Form 10-Q - Quarterly report [Sections 13 or 15(d)]

Name	Symbol	Market	Type
Verona Pharma Plc	NASDAQ:VRNA	NASDAQ	Depository Receipt

	Price Change	% Change	Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Traded	Last Trade
	-0.47	-1.33%	34.90	31.00	35.66	35.965	34.7104	35.01	988,179	05:00:08

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ 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(s)	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.

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, a 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

☐

Smaller 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2024, the registrant had 654,649,358 ordinary shares, nominal value £0.05 per share, outstanding, which if all held in ADS form, would be represented by 81,831,170 American Depositary Shares, each representing eight (8) ordinary shares.


		Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4	Controls and Procedures	29
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3	Defaults Upon Senior Securities	77
Item 4	Mine Safety Disclosure	77
Item 5	Other Information	78
Item 6	Exhibits	78
Signatures		79

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common shares. The principal risks and uncertainties affecting our business include the following:

•We have a limited operating history and have never generated any product revenue.

•We may need additional funding to complete development and commercialization of any future product candidates and 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 depend solely on the success of ensifentrine, which was recently approved by the FDA as Ohtuvayre. If we are unable to commercialize Ohtuvayre, or successfully develop ensifentrine for other indications, our ability to generate revenue and our financial condition will be adversely affected.

•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 revenue interest purchase and sale agreement ("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.

•Clinical drug development and regulatory approval involve a lengthy and expensive process, with uncertain outcomes.

•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.

•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.

•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.

•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.

•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.

•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.

•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, 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 CROs, 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.

•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 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.

•Our future growth and ability to compete depends on our ability to retain our key personnel and recruit additional qualified personnel.

•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.

•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.

•The price of our ADSs may be volatile and may fluctuate due to factors beyond our control.

•Business interruptions could adversely affect our operations.

PART I - FINANCIAL INFORMATION

Item 1. Financial statements

Verona Pharma plc

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)


	September 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	336,040	$	271,772
Accounts receivable, net	6,904		—
Prepaid expenses	7,964		3,617
Tax incentive receivable	5,587		10,954
Inventory	4,315		—

Other current assets	3,443		3,365
Total current assets	364,253		289,708

Non-current assets:
Furniture and equipment, net	40		24
Goodwill	545		545
Equity interest	15,000		15,000
Right-of-use assets	1,980		2,847
Total non-current assets	17,565		18,416
Total assets	$	381,818	$	308,124

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,831	$	3,492
Accrued expenses	18,143		3,585
Royalties payable	169		—
Current operating lease liabilities	952		1,180
Taxes payable	1,011		—
Other current liabilities	844		435
Total current liabilities	27,950		8,692

Non-current liabilities:

Term loan	120,009		48,374
Revenue interest purchase security agreement	102,019		—
Non-current operating lease liabilities	1,349		1,775
Total non-current liabilities	223,377		50,149
Total liabilities	251,327		58,841

Commitments and contingencies

Shareholders' equity:
Ordinary £0.05 par value shares; 667,659,630 and 667,659,630 issued, and 654,649,358 and 643,536,094 outstanding, at September 30, 2024 and December 31, 2023, respectively	42,771		42,771
Additional paid-in capital	621,628		601,063
Ordinary shares held in treasury	(828)		(1,517)
Accumulated other comprehensive loss	(4,601)		(4,601)
Accumulated deficit	(528,479)		(388,433)
Total shareholders' equity	130,491		249,283
Total liabilities and shareholders' equity	$	381,818	$	308,124

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except per share amounts)


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Product sales, net	$	5,624	$	—	$	5,624	$	—
Operating expenses:
Cost of sales	543		—		543		—
Research and development	10,552		2,958		36,704		13,094
Selling, general and administrative	35,196		13,353		104,665		35,381
Total operating expenses	46,291		16,311		141,912		48,475
Operating loss	(40,667)		(16,311)		(136,288)		(48,475)
Other income/(expense):
Research and development tax credit	1,612		(309)		3,044		70
Loss on extinguishment of debt	—		—		(3,653)		—
Interest income	4,750		3,390		11,268		9,469
Interest expense	(9,882)		(401)		(13,225)		(1,434)
Foreign exchange gain/(loss)	1,475		(1,012)		1,281		660
Total other (expense)/income, net	(2,045)		1,668		(1,285)		8,765
Loss before income taxes	(42,712)		(14,643)		(137,573)		(39,710)
Income tax expense	(250)		(44)		(2,018)		(527)
Net loss	$	(42,962)	$	(14,687)	$	(139,591)	$	(40,237)




Loss per ordinary share - basic and diluted	$	(0.07)	$	(0.02)	$	(0.22)	$	(0.06)


Weighted-average shares outstanding - basic and diluted	651,944		638,239		648,633		631,448

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in thousands except share data)


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at December 31, 2023	667,659,630	$	42,771	$	601,063	$	(1,517)	$	(4,601)	$	(388,433)	$	249,283
Net loss	—	—		—		—		—		(25,794)		(25,794)

Restricted share units vested	—	—		—		170		—		(170)		—

Share options exercised	—	—		751		65		—		—		816
Common shares withheld for taxes on vested stock awards	—	—		(3,338)		—		—		—		(3,338)
Equity settled share-based compensation reclassified as cash-settled	—	—		(237)		—		—		—		(237)
Share-based compensation	—	—		4,258		—		—		—		4,258
Balance at March 31, 2024	667,659,630	$	42,771	$	602,497	$	(1,282)	$	(4,601)	$	(414,397)	$	224,988
Net loss	—	—		—		—		—		(70,835)		(70,835)



Restricted share units vested	—	—		—		79		—		(79)		—


Common shares withheld for taxes on vested stock awards	—	—		(1,273)		—		—		—		(1,273)
Equity settled share-based compensation reclassified as cash-settled	—	—		(200)		—		—		—		(200)
Share-based compensation	—	—		15,594		—		—		—		15,594
Balance at June 30, 2024	667,659,630	$	42,771	$	616,618	$	(1,203)	$	(4,601)	$	(485,311)	$	168,274
Net loss	—	—		—		—		—		(42,962)		(42,962)


Restricted share units vested	—	—		—		206		—		(206)		—

Share options exercised	—	—		3,499		169		—		—		3,668
Common shares withheld for taxes on vested stock awards	—	—		(5,600)		—		—		—		(5,600)
Equity settled share-based compensation reclassified as cash-settled	—	—		(543)		—		—		—		(543)
Share-based compensation	—	—		7,654		—		—		—		7,654
Balance at September 30, 2024	667,659,630	$	42,771	$	621,628	$	(828)	$	(4,601)	$	(528,479)	$	130,491

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


	Ordinary shares			Additional paid-in capital		Ordinary shares held in treasury		Accumulated other comprehensive loss		Accumulated deficit		Total shareholders' equity
	Number	Amount
Balance at December 31, 2022	631,338,246	$	40,526	$	529,187	$	(1,549)	$	(4,601)	$	(333,097)	$	230,466
Net loss	—	—		—		—		—		(16,743)		(16,743)
Issuance of common shares under at-the-market sales agreement	20,321,384	1,227		55,682		—		—		—		56,909
Restricted share units vested	—	—		—		270		—		(270)		—
Share options exercised	—	—		1,756		71		—		—		1,827



Share-based compensation	—	—		4,290		—		—		—		4,290
Balance at March 31, 2023	651,659,630	$	41,753	$	590,915	$	(1,208)	$	(4,601)	$	(350,110)	$	276,749
Net loss	—	—		—		—		—		(8,807)		(8,807)
Restricted share units vested	—	—		—		226		—		(226)		—
Share options exercised	—	—		70		7		—		—		77


Share-based compensation	—	—		5,074		—		—		—		5,074
Balance at June 30, 2023	651,659,630	$	41,753	$	596,059	$	(975)	$	(4,601)	$	(359,143)	$	273,093
Net loss	—	—		—		—		—		(14,687)		(14,687)

Restricted share units vested	—	—		—		223		—		(223)		—
Share options exercised	—	—		42		6		—		—		48


Share-based compensation	—	—		5,079		—		—		—		5,079
Balance at September 30, 2023	651,659,630	$	41,753	$	601,180	$	(746)	$	(4,601)	$	(374,053)	$	263,533

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine months ended September 30,
	2024		2023
Cash flows from operating activities:
Net loss:	$	(139,591)	$	(40,237)
Adjustments to reconcile net income to net cash used in operating activities:
Foreign exchange gain	(1,281)		(660)
Amortization of debt issue costs	777		103
Accretion of RIPSA	5,511		—
Accretion of redemption premium on debt	120		84
Loss on extinguishment of debt	3,653		—
Share-based compensation	27,506		14,443
Depreciation	799		469

Changes in operating assets and liabilities:
Accounts receivable	(6,904)		—
Prepaid expenses	(4,347)		(833)
Tax incentive receivable	5,590		(70)
Inventory	(4,315)		—
Other current assets	(832)		(2,260)

Accounts payable	3,435		(2,087)
Accrued expenses	14,742		(6,355)
Royalties payable	169		—
Operating lease liabilities	(573)		(484)
Income taxes	1,765		(954)
Other current liabilities	409		(979)

Net cash used in operating activities	(93,367)		(39,820)
Cash flows from investing activities:
Purchases of furniture and equipment	(45)		—

Net cash used in investing activities	(45)		—
Cash flows from financing activities:
Proceeds from issuance of ordinary shares	—		56,909

Proceeds from Term Loans	122,500		9,996
Proceeds from RIPSA	100,000		—
Payment of debt issuance costs	(6,915)		—
Repayment of 2023 Term Loans	(52,256)		—
Payments of withholding taxes from share-based awards	(11,191)		—
Proceeds from exercise of share options	4,484		1,952

Net cash provided by financing activities	156,622		68,857
Effect of exchange rate changes on cash and cash equivalents	1,058		502
Net change in cash and cash equivalents	64,268		29,539
Cash and cash equivalents at beginning of the period	271,772		227,827
Cash and cash equivalents at end of the period	$	336,040	$	257,366
Supplemental disclosure of cash flow information:
Income taxes paid	$	249	$	1,215
Interest paid	$	6,452	$	1,228

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 group 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 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 potentially be an effective treatment for non-cystic fibrosis bronchiectasis (“NCFBE”). 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 NCFBE.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception, and has an accumulated deficit of $528.5 million as of September 30, 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 September 30, 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.

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 substantial additional funds to achieve its business objectives including to further advance clinical and regulatory activities, to fund launch related costs and to create an effective sales and marketing organization to commercialize Ohtuvayre. 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.

Note 2 - Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation

The unaudited condensed 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 accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed on February 29, 2024 (the “2023 Form 10-K”). The Consolidated Balance Sheet as of December 31, 2023, was derived from audited consolidated financial statements included in the 2023 Form 10-K but does not include all disclosures required by U.S. GAAP for complete financial statements. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and shareholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

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, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company has one operating and reportable segment, the development and commercialization of ensifentrine.

For the three and nine months ended September 30, 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 three and nine months ended September 30, 2024 and accounted for all of the Company's outstanding accounts receivable from product sales as of September 30, 2024. The loss, or a significant change in the buying patterns, of any one of these specialty pharmacies as a customer could negatively impact the sales of Ohtuvayre.

Use of estimates

The preparation of interim unaudited condensed 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 financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these unaudited condensed 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 revenue interest purchase and sale agreement (“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.

Inventory, including Pre-Launch Inventory

The Company values its inventories at the lower of actual cost or net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. When the Company expects to utilize the inventory beyond one year we record it in inventories, long-term on its 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 date of the FDA’s approval of Ohtuvayre, are capitalized. Products used in clinical trials are expensed as research and development expense in the statement 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 product and other revenue 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 three or nine months ended September 30, 2024.


	September 30,
	2024


Finished goods	$	4,315
Inventory	$	4,315

Revenue Interest Purchase and Sale Agreement

The RIPSA is eligible to be repaid based on royalties from net sales of Ohtuvayre (ensifentrine) 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.

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 United States 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 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.

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.

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 on 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 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 on 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 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 segment disclosures.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 - Equity interest

The Company entered into a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma Limited (“Nuance Pharma”) effective June 9, 2021 (the “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 Effective Date, in Nuance Biotech, the parent company of Nuance Pharma.

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 nine months ended September 30, 2024.

Note 4 - Accrued expenses

Accrued expenses consisted of the following (in thousands):


	September 30,		December 31,
	2024		2023
Clinical trial and other development costs	$	6,414	$	752
Professional fees and general corporate costs	4,463		2,039
People related costs	7,266		794
Total accrued expenses	$	18,143	$	3,585

Note 5 - Ligand license agreement obligations

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 contingent liability assumed included a milestone payment on obtaining the first approval of any regulatory authority for the commercialization of a Ligand Licensed Product, 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.

At the time of the acquisition the contingent liability was not recognized as part of the acquisition accounting as it was immaterial.

Due to the FDA approval of Ohtuvayre on June 26, 2024, the Company has recognized the following in the nine months ended September 30, 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 Condensed Consolidated Financial Statements

(unaudited)

Note 6 - Debt

2023 Term Loan

On December 27, 2023 (the “2023 Effective Date”), Verona Pharma, Inc. 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 a term loan facility of up to $400.0 million (the “2024 Term Loans” or “2024 Loan Agreement”), 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

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 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 September 30, 2024, the effective 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 Loans.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

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.

On June 28, 2024, the Company received the Tranche A Purchase Price of $100.0 million.

As of September 30, 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.

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 7 - Share-based compensation

The following table shows the allocation of share-based compensation between research and development and selling, general and administrative costs (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Research and development	$	790	$	1,110	$	5,470	$	3,336
Selling, general and administrative	6,864		3,969		22,036		11,107
Total	$	7,654	$	5,079	$	27,506	$	14,443

The following tables show the activity of each type of share-based compensation and are presented in ordinary shares. The Company’s ADSs that are listed on Nasdaq each represent eight ordinary shares.

Share options activity


						Number of share options outstanding
Balance as of December 31, 2023						24,689,624
Granted						2,432,000
Forfeited						(64,000)

Exercised						(1,037,424)
Balance as of March 31, 2024						26,020,200
Granted						7,924,000
Forfeited						(72,000)
Expired						(160,000)

Balance as of June 30, 2024						33,712,200
Granted						2,056,000
Forfeited						(107,632)

Exercised						(2,654,960)
Balance as of September 30, 2024						33,005,608

Restricted stock units (“RSU”) activity


						Number of RSUs outstanding
Balance as of December 31, 2023						19,502,624

Forfeited						(1,752)
Vested						(4,357,208)
Balance as of March 31, 2024						15,143,664


Vested						(2,045,384)
Balance as of June 30, 2024						13,098,280

Forfeited						(566,824)
Vested						(2,045,376)
Balance as of September 30, 2024						10,486,080

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Performance restricted stock units (“PRSU”) activity

PRSUs will begin to vest upon achievement of certain performance conditions and are subject to continued service. The fair value of PRSUs will be recognized over the remaining service period using the graded-vesting method once the performance conditions are determined to be probable of occurring. As of June 30, 2024, the performance conditions were assessed by the Company and considered probable of being met under the applicable accounting framework, and accordingly the Company recognized $2.2 million and $12.1 million in share-based compensation expense related to the PRSUs in the three and nine months ended September 30, 2024. The total compensation cost not yet recognized as of September 30, 2024 related to PRSUs was $5.0 million, which will be recognized over a weighted-average period of approximately one year.

A summary of the Company’s PRSU activity for the period ended September 30, 2024 is as follows:


						Number of PRSUs outstanding
Balance as of December 31, 2023						10,730,144

Forfeited						(5,248)

Balance as of March 31, 2024						10,724,896



Balance as of June 30, 2024						10,724,896

Forfeited						(420,864)
Vested						(3,569,696)
Balance as of September 30, 2024						6,734,336

Verona Pharma plc

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 8 - Net loss per share

Net loss per share is calculated on an ordinary share basis. The Company’s ADSs that are listed on Nasdaq each represent eight ordinary shares. The following table shows the computation of basic and diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 (in thousands except per share amounts):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Numerator:
Net loss	$	(42,962)	$	(14,687)	$	(139,591)	$	(40,237)
Denominator:
Weighted-average shares outstanding - basic and diluted	651,944		638,239		648,633		631,448
Net loss per share - basic and diluted	$	(0.07)	$	(0.02)	$	(0.22)	$	(0.06)

During the three and nine months ended September 30, 2024 and 2023, outstanding share options, RSUs and PRSUs over 50.2 million and 45.9 million ordinary shares, respectively, were not included in the computation of diluted earnings per ordinary share, because to do so would be antidilutive.

Item 2. 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 together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 29, 2024 (the “2023 Form 10-K”).

In addition to historical information, this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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 commercialization of Ohtuvayre and the increased costs related thereto, the development of our product candidates, including statements regarding the expected initiation, timing, progress and availability of data from our clinical trials, including our recently initiated Phase 2 clinical trials, and potential regulatory approvals, 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 under our various financing agreements and from cash receipts from U.K. tax credits, and the sufficiency of our cash and cash equivalents to fund operations, are forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our management’s 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 Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties, assumptions, and other important factors including, but not limited to, those set forth under Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors” and Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors”. 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.

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 Quarterly Report on Form 10-Q 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Overview

We are a biopharmaceutical company focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical needs. Our product candidate, ensifentrine, is a novel, inhaled, selective, small molecule and dual inhibitor of the enzymes phosphodiesterase 3 and 4 (“PDE3” and “PDE4”), combining bronchodilator and non-steroidal anti-inflammatory activities in one molecule.

On June 26, 2024, the FDA approved Ohtuvayre (ensifentrine) for the maintenance treatment of chronic obstructive pulmonary disease (“COPD”) in adult patients. Ohtuvayre is 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. We believe Ohtuvayre is an important advancement in the treatment of COPD and will redefine the treatment paradigm for COPD.

We launched Ohtuvayre in the U.S. through an exclusive network of accredited specialty pharmacies in August 2024.

The approval of Ohtuvayre in the United States (“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 were published in the American Journal of Respiratory and Critical Care Medicine. Ensifentrine 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 ensifentrine substantially reduced the rate and risk of COPD exacerbations in ENHANCE-1 and ENHANCE-2. Ensifentrine was well tolerated in both trials.

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 Ohtuvayre. 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 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, and

•trial assessing the efficacy and safety of nebulized ensifentrine in patients with non-cystic fibrosis bronchiectasis (“NCFBE”).

We have incurred recurring losses and negative cash flows from operations since inception, and have an accumulated deficit of $528.5 million as of September 30, 2024. We expect to incur additional losses and negative cash flows from operations until our product or product candidates potentially 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 NCFBE, 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 $100.0 million first tranche of our revenue interest purchase and sale agreement (the “RIPSA”). Refer to Note 6 - Debt in our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the 2024 Term Loans and the RIPSA.

We believe that our cash and cash equivalents as of September 30, 2024, our product sales and funding expected to become available under the 2024 Term Loans and the RIPSA will enable us to fund our planned operating expenses and capital expenditure requirements through at least the end of 2026. The remaining advances under the 2024 Term Loans 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.

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 long-acting beta-antagonist (“LABA”). Additionally, approximately 20% of all subjects received inhaled corticosteroids (“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.

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 the third quarter of 2024, we initiated a Phase 2 dose-ranging trial.

Non-cystic fibrosis bronchiectasis

NCFBE 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 NCFBE. In the third quarter of 2024, we commenced a Phase 2 clinical trial to assess the efficacy and safety of nebulized ensifentrine in patients with NCFBE.

Nuance Pharma

In 2021, we entered into an agreement with Nuance Pharma for exclusive rights to develop and commercialize ensifentrine in Greater China, with future potential milestone payments up to $179 million plus royalties. In August 2022, Nuance Pharma received clearance from the Center of Drug Evaluation for its IND application to conduct both Phase 1 and Phase 3 studies with ensifentrine for the maintenance treatment of 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, in September 2024, the Company reported that enrollment had completed. Results from the trial are expected in 2025.

Critical accounting estimates

Other than as described below, there were no material changes to the Company’s critical accounting estimates described in the Company’s 2023 Form 10-K during the nine months ended September 30, 2024.

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 in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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.

Interest expense and royalty interest purchase and sale agreement

The RIPSA timing of repayment is based on royalties from net sales of Ohtuvayre as well as any future sales or monetization of ensifentrine prior to the repayment of the RIPSA. Interest expense is accrued using the effective interest method over the estimated period the RIPSA will be repaid. This requires us to estimate the total amount of future royalty payments to be made from product sales as well as the timing of those repayments. We impute interest on the carrying value of each of the royalty financing obligations and record interest expense using an imputed effective interest rate. 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. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the carrying value of each of the liabilities, 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 the RIPSA balance and interest expense.

Components of results of operations

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.

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 its condensed 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 NCFBE.

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. The credit recorded related to the 2022 financial year was received in the three months ended June 30, 2024, and the credit recorded in the 2023 financial year is expected to be received in 2025.

Taxation

We are subject to corporate taxation in the U.S. and the U.K. We have generated losses since inception and have therefore not paid U.K. corporation tax. The income taxes presented in our Condensed Consolidated Statements of Operations and Comprehensive Loss represent the tax impact from our financing and operating activities in the U.S.

U.K. 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.

Results of operations for the three months ended September 30, 2024 and 2023

The following table shows our statements of operations for the three months ended September 30, 2024 and 2023 (in thousands):


	Three months ended September 30,
	2024		2023		Change
Product sales, net	$	5,624	$	—	$	5,624
Operating expenses:
Cost of sales	543		—		543
Research and development	10,552		2,958		7,594
Selling, general and administrative	35,196		13,353		21,843
Total operating expenses	46,291		16,311		29,980
Operating loss	(40,667)		(16,311)		(24,356)
Other income/(expense):
Research and development tax credit	1,612		(309)		1,921

Interest income	4,750		3,390		1,360
Interest expense	(9,882)		(401)		(9,481)
Foreign exchange gain/(loss)	1,475		(1,012)		2,487
Total other (expense)/income, net	(2,045)		1,668		(3,713)
Loss before income taxes	(42,712)		(14,643)		(28,069)
Income tax expense	(250)		(44)		(206)
Net loss	$	(42,962)	$	(14,687)	$	(28,275)

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 $5.6 million for the three months ended September 30, 2024.

Cost of sales

Cost of sales was $0.5 million for the three months ended September 30, 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 $10.6 million for the three months ended September 30, 2024, compared to $3.0 million for the three months ended September 30, 2023, an increase of $7.6 million. This increase was primarily due to an $7.8 million increase in clinical trial and other development costs as we incurred costs related to the two Phase 2 studies which were initiated in the third quarter of 2024 related to the combination of ensifentrine and glycopyrrolate and nebulized ensifentrine in patients with NCFBE as well as a $0.9 million increase in people-related costs. The prior period clinical trial and other development costs also included the impact of $2.2 million of credits received related to the final financial reconciliation of a Phase 3 ENHANCE program supplier.

Selling, general and administrative costs

Selling, general and administrative costs were $35.2 million for the three months ended September 30, 2024, compared to $13.4 million for the three months ended September 30, 2023, an increase of $21.8 million. This increase was driven primarily by a $9.7 million increase in people-related costs and $2.8 million in share-based compensation, each of which are primarily related to our field sales team which was hired in the lead up to the launch of Ohtuvayre. Additionally, as we launched Ohtuvayre, marketing and other commercial related activities, including travel, increased by $7.5 million. We also had an increase of $1.6 million related to professional and

consulting fees, information technology costs and other support costs due to the continued buildout of our commercial organization.

Other income/(expense)

Other income/(expense), net for the three months ended September 30, 2024 was expense of $2.0 million compared to income of $1.7 million for the three months ended September 30, 2023, a change of $3.7 million. This increase in net expense was primarily due to an increase in interest expense of $9.5 million related to our higher average debt balance and increase in our effective interest rate. This was partially offset by an increase in our research and development tax credit of $1.9 million primarily relating to the current period having higher qualifying clinical trial and other development costs while the prior year period included the impact of the Phase 3 ENHANCE program supplier final reconciliation credits discussed above as well as a $2.5 million increase in foreign exchange impacts relating to the strengthening of the pound against the dollar and a $1.4 million increase in interest income due to our higher average cash balance.

Results of operations for the nine months ended September 30, 2024 and 2023

The following table shows our statements of operations for the nine months ended September 30, 2024 and 2023 (in thousands):


	Nine months ended September 30,
	2024		2023		Change
Product sales, net	$	5,624	$	—	$	5,624
Operating expenses:
Cost of sales	543		—		543
Research and development	36,704		13,094		23,610
Selling, general and administrative	104,665		35,381		69,284
Total operating expenses	141,912		48,475		93,437
Operating loss	(136,288)		(48,475)		(87,813)
Other income/(expense):
Research and development tax credit	3,044		70		2,974
Loss on extinguishment of debt	(3,653)		—		(3,653)
Interest income	11,268		9,469		1,799
Interest expense	(13,225)		(1,434)		(11,791)
Foreign exchange gain	1,281		660		621
Total other (expense)/income, net	(1,285)		8,765		(10,050)
Loss before income taxes	(137,573)		(39,710)		(97,863)
Income tax expense	(2,018)		(527)		(1,491)
Net loss	$	(139,591)	$	(40,237)	$	(99,354)

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 $5.6 million for the nine months ended September 30, 2024.

Cost of sales

Cost of sales was $0.5 million for the nine months ended September 30, 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 $36.7 million for the nine months ended September 30, 2024, compared to $13.1 million for the nine months ended September 30, 2023, an increase of $23.6 million. This increase was primarily due to a $11.9 million increase in clinical trial and other development costs as in the current period we incurred costs related to the two Phase 2 studies which were initiated in the quarter related to the combination of ensifentrine and glycopyrrolate and nebulized ensifentrine in patients with NCFBE, the accrual of the $6.3 million approval milestone due to Ligand, $2.1 million in share-based compensation largely driven by the recognition of PRSU expense, $2.1 million for people-related costs and $1.1 million related to pre-launch manufacturing costs for commercial supply. The increase in clinical trial and other development costs from the prior year also includes the impact on the prior year period 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 the Phase 3 ENHANCE program supplier.

Selling, general and administrative costs

Selling, general and administrative costs were $104.7 million for the nine months ended September 30, 2024 compared to $35.4 million for the nine months ended September 30, 2023, an increase of $69.3 million. This increase was driven primarily by an increase of $19.9 million in marketing and other commercial related activities,

including travel related to the launch of Ohtuvayre, a charge of $15.0 million first sale milestone payment due to Ligand, and an increase of $5.1 million in professional and consulting fees, information technology costs and other support costs due to the continued buildout of our commercial organization. Additionally, we had an increase of $18.0 million in people-related costs as we built out our commercial organization including much of the field sales team as well as an increase of $10.8 million related to share-based compensation largely driven by the recognition of PRSU expense and the increase in our headcount due to the field sales team and other support staff.

Other (expense)/income, net

Other (expense)/income, net for the nine months ended September 30, 2024 was expense of $1.3 million compared to income of $8.8 million for the nine months ended September 30, 2023, a change of $10.1 million. This change was primarily due to the recognition of a loss on the extinguishment of our 2023 Term Loan of $3.7 million as well as an increase in interest expense of $11.8 million related to our higher average debt balance and increase in our effective interest rate. This was partially offset by an increase in our research and development tax credit of $3.0 million primarily relating to the current period having higher qualifying clinical trial and other development costs while the prior year period included the impact of the Phase 3 ENHANCE program supplier final reconciliation credits discussed above and a $1.8 million increase in interest income due to our higher average cash balance.

Cash flows

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):


	Nine months ended September 30,
	2024		2023		Change
Cash and cash equivalents at beginning of the period	$	271,772	$	227,827	$	43,945
Net cash used in operating activities	(93,367)		(39,820)		(53,547)
Net cash used in investing activities	(45)		—		(45)
Net cash provided by financing activities	156,622		68,857		87,765
Effect of exchange rate changes on cash and cash equivalents	1,058		502		556
Cash and cash equivalents at end of the period	$	336,040	$	257,366	$	78,674

Operating activities

Net cash used in operating activities was $93.4 million in the nine months ended September 30, 2024, compared to $39.8 million during the nine months ended September 30, 2023, an increase of $53.5 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 the milestone payments of $21.3 million to Ligand for regulatory approval and the first sale of Ohtuvayre. This was partially offset by the receipt of $8.7 million related to the 2022 R&D tax credit from HMRC.

Financing activities

Net cash provided by financing activities was $156.6 million in the nine months ended September 30, 2024, compared to $68.9 million in the nine months ended September 30, 2023, an increase of $87.8 million. The increase in cash provided by financing activities was primarily due to net proceeds received of $163.4 million in the nine months ended September 30, 2024 from the 2024 Term Loans and the RIPSA, partially offset by the repayment of the 2023 Term Loans and debt issuance costs and the payment of withholding taxes from share-based awards of $11.2 million. In the nine months ended September 30, 2023, we received $56.9 million related to the issuance of ordinary shares as well as $10.0 million of proceeds from our prior term loan with Oxford Finance Luxembourg S.À R.L.

Liquidity and capital resources

To date, we have financed our operations primarily through the issuances of our equity securities, including warrants, from borrowings under term loan facilities, from payments under the RIPSA and from a collaboration and license agreement (the “Nuance Agreement”) with Nuance Pharma effective June 9, 2021.

We have incurred recurring losses since inception, including net losses of $139.6 million for the nine months ended September 30, 2024, and $54.4 million for the year ended December 31, 2023. As of September 30, 2024, we had an accumulated deficit of $528.5 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 experienced increasing expenses to support our commercial launch of Ohtuvayre as well as our costs to expand our research and development efforts, advance our clinical development of ensifentrine in other formulations or for other indications, and seek to obtain regulatory approval for and commercialize ensifentrine in various formulations or indications.

We have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than leases, the 2024 Term Loans and the RIPSA.

2024 Financing and Capital Transactions

During the nine months ended September 30, 2024, we had the following financing transactions:

•Entered into the 2024 Term Loans and RIPSA and drew on tranches of $225 million;

•Repaid the 2023 Term Loans in full.

Refer also to Note 6 - Debt to the unaudited condensed consolidated financial statements for additional information on the 2024 Term Loans.

Funding requirements

We believe that our cash and cash equivalents as of September 30, 2024, together with additional funding expected to become available under the 2024 Term Loans and the RIPSA, will enable us to fund planned operating expenses and capital expenditure requirements, including the commercial launch of Ohtuvayre, through at least the end of 2026. Future advances under the 2024 Term Loans and the RIPSA are contingent upon achievement of certain commercial milestones and other specified conditions, and in the case of the Tranche E Term Loan, at the sole discretion of the 2024 Lenders. 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 to commercialize Ohtuvayre or to 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.

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 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 NCFBE, 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 NCFBE, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market risk related to changes in interest rates. As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $336.0 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 three months ended September 30, 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 three months ended September 30, 2024 were incurred primarily in U.S. dollars, but also included euros and pound sterling. As at September 30, 2024, approximately 5% of cash and cash equivalents and 12% 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 4. 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 Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently subject to any material legal proceedings.

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 Quarterly Report on Form 10-Q, including our condensed 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 $43.0 million for the three months ended September 30, 2024, and $54.4 million for the year ended December 31, 2023. As of September 30, 2024, we had an accumulated deficit of $528.5 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 commercially launch 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 (“NCFBE”), 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 in other territories, if and when approved in such territories.

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 FDA 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 commercial launch 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 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 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 and additional funding received and expected to become available under the 2024 Term Loans and the RIPSA will enable us to fund planned operating expenses and capital expenditure requirements through at least the end of 2026, including commercializing Ohtuvayre in the U.S. Future advances under the 2024 Term Loans and the RIPSA are contingent upon achievement of certain regulatory and 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.