Pharma Co. Secures $650M Strategic Financing
Research Report

Canaccord Genuity analyst Edward Nash, in a research report published on May 12, 2024, reiterated a BUY rating and a 12-month price target of US$35.00 on shares of Verona Pharma Plc. (VRNA:NASDAQ; VRP:LON), following the company's first quarter 2024 (1Q24) financial results and business highlights.

As of March 31, 2024, Verona Pharma had cash and cash equivalents of US$254.9 million. The company also announced a US$650 million strategic financing signed in May, which management believes will extend the cash runway beyond 2026 and fund the upcoming commercial activities related to the potential FDA approval of ensifentrine, Verona's lead product candidate for the treatment of chronic obstructive pulmonary disease (COPD).

"We have recently fine-tuned our model with updates to our assumptions and estimates, and a note with details can be found here. We reiterate our BUY rating on shares of VRNA and our US$35 12-month price target," Nash stated.

The analyst highlighted that Verona Pharma is entering a quiet period post the 1Q24 earnings report as it approaches the upcoming Prescription Drug User Fee Act (PDUFA) date for ensifentrine in June.

"The company believes its commercial plan has already been reviewed with the Street, and it plans to focus on execution and interactions with the FDA," Nash noted.

Verona Pharma's management confirmed during the earnings call that the company did not receive any requirements from the FDA for additional data or material to support the New Drug Application (NDA) filing, and the company expects no additional updates or changes to the commercial plan until the PDUFA date.

Nash also discussed the US$650 million non-dilutive strategic financing led by Oaktree, which comprises an up to US$400 million debt facility and an up to US$250 million Revenue Interest Purchase and Sales Agreement (RIPSA).

"This financing package allows Verona access to US$100M at launch from RIPSA and an additional US$125M fund from the debt facility, which includes US$55M at closing and, subject to certain conditions, an additional US$70M upon FDA approval of ensifentrine," the analyst explained.

Based on the announced strategic financing, Canaccord Genuity has included a total of US$170 million fund draw by Verona Pharma at FDA approval in their projections, which does not include the US$55 million debt that will be used to replace a currently existing term loan. The firm also removed a previously estimated US$250 million equity raise from their projections in the second half of 2024.

Verona Pharma's management team, led by CEO David Zaccardelli, has been focused on preparing for the potential FDA approval and commercial launch of ensifentrine. The company's strong financial position, bolstered by the recent strategic financing, provides a solid foundation for the successful commercialization of the drug.

As Verona Pharma moves closer to the PDUFA date for ensifentrine, investors may find the company's shares attractive, given the potential for significant value creation upon FDA approval and successful market launch. With a BUY rating and a 12-month price target of US$35.00, Canaccord Genuity sees substantial upside potential for Verona Pharma's stock.

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Disclosures for Canaccord Genuity, Verona Pharma Plc., May 12, 2024

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Sector Coverage Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring analysts of the report. Investment Recommendation Date and time of first dissemination: May 12, 2024, 23:15 ET Date and time of production: May 12, 2024, 23:15 ET Target Price / Valuation Methodology: Verona Pharma - VRNA We value shares of Verona by employing a sum-of-the-parts analysis that includes programs where we believe clinical data is available to fairly determine the overall probability of success on a case-by-case basis, in addition to net cash on hand. Currently, only projections for the COPD program are used to generate our $35 12-month price target. Risks to achieving Target Price / Valuation: Verona Pharma - VRNA Clinical risk: As is the case with all biotechnology companies, clinical risk is inherent to drug development. While proof-of-concept has been demonstrated in 16 clinical trials involving three different modes of delivery, with the nebulized form utilized in six of those studies, longer-term efficacy and safety data as collected in the planned Phase III trials is critical. Ensifentrine is Verona’s sole clinical program and any negative efficacy or safety data read-out could have a significant negative impact on shares. Regulatory risk: We believe the regulatory risk for VRNA is no different than with other biotechnology companies working in the same indication. Ensifentrine is a dual PDE3/PDE4 inhibitor and as such, only one other drug currently approved has the same mechanism of action, Daliresp (PDE4 inhibitor). One key difference is that Daliresp is in tablet form. Commercial risk: Verona, as a company, has not previously launched or marketed a commercial product. In order to successfully commercialize ensifentrine, VRNA needs to secure payer coverage. At the time VRNA launches ensifentrine, which we forecast to be 2024, at least 20 other drugs will likely be on the market for COPD. Competitive risk: There are numerous biotechnology and pharmaceutical companies marketing and/or developing therapeutics for the treatment of COPD. LAMA, LABA, and/or ICS treatments have been on the market for many years and have a known benefit:risk profile. Management risk: For a clinical-stage biotechnology company, stability in C-suite roles is key as it is with any company. Turnover, especially in the regulatory agency-facing roles such as CEO and CMO, could negatively impact share performance.

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