UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number: 001-38067
Verona Pharma plc
(Exact Name of Registrant as Specified in Its Charter)
United Kingdom
98-1489389
(State or Other Jurisdiction of Incorporation or
Organization)
(I.R.S. Employer Identification No.)
3 More London Riverside
London SE1 2RE United Kingdom
Not Applicable
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: +44 203 283 4200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol
Name of each exchange on which registered
Ordinary shares, nominal value £0.05 per share*
VRNA
The Nasdaq Stock Market LLC (Nasdaq Global Market)
* The ordinary shares are represented by American Depositary Shares (each representing 8 ordinary shares), which are exempt from the operation
of Section 12(a) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12a-8 thereunder.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Small reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial
statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery
period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was
approximately $1.1 billion as of June 30, 2024, the last business day of the registrant's most recently completed
second fiscal quarter. Solely for purposes of this disclosure, shares held by executive officers, directors and certain
shareholders of the registrant as of such date have been excluded because such persons or entities may be deemed to
be affiliates of the registrant.
As of February 24, 2025, the registrant had 679,831,046 ordinary shares, nominal value £0.05 per share,
outstanding, which if all held in ADS form, would be represented by 84,978,881 American Depositary Shares, each
representing eight (8) ordinary shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement that the registrant intends to file with the Securities and
Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2025 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated
herein.
GENERAL INFORMATION
All references in this Annual Report on Form 10-K (the “Annual Report”), to “Verona,” the “Company,” the
"group", “we,” “us” and “our” refer to Verona Pharma plc and its consolidated subsidiaries. In this Annual Report,
the U.S. Securities and Exchange Commission is referred to as the “SEC”, the Securities Act of 1933, as amended, is
referred to as the “Securities Act” and the Securities Exchange Act of 1934, as amended, is referred to as the
“Exchange Act.”
TRADEMARKS, TRADENAMES AND SERVICE MARKS
This Annual Report may include trademarks, tradenames and service marks that are the property of other
organizations. Solely for convenience, trademarks and tradenames referred to in this Annual Report appear without
the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the
fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these
trademarks and tradenames.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute forward-looking statements. In some cases, you can identify
forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the
negative of these terms or other similar expressions, although not all forward-looking statements contain these
words. All statements other than statements of historical facts contained in this Annual Report, including without
limitation statements regarding our future results of operations and financial position, business strategy and plans
and objectives of management for future operations, the commercial and marketing strategy of Ohtuvayre, market
adoption of Ohtuvayre as a treatment for COPD; the ongoing development of ensifentrine and any other product
candidates and combinations, including statements regarding the expected initiation, timing, progress and
availability of data from our clinical trials and potential regulatory approvals and the expected regulations applicable
to ensifentrine and any other product candidates, research and development costs, timing and likelihood of success,
potential collaborations, the duration of our patent portfolio, our estimates regarding expenses, future revenues,
capital requirements, debt service obligations and our need for additional financing, the funding we expect to
become available and conditions under the 2024 Term Loans and RIPSA, and the sufficiency of our cash and cash
equivalents to fund operations, are forward-looking statements.
The forward-looking statements in this Annual Report are only predictions and are based largely on our current
expectations and projections about future events and financial trends that we believe may affect our business,
financial condition and results of operations. These forward-looking statements speak only as of the date of this
Annual Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including
the important factors described under the sections in this Annual Report entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in our other filings with the SEC.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking
statements as predictions of future events. The events and circumstances reflected in our forward-looking statements
may not be achieved or occur and actual results could differ materially from those projected in the forward-looking
statements. Moreover, we operate in an evolving environment. Except as required by applicable law, we do not plan
to publicly update or revise any forward-looking statements contained herein, whether as a result of any new
information, future events, changed circumstances or otherwise. We intend the forward-looking statements
contained in this Annual Report to be covered by the safe harbor provisions for forward-looking statements
contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Additionally, certain
information we may disclose (either herein or elsewhere) is informed by the expectations of various stakeholders or
third-party frameworks and, as such, may not necessarily be material for purposes of our filings under U.S. federal
securities laws, even if we use “material” or similar language in discussing such matters.
This Annual Report contains market data and industry forecasts that were obtained from industry publications.
These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such
estimates. We have not independently verified any third-party information. While we believe the market position,
market opportunity and market size information included in this Annual Report is generally reliable, such
information is inherently imprecise.
SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk
Factors” in this Annual Report. You should carefully consider these risks and uncertainties when investing in our
ADSs. The principal risks and uncertainties affecting our business include the following:
•
We have a limited operating history and have not generated any significant product revenue.
•
We may need additional funding to complete development and commercialization of any future product
candidates and to continue to commercialize Ohtuvayre. If we are unable to raise capital when needed, or if a
failure of any financial institution where we maintain our cash and cash equivalents prevents or delays us from
accessing uninsured funds, we could be forced to delay, reduce or eliminate our product development programs
or commercialization efforts.
•
The terms of our credit facility place restrictions on our operating and financial flexibility, and our existing and
any future indebtedness could adversely affect our ability to operate our business;
•
The terms of the RIPSA place restrictions on our operating and financial flexibility, and if we fail to comply
with certain covenants in the RIPSA, our results of operations and financial condition may be harmed;
•
Changes in our tax rates, unavailability of certain tax credits or reliefs or exposure to additional tax liabilities or
assessments could affect our profitability, and audits by tax authorities could result in additional tax payments
for prior periods;
•
We depend solely on the success of ensifentrine, which was recently approved by the FDA as Ohtuvayre. If we
are unable to continue to commercialize Ohtuvayre, or successfully develop ensifentrine for other indications,
our ability to generate revenue and our financial condition will be adversely affected;
•
We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the
development and commercialization of our product candidates;
•
Our product and product candidates may have serious adverse, undesirable or unacceptable side effects which
may delay or prevent marketing approval;
•
If we are unable to enroll patients in our clinical trials for other indications, or enrollment is slower than
anticipated, our research and development efforts could be adversely affected;
•
We may become exposed to costly and damaging liability claims, either when testing ensifentrine in the clinic
or at the commercial stage, and our product liability insurance may not cover all damages from such claims;
•
Regulatory approval processes are lengthy, time consuming and inherently unpredictable, and if we are
ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially
harmed;
•
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and
commercialize our product candidates and may affect the prices we may set;
•
Our business operations and current and future relationships with investigators, healthcare professionals,
consultants, third-party payors and customers will be subject to applicable healthcare regulatory laws, which
could expose us to penalties;
•
We operate in a highly competitive and rapidly changing industry, which may result in others discovering,
developing or commercializing competing products before or more successfully than we do;
•
If our products, including Ohtuvayre, do not gain market acceptance or if we fail to accurately forecast demand
or manage our inventories, our business will suffer because we might not be able to fund future operations;
•
Our commercial capabilities and infrastructure, including sales, marketing, operations, manufacturing,
distribution, and reimbursement infrastructure, may not be adequate to successfully commercialize Ohtuvayre;
•
We rely, and expect to continue to rely, on third parties, including independent clinical investigators and clinical
research organizations, to conduct our pre-clinical studies and clinical trials;
•
The collaboration and license agreement with Nuance Pharma is important to our business. If Nuance Pharma is
unable to develop and commercialize products containing ensifentrine in Greater China, if we or Nuance
Pharma fail to adequately perform under the Nuance Agreement, or if we or Nuance Pharma terminate the
Nuance Agreement, our business would be adversely affected;
•
If we fail to enter into new strategic relationships for ensifentrine, our business, research and development and
commercialization prospects could be adversely affected;
•
We rely, and expect to continue to rely, on third party manufacturers and suppliers for production of the active
pharmaceutical ingredient ensifentrine and formulated drug products derived therefrom. Our dependence on
these third parties may impair continued commercialization of Ohtuvayre and the advancement of our research
and development programs;
•
We rely, and expect to continue to rely, on third parties for the sales, marketing, reimbursement and distribution
of our drug products, and a failure by these third parties to adequately perform would adversely affect our
business;
•
Our and our manufacturers’, suppliers’ and other critical third parties’ cybersecurity risk management program
and processes may not be effective in protecting our systems, networks and Confidential Information;
•
We rely on patents and other intellectual property rights to protect ensifentrine, the enforcement, defense and
maintenance of which may be challenging and costly;
•
Our information technology systems, and those of our manufacturers, suppliers and other third parties that we
use to perform services for us or otherwise collaborate with, may fail or suffer security breaches, which could
distract our operations and cause delays in our research and development and commercialization activities, and
may adversely affect our business, operations and financial performance;
•
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration
of a third-party patent which might adversely affect our ability to develop, manufacture and market ensifentrine;
•
We may be involved in lawsuits to protect or enforce patents covering ensifentrine, which could be expensive,
time consuming and unsuccessful, and issued patents could be found invalid or unenforceable if challenged in
court;
•
Our future growth and ability to compete depends on our ability to retain our key personnel and recruit
additional qualified personnel;
•
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt our operations;
•
The price of our American Depositary Shares may be volatile and may fluctuate due to factors beyond our
control;
•
We will continue to incur increased costs as a result of operating as a public company in the United States, and
our senior management are required to devote substantial time to new compliance initiatives and corporate
governance practices; and
•
Business interruptions could adversely affect our operations.
Table of Contents
Page
Part I
Item 1.
Business
1
Item 1A.
Risk Factors
24
Item 1B.
Unresolved Staff Comments
72
Item 1C.
Cybersecurity
72
Item 2.
Properties
73
Item 3.
Legal Proceedings
73
Item 4.
Mine Safety Disclosures
73
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
74
Item 6.
[Reserved]
75
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
75
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
88
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
88
Item 9A.
Controls and Procedures
88
Item 9B.
Other Information
89
Item 9C.
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
89
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
90
Item 11.
Executive Compensation
90
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
90
Item 13.
Certain Relationships and Related Transactions, and Director Independence
90
Item 14.
Principal Accounting Fees and Services
90
Part IV
Item 15.
Exhibits, Financial Statement Schedules
91
Item 16.
Form 10-K Summary
95
Signatures
96
Item 1. Business
OVERVIEW
We are a biopharmaceutical company focused on developing and commercializing innovative therapeutics for the treatment of
respiratory diseases with significant unmet medical needs.
On June 26, 2024, the U.S. Food and Drug Administration (“FDA”) approved Ohtuvayre (ensifentrine) for the maintenance
treatment of chronic obstructive pulmonary disease (“COPD”) in adult patients and we launched Ohtuvayre in the U.S. through
an exclusive network of accredited specialty pharmacies in August 2024. Ohtuvayre is the our first commercial product and the
first inhaled therapy with a novel mechanism of action available for the maintenance treatment of COPD in more than 20 years.
Ohtuvayre is a first-in-class selective dual inhibitor of the enzymes phosphodiesterase 3 and 4 (“PDE3” and “PDE 4”) that
combines bronchodilator and non-steroidal anti-inflammatory effects in one molecule. Ohtuvayre is delivered directly to the
lungs through a standard jet nebulizer without the need for high inspiratory flow rates or complex hand-breath coordination.
We are commercializing Ohtuvayre for the maintenance treatment of COPD in the U.S. Outside the U.S., we intend to license
Ohtuvayre to companies with expertise and experience in developing and commercializing products in those regions. To that
end, we have entered into a strategic collaboration with Nuance Pharma Limited, a Shanghai-based specialty pharmaceutical
company (“Nuance Pharma”), to develop and commercialize ensifentrine, including Ohtuvayre, in Greater China. In February
2025, Nuance announced that Ohtuvayre was approved in Macau, the first approval outside of the U.S., for the maintenance
treatment of COPD in adult patients. In addition, in September 2024, Nuance completed enrollment in its own pivotal Phase 3
trial evaluating ensifentrine for the maintenance treatment of COPD in China and results are expected in mid-2025.
The approval of Ohtuvayre in the U.S. was based on extensive data including the Phase 3 ENHANCE (“Ensifentrine as a Novel
inHAled Nebulized COPD thErapy”) trials, the results of which have been published in the American Journal of Respiratory
and Critical Care Medicine (“AJRCCM”). Ohtuvayre met the primary endpoint in both the ENHANCE-1 and ENHANCE-2
trials demonstrating statistically significant and clinically meaningful improvements in measures of lung function. In addition,
other endpoint data demonstrated that Ohtuvayre substantially reduced the rate and risk of COPD exacerbations in
ENHANCE-1 and ENHANCE-2. Ohtuvayre was well tolerated in both trials.
During 2024, we presented additional analyses of data from the ENHANCE trials at international scientific conferences and the
data were published in peer reviewed publications:
•
In May 2024, we presented eight posters, including two mini oral symposia, highlighting additional pooled analyses of the
ENHANCE studies at the American Thoracic Society International Conference (“ATS”) 2024. A pooled analysis
demonstrating reductions in the rate and risk of exacerbations with Ohtuvayre was presented as part of the ‘Late Breaking
Mini Symposium’ focusing on new breakthroughs. In addition, we hosted an exhibition booth exploring the role of PDE in
inflammation and lung function impairment in COPD as well as three innovation hub presentations led by clinical experts.
The abstracts were published on the ATS website and in the publication, AJRCCM;
•
In September 2024, we gave an oral presentation and presented three posters on additional analyses from the ENHANCE
studies at the European Respiratory Society International Congress 2024. The analyses summarized the efficacy and safety
of Ohtuvayre in subgroups of patients and a pooled analysis of patient reported outcomes demonstrated its effect on
reducing cough and sputum. The abstracts were published in the publication, European Respiratory Journal; and
•
In October 2024, we gave four oral presentations and presented two posters on analyses from the ENHANCE studies at
CHEST Annual Meeting 2024 (“CHEST”). These included subgroup data supporting improvements in lung function,
symptoms and quality of life, as well as reductions in the rate of exacerbations, regardless of COPD severity (moderate or
severe), smoking status (current or former) and chronic bronchitis (with or without). An analysis of Ohtuvayre’s impact on
reducing exacerbation rates and COPD-related healthcare resource utilization was also presented. The analyses were
published in the CHEST Annual Meeting on-line supplement.
Pipeline
In Phase 2 clinical trials, ensifentrine has demonstrated positive results in patients with COPD, asthma and cystic fibrosis
(“CF”). Two additional formulations of ensifentrine have been evaluated in Phase 2 trials for the treatment of COPD: dry
powder inhaler (“DPI”) and pressurized metered-dose inhaler (“pMDI”).
In addition, in the third quarter of 2024, we initiated two Phase 2 clinical trials:
•
dose-ranging trial with a glycopyrrolate, a Long-Acting Muscarinic Antagonist (“LAMA”), supporting a fixed-dose
combination program with ensifentrine for the maintenance treatment of COPD via delivery in a nebulizer, and
1
•
trial assessing the efficacy and safety of nebulized ensifentrine in patients with non-cystic fibrosis bronchiectasis
(“bronchiectasis”).
Overview of COPD and current treatments
COPD is a common, progressive, life-threatening respiratory disease without a cure. It causes loss of lung function, leading to
debilitating breathlessness, hospitalizations, and death. COPD has a major impact on everyday life. Patients struggle with basic
activities such as getting out of bed, showering, eating, and walking. Worldwide, COPD affects approximately 392 million
people and is the third leading cause of death, according to the Global Initiative for Chronic Obstructive Lung Disease.
The goal of COPD pharmacological therapy is to improve patients’ quality of life by reducing symptoms, decreasing the
quantity and severity of exacerbations (often an escalation of symptoms) and to improve patients’ ability to function.
For approximately 40 years, the treatment of COPD has been dominated by three classes of inhaled therapies approved for use
by the FDA and the European Commission based on the European Medicines Agency’s (“EMA”) opinion: anti-muscarinics,
beta-agonists and inhaled corticosteroids (“ICSs”). COPD patients are frequently treated with bronchodilators, including
LAMAs and long-acting beta-agonists (“LABAs”), to relieve airway constriction and make it easier to breathe. In addition,
patients at risk for exacerbations may be prescribed ICSs to prevent them.
Certain COPD patients are treated with the oral PDE4 inhibitor, roflumilast (Daliresp®), which has demonstrated a reduction in
exacerbation risk in patients with severe chronic bronchitis. However, oral PDE4 therapy results in systemic exposure, which
has been associated with unfavorable gastrointestinal side-effects such as nausea, emesis, diarrhea, abdominal pain, loss of
appetite and weight loss.
Approximately 8.6 million COPD patients in the U.S. receive LAMA, LABA, or ICS treatments alone or in combination
regardless of COPD severity. Despite these medications and the earlier use of dual (LAMA / LABA) and triple (LAMA /
LABA / ICS) therapies, many patients continue to suffer debilitating symptoms. According to a December 2022 study by
Phreesia, 49% of patients continue to have symptoms more than 24 days a month. This burden leaves a significant opportunity
for new inhaled therapies that offer additional benefit added to the three main classes of treatment. New treatment options are
urgently needed to help improve lung function and symptoms, reduce exacerbations and improve overall quality of life in these
patients.
Ensifentrine
Ensifentrine is a first-in-class, inhaled, small molecule and selective, dual PDE3 and PDE4 inhibitor. This dual inhibition
enables it to act as a bronchodilator and a non-steroidal anti-inflammatory agent in a single compound. Importantly,
ensifentrine’s therapeutic profile differentiates it from existing classes of bronchodilator and anti-inflammatory treatments. We
are not aware of any other single compound in clinical development in the U.S. or Europe or approved by the FDA nor the
European Commission for the treatment of respiratory diseases that acts both as a bronchodilator and anti-inflammatory agent.
Ensifentrine is the first novel inhaled mechanism approved for the maintenance treatment of COPD in over 20 years and the
only bronchodilator option that can be added to existing classes of inhaled therapies including LAMA, LABA and ICS.
Safety profile
Ensifentrine has been well tolerated in clinical trials involving approximately 3,000 subjects to date. Additionally, ensifentrine
did not prolong the QT interval or impact other cardiac conduction parameters in a thorough QT study in healthy volunteers. It
is delivered directly to the lungs by inhalation to maximize pulmonary exposure to ensifentrine while minimizing systemic
exposure. This feature minimizes any systemic side-effects such as the gastrointestinal disturbance associated with oral PDE4
inhibitors. In addition, in non-clinical trials ensifentrine has demonstrated high selectivity for PDE3 and PDE4 over other
enzymes and receptors, which is believed to minimize off-target effects.
Differentiated profile
By selectively inhibiting PDE3 and PDE4, ensifentrine impacts three key mechanisms in respiratory disease: bronchodilation,
inflammation and mucociliary clearance. Ensifentrine is designed to increase the levels of cellular cAMP and cGMP in smooth
muscle cells and inflammatory cells, resulting in bronchodilator and anti-inflammatory effects. Ensifentrine has also been
shown to stimulate the cystic fibrosis transmembrane conductance regulator (“CFTR”), which is an ion channel in the epithelial
cells lining the airways. Mutations in the CFTR protein result in poorly or non-functioning ion channels, which cause CF.
CFTR dysfunction is also potentially important in COPD. CFTR stimulation leads to improved electrolyte balance in the lung
and thinning of the mucus, which facilitates mucociliary clearance and leads to improved lung function and potentially a
reduction in lung infections.
Dual inhibition of PDE3 and PDE4 has shown enhanced or synergistic effects compared with inhibition of either PDE alone on
contraction of airway smooth muscle and suppression of inflammatory mediator release in several preclinical studies. We
2
believe these enhanced effects may increase the utility of ensifentrine in the treatment of respiratory diseases including COPD,
bronchiectasis, asthma and CF.
Clinical development update
Phase 3 ENHANCE program
The U.S. approval of Ohtuvayre was based on extensive data including the Phase 3 ENHANCE trials, the results of which were
published in the American Journal of Respiratory and Critical Care Medicine.
We reported positive top-line results from ENHANCE-2 and ENHANCE-1 in August and December 2022, respectively.
Ohtuvayre successfully met the primary endpoints in both trials, demonstrating statistically significant and clinically
meaningful improvements in measures of lung function in moderate to severe COPD patients. Improvements in symptoms and
quality of life measures were shown in both trials, which reached statistical significance in ENHANCE-1. Other endpoint data
showed Ohtuvayre substantially reduced the rate and risk of moderate to severe COPD exacerbations and was well tolerated in
both trials.
The ENHANCE trials were designed to evaluate Ohtuvayre as monotherapy and added onto a single bronchodilator. Each trial
enrolled approximately 800 subjects, for a total of approximately 1,600 subjects, at sites primarily in the U.S. and Europe. The
two trials provided replicate evidence of efficacy and safety data over 24 weeks and ENHANCE-1 also evaluated longer-term
safety in approximately 400 subjects over 48 weeks.
Subject demographics and disease characteristics were well balanced between treatment groups in both trials.
•
In ENHANCE-1 approximately 69% of subjects received background COPD therapy, either a LAMA or a LABA.
Additionally, approximately 20% of all subjects received ICS with concomitant LAMA or LABA.
•
In ENHANCE-2 approximately 55% of subjects received background COPD therapy, either a LAMA or a LABA.
Additionally, approximately 15% of all subjects received ICS with concomitant LAMA or LABA.
We believe Ohtuvayre can change the treatment paradigm for COPD. The totality of data from clinical trials, in particular the
top-line results from the ENHANCE program, including improvements in measures of lung function, symptoms, quality of
life measures, and exacerbation reductions, coupled with the consistent safety results, support our belief.
3
Formulations
We have developed formulations of ensifentrine for the three most widely used inhalation devices: nebulizer, DPI and pMDI.
The nebulized formulation of ensifentrine is designed for use in a standard jet nebulizer, not a proprietary device. Delivery of
COPD medications by nebulizer is important because such medications can be used by adults of almost any age and dexterity
and regardless of peak inspiratory flow, offering advantages to patients who struggle to operate handheld inhaler devices or
have low peak inspiratory flow. DPI and pMDI handheld inhaler formats are relatively portable and convenient and are also
important delivery mechanisms.
While we continue to focus on development of the nebulized formulation of ensifentrine, we believe the development of pMDI
and DPI formulations of ensifentrine provides additional lifecycle opportunities including new potential indications,
formulation combinations and collaborations. In February 2021, we reported positive results from the second, multiple dose
part of a Phase 2 trial with pMDI ensifentrine in patients with moderate to severe COPD. Ensifentrine delivered by pMDI met
all of the primary and secondary lung function endpoints. The improvement in lung function was dose-ordered and statistically
significant at peak and over the 12-hour dosing interval compared with placebo, and supports twice-daily dosing of ensifentrine
via pMDI for the treatment of COPD. Data from the single dose part of the study were reported in March 2020.
We have successfully demonstrated proof of concept in Phase 2 COPD trials with all three formulations. In addition, the data
from Phase 2 trials were consistent across the three formulations. All three dosage forms have demonstrated statistically
significant and clinically meaningful improvements in lung function and duration of action, supporting twice-daily dosing and a
safety profile similar to placebo.
4
Pipeline
The following table summarizes our development programs.
Clinical Development Activities
Ensifentrine / Long-Acting Muscarinic Antagonist fixed-dose combination
Fixed-dose combination therapies such as LABA / LAMA, LABA / ICS and LABA / LAMA / ICS are commonly used in the
treatment of COPD and, based on our market research, an unmet need exists for a nebulized fixed-dose combination therapy.
We believe the combination of ensifentrine with a LAMA could provide COPD patients with the first nebulized fixed-dosed
combination with the potential to provide bronchodilation through a dual mechanism and also non-steroidal anti-inflammatory
effects via PDE inhibition.
We are developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, a LAMA, for the maintenance
treatment of patients with COPD via delivery in a nebulizer. We have filed patent applications in multiple jurisdictions
including the U.S.
In November 2024, we completed enrollment in a Phase 2 dose-ranging trial with glycopyrrolate, a LAMA, supporting a fixed-
dose combination program for the maintenance treatment of COPD via a nebulizer. The glycopyrrolate dose-ranging trial has
successfully completed and we plan to initiate a Phase 2b trial with a fixed dose combination of ensifentrine and glycopyrrolate
in the second half of 2025.
Non-cystic fibrosis bronchiectasis
Bronchiectasis is a chronic lung disease characterized by persistent cough, excess sputum production and frequent respiratory
infections with more severe patients suffering exacerbations. The condition affects up to 500,000 adults in the U.S. and no
therapies are specifically approved to treat it. Physicians currently use bronchodilators, antibiotics, steroids, mucus thinners and
surgery.
Based on the clinical results of ensifentrine observed in patients with COPD, including improvements in lung function and
symptoms of cough and sputum, we believe that ensifentrine could potentially be an effective treatment for bronchiectasis. In
the third quarter of 2024, we began enrollment in a Phase 2 clinical trial to assess the efficacy and safety of nebulized
ensifentrine in patients with bronchiectasis.
Potential additional indications for ensifentrine
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Cystic fibrosis and asthma
In addition to COPD and bronchiectasis, we believe ensifentrine has potential applications in other respiratory diseases
including CF and asthma providing pipeline expansion opportunities and the potential for collaborations outside the U.S.
CF is a progressive, fatal genetic disease without a cure and a median age of survival of 61 years. The condition is characterized
by thick, sticky mucus that damages many of the body’s organs. It causes repeat and persistent lung infections that result in
frequent exacerbations and hospitalizations. Other symptoms include malnutrition, constipation and diarrhea, and some adults
develop diabetes, arthritis and liver problems.
CF is the most common fatal inherited disease in the U.S. and Europe. Approximately 40,000 people in the U.S. and an
estimated 105,000 people worldwide have been diagnosed with CF across more than 90 countries and approximately 1,000 new
cases are diagnosed each year, according to the Cystic Fibrosis Foundation. The U.S. and European regulatory authorities
consider CF to be a rare, or orphan, disease and provide incentives to encourage development of effective new treatments. CF
patients endure multiple daily medications, frequent exacerbations and hospitalizations. Ultimately, selected patients have lung
transplants.
In a Phase 2a clinical trial, a single dose of nebulized ensifentrine demonstrated an improvement in lung function in patients
with CF. In addition, in preclinical studies, ensifentrine activated the cystic fibrosis transmembrane conductance regulator
(“CFTR”), which is beneficial in reducing mucous viscosity and improving mucociliary clearance. We believe these data
support the continued development of ensifentrine as a potential therapy for CF.
Asthma is a common chronic inflammatory lung condition that causes sporadic breathing difficulties. The disease causes
narrowing and swelling of the airways leading to symptoms including difficulty breathing, wheezing, coughing and tightness in
the chest. Exposure to triggers such as allergens or irritants can lead to asthma attacks.
Asthma attacks vary in severity and frequency. More than 260 million people worldwide suffer from asthma and it is the most
common chronic disease among children, according to estimates from the World Health Organization. Approximately 60% of
adult asthmatics in the U.S. have uncontrolled asthma despite regularly taking medication. Although there is no cure, symptoms
may be prevented by avoiding triggers and through established maintenance therapies including bronchodilators, ICS, anti-IgE
agents and leukotriene inhibitors.
Ensifentrine has shown potential in a Phase 2a clinical trial in asthma. The data from this trial, published in October 2019 in the
journal Pulmonary Pharmacology & Therapeutics, demonstrated that ensifentrine produced dose-dependent improvements in
lung function that were comparable to current rescue medication, high dose nebulized albuterol. Importantly, ensifentrine was
well tolerated and patients experienced fewer systemic effects than those receiving albuterol.
Our team
Our expert team has decades of experience in developing and commercializing respiratory therapeutics including the following
COPD therapeutics: Advair®; Anoro Ellipta®; Breo®; Flovent®; Flutiform®; Incruse Ellipta®; Serevent®; Symbicort®; Tudorza
Pressair® and Ventolin®.
MANUFACTURING
We do not have manufacturing facilities and rely on, and expect to continue to rely on, third-party contract manufacturing
organizations (“CMOs”) for the supply of current good manufacturing practices (“cGMP”) compliant clinical trial materials of
ensifentrine, and any future product candidates, as well as for commercial quantities of ensifentrine and any future product
candidates, if approved.
While we may contract with other CMOs in the future, we currently have one CMO for the manufacture of ensifentrine drug
substance and one CMO for each formulation of ensifentrine.
All of our current CMOs have commercial scale manufacturing capabilities. We believe that the ensifentrine drug substance and
drug product manufacturing processes can be transferred to other CMOs to produce clinical and commercial supplies in the
ordinary course of business.
COMMERCIALIZATION
Following approval of Ohtuvayre on June 26, 2024, we fully staffed our sales and field reimbursement teams with
approximately 120 employees. In August 2024, Ohtuvayre was available through an exclusive network of accredited specialty
pharmacies. Our personal and non-personal promotion is focused on promoting Ohtuvayre to the highest prescribing healthcare
providers (“HCPs”) that treat large numbers of COPD patients. Our field representatives call on approximately 14,500 HCPs
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comprised of pulmonologists, internal medicine, primary care, nurse practitioners and physician assistants. In addition to those
promotional efforts, we launched speaker education programs and, at the end of 2024, had completed approximately 120 of
these programs. Our teams have also supported the launch of Ohtuvayre through attendance at key national and regional
pulmonary meetings.
In November, the 2025 GOLD report added Ohtuvayre to the COPD treatment algorithm. Typically updated each year, this
report provide a framework for physicians to diagnose, assess and manage treatment of COPD. Ohtuvayre’s inclusion in GOLD
further supports our belief that Ohtuvayre can change the treatment paradigm for COPD.
Following the end of the fourth quarter, our permanent, product-specific J-code for Ohtuvayre became effective from January 1,
2025.
Looking ahead, we will continue to focus on engaging with the highest prescribing HCPs through in-person or digital
promotion and progress our patient engagement plans to support and accelerate the launch of Ohtuvayre.
United States
In the U.S., we are commercializing nebulized ensifentrine ourselves. Current maintenance COPD treatments in the U.S.
generate over $10 billion in sales. In the U.S., approximately 8.6 million patients receive chronic maintenance treatment for
COPD. These patients receive LAMAs, LABAs, and ICS products alone or in combination across all COPD severities. Despite
the use of these therapies, approximately 50% of patients report having symptoms for more than 24 days a month. This burden
is significant and highlights the need for new and novel mechanisms of actions to treat COPD patients. These patients need
therapies that can help improve their lung function and symptoms. In addition to the number of patients that remain
symptomatic, COPD places a tremendous burden on the U.S. healthcare system with approximately $50 billion in direct and
indirect costs.
Based on our market research, conducted with U.S. healthcare providers and payers, we believe Ohtuvayre will be widely
adopted with use as an add on therapy across all symptomatic patients regardless of COPD severity and treatment. Most of
Ohtuvayre’s use is expected as an add on therapy to current patients who are on LAMA, LABA / ICS, LAMA / LABA, or triple
therapy. This is due to the urgent unmet need for new therapies to help improve lung function, symptoms and quality of life in
these patients. Our market research also suggests the majority of Ohtuvayre usage would be initially commenced by
pulmonologists. Due to this focused prescriber base, we believe our field sales force of approximately 120 representatives will
be able to reach the potential opportunity.
International
COPD affects approximately 392 million people worldwide with many patients remaining undiagnosed. Our strategy outside of
the U.S. including Asia, Europe and Latin America, is to establish partnerships with leading companies that can support the
further development and commercialization of ensifentrine in those regions.
In June 2021, we executed on this strategy by entering into a strategic collaboration with Nuance Pharma, a Shanghai-based
specialty pharmaceutical company, with a potential value of up to $219.0 million to develop and commercialize ensifentrine in
Greater China. Under the terms of the agreement, we granted Nuance Pharma the exclusive rights to develop and
commercialize ensifentrine in Greater China. In return, we received an aggregate $40.0 million upfront payment consisting of
$25.0 million in cash and an equity interest valued at $15.0 million, as of June 9, 2021, in Nuance Biotech, the parent company
of Nuance Pharma. We are eligible to receive further milestone payments of up to $179.0 million that are triggered upon
achievement of certain clinical, regulatory and commercial milestones as well as tiered double-digit royalties on net sales in
Greater China.
Nuance Pharma is responsible for all costs related to clinical development and commercialization in Greater China. A joint
steering committee has been established to ensure ensifentrine’s clinical development in the region aligns with our global
development and commercialization strategy. In February 2025, Nuance Pharma announced that Ohtuvayre was approved in
Macau, the first approval outside of the U.S., for the maintenance treatment of COPD in adult patients. In addition, in
September 2024, Nuance Pharma completed enrollment in its own pivotal Phase 3 trial evaluating ensifentrine for the
maintenance treatment of COPD in mainland China. Results from this trial are expected in 2025.
COMPETITION
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on
proprietary drugs. We face potential competition from many different sources, including major pharmaceutical, specialty
pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research
institutions. Ohtuvayre is competing with existing treatments and new treatments that may become available in the future.
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Ohtuvayre is a unique, first-in-class therapeutic candidate with both bronchodilator and non-steroidal anti-inflammatory
properties in a single molecule. As far as we are aware, no other dual PDE3 and PDE4 inhibitor is on the market nor in clinical
development in the U.S. or Europe. Based on initial launch data, Ohtuvayre is used across the patient spectrum regardless of
severity. Our market research as well as early clinical use by HCPs, suggests that Ohtuvayre will be used as an add on therapy
in symptomatic patients across all existing classes of therapies (LAMA, LABA, ICS). Some HCPs have indicated that as they
become comfortable prescribing Ohtuvayre they would consider using it earlier in the treatment paradigm. This potentially
includes use as a monotherapy as well as before ICS based on ensifentrine’s clinical profile.
Consequently, we believe Ohtuvayre’s unique profile will enable it to compete with all approved COPD therapies including
nebulized and handheld inhaler formulations, DPI and pMDI. Furthermore, because Ohtuvayre’s mechanism of action is
complementary to available therapies, we believe it will be used in addition to these treatments.
Within the currently approved nebulizer products for the maintenance treatment of COPD, we consider ensifentrine’s potential
competitors in the U.S. market to be LABAs (Brovana® and Perforomist®) and LAMAs (Yupelri®).
In the DPI/pMDI maintenance treatment of COPD market, ensifentrine’s current closest potential competitors are Symbicort®, a
combination of a long-acting beta2-agonist bronchodilator and ICS marketed by AstraZeneca plc, Spiriva®, a long-acting anti-
muscarinic bronchodilator marketed by Boehringer Ingelheim GmbH, Advair®, a combination of a long-acting beta2-agonist
bronchodilator and ICS marketed by GlaxoSmithKline plc, Breo®, a combination of a long-acting beta2-agonist bronchodilator
and ICS marketed by GlaxoSmithKline, and Anoro®, a combination of a long-acting beta2-agonist bronchodilator and long-
acting anti-muscarinic bronchodilator marketed by GlaxoSmithKline. A triple-combination therapy of a LAMA, a LABA and
ICS, developed by GlaxoSmithKline, Trelegy Ellipta®, has been approved in the U.S. and the European Union and AstraZeneca
also has a triple-therapy combination product (LAMA / LABA / ICS), Breztri Aerosphere® that was approved in the U.S. in
July 2020, in the European Union in December 2020 and in China in December 2019. In addition, Chiesi’s triple-therapy
combination product, Trimbow®, was approved in the European Union in 2017 and is in Phase 3 trials in the US.
In September 2024, the first injectable biologic, Sanofi’s anti-IL4, Dupixent®, was approved in the U.S. for a subset of
approximately 300,000 COPD patients with an eosinophilic phenotype. Other injectable biologics in Phase 3 trials for the
prevention of COPD exacerbations include AstraZeneca’s anti-IL33, tozorakimab, GlaxoSmithKline’s anti-IL5, Nucala®, and
Chiesi’s PDE4 inhibitor, tanimilast. We are also aware of several anti-inflammatories and bronchodilators that are in Phase 2
clinical trials for the treatment of COPD.
INTELLECTUAL PROPERTY
We strive to protect and enhance the proprietary technologies, inventions and improvements that we believe are important to
our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third
parties. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent
protection in the U.S. and in jurisdictions outside of the U.S. related to our proprietary technology, inventions, improvements,
platforms and our product candidates that are important to the development and implementation of our business.
As of December 31, 2024, our patent portfolio included twelve issued U.S. patents, sixteen pending U.S. patent applications
(including three U.S. provisional patent applications), ninety-seven issued foreign patents and eighty-three pending foreign
applications (including eight international PCT applications). These patents and patent applications include claims directed to
certain respirable formulations comprising ensifentrine, a crystalline form of ensifentrine, combinations of ensifentrine with
certain respiratory drugs, certain salts and other solid forms of ensifentrine, and ensifentrine for use in certain treatments of
particular respiratory disorders, with expected expiry dates up to 2045.
We have registered “Verona Pharma” and its associated logo as trademarks in the U.S. and certain other key jurisdictions
including the EU and UK. We have also registered “Ohtuvayre” and “Verona Pathway Plus”, including their respective logos,
in the EU and UK and have made applications to register in the U.S. and certain other key jurisdictions.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent
issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed
applications in the U.S. are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in
certain instances, a patent term can be extended to recapture a portion of the U.S. Patent and Trademark Office, or the USPTO,
delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period.
However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including
the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance
with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. However, the actual
protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors,
including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal
remedies in a particular country and the validity and enforceability of the patent.
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As an example of patent protection afforded to drug products, in the U.S., once a new drug application (or “NDA”) is approved
for product, that product becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with
Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. In seeking approval for an NDA, applicants are
required to list with the FDA patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents
listed in the application for the product is then published in the Orange Book. Currently, there are three patents listed in the
Orange Book for our product Ohtuvayre. Additional pending patent applications related to Ohtuvayre may result in granted
patents that are eligible for Orange Book listing. The reference listed drug (and the patents listed in the Orange Book for such
drug) may be cited by potential competitors in support of approval of an abbreviated new drug application (or “ANDA”) for a
generic version of the reference listed drug. Any applicant who files an ANDA seeking approval of a generic equivalent version
of a reference listed drug listed in the Orange Book must certify to the FDA that (1) no patent information on the drug or
method of use that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on
which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug
product for which the application is submitted. If the applicant does not challenge the listed patents or does not indicate that it
is not seeking approval of a patented method of use, the ANDA will not be approved until all of the listed patents claiming the
referenced listed drug have expired, or, if permissible, are carved out.
Furthermore, one of our U.S. patents for Ohtuvayre may be eligible for limited patent term extension under the Drug Price
Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation
in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an
approved product as compensation for effective patent term lost during product development and the FDA regulatory review
process. However, we may not receive an extension if we fail to satisfy applicable requirements. Moreover, the length of the
extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is
less than we request, the period during which we can enforce our patent rights for that product will be shortened and our
competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could
be reduced, possibly materially.
Furthermore, we rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our
competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our
collaborators, employees and consultants and invention assignment agreements with our employees. We also have
confidentiality agreements or invention assignment agreements with our collaborators and selected consultants. These
agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant
us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached,
and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be
independently discovered by competitors. To the extent that our collaborators, employees and consultants use intellectual
property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and
inventions.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain
whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs
or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to
proprietary rights that we may require to develop or commercialize our future drugs may have an adverse impact on us. If third
parties have prepared and filed patent applications prior to March 16, 2013 in the U.S. that also claim technology to which we
have rights, we may have to participate in interference proceedings in the USPTO, to determine priority of invention. For more
information, please see “Item 1A. Risk Factors - Risks Related to Intellectual Property and Information Technology.”
License agreement with Ligand (formerly Vernalis)
In February 2005, Rhinopharma Limited (“Rhinopharma”) entered into an assignment and license agreement with Ligand UK
Development Limited (formerly Vernalis Development Limited) (“Ligand”), which since October 2018 has been a wholly
owned subsidiary of Ligand Pharmaceuticals, Inc. In 2006, we acquired Rhinopharma and all its rights and liabilities under the
assignment and license agreement. On March 24, 2022, we entered into an agreement with Ligand to amend the assignment and
license agreement. We refer to the assignment and license agreement and the amendment agreement together as the Ligand
Agreement. Pursuant to the Ligand Agreement, Ligand has assigned to us all its rights to certain patents and patent applications
relating to ensifentrine and related compounds, or the Ligand Patents. We cannot further assign the Ligand Patents to a third
party without Ligand’s prior consent. Ligand also granted to us an exclusive, worldwide, royalty-bearing license under certain
Ligand know-how to develop, manufacture and commercialize products, or the Licensed Products, based on PDE inhibitors
developed using Ligand Patents, Ligand know-how and the physical stock of certain compounds, including ensifentrine, which
we refer to as the Program IP, in the treatment of human or animal allergic or inflammatory disorders. Pursuant to the Ligand
Agreement, we must maintain the Ligand Patents and use commercially reasonable and diligent efforts to develop and
commercialize the Licensed Products.
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In March 2022, we entered into an Amendment Agreement (the “Amendment”) with Ligand whereby the Ligand Agreement
was amended to clarify certain ambiguous terms in the Ligand Agreement. Pursuant to the Amendment we agreed to pay to
Ligand (i) $2.0 million within five business days of the date of the Amendment and (ii) $15.0 million upon the first commercial
sale of ensifentrine by us or a sub-licensee, which amount is payable in cash or, at the our discretion, by the issuance of
Company equity of equivalent value, as determined based on the volume-weighted average price of the our American
Depositary Shares on the Nasdaq Global Market over the ten (10) trading days including and prior to such milestone event.
We paid the $2.0 million to Ligand in March 2022 and accounted for the $2.0 million payment at execution as selling, general
and administrative expense as the payment related to a contract modification.
Due to the FDA approval of Ohtuvayre, we paid Ligand $15.0 million related to a milestone payment for first commercial sale
of ensifentrine and accounted for the payment as selling, general and administrative expense as the payment related to the
resolution of the 2021 dispute with Ligand.
We also paid Ligand $6.3 million in 2024 related to a milestone payment for the first regulatory approval of ensifentrine which
was accounted for in research and development costs.
The Ligand Agreement expires on March 24, 2042, unless terminated earlier by either party in accordance with its terms. Either
party may terminate the Ligand Agreement for bankruptcy or insolvency of the other party, or for an uncured material breach of
the other party, conditional upon the party seeking to terminate obtaining a final judgment of the English High Court declaring
that the other party is in material breach of its obligations under the Ligand Agreement. We may terminate the Ligand
Agreement upon 90 days' prior written notice. Ligand may terminate the Ligand Agreement if we notify Ligand of our intention
to abandon any Ligand Patents or allow any Ligand Patents to lapse. Upon termination of the Ligand Agreement, we must cease
use of any Program IP and assign the Ligand Patents and any improvements thereto back to Ligand, provided however, that any
of our sublicensees shall have the right to enter into a direct license agreement with Ligand for the portion of the Program IP
that was sub-licensed by such sub-licensee.
GOVERNMENT REGULATION
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and
burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of
drugs such as those we are developing. These agencies and other federal, state and local and foreign entities regulate, among
other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record
keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and
import of our product candidates.
FDA drug approval process
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing
regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local
and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with
the applicable U.S. requirements at any time during the product development process, approval process or after approval, may
subject an applicant to a variety of administrative or judicial sanctions, such as the FDA's refusal to file an application for
review or non-approval of a pending new drug applications (“NDA”), withdrawal of an approval, imposition of a clinical hold,
issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
•
Completion of non-clinical laboratory tests, animal studies, certain of which must be conducted and formulation studies in
compliance with the FDA's good laboratory practice (“GLP”) regulations;
•
Submission to the FDA of an IND, which must become effective before human clinical trials may begin in the U.S.;
•
Approval by an independent institutional review board (“IRB”) or ethics committee at each clinical site before each trial
may be initiated;
•
Performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”)
requirements to establish the safety and efficacy of the proposed drug product for each indication;
•
Submission to the FDA of an NDA after completion of all pivotal trials;
•
Completion of an FDA advisory committee review, if required by the FDA;
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•
Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to
assess compliance with current good manufacturing practice (“cGMP”) requirements and to assure that the facilities,
methods and controls are adequate to preserve the drug's identity, strength, quality and purity, and potential inspection of
selected clinical investigation sites to assess compliance with GCP; and
•
FDA review and approval of the NDA and U.S. Prescribing Information to permit commercial marketing of the product for
particular indications for use in the U.S.
Non-clinical Studies
Non-clinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to
assess potential safety and efficacy. An IND sponsor must submit the results of the non-clinical tests, together with
manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part
of an IND. An IND is a request for allowance from the FDA to ship in interstate commerce and administer an investigational
drug product to humans. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the
FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result,
submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified
investigators in accordance with GCP requirements, which among other things, include the requirement that all research
subjects or a legal representative provide their informed consent in writing for their participation in any clinical trial. Clinical
trials are conducted under protocols detailing, among other things, the objectives or endpoints of the trial, the parameters to be
used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent
protocol amendments must be submitted to the FDA as part of the IND. While the IND is active, progress reports summarizing
the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must
be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for
serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to
the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically
important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator
brochure.
In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial
before it commences at that institution. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time
on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is
unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts
organized by the clinical study sponsor, known as a data safety monitoring board, which reviews the data and recommends
whether or not a study may move forward at designated checkpoints. It may halt the clinical trial if it determines that there is an
unacceptable safety risk or on other grounds, such as no demonstration of efficacy. Information about certain clinical trials must
be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their
www.clinicaltrials.gov website.
Human clinical trials are typically conducted in three phases, which may overlap or be combined:
•
Phase 1: The drug candidate is initially introduced into healthy human subjects or patients with the target disease or
condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an
early indication of its effectiveness.
•
Phase 2: The drug candidate is administered to a limited patient population to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage.
•
Phase 3: The drug candidate is administered to an expanded patient population, generally at geographically dispersed
clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of
the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for
the labeling of the product.
Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials
are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
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During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points
may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be
requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for
the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional
information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in
commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently
producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing
the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and
stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over
its shelf life.
Marketing Approval
Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together
with detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things,
are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most
cases, the submission of an NDA is subject to a substantial application user fee. In addition, the Pediatric Research Equity Act
(PREA), requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new
dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and certain supplements must
contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the
safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing
and administration for each pediatric subpopulation for which the product is deemed safe and effective. The sponsor or FDA
may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for
several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are
complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA
must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to
submit a request for approval of a pediatric formulation.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing,
to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information
rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The
resubmitted application is also subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to
determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured,
processed, packaged or held meets standards designed to assure the product's continued safety, quality and purity. Under the
Prescription Drug User Fee Act guidelines that are currently in effect, the FDA has a goal of ten months from the date of
“filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve
months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing”
decision after it the application is submitted.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent
experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with
cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally,
before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection
reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a
complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in
order to secure final approval of a resubmitted NDA and may require additional clinical or pre-clinical testing in order for FDA
to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA's
satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug
with specific prescribing information for specific indications.
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If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations
on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk
Evaluation and Mitigation Strategy (“REMS”) to ensure the benefits of the product outweigh its risks. A REMS is a safety
strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access
to such medicines by managing their safe use, and could include medication guides, physician communication plans, or
elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The
FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate
controls and specifications. The FDA may also require one or more Phase 4 post-market studies and surveillance to further
assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the
product based on the results of these post-marketing studies.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the
fast track program is intended to expedite or facilitate the process for reviewing products that are intended to treat a serious or
life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition.
Fast track designation applies to the combination of the product candidate and the specific indication for which it is being
studied. The sponsor of a fast track product candidate has opportunities for more frequent interactions with the applicable FDA
review team during product development and, once an NDA is submitted, the application may be eligible for priority review.
An NDA for a fast track product candidate may also be eligible for rolling review, where the FDA may consider for review
sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the
submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is
acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough
therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation
if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or
biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints,
such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track
program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational
commitment to expedite the development and review of the product candidate, including involvement of senior managers.
Any marketing application for a drug submitted to the FDA for approval, including a product candidate with a fast track
designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs to expedite the FDA
review and approval process, such as priority review. An NDA is eligible for priority review if the product candidate is
designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in
safety or effectiveness compared to available alternatives for such disease or condition. For new molecular entity NDAs,
priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day
filing date (as compared to ten months under standard review).
Additionally, depending on the design of the applicable clinical studies, product candidates studied for their safety and
effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a
determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a
clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an
effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the
condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally
require the sponsor to perform adequate and well-controlled confirmatory clinical studies to verify and describe the anticipated
effect on irreversible morbidity or mortality or other clinical benefit, and may require that such confirmatory studies be
underway prior to granting accelerated approval. Products receiving accelerated approval may be subject to expedited
withdrawal procedures if the sponsor fails to conduct the required studies in a timely manner or if such studies fail to verify the
predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of
promotional materials, which could adversely impact the timing of the commercial launch of the product.
Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards
for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of
these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the
time period for FDA review or approval will not be shortened.
Orphan drug designation and exclusivity
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
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population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of
developing and making available the drug or biologic in the United States will be recovered from sales in the United States for
that drug or biologic. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means
that the FDA may not approve any other applications, including a full NDA, to market the same drug for the same disease or
condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan
drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the
availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the
drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease
or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax
credits for certain research and a waiver of the NDA application user fee.
A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the disease or
condition for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States
may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second
applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the
manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with
the rare disease or condition.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,
including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution,
advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved
product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are
continuing, annual user fee requirements for any marketed products under which NDA applicants must pay a substantial
“program fee” for each prescription drug product approved in an NDA.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required
to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the
FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly
regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and
correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor
and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend
time, money and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is
not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with
a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to
comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety
information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other
restrictions under a REMS program. Other potential consequences include, among other things:
•
Restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or
product recalls;
•
Fines, warning letters or holds on post-approval clinical trials;
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Refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product
approvals;
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Product seizure or detention, or refusal to permit the import or export of products; or
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Injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may
be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other
agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to
have improperly promoted off-label uses may be subject to significant liability. Failure to comply with these requirements can
result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.
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Drug Product Marketing Exclusivity
Market exclusivity provisions authorized under the FDCA can delay the submission or the approval of certain marketing
applications. For example, the FDCA provides a five-year period of non-patent data exclusivity within the United States to the
first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the
action of the drug substance. During the exclusivity period, the FDA may not approve or even accept for review an abbreviated
new drug application (“ANDA”) or an NDA submitted under Section 505(b)(2) (a “505(b)(2) NDA”), submitted by another
company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication
as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to
all the data required for approval. However, an application may be submitted after four years if it contains a certification of
patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder.
The FDCA alternatively provides three years of non-patent exclusivity for an NDA, or supplement to an existing NDA if new
clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the
FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug.
This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical
investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent
for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of
a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to any
preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an
additional six months of marketing exclusivity attached to another period of existing exclusivity or an available patent term if a
sponsor conducts clinical trials in children in response to a “written request” from the FDA. The issuance of a written request
does not require the sponsor to undertake the described clinical trials, and the FDA’s grant of pediatric exclusivity does not
require the FDA to approve labeling containing information on pediatric use based on the studies conducted.
Foreign regulation
In order to market any medicinal product outside of the U.S., similar regulatory requirements, including adherence to GLP,
Good Clinical Practices (“GCP”) and Good Manufacturing Practice (“GMP”), to initiate clinical trials and, subsequently, to
obtain marketing approval of a new pharmaceutical product are in place in each jurisdiction and vary country to country.
Each jurisdiction will apply these regulations in their assessment of clinical trial applications and marketing authorization
applications. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above, as
well as additional country-specific regulation. The foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above, as well as additional country-specific regulation. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can
commence clinical trials or marketing of the product in those countries. The time required to obtain approval in other countries
and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country or jurisdiction does not ensure regulatory approval in another. In addition, a failure or delay in obtaining regulatory
approval in one country or jurisdiction may negatively impact the regulatory process in others. Failure to comply with
applicable foreign regulatory requirements, may be subject to, among other things, fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Non-clinical studies and clinical trials
Similarly to the United States, the various phases of non-clinical and clinical research in the European Union (“EU”) are subject
to significant regulatory controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new biological substances. Non-clinical
studies (pharmaco-toxicological) must be conducted in compliance with the principles of GLP, as set forth in EU Directive
2004/10/EC (unless otherwise justified for certain particular medicinal products - e.g., radio-pharmaceutical precursors for
radio-labelling purposes). In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored,
recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality
system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization
for Economic Co-operation and Development requirements.
Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the
International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (“ICH”) guidelines on
GCP as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of
Helsinki. If the sponsor of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal
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representative. The sponsor must take out a clinical trial insurance policy, and in most EU member states, the sponsor is liable
to provide ‘no fault’ compensation to any study subject injured in the clinical trial.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials
Regulation (“CTR”) which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on
January 31, 2022. Unlike directives, the CTR is directly applicable in all EU member states without the need for member states
to further implement it into national law. The CTR notably harmonizes the assessment and supervision processes for clinical
trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal and database.
While the EU Clinical Trials Directive required a separate clinical trial application (“CTA”) to be submitted in each member
state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee,
much like the FDA and IRB respectively, the CTR introduces a centralized process and only requires the submission of a single
application for multi-center trials. The CTR allows sponsors to make a single submission to both the competent authority and an
ethics committee in each member state, leading to a single decision per member state. The CTA must include, among other
things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the
manufacture and quality of the medicinal product under investigation. The assessment procedure of the CTA has been
harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member
state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is
communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may
proceed.
The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the
CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the EU Clinical Trials
Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the
EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials
(including those which are ongoing) will become subject to the provisions of the CTR.
Medicines used in clinical trials must be manufactured in accordance with GMP. Other national and EU-wide regulatory
requirements may also apply.
Marketing authorization
In the EU, medicinal products can only be placed on the market after obtaining a marketing authorization (“MA”). To obtain
regulatory approval of a product candidate under EU regulatory systems, we must submit a MA application (“MAA”). The
process for doing this depends, among other things, on the nature of the medicinal product. There are two types of MAs:
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“Centralized MAs” are issued by the European Commission through the centralized procedure, based on the opinion of the
Committee for Medicinal Products for Human Use (“CHMP”) of the EMA, and are valid throughout the EU. The
centralized procedure is mandatory for certain types of medicinal products, such as (i) medicines derived from
biotechnology processes, (ii) advanced therapy medicinal products (“ATMP”) (such as gene therapy, somatic cell therapy
and tissue engineered products), (iii) orphan designated medicinal products, and (iv) products that contain a new active
substance indicated for the treatment of certain diseases such as HIV/AIDS, cancer, neurodegenerative disorders, diabetes,
auto-immune diseases and other immune dysfunctions, and viral diseases. The centralized procedure is optional for
products containing a new active substance not yet authorized in the EU, or for products that constitute a significant
therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.
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“National MAs” are issued by the competent authorities of the member states of the EU and only cover their respective
territory, and are available for product candidates not falling within the mandatory scope of the centralized procedure.
Where a product has already been authorized for marketing in a member state of the EU, this national MA can be
recognized in another member state through the mutual recognition procedure. If the product has not received a national
MA in any member state at the time of application, it can be approved simultaneously in various member states through the
decentralized procedure. Under the decentralized procedure an identical dossier is submitted to the competent authorities of
each of the member states in which the MA is sought, one of which is selected by the applicant as the reference member
state.
Under the above described procedures, in order to grant the MA, the EMA or the competent authorities of the member states of
the EU make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality,
safety and efficacy. MAs have an initial duration of five years. After these five years, the authorization may be renewed on the
basis of a reevaluation of the risk-benefit balance.
Under the centralized procedure the maximum timeframe for the evaluation of a MAA by the EMA is 210 days, excluding
clock stops. In exceptional cases, the CHMP might perform an accelerated assessment of a MAA in no more than 150 days (not
including clock stops). Innovative products that target an unmet medical need and are expected to be of major public health
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interest may be eligible for a number of expedited development and review programs, such as the PRIority MEdicines
(“PRIME”) scheme, which provides incentives similar to the breakthrough therapy designation in the U.S. In March 2016, the
EMA launched an initiative, the PRIME scheme, a voluntary scheme aimed at enhancing the EMA’s support for the
development of medicines that target unmet medical needs. It is based on increased interaction and early dialogue with
companies developing promising medicines, to optimize their product development plans and speed up their evaluation to help
them reach patients earlier. Product developers that benefit from PRIME designation can expect to be eligible for accelerated
assessment but this is not guaranteed. Many benefits accrue to sponsors of product candidates with PRIME designation,
including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs
and other development program elements, and accelerated MAA assessment once a dossier has been submitted. Importantly, a
dedicated contact and rapporteur from the CHMP is appointed early in the PRIME scheme facilitating increased understanding
of the product at EMA’s committee level. An initial meeting initiates these relationships and includes a team of
multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.
Data and marketing exclusivity
In the EU, new products authorized for marketing, (i.e., reference products), generally receive eight years of data exclusivity
and an additional two years of market exclusivity upon MA. If granted, the data exclusivity period prevents generic or
biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product
when applying for a generic or biosimilar MA in the EU during a period of eight years from the date on which the reference
product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from
commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference product in the
EU. The overall 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years
of those 10 years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the
scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing
therapies. However, there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new active
substance, and products may not qualify for data exclusivity.
Pediatric development
In the EEA, MAAs for new medicinal products have to include the results of studies conducted in the pediatric population, in
compliance with a pediatric investigation plan (“PIP”), agreed with the EMA’s Pediatric Committee (“PDCO”). The PIP sets
out the timing and measures proposed to generate data to support a pediatric indication of the drug for which MA is being
sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are
sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric
clinical trial data can be waived by the PDCO when these data are not needed or appropriate because the product is likely to be
ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or
when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. We have
received a waiver for pediatric data in COPD.
Orphan Medicinal Products
The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. A
medicinal product may be designated as orphan if its sponsor can establish that: (1) the product is intended for the diagnosis,
prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more
than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan
status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of
diagnosis, prevention or treatment of such condition that has been authorized for marketing in the EU, or if such a method
exists, the product will be of significant benefit to those affected by the condition.
Orphan designation must be requested before submitting an MAA. An EU orphan designation entitles a party to incentives such
as reduction of fees or fee waivers, protocol assistance, and access to the centralized procedure. Upon grant of a MA, orphan
medicinal products are entitled to ten years of market exclusivity for the approved therapeutic indication which means that the
EU regulatory authorities cannot accept another MAA, or grant an MA, or accept an application to extend a MA for a similar
product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan
medicinal products that have also complied with an agreed PIP. No extension to any supplementary protection certificate can be
granted on the basis of pediatric studies for orphan indications. Orphan designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval process.
The orphan exclusivity period may be reduced to six years if, at the end of the fifth year, it is established that the product no
longer meets the criteria for orphan designation, including where it is shown that the product is sufficiently profitable not to
justify maintenance of market exclusivity, or where the prevalence of the condition has increased above the threshold.
Additionally, MA may be granted to a similar product for the same indication at any time if (1) the second applicant can
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establish that its product, although similar, is safer, more effective or otherwise clinically superior; (2) the applicant consents to
a second orphan medicinal product application; or (3) the applicant cannot supply enough orphan medicinal product.
Post-Approval Requirements
Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory
oversight by the EMA, the European Commission and/or the competent regulatory authorities of the EU member states. The
holder of a MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for
pharmacovigilance (“QPPV”) who is responsible for the establishment and maintenance of that system, and oversees the safety
profiles of medicinal products and any emerging safety concerns. Key obligations include expedited reporting of suspected
serious adverse reactions and submission of periodic safety update reports (“PSURs”).
All new MAA must include a risk management plan (“RMP”) describing the risk management system that the company will put
in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may
also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations
may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or
post-authorization safety studies.
The advertising and promotion of medicinal products is also subject to laws concerning promotion of medicinal products,
interactions with physicians, misleading and comparative advertising and unfair commercial practices. All advertising and
promotional activities for the product must be consistent with the approved summary of product characteristics, and therefore
all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU.
Although general requirements for advertising and promotion of medicinal products are established under EU directives, the
details are governed by regulations in each member state and can differ from one country to another.
The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”) which consists of the 27 EU
member states plus Norway, Liechtenstein and Iceland.
Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with EU and
EU member state laws that apply to the conduct of clinical trials, manufacturing approval, MA of medicinal products and
marketing of such products, both before and after grant of the MA, manufacturing of medicinal products, statutory health
insurance, bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or
criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant MA,
product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or
partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of
licenses, fines and criminal penalties.
Brexit and the Regulatory Framework in the United Kingdom
Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been
directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to
Northern Ireland. The EU laws that have been transposed into U.K. law through secondary legislation remain applicable in
Great Britain (“GB”), however new legislation such as the EU CTR is not applicable in GB.
Under the Medicines and Medical Devices Act 2021, the Secretary of State or an ‘appropriate authority’ has delegated powers
to amend or supplement existing regulations in the area of medicinal products and medical devices. This allows new rules to be
introduced in the future by way of secondary legislation, which aims to allow flexibility in addressing regulatory gaps and
future changes in the fields of human medicines, clinical trials and medical devices.
Since January 1, 2021, the Medicines and Healthcare products Regulatory Agency (“MHRA”) has been the U.K.’s standalone
medicines and medical devices regulator. As a result of the Northern Ireland protocol, different rules will apply in Northern
Ireland than in England, Wales, and Scotland, together, GB; broadly, Northern Ireland will continue to follow the EU regulatory
regime, but its national competent authority will remain the MHRA.
The U.K. regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into U.K.
law, through secondary legislation). On January 17, 2022, the MHRA launched an eight-week consultation on reframing the
U.K. legislation for clinical trials, which aimed to streamline clinical trials approvals, enable innovation, enhance clinical trials
transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The MHRA
responded to the consultation on March 21, 2023 and confirmed that it would bring forward changes to the legislation. The final
legal texts introduced by the U.K. Government will ultimately determine the extent to which the U.K. clinical trials framework
aligns with or diverges from the CTR.
The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines
that will benefit patients, including a 150-day assessment and a rolling review procedure. All existing EU MAs for centrally
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authorized products were automatically converted or grandfathered into U.K. MAs, effective in GB (only), free of charge on
January 1, 2021, unless the MA holder has opted out. In order to use the centralized procedure to obtain a MA that will be valid
throughout the EEA, companies must be established in the EEA. Therefore since Brexit, without first establishing an EEA
entity, companies established in the U.K. can no longer use the EU centralized procedure and instead an EEA entity must hold
any centralized MAs . In order to obtain a U.K. MA to commercialize products in the U.K., an applicant must be established in
the U.K. and must follow one of the U.K. national authorization procedures or one of the remaining post-Brexit international
cooperation procedures to obtain an MA to commercialize products in the U.K.. A new international recognition framework has
been in place from January 1, 2024, whereby the MHRA will have regard to decisions on the approval of MAs made by the
EMA and certain other regulators when determining an application for a new GB MA.
There is no pre-MA orphan designation. Instead, the MHRA will review applications for orphan designation in parallel to the
corresponding MA application. The criteria are essentially the same, but have been tailored for the market, i.e., the prevalence
of the condition in GB, rather than the EU, must not be more than five in 10,000. Should an orphan designation be granted, the
period of market exclusivity will be set from the date of first approval of the product in GB.
Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical and biological products, other U.S. federal and state healthcare
regulatory laws restrict business practices in the pharmaceutical industry, which include, but are not limited to, state and federal
anti-kickback, false claims and physician payment and drug pricing transparency laws. Similar laws exist in foreign
jurisdictions.
The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully
offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in
return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility,
item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term
"remuneration" has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to
apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers
and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some
common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration
that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do
not meet the requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a
particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the U.S.
federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a
cumulative review of all its facts and circumstances. Several courts have interpreted the statute's intent requirement to mean that
if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the
statute has been violated.
In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to
have committed a violation.
The federal false claims laws, including the civil False Claims Act, prohibit any person or entity from, among other things,
knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the
federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or
fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an
obligation to pay money to the U.S. federal government. A claim includes "any request or demand" for money or property
presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui
tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very
significant monetary penalties and treble damages. Several pharmaceutical and other healthcare companies have been
prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the
customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be
submitted because of the companies' marketing of products for unapproved, or off-label, uses. Moreover, a claim including
items or services resulting from a violation of the U.S. federal Anti-Kickback Statue constitutes a false or fraudulent claim for
the purposes of the federal civil False Claims Act. In addition, the civil monetary penalties statute imposes penalties against any
person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows
or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar
fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or,
in several states, apply regardless of the payor.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes
that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any
healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a
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healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain
other healthcare providers. The Physician Payments Sunshine Act imposes, among other things, annual reporting requirements
for covered manufacturers for certain payments and "transfers of value" provided to physicians (defined to include doctors,
dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse
practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and
teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership
or investment interests may result in significant civil monetary penalties and additional penalties for "knowing failures."
Covered manufacturers must submit reports by the 90th day of each subsequent calendar year. In addition, certain states require
implementation of compliance programs and compliance with the pharmaceutical industry's voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices and/
or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other
healthcare professionals and entities.
Violations of any such laws or any other governmental regulations that apply may result in significant criminal, civil and
administrative penalties, including damages, fines, the possibility of exclusion from federal healthcare programs (including
Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous
operational and monitoring requirements on companies to resolve allegations of non-compliance with these laws. Similar
sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such
companies. Given the significant size of actual and potential settlements, it is expected that the government authorities will
continue to devote substantial resources to investigating healthcare providers' and manufacturers' compliance with applicable
fraud and abuse laws. Moreover, analogous state and foreign laws and regulations may be broader in scope than the provisions
described above and may apply regardless of payor. These laws and regulations may differ from one another in significant
ways, thus further complicating compliance efforts. For instance, in the EU, many EU member states have adopted specific
anti-gift statutes that further limit commercial practices for medicinal products, in particular vis-à-vis healthcare professionals
and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value
provided to healthcare professionals or entities and many EU member states have adopted national “Sunshine Acts” which
impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on
pharmaceutical companies. Certain countries also mandate implementation of commercial compliance programs, or require
disclosure of marketing expenditures and pricing information. Violation of any of such laws or any other governmental
regulations that apply may result in penalties, including, without limitation, significant administrative, civil and criminal
penalties, damages, fines, disgorgement, additional reporting obligations and oversight if a manufacturer becomes subject to a
corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, the curtailment or
restructuring of operations, exclusion from participation in governmental healthcare programs and imprisonment.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological products for
which we obtain regulatory approval. In the United States and markets in other countries, patients who are prescribed
treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to
reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our products. Sales of any products for which we receive
regulatory approval for commercial sale will therefore depend, in part, on the availability of coverage and adequate
reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health
insurers and other organizations.
In the United States, the process for determining whether a third-party payor will provide coverage for a pharmaceutical or
biological product typically is separate from the process for setting the price of such product or for establishing the
reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to
specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for
a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization
of our products once approved and have a material adverse effect on our sales, results of operations and financial condition.
Moreover, a third-party payor's decision to provide coverage for a pharmaceutical or biological product does not imply that an
adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally,
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coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor's decision to cover
a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or
service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will
require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-
consuming process.
Further, the increased emphasis on managed care in the United States places additional pressure on product pricing,
reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can
arise from rules and practices of managed care plans, including Medicare Advantage plans, judicial decisions and governmental
laws and regulations related to Medicare, Medicaid and healthcare reform, as well as drug coverage and reimbursement policies
and pricing in general.
In international markets, reimbursement and healthcare payment systems vary significantly by country. In the EU, governments
influence the price of products through their pricing and reimbursement rules and control of national health care systems that
fund a large part of the cost of those products to consumers. Member states are free to restrict the range of pharmaceutical
products for which their national health insurance systems provide reimbursement, and to control the prices and reimbursement
levels of pharmaceutical products for human use. Some jurisdictions operate positive and negative list systems under which
products may only be marketed once a reimbursement price has been agreed to by the government. Member states may approve
a specific price or level of reimbursement for the pharmaceutical product, or alternatively adopt a system of direct or indirect
controls on the profitability of the company responsible for placing the pharmaceutical product on the market, including
volume-based arrangements, caps and reference pricing mechanisms. To obtain reimbursement or pricing approval, some of
these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate
to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and
control company profits. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. The downward
pressure on health care costs in general, particularly prescription products, has become very intense. As a result, increasingly
high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low-
priced markets exert a commercial pressure on pricing within a country.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of
pharmaceutical or biological products have been a focus in this effort. Third-party payors are increasingly challenging the
prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of
pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. If
these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not
cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products
at a profit.
Healthcare Reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act, or collectively, the ACA, was enacted, which, among other things, increased the minimum Medicaid
rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which
rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused,
instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals
enrolled in Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition
for manufacturers' outpatient drugs coverage under Medicare Part D.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June
17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without
specifically ruling on the constitutionality of the ACA.
Additionally, on August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions was enacted, which,
among other things, included aggregate reductions of Medicare payments to providers, which went into effect on April 1, 2013
and, due to subsequent legislative amendments to the statute, will stay in effect through 2032, with the exception of a temporary
suspension from May 1, 2020 through March 31, 2022, unless additional action is taken by Congress. On January 2, 2013, the
American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to
several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. In addition, in March 2021,
the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory Medicaid drug rebate cap, beginning
January 1, 2024. The rebate was previously capped at 100% of a drug’s average manufacturer price.
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More recently, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for
their marketed products, which have resulted in several recent Congressional inquiries and proposed and enacted legislation
designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products.
On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires
manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under
Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part
D coverage gap discount program with a new discounting program (which began in 2025). The IRA permits the Secretary of
the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to
regulation, for the initial years. The Centers for Medicare & Medicaid Services (CMS) has published the negotiated prices for
the initial ten drugs, which will first be effective in 2026, and the list of the subsequent 15 drugs that will be subject to
negotiation, although the Medicare drug price negotiation program is currently subject to legal challenges. While the impact of
the IRA on the pharmaceutical industry cannot yet be fully determined, it is likely to be significant.
We expect that additional state, federal and foreign healthcare reform measures will be adopted in the future, any of which
could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in
reduced demand for our products, once approved, or additional price increases. In particular, we anticipate that Medicare Part B
will play an important role in the reimbursement of ensifentrine. Changes in how products are reimbursed through Medicare
Part B may affect the overall coverage for ensifentrine, if approved. Any reduction in reimbursement from Medicare or other
government-funded programs may result in a similar reduction in payments from private payors.
Similar political, economic and regulatory developments are occurring in the EU and may affect the ability of pharmaceutical
companies to profitably commercialize their products.
On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”), amending Directive 2011/24/
EU, was adopted. The Regulation entered into force in January 2022 and has been applicable since January 2025, with phased
implementation based on the type of product, i.e. oncology and advanced therapy medicinal products as of 2025, orphan
medicinal products as of 2028, and all other medicinal products by 2030. The Regulation intends to boost cooperation among
EU member states in assessing health technologies, including new medicinal products, and provide the basis for cooperation at
the EU level for joint clinical assessments in these areas. It will permit EU member states to use common HTA tools,
methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the
innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers
can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early,
and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing
non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
Data Privacy and Security Laws
Numerous state, federal and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and
security of health-related and other personal information, and could apply now or in the future to our operations or the
operations of our partners. In the United States, numerous federal and state laws and regulations, including data breach
notification laws, health information privacy and security laws and consumer protection laws and regulations govern the
collection, use, disclosure, and protection of health-related and other personal information. In addition, certain foreign laws
govern the privacy and security of personal data, including health-related data. Privacy and security laws, regulations, and other
obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in
investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Additional regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic Substances Control Act,
affect our business. These and other laws govern the use, handling and disposal of various biologic, chemical and radioactive
substances used in, and wastes generated by, operations. If our operations result in contamination of the environment or expose
individuals to hazardous substances, we could be liable for damages and governmental fines. Equivalent laws have been
adopted in certain other countries that impose similar obligations.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act ("FCPA"), prohibits U.S. corporations and individuals from engaging in certain
activities to obtain or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to
pay or authorize the payment of anything of value to any foreign government official, government staff member, political party
or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official
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capacity. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Equivalent laws
have been adopted in other foreign countries that impose similar obligations.
EMPLOYEES
As of December 31, 2024 we had 209 full-time employees. None of our employees is party to a collective bargaining agreement
or represented by a trade union or labor union. We consider our relationship with our employees to be good.
ADDITIONAL INFORMATION
We were incorporated in February 2005 as Isis Resources plc under the laws of England and Wales. In September 2006, we
acquired Rhinopharma Limited, a private company incorporated in Canada, and changed our name to Verona Pharma plc. Our
principal office is located at 3 More London Riverside, London, SE1 2RE, United Kingdom.
We make available our public filings, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and any amendments to those reports, with the SEC free of charge through our website at
www.veronapharma.com in the “Investors” section as soon as reasonably practicable after we electronically file such material
with, or furnish such material to, the SEC. The information contained in, or accessible through, our website does not constitute
a part of this Annual Report. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and
other information regarding issuers that file electronically with the SEC, including Verona Pharma plc.
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Item 1A. Risk Factors
Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below, as
well as the other information in this Annual Report, including our Consolidated Financial Statements and the
related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The
occurrence of any of the events or developments described below could adversely affect our business, financial
condition, results of operations and growth prospects. In such an event, the market price of our ADSs could decline,
and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial also may impair our business operations.
Risks Related to Our Business and Industry
We have a limited operating history and have not generated any significant product revenue.
We are a biopharmaceutical company with a limited operating history, and have incurred significant operating losses
since our inception. We had net losses of $173.4 million and $54.4 million for the years ended December 31, 2024
and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $562.4 million. Our losses have
resulted principally from expenses incurred in research and development of ensifentrine, and from general and
administrative costs that we have incurred while building our business infrastructure. We may continue to incur
significant operating losses for the foreseeable future as we expand our research and development efforts, advance
our clinical development of ensifentrine in other formulations, and support the commercialization of ensifentrine
under the brand name Ohtuvayre™ (ensifentrine), which was approved by the FDA on June 26, 2024 for the
maintenance treatment of chronic obstructive pulmonary disease ("COPD”) in adult patients. We generally use
“Ohtuvayre” when referring to our FDA-approved version of ensifentrine, and “ensifentrine” when referring to our
investigational programs for ensifentrine. We anticipate that our expenses will increase substantially as we:
•
initiate and conduct clinical trials of ensifentrine for the treatment of non-cystic fibrosis bronchiectasis
(“bronchiectasis”), cystic fibrosis (“CF”), asthma or other indications;
•
initiate and conduct other future clinical trials of ensifentrine in other formulations, including in combination
with other active ingredients including fixed-dose combinations, for the treatment of COPD or other indications;
•
initiate and conduct clinical pharmacology studies with any formulation;
•
seek to discover and develop or in-license additional respiratory product candidates;
•
conduct pre-clinical studies to support ensifentrine and potentially other future product candidates;
•
develop the manufacturing processes and produce clinical and commercial supplies of the ensifentrine active
pharmaceutical ingredient and formulated drug products derived from it;
•
seek additional regulatory approvals of ensifentrine;
•
maintain and potentially expand commercial infrastructure to support the commercialization of Ohtuvayre,
including sales, marketing, operations, reimbursement, distribution and manufacturing capabilities to
commercialize Ohtuvayre;
•
maintain, expand and protect our intellectual property portfolio;
•
secure, maintain or obtain freedom to operate for our in-licensed technologies and products;
•
add clinical, scientific, operational, financial and management information systems and personnel, including
personnel to support our product development and commercialization efforts; and
•
expand our operations to support commercialization and research activities in the U.S. and elsewhere.
Our expenses may also increase substantially if we experience any delays or encounter any issues with any of the
above, including, but not limited to, failed pre-clinical studies or clinical trials, complex results, safety issues,
manufacturing difficulties, inadequate quantity or quality of ensifentrine for our clinical trials or finished drug
product, or regulatory challenges.
We have devoted substantially all of our financial resources and efforts to the research and development, pre-clinical
studies and clinical trials, and commercialization of Ohtuvayre for the maintenance treatment of COPD of adults in
the U.S. We are continuing the development of ensifentrine in other formulations and for other targeted indications,
and to support commercialization of Ohtuvayre in other territories, if and when approved in such territories.
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To become and remain profitable, we must succeed in developing our product candidates and commercializing our
product, Ohtuvayre, and any other products for which we may receive regulatory approval that generate significant
revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials
of ensifentrine in other formulations and other targeted indications, discovering and developing additional product
candidates, obtaining additional regulatory approvals for ensifentrine and for any future product candidates that
successfully complete clinical trials, establishing manufacturing, commercial and marketing capabilities and
ultimately distributing and selling any products for which we obtain regulatory approval, including our approved
product Ohtuvayre. We are only in the preliminary stages of some of these activities, such as the commercialization
of Ohtuvayre. We may never succeed in these activities and, even if we do, we may never generate revenue that is
significant enough to achieve profitability.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable
to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve
profitability. If we are required by the FDA, the European Medicines Agency (“EMA”), or other regulatory
authorities to perform studies in addition to those we currently anticipate, or if there are any delays in completing
our planned clinical trials or the development of ensifentrine in additional formulations or for other targeted
indications, or any other product candidates, our expenses could increase and revenue could be further delayed.
Ohtuvayre is our only product approved for marketing. It is approved in the U.S. but is not approved in any other
jurisdiction, and may never receive approval in other jurisdictions. We may not be successful in obtaining regulatory
approval for any additional products, and Ohtuvayre may never generate revenues sufficient to achieve or sustain
profitability. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. Our failure
to achieve or sustain profitability would depress the market price of our ADSs and could impair our ability to raise
capital, expand our business, diversify our product offerings or continue our operations. A decline in the market
price of our ADSs also could cause our ADS holders to lose all or a part of their investment.
We may need additional funding to complete development and commercialization of any future product
candidates and to continue to commercialize Ohtuvayre. If we are unable to raise capital when needed, or if a
failure of any financial institution where we maintain our cash and cash equivalents prevents or delays us from
accessing uninsured funds, we could be forced to delay, reduce or eliminate our product development programs
or commercialization efforts.
We expect our expenses to increase in connection with our ongoing and planned activities, particularly as we
continue to commercialize Ohtuvayre, and conduct clinical trials of ensifentrine in other formulations and for other
targeted indications. We expect to incur significant commercialization expenses related to activities including
product positioning studies, product manufacturing, medical affairs, marketing, sales and distribution. Furthermore,
we expect to incur ongoing costs associated with operating as a public company in the U.S. and maintaining a listing
on the Nasdaq Global Market, or Nasdaq. Accordingly, we may need to obtain additional funding in connection with
our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to
delay, reduce or eliminate our research and development programs or any future commercialization efforts.
We estimate that our existing cash resources, our product sales and additional funding received and expected to
become available under the 2024 Term Loans and the RIPSA will be sufficient to fund our operating expenses and
capital expenditure requirements for at least the next 12 months from the date of issuance of our Consolidated
Financial Statements included elsewhere in this Annual Report. Future advances under the 2024 Term Loans and the
RIPSA are contingent upon achievement of certain commercial milestones and other specified conditions. We have
based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources
sooner than we currently expect. In addition, our operating plan may change as a result of many factors unknown to
us. These factors, among others, may necessitate that we seek additional capital sooner than currently planned. In
addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we
believe we have sufficient funds for our current or future operating plans. We maintain the majority of our cash and
cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these
institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of
failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no
assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or
delay in accessing these funds could adversely affect our business and financial position.
Our future capital requirements will depend on many factors, including:
•
the cost, progress and results of any studies required to support the commercial positioning of Ohtuvayre for the
maintenance treatment of COPD in adult patients and any future product candidates;
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•
the number of potential new product candidates we in-license and develop;
•
the cost, progress and results of any clinical trials evaluating ensifentrine for the treatment of bronchiectasis,
CF, asthma or other targeted indications, or for other formulations of ensifentrine, including fixed-dose
combination products;
•
the cost of manufacturing clinical and commercial supplies of the ensifentrine active ingredient and derived
formulated drug products and for other formulations of ensifentrine in development;
•
the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for
ensifentrine in other target indications and of the development of DPI and pMDI formulations of ensifentrine, or
fixed-dose combination formulations of ensifentrine for the maintenance treatment of COPD and potentially
bronchiectasis, CF, asthma and other respiratory diseases;
•
the costs involved in growing our organization to the size needed to allow for the research, development and
commercialization of ensifentrine or any future product candidates;
•
the costs, timing and outcomes of current and future commercialization activities, including manufacturing,
marketing, sales and distribution, for Ohtuvayre;
•
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending any intellectual property-related claims, including any claims by third
parties that we are infringing upon their intellectual property rights;
•
the sales price and availability of adequate third-party coverage and reimbursement for Ohtuvayre;
•
the effect of competing technological and market developments;
•
the extent to which we acquire or invest in businesses, products and technologies, including entering into
licensing or collaboration arrangements for our products;
•
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 commercialization of Ohtuvayre, potential
commercialization of ensifentrine in other indications or any future product candidates, if approved, and costs
involved in the creation of an effective sales and marketing organization;
•
the amount of revenue we may derive either directly or in the form of royalty payments from future sales of
Ohtuvayre or any future product candidates, including ensifentrine in other indications;
•
the cost of fully developing a sales, marketing and distribution infrastructure and scale up of external
manufacturing capabilities to commercialize Ohtuvayre and any product candidates for which we may obtain
regulatory approval; and
•
our ability to continue to operate as a public company.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may
adversely affect our ability to develop and commercialize Ohtuvayre or our product candidates. In addition, we
cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.
Moreover, the terms of any financing may adversely affect our business, the holdings or the rights of our
shareholders, or the value of our ordinary shares or ADSs.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue
our research and development programs relating to ensifentrine or any commercialization efforts, be unable to
expand our operations, or be unable to otherwise capitalize on our business opportunities, as desired, which could
harm our business and potentially cause us to discontinue operations.
We depend solely on the commercial success of Ohtuvayre. If we are unable to generate significant revenue from
the sale of Ohtuvayre or successfully develop ensifentrine for other indications, our financial condition will be
adversely affected.
The FDA approved our New Drug Application (“NDA”) for Ohtuvayre for the maintenance treatment of COPD in
adult patients on June 26, 2024, and we began generating revenue from the sale of Ohtuvayre in August 2024. We
have invested substantially all of our efforts and financial resources on the development of Ohtuvayre and on
preparation for its commercial launch, including costs related to commercial drug supply, sales, and marketing, and
it is our sole source of revenue. Our ability to achieve profitability depends heavily on its successful
26
commercialization. In addition, we have not submitted a marketing authorization application (“MAA”) to the EMA
or comparable applications to other regulatory authorities for Ohtuvayre. The success of Ohtuvayre will depend on
many factors, including the following:
•
the potential and perceived efficacy and potential advantages over alternative treatments, including over direct
competitors;
•
the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s
approved labeling;
•
relative convenience and ease of administration;
•
the willingness of the target patient population to try new therapies and of physicians to prescribe these
therapies;
•
the strength of marketing and distribution support and timing of market introduction of competitive products;
•
the ability to offer Ohtuvayre for sale at a competitive price;
•
publicity concerning our product, or competing products and treatments;
•
the availability of third-party coverage and adequate reimbursement for Ohtuvayre;
•
the possible occurrence of adverse clinical findings or decreased effectiveness of our product over time
identified during continued monitoring and evaluation of patients;
•
any restrictions on the use of our product together with other medications;
•
the ability of our CMOs and supply chain to maintain sufficient quantity and quality, and uninterrupted supply,
of Ohtuvayre;
•
the ability to timely scale up manufacturing capabilities through current or additional sources to support any
increase in market demand;
•
unexpected manufacturing issues, product performance issues or stability issues;
•
interactions of our product with other medicines patients are taking;
•
the mix of private and governmental payers coverage, particularly if the percentage of patients receiving
reimbursement from state Medicaid is high since such process can be slower to reimburse; and
•
the continuing efforts of governmental and other third-party payors to contain, reduce or shift the costs of
healthcare through various means, including an increased emphasis on managed care and attempts to limit or
regulate the price of medical products and services, particularly for new and innovative products and therapies,
any of which may result in downward pressure on pricing, reimbursement and utilization, which may adversely
affect our product sales and results of operations.
Even if a product displays a favorable efficacy and safety profile in clinical studies, market acceptance of the
product will not be known until some period after it is launched. Our efforts to educate the medical community and
payers on the benefits of Ohtuvayre may require significant resources and may never be successful. Our efforts to
educate the marketplace may require more resources than are required by the conventional technologies marketed by
our competitors. Any of these factors may cause Ohtuvayre to be unsuccessful or less successful than anticipated.
The success of any product candidates, including our planned and ongoing development programs for ensifentrine,
will depend on many factors, including the following:
•
we may not be able to demonstrate that a product candidate is safe and effective as a treatment for our targeted
indications to the satisfaction of the applicable regulatory authorities;
•
the applicable regulatory authorities may require additional pre-clinical or clinical trials, which would increase
our costs and prolong our development;
•
the results of clinical trials of a product candidate may not meet the level of statistical or clinical significance
required by the applicable regulatory authorities for marketing approval;
•
the applicable regulatory authorities may disagree with the number, design, size, conduct or implementation of
our clinical trials;
27
•
the contract research organizations (“CROs”) that we retain to conduct clinical trials may take actions outside of
our control that materially adversely impact our clinical trials;
•
the applicable regulatory authorities may not find the data from pre-clinical studies and clinical trials sufficient
to demonstrate that the clinical and other benefits of a product candidate outweigh its safety risks or may
disagree with our interpretation of data;
•
our ability to demonstrate a non-clinical safety profile that is acceptable to the applicable regulatory authorities;
•
unexpected operational or clinical issues may prevent completion or interpretation of clinical study results;
•
unexpected manufacturing issues, product performance issues or stability issues may delay or otherwise
adversely affect the progress of our clinical development program;
•
if regulatory authorities determine that inspections of the manufacturing facilities or clinical sites for our
product candidates are required in connection with a marketing application, and such regulatory authorities are
unable to conduct such inspections, whether due to travel restrictions or geopolitical conflict, including war and
terrorism, such as the ongoing conflicts in Europe and the Middle East;
•
the applicable regulatory authorities may not accept data generated at our clinical trial sites due to Good Clinical
Practice (“GCP”) compliance issues, misconduct, or other reasons;
•
the applicable regulatory authorities may require development of a risk evaluation and mitigation strategy
(“REMS”) or similar risk management measures as a condition of approval;
•
the applicable regulatory authorities may identify deficiencies in the manufacturing processes or facilities of our
third-party manufacturers;
•
the applicable regulatory authorities may change their approval policies or adopt new regulations;
•
if we license a product candidate to others, the efforts of those parties in completing clinical trials of, receiving
regulatory approval for, and commercializing that product candidate;
•
through our clinical trials, we may discover factors that limit the commercial viability of a product candidate or
make the commercialization of such product candidate unfeasible;
•
if we retain rights under a collaboration agreement for a product candidate, our efforts in completing pre-clinical
studies and clinical trials of, receiving marketing approvals for, establishing commercial manufacturing
capabilities for, and commercializing such product candidate; and
•
if approved, acceptance of a product by patients, the medical community and third-party payors, effectively
competing with other therapies, a continued acceptable safety profile following approval and qualifying for,
maintaining, enforcing and defending our intellectual property rights and claims.
An unfavorable outcome in any of these factors could result in our experiencing significant delays or an inability to
successfully commercialize our product candidates.
We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory
approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical
trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our
operations. Even if we successfully obtain regulatory approvals to manufacture and market our product candidates,
our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory
approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as
we estimate, we may not generate significant revenues from sales of such products, if approved.
We have received FDA approval to commercialize ensifentrine in the U.S. for the maintenance treatment of COPD
in adult patients under the brand name Ohtuvayre. We may in the future seek regulatory approval to commercialize
ensifentrine in the European Union (“EU”) and additional countries. While the scope of regulatory approval is
similar in many countries, to obtain separate regulatory approval in multiple countries requires us to comply with the
numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing,
among other things, clinical trials and commercial sales, pricing and distribution of ensifentrine, and we cannot
predict success in these jurisdictions.
Our limited operating history may make it difficult for investors to evaluate the success of our business to date
and to assess our future viability.
28
Since our inception in 2005, we have devoted substantially all of our resources to developing ensifentrine, building
our intellectual property portfolio, developing our supply chain, planning our business, raising capital and providing
general and administrative support for these operations. We have completed multiple Phase 1 and 2 clinical trials
with different formulations of ensifentrine and for different indications, and two registrational Phase 3 clinical trials
with nebulized ensifentrine for the maintenance treatment of COPD. While we have received approval for marketing
ensifentrine in the U.S. for the maintenance treatment of COPD in adults, we are in the early stages of sales,
marketing and distribution activities necessary for successful product commercialization. Additionally, we are not
profitable and have incurred losses in each year since our inception, and we expect our financial condition and
operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of
factors, many of which are beyond our control. Consequently, any predictions investors make about our future
success or viability may not be as accurate as they could be if we had a longer operating history.
The terms of our credit facility place restrictions on our operating and financial flexibility, and our existing and
any future indebtedness could adversely affect our ability to operate our business.
On May 9, 2024 (the “2024 Effective Date”), Verona Pharma, Inc. entered into a term loan facility of up to $400.0
million (the “2024 Term Loans” or the “2024 Term Loan Agreement”), with Oaktree Fund Administration, LLC, a
Delaware limited liability company, as administrative agent, (in such capacity, the “Agent”) and certain funds
managed by each of Oaktree Capital Management, L.P. (“Oaktree”) and OCM Life Sciences Portfolio LP
(“OMERS”) party thereto (collectively the “2024 Lenders”). We received net proceeds of $68.6 million related to
the Tranche B Term Loan on June 28, 2024 following FDA approval of Ohtuvayre. Each advance under the 2024
Term Loans accrues interest at a per annum rate equal to 11.00%.
Our outstanding indebtedness, including any additional indebtedness incurred beyond our borrowings under the
2024 Term Loans, combined with our other financial obligations and contractual commitments could have
significant adverse consequences, including:
•
requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money
available to fund working capital, capital expenditures, product candidate development and other general
corporate purposes;
•
increasing our vulnerability to adverse changes in general economic, industry and market conditions;
•
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain
further debt or equity financing;
•
increasing our need to meet minimum net sales requirements when our future sales are uncertain;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we
compete; and
•
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt
servicing options.
We intend to satisfy our current and future debt service obligations with our then existing cash and cash equivalents.
However, we may not have sufficient funds, and may be unable to arrange for additional financing, to pay the
amounts due under the 2024 Term Loans or any other debt instruments. Failure to satisfy our current and future debt
obligations, including covenants to take or avoid specific actions, under the 2024 Term Loan Agreement could result
in an event of default and, as a result, the 2024 Lenders could accelerate all of the amounts due. In the event of an
acceleration of amounts due under the 2024 Term Loan Agreement as a result of an event of default, we may not
have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness while still
pursuing our current business strategy. In addition, the 2024 Lenders could seek to enforce their security interests in
any collateral securing such indebtedness.
Further, if we are liquidated, the 2024 Lenders’ right to repayment would be senior to the rights of holders of our
ADSs or our ordinary shares to receive any proceeds from the liquidation. Any declaration by the 2024 Lenders of
an event of default could significantly harm our business and prospects and could cause the price of our ADS to
decline. In addition, the covenants under the 2024 Term Loan Agreement, the pledge of our assets (including our
intellectual property) as collateral could limit our ability to obtain additional debt financing. If we raise any
additional debt financing, the terms of such additional debt could further restrict our operating and financial
flexibility.
The terms of the RIPSA place restrictions on our operating and financial flexibility, and if we fail to comply with
certain covenants in the RIPSA, our results of operations and financial condition may be harmed.
29
On May 9, 2024, Verona Pharma plc and Verona Pharma, Inc. (collectively, the “Sellers”) entered into a revenue
interest purchase and sale agreement (as amended by that certain First Amendment to Revenue Interest Purchase and
Sale Agreement, dated as of November 7, 2024, the “RIPSA”) with Oaktree Fund Administration, LLC, as
administrative agent, and certain funds managed by each of Oaktree and OMERS party thereto (collectively, the
“Purchasers”). Under the terms of the RIPSA, in exchange for the Purchasers’ payment to us of a purchase price of
$100 million in the aggregate, upon approval of ensifentrine by the FDA by a specified date and subject to certain
labeling conditions (the “Tranche A Purchase Price”), the Sellers agreed to a true sale of assigned interests to the
Purchasers, including a right for the Purchasers to receive 6.50% on global net sales of ensifentrine by the Sellers
and 5% on certain proceeds the Sellers receive from licenses engaged during the term of the RIPSA outside of the
U.S. The Tranche A Purchase Price of $100.0 million was received on June 28, 2024 following FDA approval of
Ohtuvayre. We are also eligible to receive an additional funding tranche equal to $150 million upon achievement of
a specified net sales milestone in any trailing six-month period after receipt of the Tranche A Purchase Price. The
RIPSA contains covenants that impose on us certain obligations with respect to payment, diligence, reporting,
intellectual property, license agreements, and certain other actions, as well as indemnification obligations. Among
other things, these covenants require us to use commercially reasonable efforts to develop and commercialize
ensifentrine in the U.S. and each major jurisdiction in which a marketing authorization is obtained, and limit our
ability to create or incur liens or dispose of certain assets related to ensifentrine. Compliance with these covenants
may limit our flexibility in operating our business and our ability to take actions that might otherwise be
advantageous to us and our shareholders, including the holders of our ADSs. Pursuant to the RIPSA and related
security agreement, we granted to the Purchasers a second-priority lien in certain of our intellectual property assets
and other related assets to secure our obligations under the RIPSA. If we are unable to comply with our obligations,
the Purchasers could seek to enforce their security interest in such assets.
Further, the RIPSA and our payment obligations to the Purchasers could have important negative consequences to
holders of our securities. For example, a portion of our cash flow from operations will be needed to make required
payments to the Purchasers and will not be available to fund future operations.
Payment requirements under the RIPSA will increase our cash outflows. Our future operating performance is subject
to market conditions and business factors that are beyond our control. If our cash inflows and capital resources are
insufficient to allow us to make required payments, we may have to reduce or delay capital expenditures, sell assets
or seek additional capital. If we raise funds by selling additional equity, such sale would result in dilution to our
shareholders. There is no assurance that if we are required to secure funding we can do so on terms acceptable to us,
or at all. Failure to pay amounts owed to the Purchasers when due would result in a default under the RIPSA and
could result in foreclosure on all or substantially all of our assets, which would have a material adverse effect.
Raising additional capital may cause dilution to our holders, restrict our operations or require us to relinquish
rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of securities offerings, debt financings, license and collaboration agreements and research
grants. If we raise capital through securities offerings, the ownership interest of our ADS holders and shareholders
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect
these holders’ rights as holders of our ADSs. Debt financing, if available, could result in fixed payment obligations,
and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional
debt, to acquire, sell or license intellectual property rights, to make capital expenditures, to declare dividends, or
other operating restrictions. If we raise additional funds through collaboration or licensing agreements, we may have
to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on
terms that may not be favorable to us. In addition, we could also be required to seek funds through arrangements
with collaborators or others at an earlier stage than otherwise would be desirable. If we raise funds through research
grants, we may be subject to certain requirements, which may limit our ability to use the funds or require us to share
information from our research and development. Raising additional capital through any of these or other means
could adversely affect our business and the holdings or rights of our ADS holders and shareholders, and may cause
the market price of our ADSs to decline.
Our business may become subject to economic, political, regulatory and other risks associated with international
operations.
As a company based in the U.K. and whose securities are listed on Nasdaq, our business is subject to risks
associated with conducting business internationally. Many of our suppliers and collaborative and clinical trial
relationships are located outside the U.K. and the U.S. Accordingly, our future results could be harmed by a variety
of factors, including:
30
•
economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;
•
differing regulatory requirements for drug approvals in non-U.S. countries;
•
differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in
such jurisdictions;
•
potentially reduced protection for intellectual property rights;
•
difficulties in compliance with non-U.S. laws and regulations;
•
changes in non-U.S. regulations and customs, tariffs and trade barriers;
•
changes in non-U.S. currency exchange rates of the euro and currency controls;
•
changes in a specific country’s or region’s political or economic environment;
•
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-
•
U.S. governments;
•
differing reimbursement regimes and price controls in certain non-U.S. markets;
•
negative consequences from changes in tax laws;
•
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
•
workforce uncertainty in countries where labor unrest is more common than in the U.S.;
•
difficulties associated with staffing and managing international operations, including differing labor relations;
•
production shortages resulting from any events affecting raw material supply or manufacturing capabilities
abroad; and
•
business interruptions resulting from geopolitical actions, including war and terrorism, such as the ongoing
conflicts in Europe and the Middle East, natural disasters including earthquakes, typhoons, floods and fires, or
public health emergencies.
Exchange rate fluctuations may materially affect our results of operations and financial condition.
Although we are based in the U.K., our financial statements are denominated in U.S. dollars and many of our
business activities are carried out with partners outside the U.S. and U.K. and these transactions may be
denominated in another currency. As a result, our business and the price of our ADSs may be affected by
fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the
currencies of other countries, which may have a significant impact on our results of operations and cash flows from
period to period. Currently, we do not have any exchange rate hedging arrangements in place.
Risks Related to Development, Clinical Testing and Regulatory Approval
Clinical drug development and regulatory approval involve a lengthy and expensive process, with uncertain
outcomes. We may incur additional costs or experience delays in completing, or ultimately be unable to complete,
the development and regulatory approval of our product candidates.
Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If
clinical trials of our product candidates, including our ensifentrine programs for additional targeted indications and
formulations, are prolonged or delayed, or if such clinical trials fail to show the safety and efficacy required by
regulatory authorities, we or our collaborators may be unable to obtain required regulatory approvals and be unable
to commercialize our product candidates on a timely basis, or at all.
To obtain the requisite regulatory approvals to market and sell our product candidates, we or any collaborator must
demonstrate through extensive pre-clinical studies and clinical trials that such product candidates are safe and
effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently
uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early-
stage clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product
candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having
progressed through pre-clinical studies and initial clinical trials. Regulators’ interpretations of results may differ
from our own, and expectations can change over time while a product is in clinical development.
31
A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. The FDA
may require us to conduct additional pre-clinical studies or clinical trials that may not be successful, or may not be
considered successful by regulators.
If we wish to commercialize ensifentrine in territories other than the U.S., the regulatory authorities in such
territories may require us to conduct additional pre-clinical studies or clinical trials beyond those we successfully
completed to obtain FDA approval of Ohtuvayre, and if we wish to commercialize ensifentrine in other formulations
or for other targeted indications, we will also be required to conduct further clinical studies in the U.S. to support
potential FDA approvals for such targeted indications and formulations.
We may experience delays in clinical trials of ensifentrine in different formulations, including fixed-dose
combinations, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll
patients on time or be completed on schedule, if at all. Our clinical trials can be delayed, suspended, or terminated,
or the utility of data from these trials may be compromised, for a variety of reasons, including the following:
•
inability to generate sufficient preclinical, toxicology, drug product characterizations or other in vivo or in vitro
data to support the initiation or continuation of clinical trials;
•
delays in or failure to obtain regulatory agreement on clinical trial design or implementation, including dose and
frequency of administration;
•
delays in or failure to obtain regulatory authorization to commence a trial;
•
delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the
terms of which can be subject to extensive negotiation and may vary significantly among different CROs and
trial sites;
•
inability of a CRO to meet their contracted obligations regarding subject enrollment, data collection, data
monitoring, laboratory sample management, programming and analysis or other activities;
•
delays in or failure to obtain institutional review board (“IRB”), or ethics committee approval or positive
opinion at each site;
•
delays in or failure to recruit suitable patients to participate in a trial;
•
failure to have patients complete a trial or return for post-treatment follow-up;
•
clinical sites deviating from trial protocol or dropping out of a trial or committing gross misconduct or fraud;
•
delays to the addition of new clinical trial sites;
•
inability to achieve or maintain double-blinding, when required by the applicable clinical trial protocol;
•
unexpected technical issues during manufacture;
•
variability in drug product performance and/or stability;
•
discoveries that may reduce the commercial viability of the product candidate;
•
inability to manufacture sufficient quantities of the applicable product candidates for use in clinical trials;
•
the quality or stability of the product candidate falling below acceptable standards for either safety or efficacy;
•
third-party actions claiming infringement by the product candidate in clinical trials and obtaining injunctions
interfering with our progress;
•
business interruptions resulting from geo-political actions, including war and terrorism, such as the ongoing
conflicts in Europe and the Middle East, or natural disasters and other extreme weather-related events including
earthquakes, hurricanes, typhoons, floods and fires;
•
trade sanctions imposed by the U.S. or other governments impacting our ability to transfer money to certain
countries, such as Russia, to pay clinical trials sites in those countries;
•
safety or tolerability concerns causing us or our collaborators, as applicable, to suspend or terminate a trial if we
or our collaborators find that the participants are being exposed to unacceptable health risks;
•
changes in regulatory requirements, policies and guidelines;
32
•
lower than anticipated retention rates of patients and volunteers in clinical trials;
•
failure of our third-party research contractors to comply with regulatory requirements or to meet their
contractual obligations to us in a timely manner, or at all; and
•
difficulty in certain countries in identifying the populations that we are trying to evaluate in a particular trial,
which may delay enrollment.
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in
which such trials are being conducted, by the Data Review Committee or Data Safety Monitoring Board for such
trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination
due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory
authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to
demonstrate a benefit from using a drug, failure of our clinical trials to demonstrate adequate efficacy and safety,
changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from
time to time and receive compensation in connection with such services. Under certain circumstances, we may be
required to report some of these relationships to the FDA or other regulatory authority. The FDA or other regulatory
authority may conclude that a financial relationship between us and a principal investigator has created a conflict of
interest or otherwise affected interpretation of the study. The FDA or other regulatory authority may therefore
question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself
may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA
or other regulatory authority.
If we experience delays in the completion of any clinical trial of ensifentrine for any indication, or of any other
product candidate, or any clinical trial of ensifentrine or any other product candidate is terminated, the commercial
prospects of such product candidates may be harmed, and our ability to generate product revenues, if any, will be
delayed. Moreover, any delays in completing our clinical trials will increase our costs, slow down the development
and approval process and jeopardize our ability to commence product sales and generate revenue, if any. Significant
clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods
during which we have the exclusive right to commercialize our product candidates and could impair our ability to
commercialize our product candidates. In addition, many of the factors that cause, or lead to, a delay in the
commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of any
product candidate.
Clinical trials must be conducted in accordance with the laws and regulations of the FDA, EU rules and regulations
and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight
by these governmental agencies and IRBs (or other ethics committees) at the medical institutions where the clinical
trials are conducted. In addition, clinical trials must be conducted with supplies of the product candidate produced
under current good manufacturing practice (“cGMP”) and similar foreign requirements and other regulations.
Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials
and while we have agreements governing their committed activities, we have limited influence over their actual
performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in
compliance with GCP requirements. To the extent our collaborators or the CROs fail to enroll participants for our
clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of
trials, including achieving full enrollment, we may be affected by increased costs, program delays or both. In
addition, clinical trials that are conducted in countries outside the EU and the U.S. may subject us to further delays
and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-
EU and non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the
FDA or the EMA, and different standards of diagnosis, screening and medical care.
In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and
additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in
the EU recently evolved. The EU Clinical Trials Regulation (“CTR”), which was adopted in April 2014 and repeals
the EU Clinical Trials Directive, became applicable on January 31, 2022. While the EU Clinical Trials Directive
required a separate clinical trial application (“CTA”), to be submitted in each member state in which the clinical trial
takes place, to both the competent national health authority and an independent ethics committee, the CTR
introduces a centralized process and only requires the submission of a single application for multi-center trials. The
CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each
33
member state, leading to a single decision per member state. The assessment procedure of the CTA has been
harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each
member state with respect to specific requirements related to its own territory, including ethics rules. Each member
state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical
study development may proceed. The CTR transition period ended on January 31, 2025 and all clinical trials and
related applications are now fully subject to the provisions of the CTR. Compliance with the CTR requirements by
us and our third-party service providers, such as CROs, may impact our developments plans.
It is currently unclear to what extent the U.K. will seek to align its regulations with the EU. The U.K. regulatory
framework in relation to clinical trials is derived from the now-repealed EU Clinical Trials Directive (as
implemented into U.K. law, through the Medicines for Human Use (Clinical Trials) Regulations 2004, as amended).
The extent to which the regulation of clinical trials in the U.K. will mirror the (EU) CTR in the long term is not yet
certain, however, on December 12, 2024, the U.K. government introduced a legislative proposal - the Medicines for
Human Use (Clinical Trials) Amendment Regulations 2024 - that, if implemented, will replace the current
regulatory framework for clinical trials in the U.K. The U.K. government has provided the legislative proposal to the
U.K. Parliament for its review and approval. Once the legislative proposal is approved (with or without amendment),
it will be adopted into U.K. law which is expected in early 2026. A decision by the U.K. not to closely align its
regulations with the new approach that has been adopted in the EU may have an effect on the cost of conducting
clinical trials in the U.K. compared with other countries.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies
governing clinical trials, our development plans may be impacted.
Our product and product candidates may have serious adverse, undesirable or unacceptable side effects which
may delay or prevent marketing approval. If such side effects are identified during product development or
following approval, if any, we may need to abandon our development programs, the commercial profile of any
approved label may be limited, or we may be subject to other significant negative consequences following
marketing approval, if any.
Undesirable side effects that may be caused by a product or product candidate could cause us or regulatory
authorities to interrupt, delay or halt clinical trials and could result in a more restrictive or less desirable label or the
delay or denial of regulatory approval by the FDA or other comparable foreign authorities. During the conduct of
clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study
doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these
conditions. It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or
as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries,
discomforts and other adverse events that were observed in previous trials, as well as conditions that did not occur or
went undetected in previous trials, will be reported by patients. Many times, side effects are only detectable after
investigational products are tested in large-scale clinical trials or, in some cases, after they are made available to
patients on a commercial scale following approval. We have completed more than twenty Phase 1, 2 and 3 clinical
trials of ensifentrine. In these trials, some patients have experienced mild to moderate adverse reactions, including
urinary tract infection, back pain, hypertension, and diarrhea. An increase in psychiatric adverse events were
reported with use of ensifentrine, although such events were rare and a causal relationship between ensifentrine and
increased rates of psychiatric events could not be established at the time of FDA approval of Ohtuvayre.
Results of our future clinical trials could reveal a high and unacceptable severity and prevalence of adverse side
effects. In such an event, our trials could be suspended or terminated and the FDA or other comparable foreign
regulatory authorities could order us to cease further development of or deny approval of our product candidates for
any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled
patients to complete the trial or result in potential product liability claims. Additionally, if we or others identify
undesirable or unacceptable side effects following regulatory approval, a number of potentially significant negative
consequences could result, including:
•
regulatory authorities may withdraw approvals of such products and require us to take them off the market;
•
regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or
field alerts to physicians and pharmacies;
•
regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to
patients, or that we implement a REMS plan or similar risk management measures to ensure that the benefits of
ensifentrine outweigh its risks;
34
•
we may be required to change the way a product is administered, conduct additional clinical trials or change the
labeling of the product;
•
we may be subject to limitations on how we may promote a product;
•
product sales may be adversely impacted;
•
we may be subject to litigation or product liability claims; and
•
our reputation may suffer.
Any of these events could prevent us or any collaborators from achieving or maintaining market acceptance of any
approved products, including Ohtuvayre, or could have significant negative consequences on the commercialization
of such products, which in turn could delay or prevent us from generating significant revenue from the sale of such
products.
We may not be successful in our efforts to develop ensifentrine in different formulations, including fixed-dose
combinations, and/or for other targeted indications, including bronchiectasis, CF, asthma or other respiratory
diseases.
Part of our strategy is to continue to develop ensifentrine in different formulations and in indications other than
COPD, such as bronchiectasis, CF and asthma and other formulations including fixed-dose combinations, MDI and
DPI. Although our research and development efforts to date have suggested that ensifentrine has the potential to
treat bronchiectasis, CF and asthma, we may not be able to successfully develop ensifentrine to address these or any
other diseases or conditions. In addition, the potential use of ensifentrine in other diseases may not be suitable for
clinical development, including as a result of difficulties enrolling patients in any clinical studies we plan to initiate
or the potential for harmful side effects or other characteristics that might suggest marketing approval and market
acceptance are unlikely. We may find that it may not be feasible to develop an acceptable combination of
ensifentrine with other products, including LAMAs, or that chemical stability or drug product stability does not
support further development. If we do not continue to successfully develop, obtain regulatory approval for, and
begin to commercialize ensifentrine for additional indications or formulations, we will face difficulty in obtaining
product revenues in future periods, which could significantly harm our financial position.
We depend on enrollment of patients in our clinical trials. If we are unable to enroll patients in our clinical trials,
or enrollment is slower than anticipated, our research and development efforts could be adversely affected.
Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient
candidates. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient
withdrawal and other external factors. Patient enrollment depends on many factors, including the size and nature of
the patient population, the severity of the disease under investigation, eligibility criteria for the trial, the proximity of
patients to clinical sites, the design of the clinical protocol, the ability to obtain and maintain patient consents, the
risk that enrolled patients will drop out of a trial, the availability of competing clinical trials, the availability of new
drugs approved for the indication the clinical trial is investigating and clinicians’ and patients’ perceptions as to the
potential advantages of the drug being studied in relation to other available therapies. These factors may make it
difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Higher
than expected numbers of patients could also discontinue participation in the clinical trials. Delays in the completion
of any clinical trial will increase our costs, slow down our development and delay or potentially jeopardize our
ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a
delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval.
We may become exposed to costly and damaging liability claims, either when testing product candidates in the
clinic or at the commercial stage, and our product liability insurance may not cover all damages from such
claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research,
development, manufacturing, marketing and use of pharmaceutical products. The current and future use of product
candidates by us and any collaborators in clinical trials, and the commercial sale of Ohtuvayre by us or partners,
may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers,
pharmaceutical companies, our collaborators or others selling Ohtuvayre. Any claims against us, regardless of their
merit, could be difficult and costly to defend and could adversely affect the market for Ohtuvayre or any prospects
for commercialization of other product candidates. In addition, regardless of the merits or eventual outcome, liability
claims may result in:
35
•
decreased demand for Ohtuvayre;
•
injury to our reputation and the reputation of Ohtuvayre in the market;
•
withdrawal of clinical trial participants;
•
costs to defend related litigation;
•
diversion of management’s time and our resources;
•
substantial monetary awards to trial participants or patients;
•
regulatory investigation, product recalls or withdrawals, or labeling, marketing or promotional restrictions;
•
loss of revenue; and
•
the inability to commercialize or promote any approved products, including Ohtuvayre.
Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a
drug, even after regulatory approval, may exhibit unforeseen side effects. If our product candidates were to cause
adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians
and patients may not comply with warnings that identify known potential adverse effects and patients who should
not use a product.
Although we maintain product liability insurance for our product candidates and commercial products including
Ohtuvayre, it is possible that our liabilities could exceed our insurance coverage. We may not be able to maintain
insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that
may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or
in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations
could be impaired.
The regulatory approval processes of the FDA, the EMA and comparable foreign regulatory authorities are
lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory
approval for ensifentrine for the maintenance treatment of COPD in adult patients in jurisdictions outside the
U.S. or for ensifentrine for additional targeted indications and formulations, our business will be substantially
harmed.
The time required to obtain approval by the FDA, the European Commission and comparable foreign regulatory
authorities is unpredictable, but typically takes many years following the commencement of clinical trials and
depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval
policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the
course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained
regulatory approval for ensifentrine outside of the U.S. and it is possible that ensifentrine or any product candidates
we may develop in the future will never obtain the necessary or desired regulatory approvals.
Prior to obtaining approval to commercialize a product candidate in the U.S. or abroad, we or our collaborators must
demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or
foreign regulatory agencies, that such product candidate is safe and effective for its intended uses. Results from
nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or
clinical data for our product candidate are promising, such data may not be sufficient to support approval by the
applicable regulatory authority. The FDA or foreign regulatory agencies may also require us to conduct additional
preclinical studies or clinical trials prior to or post-approval, or it may object to elements of our clinical development
program.
Product candidates could fail to receive regulatory approval for many reasons, including the following:
•
we may be unable to demonstrate to the satisfaction of the FDA, the EMA or comparable foreign regulatory
authorities that a product candidate is safe and effective for its proposed indication;
•
we may be unable to demonstrate that a product candidate’s benefits outweigh its safety risks;
•
the FDA, the EMA or comparable foreign regulatory authorities may disagree with our interpretation of data
from pre-clinical studies or clinical trials or may find the data to be unacceptable;
•
the data collected from clinical trials may, for various reasons, be considered insufficient to support the
submission or approval of an NDA or supplemental NDA in the U.S., an MAA or variation in the EU, or other
comparable submission to obtain regulatory approval in other countries;
36
•
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or
facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
•
FDA or comparable regulatory authorities may identify issues of GCP noncompliance or unacceptable practices
at clinical sites or CROs participating in our clinical studies, rendering clinical data insufficient to support
approval;
•
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly
change in a manner rendering our clinical data insufficient for approval;
•
the FDA, the EMA or comparable foreign regulatory authorities may disagree with the design or
implementation of our clinical trials; and
•
the FDA, the EMA or comparable foreign regulatory authorities may disagree with our proposed product
specifications and performance characteristics.
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to
obtain the necessary or desired regulatory approvals for our product candidates. The FDA, the EMA and other
regulatory authorities have substantial discretion in the approval process, and determining when or whether
regulatory approval will be obtained for our products. Even if we believe the data collected from our clinical trials
are promising, such data may not be sufficient to support approval by the FDA, the European Commission or any
other regulatory authority.
In addition, even if we receive regulatory approvals for our product candidates, regulatory authorities may approve
our product candidates for fewer or more limited indications than we request, may not approve the price we intend to
charge, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a
product candidate with a label that does not include the labeling claims necessary or desirable for successful
commercialization. Any of the foregoing scenarios could materially harm the commercial prospects for our product
candidates, if approved at all.
In addition, FDA and foreign regulatory authorities may change their approval policies and new regulations may be
enacted. For instance, the EU pharmaceutical legislation is currently undergoing a complete review process, in the
context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November
2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal
products (potentially reducing the duration of regulatory data protection, revising the eligibility for expedited
pathways, etc.) was published on April 26, 2023. The proposed revisions remain to be agreed and adopted by the
European Parliament and European Council and the proposals may therefore be substantially revised before
adoption, which is not anticipated before early 2026. The revisions may however have a significant impact on the
biopharmaceutical industry and our business in the long term.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns
could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or
modified products from being developed, approved or commercialized in a timely manner or at all, which could
negatively impact our business.
The ability of the FDA and comparable foreign regulatory authorities to review and approve new products can be
affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy
changes, the FDA’s or foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment
of user fees, and other events that may otherwise affect the FDA’s or foreign regulatory authorities’ ability to
perform routine functions. Average review times at the FDA and foreign regulatory authorities have fluctuated in
recent years as a result. In addition, government funding of other government agencies that fund research and
development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at
the FDA and other agencies may also slow the time necessary for new drugs, or modifications to cleared or
approved drugs, to be reviewed and/ or approved by necessary government agencies, which would adversely affect
our business. For example, over the last several years, the U.S. government has shut down several times and certain
regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a
prolonged government shutdown occurs, or if global health concerns otherwise hinder or prevent the FDA or other
regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could
significantly impact the ability of the FDA or other regulatory authorities to timely review and process our
regulatory submissions, which could have a material adverse effect on our business.
Even though the FDA has approved Ohtuvayre, we remain subject to ongoing obligations and continued
regulatory review, which may result in significant additional expense. Additionally, Ohtuvayre and any other
37
approved products could be subject to labeling and other restrictions and market withdrawal and we may be
subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems.
With respect to any products approved by the FDA or a comparable foreign regulatory, including Ohtuvayre, the
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion
and record keeping for such product remains subject to extensive and ongoing regulatory requirements. These
requirements include, among other things, payment of annual user fees, submissions of safety and other post-
marketing information and reports, facility registration and drug listing, as well as continued compliance with cGMP
and similar foreign requirements for the manufacture of the product and GCP requirements for any clinical trials that
we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize any
approved products, including Ohtuvayre. In addition, any approval we may obtain could include significant
limitations related to use, restrictions for specified age groups, warnings, precautions or contraindications, and may
include burdensome post-approval study or risk management requirements.
We and our contract manufacturers will also be subject to periodic inspection by the FDA and other regulatory
authorities to monitor compliance with these requirements. If we or a regulatory authority discover previously
unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with
the facilities where the product is manufactured, a regulatory authority may impose restrictions on that product, the
manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension
of manufacturing. In addition, failure to comply with FDA and other comparable foreign regulatory requirements
may subject our company to administrative or judicially imposed sanctions, including:
•
delays in or the rejection of product approvals;
•
restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned
trials;
•
restrictions on the products, manufacturers or manufacturing process;
•
warning or untitled letters;
•
civil and criminal penalties;
•
injunctions;
•
suspension or withdrawal of regulatory approvals;
•
product seizures, detentions or import bans;
•
voluntary or mandatory product recalls and publicity requirements;
•
total or partial suspension of production; and
•
imposition of restrictions on operations, including costly new manufacturing requirements.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and
generate revenue and could require us to expend significant time and resources in response and could generate
negative publicity.
In addition, the policies of the FDA and of other regulatory authorities may change and additional government
regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative or executive action, either in the U.S. or abroad. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may be subject to enforcement action and we may not achieve or sustain profitability.
The FDA and other foreign regulatory agencies actively enforce the laws and regulations prohibiting the
promotion of off-label uses which may result in significant liability if we are found to have violated such laws.
If we are found to have improperly promoted off-label uses for our products, we may become subject to significant
liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about
prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA or
such other regulatory agencies as reflected in the product’s approved labeling. For example, the FDA has approved
Ohtuvayre for the maintenance treatment of COPD in adult patients, and we are not permitted to promote Ohtuvayre
for any other uses. Physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the
approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability.
38
The U.S. federal government has levied large civil and criminal fines against companies for alleged improper
promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has
also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of Ohtuvayre and any
other products for which we may obtain regulatory approval, we could become subject to significant liability, which
would materially adversely affect our business and financial condition.
In Europe, off-label use is not per se regulated by the EU pharmaceutical legislation and a difference is made
between the strict regulation of medicinal product and the use of medicinal products in medical practice. Off-label
use is deferred to national regulation and may vary depending on the EU member state(s).
We may never obtain approval or commercialize ensifentrine in other major markets outside of the U.S., which
would limit our ability to realize its full market potential.
In order to market any products in a country or territory, we must establish and comply with numerous and varying
regulatory requirements of such country or territory regarding safety and efficacy. Clinical trials conducted in one
country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country
does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among
countries and can involve additional product testing and validation and additional administrative review periods.
Seeking regulatory approvals in all major markets could result in significant delays, difficulties and costs for us and
may require additional pre-clinical studies or clinical trials which would be costly and time consuming. Regulatory
requirements can vary widely from country to country and could delay or prevent the introduction of ensifentrine in
those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject
to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have
negative effects on the process for regulatory approval in other countries. While we have received approval in the
U.S. for Ohtuvayre for the maintenance treatment of COPD in adult patients, we currently do not have any product
candidates approved for sale in any other jurisdiction, whether in the EU or any other international markets, and we
do not have experience in obtaining regulatory approval in international markets. If we fail to comply with
regulatory requirements in international markets or to obtain and maintain required approvals, our target market will
be reduced and our ability to realize the full market potential of our products will be compromised.
Our employees and independent contractors, including principal investigators, CROs, consultants, vendors and
collaboration partners may engage in misconduct or other improper activities, including noncompliance with
regulatory standards and requirements.
We are exposed to the risk that our employees and independent contractors, including principal investigators, CROs,
consultants, vendors and collaboration partners may engage in fraudulent conduct or other illegal activities.
Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that
violate: (i) the laws and regulations of the FDA, the EU and other similar regulatory bodies, including those laws
that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing
standards; (iii) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in
the U.S. and abroad; or (iv) laws that require the reporting of true, complete and accurate financial information and
data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive
laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Activities subject to these laws
could also involve the improper use or misrepresentation of information obtained in the course of clinical trials,
creating fraudulent data in our pre-clinical studies or clinical trials or illegal misappropriation of drug product, which
could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and
deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or
regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other
misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could have a significant impact on our business and results
of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary
fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare
programs or healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve
allegations of non-compliance, individual imprisonment, other sanctions, contractual damages, reputational harm,
diminished profits and future earnings, and curtailment of our operations.
39
Interim, “top-line,” or preliminary data from our clinical trials that we announce or publish from time to time
may change as more patient data become available and are subject to audit and verification procedures that could
result in material changes in the final data.
From time to time, we may publicly disclose interim, top-line or preliminary data from our clinical trials, which is
based on a preliminary analysis of then-available data, and the results and related findings and conclusions are
subject to change following a more comprehensive review of the data related to the particular study or trial. We also
make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have
received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results
that we report may differ from future results of the same studies, or different conclusions or considerations may
qualify such results, once additional data have been received and fully evaluated. Top-line or preliminary data also
remain subject to audit and verification procedures that may result in the final data being materially different from
the top-line or preliminary data we previously published. As a result, top-line and preliminary data should be viewed
with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data
from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may
materially change as patient enrollment continues and more patient data become available. Adverse differences
between interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations,
conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value
of the particular program, the approvability or commercialization of the particular product candidate or product and
our company in general. In addition, the information we choose to publicly disclose regarding a particular study or
clinical trial is based on what is typically extensive information, and you or others may not agree with what we
determine is material or otherwise appropriate information to include in our disclosure.
If the interim, top-line or preliminary data that we report differ from actual results, or if others, including regulatory
authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product
candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Risks Related to Healthcare Laws and Other Legal Compliance Matters
Enacted and future legislation and regulation may increase the difficulty and cost for us to commercialize our
products and may affect the prices we may set.
In the United States, the EU and other foreign jurisdictions, there have been, and we expect there will continue to be,
a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our
future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S.
federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in
March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was enacted, which substantially changes
the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those
of greatest importance to the pharmaceutical and biotechnology industries include the following:
•
an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription
drugs and biologic agents, which is apportioned among these entities according to their market share in certain
government healthcare programs;
•
a Medicare Part D coverage gap discount program, which was replaced by a new manufacturer discount
program on January 1, 2025 (as discussed below), in which manufacturers were required to agree to offer point-
of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage
gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;
•
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program (the “MDRP”);
•
a new methodology by which rebates owed by manufacturers under the MDRP are calculated for drugs that are
inhaled, infused, instilled, implanted or injected and not generally distributed through the retail channel;
•
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are
enrolled in Medicaid managed care organizations;
40
•
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid
coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially
increasing a manufacturer’s Medicaid rebate liability;
•
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research; and
•
establishment of a Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid
Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA.
On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by
several states without specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain in force as
it currently exists.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was
enacted. For example, the Budget Control Act of 2011 has, among other things, led to aggregate reductions of
Medicare payments to providers, which, due to subsequent legislative amendments to the statute, will remain in
effect through 2032, unless additional action is taken by Congress. The American Taxpayer Relief Act of 2012,
among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging
centers and cancer treatment centers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. In addition, the American Rescue Plan Act of 2021 eliminated
the statutory Medicaid drug rebate cap, beginning January 1, 2024. The rebate was previously capped at 100% of a
drug’s average manufacturer price. These laws and any laws enacted in the future may result in additional reductions
in Medicare and other health care funding, which could have a material adverse effect on our customers and
accordingly, our financial operations.
Most significantly, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among
other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare, with
prices that can be negotiated subject to a cap (with resulting prices for the initial ten drugs, which were announced in
2023, first effective in 2026); imposes rebates under Medicare Part B and Medicare Part D to penalize price
increases that outpace inflation (first due in 2023); redesigns the Medicare Part D benefit (beginning 2024); and
replaces the Part D coverage gap discount program originally established under the ACA with a new discounting
program (which began on January 1, 2025). The IRA permits the Secretary of the Department of Health and Human
Services, or HHS, to implement many of these provisions through guidance, as opposed to regulation, for the initial
years. HHS has and will continue to issue and update guidance as these programs are implemented. CMS has
published the negotiated prices for the initial ten drugs, which will first be effective in 2026, and the list of the
subsequent 15 drugs that will be subject to negotiation, although the Medicare drug price negotiation program is
currently subject to legal challenges. The impact of the IRA on our company and the pharmaceutical industry cannot
yet be fully determined but is likely to be significant.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For
example, CMS may develop new payment and delivery models, such as bundled payment models. In addition,
recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their marketed products.
We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could
limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result
in reduced demand for ensifentrine or additional pricing pressures.
Individual states in the U.S. have also become increasingly active in passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure, drug
price increase disclosure and other transparency measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. Some states have enacted legislation creating so-called prescription drug
affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states. Legally
mandated price controls on payment amounts by third-party payors or other restrictions could harm our business,
results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual
hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers
will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for
our products or put pressure on our product pricing.
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In the EU, similar political, economic and regulatory developments may affect our ability to profitably
commercialize our products, if approved. In addition to continuing pressure on prices and cost containment
measures, legislative developments at the EU or member state level may result in significant additional requirements
or obstacles that may increase our operating costs. The delivery of health care in the EU, including the establishment
and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for
national, rather than EU, law and policy. National governments and health service providers have different priorities
and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In
general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the
pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and
national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing
approval of our products, restrict or regulate post-approval activities and affect our ability to commercialize our
products, if approved. In international markets, reimbursement and healthcare payment systems vary significantly by
country, and many countries have instituted price ceilings on specific products and therapies.
On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”) amending Directive
2011/24/EU, was adopted. The Regulation entered into force in January 2022 and has been applicable since January
2025, with phased implementation based on the type of product, i.e. oncology and advanced therapy medicinal
products as of 2025, orphan medicinal products as of 2028, and all other medicinal products by 2030.
The Regulation intends to boost cooperation among EU member states in assessing health technologies, including
new medicinal products, and provide the basis for cooperation at the EU level for joint clinical assessments in these
areas. It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU,
working together in four main areas, including joint clinical assessment of the innovative health technologies with
the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from
HTA authorities, identification of emerging health technologies to identify promising technologies early, and
continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for
assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing
and reimbursement.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action, either in the U.S. or abroad. If we or our collaborators are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to
maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain
profitability.
Our business operations and current and future relationships with investigators, healthcare professionals,
consultants, third-party payors and customers will be subject to applicable healthcare regulatory laws, which
could expose us to penalties.
Our business operations and current and future arrangements with investigators, healthcare professionals,
consultants, third-party payors and customers, may expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships
through which we conduct our operations, including how we research, market, sell and distribute ensifentrine, if
approved. Such laws include:
•
the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly
and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe, or
certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for,
either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility,
item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare
programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation;
•
the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act, which,
among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam
actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal
government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to
be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a
false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In
addition, the government may assert that a claim including items and services resulting from a violation of the
U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
42
•
the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes
criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute,
a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false statement, in connection with the delivery of, or
payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation;
•
the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical
devices;
•
federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer
of remuneration to a Medicare or state healthcare program beneficiary if the person knows, or should know, it is
likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services
reimbursable by Medicare or a state healthcare program, unless an exception applies;
•
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and
activities that potentially harm consumers;
•
the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the
ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and
medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program
to report annually to the government information related to certain payments and other transfers of value to
physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-
physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse
anesthetists, anesthesiology assistants and certified nurse-midwives), and teaching hospitals, as well as
ownership and investment interests held by the physicians described above and their immediate family
members;
•
analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to
our business practices, including but not limited to, research, distribution, sales and marketing arrangements and
claims involving healthcare items or services reimbursed by any third-party payor, including private insurers;
state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or
otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and
state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing
information, which requires tracking gifts and other remuneration and items of value provided to healthcare
professionals and entities; and
•
in the EU, interactions between pharmaceutical companies, health care professionals, and health care
organizations are also governed by strict laws, regulations, industry self-regulation codes of conduct and
physicians’ codes of professional conduct both at EU level and in the individual EU member states. The
provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation,
endorsement, purchase, supply, order or use of pharmaceutical products is prohibited in the EU. Relationships
with healthcare professionals and associations are subject to stringent anti-gift statutes and anti-bribery laws, the
scope of which differs across the EU. In addition, national “Sunshine Acts” may require pharmaceutical
companies to report/publish transfers of value provided to health care professionals and associations on a
regular (e.g. annual) basis. Failure to comply with these requirements could result in reputational risk, public
reprimands, administrative penalties, fines or imprisonment.
Ensuring that our internal operations and business arrangements with third parties comply with applicable healthcare
laws and regulations involves substantial costs. It is possible that governmental authorities will conclude that our
business practices do not comply with current or future statutes, regulations, agency guidance or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of
any of the laws described above or any other governmental laws and regulations that may apply to us, we may be
subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from
U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other
countries or jurisdictions, a corporate integrity agreement or other agreement to resolve allegations of non-
compliance with these laws, disgorgement, individual imprisonment, contractual damages, reputational harm,
diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
43
programs and imprisonment, which could affect our ability to operate our business. Further, defending against any
such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we
are successful in defending against any such actions that may be brought against us, our business may be impaired.
Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations,
standards and other requirements could adversely affect our business, results of operations, and financial
condition.
The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state,
federal and foreign laws, requirements and regulations governing the collection, use, disclosure, retention, and
security of personal information, such as information that we may collect in connection with clinical trials and
commercialization activities. Implementation standards and enforcement practices are likely to remain uncertain for
the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of
their requirements may have on our business. This evolution may create uncertainty in our business, affect our
ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate
the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The
cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any
failure or perceived failure by us to comply with federal, state or foreign laws or regulations, our internal policies
and procedures or our contracts governing our processing of personal information could result in negative publicity,
government investigations and enforcement actions, claims by third parties and damage to our reputation, any of
which could have a material adverse effect on our business, results of operation, and financial condition.
As our operations and business grow, we may become subject to or affected by new or additional data protection
laws and regulations and face increased scrutiny or attention from regulatory authorities. In the U.S., HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and regulations
implemented thereunder, or collectively HIPAA, imposes, among other things, certain standards relating to the
privacy, security, transmission and breach reporting of individually identifiable health information. Most healthcare
providers, including research institutions from which we obtain patient health information, are subject to privacy and
security regulations promulgated under HIPAA. We do not believe that we are currently acting as a covered entity or
business associate under HIPAA and thus are not directly subject to its requirements or penalties. However,
depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive
individually identifiable health information from a HIPAA-covered healthcare provider or research institution that
has not satisfied HIPAA’s requirements for disclosure of individually identifiable health information.
Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more
stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other
governmental authorities, thus creating potentially complex compliance issues for us and our future customers and
strategic partners. For example, the California Consumer Privacy Act, as amended by the California Privacy Rights
Act (collectively, the “CCPA”), requires covered businesses that process the personal information of California
residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s
collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California
residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their
personal information; and (iii) enter into specific contractual provisions with service providers that process
California resident personal information on the business’s behalf. Additional compliance investment and potential
business process changes may be required. Similar laws have passed in other states and are continuing to be
proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the U.S. The
enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In
the event that we are subject to or affected by HIPAA, the CCPA, or other domestic privacy and data protection
laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial
condition.
Furthermore, the Federal Trade Commission (“FTC”) has authority to initiate enforcement actions against entities
that make deceptive statements about privacy and data sharing in privacy policies, fail to limit third-party use of
personal health information, fail to implement policies to protect personal health information or engage in other
unfair practices that harm customers or that may violate Section 5(a) of the FTC Act. For example, according to the
FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or
practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC
expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume
of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve
security and reduce vulnerabilities. The FTC and many state Attorneys General also continue to enforce federal and
44
state consumer protection laws against companies for online collection, use, dissemination and security practices
that appear to be unfair or deceptive, including by regulating the presentation of website content.
We are also subject to diverse laws and regulations relating to data privacy and security in the EU and the EEA,
including the General Data Protection Regulation (“GDPR”). The GDPR went into effect in May 2018 and imposes
strict requirements for processing the personal data of individuals within the EEA. The GDPR imposes strict
obligations on the ability to process health-related and other personal data of individuals within the EEA, including
in relation to use, collection, analysis, and transfer (including cross-border transfer) of such personal data.
Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust
regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million
or 4% of the annual global revenues of the noncompliant company, whichever is greater. In addition to fines, a
breach of the GDPR may result in regulatory investigations, reputational damage, orders to cease/change our data
processing activities, enforcement notices, assessment notices (for a compulsory audit) and/ or civil claims
(including class actions). Among other requirements, the GDPR regulates transfers of personal data subject to the
GDPR to third countries that have not been found to provide adequate protection to such personal data, including the
U.S., and the efficacy and longevity of current transfer mechanisms between the EEA and the U.S. remains
uncertain. Case law from the Court of Justice of the European Union (“CJEU”) states that reliance on the standard
contractual clauses-a standard form of contract approved by the European Commission as an adequate personal data
transfer mechanism-alone may not necessarily be sufficient in all circumstances and that transfers must be assessed
on a case-by-case basis. On July 10, 2023, the European Commission adopted its Adequacy Decision in relation to
the new EU-U.S. Data Privacy Framework (“DPF”), rendering the DPF effective as a GDPR transfer mechanism to
U.S. entities self-certified under the DPF, rendering the DPF effective as a GDPR transfer mechanism to U.S.
entities self-certified under the DPF. We expect the existing legal complexity and uncertainty regarding international
personal data transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and
international transfers to the U.S. and to other jurisdictions more generally to continue to be subject to enhanced
scrutiny by regulators. As a result, we may have to make certain operational changes and we will have to implement
revised standard contractual clauses and other relevant documentation for existing data transfers within required
time frames.
Relatedly, since the beginning of 2021, following the U.K.’s withdrawal from the EEA and the European Union, and
the expiry of the transition period, companies have had to comply with both the GDPR and the GDPR as
incorporated into U.K. national law, the latter regime having the ability to separately fine up to the greater of £17.5
million or 4% of global turnover. On October 12, 2023, the U.K. Extension to the DPF came into effect (as approved
by the U.K. Government), as a data transfer mechanism from the U.K. to U.S. entities self-certified under the DPF.
As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and
regulations that may affect how we conduct business.
Compliance with applicable data protection laws and regulations could require us to take on more onerous
obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability
to operate in certain jurisdictions. Failure by us or our collaborators and third-party providers to comply with
applicable data protection laws and regulations could result in government enforcement actions (which could include
civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating
results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain
information, as well as the providers who share this information with us, may contractually limit our ability to use
and disclose such information. Claims that we have violated individuals’ privacy rights, failed to comply with data
protection laws or breached our contractual obligations, even if we are not found liable, could be expensive and time
consuming to defend, could result in adverse publicity and could have a material adverse effect on our business,
financial condition, results of operations and prospects.
The varied and differing positions on environmental sustainability and social initiatives by government and other
stakeholders could increase our costs, harm our reputation and adversely impact our financial results.
There has been varied and differing public focus by investors, environmental activists, the media, governmental and
nongovernmental organizations, and other stakeholders on a variety of environmental, social and other sustainability
matters. We may experience pressure to make commitments relating to sustainability matters that affect us,
including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. If
we are not effective in addressing environmental, social and other sustainability matters affecting our business, or
setting and meeting relevant sustainability goals, our reputation and financial results may suffer. In addition, we may
experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals,
which could have an adverse impact on our business and financial condition.
45
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the
adoption of new laws and regulations, including new reporting requirements. We are currently assessing the
potential impacts of the adopted or proposed laws, as well as other sustainability related disclosure obligations and
evolving legal and regulatory requirements, to which we may be subject. If we fail to comply with new laws,
regulations or reporting requirements, our reputation and business could be adversely impacted.
We are subject to environmental, health and safety laws and regulations, and we may become exposed to liability
and substantial expenses in connection with environmental compliance or remediation activities.
Our sub-contracted operations, including our research, development, testing and manufacturing activities, are subject
to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other
things, the controlled use, handling, release and disposal of and the maintenance of a registry for, hazardous
materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic
compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-
borne pathogens. If we fail to comply with such laws and regulations, we could incur significant costs associated
with civil or criminal fines, penalties or other sanctions.
As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in
our current and historical activities, including liability relating to releases of or exposure to hazardous or biological
materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required
to incur substantial expenses in connection with future environmental compliance or remediation activities, in which
case, our production and development efforts may be interrupted or delayed.
We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other
laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal
penalties, other remedial measures and legal expenses.
Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010 (the “ Bribery Act”), the
U.S. Foreign Corrupt Practices Act (the “ FCPA”), and other anti-corruption laws that apply in countries where we
do business and may do business in the future. The Bribery Act, FCPA and these other laws generally prohibit us,
our officers and our employees and intermediaries from bribing, being bribed or making other prohibited payments
to government officials or other persons to obtain or retain business or gain some other business advantage. We may
in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we may
participate in collaborations and relationships with third parties whose actions could potentially subject us to liability
under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect
of future regulatory requirements to which any of our international operations might be subject or the manner in
which existing laws might be administered or interpreted.
We also are subject to other laws and regulations governing any international operations, including regulations
administered by the governments of the U.K. and the U.S., and authorities in the EU, including applicable export
control regulations, economic sanctions on countries and persons, customs requirements and currency exchange
regulations, or, collectively, the Trade Control laws.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-
corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If
we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we
may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures and legal
expenses. Any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or
Trade Control laws by U.K., U.S. or other authorities, even if it is ultimately determined that we did not violate such
laws, could be costly and time consuming, require significant personnel resources and harm our reputation.
We will seek to build and continuously improve our systems of internal controls and to remedy any weaknesses
identified. There can be no assurance, however, that the policies and procedures will be followed at all times or
effectively detect and prevent violations of the applicable laws by one or more of our employees, consultants, agents
or collaborators and, as a result, we could be subject to fines, penalties or prosecution.
Risks Related to Commercialization
We operate in a highly competitive and rapidly changing industry, which may result in others discovering,
developing or commercializing competing products before or more successfully than we do.
46
The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid
technological change. Our success is highly dependent on our ability to discover, develop and obtain marketing
approval for new products on a cost-effective basis and to market them successfully. We will face intense
competition for our approved products from a variety of businesses, including large, fully integrated pharmaceutical
companies, biopharmaceutical companies and specialty pharmaceutical companies, academic institutions,
government agencies and other private and public research institutions in Europe, the U.S. and other jurisdictions.
These organizations may have significantly greater resources than we do and conduct similar research, seek patent
protection and establish collaborative arrangements for research, development, manufacturing and marketing of
products that may compete with our products.
Given the number of products already on the market and in development to treat COPD, asthma, CF and
bronchiectasis, we expect to face intense competition for our products, including for Ohtuvayre, and for ensifentrine,
if approved for these additional indications. Companies including GlaxoSmithKline, AstraZeneca, Vertex, Viatris,
Theravance, Gilead, Genentech, Regeneron and Sanofi currently have treatments on the market for COPD, CF and
asthma, and we anticipate that new companies will enter these markets in the future. While no treatments for
bronchiectasis currently have marketing approval in the U.S. or EU, there are products in late-stage clinical
development that could be approved in the future. Our products will compete with existing therapies and new
therapies that may become available in the future. The highly competitive nature of, and rapid technological changes
in, the biopharmaceutical and pharmaceutical industries could render our products obsolete, less competitive or
uneconomical. Our competitors may, among other things:
•
have significantly greater name recognition, financial, manufacturing, marketing, drug development, technical
and human resources than we do, and future mergers and acquisitions in the biopharmaceutical and
pharmaceutical industries may result in even more resources being concentrated in our competitors;
•
develop and commercialize products that are safer, more effective, less expensive, more convenient or easier to
administer, or have fewer or less severe side effects;
•
obtain quicker regulatory approval;
•
establish superior proprietary positions covering our products and technologies;
•
implement more effective approaches to sales, marketing and distribution; or
•
form more advantageous strategic alliances.
Smaller and other early-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. These third parties compete with us in recruiting
and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration
for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition,
any collaborators we may have may decide to market and sell products that compete with our products. Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that
are more effective, have fewer or less severe side effects, are more convenient or are less expensive than our
products. Our competitors may also obtain FDA or other regulatory approval for their product candidates more
rapidly than we may obtain approval for ours, which could result in our competitors establishing or strengthening
their market position before we are able to enter the market.
Forecasting potential sales for Ohtuvayre is difficult, and if our projections are inaccurate, our business may be
harmed and our share price may be adversely affected.
Our business planning requires us to forecast or make assumptions regarding product demand and revenues for
Ohtuvayre, despite numerous uncertainties. These uncertainties may be increased if we rely on third parties to
conduct commercial activities in certain jurisdictions and provide us with accurate and timely information. Actual
results may differ materially from projected results for various reasons, including the following, as well as risks
identified in other risk factors:
•
the efficacy and safety of Ohtuvayre, including as relative to marketed products and product candidates in
development by third parties;
•
pricing (including discounting and other promotions), reimbursement, product returns or recalls, competition,
labeling, adverse events and other items that impact commercialization;
•
the rate of adoption in the particular market, including fluctuations in demand for various reasons;
•
potential market size;
47
•
lack of patient and physician familiarity with Ohtuvayre;
•
lack of patient use and physician prescribing history;
•
lack of commercialization experience with Ohtuvayre;
•
uncertainty relating to rate of adoption; and
•
products provided without compensation through patient support programs or other free drug programs, may not
eventually result in or contribute to revenue-producing prescriptions.
We expect that our revenues from sales of Ohtuvayre will be based in part on estimates, judgment and accounting
policies. Any incorrect estimates or disagreements with regulators or others regarding such estimates, judgment or
accounting policies may result in changes to our guidance, projections or previously reported results. Expected and
actual product sales and quarterly and other results may greatly fluctuate, including in the near-term, and such
fluctuations can adversely affect the price of our common stock, perceptions of our ability to forecast demand and
revenues, and our ability to maintain and fund our operations. The metrics that we are tracking in order to evaluate
the success of our sales efforts may not correlate to commercial success, particularly given the challenging market
for Ohtuvayre.
The successful commercialization of Ohtuvayre will depend in part on the extent to which governmental
authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies for it.
Failure to obtain or maintain adequate coverage and reimbursement for Ohtuvayre could limit our ability to
market it and decrease our ability to generate revenue.
The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as
Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able
to afford prescription medications such as Ohtuvayre. Our ability to achieve and maintain acceptable levels of
coverage and reimbursement by governmental authorities, private health insurers and other organizations will have
an effect on our ability to successfully commercialize ensifentrine. Assuming we obtain coverage for Ohtuvayre by a
third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that
patients find unacceptably high. Moreover, for drugs and biologics administered under the supervision of a
physician, obtaining appropriate documentation for usage may be difficult because of the higher prices often
associated with such products. We cannot be sure that coverage and reimbursement in the U.S., the EU or elsewhere
will be available for Ohtuvayre or any product that we may develop, and any reimbursement that may become
available may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many
third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent
generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider Ohtuvayre
as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved
efficacy or improved convenience of administration with Ohtuvayre, pricing of existing drugs may limit the amount
we will be able to charge for Ohtuvayre. These payors may deny or revoke the reimbursement status of a given
product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an
appropriate return on our investment in ensifentrine. If reimbursement is not available or is available only at limited
levels, we may not be able to successfully commercialize Ohtuvayre, and may not be able to obtain a satisfactory
financial return on Ohtuvayre.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In
the U.S., third-party payors, including private and governmental payors, such as the Medicare and Medicaid
programs, play an important role in determining the extent to which new drugs and biologics will be covered. The
Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental
payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may
require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse
healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide
with respect to the continued coverage and reimbursement for Ohtuvayre.
Obtaining and maintaining reimbursement status is time consuming and costly. No uniform policy for coverage and
reimbursement for products exists among third-party payors in the U.S. Therefore, coverage and reimbursement for
products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-
consuming and costly process that will require us to provide scientific and clinical support for the use of Ohtuvayre
to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently
or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in
48
some cases at short notice, and we believe that changes in these rules and regulations are likely. Specifically, we
believe that Ohtuvayre will be primarily reimbursed under a medical benefit through either Medicare Part B or
Medicare Advantage programs, and changes within how products are reimbursed under these programs could occur
and those changes may affect the overall coverage and reimbursement of Ohtuvayre in the future.
Outside the U.S., international operations are generally subject to extensive governmental price controls and other
market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other
countries has and will continue to put pressure on the pricing and usage of approved products. In many countries, the
prices of medical products are subject to varying price control mechanisms as part of national health systems. Other
countries allow companies to fix their own prices for medical products, but monitor and control company profits.
Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to
charge for ensifentrine. Accordingly, in markets outside the U.S., the reimbursement for our products may be
reduced compared with the U.S. and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or
reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for
newly approved products and, as a result, they may not cover or provide adequate payment for our products. We
expect to experience pricing pressures in connection with the sale of Ohtuvayre due to the trend toward managed
healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The
downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other
treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new
products.
In addition, even if a pharmaceutical product obtains a marketing authorization in the EU, there can be no assurance
that reimbursement for such product will be secured on a timely basis or at all.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or
other governmental pricing programs in which we participate, we could be subject to additional reimbursement
requirements, penalties, sanctions and fines, which could have a material adverse effect on our business,
financial condition, results of operations and growth prospects.
Medicaid is a joint federal and state program administered by the states for low income and disabled beneficiaries.
We participate in and have certain price reporting obligations under the MDRP, as a condition of having covered
outpatient drugs payable under Medicaid and, if applicable, under Medicare Part B. The MDRP requires us to pay a
rebate to state Medicaid programs every quarter for each unit of our covered outpatient drugs dispensed to Medicaid
beneficiaries and paid for by a state Medicaid program. The rebate is based on pricing data that we must report on a
monthly and quarterly basis to the Centers for Medicare & Medicaid Services, or CMS, the federal agency that
administers the MDRP and other governmental healthcare programs. These data include the average manufacturer
price (AMP) for each drug and, in the case of innovator products, the best price, which in general represents the
lowest price available from the manufacturer to certain entities in the U.S. in any pricing structure, calculated to
include all sales and associated rebates, discounts and other price concessions. The Medicaid rebate consists of two
components, the basic rebate and the additional rebate, which is triggered if the AMP for a drug increases faster than
inflation. If we become aware that our MDRP government price reporting submission for a prior quarter was
incorrect or has changed as a result of recalculation of the pricing data, we must resubmit the corrected data for up to
three years after those data originally were due. If we fail to provide information timely or are found to have
knowingly submitted false information to the government, we may be subject to civil monetary penalties and other
sanctions, including termination from the MDRP. In the event that CMS terminates our rebate agreement pursuant to
which we participate in the MDRP, no federal payments would be available under Medicaid or Medicare Part B for
our covered outpatient drugs. Our failure to comply with our MDRP price reporting and rebate payment obligations
could negatively impact our financial results.
The ACA made significant changes to the MDRP, as described under the risk factor “Enacted and future legislation
and regulation may increase the difficulty and cost for us to commercialize our products and may affect the prices
we may set,” above. In addition, in March 2021, the American Rescue Plan Act of 2021 was signed into law, which,
among other things, eliminated the statutory cap on drug manufacturers’ MDRP rebate liability, effective January 1,
2024. Previously, under law enacted as part of the ACA, drug manufacturers’ MDRP rebate liability was capped at
100% of the AMP for a covered outpatient drug. Congress could enact additional legislation that further increases
Medicaid drug rebates or other costs and charges associated with participating in the MDRP. Additional legislation
or the issuance of regulations relating to the MDRP could have a material adverse effect on our results of operations.
The recently-enacted IRA imposes rebates under Medicare Part B and Medicare Part D that are triggered by price
increases that outpace inflation (first due in 2023), as described under the risk factor “Enacted and future legislation
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and regulation may increase the difficulty and cost for us to commercialize our products and may affect the prices
we may set,” above. The Medicare Part D rebate will be calculated on the basis of the AMP figures we report
pursuant to the MDRP.
Federal law requires that any company that participates in the MDRP also participate in the Public Health Service’s
340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid
and, if applicable, Medicare Part B. We participate in the 340B program, which is administered by the Health
Resources and Services Administration, or HRSA, and requires us to charge statutorily defined covered entities no
more than the 340B “ceiling price” for our covered outpatient drugs. These 340B covered entities include a variety
of community health clinics and other entities that receive health services grants from the Public Health Service, as
well as hospitals that serve a disproportionate share of low-income patients. The 340B ceiling price is calculated
using a statutory formula based on the AMP and rebate amount for the covered outpatient drug as calculated under
the MDRP, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the
340B ceiling price calculation and discount requirement. We must report 340B ceiling prices to HRSA on a
quarterly basis, and HRSA publishes those prices to 340B covered entities. In addition, HRSA has finalized
regulations regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on
manufacturers that knowingly and intentionally overcharge covered entities for 340B-eligible drugs. HRSA has also
finalized an administrative dispute resolution process through which 340B covered entities may pursue claims
against participating manufacturers for overcharges, and through which manufacturers may pursue claims against
340B covered entities for engaging in unlawful diversion or duplicate discounting of 340B drugs. Our failure to
comply 340B program requirements could negatively impact our financial results. Any additional future changes to
the definition of average manufacturer price and the Medicaid rebate amount under the ACA or other legislation or
regulation could affect our 340B ceiling price calculations and also negatively impact our financial results.
In order for Ohtuvayre or any product candidates, if approved, to be paid for with federal funds under the Medicaid
and Medicare Part B programs and purchased by certain federal agencies and grantees, we also participate in the
U.S. Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing program. As part of this
program, we are required to make our products available for procurement on an FSS contract under which we must
comply with standard government terms and conditions and charge a price that is no higher than the statutory
Federal Ceiling Price, or FCP, to four federal agencies (VA, U.S. Department of Defense, or DOD, Public Health
Service, and U.S. Coast Guard). The FCP is based on the Non-Federal Average Manufacturer Price, or Non-FAMP,
which we must calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing
provision of false information in connection with a Non-FAMP filing can subject a manufacturer to significant civil
monetary penalties for each item of false information. The FSS pricing and contracting obligations also contain
extensive disclosure and certification requirements.
We also participate in the Tricare Retail Pharmacy program, under which we are required to pay quarterly rebates on
utilization of innovator products that are dispensed through the Tricare Retail Pharmacy network to Tricare
beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP. We are required
to list our innovator products on a Tricare Agreement in order for them to be eligible for DOD formulary inclusion.
If we overcharge the government in connection with our FSS contract or Tricare Agreement, whether due to a
misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary
disclosures and/or to identify contract overcharges could result in allegations against us under the False Claims Act
and other laws and regulations. Unexpected refunds to the government, and responding to a government
investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse
effect on our business, financial condition, results of operations and growth prospects.
Individual states continue to consider and have enacted legislation to limit the growth of healthcare costs, including
the cost of prescription drugs and combination products. A number of states have either implemented or are
considering implementation of drug price transparency legislation. Requirements of pharmaceutical manufacturers
under such laws include advance notice of planned price increases, reporting price increase amounts and factors
considered in taking such increases, wholesale acquisition cost information disclosure to prescribers, purchasers, and
state agencies, and new product notice and reporting. Such legislation could limit the price or payment for certain
drugs, and a number of states are authorized to impose civil monetary penalties or pursue other enforcement
mechanisms against manufacturers who fail to comply with drug price transparency requirements, including the
untimely, inaccurate, or incomplete reporting of drug pricing information.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often
subject to interpretation by us, governmental or regulatory agencies, and the courts. CMS, the Department of Health
& Human Services Office of Inspector General, and other governmental agencies have pursued manufacturers that
were alleged to have failed to report these data to the government in a timely or accurate manner. Governmental
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agencies may also make changes in program interpretations, requirements or conditions of participation, some of
which may have implications for amounts previously estimated or paid. We cannot assure you that any submissions
we are required to make under the MDRP, the 340B program, the VA/FSS program, the Tricare Retail Pharmacy
Program, and other governmental drug pricing programs will not be found to be incomplete or incorrect.
If our products, including Ohtuvayre, do not gain market acceptance or if we fail to accurately forecast demand
or manage our inventories, our business will suffer because we might not be able to fund future operations.
Patients or the medical community may not accept or use Ohtuvayre in the U.S. If Ohtuvayre does not achieve an
adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The
degree of market acceptance of Ohtuvayre will depend on a variety of factors, including:
•
the timing of market introduction;
•
the price of our product relative to other products for the same or similar treatment;
•
the number and clinical profile of competing products;
•
the clinical indication for which Ohtuvayre is approved;
•
our ability to provide acceptable evidence of safety and efficacy;
•
the prevalence and severity of any side effects;
•
relative convenience, frequency, and ease of administration;
•
cost effectiveness;
•
marketing, sales, and distribution support;
•
availability of adequate coverage, reimbursement and adequate payment from health maintenance organizations
and other insurers, both public and private; and
•
other potential advantages over alternative treatment methods.
If our products do not gain market acceptance, we may not be able to fund future operations, including developing,
testing and obtaining regulatory approval for new product candidates and expanding our sales and marketing efforts
for our approved products, which would cause our business to suffer.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for
Ohtuvayre and manage our inventory. To ensure adequate inventory supply, we must forecast inventory needs and
place orders with our suppliers based on our estimates of future demand for Ohtuvayre. Our ability to accurately
forecast demand for Ohtuvayre could be negatively affected by many factors, including our failure to accurately
manage our expansion strategy, product introductions by competitors, an increase or decrease in customer demand
for Ohtuvayre or for products of our competitors, our failure to accurately forecast customer acceptance of new
products, unanticipated changes in general market conditions or regulatory matters, and weakening of economic
conditions or consumer confidence in future economic conditions.
We seek to maintain sufficient levels of inventory to protect ourselves from supply interruptions. As a result, we are
subject to the risk that a portion of our inventory will become obsolete or expire, which could have a material
adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory impairment
charges and costs required to replace such inventory.
Our commercial capabilities and infrastructure, including sales, marketing, operations, distribution, and
reimbursement infrastructure, may not be adequate to successfully commercialize Ohtuvayre.
We are continuing to develop sales, marketing, operations, distribution and reimbursement capabilities and
infrastructure after receiving approval of Ohtuvayre in June 2024, and we did not market, sell or distribute
pharmaceutical products prior to the approval of Ohtuvayre. The establishment of commercial capabilities and
infrastructure, including sales, marketing, operations, distribution, and reimbursement with technical expertise and
supporting distribution capabilities to commercialize Ohtuvayre, is expensive and time consuming. Some or all of
these costs were incurred in preparation for approval and will continue as we commercialize Ohtuvayre for the
maintenance treatment of COPD in adult patients. In addition, our sales force may not be sufficient in size or have
adequate expertise in the medical markets that we intend to target, and we may have difficulty retaining our sales
employees or attracting new employees. Any failure of our internal sales, marketing and distribution capabilities on
our own or through collaborations would adversely impact the commercialization of Ohtuvayre.
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We are contracting third parties to perform certain services to support our sales, marketing, warehousing,
distribution and reimbursement activities. To the extent that any of these third parties fail to perform their services in
compliance with their obligations to us or other parties, we may not be successful in commercializing Ohtuvayre and
our future product revenues may be adversely impacted.
To the extent that we enter into collaboration agreements with respect to marketing, sales or distribution, our product
revenue may be lower than if we directly marketed or sold Ohtuvayre. In addition, any revenue we receive will
depend in whole or in part upon the efforts of these third-party collaborators, which may not be successful and are
generally not within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we
may not be able to successfully commercialize Ohtuvayre. If we are not successful in commercializing Ohtuvayre,
either on our own or through collaborations with one or more third parties, our future product revenue will suffer
and we may incur significant additional losses.
If we are unable to establish effective sales and marketing capabilities to market and sell our approved product,
Ohtuvayre, we may be unable to generate adequate revenue.
We are continuing to establish our infrastructure for the sales, marketing and distribution of Ohtuvayre, and the cost
of establishing and maintaining such an organization may exceed the benefits of doing so. Additionally, the
infrastructure we have built to support the launch of Ohtuvayre, future indications of ensifentrine, or other potential
marketed products may not be sufficient, and we may be required to increase spending or add resources to support
commercialization efforts.
We have established an in-house sales force to promote Ohtuvayre to appropriate healthcare providers including
those that may be associated with hospital networks, Integrated delivery networks and third-party payers in the
United States. There are significant expenses and risks involved with establishing our own sales and marketing
capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate
sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a
geographically dispersed sales and marketing team.
We compete with other companies to recruit, hire, train and retain sales and marketing personnel. We cannot be sure
that we will be able to retain a sufficient number of qualified sales representatives or that they will be effective at
promoting Ohtuvayre. In addition, we will need to commit significant additional management and other resources to
build our sales organization to the desired size, and we may not be successful in a cost-effective manner.
Factors that may inhibit our efforts to establish and maintain our sales and marketing capabilities include:
•
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
•
the inability of sales personnel to obtain access to physicians in order to educate physicians about Ohtuvayre or
our product candidates, once approved;
•
higher fixed costs as compared to companies who market products using independent third parties, such as costs
associated with employee benefits, training, and managing sales personnel; and
•
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with
third parties, our business, results of operations, financial condition and prospects will be materially adversely
impacted.
Beyond Ohtuvayre, we may leverage the sales and marketing capabilities that we establish for Ohtuvayre to
commercialize additional product candidates or market Ohtuvayre for other indications, if approved by the FDA, in
the United States. If we are unable to do so for any reason, we would need to expend additional resources to
establish commercialization capabilities for those product candidates or Ohtuvayre for other indications, if approved.
Risks Related to Our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs,
to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, we may not be able to obtain regulatory approvals for or
commercialize our product candidates and our business could be substantially harmed.
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We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and
CROs, to conduct our pre-clinical studies and clinical trials and to monitor and manage data for our ongoing pre-
clinical and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials,
and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our
studies and trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific
standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our
third-party contractors and CROs are required to comply with Good Laboratory Practice (“GLP”) and GCP
requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory
authorities with respect to the conduct of clinical trials, and in the case of GLP, certain animal studies. Regulatory
authorities enforce these GLP and GCP requirements through periodic inspections of CROs, trial sponsors, principal
investigators and trial sites. If we fail to exercise adequate oversight over any of our CROs or if we or any of our
CROs fail to comply with applicable GLP or GCP requirements, the non-clinical or clinical data generated in our
clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may
require us to perform additional studies or clinical trials before approving our marketing applications. We cannot
provide assurance that upon a regulatory inspection of us or our CROs or other third parties performing services in
connection with our non-clinical studies or clinical trials, such regulatory authority will determine that any of our
non-clinical or clinical trials complies with GLP or GCP regulations. In addition, our clinical trials must be
conducted with product produced under applicable cGMP and similar foreign regulations. Our failure to comply
with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
Further, these investigators and CROs are not our employees and we will not be able to control, other than by
contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If
independent investigators or CROs fail to devote sufficient resources to the development of our product candidates,
or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization
of our product candidates. In addition, the use of third-party service providers requires us to disclose our proprietary
information to these parties, which could increase the risk that this information will be misappropriated.
Our existing and future CROs have or may have the right to terminate their agreements with us in the event of an
uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements
with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants
such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements
with alternative CROs or to do so on commercially reasonable terms. Switching or adding CROs involves additional
cost and requires management’s time and focus. In addition, there is a natural transition period when a new CRO
commences work. As a result, delays could occur, which could materially impact our ability to meet our desired
clinical development timelines. In addition, if our CROs do not successfully carry out their contractual duties or
obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials
may be extended, delayed or terminated and we may not be able to obtain regulatory approvals for, or
commercialize, our product candidates. As a result, our results of operations and the commercial prospects would be
harmed, our costs could increase and our ability to generate revenues could be delayed.
The collaboration and license agreement with Nuance Pharma is important to our business. If Nuance Pharma is
unable to develop and commercialize products containing ensifentrine in Greater China, if we or Nuance
Pharma fail to adequately perform under the Nuance Agreement, or if we or Nuance Pharma terminate the
Nuance Agreement, our business would be adversely affected.
We entered into a collaboration and license agreement with Nuance Pharma effective June 9, 2021 (the “Nuance
Agreement”) under which we granted Nuance Pharma the exclusive rights to develop and commercialize products
containing ensifentrine (the “Nuance Licensed Products”) in Greater China (China, Taiwan, Hong Kong and
Macau).
The Nuance Agreement will continue on a jurisdiction-by-jurisdiction and product-by-product basis until the
expiration of royalty payment obligations with respect to such product in such jurisdiction unless earlier terminated
by the parties. Either party may terminate the Nuance Agreement for an uncured material breach or bankruptcy of
the other party. Nuance Pharma may also terminate the Nuance Agreement at will upon 90 days' prior written notice.
Termination of the Nuance Agreement could cause significant setbacks in our ability to develop and commercialize
the Nuance Licensed Products in Greater China. Any suitable alternative collaboration or license agreement would
take considerable time to negotiate and could also be on less favorable terms to us. In addition, under the Nuance
Agreement, Nuance Pharma agreed to assume all costs related to clinical development and commercialization of the
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Nuance Licensed Products in Greater China. If the Nuance Agreement were to be terminated, and whether or not we
identify another suitable collaborator, we may need to seek additional financing to support the clinical development
and commercialization of the Nuance Licensed Products in Greater China, which could have a material adverse
effect on our business.
Under the Nuance Agreement, we are dependent upon Nuance Pharma to successfully develop and commercialize
Nuance Licensed Products. Although we have formed a joint steering committee with Nuance Pharma to oversee
and coordinate the overall conduct of the clinical development and commercialization of the Nuance Licensed
Products in Greater China, we do not control all aspects of Nuance Pharma’s development and commercialization or
the resources it allocates to the development of the Nuance Licensed Products identified under the Nuance
Agreement. Our interests and Nuance Pharma’s interests may differ or conflict from time to time, or we may
disagree with Nuance Pharma’s level of effort or resource allocation. Nuance Pharma may internally prioritize
programs under development within the collaboration differently than we would, or it may not allocate sufficient
resources to effectively or optimally develop or commercialize the Nuance Licensed Products. If these events were
to occur, our ability to receive revenue from the commercialization of the Nuance Licensed Products would be
reduced, and our business would be adversely affected. In addition, under the Nuance Agreement, we have an
obligation to supply Nuance Pharma with the ensifentrine drug product for their development and commercialization
activities in Greater China and if our supply price is too high, the price at which Nuance Pharma sells the drug
product in Greater China may not be competitive, which could have a material adverse effect on Nuance Pharma’s
ability to successfully commercialize Nuance Licensed Products and the returns that we generate under the Nuance
Agreement.
Under the Nuance Agreement, we remain the marketing authorization holder for ensifentrine in the People’s
Republic of China (“PRC”). In recent years, the regulatory framework in the PRC regarding the pharmaceutical
industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any
such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent
the successful development or commercialization of ensifentrine under the Nuance Agreement, and could have a
material adverse effect on Nuance Pharma’s ability to successfully commercialize ensifentrine and the returns that
we generate under the Nuance Agreement.
Furthermore, the safety and/or efficacy data from Nuance Pharma’s clinical development activities could for various
reasons differ from our data and could potentially impact our clinical development and commercialization activities,
including our ability to obtain regulatory approval of ensifentrine in other countries.
If we fail to enter into new strategic relationships for ensifentrine, our business, research and development and
commercialization prospects could be adversely affected.
Our development programs for our product candidates and, if approved, their commercialization will require
substantial additional cash to fund expenses. Therefore, we may decide to enter into collaborations with
pharmaceutical or biopharmaceutical companies for their development and commercialization. For example, we may
seek a collaborator for development of our DPI or pMDI formulation of ensifentrine for the maintenance treatment
of COPD and potentially asthma and other respiratory diseases.
We face significant competition in seeking appropriate collaborators. Collaborations are complex and time
consuming to negotiate and document. We may also be restricted under existing and future collaboration agreements
from entering into agreements on certain terms with other potential collaborators. We may not be able to negotiate
collaborations on acceptable terms, or at all. If that were to occur, we may have to curtail the development of our
product candidates, reduce or delay development programs, delay commercialization or reduce the scope of our
sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to increase our expenditures to fund development or commercialization
activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we will not be able to bring our products or product candidates to
market and generate product revenue. If we do enter into collaboration agreements, we could be subject to the
following risks, among others, any of which could adversely affect our ability to develop and commercialize our
products and product candidates:
•
we may not be able to control the amount and timing of resources that the collaborator devotes to the
development of the product candidate;
•
the collaborator may experience financial difficulties;
•
we may be required to relinquish important rights such as marketing, distribution and intellectual property
rights;
54
•
a collaborator could move forward with a competing product developed either independently or in collaboration
with third parties, including our competitors;
•
safety and/or efficacy data from a collaborator’s clinical development activities may conflict with our data and
could potentially impact our global clinical development and commercialization activities;
•
a collaborator may unlawfully use or disclose confidential information and materials in breach of confidentiality
obligations to us;
•
business combinations or significant changes in a collaborator’s business strategy may adversely affect our
willingness to complete our obligations under any arrangement;
•
we or a collaborator could fail to adequately perform our obligations under the agreement and/or the agreement
could fall into dispute; or
•
we may be involved in lawsuits to protect or enforce patents covering our products or product candidates, or
relating to the terms of our collaborations, which could be expensive, time consuming and unsuccessful.
We currently rely on third-party manufacturers and suppliers for production of the active pharmaceutical
ingredient ensifentrine and its derived formulated products. Our dependence on these third parties may impair
the advancement of our research and development programs. Moreover, we rely on third parties to produce
commercial supplies of Ohtuvayre, and commercialization could be stopped, delayed or made less profitable if
those third parties fail to maintain the necessary approvals from the FDA or comparable regulatory authorities,
fail to provide us with sufficient quantities of product in a timely manner or fail to do so at acceptable quality
levels or prices or fail to otherwise complete their duties in compliance with their obligations to us or other
parties.
We do not own facilities for manufacturing ensifentrine and its derived formulated products. Instead, we rely on and
expect to continue to rely on third-party CMOs, for the supply of cGMP- or GMP-grade clinical trial materials of
ensifentrine and its derived formulated products, including commercial quantities of Ohtuvayre. While we may
contract with other CMOs in the future, we currently have one CMO for the manufacture of ensifentrine drug
substance and one CMO for each formulation of ensifentrine. The facilities used to manufacture ensifentrine and its
derived formulated products must be approved for the manufacture of ensifentrine by the FDA, and by comparable
foreign regulatory authorities for approvals outside the U.S. While we provide sponsor oversight of manufacturing
activities, we do not and will not directly control the manufacturing process of, and are or will be essentially
dependent on, our CMOs for compliance with cGMP and similar foreign requirements for the manufacture of
ensifentrine and its derived formulated products. If a CMO cannot successfully manufacture material that conforms
to our specifications and the regulatory requirements of the FDA or a comparable foreign regulatory authority, it will
not be able to secure or maintain regulatory approval for the manufacture of ensifentrine and its derived formulated
products in its manufacturing facilities. In addition, we have little direct control over the ability of a CMO to
maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign
regulatory authority does not approve these facilities for the manufacture of ensifentrine and its derived formulated
products or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities,
which would delay our development program and significantly impact our ability to develop, and obtain or maintain
regulatory approval for or market ensifentrine and its derived formulated products. In addition, any failure to achieve
and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to
suspend the manufacture of ensifentrine and its derived formulated products or that obtained approvals could be
revoked. Furthermore, third-party providers may breach existing agreements they have with us because of factors
beyond our control. They may also terminate or refuse to renew their agreement because of their own financial
difficulties or business priorities, at a time that is costly or otherwise inconvenient for us. If we were unable to find
an adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our
commercial activities could be harmed. In addition, the fact that we are dependent on our suppliers, CMOs and other
third parties for the manufacture, storage and distribution of ensifentrine and its derived formulated products means
that we are subject to the risk that ensifentrine and its derived formulated products may have manufacturing defects
that we have limited ability to prevent, detect or control.
We rely on and will continue to rely on CMOs to purchase from third-party suppliers the materials necessary to
produce ensifentrine and its derived formulated products and the inhalation and nebulization devices to deliver
ensifentrine. We do not and will not have any direct control over the process or timing of the acquisition and
delivery of these supplies by any CMO or its third-party suppliers, or the quality or quantity of such supplies. These
supplies could be interrupted from time to time and, if interrupted, we cannot be certain that alternative supplies
could be obtained within a reasonable timeframe, at an acceptable cost or quality, or at all. There are a limited
55
number of suppliers for the raw materials that we may use to manufacture ensifentrine and for the drug delivery
devices (e.g. nebulizers) that we use for clinical trials with ensifentrine, and we may need to assess alternate
suppliers to prevent a possible disruption to our clinical trials and commercial sales. Although we generally do not
begin a clinical trial unless we believe we have on hand, or will be able to obtain, a sufficient supply of ensifentrine
to complete the clinical trial, any significant delay in the supply of ensifentrine drug products, or the raw material
components needed to produce, or devices needed to deliver, ensifentrine, for an ongoing clinical trial due to our
CMOs or their third-party suppliers could considerably delay completion of our clinical trials, product testing and
potential regulatory approval of ensifentrine. If our CMOs, their third-party supplies, or we are unable to purchase
these supplies, there would be a shortage in supply, which would impair our ability to generate revenues from the
sale of Ohtuvayre. In addition, growth in the costs and expenses of these supplies may impair our ability to cost-
effectively manufacture ensifentrine. Additionally, CMOs may experience labor constraints which could impact
their ability to manufacture and deliver ensifentrine.
We rely and will continue to rely on CMOs and third-party suppliers to comply with and respect the proprietary
rights of others in conducting their contractual obligations for us. If a CMO or third-party suppliers fails to acquire
the proper licenses or otherwise infringes third-party proprietary rights in the course of providing services to us, we
may have to find alternative CMOs or third-party suppliers, or defend against claims of infringement, either of
which would significantly impact our ability to develop, obtain regulatory approval for, or market ensifentrine and
any of its derived formulated products.
Risks Related to Intellectual Property
We rely on patents and other intellectual property rights to protect our products and product candidates, the
enforcement, defense and maintenance of which may be challenging and costly. Failure to enforce or protect
these rights adequately could harm our ability to compete and impair our business.
Our commercial success depends in part on obtaining and maintaining patents and other forms of intellectual
property rights for our products and product candidates, or on in-licensing such rights. The registrations of the
assignment of each of these patents and patent applications with the relevant authorities in certain jurisdictions in
which the patent and patent applications are registered have been granted, but there is no assurance that any
additional registrations will be effected in a timely manner or at all. Failure to protect or to obtain, maintain or
extend adequate patent and other intellectual property rights could adversely affect our ability to develop and market
Ohtuvayre or our product candidates.
The patent prosecution process is expensive and time-consuming, and we or our licensors, licensees or collaborators
may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in
a timely manner or in all jurisdictions. It is also possible that we or our licensors, licensees or collaborators will fail
to identify patentable aspects of inventions made in the course of development and commercialization activities
before it is too late to obtain patent protection on them. Moreover, depending on the terms of any future in-licenses
to which we may become a party, in some circumstances we may not have the right to control the preparation, filing
and prosecution of patent applications, or to maintain the patents, covering technology in-licensed from third parties.
Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best
interests of our business. Further, the issuance, scope, validity, enforceability and commercial value of our and our
current or future licensors’, licensees’ or collaborators’ patent rights are highly uncertain. Our and our licensors’
pending and future patent applications may not result in patents being issued which protect our technology or
products, in whole or in part, or which effectively prevent others from commercializing competitive technologies
and products. The patent examination process may require us or our licensors, licensees or collaborators to narrow
the scope of the claims of our or our licensors’, licensees’ or collaborators’ pending and future patent applications,
which may limit the scope of patent protection that may be obtained. We cannot provide assurance that all of the
potentially relevant prior art relating to our patents and patent applications has been found. If such prior art exists, it
can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do
successfully issue and even if such patents cover ensifentrine, third parties may initiate an opposition, interference,
re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent
offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in
the patent claims being narrowed or invalidated. Our and our licensors’, licensees’ or collaborators’ patent
applications cannot be enforced against third parties practicing the technology claimed in such applications unless
and until a patent issues from such applications, and then only to the extent the issued claims cover the technology.
Because patent applications are confidential for a period of time after filing, and some remain so until issued, we
cannot be certain that we or our licensors were the first to file any patent application related to ensifentrine.
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Furthermore, if third parties have filed such patent applications on or before March 15, 2013, the date on which the
U.S. patent filing system changed from a first-to-invent to a first-to-file standard, an interference proceeding can be
initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent
claims of our applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding
can be initiated by such third parties to determine whether our invention was derived from theirs. Even where we
have a valid and enforceable patent, we may not be able to exclude others from practicing our invention where the
other party can show that they used the invention in commerce before our filing date or the other party benefits from
a compulsory license.
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of
a third-party patent which might adversely affect our ability to develop, manufacture and market our products
and our product candidates, if approved.
We cannot guarantee that any of our or our licensors’ patent searches or analyses, including but not limited to the
identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or
thorough, nor can we be certain that we have identified each and every third-party patent and pending application in
the U.S. and abroad that is relevant to or necessary for the commercialization of our products in any jurisdiction. For
example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that
will not be filed outside the U.S. remain confidential until patents issue. Patent applications in the U.S. and
elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such
earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our
products or product candidates could have been filed by others without our knowledge. Additionally, pending patent
applications that have been published can, subject to certain limitations, be later amended in a manner that could
cover our products or product candidates. The scope of a patent claim is determined by an interpretation of the law,
the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the
scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our
products and, if approved, our product candidates. We may incorrectly determine that one of our products or product
candidates is not covered by a third-party patent or may incorrectly predict whether a third party’s pending
application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the
U.S. or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and
market our products or, if approved, our product candidates. Our failure to identify and correctly interpret relevant
patents may negatively impact our ability to develop and market our products and, if approved, our product
candidates.
If we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. We cannot
guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any
such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from
commercializing our products or, if approved, our product candidates. We might, if possible, also be forced to
redesign our products or product candidates so that we no longer infringe the third-party intellectual property rights.
Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and
management resources that we would otherwise be able to devote to our business.
We may be involved in lawsuits to protect or enforce patents covering our products or product candidates, which
could be expensive, time consuming and unsuccessful, and issued patents could be found invalid or
unenforceable if challenged in court.
To protect our competitive position, we may from time to time need to resort to litigation in order to enforce or
defend any patents or other intellectual property rights owned by or licensed to us, or to determine or challenge the
scope or validity of patents or other intellectual property rights of third parties. As enforcement of intellectual
property rights is difficult, unpredictable, time consuming and expensive, we may fail in enforcing our rights - in
which case our competitors may be permitted to use our technology without being required to pay us any license
fees. In addition, however, litigation involving our patents carries the risk that one or more of our patents will be
held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling
could allow third parties to commercialize our products or product candidates, and then compete directly with us,
without payment to us. If we in-license intellectual property rights, our agreements may give our licensors the first
right to control claims of third-party infringement, or to defend validity challenges. Therefore, these patents and
patent applications may not be enforced or defended in a manner consistent with the best interests of our business.
If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or
product candidates, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation
in the U.S. or in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds
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for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack
of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that
someone connected with prosecution of the patent withheld relevant information from the U.S. Patent and
Trademark Office, or USPTO, or made a misleading statement, during prosecution. The outcome following legal
assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity
question, for example, we cannot be certain that there is no invalidating prior art of which we and the patent
examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products or product
candidates. Patents and other intellectual property rights also will not protect our technology if competitors design
around our protected technology without infringing our patents or other intellectual property rights.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this
type of litigation. There could also be public announcements of the results of hearings, motions or other interim
proceedings or developments. If securities analysts, industry commentators or investors perceive these results to be
negative, it could have an adverse effect on the price of our ADSs.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the
outcome of which would be uncertain and could have a negative impact on the success of our business.
Our commercial success depends, in part, upon our ability, and the ability of our future collaborators, to develop,
manufacture, market and sell our products and, if approved, our product candidates without alleged or actual
infringement, misappropriation or other violation of the patents and proprietary rights of third parties. There have
been many lawsuits and other proceedings involving patent and other intellectual property rights in the
biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and
reexamination proceedings before the USPTO and corresponding foreign patent offices. The various markets in
which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual
property rights. In addition, many companies in intellectual property-dependent industries, including the
biopharmaceutical and pharmaceutical industries, have employed intellectual property litigation as a means to gain
an advantage over their competitors. Numerous U.S. and foreign issued patents and pending patent applications,
which are owned by third parties, exist in the fields in which we are developing ensifentrine. Some claimants may
have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property
litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that
focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology
and pharmaceutical industries expand and more patents are issued, the risk increases that our products may be
subject to claims of infringement of the intellectual property rights of third parties.
We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding
intellectual property rights with respect to Ohtuvayre and any existing or future product candidates, including
interference or derivation proceedings, post grant review and inter partes review before the USPTO or similar
adversarial proceedings or litigation in other jurisdictions. Similarly, we or our licensors or collaborators may
initiate such proceedings or litigation against third parties, for example, to challenge the validity or scope of
intellectual property rights controlled by third parties. Third parties may assert infringement claims against us based
on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third
parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us.
Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party
patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to
commercialize such product candidate unless we obtained a license under the applicable patents, or until such
patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held
by a court of competent jurisdiction to cover aspects of our compositions, formulations, or methods of treatment,
prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize the
applicable product or product candidate unless we obtained a license or until such patent expires or is finally
determined to be invalid or unenforceable. Such licenses may not be available on reasonable terms, or at all, or may
be non-exclusive thereby giving our competitors access to the same technologies licensed to us.
If we fail in any such dispute, we may be forced to pay damages, including the possibility of treble damages in a
patent case if a court finds us to have willfully infringed certain intellectual property rights. We or our licensees may
be temporarily or permanently prohibited from commercializing Ohtuvayre or from selling, incorporating,
manufacturing or using our products or product candidates in the U.S. and/or other jurisdictions that use the subject
intellectual property. We might, if possible, also be forced to redesign our products or product candidates so that we
no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or
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which redesign could be technically infeasible. Any of these events, even if we were ultimately to prevail, could
require us to divert substantial financial and management resources that we would otherwise be able to devote to our
business.
In addition, if the breadth or strength of protection provided by our or our licensors’ or collaborators’ patents and
patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or
commercialize Ohtuvayre or any existing or future product candidates.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of
our intellectual property, we may in the future be subject to claims that former employees, collaborators or other
third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our
policy to require our employees and contractors who may be involved in the conception or development of
intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard
as our own. For example, the assignment of intellectual property rights may not be self-executing or the assignment
agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against
these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other employees.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from
their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause
us to incur significant expenses and could distract our technical and management personnel from their normal
responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, such
perceptions could have a substantial adverse effect on the price of our ADSs. Such litigation or proceedings could
substantially increase our operating losses and reduce our resources available for development activities. We may
not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because
of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
If we fail to comply with our obligations under our existing and any future intellectual property licenses, the 2024
Loan Agreement, the RIPSA or any other future loan agreements with third parties, we could lose rights that are
important to our business.
We are party to a license agreement with Ligand, under which we in-license certain intellectual property and were
assigned certain patents and patent applications related to our business. We may enter into additional license
agreements in the future. We expect that any future license agreements would impose various diligence, milestone
payment, royalty, insurance and other obligations on us. We also entered into the 2024 Loan Agreement with the
2024 Lenders. The 2024 Term Loans is secured by a first-priority lien on substantially all of the assets of Verona
Pharma, Inc. and the Company, including intellectual property. We also entered into the RIPSA with the Purchasers.
The RIPSA is secured by a second-priority lien on certain of our intellectual property. For further description of the
2024 Term Loans and RIPSA, see Note 5 – Debt to the Consolidated Financial Statements included elsewhere in
this Annual Report 10-K. Any uncured, material breach under any of these agreements could result in our loss of
rights to practice the patent rights and other intellectual property under these agreements, and could compromise our
development and commercialization efforts for our products. Moreover, our future licensors may own or control
intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their
merit, that we are infringing or otherwise violating the licensor’s rights.
We may not be successful in maintaining the necessary rights to our products or product candidates or obtaining
other intellectual property rights important to our business through acquisitions and in-licenses.
We currently own and have in-licensed rights to intellectual property, including patents, patent applications and
know-how, and our success will likely depend on maintaining these rights. Because our programs may require the
use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to
acquire, in-license, maintain or use these proprietary rights. In addition, our products or product candidates may
59
require specific formulations to work effectively and the rights to these formulations may be held by others. We may
be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual
property rights that we identify as necessary for our products or product candidates. The licensing and acquisition of
third-party intellectual property rights is a competitive area, and a number of more established companies also are
pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive.
These established companies may have a competitive advantage over us due to their size, cash resources and greater
clinical development and commercialization capabilities.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We
may also be unable to license or acquire third-party intellectual property rights on a timely basis, on terms that
would allow us to make an appropriate return on our investment, or at all. Even if we are able to obtain a license to
intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the
same rights and compete with us. If we are unable to successfully obtain a license to third-party intellectual property
rights necessary for a development program on acceptable terms, we may have to abandon that development
program.
If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our markets of interest and our competitive position may be adversely affected.
We have registered trademarks in some territories and made applications to register the trademarks in other
territories for potential trade names for our business and products and product candidates. We may not be able to
obtain trademark protection for our trade names in territories that we consider of significant importance to us. If we
register trademarks, our trademark applications may be rejected during trademark registration proceedings. Although
we will be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In
addition, any of our trademarks or trade names, whether registered or unregistered, may be challenged, opposed,
infringed, cancelled, circumvented or declared generic or determined to be infringing on other marks. We may not
be able to protect our rights to these trademarks and trade names, which we need to build name recognition by
potential collaborators or customers in our markets of interest. Over the long-term, if we are unable to establish
name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our
business may be adversely affected. If other entities use trademarks similar to ours in different jurisdictions, or have
senior rights to ours, it could interfere with our use of our current trademarks throughout the world.
If we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for
extending the term of patents covering Ohtuvayre and any of our product candidates, our ability to compete
effectively could be impaired.
Patents have a limited lifespan. In the U.S., if all maintenance fees are timely paid, the natural expiration of a patent
is generally 20 years from its earliest U.S. non-provisional filing date. The issued patents covering the composition
of matter for Ohtuvayre expired in 2020. Our other issued patents covering Ohtuvayre will expire in 2031 and 2035,
subject to any patent extensions that may be available for such patents. If patents are issued on our pending US
patent applications relating to Ohtuvayre, the resulting US patents are projected to expire on dates ranging from
2043 to 2045. Various extensions may be available, but the life of a patent, and the protection it affords, is limited.
Even if patents covering Ohtuvayre are obtained, once the patent life has expired for a product, we may be open to
competition from competitive medications, including generic medications. Given the amount of time required for the
development, testing and regulatory review of new product candidates, patents protecting such candidates might
expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent
portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or
identical to ours.
One of our U.S. patents for Ohtuvayre may be eligible for limited patent term extension under the Drug Price
Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar
legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a
patent covering an approved product as compensation for effective patent term lost during product development and
the FDA regulatory review process. However, we may not receive an extension if we fail to satisfy applicable
requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent
term extension or the term of any such extension is less than we request, the period during which we can enforce our
patent rights for that product will be shortened and our competitors may obtain approval to market competing
products sooner. As a result, our revenue from applicable products could be reduced, possibly materially.
Generic drug companies can also challenge the patents of a brand-name drug under the Hatch-Waxman Act. When a
generic drug manufacturer files an Abbreviated New Drug Application (ANDA) or a New Drug Application (under
21 U.S.C. § 355(b)(2)) with the FDA to seek approval for a generic version of a brand-name drug that is already on
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the market, they must make certain certifications regarding the patents listed for such drug in the FDA’s publication
entitled Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book). The Orange Book lists
patents that innovator drug companies assert cover their drug products or use of those products and a Paragraph IV
certification is a legal challenge to the validity or enforceability, or infringement, of the patent(s) listed in the Orange
Book. If the generic applicant makes a Paragraph IV certification, they must also notify the patent holder and the
NDA (New Drug Application) holder that they have filed an ANDA or NDA with a Paragraph IV certification,
providing detailed reasons why the patent is not valid or not infringed. The filing of a Paragraph IV certification can
trigger a statutory stay of approval of the ANDA or NDA for 30 months while the parties engage in patent litigation,
unless the litigation is resolved in favor of the generic applicant sooner or the court orders otherwise. This process
can be a critical aspect of the generic drug approval pathway and may impact the timing of a generic drug’s entry
into the market. Currently, there are three patents listed in the Orange Book for our product Ohtuvayre. Additional
pending patent applications related to Ohtuvayre may result in granted patents that are then eligible for Orange Book
listing. Ohtuvayre (and the patents listed in the Orange Book for Ohtuvayre) may be cited by potential competitors
as a reference listed drug in support of approval of an ANDA for a generic version of Ohtuvayre. Our ability to
assert or defend patents covering Ohtuvayre through this process will be adversely affected if we fail to seek or
maintain listing of eligible patents in the Orange Book, or fail to otherwise maintain patents for which we have
already obtained Orange Book listing.
We enjoy only limited geographical protection with respect to certain patents and may face difficulties in certain
jurisdictions, which may diminish the value of our intellectual property rights in those jurisdictions.
We generally file our first patent application, or priority filing, at the U.K. Intellectual Property Office or the U.S.
Patent and Trademark Office. International applications under the Patent Cooperation Treaty, or PCT, are usually
filed within 12 months after the priority filing. Based on the PCT filing, national and regional patent applications
may be filed in additional jurisdictions where we believe a product candidate may be marketed or manufactured. We
have so far not filed for patent protection for our products in all national and regional jurisdictions where such
protection may be available. Filing, prosecuting and defending patents in all countries throughout the world would
be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. can be less
extensive than those in the U.S.. In addition, we may decide to abandon national and regional patent applications
before grant. The grant proceeding of each national or regional patent is an independent proceeding which may lead
to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while
granted by others. For example, unlike other countries, China has a heightened requirement for patentability, and
specifically requires a detailed description of medical uses of a claimed drug. Furthermore, generic drug
manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’
patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings.
Generic drug manufacturers may develop, seek approval for and launch generic versions of our products. It is also
quite common that depending on the country, the scope of patent protection may vary for the same product
candidate or technology.
Competitors may use our or our licensors’ or collaborators’ technologies in jurisdictions where we have not obtained
patent protection to develop their own products and, further, may export otherwise infringing products to territories
where we or our licensors or collaborators have patent protection, but enforcement is not as strong as that in the
U.S.. These products may compete with our product candidates, and our and our licensors’ or collaborators’ patents
or other intellectual property rights may not be effective or sufficient to prevent them from competing.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and
regulations in the U.S. and the EU, and many companies have encountered significant difficulties in protecting and
defending such rights in such jurisdictions. The legal systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation
of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not
successful, could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not
issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our
efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to
protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to
initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates.
Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may
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have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected
significant foreign markets. If we or our licensors encounter difficulties in protecting, or are otherwise precluded
from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value
of these rights may be diminished and we may face additional competition from others in those jurisdictions.
Some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to
third parties. In addition, some countries limit the enforceability of patents against government agencies or
government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with
respect to any patents relevant to our business, our competitive position may be impaired.
In addition, geo-political actions in the United States and in foreign countries could increase the uncertainties and
costs surrounding the prosecution or maintenance of our patent applications or those of any current or future
licensors and the maintenance, enforcement or defense of our issued patents or those of any current or future
licensors. For example, the United States and foreign government actions related to Russia’s conflict in Ukraine may
limit or prevent filing, prosecution, and maintenance of patent applications in Russia. Government actions may also
prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our patents
or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur,
it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government
in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees from the
United States without consent or compensation. Consequently, we would not be able to prevent third parties from
practicing our inventions in Russia or from selling or importing products made using our inventions in and into
Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of
operations and prospects may be adversely affected.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property
rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive
advantage. The following examples are illustrative:
•
Others may be able to make compounds that are the same as or similar to our products or product candidates but
that are not covered by the claims of the patents that we own or have exclusively licensed;
•
The patents of third parties may impair our ability to develop or commercialize our products or product
candidates;
•
We or our licensors or any future strategic collaborators might not have been the first to conceive or reduce to
practice the inventions covered by the issued patent or pending patent application that we own or have
exclusively licensed;
•
We or our licensors or any future collaborators might not have been the first to file patent applications covering
certain of our inventions;
•
Others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights;
•
It is possible that our pending patent applications will not lead to issued patents;
•
Issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or
may be held invalid or unenforceable, as a result of legal challenges by our competitors;
•
Our competitors might conduct research and development activities in countries where we do not have patent
rights and then use the information learned from such activities to develop competitive products for sale in our
major commercial markets;
•
Third parties performing manufacturing or testing for us using our product candidates or technologies could use
the intellectual property of others without obtaining a proper license; and
•
We may not develop additional technologies that are patentable.
Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing
our ability to protect our products or any existing or future product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property,
particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological
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complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time
consuming and inherently uncertain. In addition, the America Invents Act (the “AIA”), which was passed on
September 16, 2011, resulted in significant changes to the U.S. patent system.
An important change introduced by the AIA is that, as of March 16, 2013, the U.S. transitioned to a “first-to-file”
system for deciding which party should be granted a patent when two or more patent applications are filed by
different parties claiming the same invention. A third party that files a patent application in the USPTO, after that
date but before us could therefore be awarded a patent covering an invention of ours even if we had made the
invention before it was made by the third party. This requires us to be cognizant of the time from invention to filing
of a patent application, but circumstances could prevent us from promptly filing patent applications on our
inventions.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent
infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This
applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard
in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent
claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a
claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a
district court action.
Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not
have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear
what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation
could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ or collaboration
partners’ patent applications and the enforcement or defense of our or our licensors’ or collaboration partners’ issued
patents.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of
patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the
federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that
could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in
the future. Similarly, the complexity and uncertainty of European patent laws has also increased in recent years. In
addition, the European patent system is relatively stringent in the type of amendments that are allowed during
prosecution. Complying with these laws and regulations could limit our ability to obtain new patents in the future
that may be important for our business.
Finally, a Unitary Patent and Unified Patent Court (“UPC”) system was implemented in Europe on June 1, 2023.
This new regime may present uncertainties for our ability to protect and enforce our patent rights against
competitors in Europe. Under the UPC, all European patents in countries taking part in the UPC, including those
issued prior to ratification of the European Patent Package, by default automatically fall under the jurisdiction of the
UPC. The UPC provides our competitors with a new forum to centrally revoke our European patents in UPC
countries, and allows for the possibility of a competitor to obtain pan-European injunctions. It will be several years
before we will understand the scope of patent rights that will be recognized and the strength of patent remedies that
will be provided by the UPC. Under the UPC agreement, we will have the right to opt our patents out of the UPC
over the first seven years of the court’s existence, but doing so may preclude us from realizing the benefits of the
new unified court.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and
protect other proprietary information.
We consider proprietary trade secrets and confidential know-how and unpatented know-how to be important to our
business. We may rely on trade secrets or confidential know-how to protect our technology, especially where patent
protection is believed to be of limited value. However, trade secrets and confidential know-how are difficult to
maintain as confidential.
To protect this type of information against disclosure or appropriation by competitors, our policy is to require our
employees, consultants, contractors and advisors to enter into confidentiality agreements with us. We also seek to
preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security
of our premises and physical and electronic security of our information technology systems. Monitoring
unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our
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proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and
confidential information will not be disclosed or that competitors will not otherwise gain access to our trade secrets.
However, current or former employees, consultants, contractors and advisors may unintentionally or willfully
disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party
obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and
unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.
Furthermore, if a competitor lawfully obtained or independently developed any of our trade secrets, we would have
no right to prevent such competitor from using that technology or information to compete with us, which could harm
our competitive position. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we
may have insufficient recourse against third parties for misappropriating the trade secret.
Failure to obtain or maintain trade secrets and confidential know-how trade protection could adversely affect our
competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary
information and may even apply for patent protection in respect of the same. If successful in obtaining such patent
protection, our competitors could limit our use of our trade secrets and/or confidential know-how.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their
intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees, including our senior management, were previously employed at universities or at other
biopharmaceutical companies, including our competitors or potential competitors. Some of these employees
executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous
employment. Although we try to ensure that our employees do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that we or these employees have used or disclosed
confidential information or intellectual property, including trade secrets or other proprietary information, of any such
employee’s former employer. Litigation may be necessary to defend against these claims.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be
awarded to a third party, and we could be required to obtain a license from such third party to commercialize our
technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we
successfully prosecute or defend against such claims, litigation could result in substantial costs and distract
management.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent
protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent
agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent
agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions
during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late
fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result
in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in
the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent
application include failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. If we or our licensors or collaboration partners fail to
maintain the patents and patent applications covering our products or product candidates, our competitors might be
able to enter the market, which would hurt our competitive position and could impair our ability to successfully
commercialize Ohtuvayre or any existing or future product candidate.
Risks Related to Information Technology
Our information technology systems, and those of our manufacturers, suppliers and other third parties that we
use to perform services for us or otherwise collaborate with, may fail or suffer security breaches, which could
distract our operations and cause delays in our research and development and commercialization activities, and
may adversely affect our business, operations and financial performance.
In the ordinary course of our business, we and our manufacturers, suppliers and third parties that we use to perform
services for us or otherwise collaborate with, collect and store sensitive data, including intellectual property, clinical
trial data, sales, forecasting, and commercial performance data, proprietary business information and personally
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identifiable information (collectively, “Confidential Information”) in our and third-party data centers and on our and
third-party networks. The secure processing, maintenance and transmission of Confidential Information is critical to
our operations. Our information technology and other internal infrastructure systems, including cloud services,
corporate firewalls, servers, leased lines and connection to the Internet, and that of our manufacturers, suppliers and
other third parties that we use to perform services for us or otherwise collaborate with, face the risk of systemic
failure that could disrupt our operations. A significant disruption in the availability of these information technology
and other internal infrastructure systems could cause interruptions in our collaborations and delays in our research
and development and commercialization activities.
Further, our information technology systems and those of our third-party service providers, strategic partners and
other contractors or consultants are vulnerable to damage, attack or interruption from computer viruses, malware
(e.g. ransomware), misconfigurations, “bugs” or other vulnerabilities, natural disasters, terrorism, war,
telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering
schemes, malicious code, employee theft or misuse, human error, fraud, denial or degradation of service attacks,
sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our
organization, or persons with access to systems inside our organization. Attacks upon information technology
systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted
by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of a
continued hybrid working environment, we may also face increased cybersecurity risks due to our reliance on
internet technology and the number of our employees who are working remotely, which may create additional
opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain
unauthorized access to, or to sabotage or disrupt, systems change frequently and often are not recognized until
launched against a target, we may be unable to anticipate these techniques or implement adequate preventative
measures. We may also experience security breaches that may remain undetected for an extended period. Even if
identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers
increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove
or obfuscate forensic evidence. There can also be no assurance that our and our manufacturers’, suppliers’ and other
critical third parties’ cybersecurity risk management program and processes, including policies, controls or
procedures, will be fully implemented, complied with or effective in protecting our systems, networks and
Confidential Information.
Despite security measures that we and our critical third parties (e.g., collaborators) implement, our information
technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors, breaches due to human
error, technical vulnerabilities, malfeasance or other disruptions. We and certain of our service providers are from
time to time subject to cyberattacks and security incidents. Although to our knowledge we have not experienced any
significant security breach to date, any such breach could compromise our information technology systems and the
Confidential Information stored there could be accessed, publicly disclosed, lost or stolen. Any such access,
disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect
the privacy of personal data, regulatory penalties, disrupt our operations, damage our reputation, and cause a loss of
confidence in us and our ability to conduct clinical trials and commercialize our product candidates, which could
adversely affect our reputation and delay clinical development and commercialization of our product candidates.
Any adverse impact to the availability, integrity or confidentiality of our or third-party systems or Confidential
Information can result in legal claims or proceedings (such as class actions), regulatory investigations and
enforcement actions, fines and penalties, negative reputational impacts that cause us to lose existing or future
customers, and/or significant incident response, system restoration or remediation and future compliance costs. Any
losses, costs or liabilities may not be covered by, or may exceed the coverage limits of, any or all applicable
insurance policies.
Risks Related to Employee Matters and Managing Growth
Our future growth and ability to compete depends on our ability to retain our key personnel and recruit
additional qualified personnel.
Our success depends upon the contributions of our key management, scientific and technical personnel, many of
whom have been instrumental for us and have substantial experience with ensifentrine and related technologies. Our
key management individuals include our chief executive officer, David Zaccardelli, our chief financial officer, Mark
Hahn, our general counsel, Andrew Fisher, our chief medical officer, Kathleen Rickard, our chief regulatory officer,
Caroline Diaz, our chief commercial officer, Christopher Martin, and our chief development officer, Tara Rheault.
The loss of key personnel could impact our commercialization efforts and research and development activities. In
addition, the competition for qualified personnel in the biopharmaceutical and pharmaceutical field is intense, and
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our future success depends upon our ability to attract, retain and motivate highly skilled scientific, technical and
managerial employees. We face competition for personnel from other companies, universities, public and private
research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it
may be difficult for us to achieve our commercialization goals for Ohtuvayre and our product candidate
development objectives, raise additional capital and implement our business strategy.
We are continuing to expand our development, regulatory, commercial, sales, marketing, reimbursement and
distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could
disrupt our operations.
We have experienced significant growth in the number of our employees and the scope of our operations,
particularly in the areas of commercial operations and sales, marketing, reimbursement and distribution. To manage
this growth, we must continue to implement and improve our managerial, operational and financial systems, expand
our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources
and the limited experience of our management team in managing a company with such growth, we may not be able
to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The
expansion of our operations may lead to significant costs and may divert our management and business development
resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Risks Related to Our ADSs
Certain of our shareholders, members of our board of directors, and senior management who own our ordinary
shares (including ordinary shares represented by ADSs) may be able to exercise significant control over us.
Depending on the level of attendance at our general meetings of shareholders, these shareholders either alone or
voting together as a group may be in a position to determine or significantly influence the outcome of decisions
taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50% of the share
capital present and voting at our general meetings of shareholders may control any shareholder resolution requiring a
simple majority, including the appointment of board members, certain decisions relating to our capital structure, and
the approval of certain significant corporate transactions. Among other consequences, this concentration of
ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect
the market price of our ADSs and ordinary shares.
Because we do not anticipate paying any cash dividends on our ADSs or ordinary shares in the foreseeable
future, capital appreciation, if any, will be our ADS holders’ and shareholders’ sole source of gains and they may
never receive a return on their investment.
Under current English law, a company’s accumulated realized profits must exceed its accumulated realized losses
(on a non-consolidated basis) before dividends can be paid. Therefore, we must have distributable profits before
issuing a dividend. We have not paid dividends in the past on our ordinary shares. We intend to retain earnings, if
any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. As a result,
capital appreciation, if any, on our ADSs or ordinary shares will be our ADS holders’ and shareholders’ sole source
of gain for the foreseeable future, and they will suffer a loss on their investment if they are unable to sell their ADSs
or ordinary shares at or above the price at which they were purchased. Investors seeking cash dividends should not
purchase our ADSs or ordinary shares.
Holders of our ADSs may not have the same voting rights as the holders of our ordinary shares and may not
receive voting materials in time to be able to exercise their right to vote.
Holders of our ADSs are not able to exercise voting rights attaching to the ordinary shares evidenced by our ADSs
on an individual basis. Holders of our ADSs have appointed a depositary as their representative to exercise the
voting rights attaching to the ordinary shares represented by their ADSs. Holders of our ADSs may not receive
voting materials in time to instruct the depositary to vote, and it is possible that they, or persons who hold their
ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in
which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to
exercise voting rights and may lack recourse if their ADSs are not voted as requested. In addition, holders of our
ADSs will not be able to call a shareholders’ meeting.
Holders of our ADSs may not receive distributions on our ordinary shares represented by our ADSs or any value
for them if it is illegal or impractical to make them available to them.
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The depositary for our ADSs has agreed to pay to holders of our ADSs the cash dividends or other distributions it or
the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses.
Holders of our ADSs will receive these distributions in proportion to the number of our ordinary shares their ADSs
represent. However, in accordance with the limitations set forth in the deposit agreement entered into with the
depositary, it may be unlawful or impractical to make a distribution available to holders of our ADSs. We have no
obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to
holders of our ADSs. This means that holders of our ADSs may not receive the distributions we make on our
ordinary shares or any value from them if it is unlawful or impractical to make the distributions available to them.
These restrictions may have a material adverse effect on the value of our ADSs.
Holders of our ADSs may be subject to limitations on transfer of their ADSs.
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any
time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the
depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the
depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement
of law or of any government or governmental body, or under any provision of the deposit agreement, or for any
other reason in accordance with the terms of the deposit agreement. These limitations on transfer may have a
material adverse effect on the value of our ADSs.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights
of holders of ADSs, are governed by English law, including the provisions of the Companies Act 2006, and by our
Articles of Association. These rights differ in certain material respects from the rights of shareholders in typical U.S.
corporations. As a result, investors in our ordinary shares or ADSs may not have the same protections or rights as
they would if they had invested in a U.S. corporation. This may make our ADSs less attractive to such investors,
which could harm the value of our ADSs.
Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under English law. Some of our assets are located outside the U.S. and certain members of our
board of directors reside outside the U.S.. As a result, it may not be possible for investors to effect service of process
within the U.S. upon such persons or to enforce judgments obtained in U.S. courts against them or us, including
judgments predicated upon the civil liability provisions of the U.S. federal securities laws.
The U.S. and the U.K. do not currently have a treaty providing for recognition and enforcement of judgments (other
than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a
court in the U.S., whether or not predicated solely upon U.S. securities laws, would not automatically be recognized
or enforceable in the U.K.. In addition, uncertainty exists as to whether U.K. courts would entertain original actions
brought in the U.K. against us or our directors or senior management predicated upon the securities laws of the U.S.
or any state in the U.S.. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S.
courts would be treated by the courts of the U.K. as a cause of action in itself and sued upon as a debt at common
law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these
requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws,
including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the
court making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the
English judgment will be enforceable by methods generally available for this purpose. These methods generally
permit the English court discretion to prescribe the manner of enforcement.
As a result, U.S. investors may not be able to enforce against us or our board of directors or certain experts named
herein who are residents of the U.K. or countries other than the U.S. any judgments obtained in U.S. courts in civil
and commercial matters, including judgments under the U.S. federal securities laws.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to
accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our
financial and other public reporting, which would harm our business and the trading price of our ADSs.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and,
together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet
our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent
testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over
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financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes
to our financial statements or identify other areas for further attention or improvement. As we continue to transition
to a commercial company following the FDA’s approval of Ohtuvayre, our internal controls over financial reporting
may become more complex, which could increase the probability of deficiencies in our internal controls in the
future. Inadequate internal controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our ADSs.
Risks Related to Taxation
Changes in our tax rates, unavailability of certain tax credits or reliefs or exposure to additional tax liabilities or
assessments could affect our profitability, and audits by tax authorities could result in additional tax payments for
prior periods.
New income, sales use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, or
interpreted, changed, modified or applied adversely to us, any of which could adversely affect our business
operations and financial performance. We are currently unable to predict whether such changes will occur and, if so,
the ultimate impact on our business. To the extent that such changes have a negative impact on us, including as a
result of related uncertainty, these changes may materially and adversely impact our business, financial condition,
results of operations and cash flows.
We carry out research and development activities including, but not limited to, developing ensifentrine for various
indications and delivery methods, and as a result we have previously benefitted in the U.K. from the HM Revenue
and Customs, or HMRC, small and medium sized enterprises research and development relief, or SME R&D Relief,
which provides relief against U.K. Corporation Tax or is surrenderable for a cash credit where a company is loss
making and relevant criteria are met.
Broadly, SME R&D Relief allows qualifying SMEs to deduct a total of 186% of their qualifying expenditure from
their yearly profit for U.K. Corporation Tax purposes (the deduction is given by allowing an additional 86%
deduction plus the usual 100% deduction). Where there are not sufficient profits for U.K. Corporation Tax purposes
to fully utilize the SME R&D Additional Deduction, the excess (“surrenderable losses”) can be carried forward to
offset against future taxable profits, or a tax credit currently equal to 10% of such surrenderable loss can be claimed
in cash, or the SME R&D Tax Credit (i.e., the excess losses are surrendered in exchange for a cash credit payment).
In addition, for accounting periods beginning on or after 1 April 2024, the R&D intensive loss-making SME scheme
threshold (broadly, the proportion of qualifying R&D expenditure compared to total expenditure, including
connected group companies) will be 30%. Therefore, loss-making SMEs with qualifying R&D expenditure of 30%
or more of its total expenditure may claim an enhanced deduction of 86% and a repayable credit of 14.5%.
Based on criteria established by HMRC a portion of expenditure incurred in relation to our research and
development activities including, but not limited to, operating clinical trials, manufacturing, consultant and salary
and related costs, is eligible for the SME R&D Additional Deduction. Our consequential surrenderable losses are
currently eligible for the SME R&D Tax Credit, in accordance with HMRC criteria.
In the financial statements for the years ended December 31, 2024 and December 31, 2023, we recorded SME R&D
Tax Credits of $3.7 million and $2.0 million, respectively. We received the credit relating to the year ended
December 31, 2022 in June 2024. Based on the HMRC criteria, we expect to receive the credit relating to the years
ended December 31, 2023 and 2024 in 2025.
Changes to the U.K.’s SME R&D Relief regime that take effect for accounting periods beginning on or after April 1,
2024, may adversely affect the financial benefit of the R&D claim. Such changes have introduced a single R&D
relief regime which merges the current “RDEC” and SME R&D Relief scheme. The credit rate under the legislation
is 20% of qualifying expenditure, with the credit itself subject to U.K. corporation tax. The credit will therefore be
reduced by the applicable rate of U.K. corporation tax (the main rate of which is currently 25%), although the
notional tax rate that applies to loss-making companies will be set at the lower rate of 19% for the purposes of the
new R&D relief regime. Therefore, under current rates of U.K. corporation tax, profitable businesses subject to the
main rate of U.K. corporation tax will effectively receive a credit of 15% of qualifying expenditure whilst loss-
making businesses will receive a credit of 16.2%.
If we are classified as a passive foreign investment company, certain adverse U.S. federal income tax
consequences could apply to U.S. Holders.
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Based on the composition of our income and assets and the value of our assets in the taxable year ended December
31, 2024, we believe that we were not a passive foreign investment company (“PFIC”) for U.S. federal income tax
purposes for such taxable year. However, no assurances regarding our PFIC status can be provided for any taxable
year. If we are classified as a PFIC for any taxable year during which a U.S. Holder (as defined below) holds our
ordinary shares or ADSs, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder,
including (i) the treatment of all or a portion of any gain on disposition of our ordinary shares or ADSs as ordinary
income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends, and (iii)
the obligation to comply with certain reporting requirements. We cannot provide any assurances that we will furnish
to any U.S. Holder information that may be necessary to comply with the aforementioned reporting and tax payment
obligations.
A non-U.S. corporation will generally be considered a PFIC for any taxable year in which (i) 75% or more of its
gross income consists of passive income or (ii) 50% or more of the value of its assets (generally determined on the
basis of a quarterly average) consists of assets that produce, or are held for the production of, passive income. For
purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment
property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation
that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as holding and
receiving directly its proportionate share of the assets and income of such corporation. The determination of whether
we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies that
in some circumstances are unclear and subject to varying interpretation. Under the income test, our status as a PFIC
depends on the composition of our income which will depend on the transactions we enter into and our corporate
structure. The composition of our income and assets is also affected by the spending of the cash we raise in any
offering. Each U.S. Holder should consult its tax advisors with respect to the potential adverse U.S. tax
consequences to it if we are a PFIC.
If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our 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 our ordinary shares or ADSs, regardless of whether we continue to meet the PFIC tests described
above, unless the U.S. Holder makes a specified election once we cease to be a PFIC.
A “U.S. Holder” is any beneficial owner of our ordinary shares or ADSs that, for U.S. federal income tax purposes,
is or is treated as any of the following: a citizen or individual resident of the U.S.; a corporation, or other entity
taxable as a corporation, created or organized in or under the laws of the U.S., any state therein or the District of
Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust
that (i) is subject to the supervision of a U.S. court and all substantial decisions of which are subject to the control of
one or more “United States persons” (within the meaning of Section 7701(a)(30) of the United States Internal
Revenue Code of 1986, as amended (the “Internal Revenue Code”)), or (ii) has a valid election in effect to be treated
as a United States person.
If a U.S. Holder is treated as owning at least 10% of our ordinary shares or ADSs, such holder may be subject to
adverse U.S. federal income tax consequences.
If a U.S. Holder (as defined above) is treated as owning (directly, indirectly or constructively) at least 10% of the
value or voting power of our ordinary shares or ADSs, such U.S. Holder would generally be treated as a “United
States shareholder” (within the meaning of Section 951(b) of the Internal Revenue Code) with respect to each
“controlled foreign corporation” (within the meaning of Section 957(a) of the Internal Revenue Code (a “CFC”)) in
our group, if any. Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries
could be treated as CFCs, regardless of whether we are treated as a CFC. A United States shareholder of a CFC may
be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,”
“global intangible low-taxed income” and investments in U.S. property by such CFC, regardless of whether such
CFC makes any distributions. An individual that is a United States shareholder with respect to a CFC generally
would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States
shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States
shareholder to significant monetary penalties and may prevent the expiration of the statute of limitations with respect
to such shareholder’s U.S. federal income tax return for the year for which reporting was due. We cannot provide
any assurances that we will assist investors in determining whether we or any of our non-U.S. subsidiaries are
treated as CFCs or whether any such investor is treated as a United States shareholder with respect to any such
CFCs. Further, we cannot provide any assurances that we will furnish to any United States shareholder information
that may be necessary to comply with the reporting and tax payment obligations described in this risk factor. U.S.
Holders should consult their tax advisors regarding the potential application of these rules to their investment in our
ordinary shares or ADSs.
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General Risks
The price of our ADSs may be volatile and may fluctuate due to factors beyond our control.
The trading market for publicly traded emerging biopharmaceutical and drug discovery and development companies
has been highly volatile and is likely to remain highly volatile in the future. The market price of our ADSs may
fluctuate significantly due to a variety of factors, including:
•
public concern relating to the commercial value or safety of ensifentrine, including for our approved product
Ohtuvayre;
•
developments in our competitors’ businesses;
•
delays in entering into collaborations and strategic relationships with respect to commercialization of Ohtuvayre
or development of ensifentrine in other target indications or formulations, or entry into collaborations and
strategic relationships on terms that are not deemed to be favorable to us;
•
technological innovations or commercial product introductions by us or competitors;
•
changes in government regulations;
•
changes in healthcare payment systems;
•
developments concerning proprietary rights, including patents and litigation matters;
•
positive or negative results from, or delays in, clinical trials of ensifentrine;
•
financing or other corporate transactions;
•
actual or anticipated fluctuations in our financial condition or operating results;
•
our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors
may give to the market;
•
limitations regarding the ownership of ADSs, including as related to their inclusion in U.S. market indices;
•
publication of research reports or comments by securities or industry analysts or commentators;
•
general market conditions in the pharmaceutical industry or in the economy as a whole;
•
the loss of any of our key scientific or senior management personnel;
•
sales of our ADSs by us, our senior management or board members, and significant holders of our ADSs; or
•
other events and factors, many of which are beyond our control.
These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate
substantially, regardless of our actual operating performance, which may limit or prevent investors from readily
selling their ADSs and may otherwise negatively affect the liquidity of our ADSs. In addition, the stock market in
general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies. In the past,
when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class
action litigation against the issuer. If any of the holders of our ADSs were to bring such a lawsuit against us, we
could incur substantial costs defending the lawsuit and the attention of our senior management would be diverted
from the operation of our business. Any adverse determination in litigation could also subject us to significant
liabilities.
Future sales, or the possibility of future sales, of a substantial number of our ADSs or ordinary shares could
adversely affect the price of our ADSs.
Future sales of a substantial number of our ADSs or ordinary shares, or the perception that such sales will occur,
could cause a decline in the market price of our ADSs. Sales in the U.S. of our ADSs and ordinary shares held by
our directors, officers and affiliated shareholders are subject to restrictions. If these shareholders sell substantial
amounts of ordinary shares or ADSs in the public market, or the market perceives that such sales may occur, the
market price of our ADSs and our ability to raise capital through an issue of equity securities in the future could be
adversely affected.
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Unstable market and economic conditions may have serious adverse consequences on our business and financial
condition and the price of our ADSs. The global economy, including credit and financial markets, has recently
experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising
interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in
unemployment rates and uncertainty about economic stability. If the equity and credit markets continue to
deteriorate or the U.K. or the U.S. enters a recession, it may make any necessary debt or equity financing more
difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. In addition, there is a risk
that one or more of our CROs, suppliers or other third-party providers may not survive an economic downturn or
recession. As a result, our business, results of operations and price of our ADSs may be adversely affected.
If securities or industry analysts or commentators publish inaccurate or unfavorable research, about our
business, the price of our ADSs and ordinary shares and our trading volume could decline.
The trading market for our ADSs and ordinary shares depends in part on the research and reports that securities or
industry analysts or commentators publish about us, our business or our industry. If one or more of the analysts who
cover us downgrade our ADSs or if they or other industry commentators publish inaccurate or unfavorable research
or comments about our business, the price of our ADSs and ordinary shares would likely decline. If one or more of
these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease,
which might cause the price of our ADSs and ordinary shares and trading volume to decline.
We have incurred and expect to continue to incur increased costs as a result of operating as a public company in
the U.S., and our senior management are required to devote substantial time to new compliance initiatives and
corporate governance practices.
As a U.S. public company, we have incurred and expect to continue to incur significant legal, accounting and other
expenses that we did not incur prior to becoming a U.S. public company. The Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other
applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies,
including the establishment and maintenance of effective disclosure and financial controls and corporate governance
practices. Our senior management and other personnel have devoted and will need to continue to devote a
substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will continue to
increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity,
and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and
governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by
our senior management on our internal control over financial reporting and an attestation report on internal control
over financial reporting issued by our independent registered public accounting firm. To maintain compliance with
Section 404(b), we have implemented a process of documenting and evaluating our internal control over financial
reporting. In this regard, we have dedicated, and will need to continue to dedicate, internal resources, engage outside
consultants and pursue a detailed work plan to assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are
functioning as documented and implement a continuous reporting and improvement process for internal control over
financial reporting, which is both costly and challenging. Despite our efforts, there is a risk that we will not be able
to conclude that our internal control over financial reporting is effective as required by Section 404. If we identify
one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements.
Business interruptions could adversely affect our operations.
Our operations are potentially vulnerable to interruption by fire, severe weather conditions, power loss,
telecommunications failure, terrorist activity, public health crises and pandemic diseases, and other natural and man-
made disasters or events beyond our control. Our facilities are located in regions that experience severe weather
from time to time. We have not undertaken a systematic analysis of the potential consequences to our business and
financial results from a major tornado, flood, fire, earthquake, power loss, terrorist activity, public health crisis,
pandemic diseases or other disasters and do not have a recovery plan for such disasters. In addition, we do not carry
sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any
losses or damages incurred by us could harm our business. The occurrence of any of these business disruptions
could seriously harm our operations and financial condition and increase our costs and expenses.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the
confidentiality, integrity, and availability of our critical systems and information.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity
Framework (“NIST CSF”).This does not imply that we meet any particular technical standards, specifications, or
requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks
relevant to our business.
Our cybersecurity risk management program is integrated into our overall risk management program, and shares
common methodologies, reporting channels and governance processes that apply across the risk management
program to other legal, compliance, strategic, operational, and financial risk areas.
Key elements of our cybersecurity risk management program includes:
•
risk assessments designed to help identify material risks from cybersecurity threats to our critical systems and
information;
•
an information technology team principally responsible for managing (1) our cybersecurity risk assessment
processes, (2) our security controls, and (3) our response to cybersecurity incidents;
•
the use of external advisors and service providers, where appropriate, to assess, test or otherwise assist with
aspects of our security processes;
•
cybersecurity awareness training of our employees and contractors, including incident response personnel, and
senior management;
•
a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents and
alignment with the broader corporate business continuity plan; and
•
a third-party risk management process for key service providers based on our assessment of their criticality to
our operations and respective risk profile.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity
incidents, that have materially affected or are reasonably likely to materially affect us, including our operations,
business strategy, results of operations, or financial condition. For more information, see the section titled “Risk
Factor— Our business and operations may suffer in the event of information technology system failures,
cyberattacks or deficiencies in our cybersecurity.”
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit
Committee (the “Committee”) oversight of cybersecurity risks, including oversight of management’s
implementation of our cybersecurity risk management program.
The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management
updates the Committee, where it deems appropriate, regarding cybersecurity incidents it considers to be significant
or potentially significant.
The Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full
Board also receives briefings from management on our cyber risk management program. Board members receive
presentations on cybersecurity topics from our Vice President, Digital and Information Technology, internal security
staff or external experts as part of the Board’s continuing education on topics that impact public companies.
Our management team, including our Vice President, Digital and Information Technology and Chief Financial
Officer, is responsible for assessing and managing our material risks from cybersecurity threats. The team has
primary responsibility for our overall cybersecurity risk management program and supervises both our internal
cybersecurity personnel and our retained external cybersecurity consultants. Our management team’s experience
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includes decades of managing public pharmaceutical companies, including their related information technology and
cybersecurity risk management programs.
Our management team takes steps to stay informed about and monitor efforts to prevent, detect, mitigate, and
remediate cybersecurity risks and incidents through various means, which may include briefings from internal
security personnel; threat intelligence and other information obtained from governmental, public or private sources,
including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT
environment.
Item 2. Properties
Our corporate headquarters is in leased office space at 3 More London Riverside, London, U.K. The leases for these
offices expire in the first quarter of 2026. We also have office space at 33 Park of Commerce, Suite 300, Savannah,
Georgia, 31405, which expires in the fourth quarter of 2025, and 8529 Six Forks Road, Suite 400, Raleigh, North
Carolina, 27615, which expires in the fourth quarter of 2027. We believe that these facilities are adequate to meet
our current and near term needs.
Item 3. Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We
are not currently subject to any material legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information and Holders
Prior to October 30, 2020, our ordinary shares were traded on the AIM Market of the London Stock Exchange under
the symbol “VRP”. We canceled the admission of the ordinary shares to trading on AIM on October 30, 2020 and
our ordinary shares are now not publicly traded. Our American Depositary Shares (“ADSs”) have been publicly
traded on the Nasdaq Global Market under the symbol “VRNA” since April 27, 2017.
Each ADS represents eight ordinary shares of Verona Pharma plc.
As of February 24, 2025, we had 411 registered holders of ordinary voting shares. 99.9% of our voting ordinary
shares are held in ADS form. The 0.1% balance of our ordinary voting shares are held as unlisted voting ordinary
shares. We also have 48,088,896 unlisted non-voting ordinary shares.
Dividends
We have never declared or paid any dividends on our common stock. We anticipate that we will retain all of our
future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash
dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Stock Performance Graph
The graph set forth below compares the cumulative total shareholder return on our ordinary shares between January
1, 2020 and December 31, 2024, with the cumulative total return of (a) the Nasdaq Biotechnology Index and (b) the
Nasdaq Composite Index, over the same period. This graph assumes the investment of $100 on December 31, 2019
in each of our ordinary shares, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and assumes the
reinvestment of dividends, if any. The comparisons reflected in the graph and table are not intended to forecast the
future performance of our stock and may not be indicative of our future performance.
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Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with the Consolidated Financial Statements and the related notes to those statements included later in
this Annual Report on Form 10-K (“Annual Report”). In addition to historical financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that
involve risks and uncertainties. Our actual results and the timing of events could differ materially from those
discussed in these forward-looking statements. Important factors that could cause or contribute to these differences
include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A.
“Risk Factors” and the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
In this Item 7, we discuss the results of operations for the years ended December 31, 2024 and 2023 and
comparisons of the year ended December 31, 2024 to the year ended December 31, 2023. Discussion and analysis
of our 2022 fiscal year specifically, as well as the year-over-year comparison of our 2023 financial performance to
2022, are located in Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on
February 29, 2024.
Overview
We are a biopharmaceutical company focused on developing and commercializing innovative therapeutics for the
treatment of respiratory diseases with significant unmet medical needs.
On June 26, 2024, the U.S. Food and Drug Administration (“FDA”) approved Ohtuvayre (ensifentrine) for the
maintenance treatment of chronic obstructive pulmonary disease (“COPD”) in adult patients and the Company
launched Ohtuvayre in the U.S. through an exclusive network of accredited specialty pharmacies in August 2024.
Ohtuvayre is the Company’s first commercial product and the first inhaled therapy with a novel mechanism of
action available for the maintenance treatment of COPD in more than 20 years.
Ohtuvayre is a first-in-class selective dual inhibitor of the enzymes phosphodiesterase 3 and 4 (“PDE3” and “PDE
4”) that combines bronchodilator and non-steroidal anti-inflammatory effects in one molecule. Ohtuvayre is
delivered directly to the lungs through a standard jet nebulizer without the need for high inspiratory flow rates or
complex hand-breath coordination.
The U.S. approval of Ohtuvayre was based on extensive data including the results from our successful Phase 3
ENHANCE program, which have been published in the American Journal of Respiratory and Critical Care Medicine
(“AJRCCM”). Ohtuvayre met the primary endpoint in both the ENHANCE-1 and ENHANCE-2 trials demonstrating
statistically significant and clinically meaningful improvements in measures of lung function. In addition, other
endpoint data demonstrated that Ohtuvayre substantially reduced the rate and risk of COPD exacerbations in
ENHANCE-1 and ENHANCE-2. Ohtuvayre was well tolerated in both trials.
We recently presented additional analyses of data from the ENHANCE trials at international scientific conferences:
•
In October 2024, we gave four oral presentations and presented two posters on analyses from the ENHANCE
studies including subgroup data supporting improvements in lung function, symptoms and quality of life, as
well as reductions in the rate of exacerbations. The analyses were published in the CHEST Annual Meeting on-
line supplement.
•
In September 2024, we gave an oral presentation and presented three posters on additional analyses from the
ENHANCE studies at the European Respiratory Society International Congress 2024. The analyses summarized
the efficacy and safety of Ohtuvayre in subgroups of patients and a pooled analysis of patient reported outcomes
demonstrated its effect on reducing cough and sputum. The abstracts were published in the publication,
European Respiratory Journal.
We are commercializing Ohtuvayre for the maintenance treatment of COPD in the U.S. Ohtuvayre is not considered
a drug device combination because patients use a readily available standard jet nebulizer to take the treatment.
Outside the U.S., we intend to license Ohtuvayre to companies with expertise and experience in developing and
commercializing products in those regions. To that end, we have entered into a strategic collaboration with Nuance
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Pharma Limited, a Shanghai-based specialty pharmaceutical company (“Nuance Pharma”), to develop and
commercialize ensifentrine in Greater China. In February 2025, Nuance announced that Ohtuvayre was approved in
Macau, the first approval outside of the U.S., for the maintenance treatment of COPD in adult patients. In addition,
in September 2024, Nuance completed enrollment in its own pivotal Phase 3 trial evaluating ensifentrine for the
maintenance treatment of COPD in China and results are expected in 2025.
In Phase 2 clinical trials, ensifentrine has demonstrated positive results in patients with COPD, asthma and cystic
fibrosis (“CF”). Two additional formulations of ensifentrine have been evaluated in Phase 2 trials for the treatment
of COPD: dry powder inhaler (“DPI”) and pressurized metered-dose inhaler (“pMDI”).
In addition, in the third quarter of 2024, we initiated two Phase 2 clinical trials:
•
dose-ranging trial with a glycopyrrolate, a Long-Acting Muscarinic Antagonist (“LAMA”), supporting a fixed-
dose combination program with ensifentrine for the maintenance treatment of COPD via delivery in a nebulizer,
and
•
trial assessing the efficacy and safety of nebulized ensifentrine in patients with non-cystic fibrosis
bronchiectasis (“bronchiectasis”).
We have incurred recurring losses and negative cash flows from operations since inception, and have an
accumulated deficit of $562.4 million as of December 31, 2024. We expect to incur additional losses and negative
cash flows from operations until our product candidates potentially gain regulatory approval and our approved
products reach commercial profitability, if at all.
We anticipate significant expenses in connection with our ongoing activities, if and as we:
•
operate a sales, marketing and distribution infrastructure, continue to increase production to commercial scale
with our manufacturing and other Chemistry, Manufacturing and Controls activities to commercialize
Ohtuvayre as well as any additional products for which we may obtain regulatory approval;
•
continue the clinical development of a fixed-dose combination of ensifentrine and a LAMA as well as our DPI
and pMDI formulations of ensifentrine and research and development of other formulations of ensifentrine;
•
initiate and conduct further clinical trials for ensifentrine for the treatment of bronchiectasis, acute COPD, CF or
any other indication;
•
initiate and progress pre-clinical studies relating to other potential indications of ensifentrine;
•
seek to discover and develop additional product candidates;
•
seek regulatory approvals for any of our product candidates that successfully complete clinical trials;
•
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 commercialization efforts and to support our continuing
operations as a U.S. public 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.
On May 9, 2024, we entered into a term loan facility (the “2024 Term Loans”) of up to $400.0 million with Oaktree
Fund Administration, LLC, a Delaware limited liability company, as administrative agent, and certain funds
managed by each of Oaktree Capital Management, L.P. and OCM Life Sciences Portfolio LP party thereto
(collectively, the “2024 Lenders”). At closing, we received net proceeds of $52.8 million and up to four additional
advances of an aggregate $345.0 million were available subject to meeting certain commercial milestones and other
specified conditions. On June 28, 2024, we received net proceeds of $68.6 million related to the second tranche of
the 2024 Term Loans, which was available upon FDA approval for Ohtuvayre, as well as proceeds from the
$100 million first tranche of our revenue interest purchase and sale agreement (the “RIPSA”). Refer to Note 5 - Debt
to our Consolidated Financial Statements and related notes included elsewhere in this Annual Report for additional
information regarding the 2024 Term Loans and the RIPSA.
We believe that our cash and cash equivalents as of December 31, 2024, our product sales and funding expected to
become available under the 2024 Term Loans and the RIPSA will be sufficient to fund our operating expenses and
capital expenditure requirements for at least the next 12 months from the date of issuance of our Consolidated
Financial Statements included elsewhere in this Annual Report. The remaining advances under the 2024 Term Loans
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and the RIPSA are contingent upon the achievement of commercial milestones and other specified conditions, and in
the case of the Tranche E Term Loan under the 2024 Term Loans, at the sole discretion of the 2024 Lenders. No
additional advances are available under the 2023 Term Loan following our termination and repayment in full of the
2023 Term Loan on May 9, 2024. See “Liquidity and capital resources” for additional information.
Significant agreements
Ligand agreement
In 2006 we acquired Rhinopharma and assumed contingent liabilities owed to Ligand UK Development Limited
(“Ligand”) (formerly Vernalis Development Limited). We refer to the assignment and license agreement as the
Ligand Agreement.
Ligand assigned to us all of its rights to certain patents and patent applications relating to ensifentrine and related
compounds (the "Ligand Patents") and an exclusive, worldwide, royalty-bearing license under certain Ligand know-
how to develop, manufacture and commercialize products (the "Ligand Licensed Products") developed using Ligand
Patents, Ligand know-how and the physical stock of certain compounds.
We agreed to pay a milestone payment of £5.0 million on obtaining the first approval of any regulatory authority for
the commercialization of a Ligand Licensed Product (the ”First Approval Milestone”), low single digit royalties
based on the future sales performance of all Ligand Licensed Products and a portion equal to a mid-twenty percent
of any consideration received from any sub-licensees for the Ligand Patents and for Ligand know-how. Royalties
payable are based on the future sales performance so the amount payable is unlimited.
At the time each contingency is resolved, the contingent consideration payment (or payable) in connection with the
Ligand Agreement will be recorded as an expense.
In March 2022, we entered into an Amendment Agreement (the “Amendment”) with Ligand whereby the Ligand
Agreement was amended to clarify certain ambiguous terms in the Ligand Agreement. Pursuant to the Amendment:
•
we agreed to pay to Ligand (i) $2.0 million within five business days of the date of the Amendment and (ii)
$15.0 million upon the first commercial sale of ensifentrine by us or a sub-licensee (the “First Sale Milestone”).
•
the Ligand Agreement shall expire on March 24, 2042 unless terminated earlier by either party in accordance
with its terms;
•
upon termination of the Ligand Agreement, any Sub-licensee (as defined in the Amendment) shall have the
right to enter into a direct license agreement with Ligand for the portion of the Program IP (as defined in the
Amendment) that was sub-licensed by such Sub-licensee;
•
the First Approval Milestone and the First Sale Milestone may be paid in cash or, at our discretion, by issuing
shares in the Company of equivalent value to Ligand; and
•
each party’s right to terminate the Ligand Agreement is conditioned upon such party obtaining a final judgment
of the English High Court declaring that the other party is in material breach of its obligations under the Ligand
Agreement.
We accounted for the $2.0 million payment at execution of the Amendment as selling, general and administrative
expense in the Consolidated Statements of Operations and Comprehensive Loss as the payment is related to a
contract modification.
Upon FDA approval of Ohtuvayre on June 26, 2024, the Company has recognized the following:
•
$6.3 million in research and development costs related to the First Approval Milestone; and
•
$15.0 million selling, general and administrative expense related to the First Sale Milestone.
The Company is obligated to pay low single digit royalties based on the net sales of all Ligand Licensed Products
and expenses all costs related to royalty amounts as a cost of sales in the Consolidated Statements of Operations and
Comprehensive Loss.
Nuance agreement
We entered into a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma effective
June 9, 2021 (the “Nuance Effective Date”) under which we granted Nuance Pharma the exclusive rights to develop
and commercialize ensifentrine in Greater China (China, Taiwan, Hong Kong and Macau). In return, we received an
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unconditional right to consideration aggregating $40.0 million consisting of $25.0 million in cash and an equity
interest valued at $15.0 million as of the Effective Date in Nuance Biotech, the parent company of Nuance Pharma.
We are eligible to receive future milestone payments of up to $179.0 million, triggered upon achievement of certain
clinical, regulatory, and commercial milestones as well as tiered double-digit royalties on net sales in Greater China.
We will recognize these milestones when it is probable that a significant revenue reversal would not occur.
As of December 31, 2024, the $15.0 million equity interest was recorded as Equity interest on the Consolidated
Balance Sheets, included elsewhere in this Annual Report. The Equity interest is recorded at cost as we have elected
to use the measurement alternative for equity investments without readily determinable fair values. We will evaluate
this investment for indicators of impairment quarterly. We evaluate this investment for indicators of impairment
quarterly. We did not identify events or changes in circumstances that may have a significant effect on the fair value
of the investment during the year ended December 31, 2024.
Nuance Pharma will be responsible for all costs related to clinical development and commercialization of
ensifentrine in Greater China. In August 2022, Nuance Pharma, received clearance from China’s Center for Drug
Evaluation to begin Phase 1 and Phase 3 studies with ensifentrine for COPD in mainland China. Nuance Pharma
initiated a Phase 1 trial with ensifentrine in healthy volunteers in March 2023. In April 2023, Nuance Pharma dosed
the first subject in its pivotal Phase 3 clinical trial evaluating ensifentrine for the maintenance treatment of COPD in
mainland China and enrollment was completed in September 2024. A joint steering committee has been established
between us and Nuance Pharma to oversee and coordinate the overall conduct of such clinical development and
commercialization. We intend to use the joint steering committee to help ensure the clinical development of
ensifentrine in Greater China aligns with our overall global development and commercialization strategy.
Under the terms of the Nuance Agreement, at any time until three months prior to the expected submission of the
first New Drug Application in Greater China, if (i) a third party is interested in partnering with us, either globally or
in territory covering at least the United States or Europe, for the development and/or commercialization of
ensifentrine or (ii) we undergo a change of control, we will have an exclusive option right to buy back the license
granted to Nuance Pharma and all related assets. The price is agreed to be equal to the aggregate of (i) all prior
amounts paid by Nuance Pharma to us in cash under the agreement and (ii) all development and regulatory costs
incurred and paid by Nuance Pharma in connection with the development and commercialization of the ensifentrine
under the Nuance Agreement multiplied by a single-digit factor range dependent upon achievement of certain
milestones, subject to a specified maximum amount.
The Nuance Agreement will continue on a jurisdiction-by-jurisdiction and product-by-product basis until the
expiration of royalty payment obligations with respect to such product in such jurisdiction unless earlier terminated
by the parties. Either party may terminate the Nuance Agreement for an uncured material breach or bankruptcy of
the other party. Nuance Pharma may also terminate the Nuance Agreement at will upon 90 days' prior written notice.
We reviewed the buy-back option and determined that because it is conditional on a third party we do not have the
practical ability to exercise it and, accordingly, the contract is accounted for under ASC 606.
On April 13, 2022, we entered into an Agreement for the Manufacture and Clinical Supply of ensifentrine (“Nuance
Clinical Supply Agreement”) with Nuance Pharma. We determined that the manufacturing and supply of
ensifentrine to Nuance represents a distinct and separate performance obligation, for which consideration to be
received is variable based on the quantities to be ordered by Nuance. Revenue earned with the manufacture and
supply of the licensed product is, and will be, recognized as the supply is delivered to Nuance. We have determined
we are acting as principal in relation to the manufacture and supply under the Agreement. In its capacity as principal,
we will recognize the associated revenue on a gross basis. In the year ended December 31, 2022, we recognized $0.5
million in relation to the clinical supply of ensifentrine to Nuance Pharma.
For additional information regarding the Nuance Agreement, see Note 6 - Significant Agreements to our
Consolidated Financial Statements and related notes included elsewhere in this Annual Report.
Critical accounting estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our
Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us
to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting
periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis.
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While our significant accounting policies are described in more detail in the notes to our Consolidated Financial
Statements included elsewhere in this Annual Report, we believe that the following accounting policies are most
critical to the judgments and estimates used in the preparation of our Consolidated Financial Statements and related
notes included elsewhere in this Annual Report.
Revenue recognition
We generate revenue from the sale of Ohtuvayre. Revenue is recognized when we transfer control of Ohtuvayre to
the specialty pharmacies, our customers, as our contracts have a single performance obligation which is the delivery
of Ohtuvayre. These product sales are subject to various gross-to-net adjustments, which are deducted from our
product sales to determine net product sales. For a description of our related accounting policies, see Note 2 - Basis
of Presentation and Summary of Significant Accounting Policies to our Consolidated Financial Statements included
elsewhere in this Annual Report.
Gross-to-net adjustments
Product sales are recorded at the estimated net sales price, which includes estimates of variable consideration for
which reserves are established. Components of variable consideration include rebates and chargebacks, product
returns and other allowances that are offered within contracts with our customer, payors, and other indirect
customers relating to the sale of our product. These reserves are based on the amounts earned, or to be claimed on
the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or
a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration
a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic
606 for relevant factors such as current contractual and statutory requirements, specific known market events and
trends as well as industry data and other third party information. Overall, these reserves reflect our best estimates of
the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.
Estimates associated with our gross-to-net adjustments are particularly susceptible to adjustment given the extensive
time lag that may occur between our recording of an accrual and its ultimate invoicing by the government or
commercial entity, which can occur up to several years after the sale of our product. Because of the time lag for
these rebates and chargebacks, in any particular quarter, our adjustments may incorporate revisions of accruals
related to prior periods.
Revenue interest purchase and sale agreement and related interest expense
Proceeds from the RIPSA are recorded as liabilities (specifically, revenue interest purchase and sale agreement on
the Consolidated Balance Sheets) and are amortized using the effective interest method over the estimated period the
RIPSA will be repaid with the imputed interest recorded as interest expense. The repayment of the RIPSA is based
on royalties from global net sales of Ohtuvayre as well as certain proceeds from licensees outside the US, subject to
the capped amount. This requires us to estimate the total amount and timing of future royalty payments which is
based on estimates of future global net sales, including assumptions related to the treatable patient population, rate
of adoption, among others, and involves significant judgment given the limited global net sales data experienced to
date. We reassess the amount and timing of these payments each reporting period and account for any changes
through an adjustment to the effective interest rate on a prospective basis. A significant increase or decrease in
forecasted global net sales or certain proceeds from licensees outside the US could materially impact the RIPSA
balance and interest expense.
Research and development costs
Research and development (“R&D”) costs are charged to the Consolidated Statements of Operations and
Comprehensive Loss, as incurred. We are required to estimate our expenses resulting from our obligation under
contracts with vendors and consultants and clinical site agreements in connection with our R&D efforts. The
financial terms of these contracts are subject to negotiations which vary contract to contract and may result in
payment flows that do not match the periods over which materials or services are provided under such contracts. Our
objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expenses
with the period in which services and efforts are expended. We account for these expenses according to the progress
of the trials and other development activities measured by patient progression and the timing of various aspects of
the trial. We also determine prepaid and accrual estimates through discussions with applicable personnel and outside
service providers as to the progress of clinical trials, or other services completed. During the course of a clinical
trial, we may adjust our rate of clinical trial expense recognition if actual results differ from its estimates. We make
estimates of our prepaid and accrued expenses as of each balance sheet date in our financial statements based on
facts and circumstances known at that time. Although we do not expect our estimates to be materially different from
amounts actually incurred, our understanding of the status and timing of services performed relative to the actual
79
status and timing of services performed may vary and may result in us reporting amounts that are too high or too low
for any particular period. Our clinical trial prepaid and accrual expense is dependent upon the timely and accurate
reporting of study recruitment from contract research organizations and activities carried out by other third-party
vendors as well as the timely processing of any change orders from the contract research organizations.
80
Components of results of operations
We anticipate that our expenses will increase substantially if and as we:
•
initiate and conduct clinical trials of ensifentrine for the treatment of bronchiectasis, CF, asthma or other
indications;
•
initiate and conduct other future clinical trials of ensifentrine in other formulations, including in combination
with other active ingredients including fixed-dose combinations, for the treatment of COPD or other indications;
•
initiate and conduct clinical pharmacology studies with any formulation;
•
seek to discover and develop or in-license additional respiratory product candidates;
•
conduct pre-clinical studies to support ensifentrine and potentially other future product candidates;
•
develop the manufacturing processes and produce clinical and commercial supplies of the ensifentrine active
pharmaceutical ingredient and formulated drug products derived from it;
•
seek additional regulatory approvals of ensifentrine;
•
maintain and potentially expand commercial infrastructure to support the commercialization of Ohtuvayre,
including sales, marketing, operations, reimbursement, distribution and manufacturing capabilities to
commercialize Ohtuvayre;
•
maintain, expand and protect our intellectual property portfolio;
•
secure, maintain or obtain freedom to operate for our in-licensed technologies and products;
•
add clinical, scientific, operational, financial and management information systems and personnel, including
personnel to support our product development and commercialization efforts; and
•
expand our operations to support commercialization and research activities in the U.S. and elsewhere.
To date, we have generated revenue from the sale of Ohtuvayre and from the receipt of up-front proceeds and
clinical supply of ensifentrine under the Nuance Agreement.
We expect that revenue we generate will fluctuate from quarter to quarter. If we or our strategic partners fail to
complete the development of ensifentrine in a timely manner or obtain regulatory approval for them, or if we fail to
develop our own sales force or find one or more strategic partners for the commercialization of approved products,
our ability to generate future revenue, and our financial condition and results of operations would be materially
adversely affected.
Product sales, net
With the FDA approval of Ohtuvayre and our commercial launch in the third quarter of 2024, we began to recognize
product sales. We record product sales net of estimated distribution fees, government rebates and chargebacks,
commercial chargebacks, product returns, co-pay assistance costs and other fees.
81
Operating expenses
Cost of sales
We began to recognize cost of sales after the commercial launch of Ohtuvayre in the third quarter of 2024. Cost of
sales includes the cost of producing inventory related to Ohtuvayre including manufacturing, freight and overhead as
well as sales-based royalties due to Ligand.
Research and development costs
Research and development costs consist of salary and personnel related costs and third party costs for our research
and development activities for ensifentrine. Personnel related costs include a share-based compensation charge
relating to our share-based compensation. The largest component of third party costs is for clinical trials, as well as
manufacturing for clinical supplies and associated development, and pre-clinical studies. Prior to obtaining
regulatory approval for Ohtuvayre, we expensed costs relating to production of pre-launch inventory as research and
development expense in our Consolidated Statements of Operations and Comprehensive Loss in the period incurred.
All other research and development costs are expensed as incurred.
We expect our research and development costs to increase in future years related to our additional trials for a fixed-
dose combination formulation for COPD patients and nebulized ensifentrine in patients with bronchiectasis.
Due to the nature of research and development, the expected costs are inherently uncertain and may vary
significantly from our current expectations.
Selling, general and administrative costs
Selling, general and administrative costs consist of salary and personnel related costs, including share-based
compensation, expenses relating to the launch of Ohtuvayre and other commercial activities, expenses relating to
operating as a public company, including professional fees, insurance and commercial related costs, as well as other
operating expenses.
We expect commercial costs to continue to increase due to the commercial launch of Ohtuvayre including costs
related to our sales force, marketing and other commercial related costs. As we continue to develop our knowledge
of the market and refine our commercial operations, expected costs may vary significantly from our current
expectations
Other income/(expense)
Other income/(expense) are driven by interest income and expense, foreign exchange movements on cash and cash
equivalents and taxes receivable, and the U.K. research and development tax credits (the “R&D tax credit”).
We participate in the U.K. Small and Medium Enterprises research and development tax relief program. The tax
credits are calculated as a percentage of qualifying research and development expenditure and are payable in cash by
the U.K. government to us on the basis that the company is loss making. Credits recorded related to the 2023 and
2024 financial years are expected to be received in 2025.
Taxation
Our effective tax rate varies from the statutory U.K. tax rate in each period presented primarily due to the recording
of a valuation allowance for our deferred tax assets. We assess the available positive and negative evidence to
estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.
A significant piece of objective negative evidence evaluated was the cumulative consolidated loss incurred over the
three-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective
evidence, such as our projections for future growth. We have determined that the reversal of future taxable
temporary differences corresponding to our deferred tax liabilities will not provide a sufficient source of income for
realization of our deferred tax assets.
The income taxes presented in our Consolidated Statements of Operations and Comprehensive Loss represents the
current tax impact from our operating activities in the United States, which generates taxable income. The increase
in the U.S. current tax expense in 2024 compared to prior periods was due to the taxability of the funds received as
part of the RIPSA agreement (see Note 5 - Debt to our Consolidated Financial Statements included elsewhere in the
Annual Report).
82
We have $261.1 million loss carryforwards in the United Kingdom. These losses may be carried forward indefinitely
to be offset against future taxable profits, subject to various utilization criteria and restrictions. The amount that can
be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits.
83
Results of operations for the years ended December 31, 2024 and 2023
The following table shows our statements of operations for the years ended December 31, 2024 and 2023 (in
thousands):
Year ended December 31,
2024
2023
Variance
Revenue:
Product sales, net
$
42,261 $
— $
42,261
Other revenue
18
—
18
Total revenue, net
42,279
—
42,279
Operating expenses:
Cost of sales
2,582
—
2,582
Research and development
44,574
17,216
27,358
Selling, general and administrative
149,750
50,353
99,397
Total operating expenses
196,906
67,569
129,337
Operating loss
(154,627)
(67,569)
(87,058)
Other income/(expense):
Research and development tax credit
3,600
1,104
2,496
Loss on extinguishment of debt
(3,653)
—
(3,653)
Interest income
15,262
12,761
2,501
Interest expense
(23,542)
(2,057)
(21,485)
Foreign exchange (loss)/gain
(169)
1,866
(2,035)
Total other (expense)/income, net
(8,502)
13,674
(22,176)
Loss before income taxes
(163,129)
(53,895)
(109,234)
Income tax expense
(10,289)
(474)
(9,815)
Net loss
$ (173,418) $
(54,369) $ (119,049)
Product sales, net
Ohtuvayre received FDA approval on June 26, 2024 and the product was commercially available on August 6, 2024.
Product sales, net for Ohtuvayre was $42.3 million for the year ended December 31, 2024.
Cost of sales
Cost of sales was $2.6 million for the year ended December 31, 2024 which includes Ohtuvayre manufacturing costs
incurred after FDA approval, inventory overhead costs and sales-based royalties due to Ligand. Prior to obtaining
initial regulatory approval for Ohtuvayre, we expensed costs relating to production of pre-launch inventory as R&D
expense in the period incurred.
Research and development costs
Research and development costs were $44.6 million for the year ended December 31, 2024, compared to $17.2
million for the year ended December 31, 2023, an increase of $27.4 million. This increase was primarily due to an
increase of $17.5 million in clinical trial and other development costs as we initiated two Phase 2 studies in the third
quarter of 2024 related to the combination of ensifentrine and glycopyrrolate for the treatment of COPD and
nebulized ensifentrine for the treatment of patients with bronchiectasis, the payment of the $6.3 million First
Approval Milestone, $3.1 million increase in share-based compensation, $2.0 million increase for people-related
costs and $1.1 million related to pre-launch manufacturing costs. The increase in clinical trial and other development
costs from the prior year also includes the impact in 2023 of a reversal of $1.5 million of costs which were expensed
in the year ended December 31, 2022 related to the resolution of the matter with a Phase 3 ENHANCE program
supplier. This was partially offset by a decrease of $1.3 million in consultant and professional fee costs which were
higher in 2023 due to service costs associated with our New Drug Application and the related approval process.
84
Selling, general and administrative costs
Selling, general and administrative costs were $149.8 million for the year ended December 31, 2024 compared to
$50.4 million for the year ended December 31, 2023, an increase of $99.4 million. This increase was driven
primarily by an increase of $29.7 million in marketing and other commercial related activities, including travel,
primarily related to the launch of Ohtuvayre, an increase of $26.8 million in people-related costs as we built out our
commercial organization largely in the second quarter of 2024, a charge of $15.0 million for the First Sale Milestone
and an increase of $7.3 million in professional and consulting fees, information technology costs and other support
costs. Additionally, share-based compensation increased by $18.8 million.
Other (expense)/income
Other (expense)/income for the year ended December 31, 2024 was expense of $8.5 million compared to income of
$13.7 million for the year ended December 31, 2023, a change of $22.2 million. This change was primarily due to an
increase in interest expense of $21.5 million related to our higher average debt balance and the noncash interest
expense recognized on the RIPSA as well as the recognition of a $3.7 million loss on the extinguishment of our
2023 Term Loan. This change was partially offset by an increase in our research and development tax credit of
$2.5 million relating to higher qualifying clinical trial and other development costs in 2024 and a $2.5 million
increase in interest income due to our higher average cash balance.
Cash flows
The following table summarizes our cash flows for the years ended December 31, 2024 and 2023 (in thousands):
Year ended December 31,
2024
2023
Variance
Cash and cash equivalents at beginning of the year
$
271,772 $
227,827 $
43,945
Net cash used in operating activities
(122,203)
(50,222)
(71,981)
Net cash used in investing activities
(580)
—
(580)
Net cash provided by financing activities
250,779
92,869
157,910
Effect of exchange rate changes on cash and cash equivalents
(11)
1,298
(1,309)
Cash and cash equivalents at end of the year
$
399,757 $
271,772 $
127,985
Operating activities
Net cash used in operating activities was $122.2 million in the year ended December 31, 2024 compared to $50.2
million during the year ended December 31, 2023, a increase of $72.0 million. The increase in cash used in
operating activities was primarily due to the increase of costs incurred for the commercial launch of Ohtuvayre and
the related increase in people-related costs for the field sales team and commercial and corporate support functions
as well as spend related to the two Phase 2 studies which were initiated in the third quarter of 2024. Additionally, we
made milestone payments of $21.3 million to Ligand. This was partially offset by $17.6 million received from
customers related to product sales of Ohtuvayre as well as $8.7 million related to the 2022 R&D tax credit received
from HMRC.
Financing activities
The increase in cash provided by financing activities was primarily due to net proceeds received of $163.3 million in
the year ended December 31, 2024 from the 2024 Term Loans and the RIPSA partially offset by the repayment of
the 2023 Term Loans and debt issuance costs. Additionally, we received $97.5 million in proceeds from “at the
market” equity offering program (the “ATM Program”). This was partially offset by the payment of withholding
taxes from share-based awards of $15.5 million.
In the year ended December 31, 2023, we received $56.9 million related to ATM Program sales as well as $10.0
million of proceeds from our prior term loan with Oxford Finance Luxembourg S.À R.L.
85
Liquidity and capital resources
To date, we have financed our operations primarily through the issuances of our equity securities, from borrowings
under our term loan facilities and RIPSA, from product sales and from upfront payments received under the Nuance
Agreement. See “Significant Agreements” for additional information.
We have incurred recurring losses since inception, including net losses of $173.4 million for the year ended
December 31, 2024. In addition, as of December 31, 2024, we had an accumulated deficit of $562.4 million. We
expect to incur additional losses and negative cash flows from operations until we reach profitability, if at all, and
we may continue to incur significant operating losses for the foreseeable future as we have increased our headcount
significantly in 2024 and have increased spending to support our commercial launch of Ohtuvayre. Additionally, we
have expanded our research and development efforts, and may continue to advance our clinical development of
ensifentrine in other formulations or for other indications, bring on additional assets and development programs, and
seek to obtain regulatory approval for and commercialize any related product candidates.
We have no ongoing material financial commitments, such as lines of credit or guarantees, that are expected to
affect our liquidity over the next five years, other than leases, our 2024 Term Loans and RIPSA.
2024 Financing and Capital Transactions
•
Entered into the 2024 Term Loans and RIPSA and drew an aggregate of $225 million;
•
Repaid the 2023 Term Loans of $50 million in full;
•
Sold 20,329,832 ordinary shares (equivalent to 2,541,229 ADSs) under the ATM Program, at an average price
of approximately $4.92 per share (equivalent to $39.35 per ADS), raising aggregate net proceeds of
approximately $97.5 million after deducting issuance costs. As of December 31, 2024, there remained $100.0
million of ordinary shares, in the form of ADSs, available for sale under the ATM Program.
Our 2024 Term Loan requires, among others, that we maintain certain financial covenants, and we were in
compliance with all of these covenants as of December 31, 2024.
Refer to Note 5 - Debt to our Consolidated Financial Statements and related notes included elsewhere in this Annual
Report for additional information regarding the 2024 Term Loans and RIPSA and Note 1 - Organization and
Description of Business Operations to our Consolidated Financial Statements for additional information regarding
the ATM program.
Funding requirements
We believe that our cash and cash equivalents as of December 31, 2024, our product sales and funding expected to
become available under the 2024 Term Loan and RIPSA, will be sufficient to fund our operating expenses and
capital expenditure requirements for at least the next 12 months from the date of issuance of our Consolidated
Financial Statements included elsewhere in this Annual Report. Future advances under the 2024 Term Loans and the
RIPSA are contingent upon achievement of certain commercial milestones and other specified conditions. We have
based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources
sooner than we currently expect. In addition, our operating plan may change as a result of many factors unknown to
us. These factors, among others, may necessitate that we seek additional capital sooner than currently planned. In
addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we
believe we have sufficient funds for our current or future operating plans. We maintain the majority of our cash and
cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these
institutions may exceed insured limits.
We may require additional capital for the continued commercial launch of Ohtuvayre or to continue our research and
develop additional indications or additional formulations of or with ensifentrine. In addition, we may seek to initiate
or conduct preclinical or clinical studies with ensifentrine in additional indications or to discover or in-license and
develop additional product candidates. We may need to seek additional funding through public or private financings,
debt financings, collaboration or licensing agreements and other arrangements. However, there is no guarantee that
we will be successful in securing additional capital on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of securities offerings, debt financings, license and collaboration agreements and research
grants. If we raise capital through equity securities offerings, the ownership interest of our ADS holders and
86
shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect these holders’ rights as holders of our ADSs. Debt financing, if available, could result in fixed
payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, to acquire, sell or license intellectual property rights, to make capital expenditures, to
declare dividends, or other operating restrictions. If we raise additional funds through collaboration or licensing
agreements, we may have to relinquish valuable rights to our technologies, future revenue streams or product
candidates or grant licenses on terms that may not be favorable to us. In addition, we could also be required to seek
funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. If we
raise funds through research grants, we may be subject to certain requirements, which may limit our ability to use
the funds or require us to share information from our research and development. Raising additional capital through
any of these or other means could adversely affect our business and the holdings or rights of our ADS holders and
shareholders, and may cause the market price of our ADSs to decline.
Our future capital requirements for ensifentrine or any future product candidates will depend on many factors,
including:
•
the cost, progress and results of any studies required to support the commercial positioning of Ohtuvayre for the
maintenance treatment of COPD in adult patients and any future product candidates;
•
the number of potential new product candidates we decide to in-license and develop;
•
the cost, progress and results of any clinical trials evaluating ensifentrine for the treatment of bronchiectasis,
CF, asthma or other targeted indications, or for other formulations of ensifentrine, including fixed-dose
combination products;
•
the cost of manufacturing clinical and commercial supplies of the ensifentrine active ingredient and derived
formulated drug products and for other formulations of ensifentrine in development;
•
the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for
ensifentrine in other target indications and of the development of DPI and pMDI formulations of ensifentrine, or
fixed-dose combination formulations of ensifentrine for the maintenance treatment of COPD and potentially
bronchiectasis, CF, asthma and other respiratory diseases;
•
the costs involved in growing our organization to the size needed to allow for the research, development and
commercialization of ensifentrine or any future product candidates;
•
the costs, timing and outcomes of current and future commercialization activities, including manufacturing,
marketing, sales and distribution, for Ohtuvayre;
•
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending any intellectual property-related claims, including any claims by third
parties that we are infringing upon their intellectual property rights;
•
the sales price and availability of adequate third-party coverage and reimbursement for Ohtuvayre;
•
the effect of competing technological and market developments;
•
the extent to which we acquire or invest in businesses, products and technologies, including entering into
licensing or collaboration arrangements for our products;
•
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 commercialization of Ohtuvayre, potential
commercialization of ensifentrine in other indications or any future product candidates, if approved, and costs
involved in the creation of an effective sales and marketing organization;
•
the amount of revenue we may derive either directly or in the form of royalty payments from future sales of
Ohtuvayre or any future product candidates, including ensifentrine in other indications;
•
fully develop a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities
to commercialize Ohtuvayre and any product candidates for which we may obtain regulatory approval; and
•
our ability to continue to operate as a public company.
87
Recent accounting pronouncements
For a discussion of pending and recently adopted accounting pronouncements, see Note 2 - Basis of Presentation and
Summary of Significant Accounting Policies to our Consolidated Financial Statements included elsewhere in this
Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. As of December 31, 2024 and December 31,
2023, we had cash and cash equivalents of $399.8 million and $271.8 million, respectively, consisting primarily of
money market funds. Our cash equivalents are subject to interest rate risk and the rate of return would be negatively
impacted by a decrease in interest rates. Due to the short-term nature of our cash equivalents, a sudden change in
interest rates would not be expected to have a material effect on our business, financial condition or results of
operations. There has been no material change to our interest rate sensitivity during the year ended December 31,
2024.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional
currency, the U.S. dollar. The Company’s expenses in the year ended December 31, 2024 were incurred primarily in
U.S. dollars, but also included euros and pound sterling. At December 31, 2024, approximately 4% of cash and cash
equivalents and 7% of accounts payable were denominated in foreign currencies. In addition, the R&D tax credit
receivable is in pound sterling. Due to the relative magnitude of our foreign currency holdings, a change of 1% in
foreign exchange rates would not have a material effect on our business, financial condition or results of operations.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report. An index of
those financial statements is found in Item 15 of Part IV of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The information required by this Item 9 was previously reported in the Company’s Current Report on Form 8-K that
was filed with the Securities and Exchange Commission on December 18, 2023.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has
evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e)
under the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that, as of December 31, 2024, our
disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management, including our principal executive officer and principal financial officer, is responsible for
establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act.
88
Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2024 based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, our management concluded that, as of December 31, 2024, our internal control over
financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
Our independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2024, as stated in their report that appears
on page F-2 of this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the
Exchange Act that occurred during the quarter ended December 31, 2024 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
Rule 10b5-1 Trading Plans
From time to time, our officers (as defined in Rule 16a-1(f)) and directors may enter into Rule 10b5-1 trading plans
or non-Rule 10b5-1 trading arrangements (as each such term is defined in Item 408 of Regulation S-K). During the
three months ended December 31, 2024, our officers and directors took the following actions with respect to 10b5-1
trading plans:
Name and Title
Action
Date
End Date
Aggregate Number
of ADS to be Sold
Pursuant to Trading
Arrangement
Vikas Sinha, Non-
Executive Director
Adopt
November 6, 2024
December 31, 2025
40,000
Kathleen Rickard,
Chief Medical
Officer
Adopt
December 11, 2024
December 31, 2025
106,627
David Zaccardelli,
President and Chief
Executive Officer
Terminate
December 23, 2024
N/A
900,000
Mark Hahn, Chief
Financial Officer
Terminate
December 23, 2024
N/A
900,000
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
89
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Code of Ethics
Our board of directors has adopted a written Code of Business Conduct and Ethics applicable to all officers,
directors and employees, including our principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. We have posted a current copy of our Code of
Business Conduct and Ethics on our website at www.veronapharma.com in the “Investors” section under “Corporate
Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments
to, or waivers from, a provision of our Code of Business Conduct and Ethics, as well as Nasdaq’s requirement to
disclose waivers with respect to directors and executive officers, by posting such information on our website at the
address and location specified above. The information contained on our website is not incorporated by reference into
this Annual Report.
Insider Trading Compliance Policy
Additionally, our board of directors has adopted an Insider Trading Compliance Policy, which applies to all of our
directors, officers, employees and other covered persons, governing the purchase, sale, and other dispositions of our
securities. We believe our Insider Trading Compliance Policy and procedures are reasonably designed to promote
compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A copy of our
Insider Trading Compliance Policy is filed as Exhibit 19.1 to this Annual Report.
The remaining information required by this item will be included in our definitive proxy statement for the 2025
Annual General Meeting of Shareholders and is incorporated herein by reference to such proxy statement.
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement for the 2025 Annual
General Meeting of Shareholders and is incorporated herein by reference to such proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item will be included in our definitive proxy statement for the 2025 Annual
General Meeting of Shareholders and is incorporated herein by reference to such proxy statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement for the 2025 Annual
General Meeting of Shareholders and is incorporated herein by reference to such proxy statement.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement for the 2025 Annual
General Meeting of Shareholders and is incorporated herein by reference to such proxy statement.
90
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following financial statements and the Report of Independent Registered Accounting Firm are filed as part of
this Annual Report:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 876)
F-6
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-7
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31,
2024, 2023 and 2022
F-8
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024,
2023 and 2022
F-9
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
F-11
Notes to Consolidated Financial Statements
F-12
(a)(2) Financial Statement Schedules.
All financial statement schedules have been omitted because they are not applicable, not required or the information
required is shown in the financial statements or the notes thereto.
(a)(3) Exhibits.
The following is a list of exhibits filed as part of this Annual Report.
Incorporated by Reference to Filings Indicated
Exhibit
Number
Exhibit Description
Form
File No.
Exhibit No. Filing date
Filed /
Furnished
Herewith
1.1
Open Market Sale AgreementSM, dated as of
March 19, 2021, between Verona Pharma plc
and Jefferies LLC, and as amended
S-3AS
R 333-270339
1.2
3/7/2023
3.1
Articles of Association, as amended and as
currently in effect
6-K
001-38067
1 12/30/2020
4.1
Deposit Agreement
20-F
001-38067
2.1
2/27/2018
4.2
Form of American Depositary Receipt
(included in Exhibit 4.1)
20-F
001-38067
2.2
2/27/2018
4.3
Description of Securities
*
10.1
Registration Rights Agreement, dated July
16, 2020, by and among Verona Pharma plc
and the investors set forth therein
6-K
001-38067
2
7/22/2020
10.2.1†
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
10.2.2
Amendment Agreement by and between
Verona Pharma plc and Ligand U.K.
Development Limited dated March 23, 2022
8-K
001-38067
10.1
3/30/2022
91
10.3.1
Renewal Agreement to Lease by and
between the Verona Pharma plc and Regus
Management (U.K.) Limited dated
September 16, 2017#1
20-F
001-38067
4.3.3
2/27/2020
10.3.2
Renewal Agreement to Lease by and
between the Verona Pharma plc and Regus
Management (U.K.) Limited dated
September 16, 2017#2
20-F
001-38067
4.3.4
2/27/2020
10.3.3
Renewal Agreement to Lease by and
between the Verona Pharma plc and Regus
Management (U.K.) Limited dated
September 16, 2017#3
20-F
001-38067
4.3.5
2/27/2020
10.3.4
Renewal Agreement to Lease by and
between the Verona Pharma Inc. and Regus
Management Group LLC dated July 16, 2019
20-F
001-38067
4.3.6
2/27/2020
10.3.5
Renewal Agreement to Lease by and
between the Verona Pharma plc and Regus
Management (U.K.) Limited dated
November 9, 2021
10-K
001-38067
10.4.7
3/7/2022
10.3.6
Renewal Agreement to Lease by and
between the Verona Pharma plc and Regus
Management (U.K.) Limited dated December
7, 2021
10-K
001-38067
10.4.8
3/7/2022
10.3.7
Agreement to Lease by and between Verona
Pharma, Inc. and Brier Creek Office #4, LLC
dated March 6, 2020
10-K
001-38067
10.4.9
3/7/2022
10.4
Agreement of Sublease, dated August 28,
2023, by and between Verona Pharma, Inc.
and insightsoftware, LLC
8-K
001-38067
10.1
9/1/2023
10.5#
EMI Option Scheme
F-1 333-217124
10.4
4/3/2017
10.6#
Unapproved Share Option Scheme, as
amended
F-1 333-217124
10.5
4/3/2017
10.7#
Verona Pharma plc Second Amended and
Restated 2017 Incentive Award Plan
8-K
001-38067
10.1
5/1/2023
10.8#
Employment Agreement, dated January 28,
2020, between Verona Pharma, Inc. and
David Zaccardelli, Pharm. D.
20-F
001-38067
4.7
2/27/2020
10.9#
Employment Agreement, dated December
21, 2019, between Verona Pharma plc and
Kathleen Rickard
20-F
001-38067
4.8
3/19/2019
10.10#
Employment Agreement, dated March 1,
2024, between Verona Pharma plc and
Andrew Fisher
*
10.11#
Employment Agreement, dated February 1,
2020, between Verona Pharma, Inc. and
Mark Hahn
F-1 333-247928
10.12
8/17/2020
10.12#
Form of Indemnification Agreement for
board members
F-1/A 333-217124
10.11.1
4/18/2017
10.13#
Form of Indemnification Agreement for
executive officers
F-1/A 333-217124
10.11.2
4/18/2017
10.14#
Employee Change in Control Severance
Benefit Plan
8-K
001-39067
10.1
8/11/2021
10.15#
Form of Non-Executive Director letter of
appointment
10-K
001-38067
10.2
2/25/2021
92
10.16†
Collaboration and License Agreement,
effective as of June 9, 2021, by and between
Verona Pharma plc, Nuance Pharma Limited
and Nuance (Shanghai) Pharma Co Ltd
10-Q
001-38067
10.1
8/5/2021
10.17†
Commercial Supply Agreement between The
Ritedose Corporation and Verona Pharma plc
dated December 20, 2023
10-K
001-38067
10.23
2/29/2024
10.18†
Revenue Interest Purchase and Sale
Agreement, dated as of May 9, 2024,
between Verona Pharma, Inc., Verona
Pharma plc and Oaktree Fund
Administration, LLC, as the administrative
agent and the other purchasers party thereto
10-Q
001-38067
10.1
8/8/2024
10.19†
First Amendment to Revenue Interest
Purchase and Sale Agreement, dated as of
November 7, 2024 between Verona Pharma,
Inc., Verona Pharma plc and Oaktree Fund
*
10.20†
Credit Agreement and Guaranty, dated as of
May 9, 2024, by and among Verona Pharma,
Inc., as borrower, Verona Pharma plc, as
guarantor, Oaktree Fund Administration,
LLC, as administrative agent and the lenders
party thereto
10-Q
001-38067
10.2
5/10/2024
16.1
Letter of PricewaterhouseCoopers LLP,
dated December 14, 2023.
8-K
001-38067
16.1 12/18/2023
19.1
Insider Trading Compliance Policy
*
21.1
List of Subsidiaries of Verona Pharma plc
10-K
001-38067
21.1
2/29/2024
23.1
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
*
23.2
Consent of PricewaterhouseCoopers LLP,
Independent Registered Public Accounting
Firm
*
31.1
Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer
*
31.2
Rule 13a-14(a)/15d-14(a) Certification of
Chief Financial Officer
*
32.1
Section 1350 Certification of Chief
Executive Officer
**
32.2
Section 1350 Certification of Chief Financial
Officer
**
97#
Policy for Recovery of Erroneously Awarded
Compensation
10-K
001-38067
97
2/29/2024
101.INS
Inline XBRL Instance Document
*
101.SCH
Inline XBRL Taxonomy Extension Schema
Document
*
101.CAL
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
*
101.LAB
Inline XBRL Taxonomy Extension Label
Linkbase Document
*
101.PRE
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
*
93
101.DEF
Inline XBRL Taxonomy Extension
Definition Linkbase Document
*
104
Cover Page Interactive Data File (formatted
in Inline XBRL and contained in Exhibit
101)
*
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan.
† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item
601(b)(10). Such omitted information is not material and the registrant customarily and actually treats such
information as private or confidential. Additionally, schedules and attachments to this exhibit have been omitted
pursuant to Regulation S-K, Items 601(a)(5).
94
Item 16. Form 10-K Summary
None
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
VERONA PHARMA PLC
Date: February 27, 2025
By:
/s/ David Zaccardelli
David Zaccardelli, Pharm. D.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
96
/s/ David Zaccardelli
President and Chief Executive Officer
(principal executive officer)
February 27, 2025
David Zaccardelli, Pharm. D.
/s/ Mark W. Hahn
Chief Financial Officer
(principal financial and accounting officer)
February 27, 2025
Mark W. Hahn
/s/ David Ebsworth, Ph.D.
Chairperson of the Board of Directors
February 27, 2025
David Ebsworth, Ph.D.
/s/ Christina Ackermann
Director
February 27, 2025
Christina Ackermann
/s/ Michael Austwick
Director
February 27, 2025
Michael Austwick
/s/ James Brady
Director
February 27, 2025
James Brady
/s/ Ken Cunningham, M.D.
Director
February 27, 2025
Ken Cunningham, M.D.
/s/ Lisa Deschamps
Director
February 27, 2025
Lisa Deschamps
/s/ Martin Edwards, M.D.
Director
February 27, 2025
Martin Edwards, M.D.
/s/ Mahendra Shah, Ph.D.
Director
February 27, 2025
Mahendra Shah, Ph.D.
/s/ Vikas Sinha
Director
February 27, 2025
Vikas Sinha
/s/ Anders Ullman, M.D., Ph.D.
Director
February 27, 2025
Anders Ullman, M.D., Ph.D.
97
Index
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 876)
F-6
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-7
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31,
2024, 2023 and 2022
F-8
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024,
2023 and 2022
F-9
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
F-11
Notes to Consolidated Financial Statements
F-12
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Verona Pharma plc
Opinion on Internal Control Over Financial Reporting
We have audited Verona Pharma plc’s internal control over financial reporting as of December 31, 2024, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Verona Pharma
plc (the Company) maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and the related
consolidated statement of operations and comprehensive loss, shareholders’ equity and cash flows for the year ended
December 31, 2024, and the related notes and our report dated February 27, 2025 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 27, 2025
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Verona Pharma plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Verona Pharma plc (the Company) as of
December 31, 2024, the related consolidated statement of operations and comprehensive loss, shareholders’ equity
and cash flows for the year ended December 31, 2024, and 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 at December 31, 2024 and the results of its operations and
its cash flows for the year ended December 31, 2024, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework), and our report dated February 27, 2025 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the 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 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 financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the 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 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 financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which they relate.
F-4
Revenue Interest Purchase and Sales Agreement
Description of the
Matter
As described in Note 5 to the consolidated financial statements, the Company entered into a
Revenue Interest Purchase and Sales Agreement (“RIPSA”) with third parties. Under the terms of
the RIPSA, the Company received $100 million in exchange for the right to receive royalty
payments based on global net sales of the Company’s commercialized drug, Ohtuvayre, and
certain proceeds from licensees outside of the US.
Proceeds from the RIPSA are recorded as liabilities (specifically revenue interest purchase
security agreement on the consolidated balance sheet) and are amortized using the effective
interest rate method over the estimated period the RIPSA will be repaid with the imputed interest
recorded as interest expense. The carrying amount of the liability was $106.1 million as of
December 31, 2024, and imputed interest expense was $12.7 million for the year ending
December 31, 2024. At each reporting period, the Company reassesses the amount and timing of
the payments, which are based on future global net sales, and accounts for any changes through
an adjustment to the effective interest rate on a prospective basis.
The accounting for the RIPSA was highly judgmental due to the significant estimation required
to forecast global net sales. In particular, the forecasted global net sales were sensitive to
significant assumptions such as the treatable patient population and rate of adoption and involves
significant estimation uncertainty given the limited Ohtuvayre sales data.
How we
Addressed the
Matter in our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s processes to account for the RIPSA, including controls over
management’s review of the forecasted global net sales and proceeds from licensees.
To evaluate the accounting for the RIPSA, our audit procedures included, among others,
assessing management’s forecasted global net sales and other assumptions included in the model.
We compared the significant assumptions noted above with current industry, market and
economic trends, assessed the accuracy of management’s historical projections of global net sales
and performed sensitivity analyses of the significant assumptions to evaluate changes in the
RIPSA liability and related interest expense.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2024.
Raleigh, North Carolina
February 27, 2025
F-5
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 consolidated balance sheet of Verona Pharma plc and its subsidiaries (the “Company”) as of
December 31, 2023, and the related consolidated statements of operations and comprehensive loss, of shareholders’
equity and of cash flows for each of the two years in the period ended December 31, 2023, 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, 2023,
and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023
in conformity with accounting principles generally accepted in the United States of America.
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) 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.
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 29, 2024
We served as the Company's auditor from 2015 to 2024.
F-6
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
399,757
$
271,772
Accounts receivable, net
31,496
—
Prepaid expenses
7,573
3,617
Tax incentive receivable
5,762
10,954
Inventory
6,249
—
Other current assets
2,735
3,365
Total current assets
453,572
289,708
Non-current assets:
Furniture and equipment, net
1,105
24
Inventory, long-term
1,972
—
Goodwill
545
545
Equity interest
15,000
15,000
Right-of-use assets
2,048
2,847
Total non-current assets
20,670
18,416
Total assets
$
474,242
$
308,124
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
11,266
$
3,492
Accrued expenses
16,757
3,585
Royalties payable
1,100
—
Revenue interest purchase and sale agreement
687
—
Current operating lease liabilities
1,120
1,180
Taxes payable
8,889
—
Other current liabilities
2,862
435
Total current liabilities
42,681
8,692
Non-current liabilities:
Term loan
120,341
48,374
Revenue interest purchase and sale agreement
105,420
—
Non-current operating lease liabilities
1,241
1,775
Total non-current liabilities
227,002
50,149
Total liabilities
269,683
58,841
Commitments and contingencies
Shareholders' equity:
Ordinary £0.05 par value shares: 703,189,462 and 667,659,630 issued, and 677,008,254 and
643,536,094 outstanding, at December 31, 2024 and 2023, respectively
45,021
42,771
Additional paid-in capital
728,199
601,063
Ordinary shares held in treasury
(1,659)
(1,517)
Accumulated other comprehensive loss
(4,601)
(4,601)
Accumulated deficit
(562,401)
(388,433)
Total shareholders' equity
204,559
249,283
Total liabilities and shareholders' equity
$
474,242
$
308,124
The accompanying notes are an integral part of these Consolidated Financial Statements.
Verona Pharma plc
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
F-7
Year ended December 31,
2024
2023
2022
Revenue:
Product sales, net
$
42,261 $
— $
—
Other revenue
18
—
458
Total revenue, net
42,279
—
458
Operating expenses:
Cost of sales
2,582
—
346
Research and development
44,574
17,216
49,283
Selling, general and administrative
149,750
50,353
26,579
Total operating expenses
196,906
67,569
76,208
Operating loss
(154,627)
(67,569)
(75,750)
Other income/(expense):
Research and development tax credit
3,600
1,104
9,634
Loss on extinguishment of debt
(3,653)
—
(815)
Interest income
15,262
12,761
2,821
Interest expense
(23,542)
(2,057)
(521)
Foreign exchange (loss)/gain
(169)
1,866
(3,817)
Total other (expense)/income, net
(8,502)
13,674
7,302
Loss before income taxes
(163,129)
(53,895)
(68,448)
Income tax expense
(10,289)
(474)
(253)
Net loss
$ (173,418) $
(54,369) $
(68,701)
Loss per ordinary share — basic and diluted
$
(0.27) $
(0.09) $
(0.13)
Weighted-average shares outstanding - basic and diluted
652,310,582 634,142,660 529,071,526
The accompanying notes are an integral part of these Consolidated Financial Statements.
Verona Pharma plc
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
F-8
Ordinary shares
Additional
paid-in
capital
Ordinary
shares held
in treasury
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
shareholders'
equity
Number
Amount
Balance at January 1,
2022
489,177,550 $ 31,855 $ 385,070 $
(603) $
(4,601) $ (263,716) $
148,005
Net loss
—
—
—
—
—
(68,701)
(68,701)
Issuance of ordinary
shares, net of issuance
costs
114,080,000
6,918 133,279
—
—
—
140,197
Issuance of common
shares under at-the-
market sales agreement
80,696
5
62
—
—
—
67
Issuance of ordinary
shares to treasury
28,000,000
1,748
—
(1,748)
—
—
—
Restricted share units
vested
—
—
—
680
—
(680)
—
Share options exercised
—
—
1,250
122
—
—
1,372
Share-based
compensation
—
—
14,121
—
—
—
14,121
Common shares
withheld for taxes on
vested share awards
—
—
(4,723)
—
—
—
(4,723)
Equity settled share-
based compensation
reclassified as cash-
settled
—
—
128
—
—
—
128
Balance at December 31,
2022
631,338,246 $ 40,526 $ 529,187 $
(1,549) $
(4,601) $ (333,097) $
230,466
Net loss
—
—
—
—
—
(54,369)
(54,369)
Issuance of common
shares under at-the-
market sales agreement
20,321,384
1,227
55,682
—
—
—
56,909
Issuance of ordinary
shares to treasury
16,000,000
1,018
—
(1,018)
—
—
—
Restricted share units
vested
—
—
—
967
—
(967)
—
Share options exercised
—
—
1,866
83
—
—
1,949
Share-based
compensation
—
—
19,012
—
—
—
19,012
Common shares
withheld for taxes on
vested share awards
—
—
(4,389)
—
—
—
(4,389)
Equity settled share-
based compensation
reclassified as cash-
settled
—
—
(295)
—
—
—
(295)
Balance at December 31,
2023
667,659,630 $ 42,771 $ 601,063 $
(1,517) $
(4,601) $ (388,433) $
249,283
Net loss
—
—
—
—
—
(173,418)
(173,418)
Issuance of common
shares under at-the-
market sales agreement
20,329,832
1,289
96,207
—
—
—
97,496
Issuance of ordinary
shares to treasury
15,200,000
961
—
(961)
—
—
—
Restricted share units
vested
—
—
—
550
—
(550)
—
Share options exercised
—
—
5,139
269
—
—
5,408
Share-based
compensation
—
—
41,244
—
—
—
41,244
Verona Pharma plc
Consolidated Statements of Shareholders’ Equity
(in thousands except share data)
F-9
Common shares
withheld for taxes on
vested share awards
—
— (14,175)
—
—
—
(14,175)
Equity settled share-
based compensation
reclassified as cash-
settled
—
—
(1,279)
—
—
—
(1,279)
Balance at December 31,
2024
703,189,462 $ 45,021 $ 728,199 $
(1,659) $
(4,601) $ (562,401) $
204,559
The accompanying notes are an integral part of these Consolidated Financial Statements.
Verona Pharma plc
Consolidated Statements of Shareholders’ Equity
(in thousands except share data)
F-10
Year ended December 31,
2024
2023
2022
Operating activities:
Net loss:
$
(173,418) $
(54,369) $
(68,701)
Adjustments to reconcile net loss to net cash used in operating activities:
Foreign exchange loss/(gain)
169
(1,866)
3,817
Amortization of debt issuance costs
1,304
116
80
Accretion of RIPSA
9,404
—
—
Accretion of redemption premium on debt
120
106
108
Loss on extinguishment of debt
3,653
—
815
Share-based compensation
41,244
19,012
14,121
Depreciation
1,058
677
636
Changes in operating assets and liabilities:
Accounts receivable
(31,496)
—
—
Prepaid expenses
(3,956)
(1,118)
1,538
Tax incentive receivable
5,034
(1,104)
3,964
Inventory
(8,221)
—
—
Other current assets
(124)
777
(1,325)
Accounts payable
7,870
486
(7,146)
Accrued expenses
12,821
(10,351)
(8,504)
Royalties payable
1,100
—
—
Operating lease liabilities
(835)
(591)
(597)
Income taxes
9,643
(1,037)
136
Other current liabilities
2,427
(960)
1,196
Net cash used in operating activities
(122,203)
(50,222)
(59,862)
Cash flows from investing activities:
Purchases of furniture and equipment
(580)
—
(29)
Net cash used in investing activities
(580)
—
(29)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares
97,496
56,909
149,797
Payment of offering costs in connection with the issuance of ordinary
shares
—
—
(9,533)
Proceeds from Term Loans
122,500
9,996
10,000
Proceeds from RIPSA
100,000
—
—
Proceeds from 2023 Term Loan, net of repayment of Oxford Term Loan
and debt issuance costs incurred
—
28,712
—
Payment of debt issuance costs
(6,915)
(12)
(245)
Repayment of Term Loans
(52,256)
—
(5,000)
SVB Term Loan repayment costs
—
—
(850)
Payments of withholding taxes from share-based awards
(15,454)
(4,685)
(4,723)
Proceeds from exercise of share options
5,408
1,949
1,372
Net cash provided by financing activities
250,779
92,869
140,818
Effect of exchange rate changes on cash and cash equivalents
(11)
1,298
(1,480)
Net change in cash and cash equivalents
127,985
43,945
79,447
Cash and cash equivalents at beginning of the year
271,772
227,827
148,380
Cash and cash equivalents at end of the year
$
399,757
$
271,772 $
227,827
Supplemental disclosure of cash flow information:
Income taxes paid
$
642
$
1,245 $
120
Interest paid
$
10,330
$
2,006 $
348
The accompanying notes are an integral part of these Consolidated Financial Statements.
Verona Pharma plc
Consolidated Statements of Cash Flows
(in thousands)
F-11
Note 1 - Organization and description of business operations
Verona Pharma plc is incorporated and domiciled in the United Kingdom. Verona Pharma plc has one wholly-
owned subsidiary, Verona Pharma, Inc., a Delaware corporation (together with Verona Pharma plc, the
“Company”). The address of the registered office is 1 Central Square, Cardiff, CF10 1FS, United Kingdom.
The Company is a biopharmaceutical company focused on developing and commercializing innovative therapeutics
for the treatment of respiratory diseases with significant unmet medical needs. The Company’s American Depositary
Shares (“ADSs”) are listed on the Nasdaq Global Market (“Nasdaq”) and trade under the symbol “VRNA”.
On June 26, 2024, the U.S. Food and Drug Administration (“FDA”) approved Ohtuvayre (ensifentrine) for the
maintenance treatment of chronic obstructive pulmonary disease (“COPD”) in adult patients and the Company
launched Ohtuvayre in the U.S. through an exclusive network of accredited specialty pharmacies in August 2024.
Ohtuvayre is the Company’s first commercial product and the first inhaled therapy with a novel mechanism of
action available for the maintenance treatment of COPD in more than 20 years.
Ohtuvayre is a first-in-class selective dual inhibitor of the enzymes phosphodiesterase 3 and phosphodiesterase 4
that combines bronchodilator and non-steroidal anti-inflammatory effects in one molecule. Ohtuvayre is delivered
directly to the lungs through a standard jet nebulizer without the need for high inspiratory flow rates or complex
hand-breath coordination.
Pipeline
The Company is developing a fixed-dose combination formulation with ensifentrine and glycopyrrolate, a Long-
Acting Muscarinic Antagonist (“LAMA”), for the maintenance treatment of patients with COPD via delivery in a
nebulizer. The Company has filed patent applications in multiple jurisdictions including the U.S. In the third quarter
of 2024, the Company initiated a Phase 2 dose-ranging trial.
Additionally, based on the clinical results of ensifentrine observed in patients with COPD, including improvements
in lung function and symptoms of cough and sputum, the Company believes ensifentrine could have the potential to
treat patients with non-cystic fibrosis bronchiectasis (“bronchiectasis”). In the third quarter of 2024, the Company
commenced a Phase 2 clinical trial to assess the efficacy and safety of nebulized ensifentrine in patients with
bronchiectasis.
Liquidity
The Company has incurred recurring losses and negative cashflows from operations since inception, and has an
accumulated deficit of $562.4 million as of December 31, 2024. The Company expects to incur additional losses and
negative cash flows from operations until its products reach commercial profitability, if at all.
The Company expects that its cash and cash equivalents as of December 31, 2024, will be sufficient to fund its
operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of
the Consolidated Financial Statements. Additionally, the Company may enter into out-licensing transactions from
time to time but there can be no assurance that the Company can secure such transactions in the future. Accordingly,
the Company may need to obtain additional funds to achieve its business objectives including to further advance
clinical and regulatory activities. Any such funding will need to be obtained through public or private financings,
debt financing, collaboration or licensing arrangements or other arrangements. However, there is no guarantee the
Company will be successful in securing additional capital on acceptable terms, or at all.
In August 2022, the Company completed an upsized public offering of 14,260,000 ADSs, each representing eight
ordinary shares of the Company, nominal value £0.05 per share, at a price to the public of $10.50 per ADS, which
includes the exercise in full by the underwriters of their option to purchase an additional 1,860,000 ADSs. The
aggregate net proceeds from the offering were $140.2 million after deducting underwriting discounts and
commissions and estimated offering expenses payable.
In March 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies
LLC (“Jefferies”) pursuant to which the Company may sell its ordinary shares in the form of ADSs, from time-to-
time, through an “at the market” equity offering program under which Jefferies acts as sales agent (the “ATM
Program”). Jefferies is entitled to a commission at a rate of up to 3.0% of the gross proceeds.
During the year ended December 31, 2023, the Company sold 20,321,384 ordinary shares (equivalent to 2,540,173
ADSs) under the ATM Program, at an average price of $2.88 per share (equivalent to $23.08 per ADS), raising
aggregate net proceeds of $56.9 million after deducting issuance costs.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-12
In March 2023, the Company amended the Sale Agreement and filed a registration statement on Form S-3ASR
registering the issuance and sale of up to $200.0 million of ordinary shares in the form of ADSs under the ATM
Program.
During the year ended December 31, 2024, the Company sold 20,329,832 ordinary shares (equivalent to 2,541,229
ADSs) under the ATM Program, at an average price of $4.92 per share (equivalent to $39.35 per ADS), raising
aggregate net proceeds of $97.5 million after deducting issuance costs. As of December 31, 2024, there remained
$100.0 million of ordinary shares, in the form of ADSs, available for sale under the ATM Program.
On May 9, 2024, the Company entered into a term loan facility (the “2024 Term Loans” or “2024 Loan
Agreement”) of up to $400.0 million with Oaktree Fund Administration, LLC, a Delaware limited liability company,
as administrative agent, and certain funds managed by each of Oaktree Capital Management, L.P. and OCM Life
Sciences Portfolio LP party thereto (collectively, the “2024 Lenders”). At closing, the Company received net
proceeds of $52.8 million and up to four additional advances of an aggregate $345.0 million were available subject
to meeting certain commercial milestones and other specified conditions. On June 28, 2024, the Company received
net proceeds of $68.6 million related to the second tranche of the 2024 Term Loans, which was available upon FDA
approval for Ohtuvayre, as well as proceeds from the $100.0 million first tranche of our revenue interest purchase
and sale agreement (the “RIPSA”). Refer to Note 5 - Debt to the Consolidated Financial Statements for additional
information regarding the 2024 Term Loans and the RIPSA.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-13
Note 2 - Basis of presentation and summary of significant accounting policies
Basis of presentation and consolidation
The Consolidated Financial Statements include the accounts of Verona Pharma plc and its wholly-owned subsidiary
Verona Pharma, Inc. All inter-company balances and transactions have been eliminated.
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP") and the following accounting policies have been consistently applied.
Segment reporting
Operating segments are defined as components of an enterprise about which separate discrete information is
available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, in deciding
how to allocate resources and in assessing performance. The Company has determined that the Chief Executive
Officer (“CEO”) is the Company’s CODM as the CEO makes decisions as it relates to allocation of resources and
key market strategies. The Company has one operating and reportable segment, the development and
commercialization of pharmaceutical products. The CODM uses consolidated Net loss to assess financial
performance and allocate resources. The significant expenses within Net Loss are separately presented on the
Company’s Consolidated Statements of Operations and Comprehensive Loss.
Use of estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets
and liabilities at the date of the Consolidated Financial Statements and the reported amounts of expenses during the
reporting periods. Significant estimates and assumptions reflected in these Consolidated Financial Statements
include, but are not limited to, the accrual and prepayment of research and development expenses, gross-to-net
revenue adjustments, amortization and carrying value of the RIPSA, and the fair value of share-based compensation.
Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates
are recorded in the period in which they become known, and actual results could differ from the Company’s
estimates.
Business combinations
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. 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.
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.
Cash, cash equivalents, and restricted cash
The Company considers all highly liquid investments purchased with original maturities of ninety days or less at
acquisition to be cash equivalents. Cash and cash equivalents includes deposits held at call with banks, and in money
market funds investing in U.S. and U.K. government debt and liquid securities from highly rated institutions.
Under the RIPSA agreement, the Company is required to maintain 4.5% of cash received from customers in a
dedicated account. This balance is included in cash and cash equivalents on the Company's balance sheet. Restricted
cash totaled $0.8 million as of December 31, 2024.
Inventory, including Pre-Launch Inventory
The Company values its inventory at the lower of actual cost or net realizable value. The Company determines the
cost of its inventory, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out
basis. Inventory expected to be utilized more than one year from the balance sheet is classified as Inventory, long-
term in the Consolidated Balance Sheets.
Prior to obtaining initial regulatory approval for Ohtuvayre, the Company expensed costs relating to production of
pre-launch inventory as research and development (“R&D”) expense in its Consolidated Statements of Operations
and Comprehensive Loss in the period incurred. Inventory acquired and the related costs after June 26, 2024, the
Verona Pharma plc
Notes to Consolidated Financial Statements
F-14
date of the FDA’s approval of Ohtuvayre, are capitalized. Products used in clinical trials are expensed as Research
and development expense in the Statements of Operations and Comprehensive Loss.
The Company performs an assessment of the recoverability of capitalized inventory during each reporting period,
and writes down any excess or obsolete inventory to its net realizable value in the period in which the impairment is
identified through Cost of sales in the Consolidated Statements of Operations and Comprehensive Loss.
Additionally, the Company’s product is subject to strict quality control and monitoring that is performed throughout
the manufacturing process, including release of work-in-process to finished goods. In the event that certain batches
or units of product do not meet quality specifications, the Company will record a write-down of any potential
unmarketable inventory to its estimated net realizable value and record the expense as Cost of sales in the
Consolidated Statements of Operations and Comprehensive Loss. No inventory was written down as a result of
excess, obsolescence, scrap, or other reasons during the year ended December 31, 2024. Raw materials and finished
goods balances were $0.2 million and $8.0 million respectively as of December 31, 2024 with no such balances as of
December 31, 2023.
Equity interest
As part of the Nuance Agreement, the Company received an equity interest in Nuance Biotech, the parent company
of Nuance Pharma (see Note 6 - Significant Agreements to the Consolidated Financial Statements). As Nuance
Biotech’s securities are not publicly traded, the equity interest’s fair value is not readily determinable. The Company
therefore follows guidance from ASC 321-10-35-2 and uses the fair value measurement alternative and measures the
securities at cost, which is deemed to be the value indicated by the last observable transaction in Nuance Biotech's
stock, subject to impairment. The valuation will be adjusted for any observable price changes in orderly transactions
for an identical or similar investment in Nuance Biotech, or if there is an indicator of impairment.
Furniture and equipment, net
Furniture and equipment comprise office furniture, computer equipment, leasehold improvements and
manufacturing equipment and are stated at cost less accumulated depreciation. Depreciation on furniture and
equipment is calculated on a straight-line basis over the expected useful economic lives, generally two to five years.
Depreciation on leasehold improvements is over the lesser of the economic life of the asset or the term of the lease.
Substantially all of the Company’s furniture and equipment is located in the United States.
Goodwill
Goodwill consists of goodwill related to the acquisition of Rhinopharma. Goodwill is periodically tested for
impairment.
Impairment of long-lived assets
The Company reviews long-lived assets for impairment annually or whenever events or changes in circumstances
indicate that the carrying amount of assets may not be fully recoverable.
Debt and debt issuance costs
Upon issuance of a new debt instrument, the Company recognizes a liability equal to the proceeds received, less any
allocation of proceeds to other instruments issued with the debt, other elements of the transaction, or features within
the debt instrument itself. The proceeds generally approximate the present value of interest and principal payments
of the debt.
In situations where, for economic or legal reasons related to the Company’s financial difficulties, the borrower
grants a concession to the Company that it would not otherwise consider, the related loan is classified as a troubled
debt restructuring. If a restructuring does not constitute a troubled debt restructuring, it will be evaluated to consider
if it should be accounted for as an extinguishment or as a modification.
Debt may be considered extinguished when it has been modified and the terms of the new debt instruments and old
debt instruments are “substantially different” (as defined in the debt modification guidance in ASC 470-50 “Debt-
Modifications and Extinguishments”).
Debt issuance costs relating to the Company’s term debt are recorded in Term loan on the Consolidated Balance
Sheets as a direct reduction of the carrying amount of the related debt; these costs are deferred and amortized to
interest expense using the effective interest method, over the respective terms of the related debt.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-15
Revenue Interest Purchase and Sale Agreement
The RIPSA is eligible to be repaid based on royalties from net sales of Ohtuvayre and any other future products.
Interest expense is calculated using the effective interest method over the estimated period the related liability will
be paid. This requires the Company to estimate the total amount of future royalty payments to be generated from
product sales over the life of the agreement. The Company imputes interest on the carrying value of the RIPSA and
records interest expense using an imputed effective interest rate. The Company reassesses the expected royalty
payments each reporting period and accounts for any changes through an adjustment to the effective interest rate on
a prospective basis. The assumptions used in determining the expected repayment term of the debt and amortization
period of the issuance costs require that the Company make estimates that could impact the carrying value of the
liability, as well as the periods over which associated issuance costs will be amortized. A significant increase or
decrease in forecasted net sales could materially impact each of the liability balances, interest expense and the time
periods for repayment.
On a quarterly basis, the Company assesses the projected royalty payments relative to the projected interest accretion
for the next twelve months to determine if the royalty liability balance is reduced relative to the current outstanding
liability, which would signify a repayment of the liability. In such case of excess payments relative to interest
accretion for the next twelve months, the excess payments are considered to be a short-term liability and classified
within Current liabilities on the Company’s Consolidated Balance Sheets.
Revenue recognition
The Company’s revenues consist of product sales of Ohtuvayre. The Company accounts for contracts with its
customers in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Pursuant to
ASC 606, for arrangements or transactions between participants determined to be within the scope of the contracts
with customers guidance, the Company performs the following five steps to determine the appropriate amount of
revenue to be recognized as the Company fulfills its obligations: (i) identification of the promised goods or services
in the contract; (ii) determination of whether the promised goods or services are performance obligations including
whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the
constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on
estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance
obligation.
Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good
or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset.
Product Sales, Net
The Company’s revenue from net product sales was generated in the U.S. following the FDA’s approval for
marketing of Ohtuvayre for the treatment of COPD in June 2024. The Company sells Ohtuvayre principally through
arrangements with specialty pharmacies (“SPs”), who are the Company’s customers. The customers subsequently
resell the product to patients and health care providers. The Company applies the ASC 606 five step process
discussed above to the contracts with SPs. The Company provides limited right of return to the customers in cases of
shipment errors or expiring or defective products. Product revenues are recognized when the customers take control
of the product, which occurs upon delivery to the customers.
The Company recognizes revenue from product sales at the net sales price which includes estimates of variable
consideration for which reserves are established and reflects each of these as a reduction to revenue. Overall, these
reserves reflect the Company’s best estimates of the amount of consideration to which the Company is entitled based
on the terms of the contract. The amount of variable consideration that is included in the transaction price may be
constrained. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual
results in the future vary from estimates, the Company may need to adjust its estimates, which would affect net
revenue in the period of adjustment. The following are the Company’s significant categories of variable
consideration:
Distribution fees: The Company pays distribution fees to SPs in connection with the sales of its product. These
distributor fees are based on a contractually determined fixed percentage of sales.
Government rebates and chargebacks: The Company contracts with Medicaid, Medicare, and other government
agencies (“Government Payors”) so that Ohtuvayre will be eligible for purchase by, or partial or full reimbursement
from, such Government Payors. The Company estimates the rebates, chargebacks and discounts it will provide to
Government Payors and deducts these estimated amounts from its gross product revenue at the time the revenue is
recognized. The Company estimates these reserves based upon its contracts with government agencies and other
Verona Pharma plc
Notes to Consolidated Financial Statements
F-16
organizations, statutorily defined discounts and estimated payor mix, resulting in a reduction of product revenue and
the establishment of a current liability.
Commercial chargebacks: Chargebacks are discounts and fees related to contracts with various third-party payers
and programs that purchase from SPs at a discounted price. SPs charge back to the Company the difference between
the price initially paid by SPs and the discounted price paid to SPs by these entities.
Product returns: Consistent with industry practice, the Company offers SPs limited product return rights for
shipment errors or expiring or defective products. The Company makes a reasonable estimate of future potential
product returns based on inventory reports from SPs, visibility into the inventory distribution channel, the
underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.
Co-pay assistance: Other incentives which the Company offers include voluntary patient assistance and assurance
programs, such as a co-pay assistance program, which are intended to provide financial assistance to qualified
commercially-insured patients with prescription drug co-payments required by payers.
Other fees: Fees payable to third party payers and healthcare providers, along with fees to our direct customers that
are settled via cash payments, including certain patient assistance programs.
For the year ended December 31, 2024 the Company relied on four specialty pharmacies to purchase and supply
Ohtuvayre to patients. These four specialty pharmacies accounted for 100% of all Ohtuvayre net product sales in the
year ended December 31, 2024 and accounted for all of the Company's outstanding accounts receivable from
product sales as of December 31, 2024. The Company’s four specialty pharmacy customers accounted for 41%,
33%, 14%, and 12% of product sales, net for the year ended December 31, 2024. The loss, or a significant change in
the buying patterns of any one of these specialty pharmacies could negatively impact net sales of Ohtuvayre.
License Revenue
The Company’s revenue may also at times consist of revenue from the Company’s strategic agreements for the
development and commercialization of ensifentrine. The terms of the agreements may include non-refundable
upfront fees, payments based upon achievement of milestones and eventually revenue from the commercialized
product. These agreements usually have both fixed and variable consideration. Non-refundable upfront fees are
considered fixed, while milestone payments and revenue from the commercialized product are identified as variable
consideration.
For arrangements with licenses of intellectual property that include sales-based royalties, including milestone
payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties
relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales
occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. If the right
to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the right when
the right is transferred to the customer, and the customer can use and benefit from the right.
At the inception of the arrangement, the Company evaluates whether the development milestones are considered
probable of being achieved and estimates the amount to be included in the transaction price using the most likely
amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value
is included in the transaction price. Milestone payments that are not within the control of the Company, such as
approvals from regulators, are not considered probable of being achieved until those approvals are received.
Research and development costs
Research and development (“R&D”) costs are expensed as incurred. R&D costs include salaries, share-based
compensation and benefits of employees, and other costs related to the Company’s R&D activities, including but not
limited to pre-approval manufacturing costs and contracts with clinical research organizations and contract
manufacturers. The Company is required to estimate its expenses resulting from its obligations under contracts with
vendors and consultants and clinical site agreements in connection with its R&D efforts. The financial terms of these
contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not
match the periods over which materials or services are provided to the Company under such contracts. The
Company’s objective is to reflect the appropriate clinical trial expenses in its Consolidated Financial Statements by
matching those expenses with the period in which services and efforts are expended. The Company accounts for
these expenses according to the progress of the trials and other development activities. Judgment is applied in
determining assumptions related to patient progression and the timing of various aspects of the trial used to measure
progress. The Company determines prepaid and accrual estimates through discussions with applicable personnel and
outside service providers as to the progress of clinical trials, or other services completed. During the course of a
Verona Pharma plc
Notes to Consolidated Financial Statements
F-17
clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its
estimates. The Company makes estimates of its prepaid and accrued expenses as of each balance sheet date in its
Consolidated Financial Statements based on facts and circumstances known at that time. Although the Company
does not expect its estimates to be materially different from amounts actually incurred, its understanding of the
status and timing of services performed relative to the actual status and timing of services performed may vary and
may result in the Company reporting amounts that are too high or too low for any particular period. The Company’s
clinical trial prepaid and accrual expense is dependent upon the timely and accurate reporting of study recruitment
from contract research organizations and activities carried out by other third-party vendors as well as the timely
processing of any change orders from the contract research organizations.
Share-based compensation
The Company has a share-based compensation plan under which various types of equity-based awards may be
granted, including stock options, restricted stock units (“RSUs”) and performance restricted stock units (“PRSUs”).
The fair value of share options and RSUs, which are subject to milestone or service conditions with graded vesting,
are recognized as compensation expense on a straight-line basis using the graded-vesting method; forfeitures are
recognized as they occur.
The fair value of PRSUs, which are subject to certain performance and service conditions, will be recognized over
the remaining service period using the graded-vesting method once the performance conditions are determined to be
probable of occurring.
The Company uses the fair-value based method to determine compensation for all arrangements under which
employees receive shares. The fair value of stock options is estimated on the date of grant using the Black-Scholes
valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free
interest rate.
The fair-value of RSUs and PRSUs is calculated using the closing price of the Company’s ordinary shares on the
date of grant.
Details of the assumptions used are set out in Note 7 - Share-based Compensation to the Consolidated Financial
Statements.
Other income - United Kingdom R&D tax credits
Research and development tax credit relates to R&D tax credits receivable in the U.K. As a company that carries out
extensive research and development activities, the Company is subject to the U.K. R&D Small and Medium
Enterprise Program (for accounting periods commencing on or after April 1, 2024, this program has been merged
with the R&D expenditure credit scheme) (the “R&D Program”). Qualifying expenditures largely comprise of staff
costs for research staff, consumables, a proportion of relevant and permitted sub-contract costs incurred as part of
research projects which are undertaken for its own accounts.
The R&D tax credits related to the R&D Program are received as cash and are recorded as other income, as they are
akin to grant income, in the Consolidated Statements of Operations and Comprehensive Loss.
Income taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740
prescribes the use of the liability method, whereby deferred tax assets and liability account balances are determined
based on differences between financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable
value. ASC 740 establishes a single model to address accounting for uncertain tax positions. ASC 740 clarified the
accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. The Company has no uncertain tax positions.
Comprehensive loss
The Company accounts for comprehensive loss in accordance with ASC 220, “Income Statement - Reporting
Comprehensive Income”. Comprehensive loss represents all changes in shareholders’ equity during the period
except those resulting from investments by, or distributions to, shareholders.
Reporting and functional currencies
Verona Pharma plc
Notes to Consolidated Financial Statements
F-18
The Consolidated Financial Statements are reported in U.S. dollars, which is also the functional currency of the
Company’s subsidiary. Transactions in foreign currencies are remeasured into the Company’s functional currency at
the rate of exchange prevailing at the date of the transaction. Any monetary assets and liabilities arising from these
transactions are remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on
settlement. Resulting gains and losses are recorded in foreign exchange gain/(loss) in our Consolidated Statements
of Operations and Comprehensive Loss.
Treasury shares
In the year ended December 31, 2020, the Company incorporated a trust to facilitate the acquisition of shares, by or
for the benefit of employees and former employees. In the years ended December 31, 2024 and December 31, 2023
the Company issued 15.2 million ordinary shares (equivalent to 1.9 million ADSs) and 16.0 million (equivalent to
2.0 million ADSs), respectively, to the trust to cover expected shares issued upon the vesting of share awards to
employees.
The Company has the indirect ability to control the trust as trustees are required to act in accordance with the trust
deed and because the Company controls the issuance of shares to cover awards. As a consequence, the trust is
consolidated into the Company’s Consolidated Financial Statements. The shares that were issued to the trust that
have not been issued to employees to satisfy vesting of share awards are included in the Consolidated Balance
Sheets as Ordinary shares held in treasury.
Fair value of financial instruments
U.S. GAAP defines fair value and requires companies to establish a framework for measuring fair value and
disclosure about fair value measurements using a three-tier approach. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its own assumptions.
Our financial instruments include cash equivalents, equity interest, other assets, accounts payable, accrued expenses,
other liabilities, term loans, and RIPSA. Fair value estimates of these instruments are made at a specific point in
time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties
and matters of significant judgement and therefore cannot be determined with precision. Refer to Note 5 - Debt to
the Consolidated Financial Statements for fair value of term loans and RIPSA. The carrying amounts of the other
instruments are considered to be representative of their fair values because of their short-term nature.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of principally cash
and cash equivalents, bank deposits and certain receivables.
The Company holds cash and cash equivalents with highly rated financial institutions and in highly rated money
market funds. Our deposits at these institutions may exceed insured limits, however the Company has not
experienced any significant credit losses in these accounts and does not believe the Company is exposed to any
significant credit risk on these instruments.
Lease accounting
The Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at the
commencement date based on the present value of lease payments over the term of the lease. For this purpose, the
Company considers only payments that are fixed and determinable at the time of commencement.
As the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate in
calculating the present value of lease payments. The ROU assets also include any lease payments made prior to
commencement and are recorded net of any lease incentives received.
The Company’s lease terms may include options to extend or terminate the lease. When it is reasonably certain the
Company will exercise such options the lease will be recognized as a liability and a corresponding ROU asset also
recognized.
Operating leases are included in Right-of-use assets and in Current and Non-current operating lease liabilities on the
Company's Consolidated Balance Sheets.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-19
Recently adopted accounting standards
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures, which
improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant
segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in
which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure
requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of
the amendments is to enable investors to better understand an entity's overall performance and assess potential future
cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2023 and
interim periods beginning on December 15, 2024, and should be applied on a retrospective basis for all periods
presented. This ASU did not have a material impact on the Company's Consolidated Financial Statements and
related disclosures.
Recently issued accounting standards not yet adopted
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, which requires
disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on
income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures
that would be useful in making capital allocation decisions. The amendments in this ASU are effective for annual
periods beginning after December 15, 2024, and should be applied on a prospective basis with the option to apply
the standard retrospectively. Early adoption is permitted. This ASU will have no impact on the Company's
Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Loss. The Company is
currently evaluating the impact to its income tax disclosures.
In November 2024, the FASB issued ASU No. 2024-03: Disaggregation of Income Statement Expenses ("DISE").
The ASU requires additional disclosure of the nature of expenses included in the income statement. The ASU is
effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning
after December 15, 2027. The requirements will be applied prospectively with the option for retrospective
application. Early adoption is permitted. The Company is currently evaluating the extent of the impact of this ASU
on disclosures in our Consolidated Financial Statements.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-20
Note 3 - Property leases
The Company’s Right-of-use assets (“ROU”) relate to rented office space in London, Georgia and North Carolina
with leases ending in 2026, 2025 and 2027, respectively.
In the year ended December 31, 2024, the Company extended its existing London lease. As a result of this
agreement, the Company recognized a lease liability and a corresponding ROU asset of $0.4 million.
In the year ended December 31, 2023, the Company entered into a lease arrangement in North Carolina for office
space and extended its existing London lease. As a result of these two agreements, the Company recognized a lease
liability and a corresponding ROU asset of $2.7 million.
To calculate lease liabilities the Company used a weighted average discount rate of 11% for the years ended
December 31, 2024 and December 31, 2023. The weighted average remaining lease term as of December 31, 2024
and December 31, 2023 was 2.5 years and 3.3 years, respectively.
Minimum annual payments over the remaining lease periods as of December 31, 2024 are as follows (in thousands):
2025
$
1,113
2026
841
2027
782
Total minimum future lease payments
$
2,736
Less: imputed interest
(375)
Total operating lease liabilities
$
2,361
The total operating lease expense included in selling, general and administrative costs was $1.3 million for the year
ended December 31, 2024.
Note 4 - Accrued expenses
Accrued expenses consisted of the following (in thousands):
December 31,
2024
2023
Rebates and other sales deductions
$
6,178 $
—
Clinical trial and other development costs
4,006
752
People related costs
2,931
794
Professional fees and general corporate costs
3,642
2,039
Total accrued expenses
$
16,757 $
3,585
Note 5 - Debt
In November 2020, the Company entered into a term loan facility of up to $30.0 million (the “SVB Term Loan”),
consisting of advances of $5.0 million funded at closing and $10.0 million and $15.0 million contingent upon
achievement of certain clinical development milestones and other specified conditions.
On October 14, 2022 (the “2022 Effective Date”), the Company entered into a loan and security agreement with
Oxford Finance Luxembourg S.À R.L. for an aggregate amount of up to $150.0 million (the “Oxford Term Loan”).
The Oxford Term Loan provided for an initial term loan advance in an aggregate amount of $10.0 million funded on
the 2022 Effective Date (the “Oxford Term A Loan”), and up to four additional term loan advances in an aggregate
amount of $140.0 million, contingent upon the achievement of certain clinical and regulatory development
milestones as well as other specified conditions. The proceeds from the Oxford Term Loan were used for general
corporate and working capital purposes, and a portion of the proceeds of the Oxford Term A Loan were used to
repay in full the existing outstanding indebtedness owed under the SVB Term Loan. On March 24, 2023, the
Company received $10.0 million under the second term loan advance (the “Oxford Term B Loan”).
Verona Pharma plc
Notes to Consolidated Financial Statements
F-21
2023 Term Loan
On December 27, 2023 (the “2023 Effective Date”), the Company entered into a term loan facility of up to
$400.0 million (the “2023 Term Loan” or “Loan Agreement”), consisting of a term loan advance in an aggregate
amount of $50.0 million funded on the 2023 Effective Date (the “Term A Loan”) and four additional term loan
advances subject to certain terms and conditions. The 2023 Term Loan was repaid in full as of May 9, 2024. Verona
Pharma, Inc. and the Company did not incur any penalties, but did incur a prepayment fee and final payment fee in
the aggregate amount of $2.3 million.
2024 Term Loans
On May 9, 2024 (the “2024 Effective Date”), Verona Pharma, Inc. (the “Borrower”) entered into the 2024 Term
Loans which consist of up to $400.0 million, consisting of a term loan advance in an aggregate amount of
$55.0 million funded on the 2024 Effective Date (the “Tranche A Term Loan”) and four additional term loan
advances subject to certain terms and conditions, as discussed below, in the amounts of $70.0 million (the “Tranche
B Term Loan”), $75.0 million (the “Tranche C Term Loan”), $100.0 million (the “Tranche D Term Loan”) and
$100.0 million (the “Tranche E Term Loan”) with each tranche issued subject to an original issue discount of 2.0%.
The 2024 Loan Agreement was entered into with Oaktree Fund Administration, LLC, a Delaware limited liability
company, as administrative agent (in such capacity, the “Agent”), and certain funds managed by each of Oaktree
Capital Management, L.P. (“Oaktree”) and OCM Life Sciences Portfolio LP (“OMERS”) party thereto (collectively,
the “2024 Lenders”). The net proceeds of the 2024 Term Loans will be used for general corporate and working
capital purposes and a portion of the proceeds from the Tranche A Term Loan was used by the Borrower on the
2024 Effective Date to repay, in full, the existing outstanding indebtedness owed under the 2023 Term Loan.
The Tranche B Term Loan was available, subject to customary terms and conditions, during the period commencing
on the date the Company received approval from the FDA for its new drug application for ensifentrine through and
including the earliest of (i) the date that is 30 days immediately following the date the Company receives such
approval and (ii) September 30, 2024. The Tranche C Term Loan will be available, subject to customary terms and
conditions (including the prior borrowing of the Tranche B Term Loan), during the period commencing on the first
business day following the achievement of a specified net sales milestone for ensifentrine and ending on December
31, 2025. The Tranche D Term Loan will be available, subject to customary terms and conditions (including the
prior borrowing of the Tranche C Term Loan), during the period commencing on the first business day following the
achievement of a specified net sales milestone for ensifentrine and ending on June 30, 2026. The Tranche E Term
Loan will be available, subject to customary terms and conditions (including the prior borrowing of the Tranche D
Term Loan) at the 2024 Lenders sole discretion and upon the Company’s request.
The Company received $52.8 million in net proceeds at closing of the 2024 Loan Agreement and draw of the
Tranche A Term Loan, which consisted of the Tranche A Term Loan face value of $55.0 million less the original
issue discount of $1.1 million and lender and third-party fees related to the 2024 Loan Agreement and RIPSA, as
defined and discussed below, of $1.1 million. $52.4 million of the net cash proceeds from the Tranche A Term Loan
were used for the repayment in full of the existing outstanding indebtedness owed by the Company under the 2023
Term Loan of $52.3 million and interest amounts related to the 2023 Term Loan of $0.1 million.
On June 28, 2024, the Company received $68.6 million in net proceeds related to the Tranche B Term Loan, which
was available upon FDA approval for Ohtuvayre. The amount received consisted of the Tranche B Term Loan face
value of $70.0 million less the original issue discount of $1.4 million.
The 2024 Term Loans will mature on May 9, 2029 and each advance under the 2024 Loan Agreement accrues
interest at a fixed per annum rate of 11.00%. The 2024 Loan Agreement provides for interest-only payments on a
quarterly basis until maturity. Upon repayment (whether at maturity, upon acceleration or by prepayment or
otherwise), the Borrower shall pay an exit fee to the 2024 Lenders in the amount of 2.50% of the aggregate principal
amount of the 2024 Term Loans to be paid (the “Exit Fee”). The Borrower may prepay the 2024 Term Loans in full
or in part provided that the Borrower (i) provides at least two (2) business days’ prior written notice to the Agent, (ii)
pays on the date of such prepayment (A) all outstanding principal to be prepaid plus accrued and unpaid interest, (B)
a prepayment fee of 7.00% of the 2024 Term Loans so prepaid if paid on or before the first anniversary of the 2024
Effective Date; 5.00% of the 2024 Term Loans so prepaid if paid after the first anniversary of the 2024 Effective
Date and on or before the second anniversary of the 2024 Effective Date; 2.00% of the 2024 Term Loans so prepaid
if paid after the second anniversary of the 2024 Effective Date and on or before the third anniversary of the 2024
Effective Date or 1.00% of the 2024 Term Loans so prepaid if paid after the third anniversary of the 2024 Effective
Date and on or before the fourth anniversary of the 2024 Effective Date, (C) the Exit Fee and (D) all other sums, if
Verona Pharma plc
Notes to Consolidated Financial Statements
F-22
any, that shall become due and payable under the 2024 Loan Agreement, including interest at the default rate with
respect to any past due amounts. Amounts outstanding during an event of default are due upon the Majority
Lenders’ (as defined in the 2024 Loan Agreement) demand (except during a payment or bankruptcy event of default,
whereupon such default interest is automatically imposed) and shall accrue interest at an additional rate of 2.00% per
annum, which interest shall be payable on demand in cash and (iii) any partial prepayment of the 2024 Term Loans
shall be an aggregate amount at least equal to $5.0 million in a denomination that is a whole number multiple of
$1.0 million in excess thereof.
The 2024 Term Loans are secured by a lien on substantially all of the assets of the Borrower and the Company,
including intellectual property, subject to customary exclusions and exceptions.
The 2024 Loan Agreement contains customary representations and warranties, covenants and events of default,
including two financial covenants: (i) commencing on the 2024 Effective Date, the Borrower is required to maintain
certain levels of cash, and, after the Account Control Agreement Completion Date (as defined in the Loan
Agreement) subject to control agreements in favor of the Agent, and (ii) commencing on the fiscal quarter of
Company ending on September 30, 2025, the Borrower and the Company are required to maintain quarterly trailing
twelve-month net sales from the sale of ensifentrine in the United States; provided that such revenue covenant will
be waived at any time (x) the Borrower and the Company’s unrestricted cash balance subject to control agreements
in favor of the Agent on the last business day of the applicable fiscal quarter is equal to or greater than the product of
1.25 multiplied by the aggregate principal amount of outstanding 2024 Term Loans on such date or (y) the average
daily closing price of the Company’s American Depositary Shares for each of the thirty (30) trading days preceding
the last trading day of such fiscal quarter multiplied by the total number of issued and outstanding American
Depositary Shares of the Company is at least $1.0 billion. The 2024 Loan Agreement also contains other customary
provisions, such as expense reimbursement, as well as indemnification rights for the benefit of the Agent and the
2024 Lenders.
As of December 31, 2024 the interest rate was approximately 13% per annum and there was no material difference
between the carrying value and the estimated fair value of the 2024 Term Loan.
The $125.0 million outstanding under the 2024 Term Loan is due in 2029.
Revenue Interest Purchase and Sale Agreement
On May 9, 2024, the Company and Verona Pharma, Inc. (collectively the “Sellers”) entered into the RIPSA with
Oaktree Fund Administration, LLC, a Delaware limited liability company, as administrative agent and certain funds
managed by each of Oaktree and OMERS (collectively, the “Purchasers”). Under the terms of the RIPSA, in
exchange for each of the Purchaser’s payment to the Sellers of a purchase price of $100 million, in the aggregate,
upon approval of ensifentrine by the FDA by a specified date and subject to certain labeling conditions (the
“Tranche A Purchase Price”), the Sellers agreed to a true sale of assigned interests to the Purchasers, including a
right for the Purchasers to receive 6.50% on the global net sales of ensifentrine by the Sellers (the “Royalty Interest
Payments”) and 5% on certain proceeds the Sellers receive from licensees engaged during the term of the RIPSA
outside of the U.S. (the “Ex-U.S. Payments”). The Sellers will begin payment of the Royalty Interest Payments and
Ex-U.S. Payments in the first fiscal quarter after receipt of the Tranche A Purchase Price. The Sellers will also have
a right to receive an additional funding tranche equal to $150 million (the “Tranche B Purchase Price”) upon
achievement of a specified net sales milestone in any trailing six-month period after receipt of the Tranche A
Purchase Price and subject to certain terms and conditions. The Royalty Interest Payments and Ex-U.S. Payments
will cease upon reaching a multiple of 1.75 times the amounts actually funded by the Purchasers. The RIPSA
includes a buy-out option, which provides the Sellers with the right to settle all outstanding liabilities at any time by
paying a buy-out amount under various terms and conditions. As of any date of determination, the aggregate amount
of payments received by the Purchasers under the RIPSA, divided by the amount funded as of such date (the
“MOIC”) equals 1.20x, if such date is on or before the one-year anniversary of the funding of the first tranche of the
RIPSA, the MOIC equals 1.40x if such date is after the one-year anniversary of the Tranche A Funding Date and on
or before the two-year anniversary of the Tranche A Funding Date, the MOIC equals 1.55x if such date is after the
two-year anniversary of the Tranche A Funding Date and on or before the three-year anniversary of the Tranche A
Funding Date, and the MOIC equals 1.75x if such date is after the three-year anniversary of the Tranche A Funding
Date. The Purchasers have the right to terminate the RIPSA under certain conditions, including the Company’s
insolvency, and the Company’s divestment of ensifentrine, in which case the Sellers must pay the Purchasers up to
1.75 times the amounts actually funded by the Purchasers as of such default determination date. Pursuant to a
security agreement signed in connection with the RIPSA, the Sellers granted to the Purchasers a security interest in
certain assets to secure obligations under the RIPSA.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-23
On June 28, 2024, the Company received the Tranche A Purchase Price of $100.0 million.
As of December 31, 2024, the effective interest rate was approximately 25% per annum and there was no material
difference between the carrying value and the estimated fair value of the RIPSA. The amount due under the RIPSA
at December 31, 2024 relating to the net sales in the fourth quarter of 2024 was $2.4 million which is included in
Other current liabilities on the Consolidated Balance Sheets.
The following table summarizes the RIPSA activity during the year ended December 31, 2024 (in thousands):
RIPSA proceeds, gross
$
100,000
Initial issuance costs, recorded as a discount
(3,770)
Interest expense recognized
12,625
RIPSA payments
(366)
RIPSA payable on fourth quarter net sales
(2,382)
RIPSA balance at December 31, 2024
$
106,107
Verona Pharma plc
Notes to Consolidated Financial Statements
F-24
Note 6 - Significant agreements
Ligand agreement
In 2006 the Company acquired Rhinopharma and assumed contingent liabilities owed to Ligand UK Development
Limited (“Ligand”) (formerly Vernalis Development Limited). The Company refers to the assignment and license
agreement as the Ligand Agreement.
Ligand assigned to the Company all of its rights to certain patents and patent applications relating to ensifentrine and
related compounds (the "Ligand Patents") and an exclusive, worldwide, royalty-bearing license under certain Ligand
know-how to develop, manufacture and commercialize products (the "Ligand Licensed Products") developed using
Ligand Patents, Ligand know-how and the physical stock of certain compounds.
The Company was obligated to pay a milestone payment of £5.0 million upon obtaining the first approval of any
regulatory authority for the commercialization of a Ligand Licensed Product, as well as low single digit royalties
based on the future sales performance of all Ligand Licensed Products and a portion equal to a mid-twenty percent
of any consideration received from any sub-licensees for the Ligand Patents and for Ligand know-how. Royalties
payable are based on the future sales performance so the amount payable is unlimited.
At the time each contingency is resolved, the Company will record the contingent consideration payment (or
payable) in connection with the Ligand Agreement as an expense.
In March 2022, the Company entered into an Amendment Agreement (the “Amendment”) with Ligand whereby the
Ligand Agreement was amended to clarify certain ambiguous terms in the Ligand Agreement. Pursuant to the
Amendment:
•
the Company agreed to pay to Ligand (i) $2.0 million within five business days of the date of the Amendment
and (ii) $15.0 million upon the first commercial sale of ensifentrine by the Company or a sub-licensee, which
amount is payable in cash or, at the Company's discretion, by the issuance of Company equity of equivalent
value, as determined based on the volume-weighted average price of the Company's American Depositary
Shares on the Nasdaq Global Market over the ten (10) trading days including and prior to such milestone event;
•
the Ligand Agreement shall expire on March 24, 2042 unless terminated earlier by either party in accordance
with its terms;
•
upon termination of the Ligand Agreement, any Sub-licensee (as defined in the Amendment) shall have the
right to enter into a direct license agreement with Ligand for the portion of the Program IP (as defined in the
Amendment) that was sub-licensed by such Sub-licensee;
•
the milestone payment may be paid in cash or, at the Company’s discretion, by issuing to Ligand shares in the
Company of equivalent value; and
•
each party’s right to terminate the Ligand Agreement is conditioned upon such party obtaining a final judgment
of the English High Court declaring that the other party is in material breach of its obligations under the Ligand
Agreement.
The Company accounted for the $2.0 million payment at execution of the Amendment as selling, general and
administrative expense in the Consolidated Statements of Operations and Comprehensive Loss as the payment is
related to a contract modification.
Due to the FDA approval of Ohtuvayre on June 26, 2024, the Company has recognized the following in the year
ended December 31, 2024:
•
$6.3 million in Research and development costs related to a milestone payment for first regulatory approval of
ensifentrine; and
•
$15.0 million related to a milestone payment for first commercial sale of ensifentrine. The Company has
classified this as Selling, general and administrative expense as it relates to the resolution of the 2021 dispute
with Ligand.
The Company is obligated to pay low single digit royalties based on the net sales of all Ligand Licensed Products
and expenses all costs related to royalty amounts as a cost of sales within the income statement.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-25
Nuance agreement
The Company entered into a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma
Limited (“Nuance Pharma”) effective June 9, 2021 (the “Nuance Effective Date”), under which the Company
granted Nuance Pharma the exclusive rights to develop and commercialize ensifentrine in Greater China (China,
Taiwan, Hong Kong and Macau). In return, the Company received an unconditional right to consideration
aggregating $40.0 million consisting of $25.0 million in cash and an equity interest, valued at $15.0 million as of the
Nuance Effective Date, in Nuance Biotech, the parent company of Nuance Pharma. The Company is eligible to
receive future milestone payments of up to $179.0 million triggered upon achievement of certain clinical, regulatory,
and commercial milestones, as well as tiered double-digit royalties as a percentage of net sales of the products in
Greater China. The Company will recognize these milestones when it is probable that a significant revenue reversal
would not occur.
As of December 31, 2024, the $15.0 million equity interest was recorded as Equity interest on the Consolidated
Balance Sheets. The equity interest is recorded at cost as the Company has elected to use the measurement
alternative for equity investments without readily determinable fair values. The Company evaluates this investment
for indicators of impairment quarterly. The Company did not identify events or changes in circumstances that may
have a significant effect on the fair value of the investment during the year ended December 31, 2024.
Under the terms of the Nuance Agreement, at any time until three months prior to the expected submission of the
first New Drug Application in Greater China, if (i) a third party is interested in partnering with the Company, either
globally or in territory covering at least the United States or Europe, for the development and/or commercialization
of ensifentrine or (ii) the Company undergoes a change of control, the Company will have an exclusive option right
to buy back the license granted to Nuance Pharma and all related assets. The price is agreed to be equal to the
aggregate of (i) all prior amounts paid by Nuance Pharma to the Company in cash under the agreement and (ii) all
development and regulatory costs incurred and paid by Nuance Pharma in connection with the development and
commercialization of ensifentrine under the Nuance Agreement multiplied by a single-digit factor range dependent
upon achievement of certain milestones, subject to a specified maximum amount.
The Nuance Agreement will continue on a jurisdiction-by-jurisdiction and product-by-product basis until the
expiration of royalty payment obligations with respect to such product in such jurisdiction unless earlier terminated
by the parties. Either party may terminate the Nuance Agreement for an uncured material breach or bankruptcy of
the other party. Nuance Pharma may also terminate the Nuance Agreement at will upon 90 days' prior written notice.
The Company reviewed the buy-back option and determined that because it is conditional on a third party the
Company does not have the practical ability to exercise it and, accordingly, the contract is accounted for under ASC
606.
On April 13, 2022, the Company formalized the Agreement for the Manufacture and Clinical Supply of ensifentrine
(“Nuance Clinical Supply Agreement”) with Nuance Pharma. The Company determined that the manufacturing and
supply of ensifentrine to Nuance represents a distinct and separate performance obligation, for which consideration
to be received is variable based on the quantities to be ordered by Nuance. Revenue earned with the manufacture and
supply of the licensed product is, and will be, recognized as the supply is delivered to Nuance. The Company has
determined it is acting as principal in relation to the manufacture and supply under the Agreement. In its capacity as
principal, the Company will recognize the associated revenue on a gross basis. In the year ended December 31,
2022, the Company recognized $0.5 million of revenue in relation to the clinical supply of ensifentrine to Nuance
Pharma.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-26
Note 7 - Share-based compensation
The Company operates various share based incentive plans for its staff and issues ordinary shares or ADSs when
share-based awards are exercised.
The Company records share-based compensation expense related to share options, RSUs and PRSUs granted to
employees and directors. The expense is included in Cost of sales, Research and development and Selling, general
and administrative costs, based on the nature of individual employees’ functions, and represents the relevant year's
allocation of the expense. The costs of share-based compensation to employees are recognized in the Consolidated
Statements of Operations and Comprehensive Loss, together with a corresponding increase in equity over the
vesting period.
Options are issued with an exercise price of the closing market price on the day before the grant and generally vest
over a period of one to four years and the contractual life of all options is ten years.
The following table shows the allocation of share-based compensation between research and development and
selling, general and administrative costs (in thousands):
December 31,
2024
2023
2022
Capitalized to inventory
$
333 $
— $
—
Research and development
7,291
4,228
5,420
Selling, general and administrative
33,620
14,784
8,701
Total share-based compensation
$
41,244 $
19,012 $
14,121
Pre-IPO Option Plan
The Pre-IPO Option Plan was adopted by our board of directors on July 24, 2012. The total number of shares that
may be issued under this plan is the current number of outstanding options over 1,110,000 ordinary shares, or
138,750 ADSs.
No further awards have been granted under the Pre-IPO Other Plan plan since the 2017 Incentive Award Plan was
adopted, and no further awards will be granted under it.
2017 Incentive Award Plan
The 2017 Incentive Award Plan was adopted by our board of directors and became effective on April 26, 2017, in
order to grant share based compensation to certain of the Company’s directors and employees. It provides for the
grant of stock options, RSUs, and other share-based awards to Company’s directors, officers, employees and non-
employee directors.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-27
Share option activity
The number of options, the weighted average grant date fair value per stock option, and the weighted average
exercise price are all shown below on a per ordinary shares basis. The Company’s ADSs that are listed on the
Nasdaq Global Market each represent eight ordinary shares.
The following table shows share option activity and includes the options outstanding from the plans:
Number of
share options
Weighted
average
exercise price
(1)
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic value
(in thousands)
Outstanding at January 1, 2024
24,689,624 $
1.56
7.4
$
24,022
Granted
13,416,000
2.32
Forfeited
(848,632)
2.56
Expired
(160,000)
2.94
Exercised
(4,223,600)
1.28
Outstanding at December 31, 2024
32,873,392 $
1.88
7.7
$
129,164
Exercisable at December 31, 2024
14,036,712 $
1.53
6.1
$
60,058
(1) The exercise prices relate to the equivalent price for an ordinary share, calculated as one eighth of the ADS price.
The following summarizes the aggregate intrinsic value and cash receipts related to stock option exercise activity for
the years ended December 31 (in thousands):
2024
2023
2022
Aggregate intrinsic value of stock options exercised
$
7,995 $
1,861 $
2,413
Cash receipts from stock options exercised
$
5,408 $
1,949 $
1,372
Determining the fair value of share options
The total fair values of the options, estimated using the Black-Scholes option-pricing model for equity-settled
compensation, amounted to $22.5 million for options granted in the year ended December 31, 2024 and
$13.2 million for instruments granted in the year ended December 31, 2023. The cost is amortized over the vesting
period of the options on a straight-line basis using the graded-vesting method.
The following assumptions were used for the Black-Scholes valuation of share options granted in 2024, 2023, and
2022:
Expected volatility
Volatility is calculated using historical daily averages of the Company's share price over a period that is in line with
the expected life of the options.
Fair value of ordinary shares
Prior to delisting from the AIM in October 2020, the fair value of ordinary shares was based on the closing share
price of the Company’s shares on AIM on the evening before the date of grant. Subsequently, the fair value has been
based on the closing price of ADSs traded on Nasdaq on the evening before the date of grant.
Risk-free interest rate
The risk-free interest rate has been based on U.K. Government debt yield for the relevant term at the time of grant
up until October 20, 2020 when the company delisted from AIM. After this, appropriate U.S. Treasury yield rates
were used.
Expected term
As the Company does not have sufficient history to estimate its expected term, the Company applied the simplified
method of estimating the expected term of the options, as described in the SEC’s Staff Accounting Bulletins 107 and
110. The expected term, calculated under the simplified method, is applied to all stock options which have similar
contractual terms. Using this method, the expected term is determined using the average of the vesting period and
the contractual life of the stock options granted.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-28
Expected dividend
There are no expected dividends.
A summary of the weighted-average assumptions applicable to the share options granted in the applicable years is as
follows:
December 31,
2024
2023
2022
Risk-free interest rate
3.50% -
4.60%
3.40% -
4.69%
2.09% -
4.20%
Expected lives, years
5-7
5-7
5-7
Expected volatility
79.31% -
84.68%
80.64% -
87.26%
82.50% -
84.27%
Expected dividend yield
— %
— %
— %
Grant date fair value (per share)
$1.08 -
$3.70
$1.69 -
$3.27
$0.34 -
$1.33
Restricted stock units activity
The following table shows RSU activity:
Number of
RSUs
Weighted
average grant
date fair value
Outstanding at January 1, 2024
19,502,624 $
1.14
Granted
6,709,896
4.21
Forfeited
(1,261,048)
1.29
Vested
(10,121,360)
1.06
Outstanding at December 31, 2024
14,830,112 $
2.57
The intrinsic value of RSUs that vested in the years ended December 31, 2024, 2023 and 2022, was $26.8 million,
$41.5 million and $14.3 million, respectively.
Performance Restricted Stock Units (“PRSUs”)
The following table shows PRSU activity:
Number of
PRSUs
Weighted
average grant
date fair value
Outstanding at January 1, 2024
10,730,144 $
1.66
Granted
25,162,130
4.91
Forfeited
(931,084)
1.74
Vested
(4,399,216)
1.66
Outstanding at December 31, 2024
30,561,974 $
4.33
The intrinsic value of PRSUs that vested in the year ended December 31, 2024 was $12.9 million, with no PRSUs
vested in 2023 or 2022.
As of December 31, 2024, total compensation cost related to share options, RSUs and PRSUs granted but not yet
recognized was $141.9 million. This cost will be amortized to expense over a weighted average remaining period of
approximately 1 year and will be adjusted for subsequent forfeitures.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-29
Note 8 - Benefit plans
The Company maintains a 401(k) defined contribution retirement plan in the U.S. and a defined contribution plan in
the U.K. for its employees and executive directors. The assets of the plans are held separately from those of the
Company in independently administered funds.
The retirement plan cost represents the contributions payable by the Company to the plans during the year. Defined
contribution costs during the years ended December 31, 2024, 2023 and 2022 amounted to $1.2 million, $0.6 million
and $0.3 million respectively.
Note 9 - Taxation
Verona Pharma plc operates in the United Kingdom and Verona Pharma, Inc. operates in the United States and they
are subject to income taxes in those countries. For the year ended December 31, 2024 the U.K. corporation tax is
charged at 25.0% and the U.S. federal corporate income tax rate is 21%.
The components of (loss)/profit before income taxes are as follows (in thousands):
December 31,
2024
2023
2022
United States
$ (107,460) $
7,429 $
3,868
United Kingdom
(55,669)
(61,324)
(72,316)
Total
$ (163,129) $
(53,895) $
(68,448)
The components of income tax expense are as follows (in thousands):
December 31,
2024
2023
2022
United States
$
10,289 $
474 $
253
United Kingdom
—
—
—
Total current tax expense
$
10,289 $
474 $
253
United States
$
— $
— $
—
United Kingdom
—
—
—
Total deferred tax expense
—
—
—
Total income tax expense
$
10,289 $
474 $
253
A reconciliation of the U.K. statutory income tax rate to our effective income tax rate is as follows:
December 31,
2024
2023
2022
U.K. tax rate
25.0 %
23.5 %
19.0 %
U.S. federal rate differential
(2.6) %
— %
— %
Non-deductible expenses
(3.5) %
(8.0) %
(1.8) %
Research and development incentive
(2.6) %
(4.1) %
(8.0) %
Share-based compensation
1.0 %
5.4 %
2.1 %
Change in deferred tax valuation allowance
(22.5) %
(18.1) %
(11.6) %
Other differences
(1.1) %
0.4 %
(0.1) %
Effective income tax rate
(6.3) %
(0.9) %
(0.4) %
Verona Pharma plc
Notes to Consolidated Financial Statements
F-30
Components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
December 31,
2024
2023
Deferred tax liabilities:
Contingent liability (1)
$
(81,513) $
(53,851)
Other
(694)
—
Total deferred tax liabilities
(82,207)
(53,851)
Deferred tax assets:
Net operating losses
65,265
54,012
Intangible asset (1)
74,406
47,793
RIPSA
28,441
—
Future exercisable shares
9,258
7,548
Other
3,359
21
Total deferred tax assets
180,729
109,374
Less: valuation allowance
(98,522)
(55,523)
Deferred tax assets, net of valuation allowance
$
— $
—
Movements in the deferred tax valuation allowance
Valuation allowance at January 1
$
55,523 $
48,476
Change in tax rates
419
(851)
Increase in valuation allowance
42,580
7,898
Valuation allowance at December 31
$
98,522 $
55,523
(1) These relate to the difference in the tax base of the Ligand intangible asset and assumed contingent liability and
the financial reporting base, which is nil under U.S. GAAP.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable
income will be generated to permit use of the existing DTAs. A significant piece of objective negative evidence
evaluated was the cumulative loss incurred over the three-year period ended December 31, 2024.
Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future
growth. The Company has determined that the reversal of future taxable temporary differences corresponding to our
DTLs will not provide a sufficient source of income for realization of our DTAs.
On the basis of this evaluation, as of December 31, 2024, a valuation allowance has been recorded against the entire
value of our DTAs.
At December 31, 2024, the Company had U.K. net operating losses (“NOLs”) of $261.1 million. The NOLs can be
carried forward indefinitely to be offset against future taxable profits, but this is restricted to an annual £5 million
allowance after which there will be a 50% restriction in the profits that can be covered by losses brought forward.
The Company files separate income tax returns in the U.K. and the U.S. All necessary income tax filings have been
completed for all years up to and including December 31, 2023. The tax years that remain subject to examination are
2021 forward in the U.S. and 2022 forward in the U.K. No interest or penalties were recognized in the Consolidated
Statements of Operations and Comprehensive Loss or Consolidated Balance Sheets. As of December 31, 2024 the
Company has no uncertain tax positions.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-31
Note 10 - Net loss per share
Net loss per share is calculated on an ordinary share basis. The Company’s ADSs that are listed on the Nasdaq
Global Market each represent eight ordinary shares. The following table shows the computation of basic and diluted
earnings per share for 2024, 2023 and 2022 (in thousands, except per share amounts):
December 31,
2024
2023
2022
Numerator:
Net loss
$ (173,418) $
(54,369) $
(68,701)
Denominator:
Weighted-average shares outstanding - basic and diluted
652,311
634,143
529,072
Net loss per share - basic and diluted
$
(0.27) $
(0.09) $
(0.13)
During the years ended December 31, 2024, 2023 and 2022, outstanding share options, RSUs and PRSUs of
78.3 million, 54.9 million and 53.8 million, respectively, were not included in the computation of diluted earnings
per ordinary share, because to do so would be antidilutive.
Note 11 - Commitments and contingencies
In the three months ended March 31, 2023, the Company accrued up to the maximum exposure of $6.9 million
related to a matter with a supplier and also had certain invoices in the amount of $1.5 million in accounts payable to
the same supplier. Both items were settled in June 2023 for $2.1 million. This resulted in a net reversal of
$6.3 million in the three months ended June 30, 2023 and a net reversal of $1.5 million in the year ended December
31, 2023 in Research and development costs in the Consolidated Statement of Operations and Comprehensive Loss.
Note 12 - Related party transactions and other shareholder matters
In the years ended December 31, 2024, 2023 and 2022 there were no related party transactions.
Verona Pharma plc
Notes to Consolidated Financial Statements
F-32