Verona Pharma Preliminary Unaudited Results

2011 OPERATIONAL HIGHLIGHTS

- Completed a Phase II clinical trial of RPL554 at the Centre for Human Drug Research (“CHDR”) in The Netherlands to further demonstrate the safety and bronchodilator effectiveness of two higher doses of RPL554.

- Demonstrated in a further Phase II clinical trial in patients with mild asthma that the bronchodilator actions of a daily dose of RPL554 were maintained over a period of 6 days with once daily treatment.

- Completed a small Phase II clinical trial of the Company’s first-in-class novel drug for the treatment of persistent cough, VRP700, at the University of Florence, Italy. VRP700 significantly reduced coughing in patients with chronic intractable cough (up to 60-80 times an hour) due to underlying severe lung disease.

- Successfully demonstrated in a pilot Phase IIa clinical trial of RPL554 at the University of Tor Vergata in Rome, Italy the bronchodilator effectiveness of RPL554 in patients with mild to moderate COPD. Results showed significant improvement in lung function of the drug compared to placebo.

2011 FINANCIAL HIGHLIGHTS

- Loss after tax of £1.72 million (2010: £1.89 million) or 0.71 pence (2010: 0.79 pence) per ordinary share.

- Completed the first tranche of a placing by issuing 43.6 million shares at 5p per share to raise total gross proceeds of £2.18 million. The Company intends to use the proceeds of the placing to finance the clinical development of the RPL554 and VRP700 programmes and for general corporate purposes.

- Low cash burn rate maintained during the year due to the virtual business model, with cash and cash equivalents as at 31 December 2011 of £2.53 million (2010: £2.00 million).

SUBSEQUENT EVENT HIGHLIGHTS

- In January, completed the second tranche and balance of the above placing by issuing a further 21.3 million shares at 5p per share to raise total gross proceeds of £1.07 million.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S JOINT STATEMENT

INTRODUCTION

2011 has been another important and busy year for Verona Pharma. The Company made further good progress with its lead drug project, RPL554, and demonstrated clinical efficacy with its second project, the novel anti-cough drug, VRP700. Progress was also made with its NAIPs programme. The Company continued to pursue every opportunity to license out RPL554 to an appropriate pharmaceutical partner. The Board continued to maintain a firm control over the Company’s finances and ensure the operation of a proven financial model for drug discovery that enables resources to be applied to maximum effect for the discovery and development of new drugs.

RPL554

During 2011, the Company continued to add valuable clinical data to its lead project, RPL554, which is being developed for the treatment of COPD, asthma and other diseases of the respiratory tract.

RPL554, belongs to a class of drugs known as a dual phosphodiesterase (PDE) 3/4 inhibitor. It is unique in that it could provide combined prolonged bronchodilation and anti-inflammatory effects in one molecule. Both effects are essential for sufferers of respiratory diseases, and there is currently no other drug that provides both effects in a single molecule. In addition, none of the existing asthma drug therapies are ideal as many have limitations with respect to their effectiveness, dose-limiting side effects and, in some cases, concerns over long term steroidal use. In terms of current drugs for COPD, there is room for substantial improvement and a drug with combined bronchodilator and anti-inflammatory actions would be a significant step forward in the treatment of this progressive and pernicious disease.

The Company successfully completed three further clinical trials with RPL554 during the year, demonstrating the effectiveness of this drug as a bronchodilator in both patients with asthma, and in those with mild to moderate COPD. One of the trials in subjects with mild to moderate asthma also demonstrated that the bronchodilator effect obtained with RPL554 was maintained over a 6 day treatment period with once daily dosing. In that trial, and other trials, RPL554 continues to provide excellent bronchodilator activity in mild asthmatics without any major untoward side effects, including gastrointestinal disturbances which are commonly encountered with PDE4 inhibitors. The clinical trials in mild asthmatics were conducted in Leiden, The Netherlands, at the Centre for Human Drug Research (CHDR). The trial in patients with COPD was conducted at the University Tor Vergata in Rome, Italy. These further positive clinical trials strengthen the RPL554 clinical data package.

VRP700

During 2011, the Company successfully completed a first clinical proof of concept study at the University of Florence, Italy for its cough project, VRP700. VRP700 is a potential first-in- class drug which suppresses the cough initiating signals in nerve endings located in the air passages and lungs. Currently, the treatment of cough is directed at the underlying illness e.g. a cold, sinusitis. Many patients self-medicate with over-the-counter cough and cold medicines and only receive mild relief. However, for more severe cases, where patients may cough between 60-80 times an hour, there are no truly safe (non-morphine-based) or effective treatments.

The small clinical study completed at the University of Florence produced exciting results in that VRP700 markedly reduced coughing in a group of patients with severe, persistent cough. When administered by nebuliser, the drug was highly effective without any untoward side effects.

NAIPs

The Company has continued to obtain and evaluate novel fractions from various sources with the intent of identifying potential clinical candidates for development as an anti- inflammatory drug. The NAIPs programme was derived from studies of the polysaccharide, heparin, which has been shown to be an anti-inflammatory drug in a range of diseases, but cannot be widely used since its anti-coagulant effect is an unwanted side effect. Through its collaborations with Glycores SpA and Glycomar Ltd, the Company has access to a range of polysaccharides without anti-coagulant effect that it is evaluating as potential drug treatments for common chronic inflammatory conditions such as asthma and hay fever. Progress of the NAIPs programme has been limited as the Company has focused its resources on advancing the RPL554 and VRP700 programmes.

FINANCIALS

The loss for the current year decreased by 9% or £0.17m to £1.72m (2010: £1.89m).

Total research and development expenditure, which was expensed as incurred, was £0.94m (2010: £1.15m). The decrease in research and development expenditure was due to a decrease in expenditures for the RPL554 programme by £0.22m to £0.75m (2010: £0.97m). The decrease in expenditures for the RPL554 programme is primarily due to: (a) a reduction in the scope of development of the RPL554 series during 2011; and (b) certain clinical trial related costs such as manufacture of drug batch and clinical trial protocol design were incurred in 2010, but the trials were actually carried out in 2011. The Company also received a research and development tax credit of £0.12m in the year which is included under taxation.

The main area of expenditure in 2011 has been on the Phase II trial to test the duration of bronchodilator action with daily doses of RPL554, given over a period of 6 days, in patients with mild asthma. The Phase I/II clinical trial of RPL554 to evaluate the safety and bronchodilator effectiveness of higher doses of RPL554 in patients with mild asthma was commenced in 2010 and completed in February 2011. A majority of the cost (approximately 80%) was incurred in 2010 with the balance being incurred in 2011.

Administrative expenses for the year were £0.90m (2010: £0.75m). The increase of £0.15m over the previous period was primarily due to an increase in share based payment charge of £0.14m as a result of extending the expiry date of 10 million directors' options.

As at 31 December 2011, the Company had approximately £2.5 million in cash and cash equivalents.

OUTLOOK

All current evidence indicates that RPL554 has the potential to be an important new respiratory drug that could capture a significant market share in terms of utility in the treatment of asthma and COPD. The Company recently announced that it has contracted the Medicines Evaluation Unit (MEU) in Manchester, UK to carry out a trial to demonstrate anti-inflammatory effects of RPL554 relevant to the treatment of COPD. This trial is expected to complete the profile of RPL554 as a new class of drug with dual bronchodilator and anti-inflammatory actions in a single molecule – a first in the history of treating respiratory disease, and a major boost for patients. The trial is planned to commence shortly and the preliminary results from the trial are expected in Q4 2012.

In the meantime, Verona Pharma continues to seek the most compatible and appropriate partner to develop RPL554 into a marketed medicine. Whilst the global economic conditions and the state of flux of the pharmaceutical industry are impacting the licensing market, the Company is optimistic that it will find a suitable partner to ensure that RPL554 takes its rightful place in the treatment of one or more of the most common chronic respiratory diseases.

The notable success of the clinical demonstration of VRP700 in the treatment of severe, intractable cough provides a significant opportunity for the Company. In the first place we have to expand on our original clinical observations so as to define the drug’s utility and at the same time fully explore these unique actions so as to ensure the fullest commercial protection. A larger multi-centre trial has been planned for VRP700 in patients with intractable cough in 2012 which will enable the Company to enhance its clinical data base.

While our current focus is on RPL554 and VRP700, we continue to explore other areas for potential new drugs in the area of respiratory medicine. Thus we plan to further develop our NAIPs project and keep a ‘weather eye’ open for new and unique opportunities for potential drugs for use in the respiratory area.

Verona Pharma will continue to maintain a low cash burn rate, which is possible due to its minimized cost base. The Company is very positive about its progress to date and looks forward to updating the market on further developments in due course.

We would like to thank our staff, consultants, advisors and collaborators for all of their dedicated effort in the past year and for sharing our mission to research, discover and develop drugs of benefit to those millions of sufferers from asthma, allergic rhinitis and other respiratory diseases. We also wish to express the most sincere gratitude to our shareholders for their continuing support of our endeavours.