| £000's | | £000's | | $000's | £'000s | |
Comparison of Operations for the Years ended December 31, 20172019 and 20162018 The operating loss for the year ended December 31, 20172019 was £29.8£41.1 million (2016: £7.0(2018: £25.6 million) and the loss after tax for the year ended December 31, 20172019 was £20.5£31.9 million (2016: £5.0(2018: £19.9 million). Research and Development Costs Research and development costs were £23.7£33.5 millionfor the year ended December 31, 2019 as compared to £19.3 million for the year ended December 31, 20172018, an increase of £14.2 million. The cost of clinical trials increased by £12.7 million as there were two active trials in the year ended December 31, 2018, compared to £4.5four clinical trials in the year ended December 31, 2019. Pre-clinical costs increased by £0.3 million which was offset by a reduction in contract manufacturing and formulation development costs by £0.4 million. Personnel related costs increased by £1.3 million in the year ended December 31, 2019, compared to the prior year. General and Administrative Costs General and administrative costs were £7.6 million for the year ended December 31, 2016, an increase of £19.2 million. The increase was attributable2019 as compared to a £12.3 million increase in clinical trial expenses related to the initiation of four, and completion of two, Phase 2 clinical trials of RPL554. In addition we increased spending on contract manufacturing and other formulation work by £2.7 million and toxicology and other pre-clinical development by £1.2m. Our salary costs increased by £0.3m and our share-based payment charge by £1.2 million as we expanded our team and initiated a new long term incentive plan to drive development of RPL 554. Furthermore, our spend on third party consultants increased by £0.8 million and patent and other costs by £0.3 million. General and Administrative Costs
General and administrative costs were £6.0£6.3 million for the year ended December 31, 2017 as compared to £2.5 million for the year ended December 31, 2016, 2018, an increase of £3.5£1.3 million. The increase was primarily attributable to £0.8a £0.9 million increase in our salarycosts relating to commercial market research, a £0.3 million increase in personnel related costs and a £1.1£0.6 million increase in our share-based payment charge as we built the team to support the activities of the Company. Thereother overhead costs. This was an increase of £1.3offset by a £0.5 million of costsdecrease in preparation for and relating to the Global Offering, as well as ongoing compliance and other costs due to listing our ADSs on the Nasdaq stock market. We also incurred costs of £0.4 million developing our commercial strategy for RPL 554.share based payments.
Finance Income and Expense Finance income was £7.0£2.4 million for the year ended December 31, 20172019 and £1.8£2.8 million for the year ended December 31, 2016.2018. The decrease was due to a loss in foreign exchange on cash and short term investments (recorded as a finance expense) compared to £1.9 million gain in the prior year. This was offset by a £1.6 million decrease in the fair value of the warrant liability in the year ended December 31, 2019 compared to an increase in the liability in the year ended December 31, 2018 (which is a non-cash item, recorded as a finance incomeexpense). Finance expense was primarily£0.5 million for the year ended December 31, 2019, as compared to £1.3 million for the year ended December 31, 2018. The movement was due to a decrease in the fair value of the warrant liability (recorded in finance income), compared to an increase of £6.6£1.2 million caused by changesDecember 31, 2018, both non-cash items. In addition, there was a foreign exchange loss on cash and short-term investments in the underlying assumptions for measuring the liabilityDecember 31, 2019 of the warrants issued in the July 2016 Placement, including the price and volatility of our ordinary shares and the unwinding of the expected life of the warrants. Finance expense was £2.5 million for£0.3 million. In the year ended December 31, 2017 as compared to £0.8 million for the year ended December 31, 2016. The increase2018, there was primarily due to thea foreign exchange loss on translation of foreign currency denominated cash and cash equivalents and short term investments.gain (recorded in finance income).
As at December 31, 2017 the Company had2019, there was approximately £31.4£22.9 million in cash and cash equivalents (2016: £39.8(2018: £19.8 million) and £48.8£7.8 million in short termshort-term investments (2016: £nil)(2018: £44.9 million). Taxation Taxation for the year ended December 31, 20172019 amounted to a credit of £4.7£7.3 million as compared to a credit of £1.0£4.2 million for the year ended December 31, 2016,2018, an increase in the credit amount of £3.7£3.1 million. The credits are obtained at a rate of 14.5% of 230% of our qualifying research and development expenditure, and the increase in the credit amount was primarily attributable to our increased expenditure on research and development.
Comparison of Operations for the Years ended December 31, 2016 and 2015
The following table sets forth our results of operations for the periods indicated.
| | | | | | | | Year Ended December 31, | | 2015 | 2016 | | £000's | | £000's | Research and development costs | (7,270 | ) | | (4,522 | ) | General and administrative costs | (1,706 | ) | | (2,498 | ) | Operating loss | (8,976 | ) | | (7,020 | ) | Finance income | 45 |
| | 1,841 |
| Finance expense | (73 | ) | | (794 | ) | Loss before taxation | (9,004 | ) | | (5,973 | ) | Taxation — credit | 1,509 |
| | 954 |
| Loss for the year | (7,495 | ) | | (5,019 | ) | Other comprehensive income: | | | |
| Exchange differences on translating foreign operations | 4 |
| | 43 |
| Total comprehensive loss attributable to owners of the company | (7,491 | ) | | (4,976 | ) |
Comparison of Operations for the Years ended December 31, 2016 and 2015
Research and Development Costs
Research and development costs were £4.5 million for the year ended December 31, 2016 as compared to £7.3 million for the year ended December 31, 2015, a decrease of £2.8 million. The decrease was attributable to a £3.6 million decrease in clinical trial expenses related to the completion of our Phase 2a clinical trials of RPL554 in late 2015 and early 2016, which were partially offset by a £0.7 million increase in research and development personnel costs and a £0.1 million increase in pre-clinical research, contract manufacturing, patent and other costs.
General and Administrative Costs
General and administrative costs were £2.5 million for the year ended December 31, 2016 as compared to £1.7 million for the year ended December 31, 2015, an increase of £0.8 million. The increase was attributable to a £0.2 million increase in personnel costs, a £0.3 million increase in professional service fees and expenses, and a £0.2 million increase in other facility and office related costs.
Finance Income and Expense
Finance income was £1.8 million for the year ended December 31, 2016 and £45 thousand for the year ended December 31, 2015. The increase in finance income was primarily due to a decrease in the fair value of the warrant liability of £1.1 million caused by changes in the underlying assumptions for measuring the liability of the warrants issued in the July 2016 Placement, including the price and volatility of our ordinary shares and the unwinding of the expected life of the warrants.
Finance expense was £0.8 million for the year ended December 31, 2016 as compared to £0.1 million for the year ended December 31, 2015. The increase was primarily due to the inclusion of the proportion of expenses incurred in connection with the July 2016 Placement which related to the issue of warrants, and which were recorded as a finance expense (the remainder of the July 2016 Placement expenses related to the equity issued and were recorded as a charge against share premium), as well as an increase in the calculated value of the assumed contingent obligation resulting from the Vernalis Agreement.
Taxation
Taxation for the year ended December 31, 2016 amounted to a credit of £1.0 million as compared to a credit of £1.5 million for the year ended December 31, 2015, a decrease in the credit amount of £0.5 million. The credits are obtained at a rate of 14.5% of 230% of our qualifying research and development expenditure, and the decrease in the credit amount was primarily attributable to our decreased expenditure on research and development.
B. Liquidity and Capital Resources Overview Since our inception, we have incurred significant operating losses. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative costs will increase in connection with conducting clinical trials for RPL554 and seeking marketing approval for RPL554 in the United States and Europe as well as other jurisdictions. As a result, we will need additional capital to fund our operations, which we may obtain from additional financings, research funding, collaborations, contract and grant revenue or other sources.
We do not currently have any approved products and have never generated any revenue from product sales or otherwise. To date, we have financed our operations primarily through the issuances of our equity securities, including warrants. Since our The Company has incurred recurring losses since inception, we raised gross proceedsincluding net losses of approximately £145£31.9 million, from private placements of equity securities, of which approximately £70£19.9 million was raised in Apriland £20.5 million for the years ended December 31, 2019, 2018 and 2017, through our Nasdaq listing and the accompanying private offering in Europe and the shareholder private placement; we raised a further £45 million raised in our July 2016 private placement of equity securities with a number of European and U.S.-based healthcare specialist investment firms. Asrespectively. In addition, as of December 31, 2017, we2019, the Company had an accumulated loss of £100.6 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the annual consolidated financial statements, the Company expects that its cash and cash equivalents, would be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of £31.4 million. Asthese annual consolidated financial statements. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of December 31, 2017 weassets and satisfaction of liabilities and commitments in the ordinary course of business. The Company intends to initiate its Phase 3 program for the maintenance treatment of COPD once it believes it has alignment with the FDA on its planned design for the Phase 3 clinical program. The Company will require significant additional funding to initiate and complete this Phase 3 program and will need to secure the required capital to fund the program. The Company will seek additional funding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the Company will be successful in securing additional finance on acceptable terms, or at all, and should the Company be unable to raise sufficient additional funds it will be required to defer the initiation of Phase 3 clinical trials, until such funding can be obtained. This could also held short term investments (representing bank deposits with maturitiesforce the Company to delay, reduce or eliminate some or all of greater than 3 months at inception)its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of £48.8 million.operations and financial condition. 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. Cash Flows The table below summaries our cash flows for each of the periods presented. For the convenience of the reader, we have translated pound sterling amounts as of December 31, 2019 at the noon buying rate of the Federal Reserve Bank of New York on December 31, 2019, which was £1.00 to $1.3269. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date. | | | Year Ended December 31, | Year Ended December 31, | | 2016 | | 2017 | 2019 | | 2018 | | £000's |
| | £000's |
| | $000's |
| £'000s |
| | The decreaseincrease in net cash used in operating activities to £20.7£33.8 million for the year ended December 31, 20172019, from £5.6£18.1 million for the year ended December 31, 20162018, was primarily due to an increase in loss before taxation driven by higher research and development costs. Theoperating activities of £15.5 million, which principally comprises the increase in netclinical trial and other research expenditure amounting to £14.2 million together with an increase in General and Administrative expenditure of £1.3 million, each of which are described further above.
Net cash used in(used in) / generated from investing activities to £49.5predominantly reflects the net movement of cash being placed on deposit for more than three months and such deposits maturing, because deposits of more than three months are disclosed as short-term investments, separately from cash. Net cash generated from investing activities was £37.8 million for the year ended December 31, 20172019, compared to net cash generated from £41 thousandinvesting activities of £5.3 million for the year ended December 31, 20162018. In 2019, there was duea net decrease in short-term deposits of three months or more reflecting a higher value of short-term deposits maturing, and being transferred to placing funds raised incash, than being placed. We balance the Global Offering on termobjective of obtaining higher interest income from longer-term deposits with maturitiesshort-term liquidity requirements.
There was £0.4 million repayment of more than three months at inception. The net cash of £63.2 million received fromfinance lease liabilities in financing activities to for the year ended December 31, 2017 was the cash raised from the Global Offering. The £41.2 million received2019, relating to payments for leased office space. There were no financing activities for the year ended December 31, 2016 was the cash received from the sale of our equity securities and warrants in connection with the July 2016 Placement.2018.
Operating and Capital Expenditure Requirements As of December 31, 2017,2019, we had an accumulated loss of £49.3£100.6 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of RPL554ensifentrine and any future product candidate we develop. We anticipate that our expenses will increase substantially if and as we:
| | ▪ | initiate and conduct our plannedPhase 3 clinical trials for RPL554ensifentrine for the maintenance treatment of COPDCOPD; |
| | ▪ | continue the clinical development of our DPI and as a treatment for acute COPD;pMDI formulations of ensifentrine and research and develop other formulations of ensifentrine; |
| | ▪ | initiate and conduct our plannedfurther clinical trials for RPL554ensifentrine for the treatment of CF; |
| | ▪ | continue the research and development ofacute COPD, CF or any other formulations of RPL554, including developing our DPI andpMDI formulations of RPL554;indication; |
| | ▪ | initiate and progress pre-clinical studies relating to other potential indications of RPL554;ensifentrine; |
| | ▪ | seek to discover and develop additional product candidates; |
| | ▪ | seek regulatory approvals for any of our product candidates that successfully completescomplete 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 UK and U.S. public company listed on the Nasdaq;company; and |
| | ▪ | 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 expectThe Company has incurred recurring losses since inception, including net losses of £31.9 million, £19.9 million and £20.5 million for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, as of December 31, 2019, the Company had an accumulated loss of £101.1 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the annual consolidated financial statements, the Company expects that our existingits cash and cash equivalents, and short-term investments will enable uswould be sufficient to fund ourits operating expenses and capital expenditure requirements throughfor at least 12 months from the endissuance date of ourthese annual consolidated financial statements. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
The Company intends to initiate its Phase 2 development of nebulized RPL554 and our proof-of-concept development with DPI and pMDI formulations of RPL5543 program for the maintenance treatment of COPD as well as our Phase 2 development of nebulized RPL554once it believes it has alignment with the FDA on its planned design for the treatment of CF. We have basedPhase 3 clinical program. The Company will require significant additional funding to initiate and complete this estimate on assumptions that may prove to be wrong,Phase 3 program and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of RPL554 and any future product candidates and because the extent to which we may enter into collaborations with third parties for development of RPL554 is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of RPL554. Our future capital requirements for RPL554 or any future product candidates will depend on many factors, including: | | ▪ | the progress, timing and completion of pre-clinical testing and clinical trials for RPL554 or any future product candidates and the potential that we may be required to conduct additional clinical trials for RPL554; |
| | ▪ | 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 RPL554 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 RPL554 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 RPL554 any future product candidates; |
| | ▪ | any licensing or milestone fees we might have to pay during future development of RPL554 or any future product candidates; |
| | ▪ | selling and marketing activities undertaken in connection with the anticipated commercialization of RPL554 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, if any, we may derive either directly or in the form of royalty payments from future sales of RPL554 or any future product candidates, if approved. |
Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantialsecure the required capital to fund the program. The Company will seek additional funds to achieve our business objective.
Adequatefunding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the Company will be successful in securing additional funds may not be available to usfinance on acceptable terms, or at all. all, and should the Company be unable to raise sufficient additional funds it will be required to defer the initiation of Phase 3 clinical trials, until such funding can be obtained. This could also force the Company to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of operations and financial condition.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, yourthe 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 yoursuch holders’ rights as a shareholder.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 yourour security holders’ ownership interests.
If we raised 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, 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, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objective. C. Research and Development, Patent and Licenses, etc. For a discussion of our research and development activities, including amounts spent on company-sponsored research and development activities for the last three financial years, see “ItemItem 4.B. Business Overview”Overview and “ItemItem 5.A. Operating Results.” D. Trend Information Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. For more information, see “ItemItem 4.B. Business Overview,” “Item Item 5.A. Operating Results,” and “ItemItem 5.B. Liquidity and Capital Resources.” E. Off-Balance Sheet Arrangements During the periods presented, we did not, and we do not currently, have any off-balance sheet arrangements. F. Contractual Obligations and Commitments The table below summarizes ourCompany has contractual obligations at December 31, 2017. | | | | | | | | | | | | | | | Payments Due by Period | | Total | | Less than 1 year | | 1 - 3 years | | 3 - 5 years | | More than 5 years | | (£000's) | Operating lease obligations | 568 |
| | 291 |
| | 277 |
| | £— | | £— | Total | 568 |
| | 291 |
| | 277 |
| | £— | | £— |
commitments for office space, in London and New York. After the adoption of IFRS 16 these are recognized as right of use assets on the Consolidated Statement of Financial Position. As a result they are not disclosed as operating lease liabilities.The table above does not includeCompany has assumed contingent obligationliability payments we may be required to make under the VernalisLigand Agreement because the amount, timing and likelihood of payment are not known. Such additional payment obligationsliabilities may be material. See sections titled "— License Agreement with Vernalis"Ligand" and "Business — VernalisLigand Agreement."
In addition, we enter into contracts in the ordinary course of business with contract research organizations, ("CROs")or CROs, to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligationsliabilities and commitments.
Selected Quarterly Financial Data (unaudited)
Selected quarterly results from operations for the year ended December 31, 2017 and 2016 are as follows (in thousands, except per share amounts).
| | | | | | | | | | | | | | Fiscal 2017 Quarter Ended | | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | £'000s | | £'000s | | £'000s | | £'000s | Research and development costs | 9,689 |
| | 6,085 |
| | 4,838 |
| | 3,105 |
| General and administrative costs | 998 |
| | 2,040 |
| | 1,969 |
| | 1,032 |
|
| | | | | | | | | | | | | | Fiscal 2016 Quarter Ended | | December 31, 2016 | | September 30, 2016 | | June 30, 2016 | | March 31, 2016 | | £'000s | | £'000s | | £'000s | | £'000s | Research and development costs | 1,868 |
| | 1,409 |
| | 522 |
| | 723 |
| General and administrative costs | 1,085 |
| | 752 |
| | 350 |
| | 311 |
|
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Executive Officers and Directors The following table presents information about our executive officers, directors, and directors,other key members of management, including their ages as of February 27, 2017: the date of this Annual Report:
| | | | | | Name | | Age | | Position | Executive Officers | | | | | Jan-Anders Karlsson, Ph.D.David Zaccardelli, Pharm.D. | | 6355 | | President, Chief Executive Officer and Director | Piers Morgan | | 5153 | | Chief Financial Officer | Kenneth Newman,Claire Poll | | 52 | | General Counsel | Kathleen Rickard, M.D. | | 6061 | | Chief Medical Officer | Peter Spargo, Ph.D.Other Key Management | | 56 | | | Richard Hennings | | 50 | | Vice President and Commercial Head | Desiree Luthman | | 60 | | Vice President, Regulatory Affairs | Tara Rheault | | 44 | | Vice President, R&D Operations and Global Project Management | Peter Spargo | | 58 | | Senior Vice President, Chemistry Manufacturing and Controls | Claire Poll | | 51 | | Legal Counsel | Richard Hennings | | 48 | | Commercial Director | Desiree Luthman | | 58 | | Vice President, Regulatory Affairs | Non-Executive Directors | | | | | Ken Cunningham, M.D.(2) | | 67 | | Non-executive Director | David Ebsworth, Ph.D.(1,2,3) | | 6365 | | Chairman of the Board | Ken Cunningham, M.D.(2)
| | 65 | | Non-executive Director | Rishi Gupta(2) | | 4042 | | Non-executive Director | Mahendra Shah, Ph.D.(3) | | 7375 | | Non-executive Director | Andrew Sinclair, Ph.D.(1) | | 4648 | | Non-executive Director | Vikas Sinha(1) | | 5456 | | Non-executive Director | Anders Ullman, Ph.D.(3) | | 6264 | | Non-executive Director | Martin Edwards, M.D. | | 64 | | Non-executive Director |
(1)Audit and Risk Committee member (2)Remuneration Committee member (3)Governance Committee member The current business addresses for our executive officers and board of directors is c/o Verona Pharma plc, 3 More London Riverside, London SE1 2RE, the United Kingdom. The following are brief biographies of our executive officers and directors:
Jan-Anders Karlsson, Ph.D.David Zaccardelli, Pharma.D. Dr. KarlssonZaccardelli has served as our President and Chief Executive Officer and on our board of directors since June 2012.February 2020. From January 2005December 2018 until its acquisition by Swedish Orphan Biovitrum for up to May 2012,$915 million in November 2019, Dr. KarlssonZaccardelli served as President and CEO of Dova Pharmaceuticals, a US company developing therapeutics for rare diseases. Previously, he was Acting CEO of Cempra, from December 2016 until the company’s merger with Melinta Therapeutics in November 2017. From 2004 until 2016, Dr Zaccardelli served in several senior management roles at United Therapeutics Corporation, including Chief ExecutiveOperating Officer, of S*BIO Pte Ltd, a biotechnology company in Singapore. Previously to S*BIO, Dr. Karlsson wasChief Manufacturing Officer and Executive Vice President, Pharmaceutical Development and headOperations. Prior to United Therapeutics, he founded and led a start-up company focused on contract research positions and held a variety of Pharma Global Researchclinical research positions at Bayer HealthCare AG in Germany.Burroughs Wellcome & Co, Glaxo Wellcome, and Bausch & Lomb Pharmaceutical. Dr. KarlssonZaccardelli received an M.Sc. in pharmacy from Uppsala University and a Doctor of Medical Science (Ph.D.) in clinical experimental pharmacologyPharm.D. from the University of Lund.Michigan.
Piers Morgan. Mr. Morgan has served as our Chief Financial Officer since September 2016. From November 2015 to September 2016, Mr. Morgan was an independent consultant. From May 2014 to November 2015, Mr. Morgan was the Chief Executive Officer of C4X Discovery plc, a biotechnology company. Prior to C4X, Mr. Morgan co-founded uniQure N.V., a biotechnology company, in Amsterdam, where he served as Chief Financial Officer from December 2009 to May 2014. Mr. Morgan is a member of the Institute of Chartered Accountants in England and Wales and received an M.A. in law and management studies from the University of Cambridge. Kenneth NewmanKathleen Rickard, M.D. , M.D.Dr. NewmanRickard has served as our Chief Medical Officer since January 2015. From December 2013February 2019. Prior to December 2014,joining Verona Pharma, Dr. Newman was Chief Development OfficerRickard served in multiple roles at Mesoblast Inc.,Aerocrine AB, a biotechnology company. From 2010 to November 2013, Dr. Newman wasmedical diagnostics product company, including as Chief Medical Officer from April 2011 to January 2019, and as Chief Compliance Officer from April 2014 to January 2019. Prior to Aerocrine, Dr. Rickard was Vice President Clinical Development and Medical Affairs of Acton Pharmaceuticals, Inc.,the Respiratory Medicines Development Centre at GlaxoSmithKline, a specialtypharmaceutical
company, and, over a period of 15 years, held a number of other leadership positions in clinical development across GlaxoSmithKline’s global respiratory pharmaceutical company, which was acquired by Meda Pharmaceuticals, Inc.franchise. Dr. NewmanRickard received an M.D. from theHahnemann University of Texas Health Science Center at Houston and an M.B.A. in management from the University of Cincinnati College of Business. Peter Spargo, Ph.D. Dr. Spargo has served as our Senior Vice President, Chemistry Manufacturing and Controls since May 2014. From January to October 2015, Dr. Spargo also served as Senior Vice President, CMC at Spinifex Pharmaceuticals Inc., a biotechnology company, that was acquired by Novartis International AG. From 2011 to 2013, Dr. Spargo was Senior Vice President, CMC at Creabilis SA, a pharmaceutical company. Dr. Spargo received an M.A. in natural sciences and a Ph.D. in synthetic organic chemistry from Cambridge University.Hospital, Philadelphia.
Claire Poll. Ms. Poll has served as LegalGeneral Counsel since September 2016. From September 2015 to August 2016, Ms. Poll served as an advisor to us on legal, general corporate and financing matters. She also served as an
Executive Director on our board of directors from September 2006 until September 2015. Ms. Poll received a Bachelor of Laws from the University of Western Australia and a Diploma in Applied Finance and Investment from the Securities Institute of Australia. Desiree Luthman, DDS.David Ebsworth,Ph.D. Dr LuthmanDr. Ebsworth has served as the Non-Executive Chairman of our Vice President, Regulatory Affairsboard of directors since June 2017.December 2014. From October 2009 to August 2014, Dr. LuthmanEbsworth served as Chief Executive Officer of Vifor Pharma, based in Zürich, the specialty pharma division of Galenica AG Group, a pharmaceutical wholesaler and retailer, and as a member of Galenica's Executive Committee. In 2012, Dr. Ebsworth was also named as Chief Executive Officer of Galenica and as Chairman of Galenica's Executive Committee, positions he held until August 2014. In his earlier career, Dr. Ebsworth worked with Bayer AG for over 19 years, heading the Canadian, North American and global pharmaceutical business. He also served as Chief Executive Officer of Oxford Glycosciences, a biotech company, listed on the London Stock Exchange and Nasdaq, which was acquired by Celltech plc (now part of UCB) in 2003. Dr. Ebsworth received a Ph.D. in industrial relations from the University of Surrey.
Ken Cunningham, M.D. Dr. Cunningham has served as a Non-Executive Director on our board of directors since September 2015. Dr. Cunningham has over 25 years’ experience in the pharmaceutical industry including leadership roles at several companies focused on developing respiratory medicines. Between 2008 and 2010, he was at SkyePharma plc (now part of Vectura Group plc), initially as Chief Operating Officer and subsequently as Chief Executive Officer where he was involved in the late-stage development of flutiform for asthma. Earlier in his career, Dr. Cunningham held a variety of clinical development and commercial strategy roles at GlaxoWellcome plc and Warner-Lambert. Dr. Cunningham serves as the non-executive chairman of the board of directors of Abzena Holdings (US) LLC and of Medherant Ltd. Dr. Cunningham received a degree in medicine from St. Mary’s, Imperial College, London University. Martin Edwards, M.D. Dr. Edwards has served as a Non-Executive Director on our board of directors since April 2019. Since 2003, Dr. Edwards has held various positions at Novo Holdings, a life sciences investment firm, and most recently as part-time Senior Partner. Earlier in his career, he was Corporate VP and Global Head of Drug Development for Novo Nordisk, where he led all aspects of pre-clinical and clinical drug development. Dr. Edwards currently serves on the boards of directors of Kalvista Pharmaceuticals Inc, F2G Ltd, Harmony Biosciences Inc, Karus Therapeutics Ltd, Nuvelution Pharma Inc, and Vantia Therapeutics Ltd. Dr. Edwards trained in physiology and medicine at the University of Manchester. He is a Member of the Royal College of Physicians, a Member with distinction of the Royal College of General Practitioners, a Fellow of the Faculty of Pharmaceutical Medicine and holds a MBA from the University of Warwick. Rishi Gupta. Mr. Gupta has served as a Non-Executive Director on our board of directors since July 2016. Mr. Gupta was designated for appointment to our board of directors by OrbiMed Private Investments VI, LP, or OrbiMed, pursuant to our relationship agreement with OrbiMed. Since 2002, Mr. Gupta has held various positions at OrbiMed Advisors LLC, a global healthcare investment firm, where he is currently a Partner. Prior to that, he was a healthcare investment banker at Raymond James & Associates, served as manager of corporate development at Veritas Medicine and was a summer associate at Wachtell, Lipton. Mr. Gupta currently is a member of the board of directors of Avitide, Inc., Turnstone Biologics, Inc., Attenua, Inc, EnLiven Therapeutics, Inc, and Pionyr Immunotherapeutics, Inc. Mr. Gupta received an A.B. in biochemical sciences from Harvard College and a J.D. from Yale Law School. Mahendra Shah, Ph.D. Dr. Shah has served as a Non-Executive Director on our board of directors since July 2016. Dr. Shah was designated for appointment to our board of directors by funds affiliated with Vivo Capital pursuant to our relationship agreement with such funds. Dr. Shah is a successful pharmaceutical entrepreneur and executive and, since March 2010, has served as a Managing Director of Vivo Capital, a healthcare investment firm. Dr. Shah serves as a member of the board of directors of Scilex Pharmaceuticals, Inc., Fortis Inc., Citrine Medicines, Inc., and several private companies in the biopharmaceutical and biotechnology industries. Dr. Shah received his Ph.D. in industrial pharmacy from St. John’s University and a Master’s Degree in Pharmacy from L.M. College of Pharmacy in Gujarat, India. Andrew Sinclair, Ph.D. Dr. Sinclair has served as a Non-Executive Director on our board of directors since July 2016. Dr. Sinclair was designated for appointment to our board of directors by Abingworth Bioventures VI, LP, or Abingworth, pursuant to our relationship agreement with Abingworth.Since 2008, Dr. Sinclair has held various positions at Abingworth LLP, a life sciences investment group, where he is currently a Partner and Portfolio Manager. Dr. Sinclair is a member of the Institute of Chartered Accountants in England and Wales and received
a Ph.D. in chemistry and genetic engineering at the BBSRC Institute of Plant Science, Norwich, and a B.Sc. in microbiology from King's College London. Vikas Sinha. Mr. Sinha has served as a Non-Executive Director on our board of directors since September 2016. Mr. Sinha has over 20 yearsyears’ experience working in executive finance roles in the life sciences industry. Mr. Sinha is co-founder and Chief Financial Officer of regulatory experienceElevateBio, Inc., a holding company focused on building cell and gene therapy companies. He also serves as President and Chief Financial Officer of AlloVir, Inc., an ElevateBio portfolio company. From 2005 to 2016, Mr. Sinha was the Chief Financial Officer of Alexion Pharmaceuticals, Inc., a biotechnology company, where he was responsible for finance, business development, strategy, investor relations and IT. Prior to joining Alexion, Mr. Sinha held various positions with Bayer AG in the United States, Japan, Germany and Canada, including both largeVice President and small pharmaceutical companies across different regionsChief Financial Officer of Bayer Pharmaceuticals Corporation in the United States and different therapeutic areas. From 2015 to 2017,Vice President and Chief Financial Officer of Bayer Yakuhin Ltd. in Japan. Mr. Sinha holds a master's degree in business administration from the Asian Institute of Management. He is also a qualified Chartered Accountant from the Institute of Chartered Accountants of India and a Certified Public Accountant in the United States. Anders Ullman, M.D., Ph.D. Dr. LuthmanUllman has served as Senior Regulatorya Non-Executive Director Global Inflammation - Immunocology Therapeutic Areaon our board of directors since September 2015. From 2016 to 2018, Dr. Ullman served as Head of the COPD Centre at Sanofi.Sahlgrenska University Hospital, Sweden. From 2013 to 2015,2014, he was Executive Vice President and Head of Research and Development in the BioScience business unit of Baxter International Inc., a healthcare company, which became Baxalta Inc. From 2007 to 2013, Dr. LuthmanUllman was Executive Vice President, Head of Research and Development at Nycomed Pharma Private Limited (now part of Takeda Pharmaceuticals Company Limited), where he led the development and approval of Daxas, the PDE4 inhibitor used to prevent COPD exacerbations. Earlier in his career, he held a Director, Global Regulatory Strategy and Science at Bristol, Meyers & Squibb.number of roles in AstraZeneca. Dr. LuthmanUllman serves on the board of directors of Pexa AB. Dr. Ullman received a doctorateM.D. and a Ph.D. in dentistryclinical pharmacology from the Karolinska Institute, Stockholm, Sweden.University of Gothenburg. Other Senior Management The following are brief biographies of other members of the senior management team that participate in leading ensifentrine's development. Richard Hennings. Mr. Hennings has served as ourVice President and Commercial DirectorHead since March 2017. From May 2016 to March 2017, Mr. Hennings was the Global Marketing Director for AstraZeneca UK Limited, a biopharmaceutical company. Since July 2015, Mr. Hennings has been a director of Hennings Consulting Ltd., where he consults with healthcare organizations on commercial strategy. From January 2012 to June 2015, Mr. Hennings held various positions at Gilead Sciences, Inc., a biopharmaceutical company, most recently as Commercial Director — EMEA Planning & Operations. Mr. Hennings received a bachelor's degree in applied chemistry from the University of Portsmouth. David Ebsworth,Desiree Luthman, DDS. Dr. Luthman has served as our Vice President, Regulatory Affairs since June 2017. From 2015 to 2017, Dr. Luthman served as Senior Regulatory Director, Global Inflammation — Immunoncology Therapeutic Area at Sanofi S.A., a multinational pharmaceutical company. From 2013 to 2015, Dr. Luthman was a Director, Global Regulatory Strategy and Science at Bristol, Meyers & Squibb Company, a pharmaceutical company. Dr. Luthman received a doctorate in dentistry from the Karolinska Institute, Stockholm, Sweden.
Tara Rheault, Ph.D. Dr. EbsworthRheault has served as our Vice President, R&D and Global Project Management since January 2019. From August 2015 to January 2019, Dr. Rheault served as Senior Director, Strategic Drug Development at IQVIA, a multinational company serving the Non-Executive Chairmancombined industries of our board of directors since December 2014. From October 2009health information technologies and clinical research, where she helped pharmaceutical companies develop integrated commercial and R&D strategies. Prior to IQVIA, from September 2002 to August 2014,2015, Dr. EbsworthRheault served in various roles at GlaxoSmithKline, most recently as Chief Executive Officer of Vifor Pharma, based in Zürich,Clinical Leader within the specialty pharma division of Galenica AG Group, a pharmaceutical wholesaler and retailer, and as a member of Galenica's Executive Committee. In 2012,respiratory therapy area. Dr. Ebsworth was also named as Chief Executive Officer of Galenica and as Chairman of Galenica's Executive Committee, positions he held until August 2014. Dr. EbsworthRheault received a Ph.D. in industrial relationsorganic chemistry from North Dakota State University and a Master in Public Health from the University of Surrey.North Carolina. Ken Cunningham, M.D.Peter Spargo, Ph.D. Dr. CunninghamSpargo has served as a Non-Executive Director on our board of directorsSenior Vice President, Chemistry Manufacturing and Controls since September 2015.May 2014. From January to October 2015, Dr. Cunningham serves as the non-executive chairman of the board of directors of Abzena plc and of Medherant Ltd. Dr. Cunningham received a degree in medicine from St. Mary’s, Imperial College, London University.
Rishi Gupta. Mr. Gupta hasSpargo served as a Non-Executive Director on our board of directors since July 2016. Since 2002, Mr. Gupta has held various positionsSenior Vice President, CMC at OrbiMed Advisors LLC, a global healthcare investment firm, where he is currently a Private Equity Partner. Mr. Gupta currently is a member of the board of directors of Avitide, Inc. and Turnstone Biologics, Inc. Mr. Gupta received an A.B. in biochemical sciences from Harvard College and a J.D. from the Yale Law School.
Mahendra Shah, Ph.D. Dr. Shah has served as a Non-Executive Director on our board of directors since July 2016. Since March 2010, Dr. Shah has served as a Managing Director of Vivo Capital, a healthcare investment firm. Dr. Shah is also the founder and Executive Chair of Semnur Pharmaceuticals, Inc., a specialty pharmaceutical company. Dr. Shah serves as a member of the board of directors of Fortis Inc., a specialty pharmaceuticals company, Crinetics Pharmaceuticals, Inc., Soleno Therapeutics, Inc., Impel Neuropharma, Inc., and several other private companies in the biopharmaceutical and biotechnology industries. Dr. Shah received his Ph.D. in industrial pharmacy from St. John’s University and a Master’s Degree in Pharmacy from L.M. College of Pharmacy in Gujarat, India
Andrew Sinclair, Ph.D. Dr. Sinclair has served as a Non-Executive Director on our board of directors since July 2016. Since 2008, Dr. Sinclair has held various positions at Abingworth LLP, a life sciences investment group, where he is currently a Partner and Portfolio Manager. Dr. Sinclair is a member of the Institute of Chartered Accountants in England and Wales and received a Ph.D. in chemistry and genetic engineering at the BBSRC Institute of Plant Science, Norwich, and a B.Sc. in microbiology from King's College London.
Vikas Sinha. Mr. Sinha has served as a Non-Executive Director on our board of directors since September 2016. Since January 2018, Mr. Sinha has served as an Executive Partner of MPM Capital, Inc., a life sciences investment company. From 2005 to 2016, Mr. Sinha was the Chief Financial Officer of AlexionSpinifex Pharmaceuticals Inc., a biotechnology company. Mr. Sinha holds a master's degree in business administration from the Asian Institute of Management. He is also a qualified Chartered Accountant from the Institute of Chartered Accountants of India and a Certified Public Accountant in the United States.
Anders Ullman, M.D., Ph.D. Dr. Ullman has served as a Non-Executive Director on our board of directors since September 2015. Since 2016, he has served as Head of the COPD Centre at Sahlgrenska University Hospital,
Sweden.company, that was acquired by Novartis International AG. From 2013 to 2014, Dr. Ullman was Executive Vice President and Head of Research and Development in the BioScience business unit of Baxter International Inc., a healthcare company, which became Baxalta Inc. From 20072011 to 2013, Dr. UllmanSpargo was ExecutiveSenior Vice President, Head of Research and DevelopmentCMC at Nycomed Pharma Private Limited, which was acquired by Takeda Pharmaceutical Company Limited.Creabilis SA, a pharmaceutical company. Dr. UllmanSpargo received a M.D.an M.A. in natural sciences and a Ph.D. in clinical pharmacologysynthetic organic chemistry from the University of Gothenburg.Cambridge University.
Family Relationships There are no family relationships among any of the members of our board of directors and executive officers.
B. Compensation Executive Officer Remuneration The following table sets forth the approximate remuneration paid during the year ended December 31, 20172019, to our current executive officers.officers, who are the members of our administrative, supervisory, and management bodies. | | | | | | | | | | | | | | | | | Name and Principal Position | Salary (£) | | Bonus(1) (£) | | Option Awards(2) (£) | | All Other Compensation (£) | | Total (£) | Jan-Anders Karlsson, Ph.D. | 290,000 |
| | 254,000 |
| | 1,632,055 |
| | 29,165 |
| (3) | | 2,205,220 |
| Chief Executive Officer | | | | | | | | | | Piers Morgan(4) | 210,000 |
| | 73,500 |
| | 945,464 |
| | 12,600 |
| (3) | | 1,241,564 |
| Chief Financial Officer | | | | | | | | | | Kenneth Newman, M.D. | 273,221 |
| | 53,581 |
| | 937,718 |
| | 21,987 |
| (4) | | 1,286,508 |
| Chief Medical Officer | | | | | | | | | | Peter Spargo, Ph.D. | 190,000 |
| | 46,550 |
| | 641,564 |
| | — |
| | | 878,114 |
| Senior Vice President of Chemistry, Manufacturing and Controls | | | | | | | | | | Claire Poll | 170,000 |
| | 59,650 |
| | 574,033 |
| | 4,517 |
| (3) | | 808,200 |
| Legal Counsel | | | | | | | | | | Richard Hennings | 119,231 |
| | 36,200 |
| | 198,258 |
| | 7,154 |
| (3) | | 360,843 |
| Commercial Director | | | | | | | | | | Desiree Luthman(5) | 113,743 |
| | 22,884 |
| | 126,756 |
| | — |
| | | 263,383 |
| Vice President, Regulatory Affairs | | | | | | | | | | Total | 1,366,195 |
| | 546,365 |
| | 5,055,849 |
| | 75,422 |
| | | 7,043,832 |
|
| | | | | | | | | | | | | | | | Name and Principal Position | Salary (£) | | Bonus(1) (£) | | Option Awards(2) (£) | | All Other Compensation(3) (£) | | Total (£) | David Zaccardelli | — |
| | — |
| | — |
| | — |
| | — |
| President and Chief Executive Officer (4) | | | | | | | | | | Piers Morgan | 243,000 |
| | 59,535 |
| | 179,413 |
| | 14,580 |
| | 496,528 |
| Chief Financial Officer | | | | | | | | | | Kathleen Rickard | 272,901 |
| | 263,227 |
| | 265,132 |
| | 5,307 |
| | 806,567 |
| Chief Medical Officer | | | | | | | | | | Claire Poll | 214,000 |
| | 67,410 |
| | 128,151 |
| | 6,420 |
| | 415,981 |
| General Counsel | | | | | | | | | | Total | 729,901 |
| | 390,172 |
| | 572,696 |
| | 26,307 |
| | 1,719,076 |
|
| | (1) | Amount shown reflectsreflect bonuses awarded for achievement of performance goals, including retention bonuses in 2017.2019. |
| | (2) | Amount shown represents the aggregate grant date fair value of option and restricted stockshare units awards granted in 20172019 measured using the Black Scholes model. For a description of the assumptions used in valuing these awards, see note 16 to our Annual Consolidated Financial Statements included elsewhere in this prospectus.Annual Report. |
| | (3) | Amount shown represents health benefits payments and pension contributions made by us. |
| | (4) | Amount shown represents health benefits payments made by us. Dr. Zaccardelli was appointed as our President and Chief Executive Officer, effective as of February 1, 2020. |
| | | Mrs Luthman began her employment with us on June 12, 2017. |
Executive Officer Employment Agreements Jan-Anders Karlsson, Ph.D.David S. Zaccardelli, Pharm.D.
We entered into an employment agreement with Dr. KarlssonZaccardelli on April 30, 2012, which was subsequently amended.February 1, 2020. This agreement as amended, entitles Dr. KarlssonZaccardelli to receive an annual base salary of £290,000$750,000, which is payable in part in cash and in part in restricted stock units, or such higher rate as may be agreed in writing,the Annual RSUs, and a target annual bonus opportunity of 66%50% of his annual base salary. The Annual RSUs vest in equal quarterly installments during the calendar year in which the grant occurs, subject to continued employment. Pursuant to his employment agreement, Dr. Zaccardelli is also entitled to receive (i) an award of restricted stock units, subject to approval at our annual general meeting of shareholders in 2020, equal to 4% of our outstanding ordinary shares and (ii) an additional award of restricted units if the Company raises additional equity capital during fiscal year 2020, which is intended to result in Dr. Zaccardelli’s equity awards (other than the portion of his base salary (potentially extendingpayable in restricted stock units) being equal to up4% of our outstanding ordinary shares on the applicable date of issuance. These awards of restricted stock units will vest as to 132%)25% on the first anniversary of Dr. Zaccardelli’s employment commencement date and as to the remainder in quarterly installments thereafter over the following three years, subject to continued employment. If Dr. Zaccardelli’s employment is terminated by us without "Cause" or by Dr. Zaccardelli for "Good Reason" (as each such term is defined in his offer agreement), withthen, subject to his signing and not revoking a general release of claims, he is entitled to receive (i) 18 months (or 12 months if the amounttermination occurs after the second anniversary of any such bonus based on annual performance criteria to be agreed between usMr. Zaccardelli’s employment commencement date) of base salary continuation and Dr. Karlsson. By June 1, 2017, Dr. Karlsson was required to investcontinued payment of premiums for continued medical coverage under COBRA, (ii) an amount equal to £130,000 in our company through150% (or 100% if the purchasetermination occurs after the second anniversary of our ordinary shares. Dr. Karlsson is also entitled to participate in
a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below.
Either party may terminate theZaccardelli’s employment agreement by giving the other party not less than 12 months' written notice, provided that we may terminatecommencement date) of Dr. Karlsson at any time with immediate effect for cause or by giving written notice to Dr. Karlsson that we shall pay, in lieu of notice, his basic salary during the 12 months following termination, a pro-ratedZaccardelli’s full annual discretionary bonus, calculated as though all applicable objectives have been achieved for the year of termination, (iii) payment of all accrued and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Dr. Karlsson is entitled to receive his full discretionary bonus (without an obligation to purchase ordinary shares)unused paid time-off, and (iv) full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. See "— Equity Compensation Arrangements" below. schemes (with any performance-vesting awards become vested based on target level attainment), provided that if such termination occurs prior to the first anniversary of Dr. Zaccardelli’s employment commencement date, the awards will become vested as to the portion that would have otherwise vested on or prior to the first anniversary of Dr. Zaccardelli’s employment commencement date.
If payments to Dr. KarlssonZaccardelli would constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or the Code, and would be subject to the excise tax imposed by
Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Karlsson'sZaccardelli’s receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of U.S. and U.K. income tax rates, Dr. Karlsson is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to U.K. taxes during the period of his employment with us. Dr. Karlsson's employment agreementZaccardelli has also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six monthsone year following his termination of employment. Kenneth Newman,Jan-Anders Karlsson, Ph.D.
We and Dr. Karlsson entered into a separation agreement, or the Karlsson Separation Agreement, pursuant to which we and Dr. Karlsson agreed that he would no longer serve as chief executive officer, director or officer, effective as of February 2, 2020, and that his employment with us will terminate effective as of February 28, 2020, or the Separation Date. Dr. Karlsson agreed to help transition his duties to Dr. Zaccardelli. Pursuant to the Karlsson Separation Agreement, Dr. Karlsson agreed to execute a general release of claims, or the Karlsson Settlement Agreement, and he is entitled to receive cash severance payments in the aggregate amount of £982,160, payments for continued medical and life insurance benefits until the first anniversary of the Separation Date and continued pension contributions until the first anniversary of the Separation Date, subject to his compliance with the terms of the Karlsson Separation Agreement, the Karlsson Settlement Agreement and his employment agreement. Additionally, equity awards will either be vested as of the Separation Date, will be forfeited as of the Separation Date, or will be unvested as of the Separation Date and will either vest according to the applicable vesting schedule, or will be forfeited as of February 28, 2021, unless an earlier change in control event occurs, Dr. Karlsson dies or we breach the terms of the Karlsson Separation Agreement or the Karlsson Settlement Agreement. Kathleen Rickard, M.D. We entered into an offer letter with Dr. NewmanRickard on December 15, 2014, which was subsequently amended,13, 2018, pursuant to which heshe agreed to serve as our Chief Medical Officer, effective JanuaryFebruary 1, 2015.2019. This agreement entitles Dr. NewmanRickard to receive an annual base salary of $340,000$390,000 and a target annual bonus opportunity of 40% of hisher annual base salary, with the amount of any such bonus based on performance criteria for our company and hisher individual performance, as determined by the board of directors in its sole discretion. Dr. Newman'sRickard was also entitled to receive a sign-on bonus of $50,000, payable on the date of the offer letter, and is entitled to receive a retention bonus of $250,000, with $125,000 payable on April 1, 2019 and $125,000 payable on April 1, 2020, subject to Dr. Rickard being employed at the applicable date of payment and with the condition that each retention bonus payment is repayable if she resigns or is terminated for "Cause" within 12 months of payment. Subject to the approval of our board of directors and our share dealing policy, Dr. Rickard's offer letter also entitled himher to receive a stock option to purchase 250,00070,000 of our ordinary shares at an exercise priceADSs and to be issued 15,000 restricted stock units with respect to ADSs under the terms of £1.25 per ordinary share,the Company's equity incentive plan, half of which vests in full uponequal proportions on the earlier of (a) thefirst, second and third anniversary of the grant date or (b)and half in equal proportions on the first, second, third and fourth anniversary of the grant date, subject to accelerated vesting upon a change in control. The exercise price of control.the stock option to purchase ADSs will be determined according to the terms of the Company's equity incentive plan at the date of grant. The offer letter with Dr. NewmanRickard also provides that for so long as Dr. Newmanshe is eligible for medical continuation coverage under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, from his previous employer or until we establish a health insurance plan in which he is eligibleentitled to participate Dr. Newman will receive reimbursement for monthly premiums paid for such medical continuation coveragein the Company's 401(k) plan and reimbursement for any premiums he pays for private long-term disability insurance (uphealthcare plans generally available from time to $800 per month).time to employees of the Company based in the U.S. If Dr. Newman'sRickard's employment is terminated by us without "Cause" or by Dr. NewmanRickard for "Good Reason" (as each such term is defined in hisher offer agreement), then, subject to hisher signing and not revoking a general release of claims, heshe is entitled to receive (i) six monthsfour weeks of base salary continuation, (ii) six monthsfour weeks of continued payment of premiums for continued medical coverage under COBRA, (iii) a pro-rated portion of the annual bonus that heshe otherwise would have earned in the year of termination based on actual performance in such year and (iv) if the date of termination occurs within the six-month period immediately preceding the third anniversary of the date of grant of the stock option to purchase 250,000 of our ordinary shares, such stock option will vest in full. The offer agreement also provides that, if Dr. Newman's employment is terminated by us without Cause or by Dr. Newman for Good Reason, in either case within 12 months following a change of control, then, subject to his signing and not revoking a general release of claims, he is entitled to receive (i) nine months of base salary continuation, (ii) nine months of continued payment of premiums for continued medical coverage under COBRA, and (iii) a pro-rated portion of the annual bonus that he would otherwise have earned in the year of termination based on actual performance in such year. If payments to Dr. Newman would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Newman's receipt, on an after-tax basis, of the greater amount of the payment. Piers Morgan We entered into an employment agreement with Mr. Morgan on September 24, 2016, which was subsequently amended, pursuant to which he agreed to serve as our Chief Financial Officer, effective September 26, 2016. This agreement entitles Mr. Morgan to receive an annual base salary of £210,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of 35% (potentially extending to up to 50%) of his salary, with the
amount of any such bonus based on performance criteria for our company and his individual performance, as determined by our board of directors in its sole discretion. Within 12 months after receiving any such bonus payment, Mr. Morgan is expected to invest an amount equal to 25% of the bonus (net of income tax paid by Mr. Morgan) in our company through the purchase of our ordinary shares.shares until he has invested an amount equal to £200,000. Pursuant to this agreement, on September 16, 2016, Mr. Morgan received an option to purchase 300,000 of our ordinary shares with an exercise price of £2.04 per ordinary share, which vests in equal proportions on the first, second and third anniversary of the grant date of September 26, 2016. Mr. Morgan is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below.
Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Mr. Morgan at any time with immediate effect for cause or by giving written notice to Mr. Morgan that we shall pay, in lieu of notice, his basicbase salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Mr. Morgan is entitled to receive his full discretionary bonus (without an obligation to purchase ordinary shares) and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Mr. Morgan would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Mr. Morgan's receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of U.S. and U.K. income tax rates, Mr. Morgan is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to U.K. taxes during the period of his employment with us. Mr. Morgan's employment agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following his termination of employment. Peter Spargo, Ph.D.
We and Mr. Morgan entered into an employmenta separation agreement, with Dr. Spargo on April 1, 2014, which was subsequently amended. Pursuant to this agreement, Dr. Spargo agreed to serve as our Senior Vice President, Chemistry Manufacturing and Controls, effective April 1, 2014. This agreement, as amended, entitles Dr. Spargo to receive an annual base salary of £190,000 and a target annual bonus opportunity of up to 35% of his annual base salary, with the amount of any such bonus based primarily on annual performance criteria to be agreed between us and Dr. Spargo. Dr. Spargo is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Dr. Spargo at any time with immediate effect for cause or by giving written notice to Dr. Spargo that we shall pay, in lieu of notice, his basic salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Dr. Spargo is entitled to receive his full discretionary bonus and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Dr. Spargo would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Spargo's receipt, on an after-tax basis, of the greater amount of the payment. Dr. Spargo's employment agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following his termination of employment.
Claire Poll
We entered into an agreement for consulting services with Ms. Poll on March 28, 2007, or the Poll ConsultingMorgan Settlement Agreement, pursuant to which Ms. Poll provided corporate managerial services to us. We also entered into an agreement for director serviceswe and Mr. Morgan agreed that his employment with Ms. Poll on Marchus will terminate effective as of February 28, 2007 pursuant to which Ms. Poll served on our board of directors2020, or the Poll Director Services Agreement.Separation Date. The Morgan Settlement Agreement contains a general release of claims in our favour. Pursuant to a letter agreement that we entered intothe Morgan Settlement Agreement, Mr. Morgan is entitled to cash severance payments in the aggregate amount of £276,550, payments for continued life insurance benefits for six months following the Separation Date and continued pension contributions for six months following the Separation Date, subject to his compliance with Ms. Poll on September 21, 2015, Ms. Poll retired from our boardthe terms of directors and the Poll Director Services Agreement was terminated, effective September 10, 2015. The letter agreement further provided that an annual aggregate
remuneration of £70,000 payable under both the Poll ConsultingMorgan Settlement Agreement and Poll Director Services Agreement wouldhis employment agreement. Additionally, equity awards will either be paid undervested as of the Separation Date, or will be forfeited as of the Separation Date.
Claire Poll Consulting Agreement. We entered into an employment agreement with Ms. Poll on October 1, 2016 pursuant to which Ms. Poll agreed to serve as our LegalGeneral Counsel, effective September 1, 2016. This agreement, as amended, entitles Ms. Poll to receive an annual base salary of £170,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of 35% of her annual base salary, with the amount of any such bonus based primarily on annual performance criteria to be agreed to between us and Ms. Poll. Pursuant to this agreement, on September 13, 2016, Ms. Poll received an option to purchase a total of 200,000 of our ordinary shares with an exercise price of £1.89 per ordinary share, which vests in equal proportions on the first three anniversaries of the date of grant. Ms. Poll is also entitled to participate in a workplace pension scheme that we contribute to on her behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Ms. Poll at any time with immediate effect for cause or by giving written notice to Ms. Poll that we shall pay, in lieu of notice, her basicbase salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Ms. Poll is entitled to receive her full discretionary bonus and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Ms. Poll would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Ms. Poll's receipt, on an after-tax basis, of the greater amount of the payment. Ms. Poll's employment agreement also contains restrictive covenants pursuant to which she has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following her termination of employment. Richard HenningsMark W. Hahn
We entered into an employment agreement with Mr. HenningsMark Hahn on March 27, 2017,February 1, 2020 pursuant to which he agreed to commence employment with us on February 1, 2020 and serve as our Commercial Director,Chief Financial Officer, effective March 27, 2017.1, 2020. This agreement entitles Mr. HenningsHahn to receive an annual base salary of £155,000,$500,000, which is payable in part in cash and in part in restricted stock units, or such higher rate as may be agreed in writing,the Hahn Annual RSUs, and a target annual bonus opportunity of up to 35%50% of his annual base salary, withsalary. The Hahn Annual RSUs vest in equal quarterly installments during the amount of any such bonus based on annual performance criteriacalendar year in which the grant occurs, subject to be agreed between us and Mr. Hennings.continued employment. Pursuant to his employment agreement, and subject to approval at our annual general meeting of shareholders in 2020, Mr. HenningsHahn is also entitled to receive (a)(i) an optionaward of restricted stock units equal to purchase a total of 160,0003% of our outstanding ordinary shares, withor the First RSU Award, and (ii) an exercise priceadditional award of restricted stock units during or prior to our first open trading window following the date
that is six months after his employment commencement date, or the Reference Date, equal to 1% of our Nasdaq listing priceoutstanding ordinary shares, or the Second RSU Award. The First RSU Award and the Second RSU Award will vest as to 25% on the first anniversary of Mr. Hahn’s employment commencement date or the Reference Date, respectively, and as to the remainder in quarterly installments thereafter over the following three years, subject to continued employment. In the event that the Company raises additional equity capital during fiscal year 2020, which is intended to result in Mr. Hahn’s equity awards (other than the portion of his base salary payable in restricted stock units) being equal to 4% of our outstanding ordinary shares on the applicable date of grant (£1.32)issuance. These awards of restricted stock units will vest as to 75% of the award, on the same vesting schedule as the First RSU Award, and (b) restricted share units withas to 25% of the award, on the same vesting schedule as the Second RSU Award, subject to continued employment. If Mr. Hahn’s employment is terminated by us without "Cause" or by Mr. Hahn for "Good Reason" (as each such term is defined in his offer agreement), then, subject to his signing and not revoking a grant date fair valuegeneral release of approximately £40,000. Mr. Hennings is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice. The employment agreement provides that, upon a change of control, Mr. Henningsclaims, he is entitled to receive his(i) 18 months (or 12 months if the termination occurs after the second anniversary of Mr. Hahn’s employment commencement date) of base salary continuation and continued payment of premiums for continued medical coverage under COBRA, (ii) an amount equal to 150% (or 100% if the termination occurs after the second anniversary of Mr. Hahn’s employment commencement date) of Mr. Hahn’s full annual discretionary bonus, calculated as though all applicable objectives have been achieved for the year of termination, (iii) payment of all accrued and unused paid time-off and (iv) full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. schemes (with any performance-vesting awards become vested based on target level attainment), provided that if such termination occurs prior to the first anniversary of Mr. Hahn’s employment commencement date, the awards will become vested as to the portion that would have otherwise vested on or prior to the first anniversary of Mr. Hahn’s employment commencement date.
If payments to Mr. HenningsHahn would constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Mr. Hennings'Hahn’s receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of US and UK income tax rates, Mr. Hennings is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to UK taxes during the period of his employment with us. Mr. Hennings' employment agreementHahn has also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six monthsone year following his termination of employment. Desiree Luthman, DDS.
We entered into an employment agreement with Ms Luthman on May 1, 2017, pursuant to which she agreed to serve as our Vice-President Regulatory Affairs, effective June 15, 2017. This agreement entitles Ms Luthman to receive an annual base salary of $265,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of up to 25% of her annual base salary, with the amount of any such bonus based on annual performance criteria to be agreed between us and Ms Luthman. Pursuant to her employment agreement, Ms Luthman is also entitled to receive an option to purchase a total of 20,000 of our ADSs under the terms of the
Company's equity incentive plan. The ADSs relate to 160,000 ordinary shares and the exercise price is £1.32 per ordinary share.
If Ms Luthman's employment is terminated by us without "Cause" or by Ms Luthman for "Good Reason" (as each such term is defined in her offer agreement), then, subject to her signing and not revoking a general release of claims, she is entitled to receive (i) eight weeks of base salary continuation, (ii) eight weeks of continued payment of premiums for continued medical coverage under COBRA, and (iii) a pro-rated portion of the annual bonus that she otherwise would have earned in the year of termination based on actual performance in such year.
Equity Compensation Arrangements In May 2017, we closed the initial public offering of our American Depositary Shares in the United States and a private placement of our ordinary shares in Europe, together the global offering. Prior to the global offering, we issued option grants under two option schemes, the Unapproved Share Option Scheme, or the Unapproved Scheme, adopted by our board of directors on September 18, 2006, and the EMI Option Scheme, or the EMI Scheme, adopted by our board of directors on July 24, 2012. Discussions in this section regarding the Unapproved Scheme or the EMI Scheme that refer to our board of directors include any designated committee of our board of directors. Since the adoption of the 2017 Incentive Award Plan, (as defined below),or the 2017 Incentive Plan, no further awards are being made under either the Unapproved Scheme or the EMI Scheme. EMI Option Scheme Under the EMI Scheme, eligible employees were granted tax‑efficient options to purchase our ordinary shares. Options were granted to eligible employees who were contracted to work for us or a qualifying subsidiary for at least 25 hours a week, or, if less than 25 hours a week, for at least 75% of their working time. The options granted under the EMI Scheme are exercisable at a price and in accordance with a vesting schedule determined by our board of directors at the time of grant and expire 10 years from the date of grant. Unapproved Share Option Scheme Under the Unapproved Scheme, we granted non‑tax‑qualifying options to purchase our ordinary shares. Options were granted to employees, directors or consultants to acquire our ordinary shares at a price determined by our board of directors. In general, the options granted under the Unapproved Scheme are exercisable at a price and in accordance with the vesting period determined by our board of directors at the date of grant and expire 10 years from the date of grant.
Certain Transactions Under the EMI Scheme and the Unapproved Scheme, if certain changes are made in, or events occur with respect to, our ordinary shares (including any capitalization, sub-division, reduction or other variation of our ordinary shares), any outstanding awards may be adjusted in terms of the number of ordinary shares subject to an option and the exercise price as our board of directors may determine appropriate on a fair and reasonable basis. In the event of certain corporate transactions, including a change of control, scheme of arrangement, merger, demerger or liquidation, the vesting and exercisability of all options will accelerate and, to the extent not exercised, will lapse within certain time periods defined in the applicable plan rules. Amendment and Termination Our board of directors may at any time amend the rules of the EMI Scheme or the Unapproved Scheme in any manner, except that no amendment may be made if, in the reasonable opinion of our board of directors, it would materially abrogate or adversely affect the subsisting rights of an option holder regarding existing options, unless the amendment is made either (i) with the written consent of the number of option holders that hold options to acquire 50% of the ordinary shares that would be delivered if all options granted and subsisting under the scheme, as applicable, were exercised; or (ii) by a resolution at a meeting of option holders passed by not less than 50% of the option holders holding options under the scheme, as applicable, who attend and vote either in person or by proxy. The EMI Scheme and the Unapproved Scheme are discretionary and may be suspended or terminated by us at any time. Suspension or termination will not affect any options granted under the schemes to the extent that they are subsisting at the date of the suspension or termination.
The following table summarizes the options that we granted to our directors and executive officers under the EMI Scheme and Unapproved Scheme in 2016:
| | | | | | | | | | | | | Name | Ordinary Shares Underlying Options | | Exercise Price Per Share (£) | | Grant Date | | Expiration Date | Jan-Anders Karlsson, Ph.D., M.D. | 100,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 100,000 |
| | 3.30 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 500,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Piers Morgan | 300,000 |
| | 2.04 |
| | September 26, 2016 |
| | September 26, 2026 |
| Kenneth Newman, M.D. | 60,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 200,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Peter Spargo, Ph.D. | 20,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 100,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Claire Poll | 200,000 |
| | 1.89 |
| | September 13, 2016 |
| | September 13, 2026 |
| Richard Hennings | — |
| | — |
| | — |
| | — |
| Patrick Humphrey | — |
| | — |
| | — |
| | — |
| David Ebsworth | — |
| | — |
| | — |
| | — |
| Anders Ullman | — |
| | — |
| | — |
| | — |
| Ken Cunningham | — |
| | — |
| | — |
| | — |
| Rishi Gupta | — |
| | — |
| | — |
| | — |
| Mahendra Shah | — |
| | — |
| | — |
| | — |
| Vikas Sinha | — |
| | — |
| | — |
| | — |
| Andrew Sinclair | — |
| | — |
| | — |
| | — |
|
2017 Incentive Plan We have adoptedUnder the 2017 Incentive Plan, under which we may grant cash and equity‑based incentive awards to eligible service providers in order to attract, retain and motivate the persons who make important contributions to us. The material terms of the 2017 Incentive Plan are summarized below. Except where the context indicates otherwise, references hereunder to our ordinary shares shall be deemed to include a number of ADSs equal to an ordinary share.
Eligibility and Administration Our employees, consultants and directors, and employees and consultants of our subsidiaries, are eligible to receive awards under the 2017 Incentive Plan. The 2017 Incentive Plan is administered by our board of directors, which may delegate its duties and responsibilities to one or more committees of our board of directors and/or officers (referred to collectively as the plan administrator below), subject to the limitations imposed under the 2017 Incentive Plan, stock exchange rules and other applicable laws. The plan administrator has the authority to take all actions and make all determinations under the 2017 Incentive Plan, to interpret the 2017 Incentive Plan and award agreements and to adopt, amend and repeal rules for the administration of the 2017 Incentive Plan as it deems advisable. The plan administrator also has the authority to determine which eligible service providers receive awards, grant awards, set the terms and conditions of all awards under the 2017 Incentive Plan, including any vesting and vesting acceleration provisions, and designate whether such awards will cover our ordinary shares or ADSs, subject to the conditions and limitations in the 2017 Incentive Plan. Sub-Plan The 2017 Incentive Plan authorizedauthorizes the administrator to establish one or more sub-plans. Immediately after the 2017 Incentive Plan had beenwas established, the administrator established a sub-plan. The sub-plan incorporated all of the terms of the 2017 Incentive Plan, except that only employees of ours (or our subsidiaries) were eligible to receive awards under the sub-plan. Awards under the sub-plan counted towards the total number of shares available for issuance under the 2017 Incentive Plan. The sub-plan is an "employees' share scheme" for the purposes of the UK Companies Act 2006.
Shares Available for Awards An aggregate of 6,333,000 of our ordinary shares were initially made available for issuance under the 2017 Incentive Plan. The number of shares initially available for issuance will be increased by an annual increase on January 1 of each calendar year beginning in 2018 and ending in and including 2027 equal to the least of (A) 4% of our ordinary shares outstanding on the final day of the immediately preceding calendar year and (B) a smaller number of shares determined by our board of directors. As of January 1, 2020, the number of shares available for issuance was 5,499,058. Pursuant to the terms of the 2017 Incentive Plan, awards may be issued under the 2017 Incentive Plan covering ADSs in lieu of the number of our ordinary shares that such ADSs represent. No more than 5,000,000 shares may be issued under the 2017 Incentive Plan upon the exercise of incentive options. Shares issued under the 2017 Incentive Plan may be authorized but unissued shares, shares purchased on the open market, treasury shares or ADSs.
If an award under the 2017 Incentive Plan, the EMI Option Scheme, the Unapproved Share Option Scheme or any prior equity incentive plan, expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, any unused shares subject to the award will, as applicable, become or again be available for new grants under the 2017 Incentive Plan. Awards granted under the 2017 Incentive Plan in substitution for any options or other equity or equity-based awards granted by an entity before the entity's merger or consolidation with us or our acquisition of the entity's property or stock will not reduce the shares available for grant under the 2017 Incentive Plan, but will count against the maximum number of shares that may be issued upon the exercise of incentive options. Awards The 2017 Incentive Plan provides for the grant of options, share appreciation rights, or SARs, restricted shares, dividend equivalents, restricted share units, or RSUs, and other share or cash based awards. All awards under the 2017 Incentive Plan will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows. Options and SARs. Options provide for the purchase of our ordinary shares in the future at an exercise price set on the grant date. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR. Restricted Shares and Restricted Share Units. Restricted shares are an award of nontransferable ordinary shares that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. RSUs are contractual promises to deliver our ordinary shares in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on our ordinary shares prior to the delivery of the underlying shares. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to restricted shares and RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the 2017 Incentive Plan. Other Share or Cash Based Awards. Other share or cash based awards are awards of cash, fully-vested our ordinary shares and other awards valued wholly or partially by referring to, or otherwise based on, our ordinary shares or other property. Other share or cash based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other share or cash based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions. Performance Criteria The plan administrator may select performance criteria for an award to establish performance goals for a performance period. Performance criteria under the 2017 Incentive Plan may include, but are not limited to, the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on
capital or invested capital; cost of capital; return on shareholders' equity; total shareholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the company's performance or the performance of a subsidiary, division, business segment or business unit of the company or a subsidiary, or based upon performance relative
to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies. When determining performance goals, the plan administrator may provide for exclusion of the impact of an event or occurrence which the plan administrator determines should appropriately be excluded, including, without limitation, non-recurring charges or events, acquisitions or divestitures, changes in the corporate or capital structure, events unrelated to the business or outside of the control of management, foreign exchange considerations, and legal, regulatory, tax or accounting changes. Certain Transactions In connection with certain corporate transactions and events affecting our ordinary shares, including a change in control, another similar corporate transaction or event, another unusual or nonrecurring transaction or event affecting us or its financial statements or change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action under the 2017 Incentive Plan to prevent the dilution or enlargement of intended benefits, facilitate the transaction or event or give effect to the change in applicable laws or accounting principles. This includes canceling awards for cash or property, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares subject to outstanding awards and/or with respect to which awards may be granted under the 2017 Incentive Plan and replacing or terminating awards under the 2017 Incentive Plan. In addition, in the event of certain non-reciprocal transactions with our shareholders, the plan administrator will make equitable adjustments to the 2017 Incentive Plan and outstanding awards as it deems appropriate to reflect the transaction. Pursuant to the terms of their individual employment agreements, awards granted under the 2017 Incentive Plan to certain of our executives may become fully vested and exercisable upon a change in control. Plan Amendment and Termination Our board of directors may amend or terminate the 2017 Incentive Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the 2017 Incentive Plan, may materially and adversely affect an award outstanding under the 2017 Incentive Plan without the consent of the affected participant and shareholder approval will be obtained for any amendment to the extent necessary to comply with applicable laws. Further, the plan administrator cannot, without the approval of our shareholders, amend any outstanding option or SAR to reduce its price per share or cancel any outstanding option or SAR in exchange for cash or another award under the 2017 Incentive Plan with an exercise price per share that is less than the exercise price per share of the original option or SAR. The 2017 Incentive Plan will remain in effect until the tenth anniversary of its effective date unless earlier terminated by our board of directors. No awards may be granted under the 2017 Incentive Plan after its termination. Non-U.S. Participants, Claw-Back Provisions, Transferability and Participant Payments The plan administrator may modify awards granted to participants who are non-U.S. nationals or employed outside the United States or establish sub-plans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions. All awards will be subject to any company claw-back policy as set forth in such claw-back policy or the applicable award agreement. Except as the plan administrator may determine or provide in an award agreement, awards under the 2017 Incentive Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the plan administrator's consent, pursuant to a domestic relations order, and are generally exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2017 Incentive Plan, and exercise price obligations arising in connection with the exercise of options under the 2017 Incentive Plan, the plan administrator may, in its discretion, accept cash, wire
transfer or cheque,check, our ordinary shares that meet specified conditions, a promissory note, a "market sell order," such other consideration as the plan administrator deems suitable or any combination of the foregoing. 2017
2019 Grants The following table summarizes the options that we granted to our directors and executive officers under the 2017 Incentive Plan in 2017:2019: | | | | | | | | | | | Name | Ordinary Shares Underlying Options | | Exercise Price Per Share (£) | | Grant Date | | Expiration Date | Jan-Anders Karlsson, Ph.D., M.D. | 1,385,598 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Piers Morgan | 802,690 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Kenneth Newman, M.D. | 796,128 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Peter Spargo, Ph.D. | 544,681 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Claire Poll | 487,347 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Richard Hennings | 160,000 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Desiree Luthman | 160,000 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Vikas Sinha | 120,384 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | David Ebsworth | — |
| | — |
| | — | | — | Anders Ullman | — |
| | — |
| | — | | — | Ken Cunningham | — |
| | — |
| | — | | — | Rishi Gupta | — |
| | — |
| | — | | — | Mahendra Shah | — |
| | — |
| | — | | — | Andrew Sinclair | — |
| | — |
| | — | | — |
| | | | | | | | | | | Name | Ordinary Shares Underlying Options |
| | Exercise Price Per Share (£) |
| | Grant Date | | Expiration Date | | | | | | | | | Kathleen Rickard | 560,000 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 | Piers Morgan | 359,430 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 | Claire Poll | 256,735 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 |
The following table summarizes the RSUs that we granted on April 1, 2019, to our directors and executive officers under the 2017 Incentive Plan in 2017:2019: | | | | Name | Restricted Share Units Granted |
| Jan-Anders Karlsson, Ph.D., M.D. Kathleen Rickard | 346,395120,000 |
| Piers Morgan | 200,669 |
| Kenneth Newman, M.D. | 199,016 |
| Peter Spargo, Ph.D. | 136,16893,247 |
| Claire Poll | 121,835 |
| Richard Hennings | 48,153 |
| David Ebsworth | — |
| Anders Ullman | — |
| Ken Cunningham | — |
| Rishi Gupta | — |
| Mahendra Shah | — |
| Vikas Sinha | — |
| Andrew Sinclair | —66,603 |
|
The options and RSUs (other than those granted to Messrs. Hennings and Sinha) vest as to 50% of the ordinary shares in three substantially equal annual installments following the grant date and as to 50% of the ordinary shares in four substantially equal annual installments following the grant date. The options and RSUs granted to
Messrs. Hennings and Sinha vest in three substantially equal annual installments following the grant date. This description relates to the options and RSUs granted in connection with the global offering.
Non-Employee Directors Remuneration The following table sets forth the remuneration paid during 20172019 to our current non-employee directors: | | Name | Annual Fees (£) | | Total (£) | Fees (£) |
| | Total (£) |
| David Ebsworth | 108,000 |
| | 108,000 |
| 108,000 |
| | 108,000 |
| Anders Ullman | 30,000 |
| | 30,000 |
| 30,000 |
| | 30,000 |
| Ken Cunningham | 40,000 |
| | 40,000 |
| 40,000 |
| | 40,000 |
| Rishi Gupta | 30,000 |
| | 30,000 |
| 30,000 |
| | 30,000 |
| Mahendra Shah | 30,000 |
| | 30,000 |
| 30,000 |
| | 30,000 |
| Vikas Sinha | 42,000 |
| | 42,000 |
| 42,000 |
| | 42,000 |
| Andrew Sinclair | 30,000 |
| | 30,000 |
| 30,000 |
| | 30,000 |
| Patrick Humphrey | 8,750 |
| | 8,750 |
| | Martin Edwards | | 22,500 |
| | 22,500 |
|
Non-Employee Director Service Contracts The remuneration of the non-executive directors is determined by our board as a whole, based on a review of current practices in other companies. We have entered into service contracts with our directors for their services, which are subject to a three-month termination period. Pension, Retirement or Similar Benefits We operate a defined contribution pension scheme which is available to all UK employees. The total amount set aside or accrued by us to provide pension, retirement or similar benefits to our current directors and our executive officers with respect to 20172019 was £41,671,£30,000, which represents contributions made by us in 20172019 in respect of a defined contribution scheme in which Dr. Karlsson, Ms. Poll, Mr. HenningsMs. Rickard, and Mr. Morgan participated.
C. Board Practices Composition of our Board of Directors Our Board is comprised of eightnine members. In accordance with our Articles of Association, one third of our directors retire from office at every annual general meeting of shareholders. However, if the number of directors serving on our Board is not divisible by three, then the number nearest but not exceeding 33.3% shall retire from office at each annual general meeting of shareholders. Retiring directors are eligible for re-election and, if no other director is elected to fill his or her position and the director is willing, shall be re-elected by default.
The expiration of the current terms of the members of our board of directors and the period each member has served in that term are as follows:
| | Name | Year Current Term Began | Next year of re-election | Year Current Term Began | Next year of re-election | Jan-Anders Karlsson, Ph.D. | 2012 | 2020 | | David Zaccardelli, Pharma.D. | | 2020 | David Ebsworth, Ph.D. | 2014 | 2018 | 2018 | 2021 | Ken Cunningham, M.D. | 2015 | 2019 | 2015 | 2022 | Rishi Gupta | 2016 | 2021 | 2016 | 2020 | Mahendra Shah, Ph.D. | 2016 | 2020 | 2016 | 2020 | Andrew Sinclair, Ph.D. | 2016 | 2019 | 2016 | 2022 | Vikas Sinha | 2016 | 2021 | 2016 | 2020 | Anders Ullman, M.D., Ph.D. | 2015 | 2018 | 2018 | 2021 | Martin Edwards, M.D. | | 2019 | 2021 |
There are no arrangements or understanding between us and any of the members of our board of directors providing for benefits upon termination of their service.
Committees of our Board of Directors Our Board has three standing committees: an Audit and Risk Committee, a Remuneration Committee and a Nomination and Governance Committee. Audit and Risk Committee of the Board The Audit and Risk Committee, which consists of Vikas Sinha, Dr. David Ebsworth and Dr. Andrew Sinclair, , assists the Board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Mrstatements and monitoring UK Governance Code compliance and business risk. Mr. Sinha serves as Chairman of the Audit and Risk Committee. The Audit and Risk Committee consists of members of our Board who are financially literate and are also considered to be "audit committee financial experts" as defined by applicable SEC rules and have the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. Our Board has determined that all of the members of the Audit and Risk Committee satisfy the "independence" requirements set forth in Rule 10A-3 under the Exchange Act. The Audit and Risk Committee will beis governed by a charter that complies with Nasdaq rules. The Audit and Risk Committee's responsibilities include:include, among other things: recommending the appointment of the independent auditor to the general meeting of shareholders; the appointment, compensation, retention and oversight of the independent auditor; pre-approving the audit services and non-audit services to be provided by ourthe independent auditor before the auditor is engaged to render such services; evaluating the independent auditor's qualifications, performance and independence, and presenting its conclusions to our Board on at least an annual basis; reviewing and discussing with the executive officers, our Board and the independent auditor our financial statements and our financial reporting process; and considering and recommending to our Board whether the audited financial statements be approved.approved; and monitoring our review and mitigation of corporate and operational risk. The Audit and Risk Committee will meetmeets as often as one or more members of the Committee deem necessary, but in any event willmust meet at least four times per year. The Audit and Risk Committee willmust meet at least once per year with our independent auditor, without our executive officers being present.
Remuneration Committee of the Board The Remuneration Committee, which consists of Dr. Ken Cunningham, Dr. David Ebsworth and Rishi Gupta, assists the Board in determining directors’ and senior executives’executive officers’ compensation. Dr Cunningham serves as Chairman of the Committee. The Remuneration Committee's responsibilities include:include, among other things: identifying, reviewing and proposing policies relevant to the compensation of the Company’s directors and executive officers; evaluating each executive officer's performance in light of such policies and reporting to the Board; analyzing the possible outcomes of the variable remuneration components and how they may affect the remuneration of the executive officers; recommending any equity long-term incentive component of each executive officer's compensation in line with the remuneration policy and reviewing our executive officer compensation and benefits policies generally; appointing and setting the terms of referenceengagement for any remuneration consultants who advise the Committee and obtain benchmarking data with respect to the directors' and executive officers’ compensation; and reviewing and assessing risks arising from our compensation policies and practices. Nomination and Governance Committee of the Board The Nomination and Governance Committee, which consists of Dr. David Ebsworth, Dr. Mahendra Shah and Dr. Anders Ullman, assists our Board in identifying individuals qualified to become executive and non-executive directors of our Company consistent with criteria established by our Board and in developing our corporate governance principles. Dr Ebsworth serves as Chairman of the Committee. The Nomination and Governance Committee's responsibilities include:include, among other things:
reviewing and evaluating the structure, size and composition of our Board and making recommendations with regard to any adjustments considered necessary; drawing up selection criteria and appointment procedures for Board members; identifying and nominating, for the approval of our Board, candidates to fill vacancies on theBoardthe Board and its corresponding committees; keeping under review the leadership needs of the Company, both executive and non-executive, and planning the orderly succession of such appointments; and assessing the functioning of our Board and individual members and reporting the results of such assessment to the Board.
D. Employees As of December 31, 2017, 20162019, 2018 and 2015,2017, we had 24, 15, and 15 employees, respectively, of which 13, 11, and 9 employees, respectively. All of our employees10 were based in the United Kingdom, except that, asrespectively, and the remainder of December 31, 2017, 2016 and 2015, we had one to four employeeswhich were based outside of the United Kingdom. All of our employees were engaged in either administrative or research and development functions. None of our employees are covered by a collective bargaining agreement. E. Share Ownership For information regarding the share ownership of members of our board and executive officers and arrangements involving our employees in our share capital, see “ItemItem 6.B. Compensation,” Item 7.A. Major Shareholders”Shareholders and “ItemItem 7.B. Related Party Transactions.”
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS The following table sets forth information relating to the beneficial ownership of our ordinary shares as of December 31, 20172019, by: | | ▪ | each person, or group of affiliated persons, that beneficially owns 3% or more of our outstanding ordinary shares;shares (including ordinary shares in the form of our ADSs); |
| | ▪ | each member of our board of directors and each of our other executive officers; and |
| | ▪ | all board members and executive officers as a group. |
The number of ordinary shares beneficially owned by each entity, person, board member or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of February 27, 2018December 31, 2019, through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person. The percentage of ordinary shares beneficially owned is computed on the basis of 105,017,400105,326,638 of our ordinary shares outstanding as of February 1, 2018.December 31, 2019. Ordinary shares that a person has the right to acquire within 60 days of December 31, 20172019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all board members and executive officers as a group. As of February 1, 2018, 55,931,336December 31, 2019, 56,045,857 ordinary shares, representing 53% of our issued and outstanding ordinary shares (including ordinary shares in the form of our ADSs), were held by 1415 U.S. record holders. Unless otherwise indicated below, the address for each beneficial owner listed is c/o Verona Pharma plc, 3 More London Riverside, London SE1 2RE UK.
| | | | | | | | Number of Shares Beneficially Owned
| Name and address of beneficial owner | Number | Percentage | 3% or Greater Shareholders: | | | Novo A/S (1) | 14,159,611 | 13% | Vivo Capital affiliates (2) | 13,811,584 | 13% | OrbiMed Private Investments VI, LP (3) | 11,871,114 | 11% | Growth Equity Opportunities Fund IV, LLC (4) | 11,527,019 | 11% | Abingworth Bioventures VI, LP (5) | 8,619,774 | 8% | venBio Select Advisor (6) | 7,000,000 | 7% | Biodiscovery 4 FCPI (7) | 6,652,398 | 6% | Foresite (8) | 5,000,000 | 5% | Tekla Capital affiliates (9) | 5,296,845 | 5% | Aisling Capital IV, LP (10) | 4,138,643 | 4% | Arix Bioscience Holdings Ltd affiliates (11) | 3,916,493 | 4% | Canaccord Genuity Group, Inc.(12)
| 3,255,792 | 3% | Executive Officers and Directors: | | | Jan-Anders Karlsson, Ph.D.(13) | 749,142 | 1% | Piers Morgan (14) | 100,000 | —% | Kenneth Newman, M.D.(15) | 356,665 | 1% | Claire Poll (16) | 236,663 | —% | Richard Hennings | — | —% | Peter Spargo, Ph. D.(17) | 139,663 | —% | Ken Cunningham, M.D. | — | —% | David Ebsworth, Ph.D.(18) | 140,703 | —% | Rishi Gupta | — | —% | Mahendrah Shah, Ph.D. | — | —% | Andrew Sinclair, Ph.D.(19) | — | —% | Vikas Sinha (20) | 22,222 | —% | Anders Ullman, Ph.D. | — | —% | All executive officers and directors as a group (13 persons) | 1,745,058 | 2% |
| | | | | Number of Shares Beneficially Owned | Name and address of beneficial owner | Number | Percentage | 3% or Greater Shareholders: | | | Novo A/S (1) | 14,159,611 | 13.22% | Vivo Capital affiliates (2) | 13,811,584 | 12.88% | OrbiMed Private Investments VI, LP (3) | 11,871,112 | 11.07% | Growth Equity Opportunities Fund IV, LLC (4) | 11,527,019 | 10.76% | Abingworth Bioventures VI, LP (5) | 8,619,765 | 8.08% | venBio Select Advisor (6) | 7,000,000 | 6.65% | Polar Capital Holdings plc (7) | 5,368,819 | 5.09% | Tekla Capital affiliates (8) | 5,296,845 | 4.99% | Aisling Capital IV, LP (9) | 4,138,643 | 3.91% | Executive Officers and Directors: | | | David Zaccardelli, Pharm.D | — | — | Piers Morgan (10) | 1,712,362 | 1.60% | Kathleen Rickard, M.D. | — | — | Claire Poll (11) | 799,141 | * | Ken Cunningham, M.D. | — | — | Martin Edwards | — | — | David Ebsworth, Ph.D.(12) | 400,303 | * | Rishi Gupta | — | — | Mahendra Shah, Ph.D. | — | — | Andrew Sinclair, Ph.D. | — | — | Vikas Sinha (13) | 102,478 | * | Anders Ullman, Ph.D. | — | — | All executive officers and directors as a group (12 persons) | 3,014,284 | 2.83% | * Less than 1%. | | |
| | (1) | Consists of (a) 12,389,985 ordinary shares held directly by Novo A/S, or Novo, and (b) warrants to purchase 1,769,626 ordinary shares. The board of directors of Novo A/S, or the Novo Board, has shared investment and voting control over the securities held by Novo and may exercise such control only with the support of a majority of the Novo Board. As such, no individual member of the Novo Board is deemed to hold any beneficial ownership or reportable pecuniary interest in the securities held by Novo. Beneficial ownership information is based on information known to us and a Form TR-1 provided to usSchedule 13D filed with the SEC on June 6, 2017.April 2, 2019. Novo's mailing address is Tuborg Havnevej 19, Hellerup, G7 2900, Denmark.Denmark |
| | (2) | Consists of (a) 2,388,728 ordinary shares held directly by Vivo Ventures Fund VI, L.P., or Vivo VI, of which 1,126,760 are held in the form of ADSs, (b) warrants to purchase 370,871 ordinary shares held directly by Vivo VI, (c) warrants to purchase 2,717 ordinary shares held directly by Vivo Ventures VI Affiliates Fund, L.P., or Vivo Affiliates VI, (d) 9,554,917 ordinary shares held directly by Vivo Ventures Fund VII L.P., or Vivo VII, of which 4,507,040 are held in the form of ADSs, (e) warrants to purchase 1,462,477 ordinary shares held directly by Vivo VII, (f) warrants to purchase 31,874 ordinary shares held directly by Vivo Ventures VII Affiliates Fund, L.P., or Vivo Affiliates VII. Vivo Ventures VI, LLC , or Vivo Ventures VI, is the sole general partner of Vivo VI and Vivo Affiliates VI. Vivo Ventures VII, LLC, or Vivo Ventures VII, is the sole general partner of Vivo VII and Vivo Affiliates VII. Vivo Ventures VI and Vivo Ventures VII disclaim beneficial ownership of all shares held by Vivo VI, Vivo Affiliates VI, Vivo VII and Vivo Affiliates VII except to the extent of any pecuniary interest therein. The managing members of Vivo Ventures VI are Drs. Albert Cha, Edgar Engleman and Frank Kung, each of whom may be deemed to have shared voting and dispositive power of the shares held by Vivo VI and Vivo Affiliates VI. The managing members of Vivo Ventures Vll are Drs. Albert Cha, Edgar Engleman, Frank Kung, Chen Yu and Mr. Shan Fu, each of whom may be deemed to have shared voting and dispositive power of the shares held by Vivo Vll and Vivo Affiliates Vll. Mahendra Shah, the Managing Director of Vivo Capital, is a member of our Board of Directors and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest arising as a result of his employment by Vivo Capital. Beneficial ownership information is based on information known to us and Forms TR-1 provided to us on May 30, 2017. Vivo Capital's mailing address is 505 Hamilton Avenue, Suite 200, Palo Alto, CA 94301. |
Shah, the Managing Director of Vivo Capital, is a member of our Board of Directors and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest arising as a result of his employment by Vivo Capital. Beneficial ownership information is based on information known to us and Forms TR-1 provided to us on May 30, 2017. Vivo Capital's mailing address is 505 Hamilton Avenue, Suite 200, Palo Alto, CA 94301.
| | (3) | Consists of (a) 10,003,17510,003,174 ordinary shares held directly by OrbiMed Private Investments VI, LP, or OrbiMedOPI VI, of which 5,333,32810,003,168 are held in the form of ADSs and (b) warrants to purchase 1,867,9391,867,938 ordinary shares are held directly by OrbiMedOPI VI. OrbiMed Capital GP VI LLC, or GP VI, is the general partner of OrbiMedOPI VI. OrbiMed Advisors LLC, or OrbiMed Advisors, ispursuant to its authority as the sole managing member of GP VI. Samuel D. Isaly isVI, the managing membersole general partner of and owner of a controlling interest in OrbiMed Advisors. By virtue of such relationships, GPOPI VI, OrbiMed Advisors and Mr. Isaly may be deemed to have voting and investment power with respect toindirectly beneficially own the ordinary shares held by OrbiMedOPI VI. GP VI, andpursuant to its authority as a resultgeneral partner or OPI VI, may be deemed to have beneficial ownership of such shares. Rishi Gupta, an employee of OrbiMedindirectly beneficially own the ordinary shares held by OPI VI. As a result, Advisors is a member of our Board of Directors. Each ofand GP VI OrbiMedshare the power to direct the vote and to direct the disposition of the ordinary shares held by OPI VI. Advisors Mr. Isalyexercises this investment and Mr. Guptavoting power through a management committee comprised of Carl L. Gordon, Sven H. Borho and Jonathan T. Silverstein, each of whom disclaims beneficial ownership of the ordinary shares held by OrbiMed VI, except to the extent of its or his pecuniary interest therein, if any.OPI VI. Beneficial ownership information is based on information known to us and a Form TR-1 provided to usSchedule 13D/A filed with the SEC on May 25, 2017. OrbiMed Advisors'January 26, 2018. The mailing address of OPI VI, GP VI and Advisors is 601 Lexington Avenue, 54th Floor, New York, NY 10022. |
| | (4) | Consists of (a) 9,757,393 ordinary shares held directly by Growth Equity Opportunities Fund IV, LLC, or GEO, of which 5,333,328 are held in the form of ADSs, and (c) warrants to purchase 1,769,626 ordinary shares held directly by GEO. New Enterprise Associates 15, L.P., or NEA 15, is the sole member of GEO. NEA Partners 15, L.P., NEA Partners 15, is the sole general partner of NEA 15. NEA 15 GP, LLC, or NEA 15 LLC, is the sole general partner of NEA Partners 15. Peter J. Barris, Forest Baskett, Anthony Florence, Jr., Krishnu Kolluri, David M. Mott, Scott D. Sandell, Peter Sonsini, Jon Sakoda, Ravia Viswanthan and Henry Weller are the managers of NEA 15 LLC. NEA 15, NEA Partners 15, NEA 15 LLC and the managers of NEA 15 LLC share voting and dispositive power with regard to the securities held by GEO. Each of NEA 15, NEA Partners 15 and NEA 15 LLC as well as each of the managers of NEA 15 LLC disclaims beneficial ownership of all shares held by GEO except to the extent of their actual pecuniary interest therein. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 8, 2017. GEO's mailing address is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093-4135. |
| | (5) | Consists of (a) 7,215,5537,215,544 ordinary shares held directly by Abingworth Bioventures VI, LP, or Abingworth VI, all of which 3,705,000 are held in the form of ADSs, and (b) warrants to purchase 1,404,221 ordinary shares held directly by Abingworth VI. Abingworth Bioventures VI GP LP, or Abingworth GP VI, serves as general partner of Abingworth VI. Abingworth General Partner VI LLP, or Abingworth General Partner VI, serves as general partner of Abingworth GP VI. Abingworth General Partner VI has delegated to Abingworth LLP, all investment and dispositive power over the securities held by Abingworth VI. An Abingworth LLP investment committee comprised of Stephen Bunting, Timothy Haines, Kurt von Emster and Genghis Lloyd-Harris approves investment and voting decisions of Abingworth VI by a majority vote, and no individual member has the sole control or voting power over the securities held by Abingworth VI. Abingworth GP VI, Abingworth General Partner VI, Abingworth LLP and each of Stephen Bunting, Timothy Haines, Kurt von Emster and Genghis Lloyd-Harris disclaim beneficial ownership of securities held by Abingworth VI, except to the extent, if any of their pecuniary interest therein. Andrew Sinclair is a Partner and Portfolio Manager at Abingworth LLP and a member of our board of directors. Dr. Sinclair does not have voting or dispositive power over any of the securities held by Abingworth Vl. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 9, 2017. Abingworth VI's mailing address is 38 Jermyn Street, London SW1Y 6DN, United Kingdom. |
| | (6) | Consists of 7,000,000 ordinary shares held in the form of ADSs by VenBio Select Advisor. This information is based on information known to us. The mailing address for VenBio Select Advisor is 120 W 45th St #2802, New York, NY 10036 |
| | (7) | Consists of (a) 5,767,5855,300,000 ordinary shares of which (a) 4,500,000 ordinary shares are held directly by Polar Biotechnology Fund, or PBF, (b) 800,000 are held by PBF in the form of ADSs, by Biodiscovery 4 FCPI, or Biodiscovery, and (b)(c) warrants to purchase 884,81368,819 ordinary shares held directly by Biodiscovery.PBF. PBF and PCGH are managed by Polar Capital Holdings plc, or PCH. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 5, 2017. The mailing address for Biodiscovery is 47 rue du Faubourg Saint-Honoré75401 Cedex 08 Paris FranceSeptember 9, 2019 and information known to us. |
| | (8) | Consists of 5,000,000 ordinary shares held in the form of ADSs by Foresight Capital Management. This information is based on information known to us. The mailing address for Foresight Capital Management is [600 Montgomery Street, Suite 4500, San Francisco, CA 94111 |
| | (9)
| Consists of (a) 4,412,031 ordinary shares held directly by Tekla World Healthcare Fund, or Tekla World, of which 2,200,000 are held in the form of ADSs, (b) warrants to purchase 513,192 purchase ordinary shares held directly by Tekla World, and (c) warrants to purchase 371,622 ordinary shares held directly by Tekla Life. Tekla Capital Management LLC, or Tekla Capital, is an investment adviser registered pursuant to Section 203 of the Investment Advisers Act of 1940 and is the investment adviser of Tekla World and Tekla Life, each of which is a registered investment company pursuant to Section 8 of the Investment Company Act of 1940. Each of Tekla Capital and Daniel R. Omstead, through his control of Tekla Capital, has sole power to dispose of the shares beneficially owned by Tekla World and Tekla Life. Neither Tekla Capital nor Daniel R. Omstead has the sole power to vote or direct the vote of the shares beneficially owned by Tekla World and Tekla Life, which power resides in each fund's Board of Trustees. Tekla Capital carries out the voting of the shares under written guidelines established by each fund's Board of Trustees. Beneficial ownership information is based on information known to us and a Schedule 13G filed with the Securities and Exchange CommissionSEC on February 13, 2017.12, 2019. Tekla Capital's mailing address is 100 Federal Street, 19th Floor, Boston, MA 02110. |
| | (10)(9)
| Consists of (a) 3,548,768 ordinary shares held directly by Aisling Capital IV, LP, or Aisling, of which 2,074,080 are held in the form of ADSs, and (b) warrants to purchase 589,875 ordinary shares held directly by Aisling. This information is based on information known to us and a TR-1 provided to us on June 6, 2017. The mailing address of Aisling is Aisling Capital, 888 Seventh Avenue, 12th Floor, New York, NY 1010610106. |
| | (10) | Consists of (a) 147,009 ordinary shares, (b) 238,420 ordinary shares issuable from restricted stock units that will vest within 60 days of December 31, 2019 and (c) 1,326,933 options to purchase ordinary shares that are, or will be within 60 days of December 31, 2019, immediately exercisable. |
| | (11) | Consists of (a) 1,290,352 ordinary shares held directly by Arix Bioscience Holdings Ltd, or Arix, (b) warrants to purchase 516,141 ordinary shares held directly by Arix and (c) 2,110,000 ordinary shares held directly by Wales Life Sciences Investment Fund, or WLSIF. Arthurian Life Sciences Ltd, or Arthurian, is the general partner of WLSIF and a wholly owned subsidiary of Arix. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on August 3, 2016 and January 3, 2017. Arix's mailing address is 20 Berkeley Square, London W1J 6EQ, United Kingdom. |
| | (12)
| Canaccord Genuity Group Inc. is the beneficial owner of an aggregate of 3,255,792 ordinary shares held directly by (a) Hargreave Hale which holds 2,941,250130,575 ordinary shares and (b) Canaccord Genuity Wealth Management which holds 314,542 ordinary shares. This information is based on information known to us. The mailing address for Canaccord Genuity Group Inc. is 88 Wood Street, London, UK, EC2V 7QR. |
| | (13)
| Consists of (a) 89,150 ordinary shares and (b) 659,992668,566 options to purchase ordinary shares that are, or will be immediately exercisable within 60 days of February 1, 2018.December 31, 2019, immediately exercisable. |
| | (14)
| Consists of 100,000 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (15)
| Consists of 356,665 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (16)(12)
| Consists of (a) 95,000 ordinary shares and (b) 141,663 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (17)
| Consists of (a) 13,000 ordinary shares and (b) 126,663 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (18)
| Consists of (a) 135,787395,387 ordinary shares and (b) warrants to purchase 4,916 ordinary shares. |
| | (19)
| Dr. Sinclair is a Partner and Portfolio Manager at Abingworth LLP. Dr. Sinclair does not have voting or dispositive power over any of the shares directly held by Abingworth Vl referenced in footnote (6) above. Dr. Sinclair's business address is 38 Jermyn Street, London SW1Y 6DN, United Kingdom. |
| | (20)(13)
| Consists of (a) 22,222 ordinary shares and (b) options to purchase 80,256 ordinary shares that are or will be immediately exercisable withinwithint 60 days of February 1, 2018.December 31, 2019. |
To our knowledge, and other than changesas provided in percentage ownership as a result of the shares issued in connectiontable above, our other filings with our initial public offering of our ADSs,the SEC and this Annual Report, there has been no significant change in the percentage ownership held by theany major shareholders listed aboveshareholder since January 1, 2017, except as discussed under the heading “Related Party Transactions.”2017. The major shareholders listed above do not have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares. ParticipationB. Related Party Transactions.
The following is a description of related party transactions we have entered into since January 1, 2019 or currently in the Global Offering In April 2017, the holders of 3% or moreeffect with any member of our common shares participated in the global offering as follows:board of directors and executive officers.
| | | | | | Investor | | Number of ADSs or shares subscribed for | | Aggregate purchase price | Novo A/S | | 740,740 ADSs | | USD 9,999,990 | Vivo Capital affiliates
| | 563,380 ADSs | | USD 7,605,630 | OrbiMed Private Investments VI, LP
| | 666,666 ADSs | | USD 8,999,991 | New Enterprise Associates, LP | | 666,666 ADSs | | USD 8,999,991 | Abingworth Bioventures VI, LP
| | 463,125 ADSs | | USD 6,252,188 | venBio Select Advisor
| | 875,000 ADSs | | USD 11,812,500 | Biodiscovery 4 FCPI
| | 444,444 ADSs | | USD 5,999,994 | Foresite | | 600,000 ADSs | | USD 8,100,000 | Tekla Capital affiliates | | 275,000 ADSs | | USD 3,712,500 | Aisling Capital IV, LP | | 259,260 ADSs | | USD 3,500,010 | Arix Bioscience Holdings Ltd affiliates | | 170,228 ADSs | | USD 2,298,078 | Canaccord Genuity Group, Inc. | | 1,255,001 shares | | GBP 1,656,601 |
Shareholder Private Placement
In May 2017, we issued and sold 13,373 ordinary shares to our Chairman, Dr. David Ebsworth, for aggregate gross proceeds to us of £18,000.
Registration Rights Agreement In July 2016, we entered into a registration rights agreement that providedprovides certain demand registration rights to Abingworth Bioventures VI, LP, or Abingworth, Growth Equity Opportunities Fund IV, LLC, OrbiMed Private Investments VI, LP, or OrbiMed, and Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., and Vivo Ventures Fund VI Affiliates Fund, L.P., or collectively, Vivo Capital, with respect to the ordinary shares and any ADSs held by them. Demand Registration Rights At any time, the holders of at least a majority of the registrable securities as defined in the registration rights agreement have the right to demand that we effect an underwritten public offering of their registrable securities pursuant to an effective registration statement under the Securities Act. These registration rights are subject to specified conditions and limitations including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. Upon such a request, we are required to use commercially reasonable efforts to effect the public offering. Expenses of Registration We will pay all expenses relating to any registration under the registration rights agreement, other than selling commission, discounts or brokerage fees and stock transfer taxes, subject to specified conditions and limitations. Termination of Registration Rights The registration rights granted under the registration rights agreement shall terminate upon the earlier to occur of (i) the fifth anniversary of the closing of the global offering and (ii) the date on which there are no registrable securities remaining pursuant to the registration rights agreement. Relationship Agreements In June 2016, we entered into relationship agreements with each of Vivo Capital, OrbiMed, and Abingworth, pursuant to which our relationship with such parties is regulated and their influence over our corporate actions and activities, and the outcome of general matters pertaining to us, are limited. Pursuant to the relationship agreements, we also agreed to appoint representatives designated by Vivo Capital, OrbiMed, and Abingworth to our board of directors, who are Dr. Mahendra Shah, Mr. Rishi Gupta, and Dr. Andrew Sinclair, respectively. The appointment rights under the relationship agreements will automatically terminate upon (i) Vivo Capital, OrbiMed or Abingworth (or any of their associates), as applicable, ceasing to beneficially hold 6.5% of our issued ordinary shares, or (ii) our ordinary shares ceasing to be admitted to AIM. In addition, each of the relationship agreements will automatically terminate upon the first date which Vivo Capital, OrbiMed, or Abingworth, as applicable, cease to have certain rights and obligations under the relationship agreements. Indemnification Agreements To the extent permitted by the U.K. Companies Act 2006, we are empowered to indemnify our directors against any liability they incur by reason of their directorship. We have also entered into a deed of indemnity with each of our directors and executive officers and this has been in place since March 31, 2017.officers. In addition to such indemnification, we provide our directors and executive officers with directors’ and officers’ liability insurance. B. Related Party Transactions.
The following is a description of related party transactions we have entered into since January 1, 2017 or currently in effect with any member of our board of directors and executive officers.
Agreements with Our Executive Officers and Directors We have entered into employment agreements with certain of our executive officers and service agreements with our non‑employee directors. See Item 6B6.B. Compensation and noteNote 8 of our Annual Consolidated Financial Statements included elsewhere in this Annual Report. Other Transactions At December 31, 2019, there was a receivable of £nil (2018: £126 thousand) due from one director and two key management personnel relating to tax due on RSUs that vested in the financial statements. Participation in U.S. Initial Public Offering
As partyear ended December 31, 2018. This receivable was repaid, together with interest at a rate of 3.9% per annum, by March 6, 2019. The Company notes that the transaction that generated this receivable was potentially a breach of Section 402 of the global offering our Chairman, Dr. David Ebsworth, purchased 13,373 shares at £1.32 per share generating gross proceedsSarbanes-Oxley Act of £18 thousand. The transaction was on2002. See Item 3.D. Risk Factors-Risks Related to Our ADSs and Ordinary Shares. We may have inadvertently violated Section 13(k) of the same termsExchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) and may be subject to sanctions as third parties.a result.
In the year ended December 31, 2019, a director provided consultancy services for £26 thousand (2018: £26 thousand). C. Interests of Experts and Counsel Not applicable.
ITEM 8: FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information. Consolidated Financial Statements Our consolidated financial statements are appended at the end of this Annual Report, starting at page F-1, and are incorporated herein by reference. Legal Proceedings We are not subject to any material legal proceedings. Dividend Distribution Policy We have never paid or declared any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves (on a non consolidatednon-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital. B. Significant Changes. There have been no significant changes since December 31, 2017. 2019.
ITEM 9: THE OFFER AND THE LISTING A. Offer and Listing Details. Our Ordinary Shares are listed on AIM, a market of the London Stock Exchange, under the symbol “VRP”, and our ADSs have beenare listed on The Nasdaq Global Market under the symbol “VRNA” since April 27, 2017. The initial public offering price of our ADSs was $13.50 per ADS. The following table sets forth for the periods indicated the high and low sales prices per common share as reported on The Nasdaq Global Market: | | | | | | | | Price Per Common ADS ($) | | High | Low | Year Ended December 31, | | | 2017 (from April 27 through December 31) | 16.95 | 10.80 | Quarter Ended | | | Second Quarter 2017 (beginning April 27) | 16.26 | 11.40 | Third Quarter 2017 | 16.95 | 11.54 | Fourth Quarter 2017 | 15.75 | 10.80 | First Quarter 2018 (through February 16) | 13.25 | 11.69 | Month of | | | August 2017 | 12.70 | 11.80 | September 2017 | 16.95 | 11.96 | October 2017 | 15.75 | 13.35 | November 2017 | 14.13 | 10.80 | December 2017 | 12.10 | 11.30 | January 2018 | 13.25 | 12.21 | February 2018 (through February 16) | 12.80 | 11.693 |
Our ordinary shares have been trading on AIM, a market operated by the London Stock Exchange plc, under the symbol “VRP” since September 2006. The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on AIM in pounds sterling.
| | | | | | | | | | Price Per Share (£) | | High | | Low | Year Ended December 31, | | | | 2013 | 2.58 | | 0.88 | 2014 | 2.18 | | 0.53 | 2015 | 3.36 | | 0.60 | 2016 | 2.16 | | 1.19 | 2017 | 1.69 | | 1.04 | Quarter Ended | | | | First Quarter 2016 | 2.16 | | 1.19 | Second Quarter 2016 | 1.86 | | 1.41 | Third Quarter 2016 | 1.73 | | 1.48 | Fourth Quarter 2016 | 2.06 | | 1.55 | First Quarter 2017 | 1.69 | | 1.25 | Second Quarter 2017 | 1.61 | | 1.11 | Third Quarter 2017 | 1.53 | | 1.12 | Fourth Quarter 2017 | 1.48 | | 1.04 | First Quarter 2018 (through February 16) | 1.21 | | 1.02 | Month of | | | | August 2017 | 1.24 | | 1.16 | September 2017 | 1.53 | | 1.12 | October 2017 | 1.48 | | 1.33 | November 2017 | 1.34 | | 1.06 | December 2017 | 1.11 | | 1.04 | January 2018 | 1.21 | | 1.06 | February 2018 (through February 16) | 1.21 | | 1.02 |
.
B. Plan of Distribution. Not applicable. C. Markets. Our Ordinary Shares have beenare listed on the AIM, a market of the London Stock Exchange, since September 19, 2006, and our ADSs have beenare listed on The Nasdaq Global Market under the symbol “VRNA” since April 27, 2017.Market. D. Selling Shareholders. Not applicable. E. Dilution. Not applicable.
F. Expenses of the Issue. Not applicable.
ITEM 10: ADDITIONAL INFORMATION A. Share Capital. Not applicable. B. Memorandum and Articles of Association.
A copy of our Articles of Association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in responseExhibit 2.5 to this item is contained under the caption “Description of Share Capital and Articles of Association” in our final prospectus filed with the Securities and Exchange Commission on April 28, 2017Annual Report and is incorporated herein by reference.reference into this Annual Report. C. Material Contracts. TheIn addition to the contracts described elsewhere in this Annual Report, the following are summaries of each material contract, other than material contracts entered into in the ordinary course of business, to which we are a party for the two years preceding the date of this Annual Report.
Underwriting Agreement
On April 26, 2017, we entered into an underwriting agreement with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the underwriters, on April 26, 2017, for the initial public offering of 5,768,000 American Depositary Shares in the United States and the private placement of 1,255,001 ordinary shares in Europe. Pursuant to the underwriting agreement, we paid underwriting discounts and commissions of $0.9450 per ADS and £0.0924 per ordinary shares. The underwriting agreement contained customary representations and warranties. We also agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of such liabilities.
Employment Agreements
We have entered into employment agreements with our executive officers. Information on the employment agreements may be found in this Annual Report under “Item 6.B. Compensation-Executive Officer Remuneration-Executive Officer Employment Agreements” and is incorporated herein by reference.
Indemnification Agreements
We have entered into indemnification agreements with our executive officers and board members. Information on the indemnification agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Indemnification Agreements” and is incorporated herein by reference.
Registration Rights Agreements
We have entered into registration rights agreement with certain of our existing shareholders. Information on the registration rights agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Registration Rights Agreement” and is incorporated herein by reference.
Relationship Agreements
We have entered into relationship agreements with certain of our existing shareholders. Information on these relationship agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Relationship Agreements” and is incorporated herein by reference.
Lease Our principal office is located at 3 More London Riverside, London SE1 2RE, United Kingdom, where we lease office space. We also lease office space in White Plains,New York , New York. The office space in these two locations is held under four leases that terminate between August 2018 and Januaryin 2020 and 2021. We pay £0.5 million per year under these leases we pay £0.3m per year.leases. We intend to add new facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
D. Exchange Controls. There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest, or other payments by us to non‑resident holders of our ordinary shares or ADSs, other than withholding tax requirements. There is no limitation imposed by English law or in our Articles of Association on the right of non‑residents to hold or vote shares. E. Taxation The following is a description of thecertain material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of our ordinary shares or ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person's decision to acquire securities. This discussion applies only to a U.S. Holder that holds our ordinary shares or ADSs as a capital asset for tax purposes (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder's particular circumstances, including state and local tax consequences, estate tax consequences, alternative minimum tax consequences, the potential application of the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as: | | ▪ | banks, insurance companies, and certain other financial institutions; |
| | ▪ | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| | ▪ | dealers or traders in securities who use a mark-to-market method of tax accounting; |
| | ▪ | persons holding our ordinary shares or ADSs as part of a hedging transaction, "straddle," wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to ordinary shares or ADSs; |
| | ▪ | persons whose "functional currency" for U.S. federal income tax purposes is not the U.S. dollar; |
| | ▪ | brokers, dealers or traders in securities, commodities or currencies; |
| | ▪ | tax-exempt entities or government organizations; |
| | ▪ | S corporations, partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax purposes; |
| | ▪ | regulated investment companies or real estate investment trusts; |
| | ▪ | persons who acquired our ordinary shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation; |
persons subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares or ADSs being taken into account in an applicable financial statement; persons that own or are deemed to own ten percent or more of our ordinary shares by vote or value; and | | ▪ | persons holding our ordinary shares or ADSs in connection with a trade or business, permanent establishment, or fixed base outside the United States. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our ordinary shares or ADSs and partners in such partnerships are encouraged to consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of our ordinary shares or ADSs. The discussion is based on the Internal Revenue Code of 1986, as amended or the Code,(the "Code"), administrative pronouncements, judicial decisions, final, temporary and proposed Treasury Regulations, and the income tax treaty between the United Kingdom and the United States (the "Treaty") all as of the date hereof, changes to any of which may affect the tax consequences described herein — possibly with retroactive effect. A "U.S. Holder" is a holder who, for U.S. federal income tax purposes, is a beneficial owner of our ordinary shares or ADSs who is eligible for the benefits of the Treaty and is:
(1)a citizen or individual resident of the United States; | | (2) | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
(3)an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. U.S. Holders are encouraged to consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of our ordinary shares or ADSs in their particular circumstances. The discussion below assumes that the representations contained in the deposit agreement with respect to our ADSs are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. Generally, a holder of an ADS should be treated for U.S. federal income tax purposes as holding the ordinary shares represented by the ADS. Accordingly, no gain or loss will be recognized upon an exchange of ADSs for ordinary shares. The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly the creditability of foreign taxes, if any, as described below, could be affected by actions taken by intermediaries in the chain of ownership between the holders of our ADSs and our Companycompany if as a result of such actions the holders of our ADSs are not properly treated as beneficial owners of the underlying ordinary shares. Passive Foreign Investment Company ("PFIC") Rules Because we dodid not expect to earn revenue from our business operations during the current taxable year ended December 31, 2019, and because our sole source of income currently is interest on bank accounts held by us, we believe we will likely be classified as a PFIC for the current taxable year.year ended December 31, 2019. A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either: | | ▪ | at least 75% of its gross income is passive income (such as interest income); or |
| | ▪ | at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the production of passive income. |
We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation, the equity of which we own, directly or indirectly, 25% or more (by value). A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. As a result, our PFIC status may change. While it is possible we may not meet the PFIC test described above once we start generating substantial revenue from our business operations, the analysis is factual and it is possible we may continue to be a PFIC for future years. In particular, the total value of our assets for purposes of the asset test generally will be calculated using the market price of theour ordinary shares or ADSs, which may fluctuate considerably. Fluctuations in the market price of theour ordinary shares or ADSs may result in our being a PFIC for any taxable year. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns theour ordinary shares or ADSs, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns theour ordinary shares or ADSs, regardless of whether we continue to meet the tests
described above unless (1) we cease to be a PFIC and the U.S. Holder has made a "deemed sale" election under the PFIC rules, or (2) the U.S. Holder makes a QEF Election (defined below) with respect to taxable years in which we are a PFIC. If such election is made, youthe U.S. Holder will be deemed to have sold theour ordinary shares or ADSs you holdit holds at their fair market value and any gain from such deemed sale would be subject to the rules described below. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, yourthe ordinary shares or ADSs with respect to which such election was made will not be treated as shares in a PFIC and youthe U.S. Holder will not be subject to the rules described below with respect to any "excess distribution" you receiveit receives from us or any gain from an actual sale or other disposition of theour ordinary shares or ADSs. U.S. Holders should consult their tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be a PFIC and such election becomes available. For each taxable year we are treated as a PFIC with respect to you, youa U.S. Holder, such holder will be subject to special tax rules with respect to any "excess distribution" you receiveit receives and any gain you recognizeit recognizes from a sale or other disposition (including a pledge) of our ordinary shares or ADSs, unless you makesuch holder makes a QEF Election or a mark-to-market election as discussed below. Distributions you receivethat a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or yoursuch holder's holding period for theout ordinary shares or ADSs will be treated as an excess distribution. Under these special tax rules:
| | ▪ | the excess distribution or gain will be allocated ratably over yoursuch holder's holding period for theour ordinary shares or ADSs; |
| | ▪ | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and |
| | ▪ | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or "excess distribution" cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of theour ordinary shares or ADSs cannot be treated as capital, even if you hold the U.S. Holder holds our ordinary shares or ADSs as capital assets. If we are a PFIC, a U.S. Holder will generally be subject to similar rules with respect to distributions we receive from, and our dispositions of the stock of, any of our direct or indirect subsidiaries that also are PFICs, as if such distributions were indirectly received by, and/or dispositions were indirectly carried out by, such U.S. Holder. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to our subsidiaries. U.S. Holders can avoid the interest charge on excess distributions or gain relating to theour ordinary shares or ADSs by making a mark-to-market election with respect to theour ordinary shares or ADSs, provided that theour ordinary shares or ADSs are "marketable." OrdinaryOur ordinary shares or ADSs will be marketable if they are "regularly traded" on certain U.S. stock exchanges or on a foreign stock exchange that meets certain conditions. For these purposes, theour ordinary shares or ADSs will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarterquarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Our ADSs will beare listed on the Nasdaq Global Market and our ordinary shares are traded on AIM, a market of the London Stock Exchange, each of, which is a qualified exchange for these purposes. Consequently, if our ADSs remain listed on the Nasdaq Global Market or our ordinary shares remain listed on AIM and, in each case, are regularly traded, and you are a holder of ADSs, we expect the mark-to-market election would be available to youU.S. Holders of such ordinary shares or ADSs if we are a PFIC (which we believe likely for the current year). Each U.S. Holder should consult its tax advisor as to the whether a mark-to-market election is available or advisable with respect to theour ordinary shares or ADSs. A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of theour ordinary shares or ADSs at the close of the taxable year over the U.S. Holder's adjusted tax basis in theour ordinary shares or ADSs. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder's adjusted basis in theour ordinary shares or ADSs over the fair market value of theour ordinary shares or ADSs at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior years. Gains from an actual sale or other disposition of theour ordinary shares or ADSs will be treated as ordinary income, and any losses incurred on a sale or other disposition of theour ordinary shares or ADSs will be treated as an ordinary loss to the extent of any net mark-to-market gains for prior years. Once made, the election cannot be revoked without the consent of the IRSU.S. Internal Revenue Service (the "IRS"), unless theour ordinary shares or ADSs cease to be marketable.
However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such lower-tier PFIC are themselves "marketable." We believe that Rhinopharma Limited will likely be treated as a lower-tier PFIC. As a result, even if a U.S. Holder validly makes a mark-to-market election with respect to our ordinary shares or ADSs, the U.S. Holder may continue to be subject to the PFIC rules (described above) with respect to its indirect interest in any of our investments that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs. Alternatively, a U.S. Holder can make an election, if we provide the necessary information, to treat us and each lower-tier PFIC as a qualified electing fund (a "QEF Election") in the first taxable year we (and our relevant subsidiaries) are treated as a PFIC with respect to the holder. If such election remains in place while we and any lower-tier PFIC subsidiaries are PFICs, we and our subsidiaries will not be treated as PFICs with respect to such U.S. Holder when we cease to be a PFIC. A U.S. Holder must make the QEF Election for each PFIC by attaching a separate properly completed IRS Form 8621 for each PFIC to the holder's timely filed U.S. federal income tax return. We will provide the information necessary for a U.S. Holder to make a QEF Election with respect to us and will cause each lower-tier PFIC which we control to provide such information with respect to such lower-tier PFIC.
If a U.S. Holder makes a QEF Election with respect to a PFIC, the holder will be currently taxable on its pro rata share of the PFIC's ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified as a PFIC. If a U.S. Holder makes a QEF Election with respect to us, any distributions paid by us out of our earnings and profits that were previously included in the holder's income under the QEF Election would not be taxable to the holder. A U.S. Holder will increase its tax basis in itsour ordinary shares or ADSs by an amount equal to any income included under the QEF Election and will decrease its tax basis by any amount distributed on theour ordinary shares or ADSs that is not included in the holder's income. In addition, a U.S. Holder will recognize capital gain or loss on the disposition of our ordinary shares or ADSs in an amount equal to the difference between the amount realized and the holder's adjusted tax basis in theour ordinary shares or ADSs. U.S. Holders should note that if they make QEF Elections with respect to us and lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to theirour ordinary shares or ADSs for any taxable year significantly in excess of any cash distributions received on theour ordinary shares or ADSs for such taxable year. U.S. Holders should consult their tax advisors regarding making QEF Elections in their particular circumstances. Unless otherwise provided by the U.S. Treasury, each U.S. shareholderHolder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. A U.S. Holder's failure to file the annual report will cause the statute of limitations for such U.S. Holder's U.S. federal income tax return to remain open with regard to the items required to be included in such report until three years after the U.S. Holder files the annual report, and, unless such failure is due to reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder's entire U.S. federal income tax return will remain open during such period. U.S. Holders should consult their tax advisors regarding the requirements of filing such information returns under these rules. Taxation of Distributions Subject to the discussion above under "Passive Foreign Investment Company ("PFIC") Rules," distributions paid on our ordinary shares or ADSs, other than certain pro rata distributions of ordinary shares or ADSs, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not calculate our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential rates applicable to "qualified dividend income." However, the qualified dividend income treatment may not apply if we are treated as a PFIC with respect to the U.S. Holder. The amount of a dividend will include any amounts withheld by us in respect of United Kingdom income taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will generally be included in a U.S. Holder's income on the date of the U.S. Holder's receipt of the dividend. The amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S.-source ordinary income or loss. The amount of any distribution of
property other than cash (and other than certain pro rata distributions of ordinary shares or ADSs or rights to acquire ordinary shares or ADSs) will be the fair market value of such property on the date of distribution. For foreign tax credit purposes, our dividends will generally be treated as passive category income. Subject to applicable limitations, some of which vary depending upon the U.S. Holder's particular circumstances, any United Kingdom income taxes withheld from dividends on our ordinary shares or ADSs at a rate not exceeding the rate provided by the Treaty will be creditable against the U.S. Holder's U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including any United Kingdom income tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Sale or Other Taxable Disposition of Our Ordinary Shares and ADSs Subject to the discussion above under "Passive Foreign Investment ("PFIC") Company Rules," gain or loss realized on the sale or other taxable disposition of our ordinary shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held theour ordinary shares or ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder's tax basis in theour ordinary shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. If the consideration received by a U.S. Holder is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of the payment received determined by reference to the spot rate of exchange on the date of the sale or other disposition. However, if theour ordinary shares or ADSs are treated as traded on an "established securities market" and youthe U.S. Holder is are either a cash basis taxpayer or an accrual basis taxpayer that has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS), yousuch holder will determine the U.S. dollar value of the amount realized in a non-U.S. dollar currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If you area U.S. Holder is an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement date, yousuch holder will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar amount realized on the date of sale or disposition and the U.S. dollar value of the currency received at the spot rate on the settlement date. WE STRONGLY URGE YOUINVESTORS IN OUR ORDINARY SHARES OR ADSs TO CONSULT YOURTHEIR TAX ADVISORADVISORS REGARDING THE IMPACT OF OUR PFIC STATUS ON YOURTHEIR INVESTMENT IN THEOUR ORDINARY SHARES OR ADSs AS WELL AS THE APPLICATION OF THE PFIC RULES TO YOURSUCH INVESTMENT IN THEOUR ORDINARY SHARES OR ADSs. Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS. Information with Respect to Foreign Financial Assets Certain U.S. Holders who are individuals (and, under proposed regulations, certain entities) may be required to report information relating to theour ordinary shares or ADSs, subject to certain exceptions (including an exception for ordinary shares or ADSs held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to their ownership and disposition of theour ordinary shares or ADSs. F. Dividends and Paying Agents. Not applicable.
G. Statement by Experts. Not applicable. H. Documents on Display. We maintain a corporate website at www.veronapharma.com. We make available free of charge on our website our Reports on Form 6-K, and we intend make available our Annual Reports on Form 20-F, as soon as reasonably practicable afterand any other reports that we electronically file such material with, or furnish it to,with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.
You may also review a copy of this Annual Report, including exhibits and any schedule filed herewith, and obtain copies of such materials at prescribed rates, at the SEC’s Public Reference Room in Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (www.sec.gov)at www.sec.gov that contains reports, proxy and information statements and other information regarding registrantsissuers that file electronically, such as us, with the SEC.
References made in this Annual Report to any contract or certain other document of Verona Pharma plc are not necessarily complete and you should refer to the exhibits attached or incorporated by reference into this Annual Report for copies of the actual contract or document. I. Subsidiary Information. Not applicable.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of financial risks. Our overall risk management program seeks to minimize potential adverse effects of these financial risks on our financial performance. Credit Risk We consider all of our material counterparties to be creditworthy. We consider the credit risk for each of our counterparties to be low and do not have a significant concentration of credit risk at any of our counterparties. Liquidity Risk We manage our liquidity risk by maintaining adequate cash reserves at banking facilities, and by continuously monitoring our cash forecasts, our actual cash flows and by matching the maturity profiles of financial assets and liabilities. Currency Risk Foreign currency risk reflects the risk that the value of a financial commitment or recognized asset or liability will fluctuate due to changes in foreign currency rates. Our financial position, as expressed in pounds sterling, are exposed to movements in foreign exchange rates against the U.S. dollar and the Euro. Our main trading currencies are pounds sterling, the U.S. dollar and the Euro. We are exposed to foreign currency risk as a result of operating transactions and the translation forof foreign bank accounts. We monitor our exposure to foreign exchange risk. We have not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. Interest rate Risk Interest rate risk reflects the risk that the value of a financial instrument will fluctuate as a result of a change in market interest rates on classes of financial assets and financial liabilities. We do not hold any derivative instruments to manage interest rate risk. See note 3.1 of the financial statements for quantitative disclosures about market risk.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable.
D. American Depositary Shares.
Fees and Charges Holders of our ADSs are required to pay the following fees under the terms of the deposit agreement:
| | | | | Service | | Fee | Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares or upon a change in the ADS(s)‑to‑ordinary shares ratio), excluding ADS issuances as a result of distributions of ordinary shares | | Up to $0.05 per ADS issued | Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property or upon a change in the ADS(s)‑to‑ordinary shares ratio) | | Up to $0.05 per ADS cancelled | Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) | | Up to $0.05 per ADS held | Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs | | Up to $0.05 per ADS held | Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin‑off) | | Up to $0.05 per ADS held | ADS Services | | Up to $0.05 per ADS held on the applicable record date(s) established by the depositary |
Holders of our ADSs are also responsible to pay certain charges such as: taxes (including applicable interest and penalties) and other governmental charges;
the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;
certain cable, telex and facsimile transmission and delivery expenses;
the expenses and charges incurred by the depositary in the conversion of foreign currency;
the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and American Depositary Receipts; and
| | ▪ | taxes (including applicable interest and penalties) and other governmental charges; |
| | ▪ | the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| | ▪ | certain cable, telex and facsimile transmission and delivery expenses; |
| | ▪ | the expenses and charges incurred by the depositary in the conversion of foreign currency; |
| | ▪ | the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and American Depositary Receipts; and |
| | ▪ | the fees and expenses incurred by the depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited property. |
ADS fees and charges payable upon (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person to whom the ADSs are issued (in the case of ADS issuances) and to the person whose ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary into the Depositary Trust Company, or DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Note that the fees and charges holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes. The depositary may reimburse us for certain expenses incurred by us in respect of the ADRADS program, by making available a portion of the ADS fees charged in respect of the ADRADS program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.
PART II ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A. Not applicableNone B. Not applicableNone C. Not applicableNone D. Not applicableNone
E. Use of Proceeds. In May 2017, we completed the initial public offering of our American Depositary SharesADSs in the United States and a private placement of our ordinary shares in Europe, or the global offering. In the global offering we issued and sold 6,501,738 ADSs, including 733,738 ADSs issued and sold upon the partial exercises ofby the underwriters pursuant to their overallotment option to purchase additional ADSs, at a public offering price of $13.50 per ADS, and 1,225,001 ordinary shares at an offering price of £1.32 per share. The offer and sale of all of the ADSs and ordinary shares in the global offering was registered under the Securities Act pursuant to a registration statement on Form F-1 (File No. 333-217124), which was declared effective by the SEC on April 26, 2017, and a registration statement on Form F-1 to register additional securities (File No. 333-217487), which was immediately effective upon filing on April 26, 2017, or, together, the Registration Statement. Under the Registration Statement, we registered 5,768,000 ADSs, 1,225,001 ordinary shares, and 865,200 ADSs issuable upon exercise of the underwriters’ option to purchase additional ADSs at a public offering price of $13.50 per ADS and £1.32 per ordinary share, for a registered aggregate offering price of approximately $89.9 million including the 733,738 ADSs issued and sold upon the partial exercises of the underwriters’ option to purchase additional ADSs. Following the sale of the ADSs and ordinary shares in connection with the closing of the global offering, the offering terminated. The offering commenced on April 18, 2017 and did not terminate until the sale of all of the shares offered. Jefferies LLC and Stifel, Nicholaus & Company, Incorporated acted as joint book-running managers of the offering, and Wedbush Securities Inc. and SunTrust Robinson Humphrey, Inc. acted as co-managers of the offering.
In addition, a further 254,099 shares were issued to private investors for proceeds of $0.4m.
We received aggregate gross proceeds from the global offering of approximately $90.3$89.9 million, orand aggregate net proceeds of approximately $80.8 million after deducting underwriting discounts and commissions of approximately $6.3 million and offering expenses of approximately $3.2 million. No payments for such expenses were made directly or indirectly to (i) any of our officers, members of our board of directors, or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. The offer and sale of the ADSs and ordinary shares in the global offering were registered under the Securities Act pursuant to a registration statement on Form F-1 (File No. 333-217124) to register ordinary shares, which was declared effective by the SEC on April 26, 2017, a registration statement on Form F-1 to register additional ordinary shares (File No. 333-217487), which was immediately effective upon filing on April 26, 2017, and a registration statement on Form F-6 (File No. 333-217353) to register the ADSs, which was declared effective by the SEC on April 26, 2017, or, collectively, the Registration Statements. Under the Registration Statements, we registered an aggregate offering price of approximately $91.7 million of ordinary shares and 100,000,000 ADSs for a registered aggregate offering price of $5.0 million. There has been no material change in our planned use of the net proceeds from the global offering as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on April 28, 2017.
ITEM 15: 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. 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 Securities Exchange Act of 1934, as amended)Act), as of the end of the period covered by this Annual Report on Form 20-F.Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date,December 31, 2019, our disclosure controls and procedures were effective ateffective. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the reasonable assurance level asExchange Act. Our management conducted an assessment of December 31, 2017.
This annual report does not include a reportthe effectiveness of management’s assessment regardingour internal control over financial reporting or an attestation reportbased on the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.Treadway Commission.
Material Weaknesses in Internal Control Over Financial Reporting.
This Annual ReportBased on Form 20-F does not include a reportthis assessment, our management concluded that, as of management’s assessment regardingDecember 31, 2019, our internal control over financial reporting orwas effective.
Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. In connection with the preparation for the initial public offering of our ADSs, we reassessed our critical accounting policies to ensure compliance with IFRS. As part of this reassessment, we identified errors relating to the recognition of assumed liabilities and goodwill in connection with the acquisition of Rhinopharma Ltd. in September 2006. We concluded that a lack of adequate controls surrounding our historic accounting for business combinations constituted a material weakness in our internal control over financial reporting, as defined in the standardsan exemption established by the U.S. Public Accounting Oversight Board
We have remediated this material weakness by the hiring of our chief financial officer in September 2016 and enhancing our financial reporting team’s technical accounting knowledge associated with the accounting rulesJOBS Act for business combinations. However, we cannot be certain that these efforts will prevent future material weaknesses or significant deficiencies from occurring.Review updated remediation language.“emerging growth companies.”
Changes in Internal Control Overover Financial Reporting.Reporting Other than as discussed above, there has beenThere were no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this annual reportAnnual Report that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Vikas Sinha, Dr. David Ebsworth and Dr. Andrew Sinclair each qualify as an audit committee financial expert as defined by the rules of the Securities and Exchange CommissionSEC and has the requisite financial sophistication under the applicable rules and regulations of Nasdaq. Mr. Sinha and Drs. Ebsworth and Sinclair are each independent as such term is defined in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and under the listing standards of Nasdaq.
ITEM 16B: CODE OF ETHICS Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, that is applicable to all of our employees, executive officers, including our principal executive, principal financial and principal accounting officers, members of our board of directors, and consultants. The Code of Conduct is available on our website at www.veronapharma.com. We will provide a copy of our Code of Conduct to any person without charge upon written request sent to: Verona Pharma plc 3 More London Riverside London SE1 2RE United Kingdom Attn: Secretary We intend to satisfy the disclosure requirement under Item 16B(e)16B(d) and (e) of Form 20-F regarding amendment to, or waiver from, a provision of our Code of Conduct, as well as Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information onin the "Investors" section of our website at the address and location specified above.www.veronapharma.com. Our executive officers are responsible for administering the Code of Conduct. Amendment, alteration or termination of the Code of Conduct requires the approval of our board of directors.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the fees of PricewaterhouseCoopers LLP, our independent registered public accounting firm, billed to us for each of the last two fiscal years for audit and other services: | | Fee Category | 2016 |
| | 2017 |
| 2019 |
| | 2018 |
| | £'000s |
| | £'000s |
| £'000s |
| | £'000s |
| Audit Fees | 80 |
| | 117 |
| 148 |
| | 114 |
| Audit-Related Fees | 525 |
| | 333 |
| 52 |
| | 68 |
| Other Services | — |
| | 150 |
| 67 |
| | 86 |
| Total Fees | 605 |
| | 600 |
| 267 |
| | 268 |
|
Audit-Related Fees For the yearyears ended December 31, 2017,2019 and 2018, audit related services include fees for quarterly interim reviews, advice on compliance with Sarbanes-Oxley legislation and assurance on information included in the Company's U.S. registration statement for the April 2017 initial public offering in the United States (the"Global Offering"). For the year ended December 31, 2017, an amount of £256 thousand in relation to these services was offset against share premium on completion of the Global Offering. For the year ended December 31, 2016, audit related services include assurance reporting on historical financial information included in the Company's U.S. registration statement for the Global Offering. As at December 31, 2016 an amount of £466 thousand in relation to these services was booked in deferred IPO costs that was offset against share premium on completion of the Global Offering.reviews.
Tax Fees We did not incur any tax fees for services from PricewaterhouseCoopers LLP in 20162019 or 2017.2018. All Other Fees We did not incur anyFor the year ended December 31, 2019 other fees in 2017 or 2016.related to advice relating to fund raising.
For the year ended December 31, 2018, other fees related to a review of the Company’s F-3 shelf registration statement. Audit Committee Pre-Approval Policy and Procedures The Audit Committee has adopted a policy, or the Pre-Approval Policy, which sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by the independent auditor may be pre-approved. The Pre-Approval Policy generally provides that we will not engage PricewaterhouseCoopers LLP to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the Audit Committee, or specific pre-approval, or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy, or general pre-approval. Unless a type of service to be provided by PricewaterhouseCoopers LLP has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the Audit Committee or by a designated member of the Audit Committee to whom the committee has delegated the authority to grant pre-approvals. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee may also review and generally pre-approve the services (and related fee levels or budgeted amounts) that may be provided by PricewaterhouseCoopers LLP without first obtaining specific pre-approval from the Audit Committee. The Audit Committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.
ITEM 16D: EXEMPTIONS FORM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None
ITEMS 16F: CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT There has been no change in our independent accountant during our two most recent fiscal years.
ITEM 16G: CORPORATE GOVERNANCE As a “foreign private issuer,” as defined by the SEC, we are permitted to follow home country corporate governance practices, instead of certain corporate governance practices required by Nasdaq for domestic issuers.issuers, with certain exceptions. While we voluntarily follow most Nasdaq corporate governance rules, we follow U.K. corporate governance practices in lieu of Nasdaq corporate governance rules as follows: We do not follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders. Such quorum requirements are not required under English law. In accordance with generally accepted business practice, our articles of association provide alternative quorum requirements that are generally applicable to meetings of shareholders. We do not follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in executive session, where only independent directors are present. Our independent directors may choose to meet in executive session at their discretion.
ITEM 16H: MINE SAFETY DISCLOSURE
None
PART III ITEM 17: FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18: FINANCIAL STATEMENTS
The financial statements required under this Item 18 are filed as part of this Annual Report beginning on page F-1.F-1.The audit report of PricewaterhouseCoopers LLP, independent registered public accounting firm, is included herein preceding the financial statements.
ITEM 19: EXHIBITS
The Exhibits listed in the Exhibit Index at the end of this Annual Report are filed as Exhibits to this Annual Report.
| | | | | | | | | | | | Incorporated by Reference to Filings Indicated | | | | | | | | Exhibit Number | Exhibit Description | Form | File No. | Exhibit No. |
| Filing date | Filed / Furnished | | | | | | | | | | | | | | | | | F-1 | 333-217124 | 3.1 |
| 4/3/2017 | | | | | | | | | | | 20-F | 001-38067 | 2.1 |
| 2/27/2018 | | | | | | | | | | | 20-F | 001-38067 | 2.2 |
| 2/27/2018 | | | | | | | | | | | F-1 | 333-217124 | 4.3 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 4.4 |
| 4/3/2017 | | | | | | | | | | | | | | | * | | | F-1 | 333-217124 | 10.1 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.2 |
| 4/3/2017 | | | | | | | | | |
| 20-F | 001-38067 | 4.3 |
| 3/19/2019 | | | | | | | | | | | 20-F | 001-38067 | 4.3.1 |
| 3/19/2019 | | | | | | | | | | | 20-F | 001-38067 | 4.3.2 |
| 3/19/2019 | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | * | | | | | | | |
| | | | | | | | | | | | | | | *
| | | | | | | | | | | | | | *
| | | | | | | | | | F-1 | 333-217124 | 10.4 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.5 |
| 4/3/2017 | | | | | | | | | | | 20-F | 001-38067 | 4.6 |
| 2/27/2018 | | | | | | | | | |
| | | | | * | | | | | | | | | | 20-F | 001-38067 | 4.3.2 |
| 3/19/2019 | | | | | | | | | | | F-1 | 333-217124 | 10.8 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.9 |
| 4/3/2017 | | | | | | | | | | | F-1/A | 333-217124 | 10.11.1 |
| 4/18/2017 | | | | | | | | | | | F-1/A | 333-217124 | 10.11.2 |
| 4/18/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.12 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.13 |
| 4/3/2017 | | | | | | | | | | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 21.1 |
| 4/3/2017 | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | * | | | | | | | | | | | | | | ** | | | | | | | | | | | | | | ** | | | | | | | | | | | | | | * |
| | | | | | | | | | | | Incorporated by Reference to Filings Indicated | | | | | | | | Exhibit Number | Exhibit Description | Form | File No. | Exhibit No. |
| Filing date | Filed / Furnished | | | | | No. |
| Date | Furnished | | | | | | | |
| | | | | | | | | 1.1 | Articles of Association, as amended and as currently in effect | F-1 | 333-217124 | 3.1 |
| 4/3/2017 | | | | | | | | | | Deposit Agreement | | | | | * | | | | | | | | 2.2 | Form of American Depositary Receipt (included in Exhibit 2.1) | | | | | * | | | | | | | | 2.3 | Form of Warrant issued to each of the investors named in Schedule A thereto | F-1 | 333-217124 | 4.3 |
| 4/3/2017 | | | | | | | | | 2.4 | Warrant Instrument issued to NPlus1 Singer LLP | F-1 | 333-217124 | 4.4 |
| 4/3/2017 | | | | | | | | | 4.1 | Registration Rights Agreement, dated July 29, 2016, by and among Verona Pharma plc and the investors set forth therein | F-1 | 333-217124 | 10.1 |
| 4/3/2017 | | | | | | | | | 4.2† | Intellectual Property Assignment and Licence Agreement between Vernalis Development Limited and Rhinopharma Limited, as predecessor to Verona Pharma plc, dated February 7, 2005 | F-1 | 333-217124 | 10.2 |
| 4/3/2017 | | | | | | | | | 4.3 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 17, 2014 and related Renewal Agreements dated September 30, 2015 and October 1, 2016 | F-1 | 333-217124 | 10.3 |
| 4/3/2017 | | | | | | | | | 4.3.1 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 | F-1 | 333-217124 | 10.3.1 |
| 4/3/2017 | | | | | | | | | 4.3.2 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 | F-1 | 333-217124 | 10.3.2 |
| 4/3/2017 | | | | | | | | | | Renewal Agreement to Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 17, 2014 (exhibit 4.3) | | | | | * | | | | | | | | | Renewal Agreement to Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 (exhibits 4.3.1 and 4.3.2) | | | | | * | | | | | | | | 4.4# | EMI Option Scheme | F-1 | 333-217124 | 10.4 |
| 4/3/2017 | | | | | | | | |
| | | | | | | | | 4.5# | Unapproved Share Option Scheme, as amended | F-1 | 333-217124 | 10.5 |
| 4/3/2017 | | | | | | | | | | 2017 Incentive Award Plan and forms of award agreements thereunder | | | | | * | | | | | | | | 4.7# | Employment Agreement, dated April 30, 2012, as amended, between Verona Pharma plc and Jan-Anders Karlsson | F-1 | 333-217124 | 10.6 |
| 4/3/2017 | | | | | | | | | 4.8# | Offer Letter, dated December 15, 2014, as amended, between Verona Pharma plc and Kenneth Newman | F-1 | 333-217124 | 10.7 |
| 4/3/2017 | | | | | | | | | 4.9# | Employment Agreement, dated September 24, 2016, between Verona Pharma plc and Piers John Morgan | F-1 | 333-217124 | 10.8 |
| 4/3/2017 | | | | | | | | | 4.10# | Employment Agreement, dated October 1, 2016, between Verona Pharma plc and Claire Poll | F-1 | 333-217124 | 10.9 |
| 4/3/2017 | | | | | | | | | 4.11# | Employment Agreement, dated October 1, 2016, as amended, between Verona Pharma plc and Peter Spargo | F-1 | 333-217124 | 10.10 |
| 4/3/2017 | | | | | | | | | 4.12# | Employment Agreement, dated October 1, 2016, as amended, between Verona Pharma plc and Peter Spargo | F-1 | 333-217124 | 10.16 |
| 4/3/2017 | | | | | | | | | | Employment Agreement, dated May 1, 2017, between Verona Pharma plc and Desiree Luthman[2] | | | | | * | | | | | | | | 4.14 | Form of Indemnification Agreement for board members | F-1/A | 333-217124 | 10.11.1 |
| 4/18/2017 | | | | | | | | | 4.15 | Form of Indemnification Agreement for executive officers | F-1/A | 333-217124 | 10.11.2 |
| 4/18/2017 | | | | | | | | | 4.16 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, OrbiMed Private Investments VI, LP and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.12 |
| 4/3/2017 | | | | | | | | | 4.17 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Abingworth Bioventures VI LP and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.13 |
| 4/3/2017 | | | | | | | | | 4.18 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | | 8.1 | List of Subsidiaries | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | |
| | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | | | | | * | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | | | | | * | | | | | | | | | Section 1350 Certification of Chief Executive Officer | | | | | ** | | | | | | | | | Section 1350 Certification of Chief Financial Officer | | | | | ** | | | | | | | | | Consent of PricewaterhouseCoopers LLP | | | | | * | | | | | | | | 101.INS | | | | | | * | | | | | | | | 101.SCH | | | | | | * | | | | | | | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | * | | | | | | | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | | | * | | | | | | | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | * | | | | | | | | 101.DEF | | | | | | * |
| | # | Indicates management contract or compensatory plan. |
| | † | Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.SEC. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
VERONA PHARMA PLC By: /s/ David Zaccardelli Name: David Zaccardelli, Pharm. D Title: Chief Executive Officer
Date: February 27, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements as of and for the years ended December 31, 2016 and 2017
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Verona Pharma Plc
Opinion on the Financial Statements
We have audited the accompanying consolidated statementstatements of financial position of Verona Pharma Plc and its subsidiaries (the “Company”) as of December 31, 20172019 and December 31, 20162018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 20172019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and December 31, 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 2.17 to the consolidated financial statements, the Company changed the manner in which it accounts for its contingent liability in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP Reading, United Kingdom February 27, 20182020
We have served as the Company's auditor since 2015.
PricewaterhouseCoopers LLP, 3 Forbury Place, 23 Forbury Road, Reading, Berkshire, RG1 3JH
T: +44 (0) 118 597 111, F: +44 (0) 1189 383 020, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
VERONA PHARMA PLC CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 20162019 AND 20172018 | | | Notes | | As of December 31, 2016 | | As of December 31, 2017 | Notes | | As of December 31, 2019 | | Restated As of December 31, 2018 | | | | £'000s | | £'000s | | | £'000s | | £'000s | ASSETS | | | | | | | | | | | Non-current assets: | | | | | | | | | | | Goodwill | 11 |
| | 441 |
| | 441 |
| 11 |
| | 441 |
| | 441 |
| Intangible assets | 12 |
| | 1,877 |
| | 1,969 |
| 12 |
| | 2,757 |
| | 2,618 |
| Property, plant and equipment | 13 |
| | 14 |
| | 16 |
| 13 |
| | 43 |
| | 21 |
| Right-of-use assets | | 14 |
| | 971 |
| | — |
| Total non-current assets | | | 2,332 |
| | 2,426 |
| | | 4,212 |
| | 3,080 |
| | | | | | | | | | | | Current assets: | | | | | | | | | | | Prepayments and other receivables | 14 |
| | 2,959 |
| | 1,810 |
| 15 |
| | 2,770 |
| | 2,463 |
| Current tax receivable | | | 1,067 |
| | 5,006 |
| | | 7,396 |
| | 4,499 |
| Short term investments | 3 |
| | — |
| | 48,819 |
| | | 7,823 |
| | 44,919 |
| Cash and cash equivalents | | | 39,785 |
| | 31,443 |
| | | 22,934 |
| | 19,784 |
| Total current assets | | | 43,811 |
| | 87,078 |
| | | 40,923 |
| | 71,665 |
| Total assets | | | 46,143 |
| | 89,504 |
| | | 45,135 |
| | 74,745 |
| | | | | | |
| | | |
| | | EQUITY AND LIABILITIES | | | | | | | | | | | Capital and reserves attributable to equity holders: | | | | | | | | | | | Share capital | 15 |
| | 2,568 |
| | 5,251 |
| 16 |
| | 5,266 |
| | 5,266 |
| Share premium | | | 58,526 |
| | 118,862 |
| | | 118,862 |
| | 118,862 |
| Share-based payment reserve | | | 2,103 |
| | 5,022 |
| | | 10,364 |
| | 7,923 |
| Accumulated loss | | | (28,728 | ) | | (49,254 | ) | | | (100,627 | ) | | (68,633 | ) | Total equity | | | 34,469 |
| | 79,881 |
| | | 33,865 |
| | 63,418 |
| | | | | | | | | | | | Current liabilities: | | | |
| | |
| | | |
| | |
| Derivative financial instrument | 19 |
| | 7,923 |
| | 1,273 |
| 18 |
| | 895 |
| | 2,492 |
| Lease liability | | 14 |
| | 460 |
| | — |
| Trade and other payables | 17 |
| | 2,823 |
| | 7,154 |
| 19 |
| | 8,261 |
| | 7,733 |
| Tax payable—U.S. Operations | | | 126 |
| | 169 |
| | Total current liabilities | | | 10,872 |
| | 8,596 |
| | | 9,616 |
| | 10,225 |
| | | | | | | | | | | | Non-current liabilities: | | | | | | | | | | | Assumed contingent obligation | 18 |
| | 802 |
| | 875 |
| | Assumed contingent liability | | 20 |
| | 1,103 |
| | 996 |
| Non-current lease liability | | 14 |
| | 491 |
| | — |
| Deferred income | | | — |
| | 152 |
| | | 60 |
| | 106 |
| Total non-current liabilities | | | 802 |
| | 1,027 |
| | | 1,654 |
| | 1,102 |
| Total equity and liabilities | | | 46,143 |
| | 89,504 |
| | | 45,135 |
| | 74,745 |
|
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015, 20162019, 2018 AND 2017 | | | Notes | | Year Ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | Notes | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year Ended December 31, 2017 | | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Research and development costs | | (7,270 | ) | | (4,522 | ) | | (23,717 | ) | | (33,476 | ) | | (19,294 | ) | | (23,717 | ) | General and administrative costs | | (1,706 | ) | | (2,498 | ) | | (6,039 | ) | | (7,607 | ) | | (6,297 | ) | | (6,039 | ) | Operating loss | 7 | | (8,976 | ) | | (7,020 | ) | | (29,756 | ) | 7 | | (41,083 | ) | | (25,591 | ) | | (29,756 | ) | Finance income | 9 | | 45 |
| | 1,841 |
| | 7,018 |
| 9 | | 2,351 |
| | 2,783 |
| | 7,018 |
| Finance expense | 9 | | (73 | ) | | (794 | ) | | (2,465 | ) | 9 | | (474 | ) | | (1,325 | ) | | (2,465 | ) | Loss before taxation | | (9,004 | ) | | (5,973 | ) | | (25,203 | ) | | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | Taxation — credit | 10 | | 1,509 |
| | 954 |
| | 4,706 |
| 10 | | 7,265 |
| | 4,232 |
| | 4,706 |
| Loss for the year | | (7,495 | ) | | (5,019 | ) | | (20,497 | ) | | (31,941 | ) | | (19,901 | ) | | (20,497 | ) | Other comprehensive income / (loss) : | | | | | | | | Other comprehensive income / (loss): | | | | | | | | Items that might be subsequently reclassified to profit or loss | | | | | | | | | | | | | Exchange differences on translating foreign operations | | 4 |
| | 43 |
| | (29 | ) | | (33 | ) | | 38 |
| | (29 | ) | Total comprehensive loss attributable to owners of the Company | | (7,491 | ) | | (4,976 | ) | | (20,526 | ) | | (31,974 | ) | | (19,863 | ) | | (20,526 | ) | Loss per ordinary share — basic and diluted (pence) | 5 | | (37.1 | ) | | (15.0 | ) | | (23.4 | ) | 5 | | (30.3 | ) | | (18.9 | ) | | (23.4 | ) |
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Cash used in operating activities: | | | | | | Loss before taxation | (9,004 | ) | | (5,973 | ) | | (25,203 | ) | Finance income | (45 | ) | | (1,841 | ) | | (7,018 | ) | Finance expense | 73 |
| | 794 |
| | 2,465 |
| Share-based payment charge | 399 |
| | 577 |
| | 2,919 |
| Decrease / (increase) in prepayments and other receivables | 59 |
| | (1,809 | ) | | (161 | ) | Increase in trade and other payables | 1,274 |
| | 1,068 |
| | 5,363 |
| Depreciation of property, plant and equipment | 10 |
| | 10 |
| | 7 |
| Loss on disposal of property, plant and equipment | — |
| | 3 |
| | — |
| Loss on disposal of intangible assets | 135 |
| | — |
| | — |
| Amortization of intangible assets | 43 |
| | 52 |
| | 116 |
| Cash used in operating activities | (7,056 | ) | | (7,119 | ) | | (21,512 | ) | Cash inflow from taxation | 700 |
| | 1,533 |
| | 816 |
| Net cash used in operating activities | (6,356 | ) | | (5,586 | ) | | (20,696 | ) | Cash flow from investing activities: | | | | | | Interest received | 51 |
| | 87 |
| | 128 |
| Purchase of plant and equipment | (1 | ) | | (13 | ) | | (9 | ) | Payment for patents and computer software | (142 | ) | | (115 | ) | | (208 | ) | Transfer to short term investments | — |
| | — |
| | (54,465 | ) | Maturity of short term investments | — |
| | — |
| | 5,085 |
| Net cash used in investing activities | (92 | ) | | (41 | ) | | (49,469 | ) | Cash flow from financing activities: | | | | | | Gross proceeds from issue of shares and warrants | — |
| | 44,750 |
| | — |
| Gross proceeds from the April 2017 Global Offering | | | — |
| | 70,032 |
| Transaction costs on issue of shares and warrants | — |
| | (2,910 | ) | | — |
| Transaction costs on April 2017 Global Offering | — |
| | (636 | ) | | (6,786 | ) | Net cash generated from financing activities | — |
| | 41,204 |
| | 63,246 |
| Net (decrease) / increase in cash and cash equivalents | (6,448 | ) | | 35,577 |
| | (6,919 | ) | Cash and cash equivalents at the beginning of the year | 9,968 |
| | 3,524 |
| | 39,785 |
| Effect of exchange rates on cash and cash equivalents | 4 |
| | 684 |
| | (1,423 | ) | Cash and cash equivalents at the end of the period | 3,524 |
| | 39,785 |
| | 31,443 |
|
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015, 20162019, 2018 AND 2017 | | | Share Capital | | Share Premium | | Share-based Expenses | | Total Accumulated Losses | | Total Equity | Share Capital | | Share Premium | | Share-based Payment Reserve | | Total Accumulated Losses | | Total Equity | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Balance at January 1, 2015 | 1,010 |
| | 26,650 |
| | 1,127 |
| | (16,261 | ) | | 12,526 |
| | Balance at January 1, 2017, as previously reported | | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,728 | ) | | 34,469 |
| Impact of change in accounting policy | | — |
| | — |
| | — |
| | 484 |
| | 484 |
| Balance at January 1, 2017 (Restated) | | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,244 | ) | | 34,953 |
| Loss for the year | | — |
| | — |
| | — |
| | (20,497 | ) | | (20,497 | ) | Other comprehensive loss for the year: | | | | | | | | | | | Exchange differences on translating foreign operations | | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | Total comprehensive loss for the year | | — |
| | — |
| | — |
| | (20,526 | ) | | (20,526 | ) | New share capital issued | | 2,677 |
| | 67,648 |
| | — |
| | — |
| | 70,325 |
| Transaction costs on share capital issued | | — |
| | (7,453 | ) | | — |
| | — |
| | (7,453 | ) | Share options exercised during the year | | 6 |
| | 141 |
| | — |
| | — |
| | 147 |
| Share-based payments | | — |
| | — |
| | 2,919 |
| | — |
| | 2,919 |
| Balance at December 31, 2017 (Restated) | | 5,251 |
| | 118,862 |
| | 5,022 |
| | (48,770 | ) | | 80,365 |
| Balance at January 1, 2018 (Restated) | | 5,251 |
| | 118,862 |
| | 5,022 |
| | (48,770 | ) | | 80,365 |
| Loss for the year | — |
| | — |
| | — |
| | (7,495 | ) | | (7,495 | ) | — |
| | — |
| | — |
| | (19,901 | ) | | (19,901 | ) | Other comprehensive income for the year: | | | | | | | | | | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | 4 |
| | 4 |
| — |
| | — |
| | — |
| | 38 |
| | 38 |
| Total comprehensive loss for the period | — |
| | — |
| | — |
| | (7,491 | ) | | (7,491 | ) | | Total comprehensive loss for the year | | — |
| | — |
| | — |
| | (19,863 | ) | | (19,863 | ) | New share capital issued | | 15 |
| | — |
| | — |
| | — |
| | 15 |
| Share-based payments | — |
| | — |
| | 399 |
| | — |
| | 399 |
| — |
| | — |
| | 2,901 |
| | — |
| | 2,901 |
| Balance at December 31, 2015 | 1,010 |
| | 26,650 |
| | 1,526 |
| | (23,752 | ) | | 5,434 |
| | Balance at January 1, 2016 | 1,010 |
| | 26,650 |
| | 1,526 |
| | (23,752 | ) | | 5,434 |
| | Loss for the year | — |
| | — |
| | — |
| | (5,019 | ) | | (5,019 | ) | | Other comprehensive income for the year: | | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | 43 |
| | 43 |
| | Total comprehensive loss for the period | — |
| | — |
| | — |
| | (4,976 | ) | | (4,976 | ) | | New share capital issued | 1,556 |
| | 34,151 |
| | — |
| | — |
| | 35,707 |
| | Transaction costs on share capital issued | — |
| | (2,325 | ) | | — |
| | — |
| | (2,325 | ) | | Share options exercised during the period | 2 |
| | 50 |
| | — |
| | — |
| | 52 |
| | Share-based payments | — |
| | — |
| | 577 |
| | — |
| | 577 |
| | Balance at December 31, 2016 | 2,568 |
|
| 58,526 |
|
| 2,103 |
|
| (28,728 | ) |
| 34,469 |
| | Balance at January 1, 2017 | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,728 | ) | | 34,469 |
| | Balance at December 31, 2018 (Restated) | | 5,266 |
| | 118,862 |
|
| 7,923 |
|
| (68,633 | ) |
| 63,418 |
| Balance at January 1, 2019 | | 5,266 |
| | 118,862 |
| | 7,923 |
| | (68,633 | ) | | 63,418 |
| Impact of change in accounting policy | | — |
| | — |
| | — |
| | (20 | ) | | (20 | ) | Adjusted Balance at January 1, 2019 | | 5,266 |
| | 118,862 |
| | 7,923 |
| | (68,653 | ) | | 63,398 |
| Loss for the year | — |
| | — |
| | — |
| | (20,497 | ) | | (20,497 | ) | — |
| | — |
| | — |
| | (31,941 | ) | | (31,941 | ) | Other comprehensive loss for the year: | | | | | | | | | | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | — |
| | — |
| | — |
| | (33 | ) | | (33 | ) | Total comprehensive loss for the period | — |
| | — |
| | — |
| | (20,526 | ) | | (20,526 | ) | | New share capital issued | 2,677 |
| | 67,648 |
| | — |
| | — |
| | 70,325 |
| | Transaction costs on share capital issued | — |
| | (7,453 | ) | | — |
| | — |
| | (7,453 | ) | | Share options exercised during the period | 6 |
| | 141 |
| | — |
| | — |
| | 147 |
| | Total comprehensive loss for the year | | — |
| | — |
| | — |
| | (31,974 | ) | | (31,974 | ) | Share-based payments | — |
| | — |
| | 2,919 |
| | — |
| | 2,919 |
| — |
| | — |
| | 2,441 |
| | — |
| | 2,441 |
| Balance at December 31, 2017 | 5,251 |
|
| 118,862 |
|
| 5,022 |
|
| (49,254 | ) |
| 79,881 |
| | Balance at December 31, 2019 | | 5,266 |
|
| 118,862 |
|
| 10,364 |
|
| (100,627 | ) |
| 33,865 |
|
The currency translation reserve for 2015, 20162019, 2018, and 2017, is not considered material and as such is not presented in a separate reserve but is included in the total accumulated losses reserve. The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 | | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Cash used in operating activities: | | | | | | Loss before taxation | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | Finance income | (2,351 | ) | | (2,783 | ) | | (7,018 | ) | Finance expense | 474 |
| | 1,325 |
| | 2,465 |
| Share-based payment charge | 2,441 |
| | 2,901 |
| | 2,919 |
| Increase in prepayments and other receivables | (484 | ) | | (640 | ) | | (161 | ) | Increase in trade and other payables | 449 |
| | 531 |
| | 5,363 |
| Depreciation of property, plant, equipment and right of use asset | 398 |
| | 8 |
| | 7 |
| Unrealised FX gains/ losses | (8 | ) | | — |
| | — |
| Amortization of intangible assets | 106 |
| | 90 |
| | 116 |
| Cash used in operating activities | (38,181 | ) | | (22,701 | ) | | (21,512 | ) | Cash inflow from taxation | 4,361 |
| | 4,590 |
| | 816 |
| Net cash used in operating activities | (33,820 | ) | | (18,111 | ) | | (20,696 | ) | Cash flow from investing activities: | | | | | | Interest received | 887 |
| | 883 |
| | 128 |
| Purchase of plant and equipment | (38 | ) | | (13 | ) | | (9 | ) | Payment for patents and computer software | (244 | ) | | (255 | ) | | (208 | ) | Purchase of short term investments | (7,940 | ) | | (59,700 | ) | | (54,465 | ) | Maturity of short term investments | 45,134 |
| | 64,366 |
| | 5,085 |
| Net cash generated from / (used in) investing activities | 37,799 |
| | 5,281 |
| | (49,469 | ) | Cash flow used in financing activities: | | | | | | Gross proceeds from the April 2017 Global Offering | — |
| | — |
| | 70,032 |
| Transaction costs on April 2017 Global Offering | — |
| | — |
| | (6,786 | ) | Repayment of finance lease liabilities | (426 | ) | | — |
| | — |
| Net cash (used in) / generated from financing activities | (426 | ) | | — |
| | 63,246 |
| Net increase / (decrease) in cash and cash equivalents | 3,553 |
| | (12,830 | ) | | (6,919 | ) | Cash and cash equivalents at the beginning of the year | 19,784 |
| | 31,443 |
| | 39,785 |
| Effect of exchange rates on cash and cash equivalents | (403 | ) | | 1,171 |
| | (1,423 | ) | Cash and cash equivalents at the end of the year | 22,934 |
| | 19,784 |
| | 31,443 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019
1. General information Verona Pharma plc and its subsidiaries (the "Company") are a clinical-stage biopharmaceutical group focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical needs. The Company is a public limited company, which is dual listed on the Alternative Investment MarketAIM, a market of the London Stock Exchange, and on April 27, 2017, American Depositary Shares began trading onThe Nasdaq Global Market.Market ("Nasdaq"). The company is incorporated and domiciled in the United Kingdom. The address of the registered office is 1 Central Square, Cardiff, CF10 1FS, United Kingdom. The Company has two subsidiaries, Verona Pharma Inc. and Rhinopharma Limited ("Rhinopharma"), both of which are wholly owned. On February 10, 2017 theThe Company effected a 50-for-1 consolidation oflisted its shares. All references to ordinary shares, options and warrants, as well as share, per share and related information in these consolidated financial statements have been adjusted to reflect the consolidation as if it had occurred at the beginning of the earliest period presented.
On April 26, 2017, the Company announced the closing of its global offering of an aggregate of 47,399,001 new ordinary shares, consisting of the initial public offering in the United States of 5,768,000 American Depositary Shares (“ADSs”("ADS") at a price of $13.50 per ADS and on Nasdaq in April 2017 ("the private placement in Europe of 1,255,001 ordinary shares at a price of £1.32 per ordinary share, for gross proceeds of $80 million (the “Global Offering”2017 Global Offering"). Each ADS offered represents eight ordinary shares of the Company. The ordinary shares offered were allotted and issued in a concurrent private placement in Europe and other countries outside of the United States and Canada.
In addition, the Chairman of Verona Pharma’s board of directors, Dr David Ebsworth, and an existing shareholder agreed to subscribe for 254,099 new ordinary shares at a price of £1.32 per ordinary share in a shareholder private placement separate from the Global Offering (the “Shareholder Private Placement”), contingent on and concurrent with the Global Offering and generating additional gross proceeds of £0.3 million.
On May 15 and May 23, 2017, pursuant to the Global Offering, the underwriters purchased an additional 733,738 ADSs, representing 5,869,904 ordinary shares, at a price of $13.50 per ADS, for additional gross proceeds of $9.9 million bringing the total gross proceeds in the Global Offering to $89.9 million (£70.0 million). Including the Shareholder Private Placement, the total gross proceeds of the capital raising amounted to $90.3 million (£70.3 million).
The ADSs began tradingtrade on theThe Nasdaq Global Market under the ticker symbol “VRNA” on April 27, 2017.and Verona Pharma’s ordinary shares continue to trade on the AIM market of the London Stock Exchange (“AIM”) under the symbol “VRP”.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
2. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. 2.1 Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board and IFRS Interpretations Committee and with the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, with the exception of derivative financial instruments which have been measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgementjudgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgementjudgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Going concern DuringThe Company has incurred recurring losses since inception, including net losses of £31.9 million, £19.9 million and £20.5 million for the yearyears ended December 31, 2019, 2018 and 2017, respectively. In addition, as of December 31, 2019, the Company had aan accumulated loss of £20.5 million (2016: £5.0 million).£100.6 million. The Company expects to continue to generate operating losses for the foreseeable future. As of December 31, 2017,the issuance date of the annual consolidated financial statements, the Company had net assets of £79.9 million (2016: £34.5 million) of which £80.3 million (2016: £39.8 million) wasexpects that its cash and cash equivalents, would be sufficient to fund its operating expenses and short term investments.
The operation of the Company is currently being financed from funds that the Company raised from share placings. On May 2nd, 2017, the company raised $89.9 million (£70 million) from the initial public offering in the United States. On July 29, 2016, the Company raised gross proceeds of £44.7 million from a placing, subscription and open offer (the "July 2016 Placement"). These funds are expected to be used primarily to support the development of RPL554 in chronic obstructive pulmonary disease ("COPD"), other chronic respiratory diseases as well as corporate and general administrative expenditures.
The Directors believe that the Company has sufficient funds to complete the current clinical trials, to cover corporate and general administration costs and for it to comply with all commitmentscapital expenditure requirements for at least 12 months from the endissuance date of these annual consolidated financial statements. Accordingly, the reporting periodconsolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and accordingly, are satisfiedwhich contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
The Company intends to initiate its Phase 3 program for the maintenance treatment of COPD once it believes it has alignment with the FDA on its planned design for the Phase 3 clinical program. The Company will require significant additional funding to initiate and complete this Phase 3 program and will need to secure the required capital to fund the program. The Company will seek additional funding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the going concern basis remains appropriate forCompany will be successful in securing additional finance on acceptable terms, or at all, and should the preparationCompany be unable to raise sufficient additional funds it will be required to defer the initiation of these consolidatedPhase 3 clinical trials, until such funding can be obtained. This could also force the Company to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of operations and financial statements.condition. Business combination The Company applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.arrangement. The excess of the cost of acquisition over the fair value of the Company's share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on acquisitions is capitalized and is subject to an impairment review, both annually and when there are indications that the carrying value may not be recoverable. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred and included in administrative expenses.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
Basis of consolidation These consolidated financial statements include the accountsfinancial statements of Verona Pharma plc and its wholly owned subsidiaries Verona Pharma, Inc. and Rhinopharma. The acquisition method of accounting was used to account for the acquisition of Rhinopharma.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Verona Pharma Inc. and Rhinopharma adopt the same accounting policies as the Company. 2.2 Foreign currency translation Items included in the Company's consolidated financial statements are measured using the currency of the primary economic environment in which the Entityentity operates ("the functional currency"). The consolidated financial statements are presented in pounds sterling ("£"), which is the functional and presentational currency of the Company and the presentational currency of the Company. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the Consolidated Statement of Comprehensive Income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the original transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The assets and liabilities of foreign operations are translated into pounds sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the period. The exchange differences arising on translation for consolidation are recognized in Other Comprehensive Income. 2.3 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.4 Deferred taxation Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws)and laws that have been enacted or substantially enacted by the balance sheet date and expected to apply when the related deferred tax is realized or the deferred liability is settled. Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilized. 2.5 Research and development costs Capitalization of expenditure on product development commences from the point at which technical feasibility and commercial viability of the product can be demonstrated and the Company is satisfied that it is probable that future economic benefits will result from the product once completed. No such costs have been capitalized to date, given the early stage of the Company's product candidate development.date. Expenditure on research and development activities that do not meet the above criteria is charged to the Consolidated Statement of Comprehensive Income as incurred.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.6 Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated so as to write off the cost less their estimated residual
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
values, on a straight-line basis over the expected useful economic lives of the assets concerned. The principal annual periods used for this purpose are: | | | Computer hardware | 3 years | Office equipment | 5 years |
2.7 Intangible assets and goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired. Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the estimated useful lives of the patents of ten years. Amortization is calculated so as to write off the cost less estimated residual values, on a straight-line basis over the expected useful economic life of two years. | | (d) | In-process research & development ("IPRIP R&D") |
The IP R&D assetsasset acquired through a business combinations which, at the time of acquisition, havecombination, that had not reached technical feasibility, arewas initially recognized at fair value. Subsequent movements in the assumed contingent liability (see 2.12) that relate to changes in estimated cashflows or probabilities of success are recognized as additions to the IP R&D asset that it relates to. There were no changes in estimated cashflows or probabilities of success in the years ended 31 December, 2019, or 2018. This is a change in accounting policy as prior to January 1, 2019, movements in the assumed contingent liability were taken to the Statement of Comprehensive Income (see note 2.17). As a result of the change in accounting policy £484 thousand was restated from Accumulated Loss to the IP R&D asset. The amounts are capitalized and are not amortized but areasset is subject to impairment testing until completion, abandonment of the projectsproject or when the research findings are commercialized through a revenue generating project. The Company determines whether intangible assets (including goodwill) are impaired on an annual basis and this requires the estimationor when there is an indication of the higher of fair value less costs of disposal and value in use. Upon successful completion or commercialization of the relevant project, IP R&D will be reclassified to developed technology. The Company will make a determination as to the then useful life of the developed technology, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. In case of abandonment the asset will be impaired. 2.8 Impairment of intangible assets, goodwill and non-financial assets
Goodwill and intangible assets that have an indefinite useful life and intangible assets not ready to use are not subject to amortization. These assets are tested annually for impairment or more frequently if impairment indicators exist. Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value (less costs of disposal) and value in use.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, which are largely independent of the cash flows from other assets or group of assets (cash generating units "CGUs").
Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. The units or group of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.
The Company is a single cash generating unit. Goodwill that arose on the acquisition of Rhinopharma has been thus allocated to this single CGU. IP R&D is tested for impairment at this level as well, since it is the lowest level at which independent cash flows can be identified.impairment.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Accounting policies (Continued)
Non-financial2.8 Impairment of intangible assets, othergoodwill and non-financial assets
The Company holds intangible assets relating to acquired IP R&D, patent costs and goodwill. Goodwill and intangible assets are tested annually for impairment or if there is an indication of impairment. The Company is a single cash generating unit ("CGU") so all intangibles are allocated to the Company as one CGU. As at 31 December, 2019, and 2018 the Company carried out impairment reviews with reference to its market capitalization. At points during the year ended 31 December 2019, the Company's market capitalization was less than goodwill,its net assets. As a result, the Company carried out an impairment review by forecasting expected sales of ensifentrine, delivered by nebulizer for the maintenance treatment of chronic COPD, and associated costs. This cashflow forecast was then discounted to its net present value to demonstrate that have been previously impaired are reviewed for possible reversalthe value in use of the impairment at each subsequent reporting date.ensifentrine was greater than the Company's net assets. The Company was required to make various estimates and assumptions as inputs for this model including, but not limited to: market size and product acceptance by clinicians, patients and reimbursement bodies; gross and net selling price; costs of manufacturing, product distribution and marketing support; costs of the Company's overhead; size and make up of a sales force; probabilities of success; and discount rate.
2.9 Employee Benefits (a) Pension The Company operates a defined contribution pension schemeschemes for UKits employees. Contributions payable for the year are charged to the Consolidated Statement of Comprehensive Income. The contributions are recognized as employee benefit expense when they are due. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the Consolidated Statement of Financial Position. The Company has no further payment obligationliability once the contributions have been paid. (b) Bonus plans The Company recognizes a liability and an expense for bonus plans if contractually obligated or if there is a past practice that has created a constructive obligation.liability. 2.10 Share-based payments The Company operates a number of equity-settled, share-based compensation schemes. The fair value of share-basedshare based payments under such schemes is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Where equity settled transactions are entered into with third party service providers, fair value is determined by reference to the value of the services provided in lieu of payment. The expense is measured based on the services received at the date of receipt of those services and is charged to the Consolidated Statement of Comprehensive Income over the period for which the services are received and a corresponding credit is made to reserves. For other equity-settled transactions fair value is determined using the Black-Scholes model and requires several assumptions and estimates as disclosed in note 16.17.
The fair value of share-based payments under these schemes is expensed on a straight-line basis over the share based payments' vesting periods, based on the Company's estimate of shares that will eventually vest.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.11 Provisions Provisions are recognized when the Company has a present legal or constructive obligationliability as a result of past events, it is probable that an outflow of resources will be required to settle the obligation,liability, and the amount can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligationliability using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.liability. 2.12 Assumed contingent obligationliability related to the business combinationscombination On September 19,In 2006 the Company acquired Rhinopharma for a total consideration of £1.52 million payable in ordinary shares. In addition, the Companyand assumed certain contingent obligationsliabilities owed by Rhinopharma to Vernalis under anPharmaceuticals Limited which was subsequently acquired by Ligand Pharmaceuticals, Inc. (“Ligand”). The Company refers to the assignment and license agreement (the "assumed contingent consideration") followingas the sale of IP by Vernalis to Rhinopharma. Pursuant to the agreement Vernalis (i)Ligand Agreement.
Ligand assigned to the Company all of its rights to certain patents and patent applications relating to RPL554ensifentrine and related compounds (the "Vernalis"Ligand Patents") and (ii) granted to the Company an exclusive, worldwide, royalty-bearing license under certain VernalisLigand know-how to develop, manufacture and commercialize products (the "Licensed Products") developed using VernalisLigand Patents, VernalisLigand know-how and the physical stock of certain compounds. The assumed contingent obligationliability comprises (a) a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a Licensed Product; (b)Product, low to mid singlemid-single digit royalties based on the future sales performance of all Licensed Products;Products and (c) a portion equal to a midtwentymid-twenty percent of any consideration received from any sub-licensees for the VernalisLigand Patents and for VernalisLigand know-how. On the date of
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
acquisition theThe liability was initially recognized at fair value of theand subsequently measured at amortized cost. The assumed contingent obligation wasliability is estimated as the expected value of the milestone payment and royalty payments and sub-license payments,payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, and an assessment of the probability of success using standard market probabilities for respiratory drug development. The risk-weighted value of the assumed contingent arrangement was thenis discounted back to its net present value applying an effective interest rate of 12%. The initial fair value of the assumed contingent obligation as of December 31, 2006 was deemed to be insignificant at the date of the acquisition, so it was not recorded.
The amount of royaltiesRoyalties payable under the agreement isare based on the future sales performance of certain products, and so the total amount payable is unlimited. The level of salesSales that may be achieved under the
agreement isare difficult to predict and subject to estimate, which is inherently uncertain.
The value of this assumed contingent obligationliability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes. The assumed contingent obligation is accounted for as a liability, Remeasurements relating to changes in estimated cash flows and any adjustments made to the valueprobabilities of the liability will besuccess are recognized in the Consolidated Statement of Comprehensive IncomeIP R&D asset it relates to ("see 2.7"). This is a change in accounting policy for the period. year ended December 1, 2019 (see 2.17). The unwind of the discount is recognized in finance expense.
2.13 Government and other grants The Company may receive government, regional or charitable grants to support its research efforts in defined projects where these grants provide for reimbursement of approved costs incurred as defined in the respective grants. Income in respect of such grants would include contributions towards the costs of research and development. Income would be recognized when costs under each grant are incurred in accordance with the terms and conditions of the grant and the collectability of the receivable is reasonably assured. Government, regional and charitable grants relating to costs would be deferred and recognized in the Consolidated Statement of Comprehensive Income over the period necessary to match them with the costs they are intended to compensate. When the cash in relation to recognized government, regional or charitable grants is not yet received the amount is included as a receivable on the Consolidated Statement of Financial Position.
Where the grant income is directly related to the specific items of expenditure incurred, the income would be netted against such expenditure. Where the grant income is not a specific reimbursement of expenditure incurred, the Company would include such income under "Other income" in the Consolidated Statement of Comprehensive Income. Grants or investment credits may be repayable if the Company successfully commercializes a relevant program that was funded in whole or in part by the grant or investment credit within a particular timeframe. Prior to successful commercialization, the Company would not make any provision for repayment.
2.14 Financial instruments — initial recognition and subsequent measurement
The Company classifies a financial instrument, or its component parts, as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. The Company evaluates the terms of the financial instrument to determine whether it contains an asset, a liability or an equity component. Such components shall be classified separately as financial assets, financial liabilities or equity instruments.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. | | (a) | Financial assets, initial recognition and measurement and subsequent measurement |
AllThe Company has no financial assets not recorded at fair value through profit or loss such as receivables and deposits,("FVPTL"). All assets are initially recognized initially at fair value plus transaction costs. costs and subsequently measured at amortized cost using the effective interest method.
| | (b) | Financial liabilities, initial recognition and measurement and subsequent measurement |
Financial assets carriedliabilities are classified as measured at fair value through profitamortized cost or loss are initially recognized at fair value, and transaction costs are expensed in the income statement.FVTPL.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Accounting policies (Continued)
The measurement of financial assets depends on their classification. Financial assets suchCompany's warrants are classified as receivablesFVTPL and deposits are subsequently measured at amortized cost. The Company does not hold any financial assets at fair value throughgains and losses are recognized in profit or loss or available for sale financial assets.loss. | | (b) | Financial liabilities, initial recognition and measurement and subsequent measurement |
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or payables, as appropriate. All
Other financial liabilities are initially recognized initially at fair value and in the case of loans and borrowings and payables, net of directly attributable transaction costs. The measurement of financial assets and financial liabilities depends on their classification. Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. These are subsequently measured at fair value with any gains or losses recognized in profit or loss. All other financial liabilities are measured at amortized cost using the effective interest methodmethod. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company's financial liabilities include trade and other payables, the Company's warrants and derivative financial instruments.the assumed contingent liability. (c) Derivative financial instruments Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value at the end of each reporting date. The Company holds only one type of derivative financial instrument, the warrants, as explained in Note 2.15.2.14. The full fair value of the derivative is classified as a non-current liability when the warrants are exercisable in more than 12 months and as a current liability when the warrants are exercisable in less than 12 months. Changes in fair value of a derivative financial liability when related to a financing arrangement are recognized in the Consolidated Statement of Comprehensive Income within Finance incomeIncome or Finance expense. Fair value gains or losses on derivatives used for non-financing arrangements are recognized in other operating income or expense.Expense.
2.15 WarrantsVERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.14 Derivative financial instrument - warrants Warrants issued by the Company to investors as part of a share subscription are compound financial instruments where the warrant meets the definition of a financial liability. The financial liability component is initially measured at fair value in the Consolidated Statement of Financial Position. Equity is measured at the residual between the subscription price for the entire instrument and the liability component. The financial liability component is remeasured depending on its classification.remeasured. Equity is not remeasured. 2.162.15 Short Term Investments
Short term investments include fixed term deposits held at banks with original maturities of more thanbetween three months but less thanand a year. They are classified as loans and receivables and are measured at amortized cost using the effective interest method.
2.172.16 Transaction costs
Qualifying transaction costs might be incurred in anticipation of an issuance of equity instruments and may cross reporting periods. The entity defers these costs on the balance sheet until the equity instrument is recognized. Deferred costs are subsequently reclassified as a deduction from equity when the equity instruments are recognized, as the costs are directly attributable to the equity transaction. If the equity instruments are not subsequently issued, the transaction costs are expensed. Any costs not directly attributable to the equity transaction are expensed.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Where the liability component is held at fair value through profit or loss, the transaction costs are expensed to the Consolidated Statement of Comprehensive Income. For liabilities held at amortized cost, transaction costs are deducted from the liability and subsequently amortized. The amount of transaction costs accounted for as a deduction from equity in the period is disclosed separately in accordance with International Accounting Standard (“IAS 1.1”). 2.17 Changes in accounting policy Accounting for the assumed contingent liability As discussed in note 2.12, in 2006 the Company acquired Rhinopharma and assumed contingent liabilities owed to Vernalis Pharmaceuticals Limited which was subsequently acquired by Ligand Pharmaceuticals, Inc. ("Ligand"). Ligand assigned to the Company all of its rights to certain patents and patent applications relating to ensifentrine and related compounds and an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize products. The assumed contingent liability comprises a milestone payment on obtaining the first approval of any regulatory authority and royalties based on the future sales of ensifentrine. The initial fair value of the assumed contingent liability was estimated as the expected value of the milestone payment and royalty payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, an assessment of the probability of success using standard market probabilities for respiratory drug development discounted to net present value applying an effective interest rate of 12%. The assumed contingent liability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes. Up to the year ended December 31, 2018, movements in the liability relating to re-measurements of cash flows or changes in the probabilities of success were taken to the Consolidated Statement of Comprehensive Income. During the year ended December 31, 2019, the Company reviewed the accounting for this item and has determined that these movements in the liability will now be recognized in the cost of the corresponding asset. The corresponding asset is the intangible IP R&D asset.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
The Company believes that this change in accounting policy results in the Consolidated Financial Statements providing a more relevant and reliable view of its financial position and performance because without an adjustment to the IP R&D asset on the re-measurement of the liability, the cost of the asset would not be fairly reflected on the Consolidated Statement of Financial Position. The Consolidated Statement of Financial Position more faithfully represents the financial position of the Company if the intangible asset is adjusted by any re-measurement of the liability for changes in estimated cash flows, to give a fairer reflection of the cost of the intangible asset. The Company has reviewed the International Financial Reporting Interpretations Committee ("IFRIC") discussion of accounting for variable payments made for the purchase of an intangible asset that is not part of a business combination that concluded that it was too broad for it to address within the confines of existing IFRS standards. As a result, practice in this area is mixed and many pharmaceutical companies follow a cost accumulation model. The Company also noted that adjusting the cost of the asset when a liability is remeasured for changes in estimated cash flows is consistent with the guidance in IFRIC 1 for decommissioning liabilities and IFRS 16 for lease liabilities. There were no such re-measurements of the liability in the years ended December 31, 2019, 2018 and 2017. Movements in the liability in these periods related to the unwinding of the discount and movements in exchange rates. IAS 8 requires opening balance of each affected component of equity to be adjusted for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. The impact to the Group, therefore, is the restatement of £484 thousand from Accumulated Loss to the IP R&D asset, which relates to re-measurements recorded prior to January 1, 2017. As there were no re-measurements in the years ended December 31, 2019, 2018 and 2017 the £484 thousand adjustment is the same at each reporting period. The following table is a summary of the restatement:
| | | | | | | | | | | Financial statement line item | | As reported | | Adjustment for the change in accounting policy | | As adjusted | January 1, 2017 | | £'000s | | £'000s | | £'000s | | | | | | | | Accumulated loss | | 28,728 |
| | (484 | ) | | 28,244 |
| Intangible assets - IP R&D | | 1,469 |
| | 484 |
| | 1,953 |
|
This adjustment also increases non-current assets, total assets and total equity by £484 thousand in each of the years presented. Adoption of IFRS 16 IFRS 16 ‘Leases’ is effective for accounting periods beginning on or after January 1, 2019 and replaces IAS 17 ‘Leases’. It eliminates the classification of leases as either operating leases or finance leases and, instead, introduces a single lessee accounting model. The adoption of IFRS 16 resulted in the Group recognizing lease liabilities within current liabilities, and corresponding right-of-use assets. The Group’s principal lease arrangements are for office space. The Group has adopted IFRS 16 retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at January 1, 2019. The standard permits a choice on initial adoption, on a lease-by-lease basis, to measure the right-of-use asset at either its carrying amount as if IFRS 16 had been applied since the commencement of the lease, or an amount equal to the lease liability, adjusted for any accrued or prepaid lease payments as at the time of adoption. The Group has elected to measure the right-of-use asset at its carrying value as if IFRS 16 had been applied since the commencement of the lease, with the result of a £20 thousand reduction in opening total accumulated losses.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
Initial adoption resulted in the recognition of right-of-use assets of £326 thousand and lease liabilities of £316 thousand. | | | | | £'000s | Lease commitments (including prepayments) disclosed as at December 31, 2018 | 600 |
| Less: adjustments relating to prepaid lease payments | (28 | ) | Lease commitments as at December 31, 2018 | 572 |
| Discounted using the group’s incremental borrowing rate | 526 |
| Less: short-term leases recognized on a straight-line basis as expense | (210 | ) | Lease liability recognized as at January 1, 2019 | 316 |
|
In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard: the use of a single discount rate of 8% to a portfolio of leases with reasonably similar characteristics; accounting for leases with a remaining lease term of less than 12 months as at January 1, 2019, as short-term leases; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Company is applying IFRS 16’s low-value and short-term exemptions. The adoption of IFRS 16 has had no impact on the Group’s net cash flows, although a presentation change has been reflected in 2019 whereby cash outflows of £426 thousand are now presented as financing, instead of operating. General and administrative costs are £123 thousand lower than if IFRS 16 not been adopted, as depreciation of the right of use asset is less than the lease costs. There is a £50 thousand increase in finance expense from the presentation of a portion of lease costs as interest costs. There is no significant impact on overall loss before tax and loss per share. At the time of adoption it was not reasonably certain that the Company would extend the leases. However, in the period the Company determined that this was the case and agreed extensions. As a result it recognized an additional liability and right-of-use asset of £1,047 thousand. 2.18 New standards, amendments and interpretations adopted by the Company The following amendments havestandard has been adopted by the Company for the first time for the financial year beginning on or after January 1, January, 2017. It did not materially impact the Company’s results:2019:
· Annual Improvements to IFRS Standards 2014-2016 Cycle,
· Disclosure initiative - amendments to IAS 7, and
· Recognition of Deferred Tax Assets for Unrealized Losses - Amendments to IAS 12.
The amendments to IAS 7 require disclosure of changes in liabilities arising from financing activities, seeCompany adopted IFRS 16 on January 1, 2019, and, as a consequence, changed its accounting policies. See note 3.3. 2.17.
2.19 New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 20172019 and not early adopted A number of newThere are no IFRS standards and amendments to standards andor interpretations have been issued but are not yet effective for annual periods beginning after January 1, 2017 (noted below), andthat would be expected to have not been adopted in preparing these consolidated financial statements.
| | ▪ | IFRS 9 "Financial instruments" (effective for annual periods beginning on or after January 1, 2018) |
| | ▪ | IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after January 1, 2018 |
| | ▪ | IFRS 16 "Leases" (effective for annual periods beginning on or after January 1, 2019) |
IFRS 9 will have noa material impact on the accounting or measurement of any of the financial instruments the Company currently holds.
IFRS 15 will have no impact on the financial statements of the Company as it is not currently revenue generating.
IFRS 16 is effective for accounting periods beginning on or after 1 January 2019 and will replace IAS 17 'leases'. It will eliminate the classification of leases as either operating leases or finance leases and, instead, introduce a single lessee accounting model. The adoption of IFRS 16 will result in the Company recognizing lease liabilities and corresponding 'right to use' assets for agreements that are currently classified as operating leases. See note 20 for further details on operating leases held.Group.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
3. Financial Instruments 3.1 Financial Risk Factors The Company's activities have exposed it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk, and liquidity risk. The Company's overall risk management program is focused on preservation of capital and the unpredictability of financial markets and has sought to minimize potential adverse effects on the Company's financial performance and position. (a)Currency risk Foreign currency risk reflects the risk that the Company's net assets will be negatively impacted due to fluctuations in exchange rates. The Company has not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. The summary quantitative datedata about the Company's exposure to currency risk is as follows. Figures are the pound sterling values of balances in each currency: | |
| | Year Ended December 31, 2016 | | Year Ended December 31, 2017 | December 31, 2019 | | December 31, 2018 | | | USD | | EUR | | USD | | EUR | GBP | | USD | | EUR | | GBP | | USD | | EUR | | | £'000s | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Cash and cash equivalents | | 10,631 |
| | 242 |
| | 16,806 |
| | 301 |
| 18,517 |
| | 4,399 |
| | 18 |
| | 11,293 |
| | 8,470 |
| | 21 |
| Short term Investments | | — |
| | — |
| | 19,718 |
| | — |
| 6,316 |
| | 1,507 |
| | — |
| | 19,850 |
| | 25,069 |
| | — |
| Trade and other payables | | 305 |
| | 180 |
| | 276 |
| | 403 |
| 3,226 |
| | 4,306 |
| | 728 |
| | 2,872 |
| | 4,329 |
| | 532 |
|
Sensitivity Analysis A reasonably possible strengthening (weakening)or weakening of the Euro USor U.S. dollar or Sterling against all other currencies atpounds sterling as of December 31, December2019 and 2018 would have affected the measurement of the financial instruments denominated in a foreign currency (excluding the assumed contingent liability). The following table shows how a movement in a currency would give rise to a profit or (loss) and affected equity and profit and loss by the amounts shown below. This analysis assumes that all other variables remain constant.a corresponding entry in equity. | | | Profit or loss and equity | Profit or loss and equity | | Strengthening | | Weakening | Strengthening | | Weakening | December 31, 2017 | £'000s | | £'000s | | December 31, 2019 | | £'000s | | £'000s | EUR (5% movement) | 35 |
| | (35 | ) | (36 | ) | | 36 |
| USD (5% Movement) | 1,840 |
| | (1,840 | ) | 80 |
| | (80 | ) | December 31, 2016 | £'000s | | £'000s | | December 31, 2018 | | £'000s | | £'000s | EUR (5% movement) | 21 |
| | (21 | ) | (26 | ) | | 26 |
| USD (5% Movement) | 547 |
| | (547 | ) | 1,461 |
| | (1,461 | ) |
Foreign currency denominated trade payables are short term in nature (generally 30 to 45 days). The Company has a U.S. operation, the net assets of which are exposed to foreign currency translation risk. Estimated cashflows relating to the assumed contingent liability are predominantly denominated in US dollars. In the years ended December 31, 2019, and 2018, movements in foreign exchange rates were not material and no sensitivity analysis is therefore provided. (b)Credit risk Credit risk reflects the risk that the Company may be unable to recover contractual receivables. As the Company is still in the development stage no policies are currently required to mitigate this risk.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
For banks and financial institutions, only independently rated parties with a minimum rating of "B+" are accepted. The Directors recognize that this is an area in which they may need to develop specific policies should the Company become exposed to further financial risks as the business develops. As of December 31, 2017,2019, and December 31, 2016,2018, cash and cash equivalents and short term investments were placed at the following banks: | | Cash and Cash Equivalents | Year ended December 31, 2016 | | Credit rating | | Year ended December 31, 2017 | | Credit rating | Year ended December 31, 2019 | | Credit rating | | Year ended December 31, 2018 | | Credit rating | | £'000 | | | | £'000 | | £'000 | | £'000 | | | Banks | | | | | | | | | | | | Royal Bank of Scotland | 11,287 |
| | A3 |
| | 16,623 |
| | A2 | 1 |
| | A1 | | 150 |
| | A1 |
| Lloyds Bank | 28,447 |
| | A1 |
| | 13,448 |
| | Aa3 | 8,355 |
| | Aa3 | | 15,862 |
| | Aa3 |
| Standard Chartered | — |
| | — |
| | 1,242 |
| | A1 | | Citibank | | 6,529 |
| | Aa3 | | 3,135 |
| | A1 |
| Barclays | | 1,968 |
| | A1 | | 449 |
| | A2 |
| Wells Fargo | 51 |
| | Aa1 |
| | 130 |
| | Aa1 | 111 |
| | Aa1 | | 188 |
| | Aa1 |
| Close Brothers | | 5,970 |
| | Aa3 | | — |
| | — |
| Total | 39,785 |
| | | | 31,443 |
| | 22,934 |
| | 19,784 |
| | |
| | | | | | | | | | | | Short Term Investments | Year ended December 31, 2016 | | Credit
rating | | Year ended December 31, 2017 | | Credit
rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | — |
| | — |
| | 15,316 |
| | A2 | Lloyds Bank | — |
| | — |
| | 11,036 |
| | Aa3 | Standard Chartered | — |
| | — |
| | 22,467 |
| | A1 | Wells Fargo | — |
| | — |
| | — |
| | Aa1 | Total | — |
| | | | 48,819 |
| | |
| | | | | | | | | | | Short Term Investments | Year ended December 31, 2019 | | Credit rating | | Year ended December 31, 2018 | | Credit rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | 5,616 |
| | A1 | | 9,186 |
| | A1 | Lloyds Bank | — |
| | Aa3 | | 1,567 |
| | Aa3 | Standard Chartered | — |
| | A1 | | 15,450 |
| | A1 | Citibank | — |
| | Aa3 | | 7,053 |
| | A1 | Barclays | 2,207 |
| | A1 | | 11,663 |
| | A2 | Total | 7,823 |
| | | | 44,919 |
| | |
(c) Management of capital The Company considers capital to be its equity reserves. At the current stage of the Company's life cycle, the Company's objective in managing its capital is to ensure funds raised meet the research and operating requirements until the next development stage of the Company's suite of projects. The Company ensures it is meeting its objectives by reviewing its Key Performance Indicators ("KPIs") to ensure the research activities are progressing in line with expectations, costs are controlled and unused funds are placed on deposit to conserve resources and increase returns on surplus cash held. (d)Interest rate risk As of December 31, 2017,2019, the Company had cash deposits of £31.4£22.9 million (2016: £39.8(2018: £19.8 million) and short term investments of £48.8£7.8 million (2016: nil) (2018: £44.9 million). The rates of interest received during 20172019 ranged between 0.0% and 1.73%2.87%. A 0.25% increase in interest rates would not have a material impact on finance income.Theincome. The Company's exposure to interest rate risk, which is the risk that the interest received will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows:
F-16
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
| | | December 31, 2016 | | December 31, 2017 | December 31, 2019 | | December 31, 2018 | | Floating interest rate | | Fixed Interest rate | | Floating interest rate | | Fixed Interest rate | Floating interest rate | | Fixed interest rate | | Floating interest rate | | Fixed interest rate | | £'000s | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | | £'000s | | £'000s | Financial asset | | | | | | | | | | | | | | | Cash deposits | 11,338 |
| | 28,447 |
| | 25,720 |
| | 5,723 |
| 10,006 |
| | 12,928 |
| | 15,082 |
| | 4,702 |
| Short Term Investments | — |
| | — |
| | — |
| | 48,819 |
| — |
| | 7,823 |
| | — |
| | 44,919 |
| Total | 11,338 |
| | 28,447 |
| | 25,720 |
|
| 54,542 |
| 10,006 |
| | 20,751 |
| | 15,082 |
| | 49,621 |
|
(e)Liquidity risk The Company periodically prepares periodic working capital forecasts for the foreseeable future, allowing an assessment of the cash requirements of the Company, to manage liquidity risk. The following table provides an analysis of the Company's financial liabilities. The carrying value of all balances is equalapproximates to their fair value. The Company's maturity analysis for the derivative financial instrument from the issue of warrants is given in note 19.18.
| | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS(1) | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS | | £'000s | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2016 | | | | | | | | | At December 31, 2019 | | | | | | | | | Trade payables | 719 |
| | — |
| | — |
| | — |
| 1,455 |
| | — |
| | — |
| | — |
| Other payables | 54 |
| | — |
| | — |
| | — |
| | Accruals | 2,050 |
| | — |
| | — |
| | — |
| 6,806 |
| | — |
| | — |
| | — |
| Contingent obligation | — |
| | — |
| | — |
| | 1,807 |
| | Lease liability | | 476 |
| | 557 |
| | — |
| | — |
| Assumed contingent liability(1) | | — |
| | — |
| | — |
| | 1,807 |
| Total | 2,823 |
| | — |
| | — |
| | 1,807 |
| 8,737 |
| | 557 |
| | — |
| | 1,807 |
|
This table includes the undiscounted amount of the assumed contingent liability. See note 20.
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2018 | | | | | | | | Trade payables | 2,839 |
| | — |
| | — |
| | — |
| Other payables | 12 |
| | — |
| | — |
| | — |
| Accruals | 4,882 |
| | — |
| | — |
| | — |
| Assumed contingent liability(1) | — |
| | — |
| | — |
| | 1,807 |
| Total | 7,733 |
| | — |
| | — |
| | 1,807 |
|
| | (1) | This table includes the undiscounted amount of the assumed contingent obligation.liability. See note 18. |
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS(1) | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2017 | | | | | | | | Trade payables | 1,214 |
| | — |
| | — |
| | — |
| Other payables | 74 |
| | — |
| | — |
| | — |
| Accruals | 5,866 |
| | — |
| | — |
| | — |
| Contingent obligation | — |
| | — |
| | — |
| | 1,807 |
| Total | 7,154 |
| | — |
| | — |
| | 1,807 |
|
| | (1) | This table includes the undiscounted amount of the assumed contingent obligation. See note 18.20. |
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
3.2 Fair value estimation The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate to fair value due to their short-term nature. The carrying amount of the assumed contingent liability approximates to fair value as the underlying assumptions are currently similar. For financial instruments that are measured in the Consolidated Statement of Financial Position at fair value, IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: | | ▪ | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); |
| | ▪ | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and |
| | ▪ | Inputs for the asset or liability that are not based on observable market data (level 3). |
For the year ended December 31, 2017,2019, and 2016,2018, fair value adjustments to financial instruments measure at fair value through profit and loss resulted in the recognition of finance income of £6.7£1.6 million in 2019 and £1.1a finance loss of £1.2 million respectively.in 2018. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to ascertain the fair value of an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. | | | Level 3 | | Total | Level 3 | | Total | | £'000s | | £'000s | £'000s | | £'000s | At December 31, 2017 | | | | | At December 31, 2019 | | | | | Derivative financial instrument | 1,273 |
| | 1,273 |
| 895 |
| | 895 |
| Total | 1,273 |
| | 1,273 |
| 895 |
| | 895 |
|
Movements in Level 3 items during the years ended December 31, 2016,2019, and 20172018 are as follows: | | Derivative financial instrument | 2016 | | 2017 | 2019 | | 2018 | | £'000s | | £'000s | £'000s | | £'000s | At January 1 | — |
| | 7,923 |
| 2,492 |
| | 1,273 |
| Initial recognition of derivative financial instrument | 8,991 |
| | — |
| | Fair value adjustments recognized in profit and loss | (1,068 | ) | | (6,650 | ) | (1,597 | ) | | 1,219 |
| At December 31 | 7,923 |
| | 1,273 |
| 895 |
| | 2,492 |
|
Further details relating to the derivative financial instrument are set out in notes 4 and 1918 of these financial statements. In determining the fair value of the derivative financial instrument, the Company applied the Black Scholes model; key inputs include the share price at reporting date, estimations on timelines, volatility and risk-free rates. These assumptions and the impact of changes in these assumptions, where material, are disclosed in note 19.18.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
3.3 Change in liabilities arising from financing activities The Company has provided a reconciliation so that changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes can be evaluated. | | | | | December 31, 20172019 | | Derivative financial instrument | | £'000s | At January 1 | 7,9232,492 |
| Fair value adjustments - non cash | (6,6501,597 | ) | At December 31 | 1,273895 |
|
See note 1918 for information relating to the derivative financial instrument.
| | | | | 2019 | | Lease liability | | £'000s | At January 1 | 316 |
| Capitalization of rental leases - non cash | 1,061 |
| Payment of lease liability - cash | (426 | ) | At December 31 | 951 |
|
See note 14 and note 2.17 for information relating to the capitalized leases. 4. Critical accounting estimates and judgments The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are as follows: (a) Assumed contingent obligationliability The Company has a material obligationliability for the future payment of royalties and milestones associated with contractual obligationsliabilities on RPL554, a development productensifentrine, acquired as part of the acquisition of RhinopharmaRhinopharma. The estimation of the fair valueamounts and timing of the assumed contingent obligation on acquisitionfuture cashflows requires the selectionforecast of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen,royalties payable and the estimation of the likelihood that the regulatory approval milestone will be achieved (see notes 2.12 and estimates of the future cash flows and their timing (for further detail see note 19)20). The estimates for the assumed contingent obligationliability are based on a discounted cash flow model. Key assessments and judgmentsestimates included in the fair value calculation of deferred consideration are: | | ▪ | development, regulatory and marketing risks associated with progressing the product to market approval in key target territories; |
| | ▪ | market size and product acceptance by clinicians, patients and reimbursement bodies; |
| | ▪ | gross and net selling price; |
| | ▪ | costs of manufacturing, product distribution and marketing support; |
| | ▪ | launch of competitive products; and |
| | ▪ | discount rate and time to crystallization of contingent consideration. |
In accordance with IAS 39 ("Financial Instruments Recognition and Measurement" (para AG8)), when there is a change in the expected cash flows, the assumed contingent obligation is re-measured with the change in value
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Critical accounting estimates and judgments (continued)
| | ▪ | launch of competitive products; |
| | ▪ | probabilities of success; and |
| | ▪ | time to crystallization of contingent consideration. |
going through
When there is a change in the Consolidated Statement of Comprehensive Income. Cash flow estimates are revised when the probabilityexpected cash flows or probabilities of success, changes.the assumed contingent liability is re-measured with the change in value recognized in the IP R&D asset it relates to. This is a change in accounting policy for the year ended December 1, 2019 (see 2.17). The assumed contingent obligationliability is measured at amortized cost with the discount unwinding in the Consolidated Statement of Comprehensive Incomefinance expense throughout the year. Actual outcomes could differ significantly from the estimates made. The Company has judged that the probabilities of success will change when it moves from one stage of clinical development to another. Management have determined that, for the purposes of assessing probabilities of success, the Company will move from Phase 2 to Phase 3 after an End of Phase 2 Meeting with the Food and Drug Administration ("FDA") in the US that provides confidence over ensifentrine's historical development program and planned Phase 3 program. A remeasurement of the liability at this time is likely to result in a significant increase in both the liability and the corresponding IP R&D asset.The Company has previously announced that it expects to meet with the FDA in the first half of 2020. The Company notes that there is no guarantee that the meeting will take place in the timeframe anticipated or that there will be a successful outcome. Should the probabilities of success and estimates of cash flows change there will be a material increase in the assumed contingent liability and corresponding IP R&D asset. The amount will be dependent on feedback from the FDA and the probabilities of success applied. Should the Company determine that it has moved from Phase 2 to Phase 3 then the value of the liability could increase by between £15 million and £30 million; the increase in the value of the liability will give rise to an approximately equivalent increase in the value of the IP R&D asset, as described further in Note 2.7. The value of the assumed contingent obligationliability as of December 31, 2017 amounts to £0.9 million. (2016: £0.8 million). The increase in value of the assumed contingent obligation during 20172019 amounted to £0.1 million (2016: £0.2£1.1 million. (2018: £1.0 million) and the movement relates to unwinding the discount on the liability and retranslating for changes in US$ exchange rates. The increase was recorded in finance expense. There was no change in the year to the probability of success and consequently cash flow estimates were not revised. The discount percentage applied is 12%.
(b) Valuation of the Derivative Financial Liability In July 2016, warrants Pursuant to the July 2016 Placement, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant. The warrants entitle the investors to subscribe for in aggregate a maximum of 12,446,37012,401,262 ordinary shares.
In accordance with IAS 32 and Companythe Company’s accounting policy, as disclosed in note 2.15,2.14, the Company classified the warrants as a derivative financial liability to be presented on the Company's Consolidated Statement of Financial Position. The fair value of these warrants is determined by applying the Black-Scholes model. Assumptions are made on inputs such as time to maturity, the share price,term, volatility and risk free rate in order to determine the fair value per warrant. For further details see note 19. Transaction costs arising on the issues of these shares and warrants are allocated to the equity and warrant liability components in proportion to the allocation of proceeds.
(c) Recognition of research and development expenditure
The Company incurs research and development expenditure from third parties. The Company recognizes this expenditure in line with the management’s best estimation of the stage of completion of each research and development project. This includes the calculation of accrued costs at each period end to account for expenditure that has been incurred. This requires management to estimate full costs to complete for each project and also to estimate its current stage of completion. The costs related to the Clinical Research Organization expenses in the year was £18.5 million. The related accruals and prepayments were £4.6 million and £0.5 million respectively.
(d) Transaction costs related the Global Offering
The Company incurred various transaction costs relating to the Global Offering, including commissions, professional advisor fees, financial advice, listing fees and other costs. When management judged them to be incremental costs directly attributable to the transaction they were accounted for as a deduction from equity. Otherwise the costs were expensed to the consolidated income statement as incurred.
18.
5. Earnings per share Basic loss per ordinary share of 23.4p (2016: 15.0p30.3p (2018: 18.9p and 2015: 37.1p)2017: 23.4p) for the Company is calculated by dividing the loss for the year ended December 31, 20172019 by the weighted average number of ordinary shares in issue of 87,748,031105,326,638 as of December 31, 2017 (2016: 33,499,4132019 (2018: 105,110,504 and 2015: 20,198,469)2017: 87,748,031). Potential ordinary shares are not treated as dilutive as the entity is loss making and such shares would be anti-dilutive.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
6. Segmental reporting The Company’s activities are covered by one operating and reporting segment: Drug Development. There have been no changes to management’s assessment of the operating and reporting segment of the Company during the period.year. All non-current assets are based in the United Kingdom. 7. Operating loss
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Operating Loss is stated after charging: | | | | | | Research and development costs: | | | | | | Employee benefits (note 8) | 1,322 |
| | 2,037 |
| | 3,435 |
| Amortization of patents (note 12) | 43 |
| | 51 |
| | 111 |
| Legal, professional consulting and listing fees | — |
| | — |
| | 331 |
| Loss on disposal of patents | 136 |
| | — |
| | — |
| Other research and development expenses | 5,769 |
| | 2,434 |
| | 19,840 |
| Total research and development costs | 7,270 |
| | 4,522 |
| | 23,717 |
| General and administrative costs: | | | |
| | |
| Employee benefits (note 8) | 625 |
| | 865 |
| | 2,857 |
| Legal, professional consulting and listing fees | 608 |
| | 884 |
| | 2,045 |
| Amortization of computer software (note 12) | — |
| | 1 |
| | 5 |
| Loss on disposal of property, plant and equipment (note 13) | — |
| | 3 |
| | — |
| Depreciation of property, plant and equipment (note 13) | 10 |
| | 10 |
| | 7 |
| Operating lease charge — land and buildings | 157 |
| | 169 |
| | 294 |
| Loss on variations in foreign exchange rate | 21 |
| | 139 |
| | 36 |
| Other general and administrative expenses | 285 |
| | 427 |
| | 795 |
| Total general and administrative costs | 1,706 |
| | 2,498 |
| | 6,039 |
| Operating loss | 8,976 |
| | 7,020 |
| | 29,756 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
8. Directors' emoluments and staff costs7. Operating loss
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | The average number of employees (excluding directors) of the Company during the year: | | | | |
|
| Research and Development | 5 |
| | 5 |
| | 7 |
| General and Administrative | 3 |
| | 2 |
| | 5 |
| Total | 8 |
| | 7 |
| | 12 |
|
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate emoluments of directors: | | | | | | Salaries and other short-term employee benefits | 722 |
| | 951 |
| | 897 |
| Social security costs | 132 |
| | 118 |
| | 103 |
| Incremental payment for additional services | 89 |
| | 44 |
| | — |
| Other pension costs | 38 |
| | 19 |
| | 17 |
| Total directors' emoluments | 981 |
| | 1,132 |
| | 1,017 |
| Share-based payment charge | 232 |
| | 257 |
| | 1,037 |
| Directors' emoluments including share-based payment charge | 1,213 |
| | 1,389 |
| | 2,054 |
|
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate other staff costs: | | | | | | Wages and salaries | 540 |
| | 1,027 |
| | 2,136 |
| Social security costs | 42 |
| | 98 |
| | 182 |
| Incremental payment for additional services | — |
| | 58 |
| | — |
| Share-based payment charge | 137 |
| | 319 |
| | 1,882 |
| Other pension costs | 15 |
| | 11 |
| | 38 |
| Total other staff costs | 734 |
| | 1,513 |
| | 4,238 |
|
The Company operates a defined contribution pension scheme for U.K. employees and executive directors. The total pension cost during the year ended December 31, 2017 was £55 thousand (2016: £30 thousand and 2015: £53 thousand). There were no prepaid or accrued contributions to the scheme at December 31, 2017(2016 and 2015: £nil).
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Operating Loss is stated after charging / (crediting): | | | | | | Research and development costs: | | | | | | Employee benefits (note 8) | 4,688 |
| | 3,360 |
| | 3,435 |
| Amortization of patents (note 12) | 102 |
| | 85 |
| | 111 |
| Legal, professional consulting and listing fees | 537 |
| | 161 |
| | 331 |
| Other research and development expenses | 28,149 |
| | 15,688 |
| | 19,840 |
| Total research and development costs | 33,476 |
| | 19,294 |
| | 23,717 |
| General and administrative costs: | |
| | |
| | | Employee benefits (note 8) | 3,093 |
| | 3,240 |
| | 2,857 |
| Legal, professional consulting and listing fees | 2,155 |
| | 1,296 |
| | 2,045 |
| Amortization of computer software (note 12) | 4 |
| | 5 |
| | 5 |
| Depreciation of property, plant and equipment (note 13) | 16 |
| | 8 |
| | 7 |
| Depreciation of right-of-use assets (note 14) | 382 |
| | — |
| | — |
| Operating lease charge — land and buildings | — |
| | 384 |
| | 294 |
| Loss / (gain) on variations in foreign exchange rate | 345 |
| | (9 | ) | | 36 |
| Other general and administrative expenses | 1,612 |
| | 1,373 |
| | 795 |
| Total general and administrative costs | 7,607 |
| | 6,297 |
| | 6,039 |
| Operating loss | 41,083 |
| | 25,591 |
| | 29,756 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 Finance income and expense (continued)2019
9. Finance income8. Directors' emoluments and expensestaff costs
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance income: | | | | | | Interest received on cash balances | 45 |
| | 86 |
| | 345 |
| Foreign exchange gain on translating foreign currency denominated bank balances | — |
| | 687 |
| | — |
| Fair value adjustment on derivative financial instruments (note 19) | — |
| | 1,068 |
| | 6,650 |
| Other Income | — |
| | — |
| | 23 |
| Total finance income | 45 |
| | 1,841 |
| | 7,018 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | The average number of employees (excluding directors) of the Company during the year: | | | | |
|
| Research and development | 13 |
| | 7 |
| | 7 |
| General and administrative | 9 |
| | 7 |
| | 5 |
| Total | 22 |
| | 14 |
| | 12 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate emoluments of directors: | | | | | | Salaries and other short-term employee benefits | 850 |
| | 830 |
| | 897 |
| Social security costs | 112 |
| | 94 |
| | 103 |
| Incremental payment for additional services | 26 |
| | 26 |
| | — |
| Other pension costs | 10 |
| | 10 |
| | 17 |
| Total directors' emoluments | 998 |
| | 960 |
| | 1,017 |
| Share-based payment charge | 925 |
| | 1,337 |
| | 1,037 |
| Directors' emoluments including share-based payment charge | 1,923 |
| | 2,297 |
| | 2,054 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate executive officers costs: | | | | | | Wages and salaries | 1,150 |
| | 857 |
| | 864 |
| Social security costs | 98 |
| | 83 |
| | 81 |
| Share-based payment charge | 751 |
| | 769 |
| | 1,332 |
| Other pension costs | 21 |
| | 19 |
| | 17 |
| Total executive officers costs | 2,020 |
| | 1,728 |
| | 2,294 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate other staff costs: | | | | | | Wages and salaries | 2,788 |
| | 1,622 |
| | 1,272 |
| Social security costs | 265 |
| | 150 |
| | 101 |
| Share-based payment charge | 765 |
| | 795 |
| | 550 |
| Other pension costs | 46 |
| | 34 |
| | 21 |
| Total other staff costs | 3,864 |
| | 2,601 |
| | 1,944 |
|
The Company considers key management personnel to comprise directors and executive officers. The Company operates defined contribution pension schemes for its employees and executive director. The total pension cost during the year ended December 31, 2019 was £77 thousand (2018: £63 thousand and 2017: £55 thousand). There were no prepaid or accrued contributions to the scheme at December 31, 2019 (2018 and 2017: £nil).
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance expense: | | | | | | Transaction costs allocated to the issue of warrants (note 19) | — |
| | 586 |
| | — |
| Foreign exchange loss on translating foreign currency denominated balances | — |
| | — |
| | 2,392 |
| Remeasurement of assumed contingent arrangement (note 18) | 10 |
| | 122 |
| | — |
| Unwinding of discount factor and foreign exchange movements related to the assumed contingent arrangement (note 18) | 63 |
| | 86 |
| | 73 |
| Total finance expense | 73 |
| | 794 |
| | 2,465 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Taxation (continued)
9. Finance income and expense | | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance income: | | | | | | Interest received on cash balances | 754 |
| | 861 |
| | 345 |
| Foreign exchange gain on translating foreign currency denominated balances | — |
| | 1,922 |
| | — |
| Fair value adjustment on derivative financial instruments (note 18) | 1,597 |
| | — |
| | 6,650 |
| Other Income | — |
| | — |
| | 23 |
| Total finance income | 2,351 |
| | 2,783 |
| | 7,018 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance expense: | | | | | | Fair value adjustment on derivative financial instruments (note 18) | — |
| | 1,219 |
| | — |
| Interest on discounted lease liability | 50 |
| | — |
| | — |
| Foreign exchange loss on translating foreign currency denominated balances | 305 |
| | — |
| | 2,392 |
| Unwinding of discount factor related to the assumed contingent arrangement (note 20) | 119 |
| | 106 |
| | 73 |
| Total finance expense | 474 |
| | 1,325 |
| | 2,465 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019
10. Taxation | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | | £'000s | Analysis of tax credit for the year | | | | | | | | | | | Current tax: | | | | | | | | | | | UK tax credit | (1,520 | ) | | (1,067 | ) | | (5,006 | ) | | US tax charge | — |
| | 129 |
| | 306 |
| | U.K. tax credit | | (7,250 | ) | | (4,290 | ) | | (5,006 | ) | U.S. tax charge | | 56 |
| | 30 |
| | 306 |
| Adjustment in respect of prior periods | 11 |
| | (16 | ) | | (6 | ) | (71 | ) | | 28 |
| | (6 | ) | Total tax credit | (1,509 | ) | | (954 | ) | | (4,706 | ) | (7,265 | ) | | (4,232 | ) | | (4,706 | ) | Factors affecting the tax charge for the year | | | | | | | Loss on ordinary activities | (9,002 | ) | | (5,973 | ) | | (25,203 | ) | | Multiplied by standard rate of corporation tax of 19.25% (2016: 20% and 2015: 20.25%) | (1,823 | ) | | (1,195 | ) | | (4,852 | ) | | | | | | | | | The difference between the total tax shown above and the amount calculated by applying the standard rate of tax to the loss before tax is as follows: | | The difference between the total tax shown above and the amount calculated by applying the standard rate of tax to the loss before tax is as follows: | Factors affecting the tax credit for the year | | | | | | | Loss on ordinary activities before taxation | | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | | | | | | | | Multiplied by standard rate of corporation tax of 19% (2018: 19% and 2017: 19.25%) | | (7,449 | ) | | (4,585 | ) | | (4,852 | ) | Effects of: | | | | | | | | | | | Non-deductible expenses | 114 |
| | 292 |
| | 675 |
| 515 |
| | 540 |
| | 675 |
| Fair value adjustment on derivative financial instruments | — |
| | (214 | ) | | (1,280 | ) | (303 | ) | | 232 |
| | (1,280 | ) | Research and development incentive | (600 | ) | | (427 | ) | | (2,116 | ) | (3,119 | ) | | (1,846 | ) | | (2,116 | ) | Temporary differences not recognized | (1 | ) | | (4 | ) | | (2 | ) | (6 | ) | | (3 | ) | | (2 | ) | Difference in overseas tax rates | — |
| | 56 |
| | 136 |
| 16 |
| | 8 |
| | 136 |
| Tax losses carried forward not recognized | 790 |
| | 554 |
| | 2,739 |
| 3,152 |
| | 1,394 |
| | 2,739 |
| Adjustment in respect of prior periods | 11 |
| | (16 | ) | | (6 | ) | (71 | ) | | 28 |
| | (6 | ) | Total tax credit | (1,509 | ) | | (954 | ) | | (4,706 | ) | (7,265 | ) | | (4,232 | ) | | (4,706 | ) |
UKU.K. corporation tax is charged at 19.25% (2016: 20.00%19% (2018: 19.00% and 2015: 20.25%2017: 19.25%) and U.S. federal and state tax at 35% (201627.6% (2018: 27.6% and 2015:2017: 35%).
The following tables represent deferred tax balances recognized in the Consolidated Statement of Financial Position. There were no movements in either the deferred tax asset or the deferred tax liability. | | | Year ended December 31, 2016 | | Year ended December 31, 2017 | As at December 31, 2019 | | As at December 31, 2018 | | £'000s | | £'000s | £'000s | | £'000s | Deferred tax assets | 250 |
| | 250 |
| 332 |
| | 250 |
| Deferred tax liabilities | (250 | ) | | (250 | ) | (332 | ) | | (250 | ) | Net balances | — |
| | — |
| — |
| | — |
|
The deferred tax liability relates to the difference between the accounting and tax bases of the IP R&D intangible asset. A deferred tax asset relating to UK tax losses has been recognized and offset against the liability. Factors that may affect future tax charges The Company has UKU.K. tax losses available for offset against future profits in the UK.United Kingdom. However an additional deferred tax asset has not been recognized in respect of such items due to uncertainty of future profit streams. As of December 31, 2017,2019, the unrecognized deferred tax asset at 17% is estimated to be £5.43£9.27 million (2016: £3.15(2018: £6.65 million at 17%).
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
11. Goodwill | | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Goodwill at January 1 and December 31 | 441 |
| | 441 |
|
| | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Goodwill at January 1 and December 31 | 441 |
| | 441 |
|
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisition of Rhinopharma in September 2006. Goodwill is not amortized, but is tested annually for impairment. Annual The Company has one CGU so goodwill is tested for impairment together with its intangible assets. It was tested with reference to the Company's market capitalization as of December 31, 2019, the date of testing is performed by comparing the expected recoverable amountof IP R&D and goodwill impairment. The market capitalization of the CGUCompany was approximately £65.3 million as of December 31, 2019, (2018: 92.2 million) compared to the carrying amountCompany's net assets of £33.9 million (2018: £63.4 million). Therefore, no impairment was required. The Company notes that after the reduction in its share price since December 31, 2018, and before the increase by December 31, 2019, at various points in the three months to March 31, 2019, the market value of the CGUCompany was less than its net book value. The Company therefore carried out an impairment review as at March 31, 2019. From market research the Company assessed, among other inputs, potential patient numbers from likely physician prescribing patterns, price points, the time from possible launch to which goodwill has been allocatedpeak sales, script rejection, attrition rates and probability of success. The Company also carried out a sensitivity analysis on key assumptions and assessed that a reasonable change in these assumptions would not lead to the value in use falling below net book value. Consequently, management determined that the Company's value in use exceeded the carrying amountvalue of the CGU. See note 2.8Company's assets and that no impairment was required.
At various other points in the year ended December 31, 2019, the market value of the Company was less than its net book value. Consequently, management re-performed the impairment review quarterly, and identified no changes to market conditions, the consolidated financial statements. 12. Intangiblecompetitive landscape, market research insights or other factors that would change its conclusions. As a result, management determined that the Company's value in use exceeded the carrying value of the Company's assets | | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2016 | 1,469 |
| | 25 |
| | 482 |
| | 1,976 |
| Additions | — |
| | 5 |
| | 110 |
| | 115 |
| Disposals | — |
| | (24 | ) | | — |
| | (24 | ) | At December 31, 2016 | 1,469 |
| | 6 |
| | 592 |
| | 2,067 |
| Accumulated amortization | | | | | | | | At January 1, 2016 | — |
| | 24 |
| | 138 |
| | 162 |
| Charge for year | — |
| | 1 |
| | 51 |
| | 52 |
| Disposals | — |
| | (24 | ) | | — |
| | (24 | ) | At December 31, 2016 | — |
| | 1 |
| | 189 |
| | 190 |
| Net book value | | | | | | | | At December 31, 2016 | 1,469 |
|
| 5 |
|
| 403 |
|
| 1,877 |
|
and that no impairment was required at those dates.
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2017 | 1,469 |
| | 6 |
| | 592 |
| | 2,067 |
| Additions | — |
| | 5 |
| | 203 |
| | 208 |
| Disposals | — |
| | — |
| | (68 | ) | | (68 | ) | At December 31, 2017 | 1,469 |
| | 11 |
| | 727 |
| | 2,207 |
| Accumulated amortization | | | | | | | | At January 1, 2017 | — |
| | 1 |
| | 189 |
| | 190 |
| Charge for year | — |
| | 5 |
| | 111 |
| | 116 |
| Disposals | — |
| | — |
| | (68 | ) | | (68 | ) | At December 31, 2017 | — |
| | 6 |
| | 232 |
| | 238 |
| Net book value | | | | | | | | At December 31, 2017 | 1,469 |
|
| 5 |
|
| 495 |
|
| 1,969 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Intangible assets (continued)
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2018 (Restated) | 1,953 |
| | 11 |
| | 727 |
| | 2,691 |
| Additions | — |
| | 4 |
| | 251 |
| | 255 |
| Disposals | — |
| | — |
| | (6 | ) | | (6 | ) | At December 31, 2018 (Restated) | 1,953 |
| | 15 |
| | 972 |
| | 2,940 |
| Accumulated amortization | | | | | | | | At January 1, 2018 | — |
| | 6 |
| | 232 |
| | 238 |
| Charge for year | — |
| | 5 |
| | 85 |
| | 90 |
| Disposals | — |
| | — |
| | (6 | ) | | (6 | ) | At December 31, 2018 | — |
| | 11 |
| | 311 |
| | 322 |
| Net book value | | | | | | | | At December 31, 2018 (Restated) | 1,953 |
|
| 4 |
|
| 661 |
|
| 2,618 |
|
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2019 | 1,953 |
| | 15 |
| | 972 |
| | 2,940 |
| Additions | — |
| | 3 |
| | 242 |
| | 245 |
| At December 31, 2019 | 1,953 |
| | 18 |
| | 1,214 |
| | 3,185 |
| Accumulated amortization | | | | | | | | At January 1, 2019 | — |
| | 11 |
| | 311 |
| | 322 |
| Charge for year | — |
| | 4 |
| | 102 |
| | 106 |
| At December 31, 2019 | — |
| | 15 |
| | 413 |
| | 428 |
| Net book value | | | | | | | | At December 31, 2019 | 1,953 |
|
| 3 |
|
| 801 |
|
| 2,757 |
|
Intangible assets comprise patents, computer software and an IP R&D asset that arose on the acquisition of Rhinopharma and investment in patents to protect RPL554.ensifentrine. The IP R&D asset acquired through the business combination was initially recognized at fair value. Subsequent movements in the assumed contingent liability that relate to changes in estimated cash flows or probabilities of success are recognized as additions to the IP R&D asset that it relates to. This is currentlya change in accounting policy (see note 2.17). The asset is not amortized and is reviewedtested annually for impairment on an annual basis or where there is an indication that the assets might be impaired until the asset is brought into use.impairment. Patents are amortized over a period of ten years and are regularly reviewedtested annually for impairment. Intangible assets are tested for impairment to ensure the carrying amount exceeds the recoverable amount in accordance with note 2.8. Recognizing thatgoodwill, as the Company is still in its pre-revenue phase and thathas only one CGU. See note 11 for information about the research projects are not yet ready for commercial use, the Company assesses the recoverable amount of the CGU containing the IP R&D with reference to the Company's market capitalization as of December 31, 2017, the date of testing of goodwill impairment. The market capitalization of the Company was approximately £109.7 million as of December 31, 2017, (2016: £80.0 million) compared to the Company's net assets of £79.9 million (2016: £34.5 million). Therefore, no impairment was recognized.review.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
13. Property, plant and equipment | | | | | | | | | | | Computer hardware | | Office equipment | | Total | | £'000s | | £'000s | | £'000s | Cost | | | | | | At January 1, 2016 | 43 |
| | 36 |
| | 79 |
| Additions | 13 |
| | — |
| | 13 |
| Disposals | (39 | ) | | (36 | ) | | (75 | ) | At December 31, 2016 | 17 |
| | — |
| | 17 |
| Accumulated depreciation | | | | | | At January 1, 2016 | 39 |
| | 27 |
| | 66 |
| Charge for the year | 3 |
| | 7 |
| | 10 |
| Disposals | (39 | ) | | (34 | ) | | (73 | ) | At December 31, 2016 | 3 |
| | — |
| | 3 |
| Net book value | | | | | | At December 31, 2016 | 14 |
|
| — |
|
| 14 |
|
| | | | | | | | Computer hardware | | Total | | £'000s | | £'000s | Cost | | | | At January 1, 2018 | 26 |
| | 26 |
| Additions | 13 |
| | 13 |
| At December 31, 2018 | 39 |
| | 39 |
| Accumulated depreciation | | | | At January 1, 2018 | 10 |
| | 10 |
| Charge for the year | 8 |
| | 8 |
| At December 31, 2018 | 18 |
| | 18 |
| Net book value | | | | At December 31, 2018 | 21 |
|
| 21 |
|
| | | Computer hardware | | Office equipment | | Total | Computer hardware | | Total | | £'000s | | £'000s | | £'000s | £'000s | | £'000s | Cost | | | | | | | | | At January 1, 2017 | 17 |
| | — |
| | 17 |
| | At January 1, 2019 | | 39 |
| | 39 |
| Additions | 9 |
| | — |
| | 9 |
| 38 |
| | 38 |
| At December 31, 2017 | 26 |
| | — |
| | 26 |
| | At December 31, 2019 | | 77 |
| | 77 |
| Accumulated depreciation | | | | | | | | | At January 1, 2017 | 3 |
| | — |
| | 3 |
| | At January 1, 2019 | | 18 |
| | 18 |
| Charge for the year | 7 |
| | — |
| | 7 |
| 16 |
| | 16 |
| At December 31, 2017 | 10 |
| | — |
| | 10 |
| | At December 31, 2019 | | 34 |
| | 34 |
| Net book value | | | | | | | | | At December 31, 2017 | 16 |
|
| — |
|
| 16 |
| | At December 31, 2019 | | 43 |
|
| 43 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
14. Right-of-use assets - property leases The right-of-use asset relates to rented office space in London and New York where the Company generally enters in to leases for terms of less than three years. Before the adoption of IFRS 16 these leases were classified as operating leases.
The Consolidated Statement of Financial Position shows the following amounts relating to leases:
| | | | | | | | Year ended December 31, 2019 | | As of January 1, 2019* | | £'000s | | £'000s | Right-of-use assets | | | | Right-of-use assets | 971 |
| | 326 |
| | 971 |
| | 326 |
| | | | | Lease liabilities | | | | Current | (460 | ) | | (316 | ) | Non Current | (491 | ) | | — |
| | (951 | ) | | (316 | ) |
Additions to the right-of-use assets were £1,047,000 and were recognized when the Company was reasonably certain to extend the leases. The additions related to both of the Company's office locations, both of which agreements have similar terms and conditions. To calculate the value of the lease liabilities the Company applied a discount rate of 8%. The leases end in 2021 and 2022 and include options to extend them. The Company has determined it is not yet reasonably certain to operate the option to extend the leases and so has recognized lease payments only to these points in its calculation of the lease liabilities. The right-of-use lease assets are depreciated over the term of the leases. The Consolidated Statement of Comprehensive Income includes the following amounts relating to leases:
| | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | £'000s | | £'000s | Depreciation charge of right-of-use assets | | | | Right-of-use assets | (382 | ) | | — |
| | (382 | ) | | — |
| | | | | Interest expense (including finance cost) | 50 |
| | — |
| Expense relating to short-term leases (included in general and administrative expenses) | 78 |
| | — |
|
The total cash outflow for leases in 2019 was £492,000.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019
15. Prepayments and other receivables | | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Prepayments | 1,361 |
| | 1,138 |
| Deferred IPO costs | 1,527 |
| | — |
| Other receivables | 71 |
| | 672 |
| Total prepayments and other receivables | 2,959 |
| | 1,810 |
|
Deferred IPO costs related to the Global Offering. These costs were offset against share premium in 2017 when the Global Offering was completed. | | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Prepayments | 1,309 |
| | 1,362 |
| Other receivables | 1,461 |
| | 1,101 |
| Total prepayments and other receivables | 2,770 |
| | 2,463 |
|
The prepayments balance includes prepayments for insurance and clinical activities. There are no impaired assets within prepayments and other receivables.
15.16. Share Capital
On February 8, 2017, the board of the Company approved a share consolidation where every 50 existing ordinary shares of £0.001 were consolidated into one ordinary share of £0.05. The movements in the Company's share capital are summarized below:
| | | | | | | | | | Date | | Description | | Number of shares | | Share Capital amounts in | | £'000 | January 1, 2016 | |
| | 20,198,469 |
| | 1,010 |
| July 29, 2016 | | Issuance of shares | | 31,115,926 |
| | 1,556 |
| September 12, 2016 | | Exercise of options | | 3,334 |
| | — |
| October 24, 2016 | | Exercise of options | | 3,334 |
| | — |
| December 28, 2016 | | Exercise of options | | 40,000 |
| | 2 |
| As at December 31, 2016 | | | | 51,361,063 |
| | 2,568 |
| May 2, 2017 | | Issuance of shares | | 47,653,100 |
| | 2,383 |
| May 18, 2017 | | Issuance of shares | | 5,539,080 |
| | 277 |
| May 26, 2017 | | Issuance of shares | | 330,824 |
| | 17 |
| September 13, 2017 | | Exercise of options | | 133,333 |
| | 6 |
| December 31, 2017 | | | | 105,017,400 |
| | 5,251 |
|
| | | | | | | | | | Date | | Description | | Number of shares | | Share Capital amounts in £'000s | | January 1, 2018 | | | | 105,017,401 |
| | 5,251 |
| August 9, 2018 | | Vesting of RSUs | | 58,112 |
| | 3 |
| September 20, 2018 | | Vesting of RSUs | | 251,125 |
| | 12 |
| As at December 31, 2018 | | | | 105,326,638 |
| | 5,266 |
| As at December 31, 2019 | | | | 105,326,638 |
| | 5,266 |
|
The total number of authorized ordinary shares, with a nominal value of £0.05 each, is 200,000,000 (share capital of £10,000,000). All 105,017,400105,326,638 ordinary shares at December 31, 20172019 are allotted, unrestricted, called up and fully paid. All issued shares rank pari passu. On April 26, 2017,During 2018, the Company announced the closing of its Global Offering of an aggregate of 47,399,001 newissued 309,237 ordinary shares comprising 5,768,000 American Depositary Shares (“ADSs”) at a priceupon vesting of $13.50 per ADS and 1,255,001 ordinary shares at a price of £1.32 per ordinary share. During May 2017 the underwriters purchased an additional 733,738 ADSs, representing 5,869,904 ordinary shares, at a price of $13.50 per ADS. The total gross proceeds in the Global Offering amounted to $89.9 million (£70.0 million).employee restricted share units.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Share Capital (continued)
In addition, the Chairman of Verona Pharma’s board of directors, Dr David Ebsworth, and an existing shareholder agreed to subscribe for 254,099 new ordinary shares at a price of £1.32 per ordinary share in the Shareholder Private Placement, contingent on and concurrent with the Global Offering and generating gross proceeds of £0.3m.
Where there is a time and foreign exchange difference between proceeds from a share issue becoming due and being received, the movement is taken to Finance income or Finance expense as appropriate. In respect of the Global Offering and Shareholder Private Placement, the Company recorded a finance expense of £439 thousand arising from movements in exchange rates on funds receivable, offset by a saving on commission payable of £31 thousand, for a net finance expense of £408 thousand.
On September 13, 2017, the company issued 133,333 new shares upon exercise of share options at 110p per share, resulting in proceeds of £147 thousand to the Company.
On July 29, 2016, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant (see note 19).
During 2016, the Company issued 46,666 ordinary shares upon exercise of employee share options.
As at December 31, 2017, the number of ordinary shares in issue was 105,017,400. All new ordinary shares rank pari passu with existing ordinary shares.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
16.17. Share-based payments charge
The Company operates various share based payment incentive schemes for its staff. In accordance with IFRS 2 "Share Based Payments," the cost of equity-settled transactions is measured by reference to their fair value at the date at which they are granted. Where equity-settled transactions were entered into with third party service providers, fair value is determined by reference to the value of the services provided. For other equity-settled transactions fair value is determined using the Black-Scholes model. The cost of equity-settled transactions is recognized over the period until the award vests. No expense is recognized for awards that do not ultimately vest. At each reporting date, the cumulative expense recognized for equity-based transactions reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors at that date, will ultimately vest. The costs of equity-settled share-based payments to employees are recognized in the Statement of Comprehensive Income, together with a corresponding increase in equity during the vesting period. During the twelve months ended December 31, 2017,2019, the Company recognized a share-based payment expense of £2.92£2.44 million (2016: £0.58 million ).(2018: £2.90 million). The charge is included within both general and administrative costs as well as in research and development costs and represents the current year's allocation of the expense for relevant share options. The Company grants share options underoperates an Unapproved Share Option Scheme (the "Unapproved Scheme"). Under the Unapproved Scheme,under which options are granted to employees, directors and consultants to acquire shares atwere issued before 31 December 2016. The Company also operates a price to be determined by the Directors. In general, options granted prior to December 31, 2016 were granted at a premium to the share price at the date of grant and vested over a period of three years from the date of grant, one third vesting on the first anniversary of grant, a further third vesting on the second anniversary of grant and the remainder vesting on the third anniversary of grant. Options granted since January 1, 2017 generally vest over three or four years from the date of the grant using two different methods. The first method is one third vesting over one year, the second third vesting over two years and the final third vesting over three years. The second method is one quarter vesting over one year, the second quarter vesting over two years, the third quarter vesting over three years and the final quarter vesting over four years. The vesting period is defined as the period between the date of grant and the date when the options become exercisable. The options are exercisable during a period ending ten years after the date of grant.
Options are also issued to advisors under the Unapproved Scheme. Such options generally vest immediately and are exercisable between one and two years after grant.
In 2016 the Company issued options under its tax efficient EMI Option Scheme (the "EMI Scheme"). Under the EMI Scheme,under which options were grantedissued before 31 December 2016. In 2017 the Company commenced the 2017 Incentive Award Plan under which the Company grants share options and Restricted Stock Units ("RSUs") to employees and directors whodirectors.
Since 2017 options are contracted to workissued with an exercise price at least 25 hours a week for the Company or for at least 75% of their working time. The options granted under the EMI Scheme are exercisable at a price that is above the share price atthe evening before the date of issue. They vest over terms of one to four years. RSUs also vest over terms of one to four years. In the grant andyear ended December 31, 2019, the Company modified the terms of all the RSUs issued prior January 1, 2019, to include a market based performance condition. The Company's share price must be maintained above £2 for thirty days for the RSUs to vest, in accordance with a vesting schedule determined byaddition to the Directors at the time of grant and have an exercise period of ten years from the date of grant. The Company grants Restricted Stock Units to employees and directors.existing service condition. The RSUs vest overafter a periodfive year term irrespective of three or four years fromwhether the date£2 market condition was met. This modification did not result in an increase in the fair value of the grant using 2 different methods.RSUs. The first method is one third vesting over oneRSUs issued in the year ended December 31, 2019, also include the second third vesting over two yearssame market condition and the final third vesting over three years. The second method is one quarter vesting over onefive year the second quarter vesting over two years, the third quarter vesting over three years and the final quarter vesting over four years.term.
In the year ended December 31, 2019, under the 2017 Incentive Award Plan, the Company granted 4,656,828 (2016: 1,670,000 )5,569,050 (2018: 2,090,847) share options nil (2016: 32,000) share options under the EMI Scheme and 1,052,236 Restricted Stock Units (“RSUs”) (2016: nil)740,496 RSUs (2018: 273,390). The total fair values of the Optionsoptions and RSUs were estimated using the Black-Scholes option-pricing model for equity-settled transactions and amounted to £5.33£2.25 million (2016: £1.93(2018: £2.32 million). The cost is amortized over the vesting period of the options and RSUs on a straight-line basis. Prior to the July 2016 Placement in 2016, management determined to take an option's contractual maximum life as an input into the Black-Scholes option-pricing model. Starting from the July 2016 Placement and in line with the continued development of the Company's clinical trials, the Company determined the time to maturity to be used in the valuation model to be better represented by the weighted-average life of the options granted.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
16. Share-based payments charge (Continued)
Thebasis.The following assumptions were used for the Black-Scholes valuation of share options and RSUs granted in 20162018 and 2017.2019. For the options granted under the Unapproved Scheme the table indicates the ranges used in determining the fair-market values, aligning with the various dates of the underlying grants. The volatility is calculated using historichistorical weekly averages of the Company's share price over a period that is in line with the expected life of the options.
| | | | | | | Issued in 2016 | EMI Scheme | | Unapproved Scheme | Options granted | 32,000 |
| | 1,670,000 |
| Risk-free interest rate | 1.42 | % | | 0.23%-1.42% |
| Expected life of options | 10 years |
| | 5.5-10 years |
| Annualized volatility | 88.0 | % | | 74.3% - 88.0% |
| Dividend rate | 0.00 | % | | 0.00 | % | Vesting period | 3 years |
| | 3 years |
| | | | | Issued in 2017 | Unapproved Scheme | | Restricted Stock Units | Options granted | 4,656,828 |
| | 1,052,236 |
| Risk-free interest rate | 0.29% - 0.62% |
| | 0.42%-0.62% |
| Expected life of options | 5.5 – 7.0 years |
| | 5.5 – 7.0 years |
| Annualized volatility | 71.3% - 73.3% |
| | 71.3% - 73.3% |
| Dividend rate | 0.00 | % | | 0.00 | % | Vesting period | 3 and 4 years |
| | 3 and 4 years |
|
The Company had the following share options movements in the year ended December 31, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2017 | | Options granted | | Options exercised | | Options forfeited | | Options expired | | At December 31, 2017 | | Expiry date | | 2012 | | 2.50 - 7.50 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | June 1, 2022 | | 2013 | | 2 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | April 15, 2023 | | 2013 | | 2.00 |
| | 20,000 |
| | — |
| | — |
| | — |
| | (20,000 | ) | | — |
| | June 1, 2023 | * | 2013 | | 2.00 |
| | 160,000 |
| | — |
| | — |
| | — |
| | — |
| | 160,000 |
| | July 29, 2023 | | 2014 | | 1.75 |
| | 110,000 |
| | — |
| | — |
| | — |
| | — |
| | 110,000 |
| | May 15, 2024 | | 2014 | | 1.75 |
| | 63,333 |
| | — |
| | — |
| | — |
| | (13,333 | ) | | 50,000 |
| | May 15, 2024 | * | 2014 | | 1.10 - 1.75 |
| | 200,000 |
| | — |
| | (133,333 | ) | | — |
| | — |
| | 66,667 |
| | August 6, 2018 | **
| 2015 | | 1.25 |
| | 82,000 |
| | — |
| | — |
| | — |
| | — |
| | 82,000 |
| | January 29, 2025 | * | 2015 | | 1.25 |
| | 510,000 |
| | — |
| | — |
| | — |
| | — |
| | 510,000 |
| | January 29, 2025 | | 2016 | | 2 |
| | 260,000 |
| | — |
| | — |
| | — |
| | — |
| | 260,000 |
| | February 2, 2026 | | 2016 | | 2.00 |
| | 22,000 |
| | — |
| | — |
| | — |
| | — |
| | 22,000 |
| | February 2, 2026 | * | 2016 | | 1.80 |
| | 810,000 |
| | — |
| | — |
| | — |
| | — |
| | 810,000 |
| | August 3, 2026 | | 2016 | | 1.89 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 13, 2026 | | 2016 | | 2.04 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 16, 2026 | | 2017 | | 1.32 - 1.525 |
| | — |
| | 4,656,828 |
| | — |
| | — |
| | — |
| | 4,656,828 |
| | April 26, 2027 | | Total | | | | 3,037,333 |
| | 4,656,828 |
| | (133,333 | ) | | — |
| | (33,333 | ) | | 7,527,495 |
| | | |
| | * | Options granted under the EMI Scheme. |
* * Valued based on fair value of services received.
and RSUs.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 16.17. Share-based payments charge (Continued)
| | | | | | | | Issued in 2018 | | Unapproved Scheme | | Restricted Stock Units | Options granted | | 2,090,847 |
| | 273,390 |
| Risk-free interest rate | | 1.08% - 1.22% |
| | 1.08% - 1.22% |
| Expected life of options | | 5.5 - 7 years |
| | 5.5 - 7 years |
| Annualized volatility | | 69.88% -71.35% |
| | 69.88% -71.35% |
| Dividend rate | | 0.00 | % | | 0.00 | % | Vesting period | | 1 to 4 years |
| | 1 to 4 years |
| | | | | | Issued in 2019 | | Unapproved Scheme | | Restricted Stock Units | Options granted | | 5,569,050 |
| | 740,496 |
| Risk-free interest rate | | 0.39% - 0.82% |
| | 0.76% - 0.82% |
| Expected life of options | | 5.5 - 7 years |
| | 5.5 - 7 years |
| Annualized volatility | | 67.98% - 69.71% |
| | 63.82% - 69.71% |
| Dividend rate | | 0.00 | % | | 0.00 | % | Vesting period | | 1 to 4 years |
| | 1 to 4 years |
|
The Company had the following Restricted Share Unitsshare options movements in the year ended December 31, 2017:2019: | | Year of issue | | Exercise price (£) | | At January 1, 2017 | | Units granted | | Units exercised | | Units forfeited | | Units expired | | At December 31, 2017 | | Expiry date | | Exercise price (£) | | At January 1, 2019 | | Options granted | | Options forfeited | | Options expired | | At December 31, 2019 | | Expiry date | | 2012 | | | 2.50 - 7.50 |
| | 99,993 |
| | — |
| | — |
| | — |
| | 99,993 |
| | June 1, 2022 | | 2013 | | | 2 |
| | 99,990 |
| | — |
| | — |
| | (19,998 | ) | | 79,992 |
| | April 15, 2023 | | 2013 | | | 2.00 |
| | 159,999 |
| | — |
| | — |
| | — |
| | 159,999 |
| | July 29, 2023 | | 2014 | | | 1.75 |
| | 109,998 |
| | — |
| | — |
| | — |
| | 109,998 |
| | May 15, 2024 | | 2014 | | | 1.75 |
| | 49,998 |
| | — |
| | — |
| | — |
| | 49,998 |
| | May 15, 2024 | * | 2015 | | | 1.25 |
| | 41,997 |
| | — |
| | — |
| | — |
| | 41,997 |
| | January 29, 2025 | * | 2015 | | | 1.25 |
| | 549,999 |
| | — |
| | — |
| | — |
| | 549,999 |
| | January 29, 2025 | | 2016 | | | 2 |
| | 240,000 |
| | — |
| | — |
| | — |
| | 240,000 |
| | February 2, 2026 | | 2016 | | | 2.00 |
| | 21,996 |
| | — |
| | — |
| | — |
| | 21,996 |
| | February 2, 2026 | * | 2016 | | | 1.80 |
| | 676,664 |
| | — |
| | — |
| | — |
| | 676,664 |
| | August 3, 2026 | | 2016 | | | 1.89 |
| | 299,997 |
| | — |
| | — |
| | — |
| | 299,997 |
| | September 13, 2026 | | 2016 | | | 2.04 |
| | 300,000 |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 16, 2026 | | 2017 | | — |
| | 1,052,236 |
| | — |
| | — |
| | — |
| | 1,052,236 |
| | April 26, 2027 | | 1.32 - 1.525 |
| | 4,093,164 |
| | — |
| | — |
| | — |
| | 4,093,164 |
| | April 26, 2027 | | 2018 | | | 1.46 |
| | 2,008,319 |
| | — |
| | (34,614 | ) | | — |
| | 1,973,705 |
| | March 8, 2028 | | 2019 | | | 570.00 |
| | — |
| | 3,903,050 |
| | (87,356 | ) | | — |
| | 3,815,694 |
| | March 29, 2029 | | 2019 | | | 595.00 |
| | — |
| | 346,000 |
| | — |
| | — |
| | 346,000 |
| | June 11, 2029 | | 2019 | | | 457.00 |
| | — |
| | 100,000 |
| | — |
| | — |
| | 100,000 |
| | August 22, 2029 | | 2019 | | | 0.436 |
| | — |
| | 720,000 |
| | — |
| | — |
| | 720,000 |
| | November 6, 2029 | | 2019 | | | 445.00 |
| | — |
| | 500,000 |
| | — |
| | — |
| | 500,000 |
| | November 26, 2029 | | Total | | — |
| — |
| 1,052,236 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,052,236 |
| | | | | 8,752,114 |
| | 5,569,050 |
| | (121,970 | ) | | (19,998 | ) | | 14,179,196 |
| | |
The average fair value at grant date, by year of grant and plan, of the exercisable options as per December 31, 2017 is presented in the below table.
| | | | | | | | | | Year of issue | EMI Scheme (£) | | Unapproved Scheme (£) | | RSU (£) | 2012 | 0.63 - 1.20 |
| | — |
| | — |
| 2013 | 0.83 |
| | 0.79 - 0.95 |
| | | 2014 | 0.76 |
| | 0.23 - 0.76 |
| | | 2015 | 0.57 |
| | 0.57 |
| | | 2016 | 1.35 |
| | 0.93 - 1.35 |
| | | 2017 | — |
| | 0.84 |
| | 1.33 |
|
Outstanding and exercisable share options by scheme as of December 31, 2017:
| | | | | | | | | | | | | Plan | Outstanding | | Exercisable | | Weighted average exercise price in £ for Outstanding | | Weighted average exercise price in £ for Exercisable | Unapproved | 7,313,473 |
| | 773,333 |
| | 1.50 |
| | 1.64 |
| EMI | 213,984 |
| | 185,333 |
| | 3.06 |
| | 3.28 |
| Total | 7,527,457 |
| | 958,666 |
| | 1.54 |
| | 1.95 |
|
As at December 31, 2017 there were no restricted share options exercisable (2016: nil) and there is no exercise price for restricted share options.
The options outstanding at December 31, 2017 had a weighted average remaining contractual life of 8.6 years (2016: 8.2 years). For 2016 and 2017, the number of options granted and expired and the weighted average
| | * | Options granted under the EMI Scheme. |
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 16.17. Share-based payments charge (Continued)
The Company had the following RSU movements in the year ended December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2019 | | Units granted | | Units vested | | Units forfeited | | At December 31, 2019 | | Expiry date | | 2017 | | | | 729,987 |
| | — |
| | — |
| | — |
| | 729,987 |
| | April 26, 2027 | | 2018 | | | | 132,486 |
| | — |
| | — |
| | — |
| | 132,486 |
| | March 8, 2028 | | 2019 | | | | | | 740,496 |
| | — |
| | — |
| | 740,496 |
| | March 29, 2027 | | Total | | | | 862,473 |
| | 740,496 |
| | — |
| | — |
| | 1,602,969 |
| | | |
Outstanding and exercisable share options by scheme as of December 31, 2019: | | | | | | | | | | | | | Plan | Outstanding | | Exercisable | | Weighted average exercise price in £ for Outstanding | | Weighted average exercise price in £ for Exercisable | Unapproved | 13,965,212 |
| | 5,552,293 |
| | 1.12 |
| | 1.55 |
| EMI | 213,984 |
| | 213,984 |
| | 3.06 |
| | 3.06 |
| Total | 14,179,196 |
| | 5,766,277 |
| | 1.15 |
| | 1.61 |
|
As of December 31, 2019 there were no restricted share options exercisable (2018: nil) and there is no exercise price for restricted share options. The options outstanding at December 31, 2019 had a weighted average remaining contractual life of 7.7 years (2018: 8.0 years). For 2018 and 2019, the number of options granted and expired and the weighted average exercise price of options were as follows: | | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2016 | | 1,792,000 |
| | 1.78 |
| Options granted in 2016: | | | | | Employees | | 1,002,000 |
| | 1.92 |
| Directors | | 700,000 |
| | 2.05 |
| Options exercised in the year | | (46,666 | ) | | 1.12 |
| Options forfeited in the year | | (150,001 | ) | | 1.24 |
| Options expired in the year | | (260,000 | ) | | 2.46 |
| At December 31, 2016 | | 3,037,333 |
| | 1.87 |
| Exercisable at December 31, 2016 | | 846,667 |
| | 2.25 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2018 | | 7,527,458 |
| | 1.53 |
| Options granted in 2018: | | | | | Employees | | 1,222,089 |
| | 1.46 |
| Directors | | 868,758 |
| | 1.46 |
| Options forfeited in the year | | (799,524 | ) | | 1.43 |
| Options expired in the year | | (66,667 | ) | | 1.75 |
| At December 31, 2018 | | 8,752,114 |
| | 1.53 |
| Exercisable at December 31, 2018 | | 3,542,884 |
| | 1.66 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2017 | | 3,037,333 |
| | 1.87 |
| Options granted in 2017: | | | | | Employees | | 3,150,846 |
| | 1.32 |
| Directors | | 1,505,982 |
| | 1.32 |
| Options exercised in the year | | (133,333 | ) | | 1.10 |
| Options forfeited in the year | | — |
| | — |
| Options expired in the year | | (33,333 | ) | | 1.90 |
| At December 31, 2017 | | 7,527,495 |
| | 1.53 |
| Exercisable at December 31, 2017 | | 797,333 |
| | 2.04 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2019 | | 8,752,114 |
| | 1.53 |
| Options granted in 2019: | | | | | Employees | | 4,042,106 |
| | 0.55 |
| Directors | | 1,526,944 |
| | 0.53 |
| Options forfeited in the year | | (121,970 | ) | | 0.82 |
| Options expired in the year | | (19,998 | ) | | 2.00 |
| At December 31, 2019 | | 14,179,196 |
| | 1.15 |
| Exercisable at December 31, 2019 | | 5,766,277 |
| | 1.60 |
|
The following table shows the number of RSUs issued, exercised and forfeited in 2017. No RSUs were granted in 2016 and none of the RSUs granted in 2017 were forfeited, canceled or vested in the year.2018. The fair value of each unvested RSU at grant date was £1.32.£1.46.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 17. Share-based payments charge (Continued)
| | | | | | | Number of RSUs | At January 1, 20172018 | | —1,052,236 |
| Granted: | | | Employees | | 705,841136,404 |
| Directors | | 346,395136,986 |
| RSUs vested in the year | | (309,237 | ) | RSUs forfeited in the year | | (153,916 | ) | At December 31, 2018 | | 862,473 |
|
The following table shows the number of RSUs issued in 2019. There were no RSUs forfeited, canceled or vested in 2019. The fair value of each unvested RSU granted in 2019 was £0.57. | | | | | | | Number of RSUs | At January 1, 2019 | | 862,473 |
| Granted: | | | Employees | | 474,072 |
| Directors | | 266,424 |
| RSUs vested in the year | | — |
| RSUs forfeited in the year | | — |
| At December 31, 20172019 | | 1,052,2361,602,969 |
|
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
17. Trade and other payables
| | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Trade payables | 719 |
| | 1,214 |
| Other payables | 54 |
| | 74 |
| Accruals | 2,050 |
| | 5,866 |
| Total trade and other payables | 2,823 |
| | 7,154 |
|
As of December 31, 2016, accruals included £0.89 million related to expenses associated with the Global Offering which was fully paid during the year ended December 31, 2017.
18. Assumed contingent obligation related to the business combinationDerivative financial instrument The value of the assumed contingent obligation as of December 31, 2017 amounts to £875 thousand (2016: £802 thousand). The increase in value of the assumed contingent obligation during 2017 amounted to £73 thousand (2016: £208 thousand ) and was recorded in finance expense as it related to the unwind of the discount on the liability and retranslation for changes in US$ exchange rates. Periodic re-measurement is triggered by changes in the probability of success. In 2016 the remeasurement was triggered by the success of the Company's Phase 2a clinical trial, presented in March 2016. The discount percentage applied is 12%. In 2017 there were no events that triggered remeasurement.
| | | | | | | | 2016 | | 2017 | | £'000s | | £'000s | January 1 | 594 |
| | 802 |
| Re-measurement of assumed contingent obligation | 86 |
| | — |
| Impact of changes in foreign exchange rates | 37 |
| | (23 | ) | Unwinding of discount factor | 85 |
| | 96 |
| December 31 | 802 |
| | 875 |
|
The table below describes the reported change to the value of the liability during 2017 of £73 thousand (2016: £208 thousand) compared to what this number would be following the presented variations to the underlying assumptions (assuming the probability of success does not change):
| | | | | | | | 2016 | | 2017 | | £'000s | | £'000s | Change in value of the assumed contingent obligation | 208 |
| | 73 |
| 10% lower revenue assumption | 202 |
| | 72 |
| 10% higher revenue assumption | 215 |
| | 73 |
| 1% lower risk assumption | 205 |
| | 69 |
| 1% higher risk assumption | 211 |
| | 76 |
|
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
19. Warrants
Pursuant to the July 2016 Placement, onOn July 29, 2016, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant.
The warrant holders can subscribe for 0.4 of an ordinary share at a per share exercise price of 120% of the placing price or £1.7238. The warrant holders can opt for a cashless exercise of their warrants, whereby the warrant holders can choose to exchange the warrants held for reduced number of warrants exercisable at nil consideration. The reduced number of warrants is calculated based on a formula considering the share price and the exercise price of the warrants. The warrants are therefore classified as a derivative financial liability, since their exercise could result in a variable number of shares to be issued. The warrants entitled the investors to subscribe for, in aggregate, a maximum of 12,446,37012,401,262 shares. The warrants can be exercised on the earlier of the consummation of the Global Offering (being April 26, 2017) or the first anniversary of the grant, and the exercise period shall end on the fifth anniversary of the date of grant (being July 29, 2021). The ordinary shares and warrants were accounted for as a compound financial instrument. The warrants component of the instrument issued at the July 2016 Placement was classified as a derivative financial liability and was initially measured at fair value of £9.0 million. The residual amount of proceeds totaling £35.7 million was recognized within equity. Subsequently the financial liability was re-measured at the reporting date at fair value through profit or loss.
The total of transaction costs the Company incurred for the above transactions amounted to £2.9 million of which £0.6 million was allocated to the warrants and the remaining £2.3 million was presented as a reduction to share premium, by reference to the proceeds allocated to each component. The amount assigned to the financial liability of the warrants was subsequently presented as finance expense in the Consolidated Statement of Comprehensive Income.until May 2, 2022.
In the year ended December 31, December 20172019, no warrants over 45,108 shares were forfeited (2016:(2018: nil). The table below presents the assumptions in applying the Black-Scholes model to determine the fair value of the warrants. | | | As of December 31, 2016 | | As of December 31, 2017 | As of December 31, 2019 | | As of December 31, 2018 | Shares available to be issued under warrants
| 12,446,370 |
| | 12,401,262 |
| 12,401,262 |
| | 12,401,262 |
| Exercise price | £ | 1.7238 |
| | £ | 1.7238 |
| £ | 1.7238 |
| | £ | 1.7238 |
| Risk-free interest rate | 0.088 | % | | 0.420 | % | 0.540 | % | | 0.760 | % | Expected term to exercise | 2.43 years |
| | 1.79 years |
| 2.34 years |
| | 3.34 years |
| Annualized volatility | 73.53 | % | | 47.35 | % | 65.56 | % | | 60.72 | % | Dividend rate | 0.00 | % | | 0.00 | % | 0.00 | % | | 0.00 | % |
The figures disclosed above relating to the issue152
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 18. Derivative financial instrument (Continued)
As per the reporting date, the Company updated the underlying assumptions and calculated a fair value of these warrants amounting to £1.3£0.9 million. The variance of £6.7£(1.6) million is recorded as finance income in the Consolidated Statement of Comprehensive Income. | | | | | | | | Derivative financial instrument | | Derivative financial instrument | | 2019 | | 2018 | | £'000s | | £'000s | At January 1 | 2,492 |
| | 1,273 |
| Fair value adjustments recognized in profit or loss | (1,597 | ) | | 1,219 |
| At December 31 | 895 |
| | 2,492 |
|
For the amount recognized at December 31, 2019, the effect when the following parameter deviates up or down is presented in the below table. | | | | | Volatility (up / down 10% pts) | | £'000s | Variable up | 1,306 |
| Base case, reported fair value | 895 |
| Variable down | 535 |
|
19. Trade and other payables | | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Trade payables | 1,455 |
| | 2,839 |
| Other payables | — |
| | 12 |
| Accruals | 6,806 |
| | 4,882 |
| Total trade and other payables | 8,261 |
| | 7,733 |
|
20. Assumed contingent liability related to the business combination The value of the assumed contingent liability as of December 31, 2019 is £1.1 million (2018: £1.0 million). The increase in value of the assumed contingent liability during 2019 amounted to £0.1 million (2018: £0.1 million). The assumed contingent liability relates to the acquisition, in 2006, of rights to certain patents and patent applications relating to ensifentrine and related compounds under which the Company is obliged to pay royalties to Ligand (see 2.12). The assumed contingent liability is measured at the expected value of the milestone payment and royalty payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, and an assessment of the probability of success using standard market probabilities for respiratory drug development. The risk-weighted value of the assumed contingent arrangement is discounted back to its net present value applying an effective interest rate of 12%. The assumed contingent liability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 19. Warrants (Continued)2019
Re-measurements relating to changes in estimated cash flows and probabilities of success are recognized in the IP R&D asset it relates to ("see 2.7"). This is a change in accounting policy for the year ended December 1, 2019 (see 2.17). The unwind of the discount is recognized in finance expense. The Company considers that probabilities of success will change when it moves from one stage of clinical development to another. See note 4 for a further discussion of this. | | | | | | | | Derivative financial instrument | | Derivative financial instrument | | 2016 | | 2017 | | £'000s | | £'000s | At January 1 | — |
| | 7,923 |
| On issuance of shares | 8,991 |
| | — |
| Fair value adjustments recognized in profit or loss | (1,068 | ) | | (6,650 | ) | At December 31 | 7,923 |
| | 1,273 |
|
| | | | | | | | 2019 | | 2018 | | £'000s | | £'000s | January 1 | 996 |
| | 875 |
| Impact of changes in foreign exchange rates | (12 | ) | | 15 |
| Unwinding of discount factor | 119 |
| | 106 |
| December 31 | 1,103 |
| | 996 |
|
There is no material difference between the fair value and carrying value of the financial liability.
For the amount recognized as at December 31, 2017,2019, of £1,103 thousand, the effect when some of theseif underlying parameters wouldassumptions were to deviate up or down is presented in the below table.following table (assuming the probability of success does not change): | | | | | | | | Volatility (up / down 10% pts) | | Time to maturity (up / down 6 months) | | £'000s | | £'000s | Variable up | 1,921 |
| | 1,677 |
| Base case, reported fair value | 1,273 |
| | 1,273 |
| Variable down | 694 |
| | 843 |
|
20. Financial commitments | | | |
| Discount rate (up / down 1 % pt) | Revenue (up / down 10 % pts) | | £'000s | £'000s | Variable up | 1,067 | 1,135 | Base case, reported fair value | 1,103 | 1,103 | Variable down | 1,141 | 1,071 |
As of December 31, 2017, the Company was committed to making the following payments under non-cancellable operating leases related to its facilities. | | | | | | | | Land and Buildings | | Land and Buildings | | 2016 | | 2017 | | £'000s | | £'000s | Operating lease obligations: | | | | Within one year | 270 |
| | 291 |
| Between one and five years | — |
| | 277 |
| Total | 270 |
| | 568 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
21.22. Related parties transactions and other shareholder matters
(i) Related party transactions The Directors have authority and responsibility for planning, directing and controlling the activities of the Company and they therefore comprise key management personnel as defined by IAS 24, ("Related Party Disclosures"). Directors and key management personnel remuneration is disclosed in note 8. (ii) Other shareholder matters The Company has entered into the following arrangements with parties who are significant shareholders of the Company, though they are not classed as related parties. The Company entered into relationship agreements with Vivo CapitalVentures Fund VIII ("VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. (collectively, "Vivo Capital"), Orbimed Private Investments VI L.P. ("Orbimed"), and Abingworth Bioventures VI L.P. ("Abingworth"), and Arix Bioscience plc ("Arix") and Arthurian Life Sciences SPV GP Limited, ("Arthurian"). As agreed in these relationship agreements, the above parties invested in the Company as part of the July 2016 Placement, and the Company agreed to appoint representatives designated by Vivo Capital, OrbiMed Abingworth, and Arix and Arthurian,Abingworth to the board of directors, who are Dr. Mahendra Shah, Mr. Rishi Gupta, and Dr. Andrew Sinclair and Dr. Ken Cunningham respectively.Sinclair. The appointment rights within the relationship agreement with Arix and Arthurian terminated on closing of the Global Offering on April 26, 2017;2017. Dr Cunningham has agreed to continue to serve on the Company's board of directors as an independent director. The respective appointment rights under the remaining relationship agreements will automatically terminate upon (i) Vivo Capital, OrbiMed or Abingworth (or any of their associates), as applicable, ceasing to beneficially hold 6.5% of the issued ordinary shares, or (ii) the ordinary shares ceasing to be admitted to AIM. Piers Morgan, Chief Financial Officer of the Company, and his spouse purchased 88,415 ordinary shares in total for £53 thousand from the market in the year ended December 31, 2019 (2018: £nil). Dr. Jan-Anders Karlsson, Chief Executive Officer of the Company, purchased 3,250 ordinary shares for £5 thousand from the market in the year ended December 31, 2018. There was no similar transaction as at December 31, 2019. Dr. David Ebsworth, Chairman of the Company, purchased 247,600 ordinary shares for £124 thousand from the market in the year ended December 31, 2019 (2018: £14 thousand). At December 31, 2018, there was a receivable of £126 thousand due from one director and two key management personnel relating to tax due on RSUs that vested in the year ended December 31, 2018. This receivable was repaid, together with interest at a rate of 3.9% per annum, by March 6, 2019. There was no such balance as at December 31, 2019. In the year ended December 31, 2019, a director provided consultancy services for £26 thousand (2018: £26 thousand). 22. Events after the reporting date On February 3, 2020, the Company announced the appointment of David Zaccardelli as chief executive officer with effect from February 1, 2020, following the retirement of Jan-Anders Karlsson, PhD. The Company also entered into a management rights agreement with Novo A/S under which Novo A/S was entitled to appoint an observer to the Board;announced the appointment rights within the management rights agreement terminated on closing of the Global Offering on April 26, 2017.Mark Hahn as chief financial officer with effect from March 1, 2020, as successor to Piers Morgan.
000s | | £'000s | Research and development costs | £ | (4,522 | ) | | £ | (23,717 | ) | | $ | (32,087 | ) | £ | (33,476 | ) | | $ | (44,419 | ) | | £ | (19,294 | ) | General and administrative costs | (2,498 | ) | | (6,039 | ) | | (8,170 | ) | (7,607 | ) | | (10,094 | ) | | (6,297 | ) | Operating loss | (7,020 | ) | | (29,756 | ) | | (40,257 | ) | (41,083 | ) | | (54,513 | ) | | (25,591 | ) | Finance income | 1,841 |
| | 7,018 |
| | 9,495 |
| 2,351 |
| | 3,120 |
| | 2,783 |
| Finance expense | (794 | ) | | (2,465 | ) | | (3,335 | ) | (474 | ) | | (629 | ) | | (1,325 | ) | Loss before taxation | (5,973 | ) | | (25,203 | ) | | (34,097 | ) | (39,206 | ) | | (52,022 | ) | | (24,133 | ) | Taxation — credit | 954 |
| | 4,706 |
| | 6,367 |
| 7,265 |
| | 9,640 |
| | 4,232 |
| Loss for the year | (5,019 | ) | | (20,497 | ) | | (27,730 | ) | (31,941 | ) | | (42,382 | ) | | (19,901 | ) | Other comprehensive income / (loss): | |
| | | | | | Other comprehensive (loss) / income | | | | | | | Exchange differences on translating foreign operations | 43 |
| | (29 | ) | | (39 | ) | (33 | ) | | (44 | ) | | 38 |
| Total comprehensive loss attributable to owners of the company | £ | (4,976 | ) | | £ | (20,526 | ) | | $ | (27,769 | ) | £ | (31,974 | ) | | $ | (42,426 | ) | | £ | (19,863 | ) |
Comparison of Operations for the Years ended December 31, 20172019 and 20162018 The operating loss for the year ended December 31, 20172019 was £29.8£41.1 million (2016: £7.0(2018: £25.6 million) and the loss after tax for the year ended December 31, 20172019 was £20.5£31.9 million (2016: £5.0(2018: £19.9 million). Research and Development Costs Research and development costs were £23.7£33.5 millionfor the year ended December 31, 2019 as compared to £19.3 million for the year ended December 31, 20172018, an increase of £14.2 million. The cost of clinical trials increased by £12.7 million as there were two active trials in the year ended December 31, 2018, compared to £4.5four clinical trials in the year ended December 31, 2019. Pre-clinical costs increased by £0.3 million which was offset by a reduction in contract manufacturing and formulation development costs by £0.4 million. Personnel related costs increased by £1.3 million in the year ended December 31, 2019, compared to the prior year. General and Administrative Costs General and administrative costs were £7.6 million for the year ended December 31, 2016, an increase of £19.2 million. The increase was attributable2019 as compared to a £12.3 million increase in clinical trial expenses related to the initiation of four, and completion of two, Phase 2 clinical trials of RPL554. In addition we increased spending on contract manufacturing and other formulation work by £2.7 million and toxicology and other pre-clinical development by £1.2m. Our salary costs increased by £0.3m and our share-based payment charge by £1.2 million as we expanded our team and initiated a new long term incentive plan to drive development of RPL 554. Furthermore, our spend on third party consultants increased by £0.8 million and patent and other costs by £0.3 million. General and Administrative Costs
General and administrative costs were £6.0£6.3 million for the year ended December 31, 2017 as compared to £2.5 million for the year ended December 31, 2016, 2018, an increase of £3.5£1.3 million. The increase was primarily attributable to £0.8a £0.9 million increase in our salarycosts relating to commercial market research, a £0.3 million increase in personnel related costs and a £1.1£0.6 million increase in our share-based payment charge as we built the team to support the activities of the Company. Thereother overhead costs. This was an increase of £1.3offset by a £0.5 million of costsdecrease in preparation for and relating to the Global Offering, as well as ongoing compliance and other costs due to listing our ADSs on the Nasdaq stock market. We also incurred costs of £0.4 million developing our commercial strategy for RPL 554.share based payments.
Finance Income and Expense Finance income was £7.0£2.4 million for the year ended December 31, 20172019 and £1.8£2.8 million for the year ended December 31, 2016.2018. The decrease was due to a loss in foreign exchange on cash and short term investments (recorded as a finance expense) compared to £1.9 million gain in the prior year. This was offset by a £1.6 million decrease in the fair value of the warrant liability in the year ended December 31, 2019 compared to an increase in the liability in the year ended December 31, 2018 (which is a non-cash item, recorded as a finance incomeexpense). Finance expense was primarily£0.5 million for the year ended December 31, 2019, as compared to £1.3 million for the year ended December 31, 2018. The movement was due to a decrease in the fair value of the warrant liability (recorded in finance income), compared to an increase of £6.6£1.2 million caused by changesDecember 31, 2018, both non-cash items. In addition, there was a foreign exchange loss on cash and short-term investments in the underlying assumptions for measuring the liabilityDecember 31, 2019 of the warrants issued in the July 2016 Placement, including the price and volatility of our ordinary shares and the unwinding of the expected life of the warrants. Finance expense was £2.5 million for£0.3 million. In the year ended December 31, 2017 as compared to £0.8 million for the year ended December 31, 2016. The increase2018, there was primarily due to thea foreign exchange loss on translation of foreign currency denominated cash and cash equivalents and short term investments.gain (recorded in finance income).
As at December 31, 2017 the Company had2019, there was approximately £31.4£22.9 million in cash and cash equivalents (2016: £39.8(2018: £19.8 million) and £48.8£7.8 million in short termshort-term investments (2016: £nil)(2018: £44.9 million). Taxation Taxation for the year ended December 31, 20172019 amounted to a credit of £4.7£7.3 million as compared to a credit of £1.0£4.2 million for the year ended December 31, 2016,2018, an increase in the credit amount of £3.7£3.1 million. The credits are obtained at a rate of 14.5% of 230% of our qualifying research and development expenditure, and the increase in the credit amount was primarily attributable to our increased expenditure on research and development.
Comparison of Operations for the Years ended December 31, 2016 and 2015
The following table sets forth our results of operations for the periods indicated.
| | | | | | | | Year Ended December 31, | | 2015 | 2016 | | £000's | | £000's | Research and development costs | (7,270 | ) | | (4,522 | ) | General and administrative costs | (1,706 | ) | | (2,498 | ) | Operating loss | (8,976 | ) | | (7,020 | ) | Finance income | 45 |
| | 1,841 |
| Finance expense | (73 | ) | | (794 | ) | Loss before taxation | (9,004 | ) | | (5,973 | ) | Taxation — credit | 1,509 |
| | 954 |
| Loss for the year | (7,495 | ) | | (5,019 | ) | Other comprehensive income: | | | |
| Exchange differences on translating foreign operations | 4 |
| | 43 |
| Total comprehensive loss attributable to owners of the company | (7,491 | ) | | (4,976 | ) |
Comparison of Operations for the Years ended December 31, 2016 and 2015
Research and Development Costs
Research and development costs were £4.5 million for the year ended December 31, 2016 as compared to £7.3 million for the year ended December 31, 2015, a decrease of £2.8 million. The decrease was attributable to a £3.6 million decrease in clinical trial expenses related to the completion of our Phase 2a clinical trials of RPL554 in late 2015 and early 2016, which were partially offset by a £0.7 million increase in research and development personnel costs and a £0.1 million increase in pre-clinical research, contract manufacturing, patent and other costs.
General and Administrative Costs
General and administrative costs were £2.5 million for the year ended December 31, 2016 as compared to £1.7 million for the year ended December 31, 2015, an increase of £0.8 million. The increase was attributable to a £0.2 million increase in personnel costs, a £0.3 million increase in professional service fees and expenses, and a £0.2 million increase in other facility and office related costs.
Finance Income and Expense
Finance income was £1.8 million for the year ended December 31, 2016 and £45 thousand for the year ended December 31, 2015. The increase in finance income was primarily due to a decrease in the fair value of the warrant liability of £1.1 million caused by changes in the underlying assumptions for measuring the liability of the warrants issued in the July 2016 Placement, including the price and volatility of our ordinary shares and the unwinding of the expected life of the warrants.
Finance expense was £0.8 million for the year ended December 31, 2016 as compared to £0.1 million for the year ended December 31, 2015. The increase was primarily due to the inclusion of the proportion of expenses incurred in connection with the July 2016 Placement which related to the issue of warrants, and which were recorded as a finance expense (the remainder of the July 2016 Placement expenses related to the equity issued and were recorded as a charge against share premium), as well as an increase in the calculated value of the assumed contingent obligation resulting from the Vernalis Agreement.
Taxation
Taxation for the year ended December 31, 2016 amounted to a credit of £1.0 million as compared to a credit of £1.5 million for the year ended December 31, 2015, a decrease in the credit amount of £0.5 million. The credits are obtained at a rate of 14.5% of 230% of our qualifying research and development expenditure, and the decrease in the credit amount was primarily attributable to our decreased expenditure on research and development.
B. Liquidity and Capital Resources Overview Since our inception, we have incurred significant operating losses. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative costs will increase in connection with conducting clinical trials for RPL554 and seeking marketing approval for RPL554 in the United States and Europe as well as other jurisdictions. As a result, we will need additional capital to fund our operations, which we may obtain from additional financings, research funding, collaborations, contract and grant revenue or other sources.
We do not currently have any approved products and have never generated any revenue from product sales or otherwise. To date, we have financed our operations primarily through the issuances of our equity securities, including warrants. Since our The Company has incurred recurring losses since inception, we raised gross proceedsincluding net losses of approximately £145£31.9 million, from private placements of equity securities, of which approximately £70£19.9 million was raised in Apriland £20.5 million for the years ended December 31, 2019, 2018 and 2017, through our Nasdaq listing and the accompanying private offering in Europe and the shareholder private placement; we raised a further £45 million raised in our July 2016 private placement of equity securities with a number of European and U.S.-based healthcare specialist investment firms. Asrespectively. In addition, as of December 31, 2017, we2019, the Company had an accumulated loss of £100.6 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the annual consolidated financial statements, the Company expects that its cash and cash equivalents, would be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of £31.4 million. Asthese annual consolidated financial statements. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of December 31, 2017 weassets and satisfaction of liabilities and commitments in the ordinary course of business. The Company intends to initiate its Phase 3 program for the maintenance treatment of COPD once it believes it has alignment with the FDA on its planned design for the Phase 3 clinical program. The Company will require significant additional funding to initiate and complete this Phase 3 program and will need to secure the required capital to fund the program. The Company will seek additional funding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the Company will be successful in securing additional finance on acceptable terms, or at all, and should the Company be unable to raise sufficient additional funds it will be required to defer the initiation of Phase 3 clinical trials, until such funding can be obtained. This could also held short term investments (representing bank deposits with maturitiesforce the Company to delay, reduce or eliminate some or all of greater than 3 months at inception)its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of £48.8 million.operations and financial condition. 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. Cash Flows The table below summaries our cash flows for each of the periods presented. For the convenience of the reader, we have translated pound sterling amounts as of December 31, 2019 at the noon buying rate of the Federal Reserve Bank of New York on December 31, 2019, which was £1.00 to $1.3269. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date. | | | | | | | | | | | | | | Year Ended December 31, | | 2016 | | 2017 | | £000's |
| | £000's |
| | $000's |
| Net cash used in operating activities | £ | (5,588 | ) | | £ | (20,696 | ) | | $ | (28,000 | ) | Net cash used in investing activities | (41 | ) | | (49,469 | ) | | (66,927 | ) | Net cash from financing activities | 41,203 |
| | 63,246 |
| | 85,566 |
| Net increase / (decrease) in cash and cash equivalents | £ | 35,574 |
| | £ | (6,919 | ) | | $ | (9,361 | ) |
| | | | | | | | | | | | | | Year Ended December 31, | | 2019 | | 2018 | | £'000s |
| | $'000s |
| | £'000s |
| Net cash used in operating activities | £ | (33,820 | ) | | $ | (44,876 | ) | | £ | (18,111 | ) | Net cash generated from investing activities | 37,799 |
| | 50,155 |
| | 5,281 |
| Net cash used in financing activities | (426 | ) | | (565 | ) | | — |
| Net increase / (decrease) in cash and cash equivalents | £ | 3,553 |
| | $ | 4,714 |
| | £ | (12,830 | ) |
The decreaseincrease in net cash used in operating activities to £20.7£33.8 million for the year ended December 31, 20172019, from £5.6£18.1 million for the year ended December 31, 20162018, was primarily due to an increase in loss before taxation driven by higher research and development costs. Theoperating activities of £15.5 million, which principally comprises the increase in netclinical trial and other research expenditure amounting to £14.2 million together with an increase in General and Administrative expenditure of £1.3 million, each of which are described further above.
Net cash used in(used in) / generated from investing activities to £49.5predominantly reflects the net movement of cash being placed on deposit for more than three months and such deposits maturing, because deposits of more than three months are disclosed as short-term investments, separately from cash. Net cash generated from investing activities was £37.8 million for the year ended December 31, 20172019, compared to net cash generated from £41 thousandinvesting activities of £5.3 million for the year ended December 31, 20162018. In 2019, there was duea net decrease in short-term deposits of three months or more reflecting a higher value of short-term deposits maturing, and being transferred to placing funds raised incash, than being placed. We balance the Global Offering on termobjective of obtaining higher interest income from longer-term deposits with maturitiesshort-term liquidity requirements.
There was £0.4 million repayment of more than three months at inception. The net cash of £63.2 million received fromfinance lease liabilities in financing activities to for the year ended December 31, 2017 was the cash raised from the Global Offering. The £41.2 million received2019, relating to payments for leased office space. There were no financing activities for the year ended December 31, 2016 was the cash received from the sale of our equity securities and warrants in connection with the July 2016 Placement.2018.
Operating and Capital Expenditure Requirements As of December 31, 2017,2019, we had an accumulated loss of £49.3£100.6 million. We expect to continue to incur significant operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of RPL554ensifentrine and any future product candidate we develop. We anticipate that our expenses will increase substantially if and as we:
| | ▪ | initiate and conduct our plannedPhase 3 clinical trials for RPL554ensifentrine for the maintenance treatment of COPDCOPD; |
| | ▪ | continue the clinical development of our DPI and as a treatment for acute COPD;pMDI formulations of ensifentrine and research and develop other formulations of ensifentrine; |
| | ▪ | initiate and conduct our plannedfurther clinical trials for RPL554ensifentrine for the treatment of CF; |
| | ▪ | continue the research and development ofacute COPD, CF or any other formulations of RPL554, including developing our DPI andpMDI formulations of RPL554;indication; |
| | ▪ | initiate and progress pre-clinical studies relating to other potential indications of RPL554;ensifentrine; |
| | ▪ | seek to discover and develop additional product candidates; |
| | ▪ | seek regulatory approvals for any of our product candidates that successfully completescomplete 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 UK and U.S. public company listed on the Nasdaq;company; and |
| | ▪ | 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 expectThe Company has incurred recurring losses since inception, including net losses of £31.9 million, £19.9 million and £20.5 million for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, as of December 31, 2019, the Company had an accumulated loss of £101.1 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the annual consolidated financial statements, the Company expects that our existingits cash and cash equivalents, and short-term investments will enable uswould be sufficient to fund ourits operating expenses and capital expenditure requirements throughfor at least 12 months from the endissuance date of ourthese annual consolidated financial statements. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
The Company intends to initiate its Phase 2 development of nebulized RPL554 and our proof-of-concept development with DPI and pMDI formulations of RPL5543 program for the maintenance treatment of COPD as well as our Phase 2 development of nebulized RPL554once it believes it has alignment with the FDA on its planned design for the treatment of CF. We have basedPhase 3 clinical program. The Company will require significant additional funding to initiate and complete this estimate on assumptions that may prove to be wrong,Phase 3 program and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of RPL554 and any future product candidates and because the extent to which we may enter into collaborations with third parties for development of RPL554 is unknown, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of RPL554. Our future capital requirements for RPL554 or any future product candidates will depend on many factors, including: | | ▪ | the progress, timing and completion of pre-clinical testing and clinical trials for RPL554 or any future product candidates and the potential that we may be required to conduct additional clinical trials for RPL554; |
| | ▪ | 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 RPL554 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 RPL554 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 RPL554 any future product candidates; |
| | ▪ | any licensing or milestone fees we might have to pay during future development of RPL554 or any future product candidates; |
| | ▪ | selling and marketing activities undertaken in connection with the anticipated commercialization of RPL554 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, if any, we may derive either directly or in the form of royalty payments from future sales of RPL554 or any future product candidates, if approved. |
Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantialsecure the required capital to fund the program. The Company will seek additional funds to achieve our business objective.
Adequatefunding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the Company will be successful in securing additional funds may not be available to usfinance on acceptable terms, or at all. all, and should the Company be unable to raise sufficient additional funds it will be required to defer the initiation of Phase 3 clinical trials, until such funding can be obtained. This could also force the Company to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of operations and financial condition.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, yourthe 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 yoursuch holders’ rights as a shareholder.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 yourour security holders’ ownership interests.
If we raised 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, 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, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objective. C. Research and Development, Patent and Licenses, etc. For a discussion of our research and development activities, including amounts spent on company-sponsored research and development activities for the last three financial years, see “ItemItem 4.B. Business Overview”Overview and “ItemItem 5.A. Operating Results.” D. Trend Information Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. For more information, see “ItemItem 4.B. Business Overview,” “Item Item 5.A. Operating Results,” and “ItemItem 5.B. Liquidity and Capital Resources.” E. Off-Balance Sheet Arrangements During the periods presented, we did not, and we do not currently, have any off-balance sheet arrangements. F. Contractual Obligations and Commitments The table below summarizes ourCompany has contractual obligations at December 31, 2017. | | | | | | | | | | | | | | | Payments Due by Period | | Total | | Less than 1 year | | 1 - 3 years | | 3 - 5 years | | More than 5 years | | (£000's) | Operating lease obligations | 568 |
| | 291 |
| | 277 |
| | £— | | £— | Total | 568 |
| | 291 |
| | 277 |
| | £— | | £— |
commitments for office space, in London and New York. After the adoption of IFRS 16 these are recognized as right of use assets on the Consolidated Statement of Financial Position. As a result they are not disclosed as operating lease liabilities.The table above does not includeCompany has assumed contingent obligationliability payments we may be required to make under the VernalisLigand Agreement because the amount, timing and likelihood of payment are not known. Such additional payment obligationsliabilities may be material. See sections titled "— License Agreement with Vernalis"Ligand" and "Business — VernalisLigand Agreement."
In addition, we enter into contracts in the ordinary course of business with contract research organizations, ("CROs")or CROs, to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligationsliabilities and commitments.
Selected Quarterly Financial Data (unaudited)
Selected quarterly results from operations for the year ended December 31, 2017 and 2016 are as follows (in thousands, except per share amounts).
| | | | | | | | | | | | | | Fiscal 2017 Quarter Ended | | December 31, 2017 | | September 30, 2017 | | June 30, 2017 | | March 31, 2017 | | £'000s | | £'000s | | £'000s | | £'000s | Research and development costs | 9,689 |
| | 6,085 |
| | 4,838 |
| | 3,105 |
| General and administrative costs | 998 |
| | 2,040 |
| | 1,969 |
| | 1,032 |
|
| | | | | | | | | | | | | | Fiscal 2016 Quarter Ended | | December 31, 2016 | | September 30, 2016 | | June 30, 2016 | | March 31, 2016 | | £'000s | | £'000s | | £'000s | | £'000s | Research and development costs | 1,868 |
| | 1,409 |
| | 522 |
| | 723 |
| General and administrative costs | 1,085 |
| | 752 |
| | 350 |
| | 311 |
|
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Executive Officers and Directors The following table presents information about our executive officers, directors, and directors,other key members of management, including their ages as of February 27, 2017: the date of this Annual Report:
| | | | | | Name | | Age | | Position | Executive Officers | | | | | Jan-Anders Karlsson, Ph.D.David Zaccardelli, Pharm.D. | | 6355 | | President, Chief Executive Officer and Director | Piers Morgan | | 5153 | | Chief Financial Officer | Kenneth Newman,Claire Poll | | 52 | | General Counsel | Kathleen Rickard, M.D. | | 6061 | | Chief Medical Officer | Peter Spargo, Ph.D.Other Key Management | | 56 | | | Richard Hennings | | 50 | | Vice President and Commercial Head | Desiree Luthman | | 60 | | Vice President, Regulatory Affairs | Tara Rheault | | 44 | | Vice President, R&D Operations and Global Project Management | Peter Spargo | | 58 | | Senior Vice President, Chemistry Manufacturing and Controls | Claire Poll | | 51 | | Legal Counsel | Richard Hennings | | 48 | | Commercial Director | Desiree Luthman | | 58 | | Vice President, Regulatory Affairs | Non-Executive Directors | | | | | Ken Cunningham, M.D.(2) | | 67 | | Non-executive Director | David Ebsworth, Ph.D.(1,2,3) | | 6365 | | Chairman of the Board | Ken Cunningham, M.D.(2)
| | 65 | | Non-executive Director | Rishi Gupta(2) | | 4042 | | Non-executive Director | Mahendra Shah, Ph.D.(3) | | 7375 | | Non-executive Director | Andrew Sinclair, Ph.D.(1) | | 4648 | | Non-executive Director | Vikas Sinha(1) | | 5456 | | Non-executive Director | Anders Ullman, Ph.D.(3) | | 6264 | | Non-executive Director | Martin Edwards, M.D. | | 64 | | Non-executive Director |
(1)Audit and Risk Committee member (2)Remuneration Committee member (3)Governance Committee member The current business addresses for our executive officers and board of directors is c/o Verona Pharma plc, 3 More London Riverside, London SE1 2RE, the United Kingdom. The following are brief biographies of our executive officers and directors:
Jan-Anders Karlsson, Ph.D.David Zaccardelli, Pharma.D. Dr. KarlssonZaccardelli has served as our President and Chief Executive Officer and on our board of directors since June 2012.February 2020. From January 2005December 2018 until its acquisition by Swedish Orphan Biovitrum for up to May 2012,$915 million in November 2019, Dr. KarlssonZaccardelli served as President and CEO of Dova Pharmaceuticals, a US company developing therapeutics for rare diseases. Previously, he was Acting CEO of Cempra, from December 2016 until the company’s merger with Melinta Therapeutics in November 2017. From 2004 until 2016, Dr Zaccardelli served in several senior management roles at United Therapeutics Corporation, including Chief ExecutiveOperating Officer, of S*BIO Pte Ltd, a biotechnology company in Singapore. Previously to S*BIO, Dr. Karlsson wasChief Manufacturing Officer and Executive Vice President, Pharmaceutical Development and headOperations. Prior to United Therapeutics, he founded and led a start-up company focused on contract research positions and held a variety of Pharma Global Researchclinical research positions at Bayer HealthCare AG in Germany.Burroughs Wellcome & Co, Glaxo Wellcome, and Bausch & Lomb Pharmaceutical. Dr. KarlssonZaccardelli received an M.Sc. in pharmacy from Uppsala University and a Doctor of Medical Science (Ph.D.) in clinical experimental pharmacologyPharm.D. from the University of Lund.Michigan.
Piers Morgan. Mr. Morgan has served as our Chief Financial Officer since September 2016. From November 2015 to September 2016, Mr. Morgan was an independent consultant. From May 2014 to November 2015, Mr. Morgan was the Chief Executive Officer of C4X Discovery plc, a biotechnology company. Prior to C4X, Mr. Morgan co-founded uniQure N.V., a biotechnology company, in Amsterdam, where he served as Chief Financial Officer from December 2009 to May 2014. Mr. Morgan is a member of the Institute of Chartered Accountants in England and Wales and received an M.A. in law and management studies from the University of Cambridge. Kenneth NewmanKathleen Rickard, M.D. , M.D.Dr. NewmanRickard has served as our Chief Medical Officer since January 2015. From December 2013February 2019. Prior to December 2014,joining Verona Pharma, Dr. Newman was Chief Development OfficerRickard served in multiple roles at Mesoblast Inc.,Aerocrine AB, a biotechnology company. From 2010 to November 2013, Dr. Newman wasmedical diagnostics product company, including as Chief Medical Officer from April 2011 to January 2019, and as Chief Compliance Officer from April 2014 to January 2019. Prior to Aerocrine, Dr. Rickard was Vice President Clinical Development and Medical Affairs of Acton Pharmaceuticals, Inc.,the Respiratory Medicines Development Centre at GlaxoSmithKline, a specialtypharmaceutical
company, and, over a period of 15 years, held a number of other leadership positions in clinical development across GlaxoSmithKline’s global respiratory pharmaceutical company, which was acquired by Meda Pharmaceuticals, Inc.franchise. Dr. NewmanRickard received an M.D. from theHahnemann University of Texas Health Science Center at Houston and an M.B.A. in management from the University of Cincinnati College of Business. Peter Spargo, Ph.D. Dr. Spargo has served as our Senior Vice President, Chemistry Manufacturing and Controls since May 2014. From January to October 2015, Dr. Spargo also served as Senior Vice President, CMC at Spinifex Pharmaceuticals Inc., a biotechnology company, that was acquired by Novartis International AG. From 2011 to 2013, Dr. Spargo was Senior Vice President, CMC at Creabilis SA, a pharmaceutical company. Dr. Spargo received an M.A. in natural sciences and a Ph.D. in synthetic organic chemistry from Cambridge University.Hospital, Philadelphia.
Claire Poll. Ms. Poll has served as LegalGeneral Counsel since September 2016. From September 2015 to August 2016, Ms. Poll served as an advisor to us on legal, general corporate and financing matters. She also served as an
Executive Director on our board of directors from September 2006 until September 2015. Ms. Poll received a Bachelor of Laws from the University of Western Australia and a Diploma in Applied Finance and Investment from the Securities Institute of Australia. Desiree Luthman, DDS.David Ebsworth,Ph.D. Dr LuthmanDr. Ebsworth has served as the Non-Executive Chairman of our Vice President, Regulatory Affairsboard of directors since June 2017.December 2014. From October 2009 to August 2014, Dr. LuthmanEbsworth served as Chief Executive Officer of Vifor Pharma, based in Zürich, the specialty pharma division of Galenica AG Group, a pharmaceutical wholesaler and retailer, and as a member of Galenica's Executive Committee. In 2012, Dr. Ebsworth was also named as Chief Executive Officer of Galenica and as Chairman of Galenica's Executive Committee, positions he held until August 2014. In his earlier career, Dr. Ebsworth worked with Bayer AG for over 19 years, heading the Canadian, North American and global pharmaceutical business. He also served as Chief Executive Officer of Oxford Glycosciences, a biotech company, listed on the London Stock Exchange and Nasdaq, which was acquired by Celltech plc (now part of UCB) in 2003. Dr. Ebsworth received a Ph.D. in industrial relations from the University of Surrey.
Ken Cunningham, M.D. Dr. Cunningham has served as a Non-Executive Director on our board of directors since September 2015. Dr. Cunningham has over 25 years’ experience in the pharmaceutical industry including leadership roles at several companies focused on developing respiratory medicines. Between 2008 and 2010, he was at SkyePharma plc (now part of Vectura Group plc), initially as Chief Operating Officer and subsequently as Chief Executive Officer where he was involved in the late-stage development of flutiform for asthma. Earlier in his career, Dr. Cunningham held a variety of clinical development and commercial strategy roles at GlaxoWellcome plc and Warner-Lambert. Dr. Cunningham serves as the non-executive chairman of the board of directors of Abzena Holdings (US) LLC and of Medherant Ltd. Dr. Cunningham received a degree in medicine from St. Mary’s, Imperial College, London University. Martin Edwards, M.D. Dr. Edwards has served as a Non-Executive Director on our board of directors since April 2019. Since 2003, Dr. Edwards has held various positions at Novo Holdings, a life sciences investment firm, and most recently as part-time Senior Partner. Earlier in his career, he was Corporate VP and Global Head of Drug Development for Novo Nordisk, where he led all aspects of pre-clinical and clinical drug development. Dr. Edwards currently serves on the boards of directors of Kalvista Pharmaceuticals Inc, F2G Ltd, Harmony Biosciences Inc, Karus Therapeutics Ltd, Nuvelution Pharma Inc, and Vantia Therapeutics Ltd. Dr. Edwards trained in physiology and medicine at the University of Manchester. He is a Member of the Royal College of Physicians, a Member with distinction of the Royal College of General Practitioners, a Fellow of the Faculty of Pharmaceutical Medicine and holds a MBA from the University of Warwick. Rishi Gupta. Mr. Gupta has served as a Non-Executive Director on our board of directors since July 2016. Mr. Gupta was designated for appointment to our board of directors by OrbiMed Private Investments VI, LP, or OrbiMed, pursuant to our relationship agreement with OrbiMed. Since 2002, Mr. Gupta has held various positions at OrbiMed Advisors LLC, a global healthcare investment firm, where he is currently a Partner. Prior to that, he was a healthcare investment banker at Raymond James & Associates, served as manager of corporate development at Veritas Medicine and was a summer associate at Wachtell, Lipton. Mr. Gupta currently is a member of the board of directors of Avitide, Inc., Turnstone Biologics, Inc., Attenua, Inc, EnLiven Therapeutics, Inc, and Pionyr Immunotherapeutics, Inc. Mr. Gupta received an A.B. in biochemical sciences from Harvard College and a J.D. from Yale Law School. Mahendra Shah, Ph.D. Dr. Shah has served as a Non-Executive Director on our board of directors since July 2016. Dr. Shah was designated for appointment to our board of directors by funds affiliated with Vivo Capital pursuant to our relationship agreement with such funds. Dr. Shah is a successful pharmaceutical entrepreneur and executive and, since March 2010, has served as a Managing Director of Vivo Capital, a healthcare investment firm. Dr. Shah serves as a member of the board of directors of Scilex Pharmaceuticals, Inc., Fortis Inc., Citrine Medicines, Inc., and several private companies in the biopharmaceutical and biotechnology industries. Dr. Shah received his Ph.D. in industrial pharmacy from St. John’s University and a Master’s Degree in Pharmacy from L.M. College of Pharmacy in Gujarat, India. Andrew Sinclair, Ph.D. Dr. Sinclair has served as a Non-Executive Director on our board of directors since July 2016. Dr. Sinclair was designated for appointment to our board of directors by Abingworth Bioventures VI, LP, or Abingworth, pursuant to our relationship agreement with Abingworth.Since 2008, Dr. Sinclair has held various positions at Abingworth LLP, a life sciences investment group, where he is currently a Partner and Portfolio Manager. Dr. Sinclair is a member of the Institute of Chartered Accountants in England and Wales and received
a Ph.D. in chemistry and genetic engineering at the BBSRC Institute of Plant Science, Norwich, and a B.Sc. in microbiology from King's College London. Vikas Sinha. Mr. Sinha has served as a Non-Executive Director on our board of directors since September 2016. Mr. Sinha has over 20 yearsyears’ experience working in executive finance roles in the life sciences industry. Mr. Sinha is co-founder and Chief Financial Officer of regulatory experienceElevateBio, Inc., a holding company focused on building cell and gene therapy companies. He also serves as President and Chief Financial Officer of AlloVir, Inc., an ElevateBio portfolio company. From 2005 to 2016, Mr. Sinha was the Chief Financial Officer of Alexion Pharmaceuticals, Inc., a biotechnology company, where he was responsible for finance, business development, strategy, investor relations and IT. Prior to joining Alexion, Mr. Sinha held various positions with Bayer AG in the United States, Japan, Germany and Canada, including both largeVice President and small pharmaceutical companies across different regionsChief Financial Officer of Bayer Pharmaceuticals Corporation in the United States and different therapeutic areas. From 2015 to 2017,Vice President and Chief Financial Officer of Bayer Yakuhin Ltd. in Japan. Mr. Sinha holds a master's degree in business administration from the Asian Institute of Management. He is also a qualified Chartered Accountant from the Institute of Chartered Accountants of India and a Certified Public Accountant in the United States. Anders Ullman, M.D., Ph.D. Dr. LuthmanUllman has served as Senior Regulatorya Non-Executive Director Global Inflammation - Immunocology Therapeutic Areaon our board of directors since September 2015. From 2016 to 2018, Dr. Ullman served as Head of the COPD Centre at Sanofi.Sahlgrenska University Hospital, Sweden. From 2013 to 2015,2014, he was Executive Vice President and Head of Research and Development in the BioScience business unit of Baxter International Inc., a healthcare company, which became Baxalta Inc. From 2007 to 2013, Dr. LuthmanUllman was Executive Vice President, Head of Research and Development at Nycomed Pharma Private Limited (now part of Takeda Pharmaceuticals Company Limited), where he led the development and approval of Daxas, the PDE4 inhibitor used to prevent COPD exacerbations. Earlier in his career, he held a Director, Global Regulatory Strategy and Science at Bristol, Meyers & Squibb.number of roles in AstraZeneca. Dr. LuthmanUllman serves on the board of directors of Pexa AB. Dr. Ullman received a doctorateM.D. and a Ph.D. in dentistryclinical pharmacology from the Karolinska Institute, Stockholm, Sweden.University of Gothenburg. Other Senior Management The following are brief biographies of other members of the senior management team that participate in leading ensifentrine's development. Richard Hennings. Mr. Hennings has served as ourVice President and Commercial DirectorHead since March 2017. From May 2016 to March 2017, Mr. Hennings was the Global Marketing Director for AstraZeneca UK Limited, a biopharmaceutical company. Since July 2015, Mr. Hennings has been a director of Hennings Consulting Ltd., where he consults with healthcare organizations on commercial strategy. From January 2012 to June 2015, Mr. Hennings held various positions at Gilead Sciences, Inc., a biopharmaceutical company, most recently as Commercial Director — EMEA Planning & Operations. Mr. Hennings received a bachelor's degree in applied chemistry from the University of Portsmouth. David Ebsworth,Desiree Luthman, DDS. Dr. Luthman has served as our Vice President, Regulatory Affairs since June 2017. From 2015 to 2017, Dr. Luthman served as Senior Regulatory Director, Global Inflammation — Immunoncology Therapeutic Area at Sanofi S.A., a multinational pharmaceutical company. From 2013 to 2015, Dr. Luthman was a Director, Global Regulatory Strategy and Science at Bristol, Meyers & Squibb Company, a pharmaceutical company. Dr. Luthman received a doctorate in dentistry from the Karolinska Institute, Stockholm, Sweden.
Tara Rheault, Ph.D. Dr. EbsworthRheault has served as our Vice President, R&D and Global Project Management since January 2019. From August 2015 to January 2019, Dr. Rheault served as Senior Director, Strategic Drug Development at IQVIA, a multinational company serving the Non-Executive Chairmancombined industries of our board of directors since December 2014. From October 2009health information technologies and clinical research, where she helped pharmaceutical companies develop integrated commercial and R&D strategies. Prior to IQVIA, from September 2002 to August 2014,2015, Dr. EbsworthRheault served in various roles at GlaxoSmithKline, most recently as Chief Executive Officer of Vifor Pharma, based in Zürich,Clinical Leader within the specialty pharma division of Galenica AG Group, a pharmaceutical wholesaler and retailer, and as a member of Galenica's Executive Committee. In 2012,respiratory therapy area. Dr. Ebsworth was also named as Chief Executive Officer of Galenica and as Chairman of Galenica's Executive Committee, positions he held until August 2014. Dr. EbsworthRheault received a Ph.D. in industrial relationsorganic chemistry from North Dakota State University and a Master in Public Health from the University of Surrey.North Carolina. Ken Cunningham, M.D.Peter Spargo, Ph.D. Dr. CunninghamSpargo has served as a Non-Executive Director on our board of directorsSenior Vice President, Chemistry Manufacturing and Controls since September 2015.May 2014. From January to October 2015, Dr. Cunningham serves as the non-executive chairman of the board of directors of Abzena plc and of Medherant Ltd. Dr. Cunningham received a degree in medicine from St. Mary’s, Imperial College, London University.
Rishi Gupta. Mr. Gupta hasSpargo served as a Non-Executive Director on our board of directors since July 2016. Since 2002, Mr. Gupta has held various positionsSenior Vice President, CMC at OrbiMed Advisors LLC, a global healthcare investment firm, where he is currently a Private Equity Partner. Mr. Gupta currently is a member of the board of directors of Avitide, Inc. and Turnstone Biologics, Inc. Mr. Gupta received an A.B. in biochemical sciences from Harvard College and a J.D. from the Yale Law School.
Mahendra Shah, Ph.D. Dr. Shah has served as a Non-Executive Director on our board of directors since July 2016. Since March 2010, Dr. Shah has served as a Managing Director of Vivo Capital, a healthcare investment firm. Dr. Shah is also the founder and Executive Chair of Semnur Pharmaceuticals, Inc., a specialty pharmaceutical company. Dr. Shah serves as a member of the board of directors of Fortis Inc., a specialty pharmaceuticals company, Crinetics Pharmaceuticals, Inc., Soleno Therapeutics, Inc., Impel Neuropharma, Inc., and several other private companies in the biopharmaceutical and biotechnology industries. Dr. Shah received his Ph.D. in industrial pharmacy from St. John’s University and a Master’s Degree in Pharmacy from L.M. College of Pharmacy in Gujarat, India
Andrew Sinclair, Ph.D. Dr. Sinclair has served as a Non-Executive Director on our board of directors since July 2016. Since 2008, Dr. Sinclair has held various positions at Abingworth LLP, a life sciences investment group, where he is currently a Partner and Portfolio Manager. Dr. Sinclair is a member of the Institute of Chartered Accountants in England and Wales and received a Ph.D. in chemistry and genetic engineering at the BBSRC Institute of Plant Science, Norwich, and a B.Sc. in microbiology from King's College London.
Vikas Sinha. Mr. Sinha has served as a Non-Executive Director on our board of directors since September 2016. Since January 2018, Mr. Sinha has served as an Executive Partner of MPM Capital, Inc., a life sciences investment company. From 2005 to 2016, Mr. Sinha was the Chief Financial Officer of AlexionSpinifex Pharmaceuticals Inc., a biotechnology company. Mr. Sinha holds a master's degree in business administration from the Asian Institute of Management. He is also a qualified Chartered Accountant from the Institute of Chartered Accountants of India and a Certified Public Accountant in the United States.
Anders Ullman, M.D., Ph.D. Dr. Ullman has served as a Non-Executive Director on our board of directors since September 2015. Since 2016, he has served as Head of the COPD Centre at Sahlgrenska University Hospital,
Sweden.company, that was acquired by Novartis International AG. From 2013 to 2014, Dr. Ullman was Executive Vice President and Head of Research and Development in the BioScience business unit of Baxter International Inc., a healthcare company, which became Baxalta Inc. From 20072011 to 2013, Dr. UllmanSpargo was ExecutiveSenior Vice President, Head of Research and DevelopmentCMC at Nycomed Pharma Private Limited, which was acquired by Takeda Pharmaceutical Company Limited.Creabilis SA, a pharmaceutical company. Dr. UllmanSpargo received a M.D.an M.A. in natural sciences and a Ph.D. in clinical pharmacologysynthetic organic chemistry from the University of Gothenburg.Cambridge University.
Family Relationships There are no family relationships among any of the members of our board of directors and executive officers.
B. Compensation Executive Officer Remuneration The following table sets forth the approximate remuneration paid during the year ended December 31, 20172019, to our current executive officers.officers, who are the members of our administrative, supervisory, and management bodies. | | | | | | | | | | | | | | | | | Name and Principal Position | Salary (£) | | Bonus(1) (£) | | Option Awards(2) (£) | | All Other Compensation (£) | | Total (£) | Jan-Anders Karlsson, Ph.D. | 290,000 |
| | 254,000 |
| | 1,632,055 |
| | 29,165 |
| (3) | | 2,205,220 |
| Chief Executive Officer | | | | | | | | | | Piers Morgan(4) | 210,000 |
| | 73,500 |
| | 945,464 |
| | 12,600 |
| (3) | | 1,241,564 |
| Chief Financial Officer | | | | | | | | | | Kenneth Newman, M.D. | 273,221 |
| | 53,581 |
| | 937,718 |
| | 21,987 |
| (4) | | 1,286,508 |
| Chief Medical Officer | | | | | | | | | | Peter Spargo, Ph.D. | 190,000 |
| | 46,550 |
| | 641,564 |
| | — |
| | | 878,114 |
| Senior Vice President of Chemistry, Manufacturing and Controls | | | | | | | | | | Claire Poll | 170,000 |
| | 59,650 |
| | 574,033 |
| | 4,517 |
| (3) | | 808,200 |
| Legal Counsel | | | | | | | | | | Richard Hennings | 119,231 |
| | 36,200 |
| | 198,258 |
| | 7,154 |
| (3) | | 360,843 |
| Commercial Director | | | | | | | | | | Desiree Luthman(5) | 113,743 |
| | 22,884 |
| | 126,756 |
| | — |
| | | 263,383 |
| Vice President, Regulatory Affairs | | | | | | | | | | Total | 1,366,195 |
| | 546,365 |
| | 5,055,849 |
| | 75,422 |
| | | 7,043,832 |
|
| | | | | | | | | | | | | | | | Name and Principal Position | Salary (£) | | Bonus(1) (£) | | Option Awards(2) (£) | | All Other Compensation(3) (£) | | Total (£) | David Zaccardelli | — |
| | — |
| | — |
| | — |
| | — |
| President and Chief Executive Officer (4) | | | | | | | | | | Piers Morgan | 243,000 |
| | 59,535 |
| | 179,413 |
| | 14,580 |
| | 496,528 |
| Chief Financial Officer | | | | | | | | | | Kathleen Rickard | 272,901 |
| | 263,227 |
| | 265,132 |
| | 5,307 |
| | 806,567 |
| Chief Medical Officer | | | | | | | | | | Claire Poll | 214,000 |
| | 67,410 |
| | 128,151 |
| | 6,420 |
| | 415,981 |
| General Counsel | | | | | | | | | | Total | 729,901 |
| | 390,172 |
| | 572,696 |
| | 26,307 |
| | 1,719,076 |
|
| | (1) | Amount shown reflectsreflect bonuses awarded for achievement of performance goals, including retention bonuses in 2017.2019. |
| | (2) | Amount shown represents the aggregate grant date fair value of option and restricted stockshare units awards granted in 20172019 measured using the Black Scholes model. For a description of the assumptions used in valuing these awards, see note 16 to our Annual Consolidated Financial Statements included elsewhere in this prospectus.Annual Report. |
| | (3) | Amount shown represents health benefits payments and pension contributions made by us. |
| | (4) | Amount shown represents health benefits payments made by us. Dr. Zaccardelli was appointed as our President and Chief Executive Officer, effective as of February 1, 2020. |
| | | Mrs Luthman began her employment with us on June 12, 2017. |
Executive Officer Employment Agreements Jan-Anders Karlsson, Ph.D.David S. Zaccardelli, Pharm.D.
We entered into an employment agreement with Dr. KarlssonZaccardelli on April 30, 2012, which was subsequently amended.February 1, 2020. This agreement as amended, entitles Dr. KarlssonZaccardelli to receive an annual base salary of £290,000$750,000, which is payable in part in cash and in part in restricted stock units, or such higher rate as may be agreed in writing,the Annual RSUs, and a target annual bonus opportunity of 66%50% of his annual base salary. The Annual RSUs vest in equal quarterly installments during the calendar year in which the grant occurs, subject to continued employment. Pursuant to his employment agreement, Dr. Zaccardelli is also entitled to receive (i) an award of restricted stock units, subject to approval at our annual general meeting of shareholders in 2020, equal to 4% of our outstanding ordinary shares and (ii) an additional award of restricted units if the Company raises additional equity capital during fiscal year 2020, which is intended to result in Dr. Zaccardelli’s equity awards (other than the portion of his base salary (potentially extendingpayable in restricted stock units) being equal to up4% of our outstanding ordinary shares on the applicable date of issuance. These awards of restricted stock units will vest as to 132%)25% on the first anniversary of Dr. Zaccardelli’s employment commencement date and as to the remainder in quarterly installments thereafter over the following three years, subject to continued employment. If Dr. Zaccardelli’s employment is terminated by us without "Cause" or by Dr. Zaccardelli for "Good Reason" (as each such term is defined in his offer agreement), withthen, subject to his signing and not revoking a general release of claims, he is entitled to receive (i) 18 months (or 12 months if the amounttermination occurs after the second anniversary of any such bonus based on annual performance criteria to be agreed between usMr. Zaccardelli’s employment commencement date) of base salary continuation and Dr. Karlsson. By June 1, 2017, Dr. Karlsson was required to investcontinued payment of premiums for continued medical coverage under COBRA, (ii) an amount equal to £130,000 in our company through150% (or 100% if the purchasetermination occurs after the second anniversary of our ordinary shares. Dr. Karlsson is also entitled to participate in
a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below.
Either party may terminate theZaccardelli’s employment agreement by giving the other party not less than 12 months' written notice, provided that we may terminatecommencement date) of Dr. Karlsson at any time with immediate effect for cause or by giving written notice to Dr. Karlsson that we shall pay, in lieu of notice, his basic salary during the 12 months following termination, a pro-ratedZaccardelli’s full annual discretionary bonus, calculated as though all applicable objectives have been achieved for the year of termination, (iii) payment of all accrued and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Dr. Karlsson is entitled to receive his full discretionary bonus (without an obligation to purchase ordinary shares)unused paid time-off, and (iv) full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. See "— Equity Compensation Arrangements" below. schemes (with any performance-vesting awards become vested based on target level attainment), provided that if such termination occurs prior to the first anniversary of Dr. Zaccardelli’s employment commencement date, the awards will become vested as to the portion that would have otherwise vested on or prior to the first anniversary of Dr. Zaccardelli’s employment commencement date.
If payments to Dr. KarlssonZaccardelli would constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or the Code, and would be subject to the excise tax imposed by
Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Karlsson'sZaccardelli’s receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of U.S. and U.K. income tax rates, Dr. Karlsson is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to U.K. taxes during the period of his employment with us. Dr. Karlsson's employment agreementZaccardelli has also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six monthsone year following his termination of employment. Kenneth Newman,Jan-Anders Karlsson, Ph.D.
We and Dr. Karlsson entered into a separation agreement, or the Karlsson Separation Agreement, pursuant to which we and Dr. Karlsson agreed that he would no longer serve as chief executive officer, director or officer, effective as of February 2, 2020, and that his employment with us will terminate effective as of February 28, 2020, or the Separation Date. Dr. Karlsson agreed to help transition his duties to Dr. Zaccardelli. Pursuant to the Karlsson Separation Agreement, Dr. Karlsson agreed to execute a general release of claims, or the Karlsson Settlement Agreement, and he is entitled to receive cash severance payments in the aggregate amount of £982,160, payments for continued medical and life insurance benefits until the first anniversary of the Separation Date and continued pension contributions until the first anniversary of the Separation Date, subject to his compliance with the terms of the Karlsson Separation Agreement, the Karlsson Settlement Agreement and his employment agreement. Additionally, equity awards will either be vested as of the Separation Date, will be forfeited as of the Separation Date, or will be unvested as of the Separation Date and will either vest according to the applicable vesting schedule, or will be forfeited as of February 28, 2021, unless an earlier change in control event occurs, Dr. Karlsson dies or we breach the terms of the Karlsson Separation Agreement or the Karlsson Settlement Agreement. Kathleen Rickard, M.D. We entered into an offer letter with Dr. NewmanRickard on December 15, 2014, which was subsequently amended,13, 2018, pursuant to which heshe agreed to serve as our Chief Medical Officer, effective JanuaryFebruary 1, 2015.2019. This agreement entitles Dr. NewmanRickard to receive an annual base salary of $340,000$390,000 and a target annual bonus opportunity of 40% of hisher annual base salary, with the amount of any such bonus based on performance criteria for our company and hisher individual performance, as determined by the board of directors in its sole discretion. Dr. Newman'sRickard was also entitled to receive a sign-on bonus of $50,000, payable on the date of the offer letter, and is entitled to receive a retention bonus of $250,000, with $125,000 payable on April 1, 2019 and $125,000 payable on April 1, 2020, subject to Dr. Rickard being employed at the applicable date of payment and with the condition that each retention bonus payment is repayable if she resigns or is terminated for "Cause" within 12 months of payment. Subject to the approval of our board of directors and our share dealing policy, Dr. Rickard's offer letter also entitled himher to receive a stock option to purchase 250,00070,000 of our ordinary shares at an exercise priceADSs and to be issued 15,000 restricted stock units with respect to ADSs under the terms of £1.25 per ordinary share,the Company's equity incentive plan, half of which vests in full uponequal proportions on the earlier of (a) thefirst, second and third anniversary of the grant date or (b)and half in equal proportions on the first, second, third and fourth anniversary of the grant date, subject to accelerated vesting upon a change in control. The exercise price of control.the stock option to purchase ADSs will be determined according to the terms of the Company's equity incentive plan at the date of grant. The offer letter with Dr. NewmanRickard also provides that for so long as Dr. Newmanshe is eligible for medical continuation coverage under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, from his previous employer or until we establish a health insurance plan in which he is eligibleentitled to participate Dr. Newman will receive reimbursement for monthly premiums paid for such medical continuation coveragein the Company's 401(k) plan and reimbursement for any premiums he pays for private long-term disability insurance (uphealthcare plans generally available from time to $800 per month).time to employees of the Company based in the U.S. If Dr. Newman'sRickard's employment is terminated by us without "Cause" or by Dr. NewmanRickard for "Good Reason" (as each such term is defined in hisher offer agreement), then, subject to hisher signing and not revoking a general release of claims, heshe is entitled to receive (i) six monthsfour weeks of base salary continuation, (ii) six monthsfour weeks of continued payment of premiums for continued medical coverage under COBRA, (iii) a pro-rated portion of the annual bonus that heshe otherwise would have earned in the year of termination based on actual performance in such year and (iv) if the date of termination occurs within the six-month period immediately preceding the third anniversary of the date of grant of the stock option to purchase 250,000 of our ordinary shares, such stock option will vest in full. The offer agreement also provides that, if Dr. Newman's employment is terminated by us without Cause or by Dr. Newman for Good Reason, in either case within 12 months following a change of control, then, subject to his signing and not revoking a general release of claims, he is entitled to receive (i) nine months of base salary continuation, (ii) nine months of continued payment of premiums for continued medical coverage under COBRA, and (iii) a pro-rated portion of the annual bonus that he would otherwise have earned in the year of termination based on actual performance in such year. If payments to Dr. Newman would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Newman's receipt, on an after-tax basis, of the greater amount of the payment. Piers Morgan We entered into an employment agreement with Mr. Morgan on September 24, 2016, which was subsequently amended, pursuant to which he agreed to serve as our Chief Financial Officer, effective September 26, 2016. This agreement entitles Mr. Morgan to receive an annual base salary of £210,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of 35% (potentially extending to up to 50%) of his salary, with the
amount of any such bonus based on performance criteria for our company and his individual performance, as determined by our board of directors in its sole discretion. Within 12 months after receiving any such bonus payment, Mr. Morgan is expected to invest an amount equal to 25% of the bonus (net of income tax paid by Mr. Morgan) in our company through the purchase of our ordinary shares.shares until he has invested an amount equal to £200,000. Pursuant to this agreement, on September 16, 2016, Mr. Morgan received an option to purchase 300,000 of our ordinary shares with an exercise price of £2.04 per ordinary share, which vests in equal proportions on the first, second and third anniversary of the grant date of September 26, 2016. Mr. Morgan is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below.
Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Mr. Morgan at any time with immediate effect for cause or by giving written notice to Mr. Morgan that we shall pay, in lieu of notice, his basicbase salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Mr. Morgan is entitled to receive his full discretionary bonus (without an obligation to purchase ordinary shares) and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Mr. Morgan would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Mr. Morgan's receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of U.S. and U.K. income tax rates, Mr. Morgan is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to U.K. taxes during the period of his employment with us. Mr. Morgan's employment agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following his termination of employment. Peter Spargo, Ph.D.
We and Mr. Morgan entered into an employmenta separation agreement, with Dr. Spargo on April 1, 2014, which was subsequently amended. Pursuant to this agreement, Dr. Spargo agreed to serve as our Senior Vice President, Chemistry Manufacturing and Controls, effective April 1, 2014. This agreement, as amended, entitles Dr. Spargo to receive an annual base salary of £190,000 and a target annual bonus opportunity of up to 35% of his annual base salary, with the amount of any such bonus based primarily on annual performance criteria to be agreed between us and Dr. Spargo. Dr. Spargo is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Dr. Spargo at any time with immediate effect for cause or by giving written notice to Dr. Spargo that we shall pay, in lieu of notice, his basic salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Dr. Spargo is entitled to receive his full discretionary bonus and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Dr. Spargo would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Dr. Spargo's receipt, on an after-tax basis, of the greater amount of the payment. Dr. Spargo's employment agreement also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following his termination of employment.
Claire Poll
We entered into an agreement for consulting services with Ms. Poll on March 28, 2007, or the Poll ConsultingMorgan Settlement Agreement, pursuant to which Ms. Poll provided corporate managerial services to us. We also entered into an agreement for director serviceswe and Mr. Morgan agreed that his employment with Ms. Poll on Marchus will terminate effective as of February 28, 2007 pursuant to which Ms. Poll served on our board of directors2020, or the Poll Director Services Agreement.Separation Date. The Morgan Settlement Agreement contains a general release of claims in our favour. Pursuant to a letter agreement that we entered intothe Morgan Settlement Agreement, Mr. Morgan is entitled to cash severance payments in the aggregate amount of £276,550, payments for continued life insurance benefits for six months following the Separation Date and continued pension contributions for six months following the Separation Date, subject to his compliance with Ms. Poll on September 21, 2015, Ms. Poll retired from our boardthe terms of directors and the Poll Director Services Agreement was terminated, effective September 10, 2015. The letter agreement further provided that an annual aggregate
remuneration of £70,000 payable under both the Poll ConsultingMorgan Settlement Agreement and Poll Director Services Agreement wouldhis employment agreement. Additionally, equity awards will either be paid undervested as of the Separation Date, or will be forfeited as of the Separation Date.
Claire Poll Consulting Agreement. We entered into an employment agreement with Ms. Poll on October 1, 2016 pursuant to which Ms. Poll agreed to serve as our LegalGeneral Counsel, effective September 1, 2016. This agreement, as amended, entitles Ms. Poll to receive an annual base salary of £170,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of 35% of her annual base salary, with the amount of any such bonus based primarily on annual performance criteria to be agreed to between us and Ms. Poll. Pursuant to this agreement, on September 13, 2016, Ms. Poll received an option to purchase a total of 200,000 of our ordinary shares with an exercise price of £1.89 per ordinary share, which vests in equal proportions on the first three anniversaries of the date of grant. Ms. Poll is also entitled to participate in a workplace pension scheme that we contribute to on her behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice, provided that we may terminate Ms. Poll at any time with immediate effect for cause or by giving written notice to Ms. Poll that we shall pay, in lieu of notice, her basicbase salary during the six months following termination, a pro-rated full discretionary bonus and any other contractual benefits prevailing at the time when such notice is given. The employment agreement provides that, upon a change of control, Ms. Poll is entitled to receive her full discretionary bonus and full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. If payments to Ms. Poll would constitute a "parachute payment" within the meaning of Section 280G of the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Ms. Poll's receipt, on an after-tax basis, of the greater amount of the payment. Ms. Poll's employment agreement also contains restrictive covenants pursuant to which she has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six months following her termination of employment. Richard HenningsMark W. Hahn
We entered into an employment agreement with Mr. HenningsMark Hahn on March 27, 2017,February 1, 2020 pursuant to which he agreed to commence employment with us on February 1, 2020 and serve as our Commercial Director,Chief Financial Officer, effective March 27, 2017.1, 2020. This agreement entitles Mr. HenningsHahn to receive an annual base salary of £155,000,$500,000, which is payable in part in cash and in part in restricted stock units, or such higher rate as may be agreed in writing,the Hahn Annual RSUs, and a target annual bonus opportunity of up to 35%50% of his annual base salary, withsalary. The Hahn Annual RSUs vest in equal quarterly installments during the amount of any such bonus based on annual performance criteriacalendar year in which the grant occurs, subject to be agreed between us and Mr. Hennings.continued employment. Pursuant to his employment agreement, and subject to approval at our annual general meeting of shareholders in 2020, Mr. HenningsHahn is also entitled to receive (a)(i) an optionaward of restricted stock units equal to purchase a total of 160,0003% of our outstanding ordinary shares, withor the First RSU Award, and (ii) an exercise priceadditional award of restricted stock units during or prior to our first open trading window following the date
that is six months after his employment commencement date, or the Reference Date, equal to 1% of our Nasdaq listing priceoutstanding ordinary shares, or the Second RSU Award. The First RSU Award and the Second RSU Award will vest as to 25% on the first anniversary of Mr. Hahn’s employment commencement date or the Reference Date, respectively, and as to the remainder in quarterly installments thereafter over the following three years, subject to continued employment. In the event that the Company raises additional equity capital during fiscal year 2020, which is intended to result in Mr. Hahn’s equity awards (other than the portion of his base salary payable in restricted stock units) being equal to 4% of our outstanding ordinary shares on the applicable date of grant (£1.32)issuance. These awards of restricted stock units will vest as to 75% of the award, on the same vesting schedule as the First RSU Award, and (b) restricted share units withas to 25% of the award, on the same vesting schedule as the Second RSU Award, subject to continued employment. If Mr. Hahn’s employment is terminated by us without "Cause" or by Mr. Hahn for "Good Reason" (as each such term is defined in his offer agreement), then, subject to his signing and not revoking a grant date fair valuegeneral release of approximately £40,000. Mr. Hennings is also entitled to participate in a workplace pension scheme that we contribute to on his behalf. See "— Pension, Retirement or Similar Benefits" below. Either party may terminate the employment agreement by giving the other party not less than six months' written notice. The employment agreement provides that, upon a change of control, Mr. Henningsclaims, he is entitled to receive his(i) 18 months (or 12 months if the termination occurs after the second anniversary of Mr. Hahn’s employment commencement date) of base salary continuation and continued payment of premiums for continued medical coverage under COBRA, (ii) an amount equal to 150% (or 100% if the termination occurs after the second anniversary of Mr. Hahn’s employment commencement date) of Mr. Hahn’s full annual discretionary bonus, calculated as though all applicable objectives have been achieved for the year of termination, (iii) payment of all accrued and unused paid time-off and (iv) full accelerated vesting of any outstanding, unvested equity awards under our share and share option schemes. schemes (with any performance-vesting awards become vested based on target level attainment), provided that if such termination occurs prior to the first anniversary of Mr. Hahn’s employment commencement date, the awards will become vested as to the portion that would have otherwise vested on or prior to the first anniversary of Mr. Hahn’s employment commencement date.
If payments to Mr. HenningsHahn would constitute a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or the Code, and would be subject to the excise tax imposed by Section 4999 of the Code, then such payment would be reduced to either (i) the largest portion of the payment that would result in no portion of the payment being subject to the excise tax or (ii) the largest portion of the payment, whichever of (i) or (ii) would result in Mr. Hennings'Hahn’s receipt, on an after-tax basis, of the greater amount of the payment. Additionally, in order to minimize the effect of the different rates of US and UK income tax rates, Mr. Hennings is entitled to receive a payment from us to leave him in a net after-tax position substantially equivalent to what he would experience if he were only subject to UK taxes during the period of his employment with us. Mr. Hennings' employment agreementHahn has also contains restrictive covenants pursuant to which he has agreed to refrain from competing with us or soliciting our customers or prospective customers for a period of six monthsone year following his termination of employment. Desiree Luthman, DDS.
We entered into an employment agreement with Ms Luthman on May 1, 2017, pursuant to which she agreed to serve as our Vice-President Regulatory Affairs, effective June 15, 2017. This agreement entitles Ms Luthman to receive an annual base salary of $265,000, or such higher rate as may be agreed in writing, and a target annual bonus opportunity of up to 25% of her annual base salary, with the amount of any such bonus based on annual performance criteria to be agreed between us and Ms Luthman. Pursuant to her employment agreement, Ms Luthman is also entitled to receive an option to purchase a total of 20,000 of our ADSs under the terms of the
Company's equity incentive plan. The ADSs relate to 160,000 ordinary shares and the exercise price is £1.32 per ordinary share.
If Ms Luthman's employment is terminated by us without "Cause" or by Ms Luthman for "Good Reason" (as each such term is defined in her offer agreement), then, subject to her signing and not revoking a general release of claims, she is entitled to receive (i) eight weeks of base salary continuation, (ii) eight weeks of continued payment of premiums for continued medical coverage under COBRA, and (iii) a pro-rated portion of the annual bonus that she otherwise would have earned in the year of termination based on actual performance in such year.
Equity Compensation Arrangements In May 2017, we closed the initial public offering of our American Depositary Shares in the United States and a private placement of our ordinary shares in Europe, together the global offering. Prior to the global offering, we issued option grants under two option schemes, the Unapproved Share Option Scheme, or the Unapproved Scheme, adopted by our board of directors on September 18, 2006, and the EMI Option Scheme, or the EMI Scheme, adopted by our board of directors on July 24, 2012. Discussions in this section regarding the Unapproved Scheme or the EMI Scheme that refer to our board of directors include any designated committee of our board of directors. Since the adoption of the 2017 Incentive Award Plan, (as defined below),or the 2017 Incentive Plan, no further awards are being made under either the Unapproved Scheme or the EMI Scheme. EMI Option Scheme Under the EMI Scheme, eligible employees were granted tax‑efficient options to purchase our ordinary shares. Options were granted to eligible employees who were contracted to work for us or a qualifying subsidiary for at least 25 hours a week, or, if less than 25 hours a week, for at least 75% of their working time. The options granted under the EMI Scheme are exercisable at a price and in accordance with a vesting schedule determined by our board of directors at the time of grant and expire 10 years from the date of grant. Unapproved Share Option Scheme Under the Unapproved Scheme, we granted non‑tax‑qualifying options to purchase our ordinary shares. Options were granted to employees, directors or consultants to acquire our ordinary shares at a price determined by our board of directors. In general, the options granted under the Unapproved Scheme are exercisable at a price and in accordance with the vesting period determined by our board of directors at the date of grant and expire 10 years from the date of grant.
Certain Transactions Under the EMI Scheme and the Unapproved Scheme, if certain changes are made in, or events occur with respect to, our ordinary shares (including any capitalization, sub-division, reduction or other variation of our ordinary shares), any outstanding awards may be adjusted in terms of the number of ordinary shares subject to an option and the exercise price as our board of directors may determine appropriate on a fair and reasonable basis. In the event of certain corporate transactions, including a change of control, scheme of arrangement, merger, demerger or liquidation, the vesting and exercisability of all options will accelerate and, to the extent not exercised, will lapse within certain time periods defined in the applicable plan rules. Amendment and Termination Our board of directors may at any time amend the rules of the EMI Scheme or the Unapproved Scheme in any manner, except that no amendment may be made if, in the reasonable opinion of our board of directors, it would materially abrogate or adversely affect the subsisting rights of an option holder regarding existing options, unless the amendment is made either (i) with the written consent of the number of option holders that hold options to acquire 50% of the ordinary shares that would be delivered if all options granted and subsisting under the scheme, as applicable, were exercised; or (ii) by a resolution at a meeting of option holders passed by not less than 50% of the option holders holding options under the scheme, as applicable, who attend and vote either in person or by proxy. The EMI Scheme and the Unapproved Scheme are discretionary and may be suspended or terminated by us at any time. Suspension or termination will not affect any options granted under the schemes to the extent that they are subsisting at the date of the suspension or termination.
The following table summarizes the options that we granted to our directors and executive officers under the EMI Scheme and Unapproved Scheme in 2016:
| | | | | | | | | | | | | Name | Ordinary Shares Underlying Options | | Exercise Price Per Share (£) | | Grant Date | | Expiration Date | Jan-Anders Karlsson, Ph.D., M.D. | 100,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 100,000 |
| | 3.30 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 500,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Piers Morgan | 300,000 |
| | 2.04 |
| | September 26, 2016 |
| | September 26, 2026 |
| Kenneth Newman, M.D. | 60,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 200,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Peter Spargo, Ph.D. | 20,000 |
| | 2.00 |
| | February 9, 2016 |
| | February 9, 2026 |
| | 100,000 |
| | 1.80 |
| | August 3, 2016 |
| | August 3, 2026 |
| Claire Poll | 200,000 |
| | 1.89 |
| | September 13, 2016 |
| | September 13, 2026 |
| Richard Hennings | — |
| | — |
| | — |
| | — |
| Patrick Humphrey | — |
| | — |
| | — |
| | — |
| David Ebsworth | — |
| | — |
| | — |
| | — |
| Anders Ullman | — |
| | — |
| | — |
| | — |
| Ken Cunningham | — |
| | — |
| | — |
| | — |
| Rishi Gupta | — |
| | — |
| | — |
| | — |
| Mahendra Shah | — |
| | — |
| | — |
| | — |
| Vikas Sinha | — |
| | — |
| | — |
| | — |
| Andrew Sinclair | — |
| | — |
| | — |
| | — |
|
2017 Incentive Plan We have adoptedUnder the 2017 Incentive Plan, under which we may grant cash and equity‑based incentive awards to eligible service providers in order to attract, retain and motivate the persons who make important contributions to us. The material terms of the 2017 Incentive Plan are summarized below. Except where the context indicates otherwise, references hereunder to our ordinary shares shall be deemed to include a number of ADSs equal to an ordinary share.
Eligibility and Administration Our employees, consultants and directors, and employees and consultants of our subsidiaries, are eligible to receive awards under the 2017 Incentive Plan. The 2017 Incentive Plan is administered by our board of directors, which may delegate its duties and responsibilities to one or more committees of our board of directors and/or officers (referred to collectively as the plan administrator below), subject to the limitations imposed under the 2017 Incentive Plan, stock exchange rules and other applicable laws. The plan administrator has the authority to take all actions and make all determinations under the 2017 Incentive Plan, to interpret the 2017 Incentive Plan and award agreements and to adopt, amend and repeal rules for the administration of the 2017 Incentive Plan as it deems advisable. The plan administrator also has the authority to determine which eligible service providers receive awards, grant awards, set the terms and conditions of all awards under the 2017 Incentive Plan, including any vesting and vesting acceleration provisions, and designate whether such awards will cover our ordinary shares or ADSs, subject to the conditions and limitations in the 2017 Incentive Plan. Sub-Plan The 2017 Incentive Plan authorizedauthorizes the administrator to establish one or more sub-plans. Immediately after the 2017 Incentive Plan had beenwas established, the administrator established a sub-plan. The sub-plan incorporated all of the terms of the 2017 Incentive Plan, except that only employees of ours (or our subsidiaries) were eligible to receive awards under the sub-plan. Awards under the sub-plan counted towards the total number of shares available for issuance under the 2017 Incentive Plan. The sub-plan is an "employees' share scheme" for the purposes of the UK Companies Act 2006.
Shares Available for Awards An aggregate of 6,333,000 of our ordinary shares were initially made available for issuance under the 2017 Incentive Plan. The number of shares initially available for issuance will be increased by an annual increase on January 1 of each calendar year beginning in 2018 and ending in and including 2027 equal to the least of (A) 4% of our ordinary shares outstanding on the final day of the immediately preceding calendar year and (B) a smaller number of shares determined by our board of directors. As of January 1, 2020, the number of shares available for issuance was 5,499,058. Pursuant to the terms of the 2017 Incentive Plan, awards may be issued under the 2017 Incentive Plan covering ADSs in lieu of the number of our ordinary shares that such ADSs represent. No more than 5,000,000 shares may be issued under the 2017 Incentive Plan upon the exercise of incentive options. Shares issued under the 2017 Incentive Plan may be authorized but unissued shares, shares purchased on the open market, treasury shares or ADSs.
If an award under the 2017 Incentive Plan, the EMI Option Scheme, the Unapproved Share Option Scheme or any prior equity incentive plan, expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, any unused shares subject to the award will, as applicable, become or again be available for new grants under the 2017 Incentive Plan. Awards granted under the 2017 Incentive Plan in substitution for any options or other equity or equity-based awards granted by an entity before the entity's merger or consolidation with us or our acquisition of the entity's property or stock will not reduce the shares available for grant under the 2017 Incentive Plan, but will count against the maximum number of shares that may be issued upon the exercise of incentive options. Awards The 2017 Incentive Plan provides for the grant of options, share appreciation rights, or SARs, restricted shares, dividend equivalents, restricted share units, or RSUs, and other share or cash based awards. All awards under the 2017 Incentive Plan will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows. Options and SARs. Options provide for the purchase of our ordinary shares in the future at an exercise price set on the grant date. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The plan administrator will determine the number of shares covered by each option and SAR, the exercise price of each option and SAR and the conditions and limitations applicable to the exercise of each option and SAR. Restricted Shares and Restricted Share Units. Restricted shares are an award of nontransferable ordinary shares that remain forfeitable unless and until specified conditions are met and which may be subject to a purchase price. RSUs are contractual promises to deliver our ordinary shares in the future, which may also remain forfeitable unless and until specified conditions are met and may be accompanied by the right to receive the equivalent value of dividends paid on our ordinary shares prior to the delivery of the underlying shares. The plan administrator may provide that the delivery of the shares underlying RSUs will be deferred on a mandatory basis or at the election of the participant. The terms and conditions applicable to restricted shares and RSUs will be determined by the plan administrator, subject to the conditions and limitations contained in the 2017 Incentive Plan. Other Share or Cash Based Awards. Other share or cash based awards are awards of cash, fully-vested our ordinary shares and other awards valued wholly or partially by referring to, or otherwise based on, our ordinary shares or other property. Other share or cash based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of compensation to which a participant is otherwise entitled. The plan administrator will determine the terms and conditions of other share or cash based awards, which may include any purchase price, performance goal, transfer restrictions and vesting conditions. Performance Criteria The plan administrator may select performance criteria for an award to establish performance goals for a performance period. Performance criteria under the 2017 Incentive Plan may include, but are not limited to, the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on
capital or invested capital; cost of capital; return on shareholders' equity; total shareholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the company's performance or the performance of a subsidiary, division, business segment or business unit of the company or a subsidiary, or based upon performance relative
to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies. When determining performance goals, the plan administrator may provide for exclusion of the impact of an event or occurrence which the plan administrator determines should appropriately be excluded, including, without limitation, non-recurring charges or events, acquisitions or divestitures, changes in the corporate or capital structure, events unrelated to the business or outside of the control of management, foreign exchange considerations, and legal, regulatory, tax or accounting changes. Certain Transactions In connection with certain corporate transactions and events affecting our ordinary shares, including a change in control, another similar corporate transaction or event, another unusual or nonrecurring transaction or event affecting us or its financial statements or change in any applicable laws or accounting principles, the plan administrator has broad discretion to take action under the 2017 Incentive Plan to prevent the dilution or enlargement of intended benefits, facilitate the transaction or event or give effect to the change in applicable laws or accounting principles. This includes canceling awards for cash or property, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares subject to outstanding awards and/or with respect to which awards may be granted under the 2017 Incentive Plan and replacing or terminating awards under the 2017 Incentive Plan. In addition, in the event of certain non-reciprocal transactions with our shareholders, the plan administrator will make equitable adjustments to the 2017 Incentive Plan and outstanding awards as it deems appropriate to reflect the transaction. Pursuant to the terms of their individual employment agreements, awards granted under the 2017 Incentive Plan to certain of our executives may become fully vested and exercisable upon a change in control. Plan Amendment and Termination Our board of directors may amend or terminate the 2017 Incentive Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the 2017 Incentive Plan, may materially and adversely affect an award outstanding under the 2017 Incentive Plan without the consent of the affected participant and shareholder approval will be obtained for any amendment to the extent necessary to comply with applicable laws. Further, the plan administrator cannot, without the approval of our shareholders, amend any outstanding option or SAR to reduce its price per share or cancel any outstanding option or SAR in exchange for cash or another award under the 2017 Incentive Plan with an exercise price per share that is less than the exercise price per share of the original option or SAR. The 2017 Incentive Plan will remain in effect until the tenth anniversary of its effective date unless earlier terminated by our board of directors. No awards may be granted under the 2017 Incentive Plan after its termination. Non-U.S. Participants, Claw-Back Provisions, Transferability and Participant Payments The plan administrator may modify awards granted to participants who are non-U.S. nationals or employed outside the United States or establish sub-plans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions. All awards will be subject to any company claw-back policy as set forth in such claw-back policy or the applicable award agreement. Except as the plan administrator may determine or provide in an award agreement, awards under the 2017 Incentive Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the plan administrator's consent, pursuant to a domestic relations order, and are generally exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2017 Incentive Plan, and exercise price obligations arising in connection with the exercise of options under the 2017 Incentive Plan, the plan administrator may, in its discretion, accept cash, wire
transfer or cheque,check, our ordinary shares that meet specified conditions, a promissory note, a "market sell order," such other consideration as the plan administrator deems suitable or any combination of the foregoing. 2017
2019 Grants The following table summarizes the options that we granted to our directors and executive officers under the 2017 Incentive Plan in 2017:2019: | | | | | | | | | | | Name | Ordinary Shares Underlying Options | | Exercise Price Per Share (£) | | Grant Date | | Expiration Date | Jan-Anders Karlsson, Ph.D., M.D. | 1,385,598 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Piers Morgan | 802,690 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Kenneth Newman, M.D. | 796,128 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Peter Spargo, Ph.D. | 544,681 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Claire Poll | 487,347 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Richard Hennings | 160,000 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Desiree Luthman | 160,000 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | Vikas Sinha | 120,384 |
| | 1.32 |
| | April 26, 2017 | | April 26, 2027 | David Ebsworth | — |
| | — |
| | — | | — | Anders Ullman | — |
| | — |
| | — | | — | Ken Cunningham | — |
| | — |
| | — | | — | Rishi Gupta | — |
| | — |
| | — | | — | Mahendra Shah | — |
| | — |
| | — | | — | Andrew Sinclair | — |
| | — |
| | — | | — |
| | | | | | | | | | | Name | Ordinary Shares Underlying Options |
| | Exercise Price Per Share (£) |
| | Grant Date | | Expiration Date | | | | | | | | | Kathleen Rickard | 560,000 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 | Piers Morgan | 359,430 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 | Claire Poll | 256,735 |
| | 0.57 |
| | April 01, 2019 | | March 29, 2029 |
The following table summarizes the RSUs that we granted on April 1, 2019, to our directors and executive officers under the 2017 Incentive Plan in 2017:2019: | | | | Name | Restricted Share Units Granted |
| Jan-Anders Karlsson, Ph.D., M.D. Kathleen Rickard | 346,395120,000 |
| Piers Morgan | 200,669 |
| Kenneth Newman, M.D. | 199,016 |
| Peter Spargo, Ph.D. | 136,16893,247 |
| Claire Poll | 121,835 |
| Richard Hennings | 48,153 |
| David Ebsworth | — |
| Anders Ullman | — |
| Ken Cunningham | — |
| Rishi Gupta | — |
| Mahendra Shah | — |
| Vikas Sinha | — |
| Andrew Sinclair | —66,603 |
|
The options and RSUs (other than those granted to Messrs. Hennings and Sinha) vest as to 50% of the ordinary shares in three substantially equal annual installments following the grant date and as to 50% of the ordinary shares in four substantially equal annual installments following the grant date. The options and RSUs granted to
Messrs. Hennings and Sinha vest in three substantially equal annual installments following the grant date. This description relates to the options and RSUs granted in connection with the global offering.
Non-Employee Directors Remuneration The following table sets forth the remuneration paid during 20172019 to our current non-employee directors: | | | | | | | Name | Annual Fees (£) | | Total (£) | David Ebsworth | 108,000 |
| | 108,000 |
| Anders Ullman | 30,000 |
| | 30,000 |
| Ken Cunningham | 40,000 |
| | 40,000 |
| Rishi Gupta | 30,000 |
| | 30,000 |
| Mahendra Shah | 30,000 |
| | 30,000 |
| Vikas Sinha | 42,000 |
| | 42,000 |
| Andrew Sinclair | 30,000 |
| | 30,000 |
| Patrick Humphrey | 8,750 |
| | 8,750 |
|
| | | | | | | Name | Fees (£) |
| | Total (£) |
| David Ebsworth | 108,000 |
| | 108,000 |
| Anders Ullman | 30,000 |
| | 30,000 |
| Ken Cunningham | 40,000 |
| | 40,000 |
| Rishi Gupta | 30,000 |
| | 30,000 |
| Mahendra Shah | 30,000 |
| | 30,000 |
| Vikas Sinha | 42,000 |
| | 42,000 |
| Andrew Sinclair | 30,000 |
| | 30,000 |
| Martin Edwards | 22,500 |
| | 22,500 |
|
Non-Employee Director Service Contracts The remuneration of the non-executive directors is determined by our board as a whole, based on a review of current practices in other companies. We have entered into service contracts with our directors for their services, which are subject to a three-month termination period. Pension, Retirement or Similar Benefits We operate a defined contribution pension scheme which is available to all UK employees. The total amount set aside or accrued by us to provide pension, retirement or similar benefits to our current directors and our executive officers with respect to 20172019 was £41,671,£30,000, which represents contributions made by us in 20172019 in respect of a defined contribution scheme in which Dr. Karlsson, Ms. Poll, Mr. HenningsMs. Rickard, and Mr. Morgan participated.
C. Board Practices Composition of our Board of Directors Our Board is comprised of eightnine members. In accordance with our Articles of Association, one third of our directors retire from office at every annual general meeting of shareholders. However, if the number of directors serving on our Board is not divisible by three, then the number nearest but not exceeding 33.3% shall retire from office at each annual general meeting of shareholders. Retiring directors are eligible for re-election and, if no other director is elected to fill his or her position and the director is willing, shall be re-elected by default.
The expiration of the current terms of the members of our board of directors and the period each member has served in that term are as follows:
| | | | Name | Year Current Term Began | Next year of re-election | Jan-Anders Karlsson, Ph.D. | 2012 | 2020 | David Ebsworth, Ph.D. | 2014 | 2018 | Ken Cunningham, M.D. | 2015 | 2019 | Rishi Gupta | 2016 | 2021 | Mahendra Shah, Ph.D. | 2016 | 2020 | Andrew Sinclair, Ph.D. | 2016 | 2019 | Vikas Sinha | 2016 | 2021 | Anders Ullman, M.D., Ph.D. | 2015 | 2018 |
| | | | Name | Year Current Term Began | Next year of re-election | David Zaccardelli, Pharma.D. | 2020 | 2020 | David Ebsworth, Ph.D. | 2018 | 2021 | Ken Cunningham, M.D. | 2015 | 2022 | Rishi Gupta | 2016 | 2020 | Mahendra Shah, Ph.D. | 2016 | 2020 | Andrew Sinclair, Ph.D. | 2016 | 2022 | Vikas Sinha | 2016 | 2020 | Anders Ullman, M.D., Ph.D. | 2018 | 2021 | Martin Edwards, M.D. | 2019 | 2021 |
There are no arrangements or understanding between us and any of the members of our board of directors providing for benefits upon termination of their service.
Committees of our Board of Directors Our Board has three standing committees: an Audit and Risk Committee, a Remuneration Committee and a Nomination and Governance Committee. Audit and Risk Committee of the Board The Audit and Risk Committee, which consists of Vikas Sinha, Dr. David Ebsworth and Dr. Andrew Sinclair, , assists the Board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Mrstatements and monitoring UK Governance Code compliance and business risk. Mr. Sinha serves as Chairman of the Audit and Risk Committee. The Audit and Risk Committee consists of members of our Board who are financially literate and are also considered to be "audit committee financial experts" as defined by applicable SEC rules and have the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. Our Board has determined that all of the members of the Audit and Risk Committee satisfy the "independence" requirements set forth in Rule 10A-3 under the Exchange Act. The Audit and Risk Committee will beis governed by a charter that complies with Nasdaq rules. The Audit and Risk Committee's responsibilities include:include, among other things: recommending the appointment of the independent auditor to the general meeting of shareholders; the appointment, compensation, retention and oversight of the independent auditor; pre-approving the audit services and non-audit services to be provided by ourthe independent auditor before the auditor is engaged to render such services; evaluating the independent auditor's qualifications, performance and independence, and presenting its conclusions to our Board on at least an annual basis; reviewing and discussing with the executive officers, our Board and the independent auditor our financial statements and our financial reporting process; and considering and recommending to our Board whether the audited financial statements be approved.approved; and monitoring our review and mitigation of corporate and operational risk. The Audit and Risk Committee will meetmeets as often as one or more members of the Committee deem necessary, but in any event willmust meet at least four times per year. The Audit and Risk Committee willmust meet at least once per year with our independent auditor, without our executive officers being present.
Remuneration Committee of the Board The Remuneration Committee, which consists of Dr. Ken Cunningham, Dr. David Ebsworth and Rishi Gupta, assists the Board in determining directors’ and senior executives’executive officers’ compensation. Dr Cunningham serves as Chairman of the Committee. The Remuneration Committee's responsibilities include:include, among other things: identifying, reviewing and proposing policies relevant to the compensation of the Company’s directors and executive officers; evaluating each executive officer's performance in light of such policies and reporting to the Board; analyzing the possible outcomes of the variable remuneration components and how they may affect the remuneration of the executive officers; recommending any equity long-term incentive component of each executive officer's compensation in line with the remuneration policy and reviewing our executive officer compensation and benefits policies generally; appointing and setting the terms of referenceengagement for any remuneration consultants who advise the Committee and obtain benchmarking data with respect to the directors' and executive officers’ compensation; and reviewing and assessing risks arising from our compensation policies and practices. Nomination and Governance Committee of the Board The Nomination and Governance Committee, which consists of Dr. David Ebsworth, Dr. Mahendra Shah and Dr. Anders Ullman, assists our Board in identifying individuals qualified to become executive and non-executive directors of our Company consistent with criteria established by our Board and in developing our corporate governance principles. Dr Ebsworth serves as Chairman of the Committee. The Nomination and Governance Committee's responsibilities include:include, among other things:
reviewing and evaluating the structure, size and composition of our Board and making recommendations with regard to any adjustments considered necessary; drawing up selection criteria and appointment procedures for Board members; identifying and nominating, for the approval of our Board, candidates to fill vacancies on theBoardthe Board and its corresponding committees; keeping under review the leadership needs of the Company, both executive and non-executive, and planning the orderly succession of such appointments; and assessing the functioning of our Board and individual members and reporting the results of such assessment to the Board.
D. Employees As of December 31, 2017, 20162019, 2018 and 2015,2017, we had 24, 15, and 15 employees, respectively, of which 13, 11, and 9 employees, respectively. All of our employees10 were based in the United Kingdom, except that, asrespectively, and the remainder of December 31, 2017, 2016 and 2015, we had one to four employeeswhich were based outside of the United Kingdom. All of our employees were engaged in either administrative or research and development functions. None of our employees are covered by a collective bargaining agreement. E. Share Ownership For information regarding the share ownership of members of our board and executive officers and arrangements involving our employees in our share capital, see “ItemItem 6.B. Compensation,” Item 7.A. Major Shareholders”Shareholders and “ItemItem 7.B. Related Party Transactions.”
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS The following table sets forth information relating to the beneficial ownership of our ordinary shares as of December 31, 20172019, by: | | ▪ | each person, or group of affiliated persons, that beneficially owns 3% or more of our outstanding ordinary shares;shares (including ordinary shares in the form of our ADSs); |
| | ▪ | each member of our board of directors and each of our other executive officers; and |
| | ▪ | all board members and executive officers as a group. |
The number of ordinary shares beneficially owned by each entity, person, board member or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of February 27, 2018December 31, 2019, through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person. The percentage of ordinary shares beneficially owned is computed on the basis of 105,017,400105,326,638 of our ordinary shares outstanding as of February 1, 2018.December 31, 2019. Ordinary shares that a person has the right to acquire within 60 days of December 31, 20172019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all board members and executive officers as a group. As of February 1, 2018, 55,931,336December 31, 2019, 56,045,857 ordinary shares, representing 53% of our issued and outstanding ordinary shares (including ordinary shares in the form of our ADSs), were held by 1415 U.S. record holders. Unless otherwise indicated below, the address for each beneficial owner listed is c/o Verona Pharma plc, 3 More London Riverside, London SE1 2RE UK.
| | | | | | | | Number of Shares Beneficially Owned
| Name and address of beneficial owner | Number | Percentage | 3% or Greater Shareholders: | | | Novo A/S (1) | 14,159,611 | 13% | Vivo Capital affiliates (2) | 13,811,584 | 13% | OrbiMed Private Investments VI, LP (3) | 11,871,114 | 11% | Growth Equity Opportunities Fund IV, LLC (4) | 11,527,019 | 11% | Abingworth Bioventures VI, LP (5) | 8,619,774 | 8% | venBio Select Advisor (6) | 7,000,000 | 7% | Biodiscovery 4 FCPI (7) | 6,652,398 | 6% | Foresite (8) | 5,000,000 | 5% | Tekla Capital affiliates (9) | 5,296,845 | 5% | Aisling Capital IV, LP (10) | 4,138,643 | 4% | Arix Bioscience Holdings Ltd affiliates (11) | 3,916,493 | 4% | Canaccord Genuity Group, Inc.(12)
| 3,255,792 | 3% | Executive Officers and Directors: | | | Jan-Anders Karlsson, Ph.D.(13) | 749,142 | 1% | Piers Morgan (14) | 100,000 | —% | Kenneth Newman, M.D.(15) | 356,665 | 1% | Claire Poll (16) | 236,663 | —% | Richard Hennings | — | —% | Peter Spargo, Ph. D.(17) | 139,663 | —% | Ken Cunningham, M.D. | — | —% | David Ebsworth, Ph.D.(18) | 140,703 | —% | Rishi Gupta | — | —% | Mahendrah Shah, Ph.D. | — | —% | Andrew Sinclair, Ph.D.(19) | — | —% | Vikas Sinha (20) | 22,222 | —% | Anders Ullman, Ph.D. | — | —% | All executive officers and directors as a group (13 persons) | 1,745,058 | 2% |
| | | | | Number of Shares Beneficially Owned | Name and address of beneficial owner | Number | Percentage | 3% or Greater Shareholders: | | | Novo A/S (1) | 14,159,611 | 13.22% | Vivo Capital affiliates (2) | 13,811,584 | 12.88% | OrbiMed Private Investments VI, LP (3) | 11,871,112 | 11.07% | Growth Equity Opportunities Fund IV, LLC (4) | 11,527,019 | 10.76% | Abingworth Bioventures VI, LP (5) | 8,619,765 | 8.08% | venBio Select Advisor (6) | 7,000,000 | 6.65% | Polar Capital Holdings plc (7) | 5,368,819 | 5.09% | Tekla Capital affiliates (8) | 5,296,845 | 4.99% | Aisling Capital IV, LP (9) | 4,138,643 | 3.91% | Executive Officers and Directors: | | | David Zaccardelli, Pharm.D | — | — | Piers Morgan (10) | 1,712,362 | 1.60% | Kathleen Rickard, M.D. | — | — | Claire Poll (11) | 799,141 | * | Ken Cunningham, M.D. | — | — | Martin Edwards | — | — | David Ebsworth, Ph.D.(12) | 400,303 | * | Rishi Gupta | — | — | Mahendra Shah, Ph.D. | — | — | Andrew Sinclair, Ph.D. | — | — | Vikas Sinha (13) | 102,478 | * | Anders Ullman, Ph.D. | — | — | All executive officers and directors as a group (12 persons) | 3,014,284 | 2.83% | * Less than 1%. | | |
| | (1) | Consists of (a) 12,389,985 ordinary shares held directly by Novo A/S, or Novo, and (b) warrants to purchase 1,769,626 ordinary shares. The board of directors of Novo A/S, or the Novo Board, has shared investment and voting control over the securities held by Novo and may exercise such control only with the support of a majority of the Novo Board. As such, no individual member of the Novo Board is deemed to hold any beneficial ownership or reportable pecuniary interest in the securities held by Novo. Beneficial ownership information is based on information known to us and a Form TR-1 provided to usSchedule 13D filed with the SEC on June 6, 2017.April 2, 2019. Novo's mailing address is Tuborg Havnevej 19, Hellerup, G7 2900, Denmark.Denmark |
| | (2) | Consists of (a) 2,388,728 ordinary shares held directly by Vivo Ventures Fund VI, L.P., or Vivo VI, of which 1,126,760 are held in the form of ADSs, (b) warrants to purchase 370,871 ordinary shares held directly by Vivo VI, (c) warrants to purchase 2,717 ordinary shares held directly by Vivo Ventures VI Affiliates Fund, L.P., or Vivo Affiliates VI, (d) 9,554,917 ordinary shares held directly by Vivo Ventures Fund VII L.P., or Vivo VII, of which 4,507,040 are held in the form of ADSs, (e) warrants to purchase 1,462,477 ordinary shares held directly by Vivo VII, (f) warrants to purchase 31,874 ordinary shares held directly by Vivo Ventures VII Affiliates Fund, L.P., or Vivo Affiliates VII. Vivo Ventures VI, LLC , or Vivo Ventures VI, is the sole general partner of Vivo VI and Vivo Affiliates VI. Vivo Ventures VII, LLC, or Vivo Ventures VII, is the sole general partner of Vivo VII and Vivo Affiliates VII. Vivo Ventures VI and Vivo Ventures VII disclaim beneficial ownership of all shares held by Vivo VI, Vivo Affiliates VI, Vivo VII and Vivo Affiliates VII except to the extent of any pecuniary interest therein. The managing members of Vivo Ventures VI are Drs. Albert Cha, Edgar Engleman and Frank Kung, each of whom may be deemed to have shared voting and dispositive power of the shares held by Vivo VI and Vivo Affiliates VI. The managing members of Vivo Ventures Vll are Drs. Albert Cha, Edgar Engleman, Frank Kung, Chen Yu and Mr. Shan Fu, each of whom may be deemed to have shared voting and dispositive power of the shares held by Vivo Vll and Vivo Affiliates Vll. Mahendra Shah, the Managing Director of Vivo Capital, is a member of our Board of Directors and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest arising as a result of his employment by Vivo Capital. Beneficial ownership information is based on information known to us and Forms TR-1 provided to us on May 30, 2017. Vivo Capital's mailing address is 505 Hamilton Avenue, Suite 200, Palo Alto, CA 94301. |
Shah, the Managing Director of Vivo Capital, is a member of our Board of Directors and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest arising as a result of his employment by Vivo Capital. Beneficial ownership information is based on information known to us and Forms TR-1 provided to us on May 30, 2017. Vivo Capital's mailing address is 505 Hamilton Avenue, Suite 200, Palo Alto, CA 94301.
| | (3) | Consists of (a) 10,003,17510,003,174 ordinary shares held directly by OrbiMed Private Investments VI, LP, or OrbiMedOPI VI, of which 5,333,32810,003,168 are held in the form of ADSs and (b) warrants to purchase 1,867,9391,867,938 ordinary shares are held directly by OrbiMedOPI VI. OrbiMed Capital GP VI LLC, or GP VI, is the general partner of OrbiMedOPI VI. OrbiMed Advisors LLC, or OrbiMed Advisors, ispursuant to its authority as the sole managing member of GP VI. Samuel D. Isaly isVI, the managing membersole general partner of and owner of a controlling interest in OrbiMed Advisors. By virtue of such relationships, GPOPI VI, OrbiMed Advisors and Mr. Isaly may be deemed to have voting and investment power with respect toindirectly beneficially own the ordinary shares held by OrbiMedOPI VI. GP VI, andpursuant to its authority as a resultgeneral partner or OPI VI, may be deemed to have beneficial ownership of such shares. Rishi Gupta, an employee of OrbiMedindirectly beneficially own the ordinary shares held by OPI VI. As a result, Advisors is a member of our Board of Directors. Each ofand GP VI OrbiMedshare the power to direct the vote and to direct the disposition of the ordinary shares held by OPI VI. Advisors Mr. Isalyexercises this investment and Mr. Guptavoting power through a management committee comprised of Carl L. Gordon, Sven H. Borho and Jonathan T. Silverstein, each of whom disclaims beneficial ownership of the ordinary shares held by OrbiMed VI, except to the extent of its or his pecuniary interest therein, if any.OPI VI. Beneficial ownership information is based on information known to us and a Form TR-1 provided to usSchedule 13D/A filed with the SEC on May 25, 2017. OrbiMed Advisors'January 26, 2018. The mailing address of OPI VI, GP VI and Advisors is 601 Lexington Avenue, 54th Floor, New York, NY 10022. |
| | (4) | Consists of (a) 9,757,393 ordinary shares held directly by Growth Equity Opportunities Fund IV, LLC, or GEO, of which 5,333,328 are held in the form of ADSs, and (c) warrants to purchase 1,769,626 ordinary shares held directly by GEO. New Enterprise Associates 15, L.P., or NEA 15, is the sole member of GEO. NEA Partners 15, L.P., NEA Partners 15, is the sole general partner of NEA 15. NEA 15 GP, LLC, or NEA 15 LLC, is the sole general partner of NEA Partners 15. Peter J. Barris, Forest Baskett, Anthony Florence, Jr., Krishnu Kolluri, David M. Mott, Scott D. Sandell, Peter Sonsini, Jon Sakoda, Ravia Viswanthan and Henry Weller are the managers of NEA 15 LLC. NEA 15, NEA Partners 15, NEA 15 LLC and the managers of NEA 15 LLC share voting and dispositive power with regard to the securities held by GEO. Each of NEA 15, NEA Partners 15 and NEA 15 LLC as well as each of the managers of NEA 15 LLC disclaims beneficial ownership of all shares held by GEO except to the extent of their actual pecuniary interest therein. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 8, 2017. GEO's mailing address is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093-4135. |
| | (5) | Consists of (a) 7,215,5537,215,544 ordinary shares held directly by Abingworth Bioventures VI, LP, or Abingworth VI, all of which 3,705,000 are held in the form of ADSs, and (b) warrants to purchase 1,404,221 ordinary shares held directly by Abingworth VI. Abingworth Bioventures VI GP LP, or Abingworth GP VI, serves as general partner of Abingworth VI. Abingworth General Partner VI LLP, or Abingworth General Partner VI, serves as general partner of Abingworth GP VI. Abingworth General Partner VI has delegated to Abingworth LLP, all investment and dispositive power over the securities held by Abingworth VI. An Abingworth LLP investment committee comprised of Stephen Bunting, Timothy Haines, Kurt von Emster and Genghis Lloyd-Harris approves investment and voting decisions of Abingworth VI by a majority vote, and no individual member has the sole control or voting power over the securities held by Abingworth VI. Abingworth GP VI, Abingworth General Partner VI, Abingworth LLP and each of Stephen Bunting, Timothy Haines, Kurt von Emster and Genghis Lloyd-Harris disclaim beneficial ownership of securities held by Abingworth VI, except to the extent, if any of their pecuniary interest therein. Andrew Sinclair is a Partner and Portfolio Manager at Abingworth LLP and a member of our board of directors. Dr. Sinclair does not have voting or dispositive power over any of the securities held by Abingworth Vl. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 9, 2017. Abingworth VI's mailing address is 38 Jermyn Street, London SW1Y 6DN, United Kingdom. |
| | (6) | Consists of 7,000,000 ordinary shares held in the form of ADSs by VenBio Select Advisor. This information is based on information known to us. The mailing address for VenBio Select Advisor is 120 W 45th St #2802, New York, NY 10036 |
| | (7) | Consists of (a) 5,767,5855,300,000 ordinary shares of which (a) 4,500,000 ordinary shares are held directly by Polar Biotechnology Fund, or PBF, (b) 800,000 are held by PBF in the form of ADSs, by Biodiscovery 4 FCPI, or Biodiscovery, and (b)(c) warrants to purchase 884,81368,819 ordinary shares held directly by Biodiscovery.PBF. PBF and PCGH are managed by Polar Capital Holdings plc, or PCH. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on May 5, 2017. The mailing address for Biodiscovery is 47 rue du Faubourg Saint-Honoré75401 Cedex 08 Paris FranceSeptember 9, 2019 and information known to us. |
| | (8) | Consists of 5,000,000 ordinary shares held in the form of ADSs by Foresight Capital Management. This information is based on information known to us. The mailing address for Foresight Capital Management is [600 Montgomery Street, Suite 4500, San Francisco, CA 94111 |
| | (9)
| Consists of (a) 4,412,031 ordinary shares held directly by Tekla World Healthcare Fund, or Tekla World, of which 2,200,000 are held in the form of ADSs, (b) warrants to purchase 513,192 purchase ordinary shares held directly by Tekla World, and (c) warrants to purchase 371,622 ordinary shares held directly by Tekla Life. Tekla Capital Management LLC, or Tekla Capital, is an investment adviser registered pursuant to Section 203 of the Investment Advisers Act of 1940 and is the investment adviser of Tekla World and Tekla Life, each of which is a registered investment company pursuant to Section 8 of the Investment Company Act of 1940. Each of Tekla Capital and Daniel R. Omstead, through his control of Tekla Capital, has sole power to dispose of the shares beneficially owned by Tekla World and Tekla Life. Neither Tekla Capital nor Daniel R. Omstead has the sole power to vote or direct the vote of the shares beneficially owned by Tekla World and Tekla Life, which power resides in each fund's Board of Trustees. Tekla Capital carries out the voting of the shares under written guidelines established by each fund's Board of Trustees. Beneficial ownership information is based on information known to us and a Schedule 13G filed with the Securities and Exchange CommissionSEC on February 13, 2017.12, 2019. Tekla Capital's mailing address is 100 Federal Street, 19th Floor, Boston, MA 02110. |
| | (10)(9)
| Consists of (a) 3,548,768 ordinary shares held directly by Aisling Capital IV, LP, or Aisling, of which 2,074,080 are held in the form of ADSs, and (b) warrants to purchase 589,875 ordinary shares held directly by Aisling. This information is based on information known to us and a TR-1 provided to us on June 6, 2017. The mailing address of Aisling is Aisling Capital, 888 Seventh Avenue, 12th Floor, New York, NY 1010610106. |
| | (10) | Consists of (a) 147,009 ordinary shares, (b) 238,420 ordinary shares issuable from restricted stock units that will vest within 60 days of December 31, 2019 and (c) 1,326,933 options to purchase ordinary shares that are, or will be within 60 days of December 31, 2019, immediately exercisable. |
| | (11) | Consists of (a) 1,290,352 ordinary shares held directly by Arix Bioscience Holdings Ltd, or Arix, (b) warrants to purchase 516,141 ordinary shares held directly by Arix and (c) 2,110,000 ordinary shares held directly by Wales Life Sciences Investment Fund, or WLSIF. Arthurian Life Sciences Ltd, or Arthurian, is the general partner of WLSIF and a wholly owned subsidiary of Arix. Beneficial ownership information is based on information known to us and a Form TR-1 provided to us on August 3, 2016 and January 3, 2017. Arix's mailing address is 20 Berkeley Square, London W1J 6EQ, United Kingdom. |
| | (12)
| Canaccord Genuity Group Inc. is the beneficial owner of an aggregate of 3,255,792 ordinary shares held directly by (a) Hargreave Hale which holds 2,941,250130,575 ordinary shares and (b) Canaccord Genuity Wealth Management which holds 314,542 ordinary shares. This information is based on information known to us. The mailing address for Canaccord Genuity Group Inc. is 88 Wood Street, London, UK, EC2V 7QR. |
| | (13)
| Consists of (a) 89,150 ordinary shares and (b) 659,992668,566 options to purchase ordinary shares that are, or will be immediately exercisable within 60 days of February 1, 2018.December 31, 2019, immediately exercisable. |
| | (14)
| Consists of 100,000 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (15)
| Consists of 356,665 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (16)(12)
| Consists of (a) 95,000 ordinary shares and (b) 141,663 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (17)
| Consists of (a) 13,000 ordinary shares and (b) 126,663 options to purchase ordinary shares that are or will be immediately exercisable within 60 days of February 1, 2018. |
| | (18)
| Consists of (a) 135,787395,387 ordinary shares and (b) warrants to purchase 4,916 ordinary shares. |
| | (19)
| Dr. Sinclair is a Partner and Portfolio Manager at Abingworth LLP. Dr. Sinclair does not have voting or dispositive power over any of the shares directly held by Abingworth Vl referenced in footnote (6) above. Dr. Sinclair's business address is 38 Jermyn Street, London SW1Y 6DN, United Kingdom. |
| | (20)(13)
| Consists of (a) 22,222 ordinary shares and (b) options to purchase 80,256 ordinary shares that are or will be immediately exercisable withinwithint 60 days of February 1, 2018.December 31, 2019. |
To our knowledge, and other than changesas provided in percentage ownership as a result of the shares issued in connectiontable above, our other filings with our initial public offering of our ADSs,the SEC and this Annual Report, there has been no significant change in the percentage ownership held by theany major shareholders listed aboveshareholder since January 1, 2017, except as discussed under the heading “Related Party Transactions.”2017. The major shareholders listed above do not have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares. ParticipationB. Related Party Transactions.
The following is a description of related party transactions we have entered into since January 1, 2019 or currently in the Global Offering In April 2017, the holders of 3% or moreeffect with any member of our common shares participated in the global offering as follows:board of directors and executive officers.
| | | | | | Investor | | Number of ADSs or shares subscribed for | | Aggregate purchase price | Novo A/S | | 740,740 ADSs | | USD 9,999,990 | Vivo Capital affiliates
| | 563,380 ADSs | | USD 7,605,630 | OrbiMed Private Investments VI, LP
| | 666,666 ADSs | | USD 8,999,991 | New Enterprise Associates, LP | | 666,666 ADSs | | USD 8,999,991 | Abingworth Bioventures VI, LP
| | 463,125 ADSs | | USD 6,252,188 | venBio Select Advisor
| | 875,000 ADSs | | USD 11,812,500 | Biodiscovery 4 FCPI
| | 444,444 ADSs | | USD 5,999,994 | Foresite | | 600,000 ADSs | | USD 8,100,000 | Tekla Capital affiliates | | 275,000 ADSs | | USD 3,712,500 | Aisling Capital IV, LP | | 259,260 ADSs | | USD 3,500,010 | Arix Bioscience Holdings Ltd affiliates | | 170,228 ADSs | | USD 2,298,078 | Canaccord Genuity Group, Inc. | | 1,255,001 shares | | GBP 1,656,601 |
Shareholder Private Placement
In May 2017, we issued and sold 13,373 ordinary shares to our Chairman, Dr. David Ebsworth, for aggregate gross proceeds to us of £18,000.
Registration Rights Agreement In July 2016, we entered into a registration rights agreement that providedprovides certain demand registration rights to Abingworth Bioventures VI, LP, or Abingworth, Growth Equity Opportunities Fund IV, LLC, OrbiMed Private Investments VI, LP, or OrbiMed, and Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., and Vivo Ventures Fund VI Affiliates Fund, L.P., or collectively, Vivo Capital, with respect to the ordinary shares and any ADSs held by them. Demand Registration Rights At any time, the holders of at least a majority of the registrable securities as defined in the registration rights agreement have the right to demand that we effect an underwritten public offering of their registrable securities pursuant to an effective registration statement under the Securities Act. These registration rights are subject to specified conditions and limitations including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. Upon such a request, we are required to use commercially reasonable efforts to effect the public offering. Expenses of Registration We will pay all expenses relating to any registration under the registration rights agreement, other than selling commission, discounts or brokerage fees and stock transfer taxes, subject to specified conditions and limitations. Termination of Registration Rights The registration rights granted under the registration rights agreement shall terminate upon the earlier to occur of (i) the fifth anniversary of the closing of the global offering and (ii) the date on which there are no registrable securities remaining pursuant to the registration rights agreement. Relationship Agreements In June 2016, we entered into relationship agreements with each of Vivo Capital, OrbiMed, and Abingworth, pursuant to which our relationship with such parties is regulated and their influence over our corporate actions and activities, and the outcome of general matters pertaining to us, are limited. Pursuant to the relationship agreements, we also agreed to appoint representatives designated by Vivo Capital, OrbiMed, and Abingworth to our board of directors, who are Dr. Mahendra Shah, Mr. Rishi Gupta, and Dr. Andrew Sinclair, respectively. The appointment rights under the relationship agreements will automatically terminate upon (i) Vivo Capital, OrbiMed or Abingworth (or any of their associates), as applicable, ceasing to beneficially hold 6.5% of our issued ordinary shares, or (ii) our ordinary shares ceasing to be admitted to AIM. In addition, each of the relationship agreements will automatically terminate upon the first date which Vivo Capital, OrbiMed, or Abingworth, as applicable, cease to have certain rights and obligations under the relationship agreements. Indemnification Agreements To the extent permitted by the U.K. Companies Act 2006, we are empowered to indemnify our directors against any liability they incur by reason of their directorship. We have also entered into a deed of indemnity with each of our directors and executive officers and this has been in place since March 31, 2017.officers. In addition to such indemnification, we provide our directors and executive officers with directors’ and officers’ liability insurance. B. Related Party Transactions.
The following is a description of related party transactions we have entered into since January 1, 2017 or currently in effect with any member of our board of directors and executive officers.
Agreements with Our Executive Officers and Directors We have entered into employment agreements with certain of our executive officers and service agreements with our non‑employee directors. See Item 6B6.B. Compensation and noteNote 8 of our Annual Consolidated Financial Statements included elsewhere in this Annual Report. Other Transactions At December 31, 2019, there was a receivable of £nil (2018: £126 thousand) due from one director and two key management personnel relating to tax due on RSUs that vested in the financial statements. Participation in U.S. Initial Public Offering
As partyear ended December 31, 2018. This receivable was repaid, together with interest at a rate of 3.9% per annum, by March 6, 2019. The Company notes that the transaction that generated this receivable was potentially a breach of Section 402 of the global offering our Chairman, Dr. David Ebsworth, purchased 13,373 shares at £1.32 per share generating gross proceedsSarbanes-Oxley Act of £18 thousand. The transaction was on2002. See Item 3.D. Risk Factors-Risks Related to Our ADSs and Ordinary Shares. We may have inadvertently violated Section 13(k) of the same termsExchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) and may be subject to sanctions as third parties.a result.
In the year ended December 31, 2019, a director provided consultancy services for £26 thousand (2018: £26 thousand). C. Interests of Experts and Counsel Not applicable.
ITEM 8: FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information. Consolidated Financial Statements Our consolidated financial statements are appended at the end of this Annual Report, starting at page F-1, and are incorporated herein by reference. Legal Proceedings We are not subject to any material legal proceedings. Dividend Distribution Policy We have never paid or declared any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Under English law, among other things, we may only pay dividends if we have sufficient distributable reserves (on a non consolidatednon-consolidated basis), which are our accumulated realized profits that have not been previously distributed or capitalized less our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital. B. Significant Changes. There have been no significant changes since December 31, 2017. 2019.
ITEM 9: THE OFFER AND THE LISTING A. Offer and Listing Details. Our Ordinary Shares are listed on AIM, a market of the London Stock Exchange, under the symbol “VRP”, and our ADSs have beenare listed on The Nasdaq Global Market under the symbol “VRNA” since April 27, 2017. The initial public offering price of our ADSs was $13.50 per ADS. The following table sets forth for the periods indicated the high and low sales prices per common share as reported on The Nasdaq Global Market: | | | | | | | | Price Per Common ADS ($) | | High | Low | Year Ended December 31, | | | 2017 (from April 27 through December 31) | 16.95 | 10.80 | Quarter Ended | | | Second Quarter 2017 (beginning April 27) | 16.26 | 11.40 | Third Quarter 2017 | 16.95 | 11.54 | Fourth Quarter 2017 | 15.75 | 10.80 | First Quarter 2018 (through February 16) | 13.25 | 11.69 | Month of | | | August 2017 | 12.70 | 11.80 | September 2017 | 16.95 | 11.96 | October 2017 | 15.75 | 13.35 | November 2017 | 14.13 | 10.80 | December 2017 | 12.10 | 11.30 | January 2018 | 13.25 | 12.21 | February 2018 (through February 16) | 12.80 | 11.693 |
Our ordinary shares have been trading on AIM, a market operated by the London Stock Exchange plc, under the symbol “VRP” since September 2006. The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on AIM in pounds sterling.
| | | | | | | | | | Price Per Share (£) | | High | | Low | Year Ended December 31, | | | | 2013 | 2.58 | | 0.88 | 2014 | 2.18 | | 0.53 | 2015 | 3.36 | | 0.60 | 2016 | 2.16 | | 1.19 | 2017 | 1.69 | | 1.04 | Quarter Ended | | | | First Quarter 2016 | 2.16 | | 1.19 | Second Quarter 2016 | 1.86 | | 1.41 | Third Quarter 2016 | 1.73 | | 1.48 | Fourth Quarter 2016 | 2.06 | | 1.55 | First Quarter 2017 | 1.69 | | 1.25 | Second Quarter 2017 | 1.61 | | 1.11 | Third Quarter 2017 | 1.53 | | 1.12 | Fourth Quarter 2017 | 1.48 | | 1.04 | First Quarter 2018 (through February 16) | 1.21 | | 1.02 | Month of | | | | August 2017 | 1.24 | | 1.16 | September 2017 | 1.53 | | 1.12 | October 2017 | 1.48 | | 1.33 | November 2017 | 1.34 | | 1.06 | December 2017 | 1.11 | | 1.04 | January 2018 | 1.21 | | 1.06 | February 2018 (through February 16) | 1.21 | | 1.02 |
.
B. Plan of Distribution. Not applicable. C. Markets. Our Ordinary Shares have beenare listed on the AIM, a market of the London Stock Exchange, since September 19, 2006, and our ADSs have beenare listed on The Nasdaq Global Market under the symbol “VRNA” since April 27, 2017.Market. D. Selling Shareholders. Not applicable. E. Dilution. Not applicable.
F. Expenses of the Issue. Not applicable.
ITEM 10: ADDITIONAL INFORMATION A. Share Capital. Not applicable. B. Memorandum and Articles of Association.
A copy of our Articles of Association is attached as Exhibit 1.1 to this Annual Report. The information called for by this Item is set forth in responseExhibit 2.5 to this item is contained under the caption “Description of Share Capital and Articles of Association” in our final prospectus filed with the Securities and Exchange Commission on April 28, 2017Annual Report and is incorporated herein by reference.reference into this Annual Report. C. Material Contracts. TheIn addition to the contracts described elsewhere in this Annual Report, the following are summaries of each material contract, other than material contracts entered into in the ordinary course of business, to which we are a party for the two years preceding the date of this Annual Report.
Underwriting Agreement
On April 26, 2017, we entered into an underwriting agreement with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated, as representatives of the underwriters, on April 26, 2017, for the initial public offering of 5,768,000 American Depositary Shares in the United States and the private placement of 1,255,001 ordinary shares in Europe. Pursuant to the underwriting agreement, we paid underwriting discounts and commissions of $0.9450 per ADS and £0.0924 per ordinary shares. The underwriting agreement contained customary representations and warranties. We also agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of such liabilities.
Employment Agreements
We have entered into employment agreements with our executive officers. Information on the employment agreements may be found in this Annual Report under “Item 6.B. Compensation-Executive Officer Remuneration-Executive Officer Employment Agreements” and is incorporated herein by reference.
Indemnification Agreements
We have entered into indemnification agreements with our executive officers and board members. Information on the indemnification agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Indemnification Agreements” and is incorporated herein by reference.
Registration Rights Agreements
We have entered into registration rights agreement with certain of our existing shareholders. Information on the registration rights agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Registration Rights Agreement” and is incorporated herein by reference.
Relationship Agreements
We have entered into relationship agreements with certain of our existing shareholders. Information on these relationship agreements may be found in this Annual Report under “Item 7-Major Shareholders and Related Party Transactions-Relationship Agreements” and is incorporated herein by reference.
Lease Our principal office is located at 3 More London Riverside, London SE1 2RE, United Kingdom, where we lease office space. We also lease office space in White Plains,New York , New York. The office space in these two locations is held under four leases that terminate between August 2018 and Januaryin 2020 and 2021. We pay £0.5 million per year under these leases we pay £0.3m per year.leases. We intend to add new facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
D. Exchange Controls. There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest, or other payments by us to non‑resident holders of our ordinary shares or ADSs, other than withholding tax requirements. There is no limitation imposed by English law or in our Articles of Association on the right of non‑residents to hold or vote shares. E. Taxation The following is a description of thecertain material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of our ordinary shares or ADSs. It is not a comprehensive description of all tax considerations that may be relevant to a particular person's decision to acquire securities. This discussion applies only to a U.S. Holder that holds our ordinary shares or ADSs as a capital asset for tax purposes (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder's particular circumstances, including state and local tax consequences, estate tax consequences, alternative minimum tax consequences, the potential application of the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as: | | ▪ | banks, insurance companies, and certain other financial institutions; |
| | ▪ | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| | ▪ | dealers or traders in securities who use a mark-to-market method of tax accounting; |
| | ▪ | persons holding our ordinary shares or ADSs as part of a hedging transaction, "straddle," wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to ordinary shares or ADSs; |
| | ▪ | persons whose "functional currency" for U.S. federal income tax purposes is not the U.S. dollar; |
| | ▪ | brokers, dealers or traders in securities, commodities or currencies; |
| | ▪ | tax-exempt entities or government organizations; |
| | ▪ | S corporations, partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax purposes; |
| | ▪ | regulated investment companies or real estate investment trusts; |
| | ▪ | persons who acquired our ordinary shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation; |
persons subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares or ADSs being taken into account in an applicable financial statement; persons that own or are deemed to own ten percent or more of our ordinary shares by vote or value; and | | ▪ | persons holding our ordinary shares or ADSs in connection with a trade or business, permanent establishment, or fixed base outside the United States. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our ordinary shares or ADSs and partners in such partnerships are encouraged to consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of our ordinary shares or ADSs. The discussion is based on the Internal Revenue Code of 1986, as amended or the Code,(the "Code"), administrative pronouncements, judicial decisions, final, temporary and proposed Treasury Regulations, and the income tax treaty between the United Kingdom and the United States (the "Treaty") all as of the date hereof, changes to any of which may affect the tax consequences described herein — possibly with retroactive effect. A "U.S. Holder" is a holder who, for U.S. federal income tax purposes, is a beneficial owner of our ordinary shares or ADSs who is eligible for the benefits of the Treaty and is:
(1)a citizen or individual resident of the United States; | | (2) | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
(3)an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. U.S. Holders are encouraged to consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of our ordinary shares or ADSs in their particular circumstances. The discussion below assumes that the representations contained in the deposit agreement with respect to our ADSs are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. Generally, a holder of an ADS should be treated for U.S. federal income tax purposes as holding the ordinary shares represented by the ADS. Accordingly, no gain or loss will be recognized upon an exchange of ADSs for ordinary shares. The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security. Accordingly the creditability of foreign taxes, if any, as described below, could be affected by actions taken by intermediaries in the chain of ownership between the holders of our ADSs and our Companycompany if as a result of such actions the holders of our ADSs are not properly treated as beneficial owners of the underlying ordinary shares. Passive Foreign Investment Company ("PFIC") Rules Because we dodid not expect to earn revenue from our business operations during the current taxable year ended December 31, 2019, and because our sole source of income currently is interest on bank accounts held by us, we believe we will likely be classified as a PFIC for the current taxable year.year ended December 31, 2019. A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either: | | ▪ | at least 75% of its gross income is passive income (such as interest income); or |
| | ▪ | at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce passive income or are held for the production of passive income. |
We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation, the equity of which we own, directly or indirectly, 25% or more (by value). A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. As a result, our PFIC status may change. While it is possible we may not meet the PFIC test described above once we start generating substantial revenue from our business operations, the analysis is factual and it is possible we may continue to be a PFIC for future years. In particular, the total value of our assets for purposes of the asset test generally will be calculated using the market price of theour ordinary shares or ADSs, which may fluctuate considerably. Fluctuations in the market price of theour ordinary shares or ADSs may result in our being a PFIC for any taxable year. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns theour ordinary shares or ADSs, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns theour ordinary shares or ADSs, regardless of whether we continue to meet the tests
described above unless (1) we cease to be a PFIC and the U.S. Holder has made a "deemed sale" election under the PFIC rules, or (2) the U.S. Holder makes a QEF Election (defined below) with respect to taxable years in which we are a PFIC. If such election is made, youthe U.S. Holder will be deemed to have sold theour ordinary shares or ADSs you holdit holds at their fair market value and any gain from such deemed sale would be subject to the rules described below. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, yourthe ordinary shares or ADSs with respect to which such election was made will not be treated as shares in a PFIC and youthe U.S. Holder will not be subject to the rules described below with respect to any "excess distribution" you receiveit receives from us or any gain from an actual sale or other disposition of theour ordinary shares or ADSs. U.S. Holders should consult their tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be a PFIC and such election becomes available. For each taxable year we are treated as a PFIC with respect to you, youa U.S. Holder, such holder will be subject to special tax rules with respect to any "excess distribution" you receiveit receives and any gain you recognizeit recognizes from a sale or other disposition (including a pledge) of our ordinary shares or ADSs, unless you makesuch holder makes a QEF Election or a mark-to-market election as discussed below. Distributions you receivethat a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or yoursuch holder's holding period for theout ordinary shares or ADSs will be treated as an excess distribution. Under these special tax rules:
| | ▪ | the excess distribution or gain will be allocated ratably over yoursuch holder's holding period for theour ordinary shares or ADSs; |
| | ▪ | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income; and |
| | ▪ | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or "excess distribution" cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of theour ordinary shares or ADSs cannot be treated as capital, even if you hold the U.S. Holder holds our ordinary shares or ADSs as capital assets. If we are a PFIC, a U.S. Holder will generally be subject to similar rules with respect to distributions we receive from, and our dispositions of the stock of, any of our direct or indirect subsidiaries that also are PFICs, as if such distributions were indirectly received by, and/or dispositions were indirectly carried out by, such U.S. Holder. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to our subsidiaries. U.S. Holders can avoid the interest charge on excess distributions or gain relating to theour ordinary shares or ADSs by making a mark-to-market election with respect to theour ordinary shares or ADSs, provided that theour ordinary shares or ADSs are "marketable." OrdinaryOur ordinary shares or ADSs will be marketable if they are "regularly traded" on certain U.S. stock exchanges or on a foreign stock exchange that meets certain conditions. For these purposes, theour ordinary shares or ADSs will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarterquarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Our ADSs will beare listed on the Nasdaq Global Market and our ordinary shares are traded on AIM, a market of the London Stock Exchange, each of, which is a qualified exchange for these purposes. Consequently, if our ADSs remain listed on the Nasdaq Global Market or our ordinary shares remain listed on AIM and, in each case, are regularly traded, and you are a holder of ADSs, we expect the mark-to-market election would be available to youU.S. Holders of such ordinary shares or ADSs if we are a PFIC (which we believe likely for the current year). Each U.S. Holder should consult its tax advisor as to the whether a mark-to-market election is available or advisable with respect to theour ordinary shares or ADSs. A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of theour ordinary shares or ADSs at the close of the taxable year over the U.S. Holder's adjusted tax basis in theour ordinary shares or ADSs. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder's adjusted basis in theour ordinary shares or ADSs over the fair market value of theour ordinary shares or ADSs at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior years. Gains from an actual sale or other disposition of theour ordinary shares or ADSs will be treated as ordinary income, and any losses incurred on a sale or other disposition of theour ordinary shares or ADSs will be treated as an ordinary loss to the extent of any net mark-to-market gains for prior years. Once made, the election cannot be revoked without the consent of the IRSU.S. Internal Revenue Service (the "IRS"), unless theour ordinary shares or ADSs cease to be marketable.
However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless shares of such lower-tier PFIC are themselves "marketable." We believe that Rhinopharma Limited will likely be treated as a lower-tier PFIC. As a result, even if a U.S. Holder validly makes a mark-to-market election with respect to our ordinary shares or ADSs, the U.S. Holder may continue to be subject to the PFIC rules (described above) with respect to its indirect interest in any of our investments that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs. Alternatively, a U.S. Holder can make an election, if we provide the necessary information, to treat us and each lower-tier PFIC as a qualified electing fund (a "QEF Election") in the first taxable year we (and our relevant subsidiaries) are treated as a PFIC with respect to the holder. If such election remains in place while we and any lower-tier PFIC subsidiaries are PFICs, we and our subsidiaries will not be treated as PFICs with respect to such U.S. Holder when we cease to be a PFIC. A U.S. Holder must make the QEF Election for each PFIC by attaching a separate properly completed IRS Form 8621 for each PFIC to the holder's timely filed U.S. federal income tax return. We will provide the information necessary for a U.S. Holder to make a QEF Election with respect to us and will cause each lower-tier PFIC which we control to provide such information with respect to such lower-tier PFIC.
If a U.S. Holder makes a QEF Election with respect to a PFIC, the holder will be currently taxable on its pro rata share of the PFIC's ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified as a PFIC. If a U.S. Holder makes a QEF Election with respect to us, any distributions paid by us out of our earnings and profits that were previously included in the holder's income under the QEF Election would not be taxable to the holder. A U.S. Holder will increase its tax basis in itsour ordinary shares or ADSs by an amount equal to any income included under the QEF Election and will decrease its tax basis by any amount distributed on theour ordinary shares or ADSs that is not included in the holder's income. In addition, a U.S. Holder will recognize capital gain or loss on the disposition of our ordinary shares or ADSs in an amount equal to the difference between the amount realized and the holder's adjusted tax basis in theour ordinary shares or ADSs. U.S. Holders should note that if they make QEF Elections with respect to us and lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to theirour ordinary shares or ADSs for any taxable year significantly in excess of any cash distributions received on theour ordinary shares or ADSs for such taxable year. U.S. Holders should consult their tax advisors regarding making QEF Elections in their particular circumstances. Unless otherwise provided by the U.S. Treasury, each U.S. shareholderHolder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. A U.S. Holder's failure to file the annual report will cause the statute of limitations for such U.S. Holder's U.S. federal income tax return to remain open with regard to the items required to be included in such report until three years after the U.S. Holder files the annual report, and, unless such failure is due to reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder's entire U.S. federal income tax return will remain open during such period. U.S. Holders should consult their tax advisors regarding the requirements of filing such information returns under these rules. Taxation of Distributions Subject to the discussion above under "Passive Foreign Investment Company ("PFIC") Rules," distributions paid on our ordinary shares or ADSs, other than certain pro rata distributions of ordinary shares or ADSs, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not calculate our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential rates applicable to "qualified dividend income." However, the qualified dividend income treatment may not apply if we are treated as a PFIC with respect to the U.S. Holder. The amount of a dividend will include any amounts withheld by us in respect of United Kingdom income taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will generally be included in a U.S. Holder's income on the date of the U.S. Holder's receipt of the dividend. The amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Such gain or loss would generally be treated as U.S.-source ordinary income or loss. The amount of any distribution of
property other than cash (and other than certain pro rata distributions of ordinary shares or ADSs or rights to acquire ordinary shares or ADSs) will be the fair market value of such property on the date of distribution. For foreign tax credit purposes, our dividends will generally be treated as passive category income. Subject to applicable limitations, some of which vary depending upon the U.S. Holder's particular circumstances, any United Kingdom income taxes withheld from dividends on our ordinary shares or ADSs at a rate not exceeding the rate provided by the Treaty will be creditable against the U.S. Holder's U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including any United Kingdom income tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Sale or Other Taxable Disposition of Our Ordinary Shares and ADSs Subject to the discussion above under "Passive Foreign Investment ("PFIC") Company Rules," gain or loss realized on the sale or other taxable disposition of our ordinary shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held theour ordinary shares or ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder's tax basis in theour ordinary shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. If the consideration received by a U.S. Holder is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of the payment received determined by reference to the spot rate of exchange on the date of the sale or other disposition. However, if theour ordinary shares or ADSs are treated as traded on an "established securities market" and youthe U.S. Holder is are either a cash basis taxpayer or an accrual basis taxpayer that has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS), yousuch holder will determine the U.S. dollar value of the amount realized in a non-U.S. dollar currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If you area U.S. Holder is an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement date, yousuch holder will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar amount realized on the date of sale or disposition and the U.S. dollar value of the currency received at the spot rate on the settlement date. WE STRONGLY URGE YOUINVESTORS IN OUR ORDINARY SHARES OR ADSs TO CONSULT YOURTHEIR TAX ADVISORADVISORS REGARDING THE IMPACT OF OUR PFIC STATUS ON YOURTHEIR INVESTMENT IN THEOUR ORDINARY SHARES OR ADSs AS WELL AS THE APPLICATION OF THE PFIC RULES TO YOURSUCH INVESTMENT IN THEOUR ORDINARY SHARES OR ADSs. Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder's U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS. Information with Respect to Foreign Financial Assets Certain U.S. Holders who are individuals (and, under proposed regulations, certain entities) may be required to report information relating to theour ordinary shares or ADSs, subject to certain exceptions (including an exception for ordinary shares or ADSs held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to their ownership and disposition of theour ordinary shares or ADSs. F. Dividends and Paying Agents. Not applicable.
G. Statement by Experts. Not applicable. H. Documents on Display. We maintain a corporate website at www.veronapharma.com. We make available free of charge on our website our Reports on Form 6-K, and we intend make available our Annual Reports on Form 20-F, as soon as reasonably practicable afterand any other reports that we electronically file such material with, or furnish it to,with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference.
You may also review a copy of this Annual Report, including exhibits and any schedule filed herewith, and obtain copies of such materials at prescribed rates, at the SEC’s Public Reference Room in Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (www.sec.gov)at www.sec.gov that contains reports, proxy and information statements and other information regarding registrantsissuers that file electronically, such as us, with the SEC.
References made in this Annual Report to any contract or certain other document of Verona Pharma plc are not necessarily complete and you should refer to the exhibits attached or incorporated by reference into this Annual Report for copies of the actual contract or document. I. Subsidiary Information. Not applicable.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of financial risks. Our overall risk management program seeks to minimize potential adverse effects of these financial risks on our financial performance. Credit Risk We consider all of our material counterparties to be creditworthy. We consider the credit risk for each of our counterparties to be low and do not have a significant concentration of credit risk at any of our counterparties. Liquidity Risk We manage our liquidity risk by maintaining adequate cash reserves at banking facilities, and by continuously monitoring our cash forecasts, our actual cash flows and by matching the maturity profiles of financial assets and liabilities. Currency Risk Foreign currency risk reflects the risk that the value of a financial commitment or recognized asset or liability will fluctuate due to changes in foreign currency rates. Our financial position, as expressed in pounds sterling, are exposed to movements in foreign exchange rates against the U.S. dollar and the Euro. Our main trading currencies are pounds sterling, the U.S. dollar and the Euro. We are exposed to foreign currency risk as a result of operating transactions and the translation forof foreign bank accounts. We monitor our exposure to foreign exchange risk. We have not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. Interest rate Risk Interest rate risk reflects the risk that the value of a financial instrument will fluctuate as a result of a change in market interest rates on classes of financial assets and financial liabilities. We do not hold any derivative instruments to manage interest rate risk. See note 3.1 of the financial statements for quantitative disclosures about market risk.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable.
D. American Depositary Shares.
Fees and Charges Holders of our ADSs are required to pay the following fees under the terms of the deposit agreement:
| | | | | Service | | Fee | Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares or upon a change in the ADS(s)‑to‑ordinary shares ratio), excluding ADS issuances as a result of distributions of ordinary shares | | Up to $0.05 per ADS issued | Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property or upon a change in the ADS(s)‑to‑ordinary shares ratio) | | Up to $0.05 per ADS cancelled | Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) | | Up to $0.05 per ADS held | Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs | | Up to $0.05 per ADS held | Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin‑off) | | Up to $0.05 per ADS held | ADS Services | | Up to $0.05 per ADS held on the applicable record date(s) established by the depositary |
Holders of our ADSs are also responsible to pay certain charges such as: taxes (including applicable interest and penalties) and other governmental charges;
the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;
certain cable, telex and facsimile transmission and delivery expenses;
the expenses and charges incurred by the depositary in the conversion of foreign currency;
the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and American Depositary Receipts; and
| | ▪ | taxes (including applicable interest and penalties) and other governmental charges; |
| | ▪ | the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
| | ▪ | certain cable, telex and facsimile transmission and delivery expenses; |
| | ▪ | the expenses and charges incurred by the depositary in the conversion of foreign currency; |
| | ▪ | the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and American Depositary Receipts; and |
| | ▪ | the fees and expenses incurred by the depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited property. |
ADS fees and charges payable upon (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person to whom the ADSs are issued (in the case of ADS issuances) and to the person whose ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary into the Depositary Trust Company, or DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Note that the fees and charges holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes. The depositary may reimburse us for certain expenses incurred by us in respect of the ADRADS program, by making available a portion of the ADS fees charged in respect of the ADRADS program or otherwise, upon such terms and conditions as we and the depositary agree from time to time.
PART II ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A. Not applicableNone B. Not applicableNone C. Not applicableNone D. Not applicableNone
E. Use of Proceeds. In May 2017, we completed the initial public offering of our American Depositary SharesADSs in the United States and a private placement of our ordinary shares in Europe, or the global offering. In the global offering we issued and sold 6,501,738 ADSs, including 733,738 ADSs issued and sold upon the partial exercises ofby the underwriters pursuant to their overallotment option to purchase additional ADSs, at a public offering price of $13.50 per ADS, and 1,225,001 ordinary shares at an offering price of £1.32 per share. The offer and sale of all of the ADSs and ordinary shares in the global offering was registered under the Securities Act pursuant to a registration statement on Form F-1 (File No. 333-217124), which was declared effective by the SEC on April 26, 2017, and a registration statement on Form F-1 to register additional securities (File No. 333-217487), which was immediately effective upon filing on April 26, 2017, or, together, the Registration Statement. Under the Registration Statement, we registered 5,768,000 ADSs, 1,225,001 ordinary shares, and 865,200 ADSs issuable upon exercise of the underwriters’ option to purchase additional ADSs at a public offering price of $13.50 per ADS and £1.32 per ordinary share, for a registered aggregate offering price of approximately $89.9 million including the 733,738 ADSs issued and sold upon the partial exercises of the underwriters’ option to purchase additional ADSs. Following the sale of the ADSs and ordinary shares in connection with the closing of the global offering, the offering terminated. The offering commenced on April 18, 2017 and did not terminate until the sale of all of the shares offered. Jefferies LLC and Stifel, Nicholaus & Company, Incorporated acted as joint book-running managers of the offering, and Wedbush Securities Inc. and SunTrust Robinson Humphrey, Inc. acted as co-managers of the offering.
In addition, a further 254,099 shares were issued to private investors for proceeds of $0.4m.
We received aggregate gross proceeds from the global offering of approximately $90.3$89.9 million, orand aggregate net proceeds of approximately $80.8 million after deducting underwriting discounts and commissions of approximately $6.3 million and offering expenses of approximately $3.2 million. No payments for such expenses were made directly or indirectly to (i) any of our officers, members of our board of directors, or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. The offer and sale of the ADSs and ordinary shares in the global offering were registered under the Securities Act pursuant to a registration statement on Form F-1 (File No. 333-217124) to register ordinary shares, which was declared effective by the SEC on April 26, 2017, a registration statement on Form F-1 to register additional ordinary shares (File No. 333-217487), which was immediately effective upon filing on April 26, 2017, and a registration statement on Form F-6 (File No. 333-217353) to register the ADSs, which was declared effective by the SEC on April 26, 2017, or, collectively, the Registration Statements. Under the Registration Statements, we registered an aggregate offering price of approximately $91.7 million of ordinary shares and 100,000,000 ADSs for a registered aggregate offering price of $5.0 million. There has been no material change in our planned use of the net proceeds from the global offering as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on April 28, 2017.
ITEM 15: 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. 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 Securities Exchange Act of 1934, as amended)Act), as of the end of the period covered by this Annual Report on Form 20-F.Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date,December 31, 2019, our disclosure controls and procedures were effective ateffective. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the reasonable assurance level asExchange Act. Our management conducted an assessment of December 31, 2017.
This annual report does not include a reportthe effectiveness of management’s assessment regardingour internal control over financial reporting or an attestation reportbased on the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.Treadway Commission.
Material Weaknesses in Internal Control Over Financial Reporting.
This Annual ReportBased on Form 20-F does not include a reportthis assessment, our management concluded that, as of management’s assessment regardingDecember 31, 2019, our internal control over financial reporting orwas effective.
Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. In connection with the preparation for the initial public offering of our ADSs, we reassessed our critical accounting policies to ensure compliance with IFRS. As part of this reassessment, we identified errors relating to the recognition of assumed liabilities and goodwill in connection with the acquisition of Rhinopharma Ltd. in September 2006. We concluded that a lack of adequate controls surrounding our historic accounting for business combinations constituted a material weakness in our internal control over financial reporting, as defined in the standardsan exemption established by the U.S. Public Accounting Oversight Board
We have remediated this material weakness by the hiring of our chief financial officer in September 2016 and enhancing our financial reporting team’s technical accounting knowledge associated with the accounting rulesJOBS Act for business combinations. However, we cannot be certain that these efforts will prevent future material weaknesses or significant deficiencies from occurring.Review updated remediation language.“emerging growth companies.”
Changes in Internal Control Overover Financial Reporting.Reporting Other than as discussed above, there has beenThere were no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this annual reportAnnual Report that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Vikas Sinha, Dr. David Ebsworth and Dr. Andrew Sinclair each qualify as an audit committee financial expert as defined by the rules of the Securities and Exchange CommissionSEC and has the requisite financial sophistication under the applicable rules and regulations of Nasdaq. Mr. Sinha and Drs. Ebsworth and Sinclair are each independent as such term is defined in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and under the listing standards of Nasdaq.
ITEM 16B: CODE OF ETHICS Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, that is applicable to all of our employees, executive officers, including our principal executive, principal financial and principal accounting officers, members of our board of directors, and consultants. The Code of Conduct is available on our website at www.veronapharma.com. We will provide a copy of our Code of Conduct to any person without charge upon written request sent to: Verona Pharma plc 3 More London Riverside London SE1 2RE United Kingdom Attn: Secretary We intend to satisfy the disclosure requirement under Item 16B(e)16B(d) and (e) of Form 20-F regarding amendment to, or waiver from, a provision of our Code of Conduct, as well as Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information onin the "Investors" section of our website at the address and location specified above.www.veronapharma.com. Our executive officers are responsible for administering the Code of Conduct. Amendment, alteration or termination of the Code of Conduct requires the approval of our board of directors.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table summarizes the fees of PricewaterhouseCoopers LLP, our independent registered public accounting firm, billed to us for each of the last two fiscal years for audit and other services: | | | | | | | Fee Category | 2016 |
| | 2017 |
| | £'000s |
| | £'000s |
| Audit Fees | 80 |
| | 117 |
| Audit-Related Fees | 525 |
| | 333 |
| Other Services | — |
| | 150 |
| Total Fees | 605 |
| | 600 |
|
| | | | | | | Fee Category | 2019 |
| | 2018 |
| | £'000s |
| | £'000s |
| Audit Fees | 148 |
| | 114 |
| Audit-Related Fees | 52 |
| | 68 |
| Other Services | 67 |
| | 86 |
| Total Fees | 267 |
| | 268 |
|
Audit-Related Fees For the yearyears ended December 31, 2017,2019 and 2018, audit related services include fees for quarterly interim reviews, advice on compliance with Sarbanes-Oxley legislation and assurance on information included in the Company's U.S. registration statement for the April 2017 initial public offering in the United States (the"Global Offering"). For the year ended December 31, 2017, an amount of £256 thousand in relation to these services was offset against share premium on completion of the Global Offering. For the year ended December 31, 2016, audit related services include assurance reporting on historical financial information included in the Company's U.S. registration statement for the Global Offering. As at December 31, 2016 an amount of £466 thousand in relation to these services was booked in deferred IPO costs that was offset against share premium on completion of the Global Offering.reviews.
Tax Fees We did not incur any tax fees for services from PricewaterhouseCoopers LLP in 20162019 or 2017.2018. All Other Fees We did not incur anyFor the year ended December 31, 2019 other fees in 2017 or 2016.related to advice relating to fund raising.
For the year ended December 31, 2018, other fees related to a review of the Company’s F-3 shelf registration statement. Audit Committee Pre-Approval Policy and Procedures The Audit Committee has adopted a policy, or the Pre-Approval Policy, which sets forth the procedures and conditions pursuant to which audit and non-audit services proposed to be performed by the independent auditor may be pre-approved. The Pre-Approval Policy generally provides that we will not engage PricewaterhouseCoopers LLP to render any audit, audit-related, tax or permissible non-audit service unless the service is either (i) explicitly approved by the Audit Committee, or specific pre-approval, or (ii) entered into pursuant to the pre-approval policies and procedures described in the Pre-Approval Policy, or general pre-approval. Unless a type of service to be provided by PricewaterhouseCoopers LLP has received general pre-approval under the Pre-Approval Policy, it requires specific pre-approval by the Audit Committee or by a designated member of the Audit Committee to whom the committee has delegated the authority to grant pre-approvals. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee may also review and generally pre-approve the services (and related fee levels or budgeted amounts) that may be provided by PricewaterhouseCoopers LLP without first obtaining specific pre-approval from the Audit Committee. The Audit Committee may revise the list of general pre-approved services from time to time, based on subsequent determinations.
ITEM 16D: EXEMPTIONS FORM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None
ITEMS 16F: CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT There has been no change in our independent accountant during our two most recent fiscal years.
ITEM 16G: CORPORATE GOVERNANCE As a “foreign private issuer,” as defined by the SEC, we are permitted to follow home country corporate governance practices, instead of certain corporate governance practices required by Nasdaq for domestic issuers.issuers, with certain exceptions. While we voluntarily follow most Nasdaq corporate governance rules, we follow U.K. corporate governance practices in lieu of Nasdaq corporate governance rules as follows: We do not follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders. Such quorum requirements are not required under English law. In accordance with generally accepted business practice, our articles of association provide alternative quorum requirements that are generally applicable to meetings of shareholders. We do not follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in executive session, where only independent directors are present. Our independent directors may choose to meet in executive session at their discretion.
ITEM 16H: MINE SAFETY DISCLOSURE
None
PART III ITEM 17: FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18: FINANCIAL STATEMENTS
The financial statements required under this Item 18 are filed as part of this Annual Report beginning on page F-1.F-1.The audit report of PricewaterhouseCoopers LLP, independent registered public accounting firm, is included herein preceding the financial statements.
ITEM 19: EXHIBITS
The Exhibits listed in the Exhibit Index at the end of this Annual Report are filed as Exhibits to this Annual Report.
| | | | | | | | | | | | Incorporated by Reference to Filings Indicated | | | | | | | | Exhibit Number | Exhibit Description | Form | File No. | Exhibit No. |
| Filing date | Filed / Furnished | | | | | | | | | | | | | | | | | F-1 | 333-217124 | 3.1 |
| 4/3/2017 | | | | | | | | | | | 20-F | 001-38067 | 2.1 |
| 2/27/2018 | | | | | | | | | | | 20-F | 001-38067 | 2.2 |
| 2/27/2018 | | | | | | | | | | | F-1 | 333-217124 | 4.3 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 4.4 |
| 4/3/2017 | | | | | | | | | | | | | | | * | | | F-1 | 333-217124 | 10.1 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.2 |
| 4/3/2017 | | | | | | | | | |
| 20-F | 001-38067 | 4.3 |
| 3/19/2019 | | | | | | | | | | | 20-F | 001-38067 | 4.3.1 |
| 3/19/2019 | | | | | | | | | | | 20-F | 001-38067 | 4.3.2 |
| 3/19/2019 | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | * | | | | | | | |
| | | | | | | | | | | | | | | *
| | | | | | | | | | | | | | *
| | | | | | | | | | F-1 | 333-217124 | 10.4 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.5 |
| 4/3/2017 | | | | | | | | | | | 20-F | 001-38067 | 4.6 |
| 2/27/2018 | | | | | | | | | |
| | | | | * | | | | | | | | | | 20-F | 001-38067 | 4.3.2 |
| 3/19/2019 | | | | | | | | | | | F-1 | 333-217124 | 10.8 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.9 |
| 4/3/2017 | | | | | | | | | | | F-1/A | 333-217124 | 10.11.1 |
| 4/18/2017 | | | | | | | | | | | F-1/A | 333-217124 | 10.11.2 |
| 4/18/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.12 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 10.13 |
| 4/3/2017 | | | | | | | | | | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | | | | F-1 | 333-217124 | 21.1 |
| 4/3/2017 | | | | | | | | | | | | | | | * | | | | | | | | | | | | | | * | | | | | | | | | | | | | | ** | | | | | | | | | | | | | | ** | | | | | | | | | | | | | | * |
| | | | | | | | | | | | Incorporated by Reference to Filings Indicated | | | | | | | | Exhibit Number | Exhibit Description | Form | File No. | Exhibit No. |
| Filing date | Filed / Furnished | | | | | No. |
| Date | Furnished | | | | | | | |
| | | | | | | | | 1.1 | Articles of Association, as amended and as currently in effect | F-1 | 333-217124 | 3.1 |
| 4/3/2017 | | | | | | | | | | Deposit Agreement | | | | | * | | | | | | | | 2.2 | Form of American Depositary Receipt (included in Exhibit 2.1) | | | | | * | | | | | | | | 2.3 | Form of Warrant issued to each of the investors named in Schedule A thereto | F-1 | 333-217124 | 4.3 |
| 4/3/2017 | | | | | | | | | 2.4 | Warrant Instrument issued to NPlus1 Singer LLP | F-1 | 333-217124 | 4.4 |
| 4/3/2017 | | | | | | | | | 4.1 | Registration Rights Agreement, dated July 29, 2016, by and among Verona Pharma plc and the investors set forth therein | F-1 | 333-217124 | 10.1 |
| 4/3/2017 | | | | | | | | | 4.2† | Intellectual Property Assignment and Licence Agreement between Vernalis Development Limited and Rhinopharma Limited, as predecessor to Verona Pharma plc, dated February 7, 2005 | F-1 | 333-217124 | 10.2 |
| 4/3/2017 | | | | | | | | | 4.3 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 17, 2014 and related Renewal Agreements dated September 30, 2015 and October 1, 2016 | F-1 | 333-217124 | 10.3 |
| 4/3/2017 | | | | | | | | | 4.3.1 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 | F-1 | 333-217124 | 10.3.1 |
| 4/3/2017 | | | | | | | | | 4.3.2 | Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 | F-1 | 333-217124 | 10.3.2 |
| 4/3/2017 | | | | | | | | | | Renewal Agreement to Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 17, 2014 (exhibit 4.3) | | | | | * | | | | | | | | | Renewal Agreement to Lease by and between the Verona Pharma plc and Regus Management (UK) Limited dated October 26, 2016 (exhibits 4.3.1 and 4.3.2) | | | | | * | | | | | | | | 4.4# | EMI Option Scheme | F-1 | 333-217124 | 10.4 |
| 4/3/2017 | | | | | | | | |
| | | | | | | | | 4.5# | Unapproved Share Option Scheme, as amended | F-1 | 333-217124 | 10.5 |
| 4/3/2017 | | | | | | | | | | 2017 Incentive Award Plan and forms of award agreements thereunder | | | | | * | | | | | | | | 4.7# | Employment Agreement, dated April 30, 2012, as amended, between Verona Pharma plc and Jan-Anders Karlsson | F-1 | 333-217124 | 10.6 |
| 4/3/2017 | | | | | | | | | 4.8# | Offer Letter, dated December 15, 2014, as amended, between Verona Pharma plc and Kenneth Newman | F-1 | 333-217124 | 10.7 |
| 4/3/2017 | | | | | | | | | 4.9# | Employment Agreement, dated September 24, 2016, between Verona Pharma plc and Piers John Morgan | F-1 | 333-217124 | 10.8 |
| 4/3/2017 | | | | | | | | | 4.10# | Employment Agreement, dated October 1, 2016, between Verona Pharma plc and Claire Poll | F-1 | 333-217124 | 10.9 |
| 4/3/2017 | | | | | | | | | 4.11# | Employment Agreement, dated October 1, 2016, as amended, between Verona Pharma plc and Peter Spargo | F-1 | 333-217124 | 10.10 |
| 4/3/2017 | | | | | | | | | 4.12# | Employment Agreement, dated October 1, 2016, as amended, between Verona Pharma plc and Peter Spargo | F-1 | 333-217124 | 10.16 |
| 4/3/2017 | | | | | | | | | | Employment Agreement, dated May 1, 2017, between Verona Pharma plc and Desiree Luthman[2] | | | | | * | | | | | | | | 4.14 | Form of Indemnification Agreement for board members | F-1/A | 333-217124 | 10.11.1 |
| 4/18/2017 | | | | | | | | | 4.15 | Form of Indemnification Agreement for executive officers | F-1/A | 333-217124 | 10.11.2 |
| 4/18/2017 | | | | | | | | | 4.16 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, OrbiMed Private Investments VI, LP and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.12 |
| 4/3/2017 | | | | | | | | | 4.17 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Abingworth Bioventures VI LP and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.13 |
| 4/3/2017 | | | | | | | | | 4.18 | Relationship Agreement relating to Verona Pharma plc, dated July 29, 2016, by and among the Verona Pharma plc, Vivo Ventures Fund VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. and NPlus1 Singer Advisory LLP | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | | 8.1 | List of Subsidiaries | F-1 | 333-217124 | 10.14 |
| 4/3/2017 | | | | | | | | |
| | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | | | | | * | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | | | | | * | | | | | | | | | Section 1350 Certification of Chief Executive Officer | | | | | ** | | | | | | | | | Section 1350 Certification of Chief Financial Officer | | | | | ** | | | | | | | | | Consent of PricewaterhouseCoopers LLP | | | | | * | | | | | | | | 101.INS | | | | | | * | | | | | | | | 101.SCH | | | | | | * | | | | | | | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | * | | | | | | | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | | | | * | | | | | | | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | * | | | | | | | | 101.DEF | | | | | | * |
| | # | Indicates management contract or compensatory plan. |
| | † | Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.SEC. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
VERONA PHARMA PLC By: /s/ David Zaccardelli Name: David Zaccardelli, Pharm. D Title: Chief Executive Officer
Date: February 27, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements as of and for the years ended December 31, 2016 and 2017
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Verona Pharma Plc
Opinion on the Financial Statements
We have audited the accompanying consolidated statementstatements of financial position of Verona Pharma Plc and its subsidiaries (the “Company”) as of December 31, 20172019 and December 31, 20162018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 20172019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and December 31, 2016,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 2.17 to the consolidated financial statements, the Company changed the manner in which it accounts for its contingent liability in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP Reading, United Kingdom February 27, 20182020
We have served as the Company's auditor since 2015.
PricewaterhouseCoopers LLP, 3 Forbury Place, 23 Forbury Road, Reading, Berkshire, RG1 3JH
T: +44 (0) 118 597 111, F: +44 (0) 1189 383 020, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
VERONA PHARMA PLC CONSOLIDATED STATEMENTSTATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 20162019 AND 20172018 | | | | | | | | | | | Notes | | As of December 31, 2016 | | As of December 31, 2017 | | | | £'000s | | £'000s | ASSETS | | | | | | Non-current assets: | | | | | | Goodwill | 11 |
| | 441 |
| | 441 |
| Intangible assets | 12 |
| | 1,877 |
| | 1,969 |
| Property, plant and equipment | 13 |
| | 14 |
| | 16 |
| Total non-current assets | | | 2,332 |
| | 2,426 |
| | | | | | | Current assets: | | | | | | Prepayments and other receivables | 14 |
| | 2,959 |
| | 1,810 |
| Current tax receivable | | | 1,067 |
| | 5,006 |
| Short term investments | 3 |
| | — |
| | 48,819 |
| Cash and cash equivalents | | | 39,785 |
| | 31,443 |
| Total current assets | | | 43,811 |
| | 87,078 |
| Total assets | | | 46,143 |
| | 89,504 |
| | | | | | |
| EQUITY AND LIABILITIES | | | | | | Capital and reserves attributable to equity holders: | | | | | | Share capital | 15 |
| | 2,568 |
| | 5,251 |
| Share premium | | | 58,526 |
| | 118,862 |
| Share-based payment reserve | | | 2,103 |
| | 5,022 |
| Accumulated loss | | | (28,728 | ) | | (49,254 | ) | Total equity | | | 34,469 |
| | 79,881 |
| | | | | | | Current liabilities: | | | |
| | |
| Derivative financial instrument | 19 |
| | 7,923 |
| | 1,273 |
| Trade and other payables | 17 |
| | 2,823 |
| | 7,154 |
| Tax payable—U.S. Operations | | | 126 |
| | 169 |
| Total current liabilities | | | 10,872 |
| | 8,596 |
| | | | | | | Non-current liabilities: | | | | | | Assumed contingent obligation | 18 |
| | 802 |
| | 875 |
| Deferred income | | | — |
| | 152 |
| Total non-current liabilities | | | 802 |
| | 1,027 |
| Total equity and liabilities | | | 46,143 |
| | 89,504 |
|
| | | | | | | | | | | Notes | | As of December 31, 2019 | | Restated As of December 31, 2018 | | | | £'000s | | £'000s | ASSETS | | | | | | Non-current assets: | | | | | | Goodwill | 11 |
| | 441 |
| | 441 |
| Intangible assets | 12 |
| | 2,757 |
| | 2,618 |
| Property, plant and equipment | 13 |
| | 43 |
| | 21 |
| Right-of-use assets | 14 |
| | 971 |
| | — |
| Total non-current assets | | | 4,212 |
| | 3,080 |
| | | | | | | Current assets: | | | | | | Prepayments and other receivables | 15 |
| | 2,770 |
| | 2,463 |
| Current tax receivable | | | 7,396 |
| | 4,499 |
| Short term investments | | | 7,823 |
| | 44,919 |
| Cash and cash equivalents | | | 22,934 |
| | 19,784 |
| Total current assets | | | 40,923 |
| | 71,665 |
| Total assets | | | 45,135 |
| | 74,745 |
| | | | |
| | | EQUITY AND LIABILITIES | | | | | | Capital and reserves attributable to equity holders: | | | | | | Share capital | 16 |
| | 5,266 |
| | 5,266 |
| Share premium | | | 118,862 |
| | 118,862 |
| Share-based payment reserve | | | 10,364 |
| | 7,923 |
| Accumulated loss | | | (100,627 | ) | | (68,633 | ) | Total equity | | | 33,865 |
| | 63,418 |
| | | | | | | Current liabilities: | | | |
| | |
| Derivative financial instrument | 18 |
| | 895 |
| | 2,492 |
| Lease liability | 14 |
| | 460 |
| | — |
| Trade and other payables | 19 |
| | 8,261 |
| | 7,733 |
| Total current liabilities | | | 9,616 |
| | 10,225 |
| | | | | | | Non-current liabilities: | | | | | | Assumed contingent liability | 20 |
| | 1,103 |
| | 996 |
| Non-current lease liability | 14 |
| | 491 |
| | — |
| Deferred income | | | 60 |
| | 106 |
| Total non-current liabilities | | | 1,654 |
| | 1,102 |
| Total equity and liabilities | | | 45,135 |
| | 74,745 |
|
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015, 20162019, 2018 AND 2017 | | | | | | | | | | | | | Notes | | Year Ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | | | £'000s | | £'000s | | £'000s | Research and development costs | | | (7,270 | ) | | (4,522 | ) | | (23,717 | ) | General and administrative costs | | | (1,706 | ) | | (2,498 | ) | | (6,039 | ) | Operating loss | 7 | | (8,976 | ) | | (7,020 | ) | | (29,756 | ) | Finance income | 9 | | 45 |
| | 1,841 |
| | 7,018 |
| Finance expense | 9 | | (73 | ) | | (794 | ) | | (2,465 | ) | Loss before taxation | | | (9,004 | ) | | (5,973 | ) | | (25,203 | ) | Taxation — credit | 10 | | 1,509 |
| | 954 |
| | 4,706 |
| Loss for the year | | | (7,495 | ) | | (5,019 | ) | | (20,497 | ) | Other comprehensive income / (loss) : | | | | | | | | Items that might be subsequently reclassified to profit or loss | | | | | | | | Exchange differences on translating foreign operations | | | 4 |
| | 43 |
| | (29 | ) | Total comprehensive loss attributable to owners of the Company | | | (7,491 | ) | | (4,976 | ) | | (20,526 | ) | Loss per ordinary share — basic and diluted (pence) | 5 | | (37.1 | ) | | (15.0 | ) | | (23.4 | ) |
| | | | | | | | | | | | | Notes | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year Ended December 31, 2017 | | | | £'000s | | £'000s | | £'000s | Research and development costs | | | (33,476 | ) | | (19,294 | ) | | (23,717 | ) | General and administrative costs | | | (7,607 | ) | | (6,297 | ) | | (6,039 | ) | Operating loss | 7 | | (41,083 | ) | | (25,591 | ) | | (29,756 | ) | Finance income | 9 | | 2,351 |
| | 2,783 |
| | 7,018 |
| Finance expense | 9 | | (474 | ) | | (1,325 | ) | | (2,465 | ) | Loss before taxation | | | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | Taxation — credit | 10 | | 7,265 |
| | 4,232 |
| | 4,706 |
| Loss for the year | | | (31,941 | ) | | (19,901 | ) | | (20,497 | ) | Other comprehensive income / (loss): | | | | | | | | Items that might be subsequently reclassified to profit or loss | | | | | | | | Exchange differences on translating foreign operations | | | (33 | ) | | 38 |
| | (29 | ) | Total comprehensive loss attributable to owners of the Company | | | (31,974 | ) | | (19,863 | ) | | (20,526 | ) | Loss per ordinary share — basic and diluted (pence) | 5 | | (30.3 | ) | | (18.9 | ) | | (23.4 | ) |
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015, 2016 AND 2017
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Cash used in operating activities: | | | | | | Loss before taxation | (9,004 | ) | | (5,973 | ) | | (25,203 | ) | Finance income | (45 | ) | | (1,841 | ) | | (7,018 | ) | Finance expense | 73 |
| | 794 |
| | 2,465 |
| Share-based payment charge | 399 |
| | 577 |
| | 2,919 |
| Decrease / (increase) in prepayments and other receivables | 59 |
| | (1,809 | ) | | (161 | ) | Increase in trade and other payables | 1,274 |
| | 1,068 |
| | 5,363 |
| Depreciation of property, plant and equipment | 10 |
| | 10 |
| | 7 |
| Loss on disposal of property, plant and equipment | — |
| | 3 |
| | — |
| Loss on disposal of intangible assets | 135 |
| | — |
| | — |
| Amortization of intangible assets | 43 |
| | 52 |
| | 116 |
| Cash used in operating activities | (7,056 | ) | | (7,119 | ) | | (21,512 | ) | Cash inflow from taxation | 700 |
| | 1,533 |
| | 816 |
| Net cash used in operating activities | (6,356 | ) | | (5,586 | ) | | (20,696 | ) | Cash flow from investing activities: | | | | | | Interest received | 51 |
| | 87 |
| | 128 |
| Purchase of plant and equipment | (1 | ) | | (13 | ) | | (9 | ) | Payment for patents and computer software | (142 | ) | | (115 | ) | | (208 | ) | Transfer to short term investments | — |
| | — |
| | (54,465 | ) | Maturity of short term investments | — |
| | — |
| | 5,085 |
| Net cash used in investing activities | (92 | ) | | (41 | ) | | (49,469 | ) | Cash flow from financing activities: | | | | | | Gross proceeds from issue of shares and warrants | — |
| | 44,750 |
| | — |
| Gross proceeds from the April 2017 Global Offering | | | — |
| | 70,032 |
| Transaction costs on issue of shares and warrants | — |
| | (2,910 | ) | | — |
| Transaction costs on April 2017 Global Offering | — |
| | (636 | ) | | (6,786 | ) | Net cash generated from financing activities | — |
| | 41,204 |
| | 63,246 |
| Net (decrease) / increase in cash and cash equivalents | (6,448 | ) | | 35,577 |
| | (6,919 | ) | Cash and cash equivalents at the beginning of the year | 9,968 |
| | 3,524 |
| | 39,785 |
| Effect of exchange rates on cash and cash equivalents | 4 |
| | 684 |
| | (1,423 | ) | Cash and cash equivalents at the end of the period | 3,524 |
| | 39,785 |
| | 31,443 |
|
The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015, 20162019, 2018 AND 2017 | | | | | | | | | | | | | | | | | Share Capital | | Share Premium | | Share-based Expenses | | Total Accumulated Losses | | Total Equity | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Balance at January 1, 2015 | 1,010 |
| | 26,650 |
| | 1,127 |
| | (16,261 | ) | | 12,526 |
| Loss for the year | — |
| | — |
| | — |
| | (7,495 | ) | | (7,495 | ) | Other comprehensive income for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | 4 |
| | 4 |
| Total comprehensive loss for the period | — |
| | — |
| | — |
| | (7,491 | ) | | (7,491 | ) | Share-based payments | — |
| | — |
| | 399 |
| | — |
| | 399 |
| Balance at December 31, 2015 | 1,010 |
| | 26,650 |
| | 1,526 |
| | (23,752 | ) | | 5,434 |
| Balance at January 1, 2016 | 1,010 |
| | 26,650 |
| | 1,526 |
| | (23,752 | ) | | 5,434 |
| Loss for the year | — |
| | — |
| | — |
| | (5,019 | ) | | (5,019 | ) | Other comprehensive income for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | 43 |
| | 43 |
| Total comprehensive loss for the period | — |
| | — |
| | — |
| | (4,976 | ) | | (4,976 | ) | New share capital issued | 1,556 |
| | 34,151 |
| | — |
| | — |
| | 35,707 |
| Transaction costs on share capital issued | — |
| | (2,325 | ) | | — |
| | — |
| | (2,325 | ) | Share options exercised during the period | 2 |
| | 50 |
| | — |
| | — |
| | 52 |
| Share-based payments | — |
| | — |
| | 577 |
| | — |
| | 577 |
| Balance at December 31, 2016 | 2,568 |
|
| 58,526 |
|
| 2,103 |
|
| (28,728 | ) |
| 34,469 |
| Balance at January 1, 2017 | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,728 | ) | | 34,469 |
| Loss for the year | — |
| | — |
| | — |
| | (20,497 | ) | | (20,497 | ) | Other comprehensive loss for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | Total comprehensive loss for the period | — |
| | — |
| | — |
| | (20,526 | ) | | (20,526 | ) | New share capital issued | 2,677 |
| | 67,648 |
| | — |
| | — |
| | 70,325 |
| Transaction costs on share capital issued | — |
| | (7,453 | ) | | — |
| | — |
| | (7,453 | ) | Share options exercised during the period | 6 |
| | 141 |
| | — |
| | — |
| | 147 |
| Share-based payments | — |
| | — |
| | 2,919 |
| | — |
| | 2,919 |
| Balance at December 31, 2017 | 5,251 |
|
| 118,862 |
|
| 5,022 |
|
| (49,254 | ) |
| 79,881 |
|
| | | | | | | | | | | | | | | | | Share Capital | | Share Premium | | Share-based Payment Reserve | | Total Accumulated Losses | | Total Equity | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Balance at January 1, 2017, as previously reported | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,728 | ) | | 34,469 |
| Impact of change in accounting policy | — |
| | — |
| | — |
| | 484 |
| | 484 |
| Balance at January 1, 2017 (Restated) | 2,568 |
| | 58,526 |
| | 2,103 |
| | (28,244 | ) | | 34,953 |
| Loss for the year | — |
| | — |
| | — |
| | (20,497 | ) | | (20,497 | ) | Other comprehensive loss for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) | Total comprehensive loss for the year | — |
| | — |
| | — |
| | (20,526 | ) | | (20,526 | ) | New share capital issued | 2,677 |
| | 67,648 |
| | — |
| | — |
| | 70,325 |
| Transaction costs on share capital issued | — |
| | (7,453 | ) | | — |
| | — |
| | (7,453 | ) | Share options exercised during the year | 6 |
| | 141 |
| | — |
| | — |
| | 147 |
| Share-based payments | — |
| | — |
| | 2,919 |
| | — |
| | 2,919 |
| Balance at December 31, 2017 (Restated) | 5,251 |
| | 118,862 |
| | 5,022 |
| | (48,770 | ) | | 80,365 |
| Balance at January 1, 2018 (Restated) | 5,251 |
| | 118,862 |
| | 5,022 |
| | (48,770 | ) | | 80,365 |
| Loss for the year | — |
| | — |
| | — |
| | (19,901 | ) | | (19,901 | ) | Other comprehensive income for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | 38 |
| | 38 |
| Total comprehensive loss for the year | — |
| | — |
| | — |
| | (19,863 | ) | | (19,863 | ) | New share capital issued | 15 |
| | — |
| | — |
| | — |
| | 15 |
| Share-based payments | — |
| | — |
| | 2,901 |
| | — |
| | 2,901 |
| Balance at December 31, 2018 (Restated) | 5,266 |
| | 118,862 |
|
| 7,923 |
|
| (68,633 | ) |
| 63,418 |
| Balance at January 1, 2019 | 5,266 |
| | 118,862 |
| | 7,923 |
| | (68,633 | ) | | 63,418 |
| Impact of change in accounting policy | — |
| | — |
| | — |
| | (20 | ) | | (20 | ) | Adjusted Balance at January 1, 2019 | 5,266 |
| | 118,862 |
| | 7,923 |
| | (68,653 | ) | | 63,398 |
| Loss for the year | — |
| | — |
| | — |
| | (31,941 | ) | | (31,941 | ) | Other comprehensive loss for the year: | | | | | | | | | | Exchange differences on translating foreign operations | — |
| | — |
| | — |
| | (33 | ) | | (33 | ) | Total comprehensive loss for the year | — |
| | — |
| | — |
| | (31,974 | ) | | (31,974 | ) | Share-based payments | — |
| | — |
| | 2,441 |
| | — |
| | 2,441 |
| Balance at December 31, 2019 | 5,266 |
|
| 118,862 |
|
| 10,364 |
|
| (100,627 | ) |
| 33,865 |
|
The currency translation reserve for 2015, 20162019, 2018, and 2017, is not considered material and as such is not presented in a separate reserve but is included in the total accumulated losses reserve. The accompanying notes form an integral part of these consolidated financial statements.
VERONA PHARMA PLC CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 | | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Cash used in operating activities: | | | | | | Loss before taxation | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | Finance income | (2,351 | ) | | (2,783 | ) | | (7,018 | ) | Finance expense | 474 |
| | 1,325 |
| | 2,465 |
| Share-based payment charge | 2,441 |
| | 2,901 |
| | 2,919 |
| Increase in prepayments and other receivables | (484 | ) | | (640 | ) | | (161 | ) | Increase in trade and other payables | 449 |
| | 531 |
| | 5,363 |
| Depreciation of property, plant, equipment and right of use asset | 398 |
| | 8 |
| | 7 |
| Unrealised FX gains/ losses | (8 | ) | | — |
| | — |
| Amortization of intangible assets | 106 |
| | 90 |
| | 116 |
| Cash used in operating activities | (38,181 | ) | | (22,701 | ) | | (21,512 | ) | Cash inflow from taxation | 4,361 |
| | 4,590 |
| | 816 |
| Net cash used in operating activities | (33,820 | ) | | (18,111 | ) | | (20,696 | ) | Cash flow from investing activities: | | | | | | Interest received | 887 |
| | 883 |
| | 128 |
| Purchase of plant and equipment | (38 | ) | | (13 | ) | | (9 | ) | Payment for patents and computer software | (244 | ) | | (255 | ) | | (208 | ) | Purchase of short term investments | (7,940 | ) | | (59,700 | ) | | (54,465 | ) | Maturity of short term investments | 45,134 |
| | 64,366 |
| | 5,085 |
| Net cash generated from / (used in) investing activities | 37,799 |
| | 5,281 |
| | (49,469 | ) | Cash flow used in financing activities: | | | | | | Gross proceeds from the April 2017 Global Offering | — |
| | — |
| | 70,032 |
| Transaction costs on April 2017 Global Offering | — |
| | — |
| | (6,786 | ) | Repayment of finance lease liabilities | (426 | ) | | — |
| | — |
| Net cash (used in) / generated from financing activities | (426 | ) | | — |
| | 63,246 |
| Net increase / (decrease) in cash and cash equivalents | 3,553 |
| | (12,830 | ) | | (6,919 | ) | Cash and cash equivalents at the beginning of the year | 19,784 |
| | 31,443 |
| | 39,785 |
| Effect of exchange rates on cash and cash equivalents | (403 | ) | | 1,171 |
| | (1,423 | ) | Cash and cash equivalents at the end of the year | 22,934 |
| | 19,784 |
| | 31,443 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019
1. General information Verona Pharma plc and its subsidiaries (the "Company") are a clinical-stage biopharmaceutical group focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical needs. The Company is a public limited company, which is dual listed on the Alternative Investment MarketAIM, a market of the London Stock Exchange, and on April 27, 2017, American Depositary Shares began trading onThe Nasdaq Global Market.Market ("Nasdaq"). The company is incorporated and domiciled in the United Kingdom. The address of the registered office is 1 Central Square, Cardiff, CF10 1FS, United Kingdom. The Company has two subsidiaries, Verona Pharma Inc. and Rhinopharma Limited ("Rhinopharma"), both of which are wholly owned. On February 10, 2017 theThe Company effected a 50-for-1 consolidation oflisted its shares. All references to ordinary shares, options and warrants, as well as share, per share and related information in these consolidated financial statements have been adjusted to reflect the consolidation as if it had occurred at the beginning of the earliest period presented.
On April 26, 2017, the Company announced the closing of its global offering of an aggregate of 47,399,001 new ordinary shares, consisting of the initial public offering in the United States of 5,768,000 American Depositary Shares (“ADSs”("ADS") at a price of $13.50 per ADS and on Nasdaq in April 2017 ("the private placement in Europe of 1,255,001 ordinary shares at a price of £1.32 per ordinary share, for gross proceeds of $80 million (the “Global Offering”2017 Global Offering"). Each ADS offered represents eight ordinary shares of the Company. The ordinary shares offered were allotted and issued in a concurrent private placement in Europe and other countries outside of the United States and Canada.
In addition, the Chairman of Verona Pharma’s board of directors, Dr David Ebsworth, and an existing shareholder agreed to subscribe for 254,099 new ordinary shares at a price of £1.32 per ordinary share in a shareholder private placement separate from the Global Offering (the “Shareholder Private Placement”), contingent on and concurrent with the Global Offering and generating additional gross proceeds of £0.3 million.
On May 15 and May 23, 2017, pursuant to the Global Offering, the underwriters purchased an additional 733,738 ADSs, representing 5,869,904 ordinary shares, at a price of $13.50 per ADS, for additional gross proceeds of $9.9 million bringing the total gross proceeds in the Global Offering to $89.9 million (£70.0 million). Including the Shareholder Private Placement, the total gross proceeds of the capital raising amounted to $90.3 million (£70.3 million).
The ADSs began tradingtrade on theThe Nasdaq Global Market under the ticker symbol “VRNA” on April 27, 2017.and Verona Pharma’s ordinary shares continue to trade on the AIM market of the London Stock Exchange (“AIM”) under the symbol “VRP”.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
2. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. 2.1 Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board and IFRS Interpretations Committee and with the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, with the exception of derivative financial instruments which have been measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgementjudgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgementjudgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Going concern DuringThe Company has incurred recurring losses since inception, including net losses of £31.9 million, £19.9 million and £20.5 million for the yearyears ended December 31, 2019, 2018 and 2017, respectively. In addition, as of December 31, 2019, the Company had aan accumulated loss of £20.5 million (2016: £5.0 million).£100.6 million. The Company expects to continue to generate operating losses for the foreseeable future. As of December 31, 2017,the issuance date of the annual consolidated financial statements, the Company had net assets of £79.9 million (2016: £34.5 million) of which £80.3 million (2016: £39.8 million) wasexpects that its cash and cash equivalents, would be sufficient to fund its operating expenses and short term investments.
The operation of the Company is currently being financed from funds that the Company raised from share placings. On May 2nd, 2017, the company raised $89.9 million (£70 million) from the initial public offering in the United States. On July 29, 2016, the Company raised gross proceeds of £44.7 million from a placing, subscription and open offer (the "July 2016 Placement"). These funds are expected to be used primarily to support the development of RPL554 in chronic obstructive pulmonary disease ("COPD"), other chronic respiratory diseases as well as corporate and general administrative expenditures.
The Directors believe that the Company has sufficient funds to complete the current clinical trials, to cover corporate and general administration costs and for it to comply with all commitmentscapital expenditure requirements for at least 12 months from the endissuance date of these annual consolidated financial statements. Accordingly, the reporting periodconsolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and accordingly, are satisfiedwhich contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
The Company intends to initiate its Phase 3 program for the maintenance treatment of COPD once it believes it has alignment with the FDA on its planned design for the Phase 3 clinical program. The Company will require significant additional funding to initiate and complete this Phase 3 program and will need to secure the required capital to fund the program. The Company will seek additional funding through public or private financings, debt financing, collaboration or licensing agreements and other arrangements. However, there is no guarantee that the going concern basis remains appropriate forCompany will be successful in securing additional finance on acceptable terms, or at all, and should the preparationCompany be unable to raise sufficient additional funds it will be required to defer the initiation of these consolidatedPhase 3 clinical trials, until such funding can be obtained. This could also force the Company to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, or pursue alternative development strategies that differ significantly from its current strategy, which could have a material adverse effect on the Company’s business, results of operations and financial statements.condition. Business combination The Company applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.arrangement. The excess of the cost of acquisition over the fair value of the Company's share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on acquisitions is capitalized and is subject to an impairment review, both annually and when there are indications that the carrying value may not be recoverable. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred and included in administrative expenses.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
Basis of consolidation These consolidated financial statements include the accountsfinancial statements of Verona Pharma plc and its wholly owned subsidiaries Verona Pharma, Inc. and Rhinopharma. The acquisition method of accounting was used to account for the acquisition of Rhinopharma.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Verona Pharma Inc. and Rhinopharma adopt the same accounting policies as the Company. 2.2 Foreign currency translation Items included in the Company's consolidated financial statements are measured using the currency of the primary economic environment in which the Entityentity operates ("the functional currency"). The consolidated financial statements are presented in pounds sterling ("£"), which is the functional and presentational currency of the Company and the presentational currency of the Company. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the Consolidated Statement of Comprehensive Income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the original transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The assets and liabilities of foreign operations are translated into pounds sterling at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at weighted average exchange rates for the period. The exchange differences arising on translation for consolidation are recognized in Other Comprehensive Income. 2.3 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.4 Deferred taxation Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws)and laws that have been enacted or substantially enacted by the balance sheet date and expected to apply when the related deferred tax is realized or the deferred liability is settled. Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilized. 2.5 Research and development costs Capitalization of expenditure on product development commences from the point at which technical feasibility and commercial viability of the product can be demonstrated and the Company is satisfied that it is probable that future economic benefits will result from the product once completed. No such costs have been capitalized to date, given the early stage of the Company's product candidate development.date. Expenditure on research and development activities that do not meet the above criteria is charged to the Consolidated Statement of Comprehensive Income as incurred.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.6 Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated so as to write off the cost less their estimated residual
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
values, on a straight-line basis over the expected useful economic lives of the assets concerned. The principal annual periods used for this purpose are: | | | Computer hardware | 3 years | Office equipment | 5 years |
2.7 Intangible assets and goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired. Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the estimated useful lives of the patents of ten years. Amortization is calculated so as to write off the cost less estimated residual values, on a straight-line basis over the expected useful economic life of two years. | | (d) | In-process research & development ("IPRIP R&D") |
The IP R&D assetsasset acquired through a business combinations which, at the time of acquisition, havecombination, that had not reached technical feasibility, arewas initially recognized at fair value. Subsequent movements in the assumed contingent liability (see 2.12) that relate to changes in estimated cashflows or probabilities of success are recognized as additions to the IP R&D asset that it relates to. There were no changes in estimated cashflows or probabilities of success in the years ended 31 December, 2019, or 2018. This is a change in accounting policy as prior to January 1, 2019, movements in the assumed contingent liability were taken to the Statement of Comprehensive Income (see note 2.17). As a result of the change in accounting policy £484 thousand was restated from Accumulated Loss to the IP R&D asset. The amounts are capitalized and are not amortized but areasset is subject to impairment testing until completion, abandonment of the projectsproject or when the research findings are commercialized through a revenue generating project. The Company determines whether intangible assets (including goodwill) are impaired on an annual basis and this requires the estimationor when there is an indication of the higher of fair value less costs of disposal and value in use. Upon successful completion or commercialization of the relevant project, IP R&D will be reclassified to developed technology. The Company will make a determination as to the then useful life of the developed technology, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. In case of abandonment the asset will be impaired. 2.8 Impairment of intangible assets, goodwill and non-financial assets
Goodwill and intangible assets that have an indefinite useful life and intangible assets not ready to use are not subject to amortization. These assets are tested annually for impairment or more frequently if impairment indicators exist. Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value (less costs of disposal) and value in use.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, which are largely independent of the cash flows from other assets or group of assets (cash generating units "CGUs").
Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. The units or group of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.
The Company is a single cash generating unit. Goodwill that arose on the acquisition of Rhinopharma has been thus allocated to this single CGU. IP R&D is tested for impairment at this level as well, since it is the lowest level at which independent cash flows can be identified.impairment.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Accounting policies (Continued)
Non-financial2.8 Impairment of intangible assets, othergoodwill and non-financial assets
The Company holds intangible assets relating to acquired IP R&D, patent costs and goodwill. Goodwill and intangible assets are tested annually for impairment or if there is an indication of impairment. The Company is a single cash generating unit ("CGU") so all intangibles are allocated to the Company as one CGU. As at 31 December, 2019, and 2018 the Company carried out impairment reviews with reference to its market capitalization. At points during the year ended 31 December 2019, the Company's market capitalization was less than goodwill,its net assets. As a result, the Company carried out an impairment review by forecasting expected sales of ensifentrine, delivered by nebulizer for the maintenance treatment of chronic COPD, and associated costs. This cashflow forecast was then discounted to its net present value to demonstrate that have been previously impaired are reviewed for possible reversalthe value in use of the impairment at each subsequent reporting date.ensifentrine was greater than the Company's net assets. The Company was required to make various estimates and assumptions as inputs for this model including, but not limited to: market size and product acceptance by clinicians, patients and reimbursement bodies; gross and net selling price; costs of manufacturing, product distribution and marketing support; costs of the Company's overhead; size and make up of a sales force; probabilities of success; and discount rate.
2.9 Employee Benefits (a) Pension The Company operates a defined contribution pension schemeschemes for UKits employees. Contributions payable for the year are charged to the Consolidated Statement of Comprehensive Income. The contributions are recognized as employee benefit expense when they are due. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the Consolidated Statement of Financial Position. The Company has no further payment obligationliability once the contributions have been paid. (b) Bonus plans The Company recognizes a liability and an expense for bonus plans if contractually obligated or if there is a past practice that has created a constructive obligation.liability. 2.10 Share-based payments The Company operates a number of equity-settled, share-based compensation schemes. The fair value of share-basedshare based payments under such schemes is expensed on a straight-line basis over the vesting period, based on the Company's estimate of shares that will eventually vest. Where equity settled transactions are entered into with third party service providers, fair value is determined by reference to the value of the services provided in lieu of payment. The expense is measured based on the services received at the date of receipt of those services and is charged to the Consolidated Statement of Comprehensive Income over the period for which the services are received and a corresponding credit is made to reserves. For other equity-settled transactions fair value is determined using the Black-Scholes model and requires several assumptions and estimates as disclosed in note 16.17.
The fair value of share-based payments under these schemes is expensed on a straight-line basis over the share based payments' vesting periods, based on the Company's estimate of shares that will eventually vest.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.11 Provisions Provisions are recognized when the Company has a present legal or constructive obligationliability as a result of past events, it is probable that an outflow of resources will be required to settle the obligation,liability, and the amount can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligationliability using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.liability. 2.12 Assumed contingent obligationliability related to the business combinationscombination On September 19,In 2006 the Company acquired Rhinopharma for a total consideration of £1.52 million payable in ordinary shares. In addition, the Companyand assumed certain contingent obligationsliabilities owed by Rhinopharma to Vernalis under anPharmaceuticals Limited which was subsequently acquired by Ligand Pharmaceuticals, Inc. (“Ligand”). The Company refers to the assignment and license agreement (the "assumed contingent consideration") followingas the sale of IP by Vernalis to Rhinopharma. Pursuant to the agreement Vernalis (i)Ligand Agreement.
Ligand assigned to the Company all of its rights to certain patents and patent applications relating to RPL554ensifentrine and related compounds (the "Vernalis"Ligand Patents") and (ii) granted to the Company an exclusive, worldwide, royalty-bearing license under certain VernalisLigand know-how to develop, manufacture and commercialize products (the "Licensed Products") developed using VernalisLigand Patents, VernalisLigand know-how and the physical stock of certain compounds. The assumed contingent obligationliability comprises (a) a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a Licensed Product; (b)Product, low to mid singlemid-single digit royalties based on the future sales performance of all Licensed Products;Products and (c) a portion equal to a midtwentymid-twenty percent of any consideration received from any sub-licensees for the VernalisLigand Patents and for VernalisLigand know-how. On the date of
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
acquisition theThe liability was initially recognized at fair value of theand subsequently measured at amortized cost. The assumed contingent obligation wasliability is estimated as the expected value of the milestone payment and royalty payments and sub-license payments,payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, and an assessment of the probability of success using standard market probabilities for respiratory drug development. The risk-weighted value of the assumed contingent arrangement was thenis discounted back to its net present value applying an effective interest rate of 12%. The initial fair value of the assumed contingent obligation as of December 31, 2006 was deemed to be insignificant at the date of the acquisition, so it was not recorded.
The amount of royaltiesRoyalties payable under the agreement isare based on the future sales performance of certain products, and so the total amount payable is unlimited. The level of salesSales that may be achieved under the
agreement isare difficult to predict and subject to estimate, which is inherently uncertain.
The value of this assumed contingent obligationliability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes. The assumed contingent obligation is accounted for as a liability, Remeasurements relating to changes in estimated cash flows and any adjustments made to the valueprobabilities of the liability will besuccess are recognized in the Consolidated Statement of Comprehensive IncomeIP R&D asset it relates to ("see 2.7"). This is a change in accounting policy for the period. year ended December 1, 2019 (see 2.17). The unwind of the discount is recognized in finance expense.
2.13 Government and other grants The Company may receive government, regional or charitable grants to support its research efforts in defined projects where these grants provide for reimbursement of approved costs incurred as defined in the respective grants. Income in respect of such grants would include contributions towards the costs of research and development. Income would be recognized when costs under each grant are incurred in accordance with the terms and conditions of the grant and the collectability of the receivable is reasonably assured. Government, regional and charitable grants relating to costs would be deferred and recognized in the Consolidated Statement of Comprehensive Income over the period necessary to match them with the costs they are intended to compensate. When the cash in relation to recognized government, regional or charitable grants is not yet received the amount is included as a receivable on the Consolidated Statement of Financial Position.
Where the grant income is directly related to the specific items of expenditure incurred, the income would be netted against such expenditure. Where the grant income is not a specific reimbursement of expenditure incurred, the Company would include such income under "Other income" in the Consolidated Statement of Comprehensive Income. Grants or investment credits may be repayable if the Company successfully commercializes a relevant program that was funded in whole or in part by the grant or investment credit within a particular timeframe. Prior to successful commercialization, the Company would not make any provision for repayment.
2.14 Financial instruments — initial recognition and subsequent measurement
The Company classifies a financial instrument, or its component parts, as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. The Company evaluates the terms of the financial instrument to determine whether it contains an asset, a liability or an equity component. Such components shall be classified separately as financial assets, financial liabilities or equity instruments.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. | | (a) | Financial assets, initial recognition and measurement and subsequent measurement |
AllThe Company has no financial assets not recorded at fair value through profit or loss such as receivables and deposits,("FVPTL"). All assets are initially recognized initially at fair value plus transaction costs. costs and subsequently measured at amortized cost using the effective interest method.
| | (b) | Financial liabilities, initial recognition and measurement and subsequent measurement |
Financial assets carriedliabilities are classified as measured at fair value through profitamortized cost or loss are initially recognized at fair value, and transaction costs are expensed in the income statement.FVTPL.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Accounting policies (Continued)
The measurement of financial assets depends on their classification. Financial assets suchCompany's warrants are classified as receivablesFVTPL and deposits are subsequently measured at amortized cost. The Company does not hold any financial assets at fair value throughgains and losses are recognized in profit or loss or available for sale financial assets.loss. | | (b) | Financial liabilities, initial recognition and measurement and subsequent measurement |
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or payables, as appropriate. All
Other financial liabilities are initially recognized initially at fair value and in the case of loans and borrowings and payables, net of directly attributable transaction costs. The measurement of financial assets and financial liabilities depends on their classification. Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. These are subsequently measured at fair value with any gains or losses recognized in profit or loss. All other financial liabilities are measured at amortized cost using the effective interest methodmethod. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Company's financial liabilities include trade and other payables, the Company's warrants and derivative financial instruments.the assumed contingent liability. (c) Derivative financial instruments Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value at the end of each reporting date. The Company holds only one type of derivative financial instrument, the warrants, as explained in Note 2.15.2.14. The full fair value of the derivative is classified as a non-current liability when the warrants are exercisable in more than 12 months and as a current liability when the warrants are exercisable in less than 12 months. Changes in fair value of a derivative financial liability when related to a financing arrangement are recognized in the Consolidated Statement of Comprehensive Income within Finance incomeIncome or Finance expense. Fair value gains or losses on derivatives used for non-financing arrangements are recognized in other operating income or expense.Expense.
2.15 WarrantsVERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
2.14 Derivative financial instrument - warrants Warrants issued by the Company to investors as part of a share subscription are compound financial instruments where the warrant meets the definition of a financial liability. The financial liability component is initially measured at fair value in the Consolidated Statement of Financial Position. Equity is measured at the residual between the subscription price for the entire instrument and the liability component. The financial liability component is remeasured depending on its classification.remeasured. Equity is not remeasured. 2.162.15 Short Term Investments
Short term investments include fixed term deposits held at banks with original maturities of more thanbetween three months but less thanand a year. They are classified as loans and receivables and are measured at amortized cost using the effective interest method.
2.172.16 Transaction costs
Qualifying transaction costs might be incurred in anticipation of an issuance of equity instruments and may cross reporting periods. The entity defers these costs on the balance sheet until the equity instrument is recognized. Deferred costs are subsequently reclassified as a deduction from equity when the equity instruments are recognized, as the costs are directly attributable to the equity transaction. If the equity instruments are not subsequently issued, the transaction costs are expensed. Any costs not directly attributable to the equity transaction are expensed.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Accounting policies (Continued)
Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Where the liability component is held at fair value through profit or loss, the transaction costs are expensed to the Consolidated Statement of Comprehensive Income. For liabilities held at amortized cost, transaction costs are deducted from the liability and subsequently amortized. The amount of transaction costs accounted for as a deduction from equity in the period is disclosed separately in accordance with International Accounting Standard (“IAS 1.1”). 2.17 Changes in accounting policy Accounting for the assumed contingent liability As discussed in note 2.12, in 2006 the Company acquired Rhinopharma and assumed contingent liabilities owed to Vernalis Pharmaceuticals Limited which was subsequently acquired by Ligand Pharmaceuticals, Inc. ("Ligand"). Ligand assigned to the Company all of its rights to certain patents and patent applications relating to ensifentrine and related compounds and an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize products. The assumed contingent liability comprises a milestone payment on obtaining the first approval of any regulatory authority and royalties based on the future sales of ensifentrine. The initial fair value of the assumed contingent liability was estimated as the expected value of the milestone payment and royalty payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, an assessment of the probability of success using standard market probabilities for respiratory drug development discounted to net present value applying an effective interest rate of 12%. The assumed contingent liability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes. Up to the year ended December 31, 2018, movements in the liability relating to re-measurements of cash flows or changes in the probabilities of success were taken to the Consolidated Statement of Comprehensive Income. During the year ended December 31, 2019, the Company reviewed the accounting for this item and has determined that these movements in the liability will now be recognized in the cost of the corresponding asset. The corresponding asset is the intangible IP R&D asset.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
The Company believes that this change in accounting policy results in the Consolidated Financial Statements providing a more relevant and reliable view of its financial position and performance because without an adjustment to the IP R&D asset on the re-measurement of the liability, the cost of the asset would not be fairly reflected on the Consolidated Statement of Financial Position. The Consolidated Statement of Financial Position more faithfully represents the financial position of the Company if the intangible asset is adjusted by any re-measurement of the liability for changes in estimated cash flows, to give a fairer reflection of the cost of the intangible asset. The Company has reviewed the International Financial Reporting Interpretations Committee ("IFRIC") discussion of accounting for variable payments made for the purchase of an intangible asset that is not part of a business combination that concluded that it was too broad for it to address within the confines of existing IFRS standards. As a result, practice in this area is mixed and many pharmaceutical companies follow a cost accumulation model. The Company also noted that adjusting the cost of the asset when a liability is remeasured for changes in estimated cash flows is consistent with the guidance in IFRIC 1 for decommissioning liabilities and IFRS 16 for lease liabilities. There were no such re-measurements of the liability in the years ended December 31, 2019, 2018 and 2017. Movements in the liability in these periods related to the unwinding of the discount and movements in exchange rates. IAS 8 requires opening balance of each affected component of equity to be adjusted for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. The impact to the Group, therefore, is the restatement of £484 thousand from Accumulated Loss to the IP R&D asset, which relates to re-measurements recorded prior to January 1, 2017. As there were no re-measurements in the years ended December 31, 2019, 2018 and 2017 the £484 thousand adjustment is the same at each reporting period. The following table is a summary of the restatement:
| | | | | | | | | | | Financial statement line item | | As reported | | Adjustment for the change in accounting policy | | As adjusted | January 1, 2017 | | £'000s | | £'000s | | £'000s | | | | | | | | Accumulated loss | | 28,728 |
| | (484 | ) | | 28,244 |
| Intangible assets - IP R&D | | 1,469 |
| | 484 |
| | 1,953 |
|
This adjustment also increases non-current assets, total assets and total equity by £484 thousand in each of the years presented. Adoption of IFRS 16 IFRS 16 ‘Leases’ is effective for accounting periods beginning on or after January 1, 2019 and replaces IAS 17 ‘Leases’. It eliminates the classification of leases as either operating leases or finance leases and, instead, introduces a single lessee accounting model. The adoption of IFRS 16 resulted in the Group recognizing lease liabilities within current liabilities, and corresponding right-of-use assets. The Group’s principal lease arrangements are for office space. The Group has adopted IFRS 16 retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at January 1, 2019. The standard permits a choice on initial adoption, on a lease-by-lease basis, to measure the right-of-use asset at either its carrying amount as if IFRS 16 had been applied since the commencement of the lease, or an amount equal to the lease liability, adjusted for any accrued or prepaid lease payments as at the time of adoption. The Group has elected to measure the right-of-use asset at its carrying value as if IFRS 16 had been applied since the commencement of the lease, with the result of a £20 thousand reduction in opening total accumulated losses.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 Accounting policies (Continued)
Initial adoption resulted in the recognition of right-of-use assets of £326 thousand and lease liabilities of £316 thousand. | | | | | £'000s | Lease commitments (including prepayments) disclosed as at December 31, 2018 | 600 |
| Less: adjustments relating to prepaid lease payments | (28 | ) | Lease commitments as at December 31, 2018 | 572 |
| Discounted using the group’s incremental borrowing rate | 526 |
| Less: short-term leases recognized on a straight-line basis as expense | (210 | ) | Lease liability recognized as at January 1, 2019 | 316 |
|
In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard: the use of a single discount rate of 8% to a portfolio of leases with reasonably similar characteristics; accounting for leases with a remaining lease term of less than 12 months as at January 1, 2019, as short-term leases; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Company is applying IFRS 16’s low-value and short-term exemptions. The adoption of IFRS 16 has had no impact on the Group’s net cash flows, although a presentation change has been reflected in 2019 whereby cash outflows of £426 thousand are now presented as financing, instead of operating. General and administrative costs are £123 thousand lower than if IFRS 16 not been adopted, as depreciation of the right of use asset is less than the lease costs. There is a £50 thousand increase in finance expense from the presentation of a portion of lease costs as interest costs. There is no significant impact on overall loss before tax and loss per share. At the time of adoption it was not reasonably certain that the Company would extend the leases. However, in the period the Company determined that this was the case and agreed extensions. As a result it recognized an additional liability and right-of-use asset of £1,047 thousand. 2.18 New standards, amendments and interpretations adopted by the Company The following amendments havestandard has been adopted by the Company for the first time for the financial year beginning on or after January 1, January, 2017. It did not materially impact the Company’s results:2019:
· Annual Improvements to IFRS Standards 2014-2016 Cycle,
· Disclosure initiative - amendments to IAS 7, and
· Recognition of Deferred Tax Assets for Unrealized Losses - Amendments to IAS 12.
The amendments to IAS 7 require disclosure of changes in liabilities arising from financing activities, seeCompany adopted IFRS 16 on January 1, 2019, and, as a consequence, changed its accounting policies. See note 3.3. 2.17.
2.19 New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 20172019 and not early adopted A number of newThere are no IFRS standards and amendments to standards andor interpretations have been issued but are not yet effective for annual periods beginning after January 1, 2017 (noted below), andthat would be expected to have not been adopted in preparing these consolidated financial statements.
| | ▪ | IFRS 9 "Financial instruments" (effective for annual periods beginning on or after January 1, 2018) |
| | ▪ | IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after January 1, 2018 |
| | ▪ | IFRS 16 "Leases" (effective for annual periods beginning on or after January 1, 2019) |
IFRS 9 will have noa material impact on the accounting or measurement of any of the financial instruments the Company currently holds.
IFRS 15 will have no impact on the financial statements of the Company as it is not currently revenue generating.
IFRS 16 is effective for accounting periods beginning on or after 1 January 2019 and will replace IAS 17 'leases'. It will eliminate the classification of leases as either operating leases or finance leases and, instead, introduce a single lessee accounting model. The adoption of IFRS 16 will result in the Company recognizing lease liabilities and corresponding 'right to use' assets for agreements that are currently classified as operating leases. See note 20 for further details on operating leases held.Group.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
3. Financial Instruments 3.1 Financial Risk Factors The Company's activities have exposed it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk, and liquidity risk. The Company's overall risk management program is focused on preservation of capital and the unpredictability of financial markets and has sought to minimize potential adverse effects on the Company's financial performance and position. (a)Currency risk Foreign currency risk reflects the risk that the Company's net assets will be negatively impacted due to fluctuations in exchange rates. The Company has not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations. The summary quantitative datedata about the Company's exposure to currency risk is as follows. Figures are the pound sterling values of balances in each currency: | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 | | | | Year Ended December 31, 2017 | | | USD | | EUR | | | | USD | | EUR | | | £'000s | | £'000s | | | | £'000s | | £'000s | Cash and cash equivalents | | 10,631 |
| | 242 |
| | | | 16,806 |
| | 301 |
| Short term Investments | | — |
| | — |
| | | | 19,718 |
| | — |
| Trade and other payables | | 305 |
| | 180 |
| | | | 276 |
| | 403 |
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 | | GBP | | USD | | EUR | | GBP | | USD | | EUR | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | | £'000s | Cash and cash equivalents | 18,517 |
| | 4,399 |
| | 18 |
| | 11,293 |
| | 8,470 |
| | 21 |
| Short term Investments | 6,316 |
| | 1,507 |
| | — |
| | 19,850 |
| | 25,069 |
| | — |
| Trade and other payables | 3,226 |
| | 4,306 |
| | 728 |
| | 2,872 |
| | 4,329 |
| | 532 |
|
Sensitivity Analysis A reasonably possible strengthening (weakening)or weakening of the Euro USor U.S. dollar or Sterling against all other currencies atpounds sterling as of December 31, December2019 and 2018 would have affected the measurement of the financial instruments denominated in a foreign currency (excluding the assumed contingent liability). The following table shows how a movement in a currency would give rise to a profit or (loss) and affected equity and profit and loss by the amounts shown below. This analysis assumes that all other variables remain constant.a corresponding entry in equity. | | | | | | | | Profit or loss and equity | | Strengthening | | Weakening | December 31, 2017 | £'000s | | £'000s | EUR (5% movement) | 35 |
| | (35 | ) | USD (5% Movement) | 1,840 |
| | (1,840 | ) | December 31, 2016 | £'000s | | £'000s | EUR (5% movement) | 21 |
| | (21 | ) | USD (5% Movement) | 547 |
| | (547 | ) |
| | | | | | | | Profit or loss and equity | | Strengthening | | Weakening | December 31, 2019 | £'000s | | £'000s | EUR (5% movement) | (36 | ) | | 36 |
| USD (5% Movement) | 80 |
| | (80 | ) | December 31, 2018 | £'000s | | £'000s | EUR (5% movement) | (26 | ) | | 26 |
| USD (5% Movement) | 1,461 |
| | (1,461 | ) |
Foreign currency denominated trade payables are short term in nature (generally 30 to 45 days). The Company has a U.S. operation, the net assets of which are exposed to foreign currency translation risk. Estimated cashflows relating to the assumed contingent liability are predominantly denominated in US dollars. In the years ended December 31, 2019, and 2018, movements in foreign exchange rates were not material and no sensitivity analysis is therefore provided. (b)Credit risk Credit risk reflects the risk that the Company may be unable to recover contractual receivables. As the Company is still in the development stage no policies are currently required to mitigate this risk.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
For banks and financial institutions, only independently rated parties with a minimum rating of "B+" are accepted. The Directors recognize that this is an area in which they may need to develop specific policies should the Company become exposed to further financial risks as the business develops. As of December 31, 2017,2019, and December 31, 2016,2018, cash and cash equivalents and short term investments were placed at the following banks: | | | | | | | | | | | | Cash and Cash Equivalents | Year ended December 31, 2016 | | Credit rating | | Year ended December 31, 2017 | | Credit rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | 11,287 |
| | A3 |
| | 16,623 |
| | A2 | Lloyds Bank | 28,447 |
| | A1 |
| | 13,448 |
| | Aa3 | Standard Chartered | — |
| | — |
| | 1,242 |
| | A1 | Wells Fargo | 51 |
| | Aa1 |
| | 130 |
| | Aa1 | Total | 39,785 |
| | | | 31,443 |
| | |
| | | | | | | | | | | | Cash and Cash Equivalents | Year ended December 31, 2019 | | Credit rating | | Year ended December 31, 2018 | | Credit rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | 1 |
| | A1 | | 150 |
| | A1 |
| Lloyds Bank | 8,355 |
| | Aa3 | | 15,862 |
| | Aa3 |
| Citibank | 6,529 |
| | Aa3 | | 3,135 |
| | A1 |
| Barclays | 1,968 |
| | A1 | | 449 |
| | A2 |
| Wells Fargo | 111 |
| | Aa1 | | 188 |
| | Aa1 |
| Close Brothers | 5,970 |
| | Aa3 | | — |
| | — |
| Total | 22,934 |
| | | | 19,784 |
| | |
| | | | | | | | | | | | Short Term Investments | Year ended December 31, 2016 | | Credit
rating | | Year ended December 31, 2017 | | Credit
rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | — |
| | — |
| | 15,316 |
| | A2 | Lloyds Bank | — |
| | — |
| | 11,036 |
| | Aa3 | Standard Chartered | — |
| | — |
| | 22,467 |
| | A1 | Wells Fargo | — |
| | — |
| | — |
| | Aa1 | Total | — |
| | | | 48,819 |
| | |
| | | | | | | | | | | Short Term Investments | Year ended December 31, 2019 | | Credit rating | | Year ended December 31, 2018 | | Credit rating | | £'000 | | | | £'000 | | | Banks | | | | | | | | Royal Bank of Scotland | 5,616 |
| | A1 | | 9,186 |
| | A1 | Lloyds Bank | — |
| | Aa3 | | 1,567 |
| | Aa3 | Standard Chartered | — |
| | A1 | | 15,450 |
| | A1 | Citibank | — |
| | Aa3 | | 7,053 |
| | A1 | Barclays | 2,207 |
| | A1 | | 11,663 |
| | A2 | Total | 7,823 |
| | | | 44,919 |
| | |
(c) Management of capital The Company considers capital to be its equity reserves. At the current stage of the Company's life cycle, the Company's objective in managing its capital is to ensure funds raised meet the research and operating requirements until the next development stage of the Company's suite of projects. The Company ensures it is meeting its objectives by reviewing its Key Performance Indicators ("KPIs") to ensure the research activities are progressing in line with expectations, costs are controlled and unused funds are placed on deposit to conserve resources and increase returns on surplus cash held. (d)Interest rate risk As of December 31, 2017,2019, the Company had cash deposits of £31.4£22.9 million (2016: £39.8(2018: £19.8 million) and short term investments of £48.8£7.8 million (2016: nil) (2018: £44.9 million). The rates of interest received during 20172019 ranged between 0.0% and 1.73%2.87%. A 0.25% increase in interest rates would not have a material impact on finance income.Theincome. The Company's exposure to interest rate risk, which is the risk that the interest received will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows:
F-16
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
| | | | | | | | | | | | | | December 31, 2016 | | December 31, 2017 | | Floating interest rate | | Fixed Interest rate | | Floating interest rate | | Fixed Interest rate | | £'000s | | £'000s | | £'000s | | £'000s | Financial asset | | | | | | | | Cash deposits | 11,338 |
| | 28,447 |
| | 25,720 |
| | 5,723 |
| Short Term Investments | — |
| | — |
| | — |
| | 48,819 |
| Total | 11,338 |
| | 28,447 |
| | 25,720 |
|
| 54,542 |
|
| | | | | | | | | | | | | | December 31, 2019 | | December 31, 2018 | | Floating interest rate | | Fixed interest rate | | Floating interest rate | | Fixed interest rate | | £'000s | | £'000s | | £'000s | | £'000s | Financial asset | | | | | | | | Cash deposits | 10,006 |
| | 12,928 |
| | 15,082 |
| | 4,702 |
| Short Term Investments | — |
| | 7,823 |
| | — |
| | 44,919 |
| Total | 10,006 |
| | 20,751 |
| | 15,082 |
| | 49,621 |
|
(e)Liquidity risk The Company periodically prepares periodic working capital forecasts for the foreseeable future, allowing an assessment of the cash requirements of the Company, to manage liquidity risk. The following table provides an analysis of the Company's financial liabilities. The carrying value of all balances is equalapproximates to their fair value. The Company's maturity analysis for the derivative financial instrument from the issue of warrants is given in note 19.18.
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS(1) | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2016 | | | | | | | | Trade payables | 719 |
| | — |
| | — |
| | — |
| Other payables | 54 |
| | — |
| | — |
| | — |
| Accruals | 2,050 |
| | — |
| | — |
| | — |
| Contingent obligation | — |
| | — |
| | — |
| | 1,807 |
| Total | 2,823 |
| | — |
| | — |
| | 1,807 |
|
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2019 | | | | | | | | Trade payables | 1,455 |
| | — |
| | — |
| | — |
| Accruals | 6,806 |
| | — |
| | — |
| | — |
| Lease liability | 476 |
| | 557 |
| | — |
| | — |
| Assumed contingent liability(1) | — |
| | — |
| | — |
| | 1,807 |
| Total | 8,737 |
| | 557 |
| | — |
| | 1,807 |
|
This table includes the undiscounted amount of the assumed contingent liability. See note 20.
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2018 | | | | | | | | Trade payables | 2,839 |
| | — |
| | — |
| | — |
| Other payables | 12 |
| | — |
| | — |
| | — |
| Accruals | 4,882 |
| | — |
| | — |
| | — |
| Assumed contingent liability(1) | — |
| | — |
| | — |
| | 1,807 |
| Total | 7,733 |
| | — |
| | — |
| | 1,807 |
|
| | (1) | This table includes the undiscounted amount of the assumed contingent obligation.liability. See note 18. |
| | | | | | | | | | | | | | LESS THAN 1 YEAR | | BETWEEN 1 AND 2 YEARS | | BETWEEN 2 AND 5 YEARS | | OVER 5 YEARS(1) | | £'000s | | £'000s | | £'000s | | £'000s | At December 31, 2017 | | | | | | | | Trade payables | 1,214 |
| | — |
| | — |
| | — |
| Other payables | 74 |
| | — |
| | — |
| | — |
| Accruals | 5,866 |
| | — |
| | — |
| | — |
| Contingent obligation | — |
| | — |
| | — |
| | 1,807 |
| Total | 7,154 |
| | — |
| | — |
| | 1,807 |
|
| | (1) | This table includes the undiscounted amount of the assumed contingent obligation. See note 18.20. |
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
3.2 Fair value estimation The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate to fair value due to their short-term nature. The carrying amount of the assumed contingent liability approximates to fair value as the underlying assumptions are currently similar. For financial instruments that are measured in the Consolidated Statement of Financial Position at fair value, IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: | | ▪ | Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); |
| | ▪ | Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and |
| | ▪ | Inputs for the asset or liability that are not based on observable market data (level 3). |
For the year ended December 31, 2017,2019, and 2016,2018, fair value adjustments to financial instruments measure at fair value through profit and loss resulted in the recognition of finance income of £6.7£1.6 million in 2019 and £1.1a finance loss of £1.2 million respectively.in 2018. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to ascertain the fair value of an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. | | | | | | | | Level 3 | | Total | | £'000s | | £'000s | At December 31, 2017 | | | | Derivative financial instrument | 1,273 |
| | 1,273 |
| Total | 1,273 |
| | 1,273 |
|
| | | | | | | | Level 3 | | Total | | £'000s | | £'000s | At December 31, 2019 | | | | Derivative financial instrument | 895 |
| | 895 |
| Total | 895 |
| | 895 |
|
Movements in Level 3 items during the years ended December 31, 2016,2019, and 20172018 are as follows: | | | | | | | Derivative financial instrument | 2016 | | 2017 | | £'000s | | £'000s | At January 1 | — |
| | 7,923 |
| Initial recognition of derivative financial instrument | 8,991 |
| | — |
| Fair value adjustments recognized in profit and loss | (1,068 | ) | | (6,650 | ) | At December 31 | 7,923 |
| | 1,273 |
|
| | | | | | | Derivative financial instrument | 2019 | | 2018 | | £'000s | | £'000s | At January 1 | 2,492 |
| | 1,273 |
| Fair value adjustments recognized in profit and loss | (1,597 | ) | | 1,219 |
| At December 31 | 895 |
| | 2,492 |
|
Further details relating to the derivative financial instrument are set out in notes 4 and 1918 of these financial statements. In determining the fair value of the derivative financial instrument, the Company applied the Black Scholes model; key inputs include the share price at reporting date, estimations on timelines, volatility and risk-free rates. These assumptions and the impact of changes in these assumptions, where material, are disclosed in note 19.18.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Financial Instruments (continued)
3.3 Change in liabilities arising from financing activities The Company has provided a reconciliation so that changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes can be evaluated. | | | | | December 31, 20172019 | | Derivative financial instrument | | £'000s | At January 1 | 7,9232,492 |
| Fair value adjustments - non cash | (6,6501,597 | ) | At December 31 | 1,273895 |
|
See note 1918 for information relating to the derivative financial instrument.
| | | | | 2019 | | Lease liability | | £'000s | At January 1 | 316 |
| Capitalization of rental leases - non cash | 1,061 |
| Payment of lease liability - cash | (426 | ) | At December 31 | 951 |
|
See note 14 and note 2.17 for information relating to the capitalized leases. 4. Critical accounting estimates and judgments The preparation of financial statements in conformity with IFRS requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are as follows: (a) Assumed contingent obligationliability The Company has a material obligationliability for the future payment of royalties and milestones associated with contractual obligationsliabilities on RPL554, a development productensifentrine, acquired as part of the acquisition of RhinopharmaRhinopharma. The estimation of the fair valueamounts and timing of the assumed contingent obligation on acquisitionfuture cashflows requires the selectionforecast of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen,royalties payable and the estimation of the likelihood that the regulatory approval milestone will be achieved (see notes 2.12 and estimates of the future cash flows and their timing (for further detail see note 19)20). The estimates for the assumed contingent obligationliability are based on a discounted cash flow model. Key assessments and judgmentsestimates included in the fair value calculation of deferred consideration are: | | ▪ | development, regulatory and marketing risks associated with progressing the product to market approval in key target territories; |
| | ▪ | market size and product acceptance by clinicians, patients and reimbursement bodies; |
| | ▪ | gross and net selling price; |
| | ▪ | costs of manufacturing, product distribution and marketing support; |
| | ▪ | launch of competitive products; and |
| | ▪ | discount rate and time to crystallization of contingent consideration. |
In accordance with IAS 39 ("Financial Instruments Recognition and Measurement" (para AG8)), when there is a change in the expected cash flows, the assumed contingent obligation is re-measured with the change in value
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Critical accounting estimates and judgments (continued)
| | ▪ | launch of competitive products; |
| | ▪ | probabilities of success; and |
| | ▪ | time to crystallization of contingent consideration. |
going through
When there is a change in the Consolidated Statement of Comprehensive Income. Cash flow estimates are revised when the probabilityexpected cash flows or probabilities of success, changes.the assumed contingent liability is re-measured with the change in value recognized in the IP R&D asset it relates to. This is a change in accounting policy for the year ended December 1, 2019 (see 2.17). The assumed contingent obligationliability is measured at amortized cost with the discount unwinding in the Consolidated Statement of Comprehensive Incomefinance expense throughout the year. Actual outcomes could differ significantly from the estimates made. The Company has judged that the probabilities of success will change when it moves from one stage of clinical development to another. Management have determined that, for the purposes of assessing probabilities of success, the Company will move from Phase 2 to Phase 3 after an End of Phase 2 Meeting with the Food and Drug Administration ("FDA") in the US that provides confidence over ensifentrine's historical development program and planned Phase 3 program. A remeasurement of the liability at this time is likely to result in a significant increase in both the liability and the corresponding IP R&D asset.The Company has previously announced that it expects to meet with the FDA in the first half of 2020. The Company notes that there is no guarantee that the meeting will take place in the timeframe anticipated or that there will be a successful outcome. Should the probabilities of success and estimates of cash flows change there will be a material increase in the assumed contingent liability and corresponding IP R&D asset. The amount will be dependent on feedback from the FDA and the probabilities of success applied. Should the Company determine that it has moved from Phase 2 to Phase 3 then the value of the liability could increase by between £15 million and £30 million; the increase in the value of the liability will give rise to an approximately equivalent increase in the value of the IP R&D asset, as described further in Note 2.7. The value of the assumed contingent obligationliability as of December 31, 2017 amounts to £0.9 million. (2016: £0.8 million). The increase in value of the assumed contingent obligation during 20172019 amounted to £0.1 million (2016: £0.2£1.1 million. (2018: £1.0 million) and the movement relates to unwinding the discount on the liability and retranslating for changes in US$ exchange rates. The increase was recorded in finance expense. There was no change in the year to the probability of success and consequently cash flow estimates were not revised. The discount percentage applied is 12%.
(b) Valuation of the Derivative Financial Liability In July 2016, warrants Pursuant to the July 2016 Placement, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant. The warrants entitle the investors to subscribe for in aggregate a maximum of 12,446,37012,401,262 ordinary shares.
In accordance with IAS 32 and Companythe Company’s accounting policy, as disclosed in note 2.15,2.14, the Company classified the warrants as a derivative financial liability to be presented on the Company's Consolidated Statement of Financial Position. The fair value of these warrants is determined by applying the Black-Scholes model. Assumptions are made on inputs such as time to maturity, the share price,term, volatility and risk free rate in order to determine the fair value per warrant. For further details see note 19. Transaction costs arising on the issues of these shares and warrants are allocated to the equity and warrant liability components in proportion to the allocation of proceeds.
(c) Recognition of research and development expenditure
The Company incurs research and development expenditure from third parties. The Company recognizes this expenditure in line with the management’s best estimation of the stage of completion of each research and development project. This includes the calculation of accrued costs at each period end to account for expenditure that has been incurred. This requires management to estimate full costs to complete for each project and also to estimate its current stage of completion. The costs related to the Clinical Research Organization expenses in the year was £18.5 million. The related accruals and prepayments were £4.6 million and £0.5 million respectively.
(d) Transaction costs related the Global Offering
The Company incurred various transaction costs relating to the Global Offering, including commissions, professional advisor fees, financial advice, listing fees and other costs. When management judged them to be incremental costs directly attributable to the transaction they were accounted for as a deduction from equity. Otherwise the costs were expensed to the consolidated income statement as incurred.
18.
5. Earnings per share Basic loss per ordinary share of 23.4p (2016: 15.0p30.3p (2018: 18.9p and 2015: 37.1p)2017: 23.4p) for the Company is calculated by dividing the loss for the year ended December 31, 20172019 by the weighted average number of ordinary shares in issue of 87,748,031105,326,638 as of December 31, 2017 (2016: 33,499,4132019 (2018: 105,110,504 and 2015: 20,198,469)2017: 87,748,031). Potential ordinary shares are not treated as dilutive as the entity is loss making and such shares would be anti-dilutive.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
6. Segmental reporting The Company’s activities are covered by one operating and reporting segment: Drug Development. There have been no changes to management’s assessment of the operating and reporting segment of the Company during the period.year. All non-current assets are based in the United Kingdom. 7. Operating loss
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Operating Loss is stated after charging: | | | | | | Research and development costs: | | | | | | Employee benefits (note 8) | 1,322 |
| | 2,037 |
| | 3,435 |
| Amortization of patents (note 12) | 43 |
| | 51 |
| | 111 |
| Legal, professional consulting and listing fees | — |
| | — |
| | 331 |
| Loss on disposal of patents | 136 |
| | — |
| | — |
| Other research and development expenses | 5,769 |
| | 2,434 |
| | 19,840 |
| Total research and development costs | 7,270 |
| | 4,522 |
| | 23,717 |
| General and administrative costs: | | | |
| | |
| Employee benefits (note 8) | 625 |
| | 865 |
| | 2,857 |
| Legal, professional consulting and listing fees | 608 |
| | 884 |
| | 2,045 |
| Amortization of computer software (note 12) | — |
| | 1 |
| | 5 |
| Loss on disposal of property, plant and equipment (note 13) | — |
| | 3 |
| | — |
| Depreciation of property, plant and equipment (note 13) | 10 |
| | 10 |
| | 7 |
| Operating lease charge — land and buildings | 157 |
| | 169 |
| | 294 |
| Loss on variations in foreign exchange rate | 21 |
| | 139 |
| | 36 |
| Other general and administrative expenses | 285 |
| | 427 |
| | 795 |
| Total general and administrative costs | 1,706 |
| | 2,498 |
| | 6,039 |
| Operating loss | 8,976 |
| | 7,020 |
| | 29,756 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
8. Directors' emoluments and staff costs7. Operating loss
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | The average number of employees (excluding directors) of the Company during the year: | | | | |
|
| Research and Development | 5 |
| | 5 |
| | 7 |
| General and Administrative | 3 |
| | 2 |
| | 5 |
| Total | 8 |
| | 7 |
| | 12 |
|
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate emoluments of directors: | | | | | | Salaries and other short-term employee benefits | 722 |
| | 951 |
| | 897 |
| Social security costs | 132 |
| | 118 |
| | 103 |
| Incremental payment for additional services | 89 |
| | 44 |
| | — |
| Other pension costs | 38 |
| | 19 |
| | 17 |
| Total directors' emoluments | 981 |
| | 1,132 |
| | 1,017 |
| Share-based payment charge | 232 |
| | 257 |
| | 1,037 |
| Directors' emoluments including share-based payment charge | 1,213 |
| | 1,389 |
| | 2,054 |
|
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate other staff costs: | | | | | | Wages and salaries | 540 |
| | 1,027 |
| | 2,136 |
| Social security costs | 42 |
| | 98 |
| | 182 |
| Incremental payment for additional services | — |
| | 58 |
| | — |
| Share-based payment charge | 137 |
| | 319 |
| | 1,882 |
| Other pension costs | 15 |
| | 11 |
| | 38 |
| Total other staff costs | 734 |
| | 1,513 |
| | 4,238 |
|
The Company operates a defined contribution pension scheme for U.K. employees and executive directors. The total pension cost during the year ended December 31, 2017 was £55 thousand (2016: £30 thousand and 2015: £53 thousand). There were no prepaid or accrued contributions to the scheme at December 31, 2017(2016 and 2015: £nil).
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Operating Loss is stated after charging / (crediting): | | | | | | Research and development costs: | | | | | | Employee benefits (note 8) | 4,688 |
| | 3,360 |
| | 3,435 |
| Amortization of patents (note 12) | 102 |
| | 85 |
| | 111 |
| Legal, professional consulting and listing fees | 537 |
| | 161 |
| | 331 |
| Other research and development expenses | 28,149 |
| | 15,688 |
| | 19,840 |
| Total research and development costs | 33,476 |
| | 19,294 |
| | 23,717 |
| General and administrative costs: | |
| | |
| | | Employee benefits (note 8) | 3,093 |
| | 3,240 |
| | 2,857 |
| Legal, professional consulting and listing fees | 2,155 |
| | 1,296 |
| | 2,045 |
| Amortization of computer software (note 12) | 4 |
| | 5 |
| | 5 |
| Depreciation of property, plant and equipment (note 13) | 16 |
| | 8 |
| | 7 |
| Depreciation of right-of-use assets (note 14) | 382 |
| | — |
| | — |
| Operating lease charge — land and buildings | — |
| | 384 |
| | 294 |
| Loss / (gain) on variations in foreign exchange rate | 345 |
| | (9 | ) | | 36 |
| Other general and administrative expenses | 1,612 |
| | 1,373 |
| | 795 |
| Total general and administrative costs | 7,607 |
| | 6,297 |
| | 6,039 |
| Operating loss | 41,083 |
| | 25,591 |
| | 29,756 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 Finance income and expense (continued)2019
9. Finance income8. Directors' emoluments and expensestaff costs
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance income: | | | | | | Interest received on cash balances | 45 |
| | 86 |
| | 345 |
| Foreign exchange gain on translating foreign currency denominated bank balances | — |
| | 687 |
| | — |
| Fair value adjustment on derivative financial instruments (note 19) | — |
| | 1,068 |
| | 6,650 |
| Other Income | — |
| | — |
| | 23 |
| Total finance income | 45 |
| | 1,841 |
| | 7,018 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | The average number of employees (excluding directors) of the Company during the year: | | | | |
|
| Research and development | 13 |
| | 7 |
| | 7 |
| General and administrative | 9 |
| | 7 |
| | 5 |
| Total | 22 |
| | 14 |
| | 12 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate emoluments of directors: | | | | | | Salaries and other short-term employee benefits | 850 |
| | 830 |
| | 897 |
| Social security costs | 112 |
| | 94 |
| | 103 |
| Incremental payment for additional services | 26 |
| | 26 |
| | — |
| Other pension costs | 10 |
| | 10 |
| | 17 |
| Total directors' emoluments | 998 |
| | 960 |
| | 1,017 |
| Share-based payment charge | 925 |
| | 1,337 |
| | 1,037 |
| Directors' emoluments including share-based payment charge | 1,923 |
| | 2,297 |
| | 2,054 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate executive officers costs: | | | | | | Wages and salaries | 1,150 |
| | 857 |
| | 864 |
| Social security costs | 98 |
| | 83 |
| | 81 |
| Share-based payment charge | 751 |
| | 769 |
| | 1,332 |
| Other pension costs | 21 |
| | 19 |
| | 17 |
| Total executive officers costs | 2,020 |
| | 1,728 |
| | 2,294 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Aggregate other staff costs: | | | | | | Wages and salaries | 2,788 |
| | 1,622 |
| | 1,272 |
| Social security costs | 265 |
| | 150 |
| | 101 |
| Share-based payment charge | 765 |
| | 795 |
| | 550 |
| Other pension costs | 46 |
| | 34 |
| | 21 |
| Total other staff costs | 3,864 |
| | 2,601 |
| | 1,944 |
|
The Company considers key management personnel to comprise directors and executive officers. The Company operates defined contribution pension schemes for its employees and executive director. The total pension cost during the year ended December 31, 2019 was £77 thousand (2018: £63 thousand and 2017: £55 thousand). There were no prepaid or accrued contributions to the scheme at December 31, 2019 (2018 and 2017: £nil).
| | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance expense: | | | | | | Transaction costs allocated to the issue of warrants (note 19) | — |
| | 586 |
| | — |
| Foreign exchange loss on translating foreign currency denominated balances | — |
| | — |
| | 2,392 |
| Remeasurement of assumed contingent arrangement (note 18) | 10 |
| | 122 |
| | — |
| Unwinding of discount factor and foreign exchange movements related to the assumed contingent arrangement (note 18) | 63 |
| | 86 |
| | 73 |
| Total finance expense | 73 |
| | 794 |
| | 2,465 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Taxation (continued)
9. Finance income and expense | | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance income: | | | | | | Interest received on cash balances | 754 |
| | 861 |
| | 345 |
| Foreign exchange gain on translating foreign currency denominated balances | — |
| | 1,922 |
| | — |
| Fair value adjustment on derivative financial instruments (note 18) | 1,597 |
| | — |
| | 6,650 |
| Other Income | — |
| | — |
| | 23 |
| Total finance income | 2,351 |
| | 2,783 |
| | 7,018 |
|
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Finance expense: | | | | | | Fair value adjustment on derivative financial instruments (note 18) | — |
| | 1,219 |
| | — |
| Interest on discounted lease liability | 50 |
| | — |
| | — |
| Foreign exchange loss on translating foreign currency denominated balances | 305 |
| | — |
| | 2,392 |
| Unwinding of discount factor related to the assumed contingent arrangement (note 20) | 119 |
| | 106 |
| | 73 |
| Total finance expense | 474 |
| | 1,325 |
| | 2,465 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019
10. Taxation | | | | | | | | | | | Year ended December 31, 2015 | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Analysis of tax credit for the year | | | | | | Current tax: | | | | | | UK tax credit | (1,520 | ) | | (1,067 | ) | | (5,006 | ) | US tax charge | — |
| | 129 |
| | 306 |
| Adjustment in respect of prior periods | 11 |
| | (16 | ) | | (6 | ) | Total tax credit | (1,509 | ) | | (954 | ) | | (4,706 | ) | Factors affecting the tax charge for the year | | | | | | Loss on ordinary activities | (9,002 | ) | | (5,973 | ) | | (25,203 | ) | Multiplied by standard rate of corporation tax of 19.25% (2016: 20% and 2015: 20.25%) | (1,823 | ) | | (1,195 | ) | | (4,852 | ) | Effects of: | | | | | | Non-deductible expenses | 114 |
| | 292 |
| | 675 |
| Fair value adjustment on derivative financial instruments | — |
| | (214 | ) | | (1,280 | ) | Research and development incentive | (600 | ) | | (427 | ) | | (2,116 | ) | Temporary differences not recognized | (1 | ) | | (4 | ) | | (2 | ) | Difference in overseas tax rates | — |
| | 56 |
| | 136 |
| Tax losses carried forward not recognized | 790 |
| | 554 |
| | 2,739 |
| Adjustment in respect of prior periods | 11 |
| | (16 | ) | | (6 | ) | Total tax credit | (1,509 | ) | | (954 | ) | | (4,706 | ) |
| | | | | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | Year ended December 31, 2017 | | £'000s | | £'000s | | £'000s | Analysis of tax credit for the year | | | | | | Current tax: | | | | | | U.K. tax credit | (7,250 | ) | | (4,290 | ) | | (5,006 | ) | U.S. tax charge | 56 |
| | 30 |
| | 306 |
| Adjustment in respect of prior periods | (71 | ) | | 28 |
| | (6 | ) | Total tax credit | (7,265 | ) | | (4,232 | ) | | (4,706 | ) | | | | | | | The difference between the total tax shown above and the amount calculated by applying the standard rate of tax to the loss before tax is as follows: | Factors affecting the tax credit for the year | | | | | | Loss on ordinary activities before taxation | (39,206 | ) | | (24,133 | ) | | (25,203 | ) | | | | | | | Multiplied by standard rate of corporation tax of 19% (2018: 19% and 2017: 19.25%) | (7,449 | ) | | (4,585 | ) | | (4,852 | ) | Effects of: | | | | | | Non-deductible expenses | 515 |
| | 540 |
| | 675 |
| Fair value adjustment on derivative financial instruments | (303 | ) | | 232 |
| | (1,280 | ) | Research and development incentive | (3,119 | ) | | (1,846 | ) | | (2,116 | ) | Temporary differences not recognized | (6 | ) | | (3 | ) | | (2 | ) | Difference in overseas tax rates | 16 |
| | 8 |
| | 136 |
| Tax losses carried forward not recognized | 3,152 |
| | 1,394 |
| | 2,739 |
| Adjustment in respect of prior periods | (71 | ) | | 28 |
| | (6 | ) | Total tax credit | (7,265 | ) | | (4,232 | ) | | (4,706 | ) |
UKU.K. corporation tax is charged at 19.25% (2016: 20.00%19% (2018: 19.00% and 2015: 20.25%2017: 19.25%) and U.S. federal and state tax at 35% (201627.6% (2018: 27.6% and 2015:2017: 35%).
The following tables represent deferred tax balances recognized in the Consolidated Statement of Financial Position. There were no movements in either the deferred tax asset or the deferred tax liability. | | | | | | | | Year ended December 31, 2016 | | Year ended December 31, 2017 | | £'000s | | £'000s | Deferred tax assets | 250 |
| | 250 |
| Deferred tax liabilities | (250 | ) | | (250 | ) | Net balances | — |
| | — |
|
| | | | | | | | As at December 31, 2019 | | As at December 31, 2018 | | £'000s | | £'000s | Deferred tax assets | 332 |
| | 250 |
| Deferred tax liabilities | (332 | ) | | (250 | ) | Net balances | — |
| | — |
|
The deferred tax liability relates to the difference between the accounting and tax bases of the IP R&D intangible asset. A deferred tax asset relating to UK tax losses has been recognized and offset against the liability. Factors that may affect future tax charges The Company has UKU.K. tax losses available for offset against future profits in the UK.United Kingdom. However an additional deferred tax asset has not been recognized in respect of such items due to uncertainty of future profit streams. As of December 31, 2017,2019, the unrecognized deferred tax asset at 17% is estimated to be £5.43£9.27 million (2016: £3.15(2018: £6.65 million at 17%).
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
11. Goodwill | | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Goodwill at January 1 and December 31 | 441 |
| | 441 |
|
| | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Goodwill at January 1 and December 31 | 441 |
| | 441 |
|
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisition of Rhinopharma in September 2006. Goodwill is not amortized, but is tested annually for impairment. Annual The Company has one CGU so goodwill is tested for impairment together with its intangible assets. It was tested with reference to the Company's market capitalization as of December 31, 2019, the date of testing is performed by comparing the expected recoverable amountof IP R&D and goodwill impairment. The market capitalization of the CGUCompany was approximately £65.3 million as of December 31, 2019, (2018: 92.2 million) compared to the carrying amountCompany's net assets of £33.9 million (2018: £63.4 million). Therefore, no impairment was required. The Company notes that after the reduction in its share price since December 31, 2018, and before the increase by December 31, 2019, at various points in the three months to March 31, 2019, the market value of the CGUCompany was less than its net book value. The Company therefore carried out an impairment review as at March 31, 2019. From market research the Company assessed, among other inputs, potential patient numbers from likely physician prescribing patterns, price points, the time from possible launch to which goodwill has been allocatedpeak sales, script rejection, attrition rates and probability of success. The Company also carried out a sensitivity analysis on key assumptions and assessed that a reasonable change in these assumptions would not lead to the value in use falling below net book value. Consequently, management determined that the Company's value in use exceeded the carrying amountvalue of the CGU. See note 2.8Company's assets and that no impairment was required.
At various other points in the year ended December 31, 2019, the market value of the Company was less than its net book value. Consequently, management re-performed the impairment review quarterly, and identified no changes to market conditions, the consolidated financial statements. 12. Intangiblecompetitive landscape, market research insights or other factors that would change its conclusions. As a result, management determined that the Company's value in use exceeded the carrying value of the Company's assets | | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2016 | 1,469 |
| | 25 |
| | 482 |
| | 1,976 |
| Additions | — |
| | 5 |
| | 110 |
| | 115 |
| Disposals | — |
| | (24 | ) | | — |
| | (24 | ) | At December 31, 2016 | 1,469 |
| | 6 |
| | 592 |
| | 2,067 |
| Accumulated amortization | | | | | | | | At January 1, 2016 | — |
| | 24 |
| | 138 |
| | 162 |
| Charge for year | — |
| | 1 |
| | 51 |
| | 52 |
| Disposals | — |
| | (24 | ) | | — |
| | (24 | ) | At December 31, 2016 | — |
| | 1 |
| | 189 |
| | 190 |
| Net book value | | | | | | | | At December 31, 2016 | 1,469 |
|
| 5 |
|
| 403 |
|
| 1,877 |
|
and that no impairment was required at those dates.
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2017 | 1,469 |
| | 6 |
| | 592 |
| | 2,067 |
| Additions | — |
| | 5 |
| | 203 |
| | 208 |
| Disposals | — |
| | — |
| | (68 | ) | | (68 | ) | At December 31, 2017 | 1,469 |
| | 11 |
| | 727 |
| | 2,207 |
| Accumulated amortization | | | | | | | | At January 1, 2017 | — |
| | 1 |
| | 189 |
| | 190 |
| Charge for year | — |
| | 5 |
| | 111 |
| | 116 |
| Disposals | — |
| | — |
| | (68 | ) | | (68 | ) | At December 31, 2017 | — |
| | 6 |
| | 232 |
| | 238 |
| Net book value | | | | | | | | At December 31, 2017 | 1,469 |
|
| 5 |
|
| 495 |
|
| 1,969 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 Intangible assets (continued)
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2018 (Restated) | 1,953 |
| | 11 |
| | 727 |
| | 2,691 |
| Additions | — |
| | 4 |
| | 251 |
| | 255 |
| Disposals | — |
| | — |
| | (6 | ) | | (6 | ) | At December 31, 2018 (Restated) | 1,953 |
| | 15 |
| | 972 |
| | 2,940 |
| Accumulated amortization | | | | | | | | At January 1, 2018 | — |
| | 6 |
| | 232 |
| | 238 |
| Charge for year | — |
| | 5 |
| | 85 |
| | 90 |
| Disposals | — |
| | — |
| | (6 | ) | | (6 | ) | At December 31, 2018 | — |
| | 11 |
| | 311 |
| | 322 |
| Net book value | | | | | | | | At December 31, 2018 (Restated) | 1,953 |
|
| 4 |
|
| 661 |
|
| 2,618 |
|
| | | | | | | | | | | | | | IP R&D | | Computer software | | Patents | | Total | | £'000s | | £'000s | | £'000s | | £'000s | Cost | | | | | | | | At January 1, 2019 | 1,953 |
| | 15 |
| | 972 |
| | 2,940 |
| Additions | — |
| | 3 |
| | 242 |
| | 245 |
| At December 31, 2019 | 1,953 |
| | 18 |
| | 1,214 |
| | 3,185 |
| Accumulated amortization | | | | | | | | At January 1, 2019 | — |
| | 11 |
| | 311 |
| | 322 |
| Charge for year | — |
| | 4 |
| | 102 |
| | 106 |
| At December 31, 2019 | — |
| | 15 |
| | 413 |
| | 428 |
| Net book value | | | | | | | | At December 31, 2019 | 1,953 |
|
| 3 |
|
| 801 |
|
| 2,757 |
|
Intangible assets comprise patents, computer software and an IP R&D asset that arose on the acquisition of Rhinopharma and investment in patents to protect RPL554.ensifentrine. The IP R&D asset acquired through the business combination was initially recognized at fair value. Subsequent movements in the assumed contingent liability that relate to changes in estimated cash flows or probabilities of success are recognized as additions to the IP R&D asset that it relates to. This is currentlya change in accounting policy (see note 2.17). The asset is not amortized and is reviewedtested annually for impairment on an annual basis or where there is an indication that the assets might be impaired until the asset is brought into use.impairment. Patents are amortized over a period of ten years and are regularly reviewedtested annually for impairment. Intangible assets are tested for impairment to ensure the carrying amount exceeds the recoverable amount in accordance with note 2.8. Recognizing thatgoodwill, as the Company is still in its pre-revenue phase and thathas only one CGU. See note 11 for information about the research projects are not yet ready for commercial use, the Company assesses the recoverable amount of the CGU containing the IP R&D with reference to the Company's market capitalization as of December 31, 2017, the date of testing of goodwill impairment. The market capitalization of the Company was approximately £109.7 million as of December 31, 2017, (2016: £80.0 million) compared to the Company's net assets of £79.9 million (2016: £34.5 million). Therefore, no impairment was recognized.review.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
13. Property, plant and equipment | | | | | | | | | | | Computer hardware | | Office equipment | | Total | | £'000s | | £'000s | | £'000s | Cost | | | | | | At January 1, 2016 | 43 |
| | 36 |
| | 79 |
| Additions | 13 |
| | — |
| | 13 |
| Disposals | (39 | ) | | (36 | ) | | (75 | ) | At December 31, 2016 | 17 |
| | — |
| | 17 |
| Accumulated depreciation | | | | | | At January 1, 2016 | 39 |
| | 27 |
| | 66 |
| Charge for the year | 3 |
| | 7 |
| | 10 |
| Disposals | (39 | ) | | (34 | ) | | (73 | ) | At December 31, 2016 | 3 |
| | — |
| | 3 |
| Net book value | | | | | | At December 31, 2016 | 14 |
|
| — |
|
| 14 |
|
| | | | | | | | Computer hardware | | Total | | £'000s | | £'000s | Cost | | | | At January 1, 2018 | 26 |
| | 26 |
| Additions | 13 |
| | 13 |
| At December 31, 2018 | 39 |
| | 39 |
| Accumulated depreciation | | | | At January 1, 2018 | 10 |
| | 10 |
| Charge for the year | 8 |
| | 8 |
| At December 31, 2018 | 18 |
| | 18 |
| Net book value | | | | At December 31, 2018 | 21 |
|
| 21 |
|
| | | | | | | | | | | Computer hardware | | Office equipment | | Total | | £'000s | | £'000s | | £'000s | Cost | | | | | | At January 1, 2017 | 17 |
| | — |
| | 17 |
| Additions | 9 |
| | — |
| | 9 |
| At December 31, 2017 | 26 |
| | — |
| | 26 |
| Accumulated depreciation | | | | | | At January 1, 2017 | 3 |
| | — |
| | 3 |
| Charge for the year | 7 |
| | — |
| | 7 |
| At December 31, 2017 | 10 |
| | — |
| | 10 |
| Net book value | | | | | | At December 31, 2017 | 16 |
|
| — |
|
| 16 |
|
| | | | | | | | Computer hardware | | Total | | £'000s | | £'000s | Cost | | | | At January 1, 2019 | 39 |
| | 39 |
| Additions | 38 |
| | 38 |
| At December 31, 2019 | 77 |
| | 77 |
| Accumulated depreciation | | | | At January 1, 2019 | 18 |
| | 18 |
| Charge for the year | 16 |
| | 16 |
| At December 31, 2019 | 34 |
| | 34 |
| Net book value | | | | At December 31, 2019 | 43 |
|
| 43 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
14. Right-of-use assets - property leases The right-of-use asset relates to rented office space in London and New York where the Company generally enters in to leases for terms of less than three years. Before the adoption of IFRS 16 these leases were classified as operating leases.
The Consolidated Statement of Financial Position shows the following amounts relating to leases:
| | | | | | | | Year ended December 31, 2019 | | As of January 1, 2019* | | £'000s | | £'000s | Right-of-use assets | | | | Right-of-use assets | 971 |
| | 326 |
| | 971 |
| | 326 |
| | | | | Lease liabilities | | | | Current | (460 | ) | | (316 | ) | Non Current | (491 | ) | | — |
| | (951 | ) | | (316 | ) |
Additions to the right-of-use assets were £1,047,000 and were recognized when the Company was reasonably certain to extend the leases. The additions related to both of the Company's office locations, both of which agreements have similar terms and conditions. To calculate the value of the lease liabilities the Company applied a discount rate of 8%. The leases end in 2021 and 2022 and include options to extend them. The Company has determined it is not yet reasonably certain to operate the option to extend the leases and so has recognized lease payments only to these points in its calculation of the lease liabilities. The right-of-use lease assets are depreciated over the term of the leases. The Consolidated Statement of Comprehensive Income includes the following amounts relating to leases:
| | | | | | | | Year ended December 31, 2019 | | Year ended December 31, 2018 | | £'000s | | £'000s | Depreciation charge of right-of-use assets | | | | Right-of-use assets | (382 | ) | | — |
| | (382 | ) | | — |
| | | | | Interest expense (including finance cost) | 50 |
| | — |
| Expense relating to short-term leases (included in general and administrative expenses) | 78 |
| | — |
|
The total cash outflow for leases in 2019 was £492,000.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019
15. Prepayments and other receivables | | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Prepayments | 1,361 |
| | 1,138 |
| Deferred IPO costs | 1,527 |
| | — |
| Other receivables | 71 |
| | 672 |
| Total prepayments and other receivables | 2,959 |
| | 1,810 |
|
Deferred IPO costs related to the Global Offering. These costs were offset against share premium in 2017 when the Global Offering was completed. | | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Prepayments | 1,309 |
| | 1,362 |
| Other receivables | 1,461 |
| | 1,101 |
| Total prepayments and other receivables | 2,770 |
| | 2,463 |
|
The prepayments balance includes prepayments for insurance and clinical activities. There are no impaired assets within prepayments and other receivables.
15.16. Share Capital
On February 8, 2017, the board of the Company approved a share consolidation where every 50 existing ordinary shares of £0.001 were consolidated into one ordinary share of £0.05. The movements in the Company's share capital are summarized below:
| | | | | | | | | | Date | | Description | | Number of shares | | Share Capital amounts in | | £'000 | January 1, 2016 | |
| | 20,198,469 |
| | 1,010 |
| July 29, 2016 | | Issuance of shares | | 31,115,926 |
| | 1,556 |
| September 12, 2016 | | Exercise of options | | 3,334 |
| | — |
| October 24, 2016 | | Exercise of options | | 3,334 |
| | — |
| December 28, 2016 | | Exercise of options | | 40,000 |
| | 2 |
| As at December 31, 2016 | | | | 51,361,063 |
| | 2,568 |
| May 2, 2017 | | Issuance of shares | | 47,653,100 |
| | 2,383 |
| May 18, 2017 | | Issuance of shares | | 5,539,080 |
| | 277 |
| May 26, 2017 | | Issuance of shares | | 330,824 |
| | 17 |
| September 13, 2017 | | Exercise of options | | 133,333 |
| | 6 |
| December 31, 2017 | | | | 105,017,400 |
| | 5,251 |
|
| | | | | | | | | | Date | | Description | | Number of shares | | Share Capital amounts in £'000s | | January 1, 2018 | | | | 105,017,401 |
| | 5,251 |
| August 9, 2018 | | Vesting of RSUs | | 58,112 |
| | 3 |
| September 20, 2018 | | Vesting of RSUs | | 251,125 |
| | 12 |
| As at December 31, 2018 | | | | 105,326,638 |
| | 5,266 |
| As at December 31, 2019 | | | | 105,326,638 |
| | 5,266 |
|
The total number of authorized ordinary shares, with a nominal value of £0.05 each, is 200,000,000 (share capital of £10,000,000). All 105,017,400105,326,638 ordinary shares at December 31, 20172019 are allotted, unrestricted, called up and fully paid. All issued shares rank pari passu. On April 26, 2017,During 2018, the Company announced the closing of its Global Offering of an aggregate of 47,399,001 newissued 309,237 ordinary shares comprising 5,768,000 American Depositary Shares (“ADSs”) at a priceupon vesting of $13.50 per ADS and 1,255,001 ordinary shares at a price of £1.32 per ordinary share. During May 2017 the underwriters purchased an additional 733,738 ADSs, representing 5,869,904 ordinary shares, at a price of $13.50 per ADS. The total gross proceeds in the Global Offering amounted to $89.9 million (£70.0 million).employee restricted share units.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
Share Capital (continued)
In addition, the Chairman of Verona Pharma’s board of directors, Dr David Ebsworth, and an existing shareholder agreed to subscribe for 254,099 new ordinary shares at a price of £1.32 per ordinary share in the Shareholder Private Placement, contingent on and concurrent with the Global Offering and generating gross proceeds of £0.3m.
Where there is a time and foreign exchange difference between proceeds from a share issue becoming due and being received, the movement is taken to Finance income or Finance expense as appropriate. In respect of the Global Offering and Shareholder Private Placement, the Company recorded a finance expense of £439 thousand arising from movements in exchange rates on funds receivable, offset by a saving on commission payable of £31 thousand, for a net finance expense of £408 thousand.
On September 13, 2017, the company issued 133,333 new shares upon exercise of share options at 110p per share, resulting in proceeds of £147 thousand to the Company.
On July 29, 2016, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant (see note 19).
During 2016, the Company issued 46,666 ordinary shares upon exercise of employee share options.
As at December 31, 2017, the number of ordinary shares in issue was 105,017,400. All new ordinary shares rank pari passu with existing ordinary shares.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
16.17. Share-based payments charge
The Company operates various share based payment incentive schemes for its staff. In accordance with IFRS 2 "Share Based Payments," the cost of equity-settled transactions is measured by reference to their fair value at the date at which they are granted. Where equity-settled transactions were entered into with third party service providers, fair value is determined by reference to the value of the services provided. For other equity-settled transactions fair value is determined using the Black-Scholes model. The cost of equity-settled transactions is recognized over the period until the award vests. No expense is recognized for awards that do not ultimately vest. At each reporting date, the cumulative expense recognized for equity-based transactions reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors at that date, will ultimately vest. The costs of equity-settled share-based payments to employees are recognized in the Statement of Comprehensive Income, together with a corresponding increase in equity during the vesting period. During the twelve months ended December 31, 2017,2019, the Company recognized a share-based payment expense of £2.92£2.44 million (2016: £0.58 million ).(2018: £2.90 million). The charge is included within both general and administrative costs as well as in research and development costs and represents the current year's allocation of the expense for relevant share options. The Company grants share options underoperates an Unapproved Share Option Scheme (the "Unapproved Scheme"). Under the Unapproved Scheme,under which options are granted to employees, directors and consultants to acquire shares atwere issued before 31 December 2016. The Company also operates a price to be determined by the Directors. In general, options granted prior to December 31, 2016 were granted at a premium to the share price at the date of grant and vested over a period of three years from the date of grant, one third vesting on the first anniversary of grant, a further third vesting on the second anniversary of grant and the remainder vesting on the third anniversary of grant. Options granted since January 1, 2017 generally vest over three or four years from the date of the grant using two different methods. The first method is one third vesting over one year, the second third vesting over two years and the final third vesting over three years. The second method is one quarter vesting over one year, the second quarter vesting over two years, the third quarter vesting over three years and the final quarter vesting over four years. The vesting period is defined as the period between the date of grant and the date when the options become exercisable. The options are exercisable during a period ending ten years after the date of grant.
Options are also issued to advisors under the Unapproved Scheme. Such options generally vest immediately and are exercisable between one and two years after grant.
In 2016 the Company issued options under its tax efficient EMI Option Scheme (the "EMI Scheme"). Under the EMI Scheme,under which options were grantedissued before 31 December 2016. In 2017 the Company commenced the 2017 Incentive Award Plan under which the Company grants share options and Restricted Stock Units ("RSUs") to employees and directors whodirectors.
Since 2017 options are contracted to workissued with an exercise price at least 25 hours a week for the Company or for at least 75% of their working time. The options granted under the EMI Scheme are exercisable at a price that is above the share price atthe evening before the date of issue. They vest over terms of one to four years. RSUs also vest over terms of one to four years. In the grant andyear ended December 31, 2019, the Company modified the terms of all the RSUs issued prior January 1, 2019, to include a market based performance condition. The Company's share price must be maintained above £2 for thirty days for the RSUs to vest, in accordance with a vesting schedule determined byaddition to the Directors at the time of grant and have an exercise period of ten years from the date of grant. The Company grants Restricted Stock Units to employees and directors.existing service condition. The RSUs vest overafter a periodfive year term irrespective of three or four years fromwhether the date£2 market condition was met. This modification did not result in an increase in the fair value of the grant using 2 different methods.RSUs. The first method is one third vesting over oneRSUs issued in the year ended December 31, 2019, also include the second third vesting over two yearssame market condition and the final third vesting over three years. The second method is one quarter vesting over onefive year the second quarter vesting over two years, the third quarter vesting over three years and the final quarter vesting over four years.term.
In the year ended December 31, 2019, under the 2017 Incentive Award Plan, the Company granted 4,656,828 (2016: 1,670,000 )5,569,050 (2018: 2,090,847) share options nil (2016: 32,000) share options under the EMI Scheme and 1,052,236 Restricted Stock Units (“RSUs”) (2016: nil)740,496 RSUs (2018: 273,390). The total fair values of the Optionsoptions and RSUs were estimated using the Black-Scholes option-pricing model for equity-settled transactions and amounted to £5.33£2.25 million (2016: £1.93(2018: £2.32 million). The cost is amortized over the vesting period of the options and RSUs on a straight-line basis. Prior to the July 2016 Placement in 2016, management determined to take an option's contractual maximum life as an input into the Black-Scholes option-pricing model. Starting from the July 2016 Placement and in line with the continued development of the Company's clinical trials, the Company determined the time to maturity to be used in the valuation model to be better represented by the weighted-average life of the options granted.
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
16. Share-based payments charge (Continued)
Thebasis.The following assumptions were used for the Black-Scholes valuation of share options and RSUs granted in 20162018 and 2017.2019. For the options granted under the Unapproved Scheme the table indicates the ranges used in determining the fair-market values, aligning with the various dates of the underlying grants. The volatility is calculated using historichistorical weekly averages of the Company's share price over a period that is in line with the expected life of the options.
| | | | | | | Issued in 2016 | EMI Scheme | | Unapproved Scheme | Options granted | 32,000 |
| | 1,670,000 |
| Risk-free interest rate | 1.42 | % | | 0.23%-1.42% |
| Expected life of options | 10 years |
| | 5.5-10 years |
| Annualized volatility | 88.0 | % | | 74.3% - 88.0% |
| Dividend rate | 0.00 | % | | 0.00 | % | Vesting period | 3 years |
| | 3 years |
| | | | | Issued in 2017 | Unapproved Scheme | | Restricted Stock Units | Options granted | 4,656,828 |
| | 1,052,236 |
| Risk-free interest rate | 0.29% - 0.62% |
| | 0.42%-0.62% |
| Expected life of options | 5.5 – 7.0 years |
| | 5.5 – 7.0 years |
| Annualized volatility | 71.3% - 73.3% |
| | 71.3% - 73.3% |
| Dividend rate | 0.00 | % | | 0.00 | % | Vesting period | 3 and 4 years |
| | 3 and 4 years |
|
The Company had the following share options movements in the year ended December 31, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2017 | | Options granted | | Options exercised | | Options forfeited | | Options expired | | At December 31, 2017 | | Expiry date | | 2012 | | 2.50 - 7.50 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | June 1, 2022 | | 2013 | | 2 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | 100,000 |
| | April 15, 2023 | | 2013 | | 2.00 |
| | 20,000 |
| | — |
| | — |
| | — |
| | (20,000 | ) | | — |
| | June 1, 2023 | * | 2013 | | 2.00 |
| | 160,000 |
| | — |
| | — |
| | — |
| | — |
| | 160,000 |
| | July 29, 2023 | | 2014 | | 1.75 |
| | 110,000 |
| | — |
| | — |
| | — |
| | — |
| | 110,000 |
| | May 15, 2024 | | 2014 | | 1.75 |
| | 63,333 |
| | — |
| | — |
| | — |
| | (13,333 | ) | | 50,000 |
| | May 15, 2024 | * | 2014 | | 1.10 - 1.75 |
| | 200,000 |
| | — |
| | (133,333 | ) | | — |
| | — |
| | 66,667 |
| | August 6, 2018 | **
| 2015 | | 1.25 |
| | 82,000 |
| | — |
| | — |
| | — |
| | — |
| | 82,000 |
| | January 29, 2025 | * | 2015 | | 1.25 |
| | 510,000 |
| | — |
| | — |
| | — |
| | — |
| | 510,000 |
| | January 29, 2025 | | 2016 | | 2 |
| | 260,000 |
| | — |
| | — |
| | — |
| | — |
| | 260,000 |
| | February 2, 2026 | | 2016 | | 2.00 |
| | 22,000 |
| | — |
| | — |
| | — |
| | — |
| | 22,000 |
| | February 2, 2026 | * | 2016 | | 1.80 |
| | 810,000 |
| | — |
| | — |
| | — |
| | — |
| | 810,000 |
| | August 3, 2026 | | 2016 | | 1.89 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 13, 2026 | | 2016 | | 2.04 |
| | 300,000 |
| | — |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 16, 2026 | | 2017 | | 1.32 - 1.525 |
| | — |
| | 4,656,828 |
| | — |
| | — |
| | — |
| | 4,656,828 |
| | April 26, 2027 | | Total | | | | 3,037,333 |
| | 4,656,828 |
| | (133,333 | ) | | — |
| | (33,333 | ) | | 7,527,495 |
| | | |
| | * | Options granted under the EMI Scheme. |
* * Valued based on fair value of services received.
and RSUs.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 16.17. Share-based payments charge (Continued)
| | | | | | | | Issued in 2018 | | Unapproved Scheme | | Restricted Stock Units | Options granted | | 2,090,847 |
| | 273,390 |
| Risk-free interest rate | | 1.08% - 1.22% |
| | 1.08% - 1.22% |
| Expected life of options | | 5.5 - 7 years |
| | 5.5 - 7 years |
| Annualized volatility | | 69.88% -71.35% |
| | 69.88% -71.35% |
| Dividend rate | | 0.00 | % | | 0.00 | % | Vesting period | | 1 to 4 years |
| | 1 to 4 years |
| | | | | | Issued in 2019 | | Unapproved Scheme | | Restricted Stock Units | Options granted | | 5,569,050 |
| | 740,496 |
| Risk-free interest rate | | 0.39% - 0.82% |
| | 0.76% - 0.82% |
| Expected life of options | | 5.5 - 7 years |
| | 5.5 - 7 years |
| Annualized volatility | | 67.98% - 69.71% |
| | 63.82% - 69.71% |
| Dividend rate | | 0.00 | % | | 0.00 | % | Vesting period | | 1 to 4 years |
| | 1 to 4 years |
|
The Company had the following Restricted Share Unitsshare options movements in the year ended December 31, 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2017 | | Units granted | | Units exercised | | Units forfeited | | Units expired | | At December 31, 2017 | | Expiry date | 2017 | | | | — |
| | 1,052,236 |
| | — |
| | — |
| | — |
| | 1,052,236 |
| | April 26, 2027 | Total | | | | — |
| — |
| 1,052,236 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,052,236 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2019 | | Options granted | | Options forfeited | | Options expired | | At December 31, 2019 | | Expiry date | | 2012 | | 2.50 - 7.50 |
| | 99,993 |
| | — |
| | — |
| | — |
| | 99,993 |
| | June 1, 2022 | | 2013 | | 2 |
| | 99,990 |
| | — |
| | — |
| | (19,998 | ) | | 79,992 |
| | April 15, 2023 | | 2013 | | 2.00 |
| | 159,999 |
| | — |
| | — |
| | — |
| | 159,999 |
| | July 29, 2023 | | 2014 | | 1.75 |
| | 109,998 |
| | — |
| | — |
| | — |
| | 109,998 |
| | May 15, 2024 | | 2014 | | 1.75 |
| | 49,998 |
| | — |
| | — |
| | — |
| | 49,998 |
| | May 15, 2024 | * | 2015 | | 1.25 |
| | 41,997 |
| | — |
| | — |
| | — |
| | 41,997 |
| | January 29, 2025 | * | 2015 | | 1.25 |
| | 549,999 |
| | — |
| | — |
| | — |
| | 549,999 |
| | January 29, 2025 | | 2016 | | 2 |
| | 240,000 |
| | — |
| | — |
| | — |
| | 240,000 |
| | February 2, 2026 | | 2016 | | 2.00 |
| | 21,996 |
| | — |
| | — |
| | — |
| | 21,996 |
| | February 2, 2026 | * | 2016 | | 1.80 |
| | 676,664 |
| | — |
| | — |
| | — |
| | 676,664 |
| | August 3, 2026 | | 2016 | | 1.89 |
| | 299,997 |
| | — |
| | — |
| | — |
| | 299,997 |
| | September 13, 2026 | | 2016 | | 2.04 |
| | 300,000 |
| | — |
| | — |
| | — |
| | 300,000 |
| | September 16, 2026 | | 2017 | | 1.32 - 1.525 |
| | 4,093,164 |
| | — |
| | — |
| | — |
| | 4,093,164 |
| | April 26, 2027 | | 2018 | | 1.46 |
| | 2,008,319 |
| | — |
| | (34,614 | ) | | — |
| | 1,973,705 |
| | March 8, 2028 | | 2019 | | 570.00 |
| | — |
| | 3,903,050 |
| | (87,356 | ) | | — |
| | 3,815,694 |
| | March 29, 2029 | | 2019 | | 595.00 |
| | — |
| | 346,000 |
| | — |
| | — |
| | 346,000 |
| | June 11, 2029 | | 2019 | | 457.00 |
| | — |
| | 100,000 |
| | — |
| | — |
| | 100,000 |
| | August 22, 2029 | | 2019 | | 0.436 |
| | — |
| | 720,000 |
| | — |
| | — |
| | 720,000 |
| | November 6, 2029 | | 2019 | | 445.00 |
| | — |
| | 500,000 |
| | — |
| | — |
| | 500,000 |
| | November 26, 2029 | | Total | | | | 8,752,114 |
| | 5,569,050 |
| | (121,970 | ) | | (19,998 | ) | | 14,179,196 |
| | | |
The average fair value at grant date, by year of grant and plan, of the exercisable options as per December 31, 2017 is presented in the below table.
| | | | | | | | | | Year of issue | EMI Scheme (£) | | Unapproved Scheme (£) | | RSU (£) | 2012 | 0.63 - 1.20 |
| | — |
| | — |
| 2013 | 0.83 |
| | 0.79 - 0.95 |
| | | 2014 | 0.76 |
| | 0.23 - 0.76 |
| | | 2015 | 0.57 |
| | 0.57 |
| | | 2016 | 1.35 |
| | 0.93 - 1.35 |
| | | 2017 | — |
| | 0.84 |
| | 1.33 |
|
Outstanding and exercisable share options by scheme as of December 31, 2017:
| | | | | | | | | | | | | Plan | Outstanding | | Exercisable | | Weighted average exercise price in £ for Outstanding | | Weighted average exercise price in £ for Exercisable | Unapproved | 7,313,473 |
| | 773,333 |
| | 1.50 |
| | 1.64 |
| EMI | 213,984 |
| | 185,333 |
| | 3.06 |
| | 3.28 |
| Total | 7,527,457 |
| | 958,666 |
| | 1.54 |
| | 1.95 |
|
As at December 31, 2017 there were no restricted share options exercisable (2016: nil) and there is no exercise price for restricted share options.
The options outstanding at December 31, 2017 had a weighted average remaining contractual life of 8.6 years (2016: 8.2 years). For 2016 and 2017, the number of options granted and expired and the weighted average
| | * | Options granted under the EMI Scheme. |
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 20172019 16.17. Share-based payments charge (Continued)
The Company had the following RSU movements in the year ended December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | Year of issue | | Exercise price (£) | | At January 1, 2019 | | Units granted | | Units vested | | Units forfeited | | At December 31, 2019 | | Expiry date | | 2017 | | | | 729,987 |
| | — |
| | — |
| | — |
| | 729,987 |
| | April 26, 2027 | | 2018 | | | | 132,486 |
| | — |
| | — |
| | — |
| | 132,486 |
| | March 8, 2028 | | 2019 | | | | | | 740,496 |
| | — |
| | — |
| | 740,496 |
| | March 29, 2027 | | Total | | | | 862,473 |
| | 740,496 |
| | — |
| | — |
| | 1,602,969 |
| | | |
Outstanding and exercisable share options by scheme as of December 31, 2019: | | | | | | | | | | | | | Plan | Outstanding | | Exercisable | | Weighted average exercise price in £ for Outstanding | | Weighted average exercise price in £ for Exercisable | Unapproved | 13,965,212 |
| | 5,552,293 |
| | 1.12 |
| | 1.55 |
| EMI | 213,984 |
| | 213,984 |
| | 3.06 |
| | 3.06 |
| Total | 14,179,196 |
| | 5,766,277 |
| | 1.15 |
| | 1.61 |
|
As of December 31, 2019 there were no restricted share options exercisable (2018: nil) and there is no exercise price for restricted share options. The options outstanding at December 31, 2019 had a weighted average remaining contractual life of 7.7 years (2018: 8.0 years). For 2018 and 2019, the number of options granted and expired and the weighted average exercise price of options were as follows: | | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2016 | | 1,792,000 |
| | 1.78 |
| Options granted in 2016: | | | | | Employees | | 1,002,000 |
| | 1.92 |
| Directors | | 700,000 |
| | 2.05 |
| Options exercised in the year | | (46,666 | ) | | 1.12 |
| Options forfeited in the year | | (150,001 | ) | | 1.24 |
| Options expired in the year | | (260,000 | ) | | 2.46 |
| At December 31, 2016 | | 3,037,333 |
| | 1.87 |
| Exercisable at December 31, 2016 | | 846,667 |
| | 2.25 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2018 | | 7,527,458 |
| | 1.53 |
| Options granted in 2018: | | | | | Employees | | 1,222,089 |
| | 1.46 |
| Directors | | 868,758 |
| | 1.46 |
| Options forfeited in the year | | (799,524 | ) | | 1.43 |
| Options expired in the year | | (66,667 | ) | | 1.75 |
| At December 31, 2018 | | 8,752,114 |
| | 1.53 |
| Exercisable at December 31, 2018 | | 3,542,884 |
| | 1.66 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2017 | | 3,037,333 |
| | 1.87 |
| Options granted in 2017: | | | | | Employees | | 3,150,846 |
| | 1.32 |
| Directors | | 1,505,982 |
| | 1.32 |
| Options exercised in the year | | (133,333 | ) | | 1.10 |
| Options forfeited in the year | | — |
| | — |
| Options expired in the year | | (33,333 | ) | | 1.90 |
| At December 31, 2017 | | 7,527,495 |
| | 1.53 |
| Exercisable at December 31, 2017 | | 797,333 |
| | 2.04 |
|
| | | | | | | | | | Number of options | | Weighted average exercise price (£) | At January 1, 2019 | | 8,752,114 |
| | 1.53 |
| Options granted in 2019: | | | | | Employees | | 4,042,106 |
| | 0.55 |
| Directors | | 1,526,944 |
| | 0.53 |
| Options forfeited in the year | | (121,970 | ) | | 0.82 |
| Options expired in the year | | (19,998 | ) | | 2.00 |
| At December 31, 2019 | | 14,179,196 |
| | 1.15 |
| Exercisable at December 31, 2019 | | 5,766,277 |
| | 1.60 |
|
The following table shows the number of RSUs issued, exercised and forfeited in 2017. No RSUs were granted in 2016 and none of the RSUs granted in 2017 were forfeited, canceled or vested in the year.2018. The fair value of each unvested RSU at grant date was £1.32.£1.46.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 17. Share-based payments charge (Continued)
| | | | | | | Number of RSUs | At January 1, 20172018 | | —1,052,236 |
| Granted: | | | Employees | | 705,841136,404 |
| Directors | | 346,395136,986 |
| RSUs vested in the year | | (309,237 | ) | RSUs forfeited in the year | | (153,916 | ) | At December 31, 2018 | | 862,473 |
|
The following table shows the number of RSUs issued in 2019. There were no RSUs forfeited, canceled or vested in 2019. The fair value of each unvested RSU granted in 2019 was £0.57. | | | | | | | Number of RSUs | At January 1, 2019 | | 862,473 |
| Granted: | | | Employees | | 474,072 |
| Directors | | 266,424 |
| RSUs vested in the year | | — |
| RSUs forfeited in the year | | — |
| At December 31, 20172019 | | 1,052,2361,602,969 |
|
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
17. Trade and other payables
| | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | | £'000s | | £'000s | Trade payables | 719 |
| | 1,214 |
| Other payables | 54 |
| | 74 |
| Accruals | 2,050 |
| | 5,866 |
| Total trade and other payables | 2,823 |
| | 7,154 |
|
As of December 31, 2016, accruals included £0.89 million related to expenses associated with the Global Offering which was fully paid during the year ended December 31, 2017.
18. Assumed contingent obligation related to the business combinationDerivative financial instrument The value of the assumed contingent obligation as of December 31, 2017 amounts to £875 thousand (2016: £802 thousand). The increase in value of the assumed contingent obligation during 2017 amounted to £73 thousand (2016: £208 thousand ) and was recorded in finance expense as it related to the unwind of the discount on the liability and retranslation for changes in US$ exchange rates. Periodic re-measurement is triggered by changes in the probability of success. In 2016 the remeasurement was triggered by the success of the Company's Phase 2a clinical trial, presented in March 2016. The discount percentage applied is 12%. In 2017 there were no events that triggered remeasurement.
| | | | | | | | 2016 | | 2017 | | £'000s | | £'000s | January 1 | 594 |
| | 802 |
| Re-measurement of assumed contingent obligation | 86 |
| | — |
| Impact of changes in foreign exchange rates | 37 |
| | (23 | ) | Unwinding of discount factor | 85 |
| | 96 |
| December 31 | 802 |
| | 875 |
|
The table below describes the reported change to the value of the liability during 2017 of £73 thousand (2016: £208 thousand) compared to what this number would be following the presented variations to the underlying assumptions (assuming the probability of success does not change):
| | | | | | | | 2016 | | 2017 | | £'000s | | £'000s | Change in value of the assumed contingent obligation | 208 |
| | 73 |
| 10% lower revenue assumption | 202 |
| | 72 |
| 10% higher revenue assumption | 215 |
| | 73 |
| 1% lower risk assumption | 205 |
| | 69 |
| 1% higher risk assumption | 211 |
| | 76 |
|
VERONA PHARMA PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2017
19. Warrants
Pursuant to the July 2016 Placement, onOn July 29, 2016, the Company issued 31,115,926 units to new and existing investors at the placing price of £1.4365 per unit. Each unit comprises one ordinary share and one warrant.
The warrant holders can subscribe for 0.4 of an ordinary share at a per share exercise price of 120% of the placing price or £1.7238. The warrant holders can opt for a cashless exercise of their warrants, whereby the warrant holders can choose to exchange the warrants held for reduced number of warrants exercisable at nil consideration. The reduced number of warrants is calculated based on a formula considering the share price and the exercise price of the warrants. The warrants are therefore classified as a derivative financial liability, since their exercise could result in a variable number of shares to be issued. The warrants entitled the investors to subscribe for, in aggregate, a maximum of 12,446,37012,401,262 shares. The warrants can be exercised on the earlier of the consummation of the Global Offering (being April 26, 2017) or the first anniversary of the grant, and the exercise period shall end on the fifth anniversary of the date of grant (being July 29, 2021). The ordinary shares and warrants were accounted for as a compound financial instrument. The warrants component of the instrument issued at the July 2016 Placement was classified as a derivative financial liability and was initially measured at fair value of £9.0 million. The residual amount of proceeds totaling £35.7 million was recognized within equity. Subsequently the financial liability was re-measured at the reporting date at fair value through profit or loss.
The total of transaction costs the Company incurred for the above transactions amounted to £2.9 million of which £0.6 million was allocated to the warrants and the remaining £2.3 million was presented as a reduction to share premium, by reference to the proceeds allocated to each component. The amount assigned to the financial liability of the warrants was subsequently presented as finance expense in the Consolidated Statement of Comprehensive Income.until May 2, 2022.
In the year ended December 31, December 20172019, no warrants over 45,108 shares were forfeited (2016:(2018: nil). The table below presents the assumptions in applying the Black-Scholes model to determine the fair value of the warrants. | | | | | | | | | | As of December 31, 2016 | | As of December 31, 2017 | Shares available to be issued under warrants
| 12,446,370 |
| | 12,401,262 |
| Exercise price | £ | 1.7238 |
| | £ | 1.7238 |
| Risk-free interest rate | 0.088 | % | | 0.420 | % | Expected term to exercise | 2.43 years |
| | 1.79 years |
| Annualized volatility | 73.53 | % | | 47.35 | % | Dividend rate | 0.00 | % | | 0.00 | % |
| | | | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | Shares available to be issued under warrants | 12,401,262 |
| | 12,401,262 |
| Exercise price | £ | 1.7238 |
| | £ | 1.7238 |
| Risk-free interest rate | 0.540 | % | | 0.760 | % | Expected term to exercise | 2.34 years |
| | 3.34 years |
| Annualized volatility | 65.56 | % | | 60.72 | % | Dividend rate | 0.00 | % | | 0.00 | % |
The figures disclosed above relating to the issue152
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE YEARS ENDED DECEMBER 31, 2019 18. Derivative financial instrument (Continued)
As per the reporting date, the Company updated the underlying assumptions and calculated a fair value of these warrants amounting to £1.3£0.9 million. The variance of £6.7£(1.6) million is recorded as finance income in the Consolidated Statement of Comprehensive Income. | | | | | | | | Derivative financial instrument | | Derivative financial instrument | | 2019 | | 2018 | | £'000s | | £'000s | At January 1 | 2,492 |
| | 1,273 |
| Fair value adjustments recognized in profit or loss | (1,597 | ) | | 1,219 |
| At December 31 | 895 |
| | 2,492 |
|
For the amount recognized at December 31, 2019, the effect when the following parameter deviates up or down is presented in the below table. | | | | | Volatility (up / down 10% pts) | | £'000s | Variable up | 1,306 |
| Base case, reported fair value | 895 |
| Variable down | 535 |
|
19. Trade and other payables | | | | | | | | As of December 31, 2019 | | As of December 31, 2018 | | £'000s | | £'000s | Trade payables | 1,455 |
| | 2,839 |
| Other payables | — |
| | 12 |
| Accruals | 6,806 |
| | 4,882 |
| Total trade and other payables | 8,261 |
| | 7,733 |
|
20. Assumed contingent liability related to the business combination The value of the assumed contingent liability as of December 31, 2019 is £1.1 million (2018: £1.0 million). The increase in value of the assumed contingent liability during 2019 amounted to £0.1 million (2018: £0.1 million). The assumed contingent liability relates to the acquisition, in 2006, of rights to certain patents and patent applications relating to ensifentrine and related compounds under which the Company is obliged to pay royalties to Ligand (see 2.12). The assumed contingent liability is measured at the expected value of the milestone payment and royalty payments. This expected value is based on estimated future royalties payable, derived from sales forecasts, and an assessment of the probability of success using standard market probabilities for respiratory drug development. The risk-weighted value of the assumed contingent arrangement is discounted back to its net present value applying an effective interest rate of 12%. The assumed contingent liability is accounted for as a liability and its value is measured at amortized cost using the effective interest rate method, and is re-measured for changes in estimated cash flows or when the probability of success changes.
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 19. Warrants (Continued)2019
Re-measurements relating to changes in estimated cash flows and probabilities of success are recognized in the IP R&D asset it relates to ("see 2.7"). This is a change in accounting policy for the year ended December 1, 2019 (see 2.17). The unwind of the discount is recognized in finance expense. The Company considers that probabilities of success will change when it moves from one stage of clinical development to another. See note 4 for a further discussion of this. | | | | | | | | Derivative financial instrument | | Derivative financial instrument | | 2016 | | 2017 | | £'000s | | £'000s | At January 1 | — |
| | 7,923 |
| On issuance of shares | 8,991 |
| | — |
| Fair value adjustments recognized in profit or loss | (1,068 | ) | | (6,650 | ) | At December 31 | 7,923 |
| | 1,273 |
|
| | | | | | | | 2019 | | 2018 | | £'000s | | £'000s | January 1 | 996 |
| | 875 |
| Impact of changes in foreign exchange rates | (12 | ) | | 15 |
| Unwinding of discount factor | 119 |
| | 106 |
| December 31 | 1,103 |
| | 996 |
|
There is no material difference between the fair value and carrying value of the financial liability.
For the amount recognized as at December 31, 2017,2019, of £1,103 thousand, the effect when some of theseif underlying parameters wouldassumptions were to deviate up or down is presented in the below table.following table (assuming the probability of success does not change): | | | | | | | | Volatility (up / down 10% pts) | | Time to maturity (up / down 6 months) | | £'000s | | £'000s | Variable up | 1,921 |
| | 1,677 |
| Base case, reported fair value | 1,273 |
| | 1,273 |
| Variable down | 694 |
| | 843 |
|
20. Financial commitments | | | |
| Discount rate (up / down 1 % pt) | Revenue (up / down 10 % pts) | | £'000s | £'000s | Variable up | 1,067 | 1,135 | Base case, reported fair value | 1,103 | 1,103 | Variable down | 1,141 | 1,071 |
As of December 31, 2017, the Company was committed to making the following payments under non-cancellable operating leases related to its facilities. | | | | | | | | Land and Buildings | | Land and Buildings | | 2016 | | 2017 | | £'000s | | £'000s | Operating lease obligations: | | | | Within one year | 270 |
| | 291 |
| Between one and five years | — |
| | 277 |
| Total | 270 |
| | 568 |
|
VERONA PHARMA PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 2017 2019
21.22. Related parties transactions and other shareholder matters
(i) Related party transactions The Directors have authority and responsibility for planning, directing and controlling the activities of the Company and they therefore comprise key management personnel as defined by IAS 24, ("Related Party Disclosures"). Directors and key management personnel remuneration is disclosed in note 8. (ii) Other shareholder matters The Company has entered into the following arrangements with parties who are significant shareholders of the Company, though they are not classed as related parties. The Company entered into relationship agreements with Vivo CapitalVentures Fund VIII ("VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. (collectively, "Vivo Capital"), Orbimed Private Investments VI L.P. ("Orbimed"), and Abingworth Bioventures VI L.P. ("Abingworth"), and Arix Bioscience plc ("Arix") and Arthurian Life Sciences SPV GP Limited, ("Arthurian"). As agreed in these relationship agreements, the above parties invested in the Company as part of the July 2016 Placement, and the Company agreed to appoint representatives designated by Vivo Capital, OrbiMed Abingworth, and Arix and Arthurian,Abingworth to the board of directors, who are Dr. Mahendra Shah, Mr. Rishi Gupta, and Dr. Andrew Sinclair and Dr. Ken Cunningham respectively.Sinclair. The appointment rights within the relationship agreement with Arix and Arthurian terminated on closing of the Global Offering on April 26, 2017;2017. Dr Cunningham has agreed to continue to serve on the Company's board of directors as an independent director. The respective appointment rights under the remaining relationship agreements will automatically terminate upon (i) Vivo Capital, OrbiMed or Abingworth (or any of their associates), as applicable, ceasing to beneficially hold 6.5% of the issued ordinary shares, or (ii) the ordinary shares ceasing to be admitted to AIM. Piers Morgan, Chief Financial Officer of the Company, and his spouse purchased 88,415 ordinary shares in total for £53 thousand from the market in the year ended December 31, 2019 (2018: £nil). Dr. Jan-Anders Karlsson, Chief Executive Officer of the Company, purchased 3,250 ordinary shares for £5 thousand from the market in the year ended December 31, 2018. There was no similar transaction as at December 31, 2019. Dr. David Ebsworth, Chairman of the Company, purchased 247,600 ordinary shares for £124 thousand from the market in the year ended December 31, 2019 (2018: £14 thousand). At December 31, 2018, there was a receivable of £126 thousand due from one director and two key management personnel relating to tax due on RSUs that vested in the year ended December 31, 2018. This receivable was repaid, together with interest at a rate of 3.9% per annum, by March 6, 2019. There was no such balance as at December 31, 2019. In the year ended December 31, 2019, a director provided consultancy services for £26 thousand (2018: £26 thousand). 22. Events after the reporting date On February 3, 2020, the Company announced the appointment of David Zaccardelli as chief executive officer with effect from February 1, 2020, following the retirement of Jan-Anders Karlsson, PhD. The Company also entered into a management rights agreement with Novo A/S under which Novo A/S was entitled to appoint an observer to the Board;announced the appointment rights within the management rights agreement terminated on closing of the Global Offering on April 26, 2017.Mark Hahn as chief financial officer with effect from March 1, 2020, as successor to Piers Morgan.
000s |
| | £'000s |
|