Verona Pharma Release: $1.7 Million Placing and $7.9 Million Equity Finance Facility

Published: Jan 31, 2013

31 January 2013 - London, UK – Verona Pharma plc announces a placing (the “Placing”) of approximately 29.0 million Ordinary Shares of 0.1 pence in the capital of the Company (“Shares”) at 4 pence each (the “Placing Price”) to raise approximately £1.1 million before expenses. The Board also announces that the Company has entered into a £5.0 million equity financing facility (“EFF”) with Darwin Strategic Limited (“Darwin”), a company majority owned by funds managed by the Henderson Volantis Capital Team, a subsidiary of Henderson Global Investors who also hold a 9.35 per cent interest in the Company.

The Board is seeking authority from Shareholders to issue Shares to Darwin under the EFF.

Background to the Fund Raising

Following his appointment as Chief Executive Officer of Verona on 1 June 2012, Jan-Anders Karlsson undertook a comprehensive review of the Company’s operations with the objective of accelerating shareholder value creation.

Since its admission to trading on AIM in 2006, the Company has raised £10.6 million of equity capital from its Shareholders. With these funds it has developed two “first in class” drugs to treat unmet needs in respiratory disease; RPL554, which is targeted at Chronic Obstructive Pulmonary Disease (“COPD”) and asthma, and VRP700, which is targeted at chronic, severe cough. Each of these drugs has passed into Phase IIa trials, having successfully concluded pre-clinical and clinical Phase I studies.

Verona has demonstrated that RPL554 delivers clinically significant bronchodilation in COPD and asthma, and has a unique mechanism of action which is expected to be complementary to existing treatments. It has also been demonstrated to be well tolerated by patients with no evidence, at current dosage levels, of beta2-agonist-like side effects, anti-cholinergic drug-like side effects or PDE-4-like side effects.

Verona has also demonstrated in an investigator led Phase IIa study that VRP700, with a novel mechanism of action, creates significant activity in the treatment of chronic, severe cough. COPD is estimated to be the third leading cause of death globally by 2020. There are currently at least 10 million diagnosed sufferers in the US, which results each year in approximately 8 million primary care visits, 1.5 million emergency room visits, 750,000 hospitalisations and 119,000 deaths. Cough is the most common symptom in most lung diseases. There are currently approximately 35 million prescriptions in the US for cough and cold each year, notwithstanding that current therapies are ineffective or have significant side effects.

Taking into account the progress achieved in the development of its proposed drugs and the significant unmet respiratory disease needs described above, the Board has refined Verona’s strategy to focus initially on developing RPL554, with nebulised delivery, to treat severe COPD, and on developing VRP700 to treat chronic, severe cough. The Directors believe that this focus on significant unmet market needs will afford the greatest prospect of accelerating shareholder value accretion. Whilst these target indications will represent the near term focus of Verona, the Company will in due course focus on broadening the therapeutic use of RPL554, including its anti-inflammatory potential and use in treating asthma, and on progressing its early stage NAIPS research programme, any of which could lead to significant further value accretion, albeit in the longer term.

The Board recognises the value an experienced and resourceful commercial partner could bring to the development of its drug candidates. However, it does not intend to partner these drug candidates until it can extract a commercially attractive return for the Company and its Shareholders. The ongoing work programme described below has been designed by the Board to further de-risk the two drug candidates and to enable the Company to develop a stronger commercial argument and articulate a more comprehensive value proposition in future partnering discussions.

Use of Proceeds

The Directors intend that the net proceeds of the Placing and drawdowns under the EFF will be used:

- To finance a larger and longer duration bronchodilator study of RPL554 in COPD patients;

- To finance an RPL554 bronchodilator dose-response study in COPD patients;

- To finance comparator studies of RPL554 against other bronchodilators used as standard of care in COPD patients;

- To finance a further VRP700 study, first referred to on 8 December 2011, to confirm VRP700’s activity in chronic, severe cough patients; and

- To provide working capital for the Company until completion of the larger and longer duration RPL554 bronchodilator study.

Principal Terms of the Placing

The Company has raised approximately £1.16 million before expenses by the issue of 28,971,528 Shares (the “Placing Shares”), under the Placing.

The Placing Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the existing ordinary shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue. Application has been made to the London Stock Exchange for the admission of the Placing Shares to trading on AIM (“Admission”). It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 14 February 2013, at which time it is also expected that the Placing Shares will be enabled for settlement in CREST.

Following Admission, the Company's enlarged issued share capital will comprise 336,175,923 Ordinary Shares. From Admission, this figure of 336,175,923 Ordinary Shares may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FSA’s Disclosure and Transparency Rules.

Subscriptions by Directors

Jan-Anders Karlsson, Chief Executive of the Company, Claire Poll, and Professor Trevor Jones have agreed to subscribe respectively for 500,000, 250,000 and 25,000 Placing Shares at the Placing Price.

Principal terms of the EFF

The EFF agreement with Darwin provides Verona with a facility of up to £5m which (subject to certain limited restrictions) can be drawn down at any time over the next three years. The timing and floor subscription price of any draw down is at the sole discretion of the Company.

Verona is under no obligation to make a draw down and may make drawdowns at its discretion, up to the total value of the EFF, by way of issuing subscription notices to Darwin. Following delivery of a subscription notice, Darwin will subscribe and the Company will allot to Darwin new Ordinary Shares.

The subscription price for any Ordinary Shares to be subscribed by Darwin under a subscription notice will be the average of the three lowest closing bid prices of the Ordinary Shares over the 15 trading days following the subscription notice.

Verona is also obliged to specify in each subscription notice a minimum price below which Ordinary Shares will not be issued to Darwin. The Company will have the right (with the consent of Darwin) to modify that minimum price at any time during the relevant Pricing Period.

The number of Ordinary Shares which may be issued under any individual subscription notice may be up to the lower of 25 per cent of the Company's issued share capital following completion of the relevant subscription, or four times the average daily trading volume of Verona’s Ordinary Shares over the 15 trading days preceding the issue of the relevant subscription notice. This may be reduced in certain circumstances, including where the minimum price is not maintained or the trading volume is less than 10,000 shares. The maximum amount of a subscription notice may not exceed £500,000 without Darwin's permission. Darwin is entitled to a commission of up to 5 per cent of amounts subscribed but may agree with Verona in lieu thereof for the subscription price for the Ordinary Shares to be discounted by 5 per cent.

There is also an over-allotment facility available to Verona, under which the Company may authorise Darwin, at Darwin's discretion, to increase the amount of the draw down by up to the aggregate undrawn amount under the EFF. Darwin may direct allotments under the EFF to its parent fund, Henderson Global Investors’ AlphaGen Volantis Fund.

Darwin and Verona may mutually agree at the end of the pricing period to a variation of subscription price. This may allow for a larger subscription via any over-allotment facility authorised by the Company.

The issuance of a Subscription Notice is conditional upon the satisfaction of certain Subscription Notice Conditions which have been agreed between Darwin and Verona. Any subscription notice which Verona may issue will only be valid to the extent that it has the requisite shareholder authority to issue the maximum number of Ordinary Shares that Darwin may be required to subscribe under the relevant subscription notice.

Darwin and Verona may terminate the EFF agreement if certain conditions are not met.

The Directors are seeking the approval of Shareholders to allot 125 million new Ordinary Shares which represents the maximum number of shares issuable to Darwin assuming such shares are issued at the Placing Price.

In conjunction with the EFF, Verona has entered into a warrant agreement with Darwin dated 31 January 2013 to subscribe for up to 5,000,000 Ordinary Shares, such warrants to be exercisable at a price of 4.8p and to be exercisable at any time prior to the expiry of 36 months from the date of the warrant agreement.

Current Trading and Prospects

The Company continues to trade in line with the Board’s expectations, with a monthly overhead of approximately £100,000, before taking into account expenditure on potential drug trials. The Board anticipates that the Company will have a cash balance at 1 February 2013 of approximately £800,000 before taking into account the net proceeds of the Placing and any draw down under the EFF.

In the course of 2013, the Board anticipates that the Company will announce the results of the RPL554 anti-inflammatory study in the first quarter and the further VRP700 study in the fourth quarter. In 2014, it expects the Company to announce the results of the RPL554 COPD dose response study in the first half and the larger and longer duration RPL554 COPD study in the second half.


A circular convening a general meeting to approve the issue of Ordinary Shares to Darwin pursuant to the EFF is being sent to shareholders and will be available on the Company’s website today.

Recommendation and voting intentions

The Directors, acting in good faith, believe that the terms of the EFF and the passing of the Resolutions are most likely to promote the success of the Company for the benefit of its members as a whole. The Directors unanimously recommend Shareholders to vote in favour of the Resolutions as they intend to do in respect of their aggregate beneficial holdings of 20,162,389 Ordinary Shares representing approximately 6.6 per cent. of the Existing Ordinary Shares.

For further information please contact:

Verona Pharma plc Tel: 020 7863 3300

Clive Page, Chairman

Jan-Anders Karlsson, CEO

WH Ireland Limited Tel: 020 7220 1666

Chris Fielding

Nick Field

FTI Consulting Tel: 020 7831 3113

Julia Phillips

Simon Conway

About Verona Pharma plc

Verona Pharma is developing first-in-class drugs to treat respiratory disease, such as COPD, asthma and chronic, severe cough. The Company has three drug programmes, two of which are in Phase II. The lead programme, RPL554, is an innovative dual phosphodiesterase (PDE) 3 and 4 inhibitor with both bronchodilator and anti-inflammatory properties. VRP700 is an innovative product for suppressing chronic, severe cough in patients with underlying lung disease. In its third programme, Verona Pharma is investigating novel anti-inflammatory molecules, called NAIPs, for a wide range of respiratory and inflammatory diseases.

About RPL554 for the treatment of COPD and Asthma

Verona’s lead drug, RPL554, is a dual phosphodiesterase (PDE) 3 and 4 inhibitor being developed as a novel treatment for chronic obstructive airways disease such as COPD (chronic obstructive pulmonary disease) and asthma with bronchodilator and anti-inflammatory effects. Both effects are essential to aid breathing, especially in sufferers of COPD. There is currently no drug combining both effects in a single molecule. In addition, current treatments have unwanted side effects and/or limited effectiveness. The product is currently in phase II for both diseases.

COPD is a chronic lung disease with significant unmet need and for which current treatment is far from optimal. COPD is most commonly characterised by fixed airflow obstruction and chronic airways inflammation resulting from exposure to tobacco smoke. Asthma, which remains one of the most 5

common chronic diseases in the world, is characterised by recurrent breathing problems and symptoms such as breathlessness, wheezing, chest tightness, and coughing. The market for COPD and asthma drugs is currently estimated to be GBP20 billion [source: visiongain].

About VRP700 for the treatment of Cough

VRP700 is Verona Pharma's lead drug compound for the treatment of cough, having a novel mechanism of action involving the suppression of cough initiating signals originating from cough sensory nerve endings located in the lungs. A clinical trial completed at the University of Florence, Italy in September 2011 clearly demonstrated significant anti-tussive effects with nebulised VRP700 in hospitalized patients with chronic severe cough.

Cough can be a very debilitating comorbidity reported by patients, especially those with respiratory conditions such as asthma, COPD, lung cancer, interstitial lung disease, fibrosis or lung infections. It is a neglected symptom which is often self-medicated. Consumer spending on OTC medications, including those for cough, grew by 10% over 2005-10, to reach GBP532 million [source: Mintel]. However, there is very little clinical evidence for such OTC cough medications being really effective and it is widely recognised by the medical community that there is a large need for more effective drugs to control and prevent pathologically induced coughing.

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