~which we may obtain regulatory approval;

•continue the clinical development of our DPI and pMDI formulations of ensifentrine and research and develop other formulations of ensifentrine;

•initiate and conduct further clinical trials for ensifentrine for the treatment of acute COPD, CF or any other indication;

•initiate and progress pre-clinical studies relating to other potential indications of ensifentrine;

•seek to discover and develop additional product candidates;

•seek regulatory approvals for any of our product candidates that successfully complete clinical trials;

•~~potentially establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval;~~

•maintain, expand and protect our intellectual property portfolio;

•add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our continuing operations as a U.S. public company; orand

•experience any delays or encounter any issues from any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges.

We believe that our cash and cash equivalents as of June 30, 2023, together with expected cash receipts from U.K. tax credit program and funding expected to become available under the $150.0 million debt financing facility secured in October 2022 (the “Oxford Term Loan”), will enable us to fund our planned operating expenses and capital expenditure requirements through at least the end of 2025, including the planned commercial launch of ensifentrine in the U.S., if approved. The Oxford Term Loan advances are contingent upon achievement of certain clinical and regulatory milestones and other specified conditions. Refer to Note 5 - Term Loan for additional information on the Oxford Term Loan.

Clinical development update

Phase 3 ENHANCE program

We reported positive top-line results from ENHANCE-2 and ENHANCE-1, in August and December 2022, respectively. Ensifentrine successfully met the primary endpoints in both trials, demonstrating statistically significant and clinically meaningful improvements in measures of lung function in moderate to severe COPD patients. Improvements in symptoms and quality of life measures were shown in both trials, which reached statistical significance in ENHANCE-1. Ensifentrine substantially reduced the rate and risk of moderate to severe COPD exacerbations and was well tolerated in both trials.

The ENHANCE trials were designed to evaluate ensifentrine as monotherapy and added onto a single bronchodilator. Each trial enrolled approximately 800 subjects, for a total of approximately 1,600 subjects, at sites primarily in the U.S. and Europe. The two trials provided replicate evidence of efficacy and safety data over 24 weeks and ENHANCE-1 also evaluated longer-term safety in approximately 400 subjects over 48 weeks.

Subject demographics and disease characteristics were well balanced between treatment groups in both trials.

•In ENHANCE-1 approximately 69% of subjects received background COPD therapy, either a long-acting muscarinic antagonist (“LAMA”) or a long-acting beta-antagonist (“LABA”). Additionally, approximately 20% of all subjects received inhaled corticosteroids (“ICS”) with concomitant LAMA or LABA.

•In ENHANCE-2 approximately 55% of subjects received background COPD therapy, either a LAMA or a LABA. Additionally, approximately 15% of all subjects received ICS with concomitant LAMA or LABA.

Highlights

Primary endpoint met (FEV1*AUC 0-12 hr)

•Placebo corrected, change from baseline in average FEV1 area under the curve 0-12 hours post dose at week 12 was 87 mL (p<0.0001) for ensifentrine in ENHANCE-1 and 94 mL (p<0.0001) for ensifentrine in ENHANCE-2.

•Demonstrated consistent improvements with ensifentrine in all subgroups including gender, age, smoking status, COPD severity, background medication, ICS use, chronic bronchitis, FEV1 reversibility and geographic region.

Secondary endpoints evaluating lung function met:

•Placebo corrected, increase in peak FEV1 of 147 mL (p<0.0001) 0-4 hours post dose at week 12 in ENHANCE-1 and 146 mL (p<0.0001) in ENHANCE-2.

•Placebo corrected, increase in morning trough FEV1 of 35 mL (p=0.0413) at week 12 in ENHANCE-1 and 49 mL (p=0.0016) in ENHANCE-2, supporting twice daily dosing regimen.

Exacerbation rate and risk reduced

•Subjects receiving ensifentrine demonstrated a 36% reduction in the rate of moderate to severe COPD exacerbations over 24 weeks (p=0.0503) compared to those receiving placebo in ENHANCE-1 and a 43% reduction (p=0.0090) in ENHANCE-2.

•In pooled exacerbation data from ENHANCE-1 and ENHANCE-2, ensifentrine demonstrated a 40% reduction in the rate of moderate to severe COPD exacerbations over 24 weeks (p=0.0012) compared to those receiving placebo.

•Treatment with ensifentrine significantly decreased the risk of a moderate/severe exacerbation as measured by time to first exacerbation when compared with placebo by 38% (p=0.0382) in ENHANCE-1 and by 42% (p=0.0089) in ENHANCE-2.

•In pooled exacerbation data from ENHANCE-1 and ENHANCE-2, ensifentrine significantly decreased the risk of a moderate/severe exacerbation as measured by time to first exacerbation when compared with placebo by 41% (p=0.0009).

COPD symptoms and Quality of Life (“QOL”)

~~Operating expenses~~•In ENHANCE-1, daily symptoms as measured by E-RS** Total Score in the ensifentrine group improved from baseline to greater than the minimal clinically important difference (“MCID”) of -2 units with a statistically significant improvement compared to placebo at week 24. Improvements in symptoms were early and sustained with statistical significance versus placebo at weeks 6, 12 and 24. Similar improvements were demonstrated in ENHANCE-2 but statistical significance was not achieved due to improvements observed in the placebo group over time.

•In ENHANCE-1, QOL as measured by SGRQ** Total Score in the ensifentrine group improved from baseline to greater than the MCID of -4 units with a statistically significant improvement compared to placebo at week 24. Improvements in QOL were early and sustained with statistical significance versus placebo at weeks 6, 12 and 24. In ENHANCE-2, QOL as measured by SGRQ* Total Score in the ensifentrine group also improved from baseline to greater than the MCID of -4 units at weeks 12 and 24, numerically exceeding placebo at each measurement, but statistical significance was not achieved due to improvements observed in the placebo group over time.

Favorable safety profile

•Ensifentrine was well tolerated with very few adverse events occurring in more than 1% of subjects and greater than placebo over 24 and 48 weeks.

*FEV1: Forced Expiratory Volume in one second, a standard measure of lung function

**E-RS, Evaluating Respiratory Symptoms, and SGRQ, St. George’s Respiratory Questionnaire, are validated patient reported outcome tools

Nuance Pharma

In 2021, we entered into an agreement with Nuance Pharma for exclusive rights to develop and commercialize ensifentrine in Greater China, with future potential milestone payments up to $179 million plus royalties. In August 2022, Nuance Pharma received clearance from the Center of Drug Evaluation for its Investigational New Drug application to conduct both Phase 1 and Phase 3 studies with ensifentrine for the maintenance treatment of COPD in mainland China. Nuance Pharma initiated a Phase 1 trial with ensifentrine in healthy volunteers in March 2023. In

April 2023, Nuance Pharma dosed the first subject in its pivotal Phase 3 clinical trial evaluating ensifentrine for the maintenance treatment of COPD in mainland China.

Critical accounting estimates

There were no material changes to the Company’s critical accounting estimates described in the Company’s 2022 Form 10-K during the six months ended June 30, 2023.

Components of results of operations

Research and development costs

Research and development costs consist of salary and personnel related costs and third party costs for our research and development activities for ensifentrine. Personnel related costs include a share-based compensation charge relating to our stock option plan. The largest component of third party costs is for clinical trials, as well as manufacturing for clinical supplies and associated development, and pre-clinical studies. Research and development costs are expensed as incurred.

WeAs the Phase 3 ENHANCE program has completed study conduct and analysis, we expect our research and development costs to ~~significantly increase~~decrease over the next several quarters until we add new compounds or develop ensifentrine further in ~~the near future as we progress our~~ ~~ENHANCE program.~~other delivery methods or indications. Due to the nature of research and development, the expected costs are inherently uncertain and may vary significantly from our current expectations.

~~General~~Selling, general and administrative costs

~~General~~Selling, general and administrative costs consist of salary and personnel related costs, including share-based compensation, expenses relating to operating as a public company, including professional fees, insurance and commercial related costs, as well as other operating expenses.

We expect commercial costs to increase as we continue to develop our ~~potential~~ commercial operations, prepare for a potential launch and, in the event of successful regulatory approval, ~~we expect to~~ incur sales force, marketing and other launch related costs. As we develop our knowledge of the market and refine our commercialization plans, expected costs may vary significantly from our current expectations.

Other ~~income /~~ income/(expense)

Other ~~income /~~ income/(expense) are driven by interest income and expense, ~~the fair value movement of the warrant liability,~~ foreign exchange movements on cash and cash equivalents and taxes receivable, and the U.K. research and development tax ~~credits.~~credits (the “R&D tax credit”).

We ~~are entitled to~~ participate in the U.K. Small and Medium Enterprises research and development tax relief program. The tax credits are calculated as a percentage of qualifying research and development expenditure and are payable in cash by the U.K. government to ~~the Company.~~us. Credits recorded in the ~~2021~~2022 financial year are expected to be received in the ~~2022 financial year.~~

~~The U.K. tax authorities have reviewed legislation and have proposed to cap the amount payable in the program to a multiple~~fourth quarter of employment taxes a company pays in the year in question, from January 1, 2022. We are currently reviewing recent clarifications to these proposed changes to review the effect on our financing strategy. It is possible that our tax credit for the 2022 financial year, payable in 2023, will be impacted by the cap. If the legislation is enacted as currently drafted, we estimate the potential cash received under this program could be approximately $6 million lower than before the changes.2023.

Taxation

We are subject to corporate taxation in the ~~United States~~U.S. and the ~~United Kingdom.~~U.K. We have generated losses since inception and have therefore not paid ~~United Kingdom~~U.K. corporation tax. The income taxes presented in our ~~consolidated statements~~Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive loss represents~~Comprehensive Loss represent the tax impact from our operating activities in the ~~United States,~~U.S., which generates taxable income based on intercompany service arrangements.

~~United Kingdom~~U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to various utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits.

Results of operations for the three months ended ~~March 31, 2021~~June 30, 2023 and ~~2020~~

In prior periods, we prepared our financial information in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), in pounds sterling. As a consequence of becoming a U.S. domestic issuer as of January 1, 2021, we are required to present our financial information in accordance with accounting principles generally accepted in the U.S. (“US GAAP”) and expressed in U.S. dollars from that date. The below financial information has been prepared in accordance with US GAAP. The financial information should not be expected to correspond to figures we have previously presented under IFRS, in pounds sterling.2022

The following table shows our statements of operations for the three months ended ~~March 31, 2021~~June 30, 2023 and ~~2020,~~2022 (in thousands):


		Three months ended March 31,							Three months ended June 30,
		2021		2020		Variance			2023		2022		Change
Operating expenses
Research and development		$	13,574	$	7,622	$	5,952
General and administrative		9,282		6,862		2,420

Operating expenses:								Operating expenses:
Research and development (Note 8)								Research and development (Note 8)	$	(2,474)	$	14,982	$	(17,456)
Selling, general and administrative								Selling, general and administrative	12,439		5,526		6,913
Total operating expenses	Total operating expenses	22,856		14,484		8,372		Total operating expenses	9,965		20,508		(10,543)
Operating loss	Operating loss	(22,856)		(14,484)		(8,372)		Operating loss	(9,965)		(20,508)		10,543
Other income / (expense)
Benefit from research and development tax credit		2,070		1,685		385
Other income/(expense):								Other income/(expense):
Research and development tax credit								Research and development tax credit	(1,934)		5,409		(7,343)
Interest income	Interest income	4		69		(65)		Interest income	3,402		165		3,237
Interest expense	Interest expense	(84)		—		(84)		Interest expense	(740)		(91)		(649)
Fair value movement on warrants		(507)		142		(649)
Foreign exchange gain		163		293		(130)
Foreign exchange gain/(loss)								Foreign exchange gain/(loss)	740		(2,662)		3,402
Total other income, net	Total other income, net	1,646		2,189		(543)		Total other income, net	1,468		2,821		(1,353)
Loss before income taxes	Loss before income taxes	(21,210)		(12,295)		(8,915)		Loss before income taxes	(8,497)		(17,687)		9,190
Income tax expense	Income tax expense	(80)		(51)		(29)		Income tax expense	(310)		(79)		(231)
Net loss	Net loss	$	(21,290)	$	(12,346)	$	(8,944)	Net loss	$	(8,807)	$	(17,766)	$	8,959

Research and development costs

Research and development costs were ~~$13.6~~a net reversal of expense of $2.5 million for the three months ended ~~March 31, 2021,~~June 30, 2023, compared to ~~$7.6~~costs of $15.0 million for the three months ended June 30, 2022, a decrease of $17.5 million. Research and development costs related to clinical trial and other development costs decreased by $17.8 million period over period primarily related to the Phase 3 ENHANCE program as at the end of Q2 2023, all study analyses were complete, following the completion of study conduct at the end of 2022, whereas in the same period in the prior year significant costs were incurred associated with the then ongoing study conduct. Additionally, we recorded a $6.3 million reversal of costs, accrued primarily in the three months ended March 31, ~~2020,~~2023, related to the resolution of a supplier matter and certain invoices, as discussed in Note 8 - Commitments and contingencies, which resulted in net negative research and development expense for the three months ended June 30, 2023.

Selling, general and administrative costs

Selling, general and administrative costs were $12.4 million for the three months ended June 30, 2023, compared to $5.5 million for the three months ended June 30, 2022, an increase of ~~$6.0~~$6.9 million. This increase was primarily due to a $5.0 million increase in people related costs, inclusive of share-based compensation, as well as an increase of $1.7 million for costs related to the build out of commercial and information technology infrastructure in preparation for a potential commercial launch.

Other income/(expense)

Other income/(expense) for the three months ended June 30, 2023 was income of $1.5 million compared to income of $2.8 million for the three months ended June 30, 2022, a decrease of $1.4 million. This decrease was primarily due to a net reversal in the current period related to the R&D tax credit of $1.9 million resulting from the reversal in clinical trial and other development costs. Additionally, the R&D tax credit in the same period in the prior year was higher as it included the full credit for expenditures made in the second quarter of the prior year as well as an increase in the credit for expenditures made in the first quarter of the prior year based upon feedback from HM Revenue & Customs in July 2022 that a cap on the credit which was previously applied was not applicable to us. This was partially offset by increases of $3.2 million in interest income from higher cash balances and higher interest rates and $3.4 million ~~increase~~related to the strengthening of the pound sterling in the current period while the pound sterling weakened in the second quarter of the prior year.

Results of operations for the six months ended June 30, 2023 and 2022

The following table shows our statements of operations for the six months ended June 30, 2023 and 2022 (in thousands):


	Six months ended June 30,
	2023		2022		Change



Operating expenses:
Research and development (Note 8)	$	10,136	$	32,607	$	(22,471)
Selling, general and administrative	22,028		12,966		9,062
Total operating expenses	32,164		45,573		(13,409)
Operating loss	(32,164)		(45,573)		13,409
Other income/(expense):
Research and development tax credit	379		6,711		(6,332)
Interest income	6,079		180		5,899
Interest expense	(1,033)		(175)		(858)
Foreign exchange gain/(loss)	1,672		(3,585)		5,257
Total other income, net	7,097		3,131		3,966
Loss before income taxes	(25,067)		(42,442)		17,375
Income tax expense	(483)		(161)		(322)
Net loss	$	(25,550)	$	(42,603)	$	17,053

Research and development costs

Research and development costs were $10.1 million for the six months ended June 30, 2023, compared to $32.6 million for the six months ended June 30, 2022, a decrease of $22.5 million. This decrease was primarily due to a $22.9 million decrease in clinical trial and other development costs as ~~we progress our~~the Phase 3 ENHANCE program which has completed study conduct and analysis as ~~well~~of the end of the current period whereas in the same period in the prior year significant costs were incurred associated with the then ongoing study conduct. Additionally, we recorded a reversal of $1.5 million of costs which were expensed in the year ended December 31, 2022 related to the resolution of the supplier matter, as discussed in Note 8 - Commitments and contingencies. This was partially offset by a ~~$2.9~~$0.6 million increase in ~~share-based compensation charges.~~

~~Development~~third party costs ~~were higher during the three months ended March 31, 2021 due to costs~~primarily associated with ~~having randomized patients in our ongoing Phase 3 clinical trials. In~~ the comparative period we had only one, smaller, trial in progress as well as startup costs for Phase 3 trials and close down costs for certain Phase 2 trials. Share-based compensation costs were higher during the three months ended March 31, 2021.NDA submission.

~~General~~Selling, general and administrative costs

~~General~~Selling, general and administrative costs were ~~$9.3 million~~ ~~for the three months ended March 31, 2021 compared to $6.9~~$22.0 million for the ~~three~~six months ended ~~March 31, 2020,~~June 30, 2023 compared to $13.0 million for the six months ended June 30, 2022, an increase of ~~$2.4~~$9.1 million.

This increase was driven primarily by ~~an $4.0~~a $7.6 million increase in people related costs, inclusive of share-based compensation, ~~charges,~~ as well as ~~increased costs~~an increase of $2.9 million related to the build out of information technology and commercial infrastructure in preparation for ~~Directors’ and Officers’ insurance,~~a potential commercial launch. These increases were partially offset by ~~severance~~a non-recurring $2.0 million charge related to the modification of the assignment and ~~other executive change costs~~license agreement with Ligand UK Development Limited, which was incurred in the three months ended March 31, ~~2020.~~2022.

Other income/(expense)

Other income/(expense) for the six months ended June 30, 2023 was income of $7.1 million compared to $3.1 million for the six months ended June 30, 2022, an increase of $4.0 million. This increase was primarily due to an increase of $5.9 million in interest income from a higher average cash balance and higher interest rates as well as an increase of $5.3 million related to the strengthening of the pound sterling in the first half of the year while the pound sterling weakened in the comparable period in the prior year. This was partially offset by a $6.3 million decrease in the R&D tax credit due to the relative activity of the Phase 3 ENHANCE program in the current period as compared to the same period in the prior year.

1719

~~Other income / (expense)~~

The research and development tax credit for the three months ended March 31, 2021 was $2.1 million compared to a credit of $1.7 million for the three months ended March 31, 2020, an increase of $0.4 million. This increase is attributable to our higher qualifying expenditure on research and development in the three months ended March 31, 2021, compared to the comparative 2020 period, as we are randomizing patients in our Phase 3 trials.

~~We recorded an expense of~~ ~~$0.5 million~~ ~~in the three months ended March 31, 2021, compared to a gain of~~ ~~$0.1 million~~ in the comparative period relating to the fair value movements of the warrants, driven by the rise and fall of our share price in each period respectively, as in increase in the share price increases the fair value of the warrants.

~~Net loss~~

~~Net loss was~~ ~~$21.3 million~~ ~~for the three months ended March 31, 2021, compared to~~ ~~$12.3 million~~ ~~for the three months ended March 31, 2020. The increase in net loss was primarily the result of the increase in operating costs and the fall in other income, net, discussed above.~~

Cash flows

The following table summarizes our cash flows for the ~~three~~six months ended ~~March 31, 2021~~June 30, 2023 and ~~2020~~2022 (in thousands):


		Three months ended March 31,							Six months ended June 30,
		2021		2020		Variance			2023		2022		Change
Cash and cash equivalents at beginning of the period	Cash and cash equivalents at beginning of the period	$	187,986	$	30,428	$	157,558	Cash and cash equivalents at beginning of the period	$	227,827	$	148,380	$	79,447
Net cash used in operating activities	Net cash used in operating activities	(18,551)		(13,224)		(5,327)		Net cash used in operating activities	(27,093)		(34,029)		6,936
Net cash provided by investing activities		—		9,787		(9,787)
Net cash provided by financing activities		—		—		—
Net cash used in investing activities								Net cash used in investing activities	—		(29)		29
Net cash provided by/(used in) financing activities								Net cash provided by/(used in) financing activities	68,809		(1,415)		70,224
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	163		(2,008)		2,171		Effect of exchange rate changes on cash and cash equivalents	1,184		(1,397)		2,581
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period	$	169,598	$	24,983	$	144,615	Cash and cash equivalents at end of the period	$	270,727	$	111,510	$	159,217

Operating activities

Net cash used in operating activities ~~increased to $18.6~~was $27.1 million in the ~~three~~six months ended ~~March 31, 2021, from $13.2~~June 30, 2023, compared to $34.0 million during the ~~same period~~six months ended June 30, 2022, a decrease of $6.9 million. The decrease in ~~2020 an increase of $5.4 million. Operating expenses increased by $8.4 million, of which $7.0 million~~cash used in operating activities was ~~related to non-cash share-based compensation expenses. The remaining variance was~~primarily due to the ~~timing~~decrease in clinical trial and other development costs, partially offset by our payment related to the resolution of the supplier ~~payments.~~matter as discussed in Note 8 - Commitments and contingencies, as well as a $3.2 million Prescription Drug User Fee Act (“PDUFA”) application fee paid to the FDA in connection with our NDA submission. We have requested a small business waiver of this application fee and, as such, the amount has been recorded within Other current assets in the Condensed Consolidated Balance Sheets.

~~Investing~~Financing activities

Net cash provided by ~~investing~~financing activities ~~decreased to nil in the three months ended March 31, 2021 from $9.8~~was $68.8 million in the ~~three~~six months ended ~~March 31, 2020, as in the prior period all funds were moved from short-term investments~~June 30, 2023, compared to ~~cash.~~

~~Financing activities~~

~~There was no~~net cash used in orfinancing activities of $1.4 million in the six months ended June 30, 2022, an increase of $70.2 million. The increase in cash provided by financing activities ~~in either period.~~was primarily due to the proceeds from issuance of ordinary shares of $56.9 million and the proceeds from our draw under the Oxford Term Loan of $10.0 million.

Liquidity and capital resources

We do not currently have any approved products and have never generated any revenue from product ~~sales or otherwise.~~sales. To date, we have financed our operations primarily through the issuances of our equity securities, including warrants, ~~and in 2020~~ from borrowings under term loan facilities and from upfront payments from the ~~Term Loan. See “Indebtedness” for additional information.~~Nuance Agreement.

We have incurred recurring losses since inception, including net losses of ~~$21.3~~$25.6 million for the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2023, and ~~$65.1~~$68.7 million for the year ended December 31, ~~2020.~~2022. As of ~~March 31, 2021,~~June 30, 2023, we had an accumulated deficit of ~~$228.4~~$359.1 million. We expect to continue to generate operating losses for the foreseeable future.

We have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than leases and the Oxford Term ~~Loan with Silicon Valley Bank.~~Loan.

182023 Financing and Capital Transactions

During thesix months ended June 30, 2023, we completed the following financing and capital transactions

•Received $10.0 million under the second term loan advance related to the Oxford Term Loan;

~~Open market sale agreement~~

~~On March 19, 2021,we~~•Sold 20,321,384 ordinary shares (equivalent to 2,540,173 ADSs) under the at-the-market offering program entered into in March 2021 (the “2021 ATM Program”), at an average price of approximately $2.88 per share (equivalent to $23.08 per ADS), raising aggregate net proceeds of approximately $56.9 million after deducting issuance costs;

•Replaced the 2021 ATM Program with an open market sale agreement with Jefferies LLC (“Jefferies”) to sell ~~shares of~~ our ordinary shares, in the form of ADSs, with aggregate gross ~~sales~~ proceeds of up to ~~$100.0 million, from time~~$200.0 million.

Refer also to ~~time, through an “at~~Note 5 - Term Loan to the ~~market” equity offering program under which Jefferies will act as sales agent (the “ATM Program”). As~~condensed consolidated financial statements for additional information on the Oxford Term Loan and to Note 1 - Organization and description of ~~March 31, 2021, we had not sold any shares~~business operations for additional information on 2023 activity under the 2021 ATM Program.

~~Indebtedness~~

In November, 2020, we and Verona Pharma, Inc. entered into a term loan facility of up to $30.0 million with Silicon Valley Bank (the “Term Loan”), consisting of term loan advances in an aggregate amount of $5.0 million funded at closing, a term loan advance of an aggregate amount of $10.0 million available subject to certain terms and conditions and the achievement of a specific clinical milestone, and a term loan advance of an aggregate amount of $15 million contingent upon achievement of a specific clinical development milestone and other specified conditions. As at March 31, 2021, the Company had $5.0 million principal outstanding under the Term Loan. Additional detail surrounding the Term Loan is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. There have been no material changes to that information disclosed in our 2020 Form 10-K during the three months ended March 31, 2021.

Funding requirements

We believe that our cash and cash equivalents as of ~~March 31, 2021,~~June 30, 2023, together with, expected cash receipts from U.K. tax credits and ~~together with~~additional funding expected to become available under ~~both~~ the Oxford Term Loan, ~~and from cash receipts from U.K. tax credits~~ will enable us to fund our planned operating expenses and capital expenditure requirements ~~into 2023. The~~through at least the end of 2025, including the planned commercial launch of nebulized ensifentrine for COPD maintenance treatment in the U.S. Future advances under the Oxford Term Loan ~~advances~~ are contingent upon achievement of certain clinical ~~development~~and regulatory milestones and other specified conditions. Our cash and cash equivalents are maintained at financial institutions in amounts that exceed federally insured limits. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.

We ~~will~~may require ~~significant~~ additional capital to ~~further advance~~commercialize ensifentrine, to continue the clinical development of our DPI and ~~regulatory activities, to fund prelaunch and launch related costs~~pMDI formulations of ensifentrine and to ~~create an effective sales~~research and ~~marketing organization~~develop additional formulations of or with ensifentrine. In addition, we may seek to ~~commercialize ensifentrine.~~initiate or conduct preclinical or clinical studies with ensifentrine in additional indications or to discover or in-license and develop additional product candidates. We ~~will~~may need to seek additional funding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that we will be successful in securing additional ~~finance~~capital on acceptable terms, or at all.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders and ADS holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect such holders’ rights as a shareholder or ADS holder. Any future debt financing or preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute our security holders’ ownership interests.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product

development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our future capital requirements for ensifentrine or any future product candidates will depend on many factors, including:

•the progress, timing and completion of pre-clinical testing and clinical trials for ensifentrine or any future product candidates and the potential that we may be required to conduct additional clinical trials for ensifentrine;

•the number of potential new product candidates we decide to in-license and develop;

•the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of ensifentrine or any future product candidates;

•the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties;

•the time and costs involved in obtaining regulatory approvals for ensifentrine or any future product candidate we develop and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to ensifentrine or any future product candidates;

•any licensing or milestone fees we might have to pay during future development of ensifentrine or any future product candidates;

•selling and marketing activities undertaken in connection with the anticipated commercialization of ensifentrine or any future product candidates, if approved, and costs involved in the creation of an effective sales and marketing organization; and

•the amount of ~~revenues,~~revenue, if any, we may derive either directly or in the form of royalty payments from future sales of ensifentrine or any future product candidates, if approved.

Our commercial ~~revenues,~~revenue, if any, will be derived from sales of products that we do not expect to be commercially available ~~for many years,~~within the next year, if ever. Accordingly, we ~~will~~may need to obtain substantial additional funds to achieve our business ~~objective.~~objectives.

~~Off-balance sheet arrangements~~

We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

~~Recent accounting pronouncements~~

~~For a discussion of pending and recently adopted accounting pronouncements, see Note 2 to our consolidated financial statements included in the 2020 Form 10-K.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 3.

Item 4. Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of ~~March 31, 2021,~~June 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended ~~March 31, 2021~~June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. ~~Our~~Except as discussed below, our risk factors have not changed materially from those described in Part I, Item 1A of the ~~2020~~2022 Form 10-K under the heading “Risk Factors”.

We will need additional funding to complete development and commercialization of any future product candidates, or development and commercialization of other formulations or target indications of ensifentrine, if approved. If we are unable to raise capital when needed, or if a failure of any financial institution where we maintain our cash and cash equivalents prevents or delays us from accessing uninsured funds, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our expenses to increase in connection with our ongoing and planned activities, particularly as we conduct further clinical trials of ensifentrine, and develop ensifentrine in other formulations or for other indications. In addition, if we obtain regulatory approval for ensifentrine or any other product candidates, we expect to incur significant commercialization expenses related to activities including product positioning studies, product manufacturing, medical affairs, marketing, sales and distribution. Furthermore, we expect to incur ongoing costs associated with operating as a public company in the United States and maintaining a listing on the Nasdaq Global Market, or Nasdaq. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

If we obtain regulatory approval for ensifentrine for the treatment of COPD in the US, we estimate that our existing cash resources, expected cash receipts from the UK tax credit program and funding expected to become available under the $150.0 million debt facility will enable the Company to fund planned operating expenses and capital expenditure requirements through at least the end of 2025 including the commercial launch of ensifentrine in the US. Future advances under the Oxford Term Loan are contingent upon achievement of certain clinical and regulatory milestones and other specified conditions. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect. In addition, our operating plan may change as a result of many factors unknown to us. These factors, among others, may necessitate that we seek additional capital sooner than currently planned. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

Our future capital requirements will depend on many factors, including:

•the costs, timing and outcome of the regulatory submission and review of ensifentrine for the treatment of COPD in the US and other regions, including any post-marketing studies that could be required by regulatory authorities, if regulatory approval is received;

•the cost, progress and results of any other studies required to support the commercial positioning of ensifentrine for the treatment of COPD, if regulatory approval is received;

•the cost, progress and results of any clinical trials for the treatment of CF, asthma or other indications, or for other formulations of ensifentrine including fixed-dose combination products;

•the cost of manufacturing clinical and, if approved, commercial supplies of the ensifentrine active ingredient and derived formulated drug products;

•the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for ensifentrine in other indications and of the development of DPI and pMDI formulations of ensifentrine, or fixed-dose combination formulations of ensifentrine for the maintenance treatment of COPD and potentially asthma and other respiratory diseases;

•the costs, timing and outcome of potential future commercialization activities, including manufacturing, marketing, sales and distribution, for ensifentrine;

•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

•the timing and amount of revenue, if any, received from commercial sales of ensifentrine;

•the sales price and availability of adequate third-party coverage and reimbursement for ensifentrine;

•the effect of competing technological and market developments; and

•the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for ensifentrine, although we currently have no commitments or agreements to complete any such transactions.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize ensifentrine. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect our business, the holdings or the rights of our shareholders, or the value of our ordinary shares or ADSs.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue our research and development programs relating to ensifentrine or any commercialization efforts, be unable to expand our operations, or be unable to otherwise capitalize on our business opportunities, as desired, which could harm our business and potentially cause us to discontinue operations.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Incorporated by Reference to Filings Indicated
Exhibit Number Exhibit Description Form File No. Exhibit No. Filing date Filed / Furnished Herewith
3.1
Articles of Association, as amended and as currently in effect
6-K 001-38067 1 12/30/2020
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
*
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
*
32.1
Section 1350 Certification of Chief Executive Officer
**
32.2
Section 1350 Certification of Chief Financial Officer
**
101.INS Inline XBRL Instance Document *
101.SCH Inline XBRL Taxonomy Extension Schema Document *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document *
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document *
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated by Reference to Filings Indicated

Exhibit Number

Exhibit Description

Form

File No.

Exhibit No.

Filing date

Filed/Furnished Herewith

3.1

Articles of Association, as amended and as currently in effect

6-K

001-38067

12/30/2020

10.1

Second Amended and Restated 2017 Incentive Award Plan

8-K

001-38067

10.1

05/01/2023

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Financial Officer

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VERONA PHARMA PLC

Date: ~~April 29, 2021~~August 3, 2023	By:	/s/ David Zaccardelli
		David Zaccardelli, Pharm. D.
		President and Chief Executive Officer

Date: ~~April 29, 2021~~August 3, 2023	By:	/s/ Mark W. Hahn
		Mark W. Hahn
		Chief Financial Officer


	2021
	Number of share options outstanding	Weighted average exercise price
Outstanding at January 1	13,125,672	$	1.41

Forfeited	(996,720)	1.17


Outstanding at March 31	12,128,952	$	1.43


	2021
	Number of RSUs outstanding	Weighted average remaining contractual term (years)
Outstanding at January 1	61,992,360	1.5
Granted	750,928

Vested	(441,304)
Outstanding at March 31	62,301,984	1.3