Verona: ENHANCE-1 Study At End Of 2022, A Value Inflection Point

Verona Pharma (NASDAQ:NASDAQ:VRNA) is a great speculative biotech play to look into. That’s because it already reported positive results from one study using ensifentrine for the treatment of patients with Chronic Obstructive Pulmonary Disease (COPD). It has a data readout from its second phase 3 study towards the end of 2022, which if also successful, I believe could be a huge value inflection point for this biotech. This drug is unique because it has a dual targeting mechanism of action, allowing it to be different from other currently available therapies. Not only that, but it was noted that patients who received nebulized ensifentrine in the phase 3 ENHANCE-2 study, achieved both the primary and secondary endpoints. On top of that, it was able to reduce exacerbations in patients with COPD by 42% compared to placebo. This was one of the two phase 3 studies evaluating ensifentrine as a nebulized drug.

The second phase 3 ENHANCE-1 study is expected to report results by the end of 2022. This would be a major catalyst for investors to look forward to. It is still risky, because there is no guarantee that this second phase 3 study will be successful. Still, the drug did well in one phase 3 study and in a prior phase 2 study, meeting statistical significance in both instances. Patients in these studies were on background therapies which also likely helped. If the second phase 3 study is successful (ENHANCE-1), then the company will be able to file a New Drug Application (NDA) to the FDA for ensifentrine in the 1st half of 2023.

There is an opportunity to expand upon the potential territory for which this drug can be marketed as maintenance treatment for COPD. This is because Verona Pharma’s partner Nuance received clearance to initiate a phase 1 and phase 3 study, using ensifentrine for the maintenance treatment of chronic obstructive pulmonary disease (COPD), in mainland China.

Lastly, with the way the drug was developed, it also has the ability to activate the Cystic Fibrosis Transmembrane Conductance Regulator (CFTR). As such, ensifentrine could also be advanced for the treatment of patients with Cystic Fibrosis. With proof of concept established for ensifentrine as a maintenance treatment for COPD, plus the ability to expand its potential towards another market share and indication, these are the reasons why I believe it is a great speculative biotech play to look into.

Ensifentrine For The Treatment Of Patients With Chronic Obstructive Pulmonary Disease

The main drug in the pipeline is ensifentrine, which is being developed for the treatment of patients with chronic obstructive pulmonary disorder (COPD). But before diving into COPD itself and the positive clinical results from one of the two phase 3 studies, it’s important to note the mechanism of action of this drug. It is a dual inhibitor of phosphodiesterase 3 (PDE3) and phosphodiesterase 4 (PDE4) enzymes. PDE3 and PDE4 have anti-inflammatory and bronchodilator effects, which both when combined have synergistic properties. This, instead of just using a PDE3 inhibitor or a PDE4 inhibitor alone. There was a challenge though in that prior drugs such as this were developed for oral use (pill form). The problem is that the efficacy was not as great when delivered in such a fashion, plus the side effects. As such, Verona Pharma developed the nebulized version which was explored in the positive phase 3 study. With this type of delivery, the drug could not only work better because it reaches the point of interest quicker but also reduce systemic side effects as well. “Nebulized” means converting a liquid substance like ensifentrine to spray form.

Chronic obstructive pulmonary disease is where the airflow of a person is blocked, which in turn makes it hard for them to breathe. You may have heard of chronic bronchitis or gotten it, this is one condition as part of COPD. Another, would be something known as emphysema, which is where the air sacs in the lungs become damaged. It is estimated that there are 3 million cases in the United States alone each year. The global market opportunity for Chronic obstructive pulmonary disease is expected to reach $14.1 billion by 2025. Symptoms that these patients experience are as follows:

• Chronic coughing
• Wheezing constantly
• Shortness of breath

I also view this space as an important one. That’s because those with COPD have damage caused to the lungs that can’t be reversed. Other oral steroids or rescue inhalers can control symptoms and minimize further damage to an extent. However, it’s important that new treatments like ensifentrine help to further reduce damage in a more sustained fashion as a long-term treatment option. Once the damage is done to the lungs then there aren’t many drugs which can reverse this effect.

Moving on to the ENHANCE program itself, this was designed to set up two identical studies, which are set to recruit up to 800 COPD patients in each. Both of these studies are known as ENHANCE-1 and ENHANCE-2. The way that each of these studies were set up is that they treated these patients with nebulized ensifentrine as a monotherapy and then added a bronchodilator (another drug used to expand airway of the lungs) such as LAMA or LABA, and then compare it to placebo. About 20% of patients received another type of therapy to help expand lung airways such as ICS (inhaled corticosteroids). Both of these studies were designed to treat patients over a 24-week period. However, a key difference is that ENHANCE-1 is also evaluating patients for long term safety as well over a 48 week period. Thus, why this phase 3 study is taking a bit longer to complete. As I noted in the beginning of this article, the ENHANCE-2 trial met the primary endpoint and all secondary endpoints as well. What I want to key in on, which is the most important for this drug to ever receive approval would be the primary endpoint. The primary endpoint is improvement in lung function as measured by average Forced Expiration Volume 1 (FEV1) AUC (Area under the curve) 0-12 hours post dose at week 12. It was shown that ensifentrine was able to achieve a change from baseline in average FEV1 AUC 0-12 hours post dose at week 14 of 94 mL. This was statistically significant compared to placebo with a p-value of p<0.0001. Another solid finding was that patients who received ensifentrine achieved a 42% reduction in the rate of moderate to severe COPD exacerbations over a 24-week period. “Exacerbations” means worsening of COPD symptoms or in other words getting much worse in disease.

With ENHANCE-2 meeting the primary endpoint, the wait and see moment now is if the other late-stage study ENHANCE-1 can also meet the very same primary endpoint for COPD patients. Results from this other phase 3 study are going to be released by the end of 2022. This is all great so far, but there is one stipulation which must first be achieved before the company can move on towards potential filing of a regulatory application. It goes to the upcoming data readout by the end of 2022 from ENHANCE-1. This second phase 3 study must also meet the very same primary endpoint. If it does, then Verona will be able to file a New Drug Application to the FDA for the potential approval of ensifentrine for COPD by the 1st half of 2023. However, if this other study doesn’t achieve the primary endpoint, then advancement will be up in the air. What do I mean by that? Well, the FDA may require an additional successful study or by a small percentage chance the drug may still be approved.

There are opportunities for expansion though. One such opportunity is being able to get ensifentrine to market in China. That’s because Verona Pharma made a licensing deal whereby Nuance Pharma could develop and commercialize ensifentrine as a maintenance treatment for COPD in Greater China. These territories include mainland China, Taiwan, Hong Kong and Macau. This was a $219 million strategic collaboration that was done back in June of 2021. Verona received an upfront payment of $40 million and has the potential to earn $179 million in possible clinical, regulatory and commercial milestone payment. Not only that, but it could earn up to double-digit royalties on net sales for products sold in China as well. About a month ago, Nuance Pharma got clearance to initiate both phase 1 and phase 3 studies with ensifentrine for COPD in China. Successful outcomes from both of these studies in that region would mean the possibly to expand the market opportunity for this treatment. Another expansion opportunity would be the potential for ensifentrine to be used for the treatment of patients with Cystic Fibrosis (CF). As I stated above, this drug has a profound effect on being able to activate CFTR, which is important for reducing mucous viscosity in patients with CF. Having said that, this is another avenue for which Verona Pharma can explore to expand the potential opportunity it has with ensifentrine.

Financials

According to the 10-Q SEC Filing, Verona Pharma had $111 million cash as of June 30, 2022. Throughout the years it has been enacting several measures to raise cash. In March of 2021, it entered into an open market sale agreement with Jefferies LLC to sell shares of our ordinary shares, in the form of ADSs, with aggregate sales noted up to $100 million. Such shares under this agreement could be sold from time to time through the “at the market” equity offering program. During the 6 months ending June 30, 2022 it sold about 80,696 shares under this ATM Program (translates to 10,087 ADSs). It raised approximately $0.1 million after deducting expenses. If it has a need to do so, it still can sell $99.2 million worth of ordinary shares (As ADSs) under this ATM Program. In November 2020, it entered into a loan facility agreement with Silicon Valley Bank of up to $30 million. At the time of closing it got a term loan advance of $5 million. There is an aggregate amount of $10 million available to certain conditions and milestones and then a term loan advance of $15 million subject to clinical developments and other specified conditions. It believed that it would have enough cash to fund its operations until the end of 2023. However, it chose not to do so. As such, the very same day it announced its earnings update, it also disclosed an upsized public offering. It sold a total of 12,400,000 American Depositary Shares (“ADSs”) each consisting of 8 ordinary shares of Verona Pharma.

In total, it raised an aggregate amount of gross proceeds of $130.2 million before deducting expenses. With this cash raise done just recently, it has now extended its cash runway to mid-2024. Although, my guess is that it may choose to raise cash again at the end of 2023 before it runs out in mid-2024.

Risks To Business

There are several risks investors should be aware of before investing into this name. The first risk deals with the ENHANCE program. Even though the ENHANCE-2 study met the primary endpoint, using nebulized ensifentrine for the maintenance treatment of patients with COPD, that doesn’t mean that the ENHANCE-1 study will also meet on the primary endpoint. Even if this second phase 3 study is successful, the NDA filing must still be accepted by the FDA itself in the 1st half of 2023. Plus, the FDA will have to then review and approve ensifentrine for marketing in the United States.

As far as the phase 1 and phase 3 studies go for China, the hope is that both of these studies will also be successful. There is no guarantee that one or both of these studies will succeed and such that would thwart the ability for Verona to capture the mainland China market.

A third risk to consider would be the financials of the company. The reason why is because even though it states it has enough cash to fund its operations into mid-2024, I don’t believe it will wait till then. My guess is that it could choose to raise cash by mid-2023. Another possibility is that it could choose to raise cash again on the back of positive news. This would either be with the ENHANCE-1 study meeting the primary endpoint or the NDA filing done/being accepted by the FDA in the 1st half of 2023.

Conclusion

The final conclusion is that Verona Pharma is a great speculative biotech play to look into. That’s because it has already established proof of concept in using nebulized ensifentrine as a maintenance treatment for patients with COPD. In addition, if the second phase 3 ENHANCE-1 study by end of 2022 is successful in meeting the primary endpoint, then that would set up many new catalysts in 2023. Such catalysts would be the NDA filing of ensifentrine, NDA acceptance of ensifentrine and possibly even regulatory approval of ensifentrine for COPD in the United States. The initiation of the two studies (phase 1 and phase 3 respectively) for ensifentrine as maintenance treatment for COPD patients in China could expand the possible market opportunity, should they both end up being successful.

Lastly, there is an ability to use this drug to target the large CF market. With a proven treatment of nebulized ensifentrine as maintenance treatment of COPD, plus the ability to expand the potential market and indications, these are the reasons why I believe Verona Pharma is a great speculative biotech play to look into.