Verona Pharma Rakes in $63.3 Million to Help Progress COPD Candidate RPL554

Proposed Placing to raise c. £44.7 million (US$63.3 million) and Notice of General Meeting

17 June 2016, Cardiff – Verona Pharma plc (AIM: VRP), the drug development company focused on first-in-class medicines to treat respiratory diseases, announces that it has successfully secured funding commitments to raise gross proceeds of c. £44.7 million (US$63.3 million), through a conditional placing (the “Placing”) with new and existing investors, including a number of specialist US, UK and European healthcare funds. The Placing was significantly oversubscribed.

The net proceeds of the Placing are expected to fund RPL554 through a Phase 2b clinical trial in chronic obstructive pulmonary disease (COPD) patients and additional Phase 2 studies in both COPD and cystic fibrosis.

MTS Securities, LLC is acting as the US placement agent and N+1 Singer is acting as the UK broker and nominated adviser in connection with the Placing. The Placing is not being underwritten.

Highlights

· The Placing will raise gross proceeds of c. £44.7 million (US$63.3 million) through the issue of 1,555,796,345 Units at a price of 2.873 pence per Unit (each comprising one Placing Share and one Warrant)

· The net proceeds of the Placing will predominantly be used to progress RPL554 through a Phase 2b clinical trial in COPD patients, and to fund additional clinical Phase 2 studies in COPD and cystic fibrosis as well as further supportive pre-clinical work

· The funding enables the Company to materially advance the development of RPL554 and build on the significant progress made to date with the revised formulation

· The cornerstone investors in the Placing are specialist healthcare focused funds Vivo Capital, OrbiMed and Edmond de Rothschild Investment Partners

o Other new investors include New Enterprise Associates, Novo A/S, Abingworth and Aisling Capital with participation of existing investors including Arix Bioscience, Hargreave Hale and Polar Capital

· The Placing Price represents the average closing mid-market price of an Ordinary Share during the five trading days to 15 June 2016, being the last practicable date prior to investors signing their binding Placing commitments

· Each Warrant will be exercisable into 0.4 of a Warrant Share, at an exercise price per Warrant Share of 3.4476 pence, being 120 per cent. of the Issue Price

· On or shortly after Admission, representatives from certain of the investors will join the Board as non-executive directors

· The Company has undertaken to use commercially reasonable efforts to procure a listing on NASDAQ and raise a further tranche of funding in the future

The Placing is conditional upon, amongst other things, approval by existing shareholders at a general meeting to be held at 11.00 a.m. on 22 July 2016 at the offices of Shakespeare Martineau LLP at Allianz House, 6^th Floor, 60 Gracechurch Street, London, EC3V 0HR (the “General Meeting”). Admission of the Placing Shares to trading on AIM is expected to take place on 29 July 2016.

Jan-Anders Karlsson, CEO of Verona Pharma, commented:

“We have made significant clinical progress with our first-in-class drug RPL554. This drug has shown the potential to become an important novel and complementary treatment option for patients with COPD, a debilitating and progressive disease that impacts about 65 million people worldwide and is still among the four leading causes of death globally.

“The funds raised from the Placing will allow the Company to focus on conducting a comprehensive Phase 2b clinical trial programme for nebulised RPL554 as a potential treatment for patients with COPD. We will also explore in the clinic for the first time the use of RPL554 as a novel treatment for cystic fibrosis expanding the potential of the drug into another respiratory disease where there remains a significant unmet need. This follows on from the compelling data we have generated in translational, preclinical models of this disease.”

David Ebsworth, Non-Executive Chairman of Verona Pharma added:

“The Board would like to thank both the proposed new and our existing shareholders for their support. Indeed, this powerful syndicate of highly experienced bioscience investors have conducted significant due diligence in the product ahead of investing in the proposed Placing announced today, which we believe further attests to the potential value of RPL554.

“This funding will enable us to progress RPL554 through significant value inflection points. The strength of the data package for the product generated to date gives us confidence that a substantial Placing provides the optimal opportunity to retain maximum value in the Company without compromising our future strategic options.

“A subsequent listing of ADSs on NASDAQ as part of a US IPO for Verona Pharma is a natural evolution in our corporate strategy to focus on the US market opportunity, with its broadly accepted use of nebulisers in the treatment of patients with COPD. It will also allow the Company easier access to a larger pool of investors in the US who have a deep understanding of the healthcare market in which Verona Pharma operates.”

The Company’s lead drug, RPL554, is a dual phosphodiesterase PDE3/PDE4 inhibitor with both bronchodilator and anti-inflammatory properties that has the potential to become a novel treatment for patients with obstructive lung diseases such as chronic obstructive pulmonary disease (COPD), cystic fibrosis and potentially asthma. Furthermore, based on data generated to date, Verona Pharma believes RPL554 can provide relevant clinical and health economic benefits in a commercial setting.

A circular to Shareholders containing, amongst other things, the notice of the General Meeting (the “Circular”) will be published by the Company today and posted to Shareholders. An extract from the Circular is set out below. Copies of the Circular will be available at the Company’s website: www.veronapharma.com.

This announcement should be read in conjunction with the Circular in its entirety, which contains further details on the terms of the Placing and related matters.

-Ends-

For further information please contact:

IMPORTANT NOTICE

The Circular is not an offer of securities for sale in the United States. The securities being offered by the Company may not be offered or sold in the United States absent registration or an exemption from registration. The offering of securities described in the Circular has not been and will not be registered under the United States Securities Act of 1933, and accordingly, any offer or sale of the securities may be made only in a transaction exempt from the registration requirements of the Securities Act.

Expected Timetable of Principal Events

Notes:

(1) References to times in the Circular are to London time (unless otherwise stated).

(2) The timing of the events in the above timetable and in the rest of the Circular is indicative only and may be subject to change.

(3) If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement to an RIS and otherwise communicated to Placees.

(4) Certain of the events in the above timetable are conditional upon, amongst other things, the approval of the Resolutions to be proposed at the General Meeting.

(5) The Company’s SEDOL code is B06GSH4 and ISIN code is GB00B06GSH43.

(6) The Warrants will not be separately admitted to trading on AIM, but the Warrant Shares which will arise following any valid exercise of Warrants will be admitted to trading as part of the single class of shares admitted to trading on AIM.

Key Statistics

Notes:

(1) As at 16 June 2016, being the last practicable date prior to the date of the Circular and assuming no further issue of Ordinary Shares between the date of the Circular and Admission.

(2) Net proceeds are stated after deduction of estimated total expenses of approximately £2.8 million.

(3) Assumes all Warrants are exercised on a ‘for cash’ basis and no further issue of shares between Admission and the date of exercise. In practice the Warrants will likely be exercised after the US IPO and the number of Warrant Shares arising will be lower than the maximum if the cashless exercise mechanism is used by Warrantholders (as described in more detail in paragraph 5 of part I and paragraph 4.4 of part III of the Circular).

Exchange rates

The rate of exchange used throughout the Circular, unless otherwise stated, is US$1.4158: £1.00 and £0.7061: US$1.00 being the closing rate on 16 June 2016, the last practicable date prior to the date of the Circular.

Letter from the Chairman

Introduction

The Company proposes to raise a total of approximately £44.7 million (before expenses) through a Placing of 1,555,796,345 Units with new and existing institutional investors at a price of 2.873 pence per Unit. Each Unit comprises one Placing Share and one Warrant. The Company has obtained conditional commitments to raise approximately £41.9 million (net of expenses).

The Placing comprises a UK Placing and a US Placing. The US Placing is being directed at US Persons only, and the Placing Shares to be issued thereunder will be admitted to trading on AIM on Admission.

N+1 Singer is acting as lead UK broker for the Company and MTS Securities, LLC is acting as US Placement Agent. The Placing is not being underwritten.

Each Warrant will be exercisable into 0.4 of a Warrant Share, at an exercise price per Warrant Share of 3.4476 pence, being 120 per cent. of the Issue Price. Further particulars of the Warrants including the conditions under which they may be exercised are provided below and in paragraph 4.4 of part III of the Circular. The Warrants will not be separately admitted to trading on AIM, but the new Warrant Shares will, following valid exercise of the Warrants in accordance with the terms of the Warrant Instrument, be admitted to trading as part of the single class of shares admitted to trading on AIM.

The net proceeds of the Placing will be used to progress RPL554 through several Phase 2 studies, including a Phase 2b study after which the Board will consider whether continuing development alone by the Company or partnering the drug candidate would be likely to provide a commercially attractive return for Shareholders.

The UK Placing and the US Placing are conditional, inter alia, upon the passing by the Shareholders of the Resolutions at the General Meeting, including special resolutions which will give the Company the required authority to dis-apply statutory pre-emption rights in respect of the allotment of the New Shares and to authorise the adoption of new articles of association (the “New Articles”), conditional on Admission. Subject to all relevant conditions being satisfied (or, if applicable, waived), it is expected that the Placing Shares will be admitted to trading on AIM on or around 29 July 2016 (with Warrant certificates delivered on or around 16 August 2016).

The purpose of this letter is to outline the reasons for the Placing and explain why the Board considers the proposals described in the Circular to be in the best interests of the Company and Shareholders as a whole, and why the Directors recommend that you vote in favour of the Resolutions, as they intend to do in respect of the Ordinary Shares held by them, in order to give effect to the Placing.

The Company has further agreed with Vivo Capital and the other US Purchasers to seek to raise a further tranche of funding in the future (“Tranche 2”), expected to be at an aggregate offering size reasonably acceptable to the Company and to the holders of a majority of the Units issued at Tranche 1, coupled with a listing of ADSs on NASDAQ (the “US IPO”).

Background to and reasons for the Placing

The Company has made significant progress on the development of its lead drug candidate, RPL554, to treat respiratory diseases with significant unmet medical needs, such as COPD, cystic fibrosis and potentially asthma. RPL554 is a first-in-class PDE3/PDE4 inhibitor currently being developed as a nebulised maintenance treatment for COPD patients with moderate to severe disease and possibly as a treatment of acute exacerbations of COPD in the hospital setting.

65 million people worldwide suffer from moderate to severe COPD and according to the World Health Organisation, COPD was among the four leading causes of death globally in 2015 together with lower respiratory tract infections and after heart disease and stroke (http://www.who.int/mediacentre/factsheets/fs310/en/). Currently available drugs are aimed at long-term maintenance therapy, with the market dominated by large pharma. Despite the wide availability of these therapies, COPD patients suffer acute periods of worsening symptoms (exacerbations), which cause, in the US alone, some 1.5 million emergency department visits, 726,000 hospitalisations and 120,000 deaths per annum. There is an urgent need for new and more effective treatments.

The Company has successfully completed five early clinical phase 1 and phase 2a studies for RPL554, having dosed 105 subjects with an initial proof of concept formulation. These single and multiple dose studies of the previous nebulized formulation demonstrated that RPL554, when inhaled across a range of doses, is an effective bronchodilator in patients with COPD and asthma and has bronchoprotective properties (e.g. it reduces the hypersensitivity of airways to inhaled irritants). RPL554 has a rapid onset of action and the magnitude of the bronchodilator effect seems to be at least as profound as that of other commonly used bronchodilator drugs. RPL554 has also been demonstrated to have a potent anti- inflammatory effect in a number of pre-clinical models and in a clinical trial.

Since 2014, the Company focused on the development of a new proprietary suspension formulation of RPL554 which is stable, scalable and suitable for commercial use. The first phase 1/2a study with this new nebulised formulation started at the end of that year and the clinical phases of the SAD and MAD study in healthy subjects and the MAD study in COPD patients were completed in 2015 (in each case over 5.5 days, with twice daily dosing). 112 subjects took part in these phase 1/2a studies. The first two parts of the trial in healthy subjects indicated that the new formulation is well tolerated, as 16 times the previously used bronchodilator dose (vs. the old formulation) could be administered without reaching a maximum tolerated dose. Initial observations also revealed a longer residence time in the lung, lower peak plasma concentrations and a longer plasma half-life than the previously used formulation, suggesting that twice daily dosing may also be achievable. Positive headline data from the third and final part of the phase 1/2a trial with the new nebulised formulation was reported in September 2015, meeting its objective and demonstrating safety and tolerability in COPD patients with moderate severity of disease. Importantly, data also supported the findings from the first two parts of the trial. The data demonstrated that as designed, the new commercially scalable, suspension formulation is well tolerated at all doses with no reports of serious adverse events. Lung function was also significantly increased in all dose groups. This has allowed the Company to study a broad dose range and confirm that the duration of the bronchodilation effect seems appropriate for twice daily dosing.

Following this positive data from the Phase 1/2a study, and following full data from the final part of this trial, the Company has also completed and reported the outcomes of two additional phase 2a studies. As announced in June 2015, the Company conducted a second single-dose Phase 2a dose-finding study on RPL554 in 29 asthma patients in a double-blind, placebo-controlled, seven-way crossover study. The primary objective of this study was to establish the bronchodilator effect and duration of action as compared to the most widely used bronchodilator. Results from this study were reported in March 2016. The primary objective was met, with nebulised RPL554 demonstrating a dose-dependent and highly statistically significant (p<0.0001) bronchodilator response in asthma patients. The maximum bronchodilator effect of RPL554 in this study was comparable to the effect observed with the supramaximal dose (7.5mg) of nebulised salbutamol used in this study. RPL554 did not elicit any serious adverse events or adverse events of concern at any dose suggesting that the compound may have a large safety margin.

The Company has also investigated the possibility that RPL554 can be used in combination with existing bronchodilator drugs with a study in COPD patients that started in October 2015. The primary objective of the study was met, with RPL554 producing a highly significant (p<0.001) and a clinically meaningful additional (>60 per cent.) bronchodilation on top of standard doses of commonly used bronchodilators, salbutamol and ipratropium bromide. The bronchodilator effects seen with the combinations were significantly (p<0.001) larger than those of either salbutamol or ipratropium bromide alone, which were in turn all significantly greater than placebo. In addition, the combination of RPL554 with salbutamol or ipratropium bromide caused a significant reduction (p=0.0002 and p=0.004 respectively) in trapped air in the lung (residual volume) as compared to salbutamol or ipratropium bromide alone, suggesting that RPL554 treatment may reduce dyspnea, a major debilitating symptom of COPD. Consistent with previous studies, RPL554 was well tolerated both alone and in combination.

The Company also plans further studies in 2016 to explore the potential of RPL554 in cystic fibrosis.

The Board believes that RPL554 has the potential to become a novel treatment for patients with obstructive lung diseases such as COPD, cystic fibrosis and potentially asthma, and that it can provide clear healthcare economic benefits in a commercial setting. The Company has considered all available options for further funding of its development programmes, as without further capital the Company has sufficient resources to fund its near terms plans only. Having done so, the Board believes that the Placing is required in order to finance the Company adequately through to the end of the first Phase 2b study, a major value inflection point at which the Board considers it will be better placed to consider whether to continue development alone or to partner its drug candidates, should this provide a sufficiently attractive return at that time.

Use of Proceeds

The net proceeds of the Placing will be approximately £41.9 million, which are expected to fund RPL554 through a Phase 2b clinical trial in chronic obstructive pulmonary disease (COPD) patients and additional Phase 2 studies in both COPD and in cystic fibrosis. The net proceeds are expected to be allocated approximately as to:

*covering continuing operating expenditure as increased for the above development work and for the anticipated costs of listing and maintaining the NASDAQ listing.

Principal terms of the Placing

The Company has conditionally raised a total of approximately £44.7 million (before expenses) by the Placing of 1,555,796,345 Units at the Issue Price to the Placees. Each Unit comprises one Placing Share and one Warrant over 0.4 of a Warrant Share. Further particulars of the Warrants are provided below.

The UK Placing is conditional, inter alia, upon:

(i) the passing of the Resolutions;

(ii) the Placing Agreement not having been terminated in accordance with its terms prior to Admission;

(iii) written confirmation from the Company that, as far as it is aware (having made reasonable enquiries of the Directors, its advisers and the US Placees), there is no fact, matter or circumstance existing which would allow the US Purchasers to terminate the Purchase Agreement; and

(iv) Admission.

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