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Verona Pharma plc Verona Pharma Reports Financial Results For The Full Year Ended December 31, 2019 And Provides Corporate Up...

27/02/2020 7:00am

UK Regulatory (RNS & others)


 
TIDMVRP 
 
   Post-period end, reported positive top-line Phase 2b results with 
nebulized ensifentrine and senior management changes 
 
   Conference Call Today at 9:00 am EST / 2:00 pm GMT 
 
   LONDON, Feb. 27, 2020 (GLOBE NEWSWIRE) -- Verona Pharma plc (AIM:VRP) 
(Nasdaq:VRNA) (Verona Pharma), a clinical-stage biopharmaceutical 
company focused on developing and commercializing innovative therapies 
for respiratory diseases, announces its unaudited results for the full 
year ended December 31, 2019, and provides a corporate update. 
 
   "We believe that 2020 will be a transformative year for Verona Pharma. 
Both Mark Hahn and I are very pleased to have joined Verona, where we 
can leverage our experience in leading pharmaceutical companies through 
late-stage clinical trials and into commercialization of innovative 
therapeutics like ensifentrine," said David Zaccardelli, Pharm. D., 
President and Chief Executive Officer. "We are looking forward to our 
planned End-of-Phase 2 meeting with the U.S. FDA in the second quarter 
and initiating our Phase 3 program for ensifentrine in the treatment of 
COPD later this year." 
 
   "We believe that ensifentrine, with its novel mechanism of action 
possessing both bronchodilation and anti-inflammatory activity in a 
single agent, has the potential to significantly benefit COPD patients. 
In the US alone, over 1.2 million COPD patients remain symptomatic 
despite treatment with current maximal therapy. We believe ensifentrine 
will be an important therapy for these patients. Beyond the first 
indication for nebulized ensifentrine, we continue progressing both dry 
powder inhaler ("DPI") and pressurized metered dose inhaler ("pMDI") 
formulations for COPD patients and ultimately advancing into asthma and 
cystic fibrosis indications." 
 
   OPERATIONAL AND DEVELOPMENT HIGHLIGHTS 
 
   Clinical development progress with ensifentrine demonstrating efficacy 
and tolerability in COPD patients. 
 
   Nebulizer formulation: 
 
   In January 2020, the Company reported positive top-line data from a 
Phase 2b clinical study in symptomatic patients with moderate to severe 
COPD. The study met the primary endpoint at all doses, as well as 
meeting clinically relevant secondary endpoints: 
 
 
   -- The 4 week, 416 patient, Phase 2b dose-ranging study evaluated nebulized 
      ensifentrine (0.375 mg, 0.75 mg, 1.5 mg and 3.0 mg) or placebo as an 
      add-on treatment to tiotropium (Spiriva(R) Respimat(R)), a long acting 
      anti-muscarinic antagonist ("LAMA"). 
 
   -- The primary endpoint of improved lung function as measured by increase in 
      morning peak  forced expiratory volume in one second (FEV1)1 at week 4 
      was met at all doses. Statistically significant and clinically meaningful 
      improvements ranged from 78 mL for the 0.375 mg dose (p=0.0368) to 124 mL 
      for the 3.0 mg dose (p=0.0008). Effects were maintained over 4 weeks. 
 
   -- Dose-dependent improvements in lung function were observed on both 
      FEV1 and FEV1 AUC(0-12hr)2. 
 
   -- Statistically significant improvement in average FEV1 AUC(0-12hr) of 87 
      mL for the 3.0 mg dose (p=0.0111) is supportive of twice daily dosing. 
 
   -- Clinically meaningful improvements in health-related quality of life 
      (mean SGRQ-C3) were observed when added to tiotropium treatment with the 
      two highest doses also achieving statistical significance. 
 
   -- Ensifentrine was well tolerated at all doses with an adverse event 
      profile similar to placebo. 
 
   -- These data provide support for dose selection in Phase 3 trials. 
 
 
   In January 2019, the Company reported top-line data from an exploratory 
Phase 2a clinical trial in patients with moderate to severe COPD. While 
the study did not meet the primary endpoint of an increase in morning 
peak FEV(1) , ensifentrine did produce additional bronchodilation when 
added to an inhaled long acting anti-muscarinic antagonist/long acting 
beta2 agonist ("LAMA/LABA") therapy. 
 
 
   -- The three-day, 79 patient, Phase 2a trial, evaluated nebulized 
      ensifentrine (1.5 mg or 6.0 mg) or placebo as an add-on treatment to 
      tiotropium/olodaterol (Spiriva(R) Respimat(R)), a LAMA/LABA therapy. 
 
   -- The primary endpoint of statistically significant improvement in peak 
      FEV1 (over 4 hours) on day 3 of treatment was not met, although the 
      morning dose of ensifentrine 1.5 mg improved peak FEV1 by 46 mL, compared 
      to placebo. 
 
   -- In a post hoc analysis, greater lung function improvements were observed 
      in patients less responsive to existing dual bronchodilator therapy. More 
      than 40% of patients observed improved morning peak FEV1 by >100 mL. 
 
   -- Statistically significant improvements in evening peak FEV1 after the 
      evening dose of ensifentrine were observed with both the 1.5 mg and 6 mg 
      dose groups, with ensifentrine 1.5 mg showing a 130 mL improvement 
      (p<0.001) and ensifentrine 6.0 mg showing an 81 mL improvement (p=0.002), 
      compared to placebo. 
 
 
   Inhaler formulations: 
 
   In August 2019, positive Phase 2 clinical data with a DPI formulation 
for the maintenance treatment of COPD met all primary and secondary lung 
function endpoints. 
 
 
   -- The two-part, 35 patient, Phase 2 trial evaluated DPI ensifentrine 
      compared to placebo. In Part A, patients received a single dose of 
      ensifentrine (150 ug4, 500 ug, 1500 ug, 3000 ug, or 6000 ug) or placebo. 
      In Part B, patients were randomized to receive one of four dose levels 
      (150 ug, 500 ug, 1500 ug, or 3000 ug) of ensifentrine or placebo, 
      administered twice daily over one week. 
 
   -- The primary endpoint of improvement in peak bronchodilator effect of 
      repeat doses of ensifentrine, as measured by FEV1, was met. Peak FEV1 
      corrected for placebo demonstrated improvements over baseline of 102 mL 
      for the 150 ug dose, 175 mL for the 500 ug dose, 180 mL for the 1500 ug 
      dose and 260 mL for the 3000 ug dose, (p<0.0001 for all doses), all 
      highly statistically significant. 
 
   -- Statistically significant improvements in average FEV1 over 12 hours 
      (average FEV1 AUC(0-12hr)) corrected for placebo were observed over 7 
      days with all doses: 36 mL for the 150 ug dose, 90 mL for the 500 ug dose, 
      80 mL for the 1500 ug dose and 147 mL for the 3000 ug dose (p<0.05 for 
      all doses). 
 
   -- Ensifentrine in a handheld dry powder format was well tolerated at all 
      doses with an adverse event profile similar to placebo. The safety 
      profile was comparable to that observed in clinical studies with 
      nebulized ensifentrine. 
 
 
   We have initiated a Phase 2 clinical trial with a pMDI formulation of 
ensifentrine. Single dose data are expected early in the second quarter 
of 2020, and multiple dose data are expected in the second half of 2020. 
 
   ORGANIZATION 
 
   Major organization changes: 
 
   David Zaccardelli, Pharm. D., appointed President and Chief Executive 
Officer, and Mark W. Hahn appointed Chief Financial Officer, following 
the end of the period. 
 
   Strengthened the management team through the additions of Kathleen 
Rickard, MD, as Chief Medical Officer, and Tara Rheault, PhD, MPH, as 
Vice President of Research and Development Operations and Global Project 
Management. Expanded the clinical team through the addition of senior 
experts with many years of experience in late-stage clinical development 
of COPD therapies. 
 
 
 
 
(1) FEV(1) : Forced Expiratory Volume in one second, 
 a standard measure of lung function 
 (2) FEV(1) AUC(0-12hr) : Area Under the Curve 0-12 
 hours calculated using the trapezoidal rule, divided 
 by the observation time (12 hours) to report in mL, 
 a measure of the aggregate effect over 12 hours 
 (3) SGRQ-C: St. George's Respiratory Questionnaire 
 is a validated instrument that measures impact on 
 overall health, daily life, and perceived well-being 
 in patients with COPD (i.e. change in frequency and 
 severity of COPD symptoms, and impact on activities, 
 social functioning and psychological disturbances 
 related to airways disease). 
 (4) ug: microgram, or mcg 
----------------------------------------------------- 
 
   FINANCIAL HIGHLIGHTS 
 
 
   -- Cash, cash equivalents and short-term investments at December 31, 2019 
      amounted to GBP30.8 million (December 31, 2018: GBP64.7 million); 
 
   -- For the year ended December 31, 2019, reported operating loss of GBP41.1 
      million (full year 2018: GBP25.6 million) and reported loss after tax of 
      GBP31.9 million (full year 2018: loss after tax of GBP19.9 million), 
      reflecting the preparation and initiation of clinical trials and 
      pre-clinical activities; 
 
   -- Reported loss per share of 30.3 pence for the year ended December 31, 
      2019 (full year 2018: loss per share 18.9 pence); 
 
   -- Net cash used in operating activities for the year ended December 31, 
      2019 of GBP33.8 million (full year 2018: GBP18.1 million). 
 
 
   The company today published its audited accounts for the year ended 
December 31, 2019. 
 
   THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF 
ARTICLE 7 OF REGULATION (EU) NO 596/2014. 
 
   For further information, please contact: 
 
 
 
 
 
Verona Pharma plc                                        Tel: +44 (0)20 3283 4200 
-------------------------------------------------------  ------------------------- 
                                                         info@veronapharma.com 
-------------------------------------------------------  ------------------------- 
David Moskowitz, VP Capital Markets Strategy & Investor 
 Relations (Investor Enquiries) 
 Victoria Stewart, Director of Communications (Media 
 Enquiries) 
-------------------------------------------------------  ------------------------- 
 
N+1 Singer                                               Tel: +44 (0)20 3283 4200 
 (Nominated Adviser and UK Broker) 
-------------------------------------------------------  ------------------------- 
Aubrey Powell / George Tzimas / Iqra Amin (Corporate 
 Finance) 
-------------------------------------------------------  ------------------------- 
Tom Salvesen (Corporate Broking) 
-------------------------------------------------------  ------------------------- 
 
Optimum Strategic Communications                         Tel: +44 (0)20 950 9144 
 (European Media and Investor Enquiries)                  verona@optimumcomms.com 
-------------------------------------------------------  ------------------------- 
Mary Clark / Eva Haas / Hollie Vile 
-------------------------------------------------------  ------------------------- 
 
Argot Partners                                           Tel: +1 212-600-1902 
 (US Investor Enquiries)                                  verona@argotpartners.com 
-------------------------------------------------------  ------------------------- 
Stephanie Marks / Kimberly Minarovich / Michael Barron 
-------------------------------------------------------  ------------------------- 
 
 
   An electronic copy of the annual report and accounts will be made 
available today on the Company's website (http://www.veronapharma.com). 
Also, a copy of the Form 20-F will be filed with the SEC today. This 
press release does not constitute an offer to sell or the solicitation 
of an offer to buy securities, and shall not constitute an offer, 
solicitation or sale in any jurisdiction in which such offer, 
solicitation or sale would be unlawful prior to registration or 
qualification under the securities laws of that jurisdiction. 
 
   About Verona Pharma 
 
   Verona Pharma is a clinical-stage biopharmaceutical company focused on 
developing and commercializing innovative therapies for the treatment of 
respiratory diseases with significant unmet medical needs. If 
successfully developed and approved, Verona Pharma's product candidate, 
ensifentrine, has the potential to be the first therapy for the 
treatment of respiratory diseases that combines bronchodilator and 
anti-inflammatory activities in one compound. Verona Pharma is currently 
in Phase 2 development with three formulations of ensifentrine for the 
treatment of COPD: nebulized, dry powder inhaler, and pressurized 
metered-dose inhaler. Ensifentrine also has potential applications in 
cystic fibrosis, asthma and other respiratory diseases. For more 
information, please visit 
https://www.globenewswire.com/Tracker?data=ocvLOlYr2W1qjVmgw3vszBTucF1WEJdt5bBqtoTSbfIDAS7mFcO34ozhtltFXiw6eyVlis1xAuA7UgXXLhemwfQf65LZ_vtap9qZV-I6Pek= 
www.veronapharma.com. 
 
   Forward-Looking Statements 
 
   This press release contains forward-looking statements. All statements 
contained in this press release that do not relate to matters of 
historical fact should be considered forward-looking statements, 
including, but not limited to, 2020 being a transformative year for 
Verona Pharma, the Company's incoming CEO and CFO leveraging their 
experience in leading pharmaceutical companies through late-stage 
clinical trials and into commercialization of innovative therapeutics 
like ensifentrine, the development of different formulations of 
ensifentrine, the progress and timing of clinical trials and data, Phase 
3 readiness of nebulized ensifentrine, the potential for ensifentrine to 
be the first therapy for the treatment of respiratory diseases to 
combine bronchodilator and anti-inflammatory activities in one compound, 
the potential for ensifentrine to significantly benefit COPD patients, 
and potential applications and advancing the development of ensifentrine 
into cystic fibrosis, asthma and other respiratory diseases. 
 
   These forward-looking statements are based on management's current 
expectations. These statements are neither promises nor guarantees, but 
involve known and unknown risks, uncertainties and other important 
factors that may cause our actual results, performance or achievements 
to be materially different from our expectations expressed or implied by 
the forward-looking statements, including, but not limited to, the 
following: our limited operating history; our need for additional 
funding to complete development and commercialization of ensifentrine, 
which may not be available and which may force us to delay, reduce or 
eliminate our development or commercialization efforts; the reliance of 
our business on the success of ensifentrine, our only product candidate 
under development; economic, political, regulatory and other risks 
involved with international operations; the lengthy and expensive 
process of clinical drug development, which has an uncertain outcome; 
serious adverse, undesirable or unacceptable side effects associated 
with ensifentrine, which could adversely affect our ability to develop 
or commercialize ensifentrine; potential delays in enrolling patients, 
which could adversely affect our research and development efforts and 
the completion of our clinical trials; we may not be successful in 
developing ensifentrine for multiple indications; our ability to obtain 
approval for and commercialize ensifentrine in multiple major 
pharmaceutical markets; misconduct or other improper activities by our 
employees, consultants, principal investigators, and third-party service 
providers; our future growth and ability to compete depends on retaining 
our key personnel and recruiting additional qualified personnel; 
material differences between our "top-line" data and final data; our 
reliance on third parties, including clinical investigators, 
manufacturers and suppliers, and the risks related to these parties' 
ability to successfully develop and commercialize ensifentrine; and 
lawsuits related to patents covering ensifentrine and the potential for 
our patents to be found invalid or unenforceable. These and other 
important factors under the caption "Risk Factors" in our Annual Report 
on Form 20-F filed with the Securities and Exchange Commission ("SEC") 
on March 19, 2019, and our other reports filed with the SEC, could cause 
actual results to differ materially from those indicated by the 
forward-looking statements made in this press release. Any such 
forward-looking statements represent management's estimates as of the 
date of this press release. While we may elect to update such 
forward-looking statements at some point in the future, we disclaim any 
obligation to do so, even if subsequent events cause our views to 
change. These forward-looking statements should not be relied upon as 
representing our views as of any date subsequent to the date of this 
press release. 
 
   CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT STATEMENT 
 
   OVERVIEW 
 
   Verona Pharma is a clinical-stage biopharmaceutical company developing 
life enhancing treatments for respiratory diseases with significant 
unmet medical needs. We are focused on the development of our 
first-in-class inhaled candidate, ensifentrine, for the treatment of 
chronic obstructive pulmonary disease (COPD). Ensifentrine has a unique 
dual mode of action. It acts as a bronchodilator and an 
anti-inflammatory in the same molecule. We are in Phase 2 development 
with three formulations of ensifentrine for COPD: nebulized, dry powder 
inhaler (DPI) and pressurized metered-dose inhaler (MDI). 
 
   During the year and post year-end, we made significant clinical progress, 
reporting positive Phase 2 clinical data from trials with nebulized and 
DPI formulations. In addition, we expanded our understanding of the 
market opportunities, retaining our focus on the US as the initial 
market for nebulized ensifentrine. 
 
   OUTLOOK AND STRATEGY 
 
   We intend to become a leading biopharmaceutical company focused on the 
treatment of respiratory diseases with significant unmet medical needs. 
Our key 2020 goals are: 
 
 
   -- Rapidly advance the development of nebulized ensifentrine for the 
      maintenance treatment of COPD in moderate and severe patients 
 
   -- Raise funding to advance the development of ensifentrine and supporting 
      business activities 
 
   -- Agree an End of Phase 2 meeting with the FDA to provide guidance on the 
      design of the Phase 3 program with nebulized ensifentrine 
 
   -- Start our Phase 3 program with nebulized ensifentrine in moderate to 
      severe COPD patients 
 
   -- Report results from a Phase 2 trial with a pressured metered dose inhaler 
      (MDI) formulation of ensifentrine for the treatment of COPD 
 
   -- Longer term we aim to develop ensifentrine for acute exacerbations of 
      COPD as well as additional respiratory indications such as CF and severe 
      asthma, and to seek strategic collaborations with market leading 
      biopharmaceutical companies 
 
 
   We would like to thank the staff and Board members for all their 
contributions and shareholders for their continued support during a 
successful year. 
 
   Significant progress in development and identification of compelling 
market opportunities 
 
   We are initially developing ensifentrine as a nebulized formulation for 
the maintenance treatment of uncontrolled, symptomatic, moderate to 
severe COPD patients. Our market research shows that nebulized delivery 
is the preferred route of administration for more severe COPD patients, 
especially in the US. The regulatory pathway for the development of 
nebulized drug products is well-established. 
 
   COPD is a progressive respiratory disease with no cure. Our market 
research demonstrates that, in the US alone, approximately two million 
patients remain uncontrolled and symptomatic despite taking currently 
available medications. Few therapeutic alternatives are available for 
these patients. 
 
   Ensifentrine is potentially a treatment alternative for these 
symptomatic COPD patients. The past year has seen significant clinical 
progress with the successful completion in January 2020 of our second 
four-week Phase 2b clinical trial with nebulized ensifentrine in over 
400 patients with COPD. In this trial ensifentrine demonstrated 
statistically and clinically meaningful improvements in lung function 
when dosed on top of tiotropium, a LAMA which is a mainstay of current 
COPD chronic maintenance therapy. 
 
   Ensifentrine produced both a clinically meaningful bronchodilator effect 
and a progressive improvement in symptoms, suggesting an 
anti-inflammatory effect in these COPD patients. A further exploratory 
Phase 2 study that reported in January 2019 demonstrated that 
ensifentrine provides additional bronchodilation when added on top of 
what was formerly presumed to be maximum bronchodilator treatment with 
dual or triple COPD standard-of-care treatment. 
 
   In our clinical program, which has enrolled over 1,300 human subjects, 
we have demonstrated that ensifentrine is an effective bronchodilator in 
COPD patients with or without concurrent bronchodilator therapy. In 
addition, many Key Opinion Leaders in the field of COPD support our view 
that the progressive improvement in COPD symptoms observed over a 
four-week treatment period with ensifentrine is due to an 
anti-inflammatory effect, attesting to its dual activity. 
 
   We believe that nebulized ensifentrine could potentially be used to 
treat symptomatic COPD patients who already take either a single 
bronchodilator or dual or triple therapy. This is an attractive market 
opportunity estimated to be about 3 million patients in the US alone. 
 
   The successful development of DPI and MDI formulations of ensifentrine 
and the completion last year of the DPI Phase 2 clinical trial in COPD 
patients are further important development milestones. In August 2019, 
we announced positive results from our Phase 2 clinical trial evaluating 
a DPI formulation of ensifentrine for the maintenance treatment of 
patients with COPD. The magnitude of improvement in lung function, as 
measured by FEV1, was highly statistically significant and we believe 
this supports twice daily dosing of ensifentrine for COPD treatment. 
 
   In June 2019, we announced the initiation of a Phase 2 trial to evaluate 
a pressurized MDI formulation of ensifentrine in patients with 
moderate-to-severe COPD. We anticipate reporting data from the 
single-dose portion of this trial (Part A) early in the second quarter 
of 2020, and reporting results from the second portion of the trial 
(Part B), which evaluates multiple doses of the MDI formulation of 
ensifentrine, in the second half of 2020. 
 
 
 
   In the US, our market research shows that about 5.5 million moderate to 
severe COPD patients currently use these types of devices. We expect 
that developing DPI and MDI formulations would open up another 
attractive market opportunity. We anticipate that we would partner the 
DPI/MDI formulations later in development in order to realize the 
potential of this multi-billion dollar opportunity. 
 
 
 
   In addition to COPD, we believe ensifentrine could become an attractive 
development candidate in cystic fibrosis and severe asthma. 
 
   Senior executive changes bring substantial leadership, operational and 
clinical expertise 
 
   With effect from February 1, 2020, Verona Pharma appointed Dr. David 
Zaccardelli as President and Chief Executive Officer (CEO) and executive 
director. He succeeded Dr. Jan-Anders Karlsson following his retirement 
after 8 years of dedicated service to the Company. Dr. Zaccardelli 
brings substantial specialty pharmaceutical leadership and operational 
expertise, including most notably, serving as President and CEO of Dova 
Pharmaceuticals, Inc. until its acquisition by Swedish Orphan Biovitrum 
AB (Sobi) in November 2019. Previously, Dr. Zaccardelli held several 
senior management roles including Chief Operating Officer at United 
Therapeutics Corporation. 
 
   We have also appointed Mark Hahn, a seasoned pharmaceutical finance 
executive, as Chief Financial Officer (CFO), with effect from March 1, 
2020. Mr. Hahn previously served as the CFO of Dova Pharmaceuticals, 
Inc. and Cempra, Inc. and raised over $600 million to support product 
development and commercialization activities of those companies. Mr. 
Piers Morgan will continue to serve as CFO of Verona Pharma through 
February 28, 2020 to ensure a smooth transition and continue support on 
financial reporting, before leaving to pursue other interests. We are 
grateful to Dr. Karlsson and Mr. Morgan for their contributions to the 
Company. 
 
   To support the later stage development of ensifentrine, in early 2019, 
we strengthened our team with the appointment of Kathleen Rickard, MD, 
as Chief Medical Officer (CMO,) and Tara Rheault, PhD, MPH, as VP 
Research and Development Operations and Global Project Management. 
Together they have extensive expertise in respiratory drug development, 
regulatory affairs and commercialization. We also expanded our team 
hiring experts with significant experience of late-stage clinical trials 
in COPD. 
 
   Ensifentrine - first-in-class bronchodilator and anti-inflammatory agent 
 
   We are a clinical-stage biopharmaceutical company focused on developing 
and commercializing innovative therapeutics for the treatment of 
respiratory diseases with significant unmet medical need. Our product 
candidate, ensifentrine (RPL554) is an investigational, potential 
first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase 
3 and 4, or PDE3 and PDE4, that is designed to act as both a 
bronchodilator and an anti-inflammatory agent. We are not aware of any 
other single compound in clinical development or approved by the U.S. 
Food and Drug Administration, or FDA, nor the European Medicines Agency, 
or EMA, for the treatment of respiratory diseases that acts as both a 
bronchodilator and anti-inflammatory agent. We believe ensifentrine has 
the potential to be the first novel class of bronchodilator in over 40 
years. A nebulized formulation of ensifentrine has currently completed 
Phase 2 clinical development for the treatment of chronic obstructive 
pulmonary disease, or COPD, and we are preparing to meet with the FDA to 
discuss plans for Phase 3 clinical trials, which we expect to commence 
in the third quarter of 2020, subject to FDA feedback and to funding. 
 
   Successful Phase 1 and 2 studies have been completed with nebulized 
ensifentrine in healthy volunteers and in patients with cystic fibrosis, 
or (CF), chronic asthma and allergic rhinitis, in addition to COPD. A 
Phase 2 study in COPD with ensifentrine formulated in a dry powder 
inhaler, or DPI, has been completed, with positive clinical results 
reported in August 2019. A Phase 2 study in COPD with ensifentrine 
formulated in a pressurized metered dose inhaler, or MDI, is ongoing 
with clinical results expected in the second half of 2020. We intend to 
develop ensifentrine as a nebulized therapy for the treatment of COPD. 
 
   For the past 40 years, the treatment of COPD has been dominated by three 
classes of inhaled therapies approved for use by the FDA or EMA: 
antimuscarinic agents and beta2-agonists, both available as either 
short-acting or long-acting bronchodilators, and inhaled corticosteroids, 
or ICS, known for their anti-inflammatory effects. However, despite 
existing treatment with one or multiple combinations of these therapies, 
and owing to the progressive and incurable nature of COPD, many COPD 
patients on maximum inhaled therapy still experience significant lung 
function impairment and symptoms for which limited further approved 
treatment options are available. One such treatment is an oral 
formulation of a PDE4 inhibitor (roflumilast) with anti-inflammatory 
properties, although frequency of adverse events has limited its use in 
COPD patients. Clinicians have expressed desire to use this oral PDE4 
inhibitor in more patients were it not for the adverse events. We 
believe this suggests that ensifentrine has potential to become an 
important treatment for COPD and other respiratory diseases if our 
late-stage clinical program demonstrates favorable efficacy, safety and 
tolerability results for the compound. 
 
   In our clinical trials, treatment with ensifentrine has been repeatedly 
observed to result in statistically significant improvements in lung 
function as compared to placebo, whether dosed alone or in combination 
with commonly used short- and long-acting classes of bronchodilators, 
with or without ICS. Statistically significant means that there is a low 
statistical probability, typically less than 5%, that the observed 
results in a study or a trial occurred by chance alone.   In two Phase 
2b clinical trials of nebulized ensifentrine as a maintenance treatment 
for COPD, patients with moderate-to-severe COPD treated with 
ensifentrine showed clinically meaningful and statistically significant 
improvements in reported COPD symptom scores. In addition, our clinical 
trials have also shown clinically meaningful and statistically 
significant improvements in certain measures of lung function following 
combined treatment with ensifentrine as add-on to other approved 
bronchodilators; COPD patients experienced a marked reduction in 
residual lung volume, which is believed to be related to one of the most 
debilitating symptoms, breathlessness. The rapid onset of action 
observed when adding ensifentrine on top of tiotropium, a commonly used 
LAMA, was also notable, and may be particularly helpful to those 
patients suffering from morning breathlessness. We believe that the 
clinical effects observed with ensifentrine are driven by its 
bronchodilator, anti-inflammatory and mucociliary clearance mechanisms. 
 
   High unmet medical need in symptomatic COPD patients despite treatment 
with current standard-of-care 
 
   We believe there is an urgent and unmet medical need for new and more 
effective treatments for COPD to reduce the number and burden of 
symptoms, acute periods of worsening symptoms, or exacerbations, and 
establish a consistent and durable response to treatment. 
 
   According to the World Health Organization (WHO), over one billion 
people suffer from chronic respiratory diseases. Among the most common 
of these afflictions is COPD, which is a progressive respiratory disease 
for which there is no cure. COPD damages the airways and the lungs and 
leads to shortness of breath, impacting a person's ability to perform 
daily activities. Chronic inflammation plays a central role in the 
pathology of the disease and is particularly prominent in the airways of 
COPD patients. COPD includes chronic bronchitis, which refers to the 
inflammation of the lung and airways that results in coughing and sputum 
production, and emphysema, which refers to a destruction of distal lung 
tissue, or air sacs. 
 
   In some cases, patients with COPD experience exacerbations, which are 
estimated to cause approximately 1.5 million emergency department visits, 
687,000 hospitalizations and 129,000 deaths per year in the United 
States alone. According to the WHO, COPD is expected to become the third 
leading cause of death globally by 2030, with 384 million people 
worldwide suffering from the disease. It is estimated that there are 24 
million people with COPD in the United States, only half of whom have 
been diagnosed. Of those diagnosed with COPD in the United States, more 
than 2 million suffer from severe or very severe forms of the disease. 
Total annual medical costs relating to COPD in the United States are 
projected to rise to $49 billion in 2020. Whereas the number of patients 
diagnosed with COPD in the United States continues to increase annually, 
the growth in numbers in more developing countries, like China, is 
significantly higher.  The prevalence of COPD in China is expected to be 
about 8% of patients over 40 years of age and is expected to increase in 
coming years. Global sales of drugs used for chronic maintenance therapy 
of COPD were $13.6 billion in 2019, of which $9.6 billion were in the 
US. 
 
   Cystic fibrosis and severe asthma 
 
   In CF, a fatal inherited disease, we believe the bronchodilatory and 
anti-inflammatory effects of ensifentrine may be beneficial and, if 
approved, has the potential to become an additional important and novel 
treatment for patients. Furthermore, we aim to explore, alone or with a 
collaborator, the development of ensifentrine to treat severe asthma and 
other respiratory diseases. 
 
   CF is the most common fatal inherited disease in the United States and 
Europe. CF causes impaired lung function and is commonly associated with 
repeat and persistent lung infections  often resulting in frequent 
exacerbations and hospitalizations. There is no cure for CF and although 
current therapies are leading to longer lifespans the median age of 
death for CF patients is still only around 40 years. 
 
   CF is considered a rare, or orphan, disease by both the FDA and the EMA. 
According to the Cystic Fibrosis Foundation, more than 30,000 people in 
the United States and more than 70,000 people worldwide are living with 
CF and approximately 1,000 new cases of CF are diagnosed each year. The 
FDA and the EMA provide incentives for sponsors to develop products for 
orphan diseases, and we may seek orphan drug designation for 
ensifentrine from both regulators in treating CF. CF patients take an 
average of seven medications daily. Global sales of drugs used for the 
treatment of CF were $3.5 billion in 2019, of which $2.0 billion were in 
the US. 
 
   Asthma is widely seen as a result of chronic inflammation in the lungs. 
Worldwide 300 million people suffer from asthma with about 25 million 
diagnosed in the US alone. Global sales of drugs used for the treatment 
of asthma were $16.5 billion in 2019, with $9.7 billion in the US alone. 
Established treatments include those adopted from the treatment of COPD 
(for example, bronchodilators and ICS), anti-IgE agents and leukotriene 
inhibitors. Approximately 1 million patients in the United States are 
refractory asthmatic patients who remain uncontrolled on established 
therapies. These patients are the target for injectable biologic 
anti-IL-5 agents. Annual sales of biologics in the United States for the 
treatment of asthma exceed $1.0 billion. We see potential for 
ensifentrine as an inhaled product for such patients. 
 
   We may also explore the development of ensifentrine in MDI and/or DPI 
formulations for the treatment of asthma and other respiratory diseases. 
 
   DEVELOPMENT OF ENSIFENTRINE 
 
   Clinical development of ensifentrine in COPD 
 
   In January 2020, we reported top-line results from our 4 week 
416-patient Phase 2b dose-ranging clinical trial. This trial evaluated 
four doses of nebulized ensifentrine (0.375 mg, 0.75 mg, 1.5 mg and 3.0 
mg) or placebo as an add-on treatment to tiotropium (Spiriva(R) 
Respimat(R)), a commonly used LAMA bronchodilator, in symptomatic 
patients with moderate-to-severe COPD who required additional treatment. 
The trial met its primary endpoint of improved lung function, with 
ensifentrine plus tiotropium producing a clinically and statistically 
significant dose-dependent improvement in FEV(1) at week 4, compared to 
placebo plus tiotropium. Additionally, clinically meaningful 
improvements in health-related quality of life (mean SGRQ-C) were 
observed on top of tiotropium. Ensifentrine was well tolerated at all 
doses with an adverse event profile similar to placebo. We believe that 
these data support dose selection for our planned Phase 3 program, which 
we anticipate initiating in the third quarter of 2020, subject to FDA 
feedback and funding. 
 
   In January 2019, we announced results from our exploratory 
pharmacological Phase 2 clinical trial evaluating nebulized ensifentrine 
administered twice daily on top of treatment with tiotropium and 
olodaterol. Although we did not meet the primary endpoint, treatment 
with ensifentrine showed statistically significant improvements in 
FEV(1) , including when measured over 24 hours, and after the second 
dose in the evening. We believe this suggests that ensifentrine could be 
an effective addition to dual bronchodilator therapy, in particular 
during the second half of the day following treatment, when patients may 
derive less benefit from their LAMA/LABA dual bronchodilator therapy. 
 
   COPD -- successful development of DPI and pMDI formulations 
 
   In addition to our nebulized formulation of ensifentrine, we have 
developed both MDI and DPI formulations of ensifentrine for the 
maintenance treatment of COPD. 
 
   Delivery of orally inhaled drugs by pMDI or DPI is a mainstay of 
maintenance treatment for patients with moderate to severe COPD. We 
believe that over 90% of patients with diagnosed COPD use inhalers, such 
as a pMDI or DPI, rather than a nebulizer.It is estimated that, in the 
United States, approximately 5.5 million patients with moderate to 
severe COPD use inhalers for maintenance therapy. Successful development 
of a pMDI or DPI formulation of ensifentrine for moderate disease would 
greatly expand the addressable market for the drug and represents a 
multi-billion dollar potential opportunity. 
 
   In August 2019, we announced results from our Phase 2 clinical trial 
evaluating a DPI formulation of ensifentrine for the maintenance 
treatment of patients with COPD. The magnitude of improvement in lung 
function, as measured by FEV(1) was highly statistically significant and 
we believe this supports twice daily dosing of ensifentrine for COPD 
treatment. Secondary lung function endpoints were also met, and 
ensifentrine was well tolerated at all dose levels. We believe that 
delivery of ensifentrine with a hand-held inhalation device, such as the 
DPI format, could substantially expand the clinical utility and 
commercial opportunity in COPD treatment. 
 
   In June 2019, we announced the initiation of a Phase 2 dose-ranging 
trial to evaluate the pharmacokinetic, or PK profile, efficacy, and 
safety of a pressurized MDI formulation of ensifentrine in patients with 
moderate-to-severe COPD. We anticipate reporting data from the 
single-dose portion of this trial (Part A) early in the second quarter 
of 2020, and reporting results from the second portion of the trial 
(Part B), which evaluates multiple doses of the MDI formulation of 
ensifentrine, in the second half of 2020. 
 
   We may also explore the development of ensifentrine in pMDI and/or DPI 
formulations for the treatment of asthma and other respiratory diseases. 
 
   CORPORATE 
 
   Ensifentrine is protected by granted and pending patents. We believe 
that medicinal products containing ensifentrine are protected by our IP 
beyond 2035. We have worldwide commercialization rights for 
ensifentrine. We raised $90 million in gross proceeds from investors 
from our April 2017 global offering comprising an initial public 
offering ("IPO") on the Nasdaq Global Market ("Nasdaq"), and a 
concurrent European private placement, together with a shareholder 
private placement. Members of our management team, which we have 
strengthened and expanded during the year, and our board of directors 
have extensive experience in large pharmaceutical and biotechnology 
companies, particularly in respiratory product development from drug 
discovery through commercialization and have played important roles in 
the development and commercialization of several approved respiratory 
treatments, including Symbicort, Daliresp/Daxas, Flutiform, Advair, Breo 
Ellipta and Anoro Ellipta. 
 
   FINANCIALS 
 
   The operating loss for the year ended December 31, 2019 was GBP41.1 
million (2018: GBP25.6 million) and the loss after tax for the year 
ended December 31, 2019 was GBP31.9 million (2018: GBP19.9 million). 
 
   Research and Development Costs 
 
   Research and development costs were GBP33.5 million for the year ended 
December 31, 2019 as compared to GBP19.3 million for the year ended 
December 31, 2018, an increase of GBP14.2 million. The cost of clinical 
trials increased by GBP12.7 million as there were two active trials in 
the year ended December 31, 2018, compared to four clinical trials in 
the year ended December 31, 2019. Pre-clinical costs increased by GBP0.3 
million which was offset by a reduction in Chemistry, Manufacturing, and 
Controls of GBP0.4 million. Personnel related costs increased by GBP1.3 
million in the year ended December 31, 2019, compared to the prior year. 
 
   General and Administrative Costs 
 
   General and administrative costs were GBP7.6 million for the year ended 
December 31, 2019 as compared to GBP6.3 million for the year ended 
December 31, 2018, an increase of GBP1.3 million. The increase was 
primarily attributable to a GBP0.9 million increase in costs relating to 
commercial market research, a GBP0.3 million increase in personnel 
related costs and a GBP0.6 million increase in other overhead costs. 
This was offset by a GBP0.5 million decrease in share based payments. 
 
   Finance Income and Expense 
 
   Finance income was GBP2.4 million for the year ended December 31, 2019 
and GBP2.8 million for the year ended December 31, 2018. The decrease 
was due to a loss in foreign exchange on cash and short term investments 
(recorded as a finance expense) compared to GBP1.9 million gain in the 
prior year. This was offset by a GBP1.6 million decrease in the fair 
value of the warrant liability in the year ended December 31, 2019 
compared to an increase in the liability in the year ended December 31, 
2018 (which is a non-cash item, recorded as a finance expense). 
 
   Finance expense was GBP0.5 million for the year ended December 31, 2019, 
as compared to GBP1.3 million for the year ended December 31, 2018. The 
movement was due to a decrease in the fair value of the warrant 
liability (recorded in finance income), compared to an increase of 
GBP1.2 million December 31, 2018, both non-cash items. In addition, 
there was a foreign exchange loss on cash and short-term investments in 
December 31, 2019 of GBP0.3 million. In the year ended December 31, 
2018, there was a foreign exchange gain (recorded in finance income). 
 
   As at December 31, 2019, there was approximately GBP22.9 million in cash 
and cash equivalents (2018: GBP19.8 million) and GBP7.8 million in 
short-term investments (2018: GBP44.9 million). 
 
   Taxation 
 
   Taxation for the year ended December 31, 2019 amounted to a credit of 
GBP7.3 million as compared to a credit of GBP4.2 million for the year 
ended December 31, 2018, an increase in the credit amount of GBP3.1 
million. The credits are obtained at a rate of 14.5% of 230% of our 
qualifying research and development expenditure, and the increase in the 
credit amount was primarily attributable to our increased expenditure on 
research and development. 
 
   We would like to thank the staff and Board members for all their 
contributions and shareholders for their continued support during a 
successful year. 
 
 
 
 
Dr. David Ebsworth  Dr. David Zaccardelli 
 Chairman            Chief Executive Officer 
 February 27, 2020   February 27, 2020 
 
 
 
   VERONA PHARMA PLC 
 
   CONSOLIDATED STATEMENT OF COMPREHESIVE INCOME 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
 
 
 
                                                                      Year ended            Year ended 
                                                          Notes    December 31, 2019     December 31, 2018 
                                                          -----  --------------------  -------------------- 
                                                                       GBP'000s              GBP'000s 
Research and development costs                                       (33,476)              (19,294) 
General and administrative costs                                      (7,607)               (6,297) 
                                                                 -----------   ------  ----------- ------ 
Operating loss                                                7      (41,083)              (25,591) 
Finance income                                                9        2,351                 2,783 
Finance expense                                               9         (474)               (1,325) 
                                                                 -----------   ------  ----------- ------ 
Loss before taxation                                                 (39,206)              (24,133) 
Taxation -- credit                                           10        7,265                 4,232 
                                                                 -----------  -------  -----------  ------- 
Loss for the year                                                    (31,941)              (19,901) 
Other comprehensive income / (loss): 
Items that might be subsequently reclassified to profit 
 or loss 
                                                                 --------------------  -------------------- 
Exchange differences on translating foreign operations                   (33)                   38 
                                                                 -----------   ------  -----------  ------- 
Total comprehensive loss attributable to owners of 
 the Company                                                         (31,974)              (19,863) 
                                                                 ===========   ======  =========== ====== 
Loss per ordinary share -- basic and diluted (pence)          5        (30.3)                (18.9) 
 
 
   The accompanying notes form an integral part of these consolidated 
financial statements. 
 
   VERONA PHARMA PLC 
 
   CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
 
   AS OF DECEMBER 31, 2019 
 
 
 
 
                                            As of             Restated As of 
                              Notes    December 31, 2019     December 31, 2018 
                              -----                        -------------------- 
                                           GBP'000s              GBP'000s 
ASSETS 
Non-current assets: 
Goodwill                         11             441                    441 
Intangible assets                12           2,757                  2,618 
Property, plant and 
 equipment                       13              43                     21 
Right-of-use assets              14             971                     -- 
                                     --------------  ----  ---------------  --- 
Total non-current assets                      4,212                  3,080 
                                     --------------  ----  ---------------  --- 
 
Current assets: 
Prepayments and other 
 receivables                     15           2,770                  2,463 
Current tax receivable                        7,396                  4,499 
Short term investments                        7,823                 44,919 
Cash and cash equivalents                    22,934                 19,784 
Total current assets                         40,923                 71,665 
                                     --------------  ----  ---------------  --- 
Total assets                                 45,135                 74,745 
                                     ==============  ====  ===============  === 
 
EQUITY AND LIABILITIES 
Capital and reserves 
attributable to equity 
holders: 
Share capital                    17           5,266                  5,266 
Share premium                               118,862                118,862 
Share-based payment reserve                  10,364                  7,923 
Accumulated loss                           (100,627)               (68,633) 
Total equity                                 33,865                 63,418 
                                     --------------  ----  ---------------  --- 
 
Current liabilities: 
Derivative financial 
 instrument                      19             895                  2,492 
Lease liability                  14             460                     -- 
Trade and other payables         20           8,261                  7,733 
                                     --------------  ----  ---------------  --- 
Total current liabilities                     9,616                 10,225 
                                     --------------  ----  ---------------  --- 
 
Non-current liabilities: 
Assumed contingent 
 obligation                      21           1,103                    996 
Non-current lease liability      14             491                     -- 
Deferred income                                  60                    106 
Total non-current 
 liabilities                                  1,654                  1,102 
                                     --------------  ----  ---------------  --- 
Total equity and liabilities                 45,135                 74,745 
                                     ==============  ====  ===============  === 
 
 
   The accompanying notes form an integral part of these consolidated 
financial statements. 
 
   VERONA PHARMA PLC 
 
   COMPANY ONLY STATEMENT OF FINANCIAL POSITION 
 
   AS OF DECEMBER 31, 2019 
 
 
 
 
                                            As of             Restated As of 
                              Notes    December 31, 2019     December 31, 2018 
                              -----  --------------------  -------------------- 
                                           GBP'000s              GBP'000s 
ASSETS 
Non-current assets: 
Goodwill                         11             441                   441 
Intangible assets                12           2,757                 2,618 
Property, plant and 
 equipment                       13              43                    21 
Right-of-use asset               14             731                    -- 
Investments                      16           1,342                   913 
Total non-current assets                      5,314                 3,993 
                                     --------------  ----  --------------  ---- 
 
Current assets: 
Prepayments and other 
 receivables                     15           3,093                 2,602 
Current tax receivable                        7,249                 4,290 
Short term investments                        7,823                44,919 
Cash and cash equivalents                    22,823                19,596 
Total current assets                         40,988                71,407 
                                     --------------  ----  --------------  ---- 
Total assets                                 46,302                75,400 
                                     ==============  ====  ==============  ==== 
 
EQUITY AND LIABILITIES 
Capital and reserves 
attributable to equity 
holders: 
Share capital                    17           5,266                 5,266 
Share premium                               118,862               118,862 
Share-based payment reserve                  10,364                 7,923 
Accumulated loss                           (100,259)              (68,514) 
Total equity                                 34,233                63,537 
                                     --------------  ----  --------------  ---- 
 
Current liabilities: 
Derivative financial 
 instrument                      19             895                 2,492 
Lease Liability                  14             335                    -- 
Trade and other payables         20           9,256                 8,269 
                                     --------------  ----  --------------  ---- 
Total current liabilities                    10,486                10,761 
                                     --------------  ----  --------------  ---- 
 
Non-current liabilities: 
Assumed contingent liability     21           1,103                   996 
Non-current lease liability      14             419                    -- 
Deferred income                                  61                   106 
Total non-current 
 liabilities                                  1,583                 1,102 
                                     --------------  ----  --------------  ---- 
Total equity and liabilities                 46,302                75,400 
                                     ==============  ====  ==============  ==== 
 
 
   The accompanying notes form an integral part of these consolidated 
financial statements. 
 
   The Parent has taken advantage of the exemption permitted by Section 408 
of the Companies Act 2006 not to present an income statement for the 
year. The Parent Company's loss for the year was GBP31.7 million (2018: 
loss of GBP19.9 million), which has been included in the Company's 
income statement. 
 
   The financial statements were approved by the Company's board of 
directors on February 27, 2020 and signed on its behalf by Dr. David 
Zaccardelli, Chief Executive Officer of the Company. 
 
   Dr. David Zaccardelli 
 
   Chief Executive Officer of the Company. 
 
   Company number: 05375156 
 
   VERONA PHARMA PLC 
 
   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
 
 
 
                                                             Total 
                 Share     Share    Share-based Payment    Accumulated     Total 
                 Capital   Premium        Reserve            Losses        Equity 
                --------  --------  -------------------  --------------  ---------- 
                GBP'000s  GBP'000s       GBP'000s           GBP'000s      GBP'000s 
                --------  --------  -------------------  --------------  ---------- 
 
Balance at 
 January 1, 
 2018, as 
 previously 
 reported          5,251   118,862                5,022    (49,254)       79,881 
 
Impact of 
 change in 
 accounting 
 policy               --        --                   --        484           484 
                --------  --------  -------------------  ---------  ---  ------- 
 
Balance at 
 January 1, 
 2018 
 (Restated)        5,251   118,862                5,022    (48,770)       80,365 
                --------  --------  -------------------  ---------       ------- 
Loss for the 
 year                 --        --                   --    (19,901)      (19,901) 
 
Other 
comprehensive 
income for the 
year: 
Exchange 
 differences 
 on 
 translating 
 foreign 
 operations           --        --                   --         38            38 
                --------  --------  -------------------  ---------  ---  ------- 
Total 
 comprehensive 
 loss for the 
 year                 --        --                   --    (19,863)      (19,863) 
New share 
 capital 
 issued               15        --                   --         --            15 
Share-based 
 payments             --        --                2,901         --         2,901 
                --------  --------  -------------------  ---------  ---  ------- 
Balance at 
 December 31, 
 2018 
 (Restated)        5,266   118,862                7,923    (68,633)       63,418 
                ========  ========  ===================  =========       ======= 
 
Balance at 
 January 1, 
 2019              5,266   118,862                7,923    (68,633)       63,418 
                --------  --------  -------------------  ---------       ------- 
Impact of 
 change in 
 accounting 
 policy               --        --                   --        (20)          (20) 
                --------  --------  -------------------  ---------       ------- 
 
Adjusted 
 Balance at 
 January 1, 
 2019              5,266   118,862                7,923    (68,653)       63,398 
                --------  --------  -------------------  ---------       ------- 
Loss for the 
 year                 --        --                   --    (31,941)      (31,941) 
 
Other 
comprehensive 
loss for the 
year: 
Exchange 
 differences 
 on 
 translating 
 foreign 
 operations           --        --                   --        (33)          (33) 
                --------  --------  -------------------  ---------       ------- 
Total 
 comprehensive 
 loss for the 
 year                 --        --                   --    (31,974)      (31,974) 
Share-based 
 payments             --        --                2,441         --         2,441 
                --------  --------  -------------------  ---------  ---  ------- 
Balance at 
 December 31, 
 2019              5,266   118,862               10,364   (100,627)       33,865 
                ========  ========  ===================  =========       ======= 
 
 
   The currency translation reserve for 2018 and 2019 is not considered 
material and as such is not presented in a separate reserve but is 
included in the total accumulated losses reserve. 
 
   VERONA PHARMA PLC 
 
   COMPANY ONLY STATEMENT OF CHANGES IN EQUITY 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
 
 
 
                                                                Total 
                 Share      Share     Share-based Payment     Accumulated      Total 
                 Capital    Premium         Reserve             Losses         Equity 
                --------   --------   -------------------   --------------   ---------- 
                GBP'000s   GBP'000s        GBP'000s            GBP'000s       GBP'000s 
                --------   --------   -------------------   --------------   ---------- 
 
Balance at 
 January 1, 
 2018, as 
 previously 
 reported          5,251    118,862                 5,022     (49,084)        80,051 
 
Impact of 
 change in 
 accounting 
 policy               --         --                    --         484            484 
                --------   --------   -------------------   ---------  ---   ------- 
Balance at 
 January 1, 
 2018 
 (Restated)        5,251    118,862                 5,022     (48,600)        80,535 
                --------   --------   -------------------   ---------        ------- 
Loss for the 
 year                 --         --                    --     (19,914)       (19,914) 
Other 
comprehensive 
income for the 
year: 
                --------   --------   -------------------   --------------   ---------- 
Total 
 comprehensive 
 loss for the 
 year                 --         --                    --     (19,914)       (19,914) 
New share 
 capital 
 issued               15         --                    --          --             15 
Share-based 
 payments 
 recognized as 
 an expense           --         --                 2,865          --          2,865 
Share-based 
 payments 
 recognized as 
 an 
 investment           --         --                    36          --             36 
                --------   --------   -------------------   ---------  ---   ------- 
Balance at 
 December 31, 
 2018 
 (Restated)        5,266    118,862                 7,923     (68,514)        63,537 
                ========   ========   ===================   =========        ======= 
 
Balance at 
 January 1, 
 2019              5,266    118,862                 7,923     (68,514)        63,537 
                --------   --------   -------------------   ---------        ------- 
Impact of 
 change in 
 accounting 
 policy               --         --                    --         (20)           (20) 
Adjusted 
 Balance at 
 January 1, 
 2019              5,266    118,862                 7,923     (68,534)        63,517 
                --------   --------   -------------------   ---------        ------- 
Loss for the 
 year                 --         --                    --     (31,725)       (31,725) 
Other 
comprehensive 
income for the 
year: 
                --------   --------   -------------------   --------------   ---------- 
Total 
 comprehensive 
 loss for the 
 year                 --         --                    --     (31,725)       (31,725) 
Share-based 
 payments 
 recognized as 
 an expense           --         --                 2,012          --          2,012 
Share-based 
 payments 
 recognized as 
 an 
 investment           --         --                   429          --            429 
                --------   --------   -------------------   ---------  ---   ------- 
Balance at 
 December 31, 
 2019              5,266    118,862                10,364    (100,259)        34,233 
                ========   ========   ===================   =========        ======= 
 
 
 
   VERONA PHARMA PLC 
 
   CONSOLIDATED STATEMENT OF CASH FLOWS 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
 
 
 
                                                            Year ended            Year ended 
                                                         December 31, 2019     December 31, 2018 
                                                       --------------------  -------------------- 
                                                             GBP'000s              GBP'000s 
Cash used in operating activities: 
Loss before taxation                                       (39,206)              (24,133) 
Finance income                                              (2,351)               (2,783) 
Finance expense                                                474                 1,325 
Share-based payment charge                                   2,441                 2,901 
Increase in prepayments and other receivables                 (484)                 (640) 
Increase in trade and other payables                           449                   531 
Depreciation of property, plant, equipment and right 
 of use asset                                                  398                     8 
Unrealised FX gains / losses                                    (8)                   -- 
Amortization of intangible assets                              106                    90 
                                                       -----------  -------  -----------  ------- 
Cash used in operating activities                          (38,181)              (22,701) 
Cash inflow from taxation                                    4,361                 4,590 
                                                       -----------  -------  -----------  ------- 
Net cash used in operating activities                      (33,820)              (18,111) 
                                                       -----------   ------  ----------- ------ 
Cash flow from investing activities: 
Interest received                                              887                   883 
Purchase of plant and equipment                                (38)                  (13) 
Payment for patents and computer software                     (244)                 (255) 
Purchase of short term investments                          (7,940)              (59,700) 
Maturity of short term investments                          45,134                64,366 
                                                       -----------  -------  -----------  ------- 
Net cash generated from investing activities                37,799                 5,281 
                                                       -----------  -------  -----------  ------- 
Cash flow used in financing activities: 
Repayment of finance lease liabilities                        (426)                   -- 
Net cash used in financing activities                         (426)                   -- 
                                                       -----------   ------  -----------  ------- 
Net increase / (decrease) in cash and cash 
 equivalents                                                 3,553               (12,830) 
Cash and cash equivalents at the beginning of the 
 year                                                       19,784                31,443 
Effect of exchange rates on cash and cash equivalents         (403)                1,171 
                                                       -----------   ------  -----------  ------- 
Cash and cash equivalents at the end of the year            22,934                19,784 
                                                       ===========  =======  ===========  ======= 
 
 
 
   VERONA PHARMA PLC 
 
   COMPANY ONLY STATEMENT OF CASH FLOWS 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
 
 
 
                                                            Year ended            Year ended 
                                                         December 31, 2019     December 31, 2018 
                                                       --------------------  -------------------- 
                                                             GBP'000s              GBP'000s 
Cash used in operating activities: 
Loss before taxation                                       (39,046)              (24,191) 
Finance income                                              (2,351)               (2,783) 
Finance expense                                                463                 1,325 
Share-based payment charge                                   2,012                 2,865 
Increase in prepayments and other receivables                 (624)                 (654) 
Increase in trade and other payables                           935                   164 
Depreciation of property, plant, equipment and right 
 of use asset                                                  329                     8 
Unrealised FX gains/ losses                                     (5)                   -- 
Amortization of intangible assets                              105                    90 
                                                       -----------  -------  -----------  ------- 
Cash used in operating activities                          (38,182)              (23,176) 
Cash inflow from taxation                                    4,361                 4,992 
                                                       -----------  -------  -----------  ------- 
Net cash used in operating activities                      (33,821)              (18,184) 
                                                       -----------   ------  ----------- ------ 
Cash flow from investing activities: 
Interest received                                              887                   883 
Purchase of plant and equipment                                (38)                  (13) 
Payment for patents and computer software                     (244)                 (255) 
Purchase of short term investments                          (7,940)              (59,700) 
Maturity of short term investments                          45,134                64,366 
                                                       -----------  -------  -----------  ------- 
Net cash generated from investing activities                37,799                 5,281 
                                                       -----------  -------  -----------  ------- 
Cash flow used in financing activities: 
Gross proceeds from issue of shares and warrants                --                    15 
Repayment of finance lease liabilities                        (348)                   -- 
                                                       -----------   ------  -----------  ------- 
Net cash (used in) / generated from financing 
 activities                                                   (348)                   15 
                                                       -----------   ------  -----------  ------- 
Net increase / (decrease) in cash and cash 
 equivalents                                                 3,630               (12,888) 
Cash and cash equivalents at the beginning of the 
 year                                                       19,596                31,313 
Effect of exchange rates on cash and cash equivalents         (403)                1,171 
                                                       -----------   ------  -----------  ------- 
Cash and cash equivalents at the end of the year            22,823                19,596 
                                                       ===========  =======  ===========  ======= 
 
 
 
   VERONA PHARMA PLC 
 
   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
 
   FOR THE YEARED DECEMBER 31, 2019 
 
   1. General information 
 
   Verona Pharma plc (the Company") and its subsidiaries (together the 
"Group") are a clinical-stage biopharmaceutical group focused on 
developing and commercializing innovative therapeutics for the treatment 
of respiratory diseases with significant unmet medical needs. 
 
   The Company is a public limited company, which is dual listed on the AIM, 
a market of the London Stock Exchange, and The Nasdaq Global Market 
("Nasdaq"). The company is incorporated and domiciled in the United 
Kingdom. The address of the registered office is 1 Central Square, 
Cardiff, CF10 1FS, United Kingdom. 
 
   The Company has two subsidiaries, Verona Pharma Inc. and Rhinopharma 
Limited ("Rhinopharma"), both of which are wholly owned. 
 
   The Company listed its American Depositary Shares ("ADS") on Nasdaq in 
April 2017 ("the 2017 Global Offering"). 
 
   The ADSs trade on The Nasdaq the symbol "VRNA" and Verona Pharma's 
ordinary shares trade on AIM under the symbol "VRP". 
 
   2. Accounting policies 
 
   A summary of the principal accounting policies, all of which have been 
applied consistently throughout the year, is set out below. 
 
   2.1  Basis of preparation 
 
   The consolidated financial statements of the Group and the financial 
statements of the Company have been prepared in accordance with 
International Financial Reporting Standards ("IFRSs") as issued by the 
International Accounting Standards Board and IFRS Interpretations 
Committee applicable to companies reporting under IFRS. 
 
   The consolidated financial statements of the Group and the financial 
statements of the Company have been prepared under the historical cost 
convention, with the exception of derivative financial instruments which 
have been measured at fair value. 
 
   The preparation of financial statements in conformity with IFRS requires 
the use of certain critical accounting estimates. It also requires 
management to exercise its judgment in the process of applying the 
Group's and Company's accounting policies. The areas involving a higher 
degree of judgment or complexity, or areas where assumptions and 
estimates are significant to the consolidated financial statements are 
disclosed in note 4. 
 
   Going concern 
 
   The Group has incurred recurring losses since inception, including net 
losses of GBP31.9 million, GBP19.9 million and GBP20.5 million for the 
years ended December 31, 2019, 2018 and 2017, respectively. In addition, 
as of December 31, 2019, the Group had an accumulated loss of GBP100.6 
million. The Group expects to continue to generate operating losses for 
the foreseeable future. As of the issuance date of the annual 
consolidated financial statements, the Group expects that its cash and 
cash equivalents, would be sufficient to fund its operating expenses and 
capital expenditure requirements for at least 12 months from the 
issuance date of these annual consolidated financial statements. 
Accordingly, the consolidated financial statements have been prepared on 
a basis that assumes the Group will continue as a going concern and 
which contemplates the realization of assets and satisfaction of 
liabilities and commitments in the ordinary course of business. 
 
   The Group intends to initiate its Phase 3 program for the maintenance 
treatment of COPD once it believes it has alignment with the FDA on its 
planned design for the Phase 3 clinical program. The Group will require 
significant additional funding to initiate and complete this Phase 3 
program and will need to secure the required capital to fund the 
program.   The Group will seek additional funding through public or 
private financings, debt financing, collaboration or licensing 
agreements and other arrangements.  However, there is no guarantee that 
the Group will be successful in securing additional finance on 
acceptable terms, or at all, and should the Group be unable to raise 
sufficient additional funds it will be required to defer the initiation 
of Phase 3 clinical trials, until such funding can be obtained. This 
could also force the Group to delay, reduce or eliminate some or all of 
its research and development programs, product portfolio expansion or 
commercialization efforts, or pursue alternative development strategies 
that differ significantly from its current strategy, which could have a 
material adverse effect on the Group's business, results of operations 
and financial condition. 
 
   Business combination 
 
   The Group applies the acquisition method to account for business 
combinations. The consideration transferred for the acquisition of a 
subsidiary is the fair value of the assets transferred, the liabilities 
incurred to the former owners of the acquiree and the equity interests 
issued by the Group. The consideration transferred includes the fair 
value of any asset or liability resulting from a contingent 
consideration arrangement. The excess of the cost of acquisition over 
the fair value of the Group's share of the identifiable net assets 
acquired is recorded as goodwill. Goodwill arising on acquisitions is 
capitalized and is subject to an impairment review, both annually and 
when there are indications that the carrying value may not be 
recoverable. 
 
   Identifiable assets acquired and liabilities and contingent liabilities 
assumed in a business combination are measured initially at their fair 
values at the acquisition date. Acquisition-related costs are expensed 
as incurred and included in administrative expenses. 
 
   Basis of consolidation 
 
   These consolidated financial statements include the financial statements 
of Verona Pharma plc and its wholly owned subsidiaries Verona Pharma, 
Inc. and Rhinopharma. The acquisition method of accounting was used to 
account for the acquisition of Rhinopharma. 
 
   Inter-company transactions, balances and unrealized gains on 
transactions between group companies are eliminated. 
 
   Verona Pharma Inc. and Rhinopharma adopt the same accounting policies as 
the Group. 
 
   2.2  Foreign currency translation 
 
   Items included in the Group's consolidated financial statements are 
measured using the currency of the primary economic environment in which 
the entity operates ("the functional currency"). The consolidated 
financial statements are presented in pounds sterling ("GBP"), which is 
the functional and presentational currency of the Group. 
 
   Transactions in foreign currencies are recorded using the rate of 
exchange ruling at the date of the transaction. Monetary assets and 
liabilities denominated in foreign currencies are translated using the 
rate of exchange ruling at the balance sheet date and the gains or 
losses on translation are included in the Consolidated Statement of 
Comprehensive Income. Non-monetary items that are measured in terms of 
historical cost in a foreign currency are translated using the exchange 
rates at the dates of the original transactions. Non-monetary items 
measured at fair value in a foreign currency are translated using the 
exchange rates at the date when the fair value was determined. 
 
   The assets and liabilities of foreign operations are translated into 
pounds sterling at the rate of exchange ruling at the balance sheet 
date. Income and expenses are translated at weighted average exchange 
rates for the period. The exchange differences arising on translation 
for consolidation are recognized in Other Comprehensive Income. 
 
   2.3  Cash and cash equivalents 
 
   Cash and cash equivalents includes cash in hand, deposits held at call 
with banks and other short-term highly liquid investments with original 
maturities of three months or less. 
 
   2.4  Deferred taxation 
 
   Deferred tax is provided in full, using the liability method, on 
temporary differences arising between the tax bases of assets and 
liabilities and their carrying amounts in the consolidated financial 
statements. Deferred tax is determined using tax rates and laws that 
have been enacted or substantially enacted by the balance sheet date and 
expected to apply when the related deferred tax is realized or the 
deferred liability is settled. 
 
   Deferred tax assets are recognized to the extent that it is probable 
that the future taxable profit will be available against which the 
temporary differences can be utilized. 
 
   2.5  Research and development costs 
 
   Capitalization of expenditure on product development commences from the 
point at which technical feasibility and commercial viability of the 
product can be demonstrated and the Group is satisfied that it is 
probable that future economic benefits will result from the product once 
completed. No such costs have been capitalized to date. 
 
   Expenditure on research and development activities that do not meet the 
above criteria is charged to the Consolidated Statement of Comprehensive 
Income as incurred. 
 
   2.6  Property, plant and equipment 
 
   Property, plant and equipment are stated at cost, net of depreciation 
and any provision for impairment. Cost includes the original purchase 
price of the asset and the costs attributable to bringing the asset to 
its working condition for its intended use. Depreciation is calculated 
to write off the cost less their estimated residual values, on a 
straight-line basis over the expected useful economic lives of the 
assets concerned. The principal annual periods used for this purpose 
are: 
 
 
 
 
Computer hardware  3 years 
 
 
   2.7  Intangible assets and goodwill 
 
   (a)  Goodwill 
 
   Goodwill arises on the acquisition of subsidiaries and represents the 
excess of the consideration transferred over the fair value of the 
identifiable net assets acquired. 
 
   (b)  Patents 
 
   Patent costs associated with the preparation, filing, and obtaining of 
patents are capitalized and amortized on a straight-line basis over the 
estimated useful lives of ten years. 
 
   (c)  Computer software 
 
   Amortization is calculated so as to write off the cost less estimated 
residual values, on a straight-line basis over the expected useful 
economic life of two years. 
 
   (d)  In-process research & development ("IP R&D") 
 
   The IP R&D asset acquired through a business combination, that had not 
reached technical feasibility, was initially recognized at fair value. 
Subsequent movements in the assumed contingent liability (see 2.12) that 
relate to changes in estimated cashflows or probabilities of success are 
recognized as additions to the IP R&D asset that it relates to. There 
were no changes in estimated cashflows or probabilities of success in 
the years ended 31 December, 2019, or 2018. 
 
   This is a change in accounting policy as prior to January 1, 2019 
movements in the assumed contingent liability were taken to the 
Statement of Comprehensive Income (see note 2.18). As a result of the 
change in accounting policy GBP484 thousand was restated from 
Accumulated Loss to the IP R&D asset. 
 
   The asset is subject to impairment testing until completion, abandonment 
of the project or when the research findings are commercialized through 
a revenue generating project. The Group determines whether intangible 
assets are impaired on an annual basis or when there is an indication of 
impairment. 
 
   2.8  Impairment of intangible assets, goodwill and non-financial assets 
 
   The Group holds intangible assets relating to acquired IP R&D, patent 
costs and goodwill. Goodwill and intangible assets are tested annually 
for impairment or if there is an indication of impairment. The Group is 
a single cash generating unit ("CGU") so all intangibles are allocated 
to the Group as one CGU. 
 
   As at 31 December, 2019, and 2018 the Group carried out impairment 
reviews with reference to its market capitalization. At points during 
the year ended 31 December 2019, the Group's market capitalization was 
less than its net assets. As a result, the Group carried out an 
impairment review by forecasting expected sales of ensifentrine, 
delivered by nebulizer for the maintenance treatment of chronic COPD, 
and associated costs. This cashflow forecast was then discounted to its 
net present value to demonstrate that the value in use of the 
ensifentrine was greater than the Group's net assets. The Group was 
required to make various estimates and assumptions as inputs for this 
model including, but not limited to: 
 
 
   -- market size and product acceptance by clinicians, patients and 
      reimbursement bodies; 
 
   -- gross and net selling price; 
 
   -- costs of manufacturing, product distribution and marketing support; 
 
   -- costs of the Group's overhead; 
 
   -- size and make up of a sales force; 
 
   -- probabilities of success; and 
 
   -- discount rate. 
 
 
   2.9  Employee Benefits 
 
   (a)  Pension 
 
   The Group operates defined contribution pension schemes for its 
employees. Contributions payable for the year are charged to the 
Consolidated Statement of Comprehensive Income. The Group has no further 
liability once the contributions have been paid. 
 
   (b)  Bonus plans 
 
   The Group recognizes a liability and an expense for bonus plans if 
contractually obligated or if there is a past practice that has created 
a constructive liability. 
 
   2.10  Share-based payments 
 
   The Group operates a number of equity-settled, share-based compensation 
schemes. The fair value of share based payments is determined using the 
Black-Scholes model and requires several assumptions and estimates as 
disclosed in note 18. 
 
   The fair value of share-based payments under these schemes is expensed 
on a straight-line basis over the share based payments' vesting periods, 
based on the Group's estimate of shares that will eventually vest. 
 
   2.11  Provisions 
 
   Provisions are recognized when the Group has a present legal or 
constructive liability as a result of past events, it is probable that 
an outflow of resources will be required to settle the liability, and 
the amount can be reliably estimated. Provisions are measured at the 
present value of the expenditures expected to be required to settle the 
liability using a pre-tax rate that reflects current market assessments 
of the time value of money and the risks specific to the liability. 
 
   2.12  Assumed contingent liability related to the business combination 
 
   In 2006 the Group acquired Rhinopharma and assumed contingent 
liabilities owed to Vernalis Pharmaceuticals Limited which was 
subsequently acquired by Ligand Pharmaceuticals, Inc. ("Ligand"). The 
Group refers to the assignment and license agreement as the Ligand 
Agreement. 
 
   Ligand assigned to the Group 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 "Licensed Products") developed using Ligand Patents, 
Ligand know-how and the physical stock of certain compounds. 
 
   The assumed contingent liability comprises a milestone payment on 
obtaining the first approval of any regulatory authority for the 
commercialization of a Licensed Product, low to mid-single digit 
royalties based on the future sales performance of all 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. 
 
   The liability was initially recognized at fair value and subsequently 
measured at amortized cost. The assumed contingent liability is 
estimated as the expected value of the milestone payment and royalty 
payments. This expected value is based on estimated future royalties 
payable, derived from sales forecasts, and an assessment of the 
probability of success using standard market probabilities for 
respiratory drug development. The risk-weighted value of the assumed 
contingent arrangement is discounted back to its net present value 
applying an effective interest rate of 12%. 
 
   Royalties payable are based on the future sales performance so the 
amount payable is unlimited. Sales that may be achieved are difficult to 
predict and subject to estimate, which is inherently uncertain. 
 
   The assumed contingent liability is accounted for as a liability and its 
value is measured at amortized cost using the effective interest rate 
method, and is re-measured for changes in estimated cash flows or when 
the probability of success changes. 
 
   Remeasurements relating to changes in estimated cash flows and 
probabilities of success are recognized in the IP R&D asset it relates 
to ("see 2.7"). This is a change in accounting policy for the year ended 
December 1, 2019 (see 2.18). The unwind of the discount is recognized in 
finance expense. 
 
   2.13  Financial instruments -- initial recognition and subsequent 
measurement 
 
   The Group classifies a financial instrument, or its component parts, as 
a financial liability, a financial asset or an equity instrument in 
accordance with the substance of the contractual arrangement and the 
definitions of a financial liability, a financial asset and an equity 
instrument. 
 
   A financial instrument is any contract that gives rise to a financial 
asset of one entity and a financial liability or equity instrument of 
another entity. 
 
   (a)  Financial assets, initial recognition and measurement and 
subsequent measurement 
 
   The Group has no financial assets recorded at fair value through profit 
or loss ("FVPTL"). All assets are initially recognized initially at fair 
value plus transaction costs and subsequently measured at amortized cost 
using the effective interest method. 
 
   (b)  Financial liabilities, initial recognition and measurement and 
subsequent measurement 
 
   Financial liabilities are classified as measured at amortized cost or 
FVTPL. 
 
   The Group's warrants are classified as FVTPL and fair value gains and 
losses are recognized in profit or loss. 
 
   Other financial liabilities are initially recognized at fair value and 
subsequently measured at amortized cost using the effective interest 
method. Interest expense and foreign exchange gains and losses are 
recognized in profit or loss. Any gain or loss on derecognition is also 
recognized in profit or loss. 
 
   The Group's financial liabilities include trade and other payables, the 
Group's warrants and the assumed contingent liability. 
 
   (c)  Derivative financial instruments 
 
   Derivatives are initially recognized at fair value on the date a 
derivative contract is entered into and are subsequently re-measured at 
fair value at the end of each reporting date. The Group holds one type 
of derivative financial instrument, the warrants, as explained in Note 
2.14. 
 
   The full fair value of the derivative is classified as a non-current 
liability when the warrants are exercisable in more than 12 months and 
as a current liability when the warrants are exercisable in less than 12 
months. 
 
   Changes in fair value of a derivative financial liability when related 
to a financing arrangement are recognized in the Consolidated Statement 
of Comprehensive Income within Finance Income or Finance Expense. 
 
   2.14  Derivative financial instrument - warrants 
 
   Warrants issued by the Group to investors as part of a share 
subscription are compound financial instruments where the warrant meets 
the definition of a financial liability. 
 
   The financial liability component is initially measured at fair value in 
the Consolidated Statement of Financial Position. Equity is measured at 
the residual between the subscription price for the entire instrument 
and the liability component. The financial liability component is 
remeasured. Equity is not remeasured. 
 
   2.15  Short Term Investments 
 
   Short term investments include fixed term deposits held at banks with 
original maturities between three months and a year. They are classified 
as loans and receivables and are measured at amortized cost using the 
effective interest method. 
 
   2.16  Transaction costs 
 
   Qualifying transaction costs might be incurred in anticipation of an 
issuance of equity instruments and may cross reporting periods. The 
entity defers these costs on the balance sheet until the equity 
instrument is recognized. Deferred costs are subsequently reclassified 
as a deduction from equity when the equity instruments are recognized, 
as the costs are directly attributable to the equity transaction. If the 
equity instruments are not subsequently issued, the transaction costs 
are expensed. Any costs not directly attributable to the equity 
transaction are expensed. 
 
   Transaction costs that relate to the issue of a compound financial 
instrument are allocated to the liability and equity components of the 
instrument in proportion to the allocation of proceeds. Where the 
liability component is held at fair value through profit or loss, the 
transaction costs are expensed to the Consolidated Statement of 
Comprehensive Income. For liabilities held at amortized cost, 
transaction costs are deducted from the liability and subsequently 
amortized. The amount of transaction costs accounted for as a deduction 
from equity in the period is disclosed separately in accordance with 
International Accounting Standard ("IAS 1"). 
 
   2.17 Investments in subsidiaries 
 
   Investments in subsidiaries are shown at cost less any provision for 
impairment. 
 
   2.18 Changes in accounting policy 
 
   Accounting for the assumed contingent liability 
 
   As discussed in note 2.12, in 2006 the Group acquired Rhinopharma and 
assumed contingent liabilities owed to Vernalis Pharmaceuticals Limited 
which was subsequently acquired by Ligand Pharmaceuticals, Inc. 
("Ligand"). 
 
   Ligand assigned to the Group all of its rights to certain patents and 
patent applications relating to ensifentrine and related compounds and 
an exclusive, worldwide, royalty-bearing license to develop, manufacture 
and commercialize products. The assumed contingent liability comprises a 
milestone payment on obtaining the first approval of any regulatory 
authority and royalties based on the future sales of ensifentrine. 
 
   The initial fair value of the assumed contingent liability was estimated 
as the expected value of the milestone payment and royalty payments. 
This expected value is based on estimated future royalties payable, 
derived from sales forecasts, an assessment of the probability of 
success using standard market probabilities for respiratory drug 
development discounted to net present value applying an effective 
interest rate of 12%. 
 
   The assumed contingent liability is accounted for as a liability and its 
value is measured at amortized cost using the effective interest rate 
method, and is re-measured for changes in estimated cash flows or when 
the probability of success changes. 
 
 
 
   Up to the year ended December 31, 2018, movements in the liability 
relating to re-measurements of cash flows or changes in the 
probabilities of success were taken to the Consolidated Statement of 
Comprehensive Income. During the year ended December 31, 2019, the 
Company reviewed the accounting for this item and has determined that 
these movements in the liability will now be recognized in the cost of 
the corresponding asset. The corresponding asset is the intangible IP 
R&D asset. 
 
   The Group believes that this change in accounting policy results in the 
Consolidated Financial Statements providing a more relevant and reliable 
view of its financial position and performance because without an 
adjustment to the IP R&D asset on the re-measurement of the liability, 
the cost of the asset would not be fairly reflected on the Consolidated 
Statement of Financial Position. The Consolidated Statement of Financial 
Position more faithfully represents the financial position of the Group 
if the intangible asset is adjusted by any re-measurement of the 
liability for changes in estimated cash flows, to give a fairer 
reflection of the cost of the intangible asset. 
 
   The Group has reviewed the International Financial Reporting 
Interpretations Committee ("IFRIC") discussion of accounting for 
variable payments made for the purchase of an intangible asset that is 
not part of a business combination that concluded that it was too broad 
for it to address within the confines of existing IFRS standards. As a 
result, practice in this area is mixed and many pharmaceutical companies 
follow a cost accumulation model. The Group also noted that adjusting 
the cost of the asset when a liability is remeasured for changes in 
estimated cash flows is consistent with the guidance in IFRIC 1 for 
decommissioning liabilities and IFRS 16 for lease liabilities. 
 
   There were no such re-measurements of the liability in the years ended 
December 31, 2019, 2018 and 2017. Movements in the liability in these 
periods related to the unwinding of the discount and movements in 
exchange rates. 
 
   IAS 8 requires the opening balance of each affected component of equity 
to be adjusted for the earliest prior period presented and the other 
comparative amounts disclosed for each prior period presented as if the 
new accounting policy had always been applied. 
 
   The impact to the Group, therefore, is the restatement of GBP484 
thousand from Accumulated Loss to the IP R&D asset, which relates to 
re-measurements recorded prior to January 1, 2017. As there were no 
re-measurements in the years ended December 31, 2019, 2018 and 2017 the 
GBP484 thousand adjustment is the same at each reporting period. 
 
   The following table is a summary of the restatement: 
 
 
 
 
Financial                         Adjustment for the 
statement line                   change in accounting 
item              As reported           policy            As adjusted 
                  -----------  ------------------------  ------------- 
January 1, 2017    GBP'000s            GBP'000s            GBP'000s 
 
Accumulated loss       28,728           (484)                 28,244 
Intangible 
 assets - IP 
 R&D                    1,469            484                   1,953 
 
 
   This adjustment also increases non-current assets, total assets and 
total equity by GBP484 thousand in each of the years presented. 
 
   Adoption of IFRS 16 
 
   IFRS 16 'Leases' is effective for accounting periods beginning on or 
after January 1, 2019 and replaces IAS 17 'Leases'. It eliminates the 
classification of leases as either operating leases or finance leases 
and, instead, introduces a single lessee accounting model. The adoption 
of IFRS 16 resulted in the Group recognizing lease liabilities within 
current liabilities, and corresponding right-of-use assets. 
 
   The Group's principal lease arrangements are for office space. The Group 
has adopted IFRS 16 retrospectively with the cumulative effect of 
initially applying the standard as an adjustment to the opening balance 
of retained earnings at January 1, 2019. The standard permits a choice 
on initial adoption, on a lease-by-lease basis, to measure the 
right-of-use asset at either its carrying amount as if IFRS 16 had been 
applied since the commencement of the lease, or an amount equal to the 
lease liability, adjusted for any accrued or prepaid lease payments as 
at the time of adoption. The Group has elected to measure the 
right-of-use asset at its carrying value as if IFRS 16 had been applied 
since the commencement of the lease, with the result of a GBP20 thousand 
reduction in opening total accumulated losses. 
 
   Initial adoption resulted in the recognition of right-of-use assets of 
GBP326 thousand and lease liabilities of GBP316 thousand. 
 
 
 
 
                                                         GBP'000s 
Lease commitments (including prepayments) disclosed 
 as at December 31, 2018                                    600 
Less: adjustments relating to prepaid lease payments        (28) 
Lease commitments as at December 31, 2018                   572 
                                                        ======= 
Discounted using the group's incremental borrowing 
 rate                                                       526 
Less: short-term leases recognized on a straight-line 
 basis as expense                                          (210) 
Lease liability recognized as at January 1, 2019            316 
                                                        ======= 
 
 
   In applying IFRS 16 for the first time, the group has used the following 
practical expedients permitted by the standard: 
 
 
   -- the use of a single discount rate of 8% to a portfolio of leases with 
      reasonably similar characteristics; 
 
   -- accounting for leases with a remaining lease term of less than 12 months 
      as at January 1, 2019, as short-term leases; and 
 
   -- the use of hindsight in determining the lease term where the contract 
      contains options to extend or terminate the lease. 
 
 
   The Group is applying IFRS 16's low-value and short-term exemptions. The 
adoption of IFRS 16 has had no impact on the Group's net cash flows, 
although a presentation change has been reflected in 2019 whereby cash 
outflows of GBP426 thousand are now presented as financing, instead of 
operating. General and administrative costs are GBP123 thousand lower 
than if IFRS 16 not been adopted, as depreciation of the right of use 
asset is less than the lease costs. There is a GBP50 thousand increase 
in finance expense from the presentation of a portion of lease costs as 
interest costs. There is no significant impact on overall loss before 
tax and loss per share. 
 
   At the time of adoption it was not reasonably certain that the Group 
would extend the leases. However, in the period the Group determined 
that this was the case and agreed extensions. As a result it recognized 
an additional liability and right-of-use asset of GBP1,047 thousand. 
 
   2.19 New standards, amendments and interpretations adopted by the Group 
 
   The following standard has been adopted by the Group for the first time 
for the financial year beginning on or after January 1, 2019: 
 
 
   -- IFRS 16 "Leases" 
 
 
   The Group adopted IFRS 16 on January 1, 2019, and, as a consequence, 
changed its accounting policies. See note 2.18. 
 
   2.20 New standards, amendments and interpretations issued but not 
effective for the financial year beginning January 1, 2019 and not early 
adopted 
 
   There are no IFRS standards or interpretations not yet effective that 
would be expected to have a material impact on the Group. 
 
   3. Financial Instruments 
 
   3.1 Financial Risk Factors 
 
   The Group's activities have exposed it to a variety of financial risks: 
market risk (including currency risk and interest rate risk), credit 
risk, and liquidity risk. The Group's overall risk management program is 
focused on preservation of capital and the unpredictability of financial 
markets and has sought to minimize potential adverse effects on the 
Group's financial performance and position. 
 
   (a)  Currency risk 
 
   Foreign currency risk reflects the risk that the Group's net assets will 
be negatively impacted due to fluctuations in exchange rates. The Group 
has not entered into foreign exchange contracts to hedge against gains 
or losses from foreign exchange fluctuations. 
 
   The summary data about the Group's exposure to currency risk is as 
follows. Figures are the pound sterling values of balances in each 
currency: 
 
 
 
 
                   December 31, 2019              December 31, 2018 
              ----------------------------  ------------------------------ 
                GBP       USD       EUR       GBP       USD        EUR 
              --------  --------  --------  --------  --------  ---------- 
              GBP'000s  GBP'000s  GBP'000s  GBP'000s  GBP'000s   GBP'000s 
              --------  --------  --------  --------  --------  ---------- 
Cash and 
 cash 
 equivalents    18,517     4,399        18    11,293     8,470        21 
Short term 
 Investments     6,316     1,507        --    19,850    25,069        -- 
Trade and 
 other 
 payables        3,226     4,306       728     2,872     4,329       532 
 
 
 
   Sensitivity Analysis 
 
   A reasonably possible strengthening or weakening of the Euro or U.S. 
dollar against pounds sterling as of December 31, 2019 and 2018 would 
have affected the measurement of the financial instruments denominated 
in a foreign currency (excluding the assumed contingent liability). 
 
   The following table shows how a movement in a currency would give rise 
to a profit or (loss) and a corresponding entry in equity. 
 
 
 
 
                       Profit or loss and equity 
                       Strengthening      Weakening 
                    -------------------  ----------- 
December 31, 2019        GBP'000s         GBP'000s 
                    -------------------  ----------- 
EUR (5% movement)              (36)            36 
USD (5% Movement)               80            (80) 
December 31, 2018        GBP'000s         GBP'000s 
                    -------------------  ----------- 
EUR (5% movement)              (26)            26 
USD (5% Movement)            1,461         (1,461) 
 
 
   Foreign currency denominated trade payables are short term in nature 
(generally 30 to 45 days). The Group has a U.S. operation, the net 
assets of which are exposed to foreign currency translation risk. 
 
   Estimated cashflows relating to the assumed contingent liability are 
predominantly denominated in US dollars. In the years ended December 31, 
2019, and 2018, movements in foreign exchange rates were not material 
and no sensitivity analysis is therefore provided. 
 
   (b)  Credit risk 
 
   Credit risk reflects the risk that the Group may be unable to recover 
contractual receivables. As the Group is still in the development stage 
no policies are currently required to mitigate this risk. 
 
   For banks and financial institutions, only independently rated parties 
with a minimum rating of "B+" are accepted. The Directors recognize that 
this is an area in which they may need to develop specific policies 
should the Group become exposed to further financial risks as the 
business develops. 
 
   As of December 31, 2019, and December 31, 2018, cash and cash 
equivalents and short term investments were placed at the following 
banks: 
 
 
 
 
                    Year ended               Year ended 
Cash and Cash      December 31,   Credit    December 31,   Credit 
Equivalents            2019        rating       2018       rating 
                  --------------  -------  --------------  ------- 
                     GBP'000                  GBP'000 
Banks 
Royal Bank of 
 Scotland                      1       A1             150       A1 
Lloyds Bank                8,355      Aa3          15,862      Aa3 
Citibank                   6,529      Aa3           3,135       A1 
Barclays                   1,968       A1             449       A2 
Wells Fargo                  111      Aa1             188      Aa1 
Close Brothers             5,970      Aa3              --       -- 
                  --------------           -------------- 
Total                     22,934                   19,784 
                  ==============           ============== 
 
 
 
 
 
 
                    Year ended                Year ended 
Short Term         December 31,    Credit    December 31,    Credit 
Investments            2019         rating       2018         rating 
                  ---------------  -------  ---------------  ------- 
                      GBP'000                   GBP'000 
Banks 
Royal Bank of 
 Scotland                   5,616       A1            9,186       A1 
Lloyds Bank                    --      Aa3            1,567      Aa3 
Standard 
Chartered                      --       A1           15,450       A1 
Citibank                       --      Aa3            7,053       A1 
Barclays                    2,207       A1           11,663       A2 
Total                       7,823                    44,919 
                  ===============           =============== 
 
 
   (c)  Management of capital 
 
   The Group considers capital to be its equity reserves. At the current 
stage of the Group's life cycle, the Group's objective in managing its 
capital is to ensure funds raised meet the research and operating 
requirements until the next development stage of the Group 's suite of 
projects. 
 
   The Group ensures it is meeting its objectives by reviewing its Key 
Performance Indicators to ensure the research activities are progressing 
in line with expectations, costs are controlled and unused funds are 
placed on deposit to conserve resources and increase returns on surplus 
cash held. 
 
   (d)  Interest rate risk 
 
   As of December 31, 2019, the Group had cash deposits of GBP22.9 million 
(2018: GBP19.8 million) and short term investments of GBP7.8 million 
(2018: GBP44.9 million). The rates of interest received during 2019 
ranged between 0.0% and 2.87%. A 0.25% increase in interest rates would 
not have a material impact on finance income. The Group's exposure to 
interest rate risk, which is the risk that the interest received will 
fluctuate as a result of changes in market interest rates on classes of 
financial assets and financial liabilities, was as follows: 
 
 
 
 
                    December 31, 2019                December 31, 2018 
                 Floating         Fixed          Floating          Fixed 
               interest rate   interest rate   interest rate    interest rate 
              --------------  --------------  --------------  ---------------- 
                 GBP'000s        GBP'000s        GBP'000s         GBP'000s 
Financial 
asset 
Cash 
 deposits             10,006          12,928          15,082           4,702 
Short Term 
 Investments              --           7,823              --          44,919 
Total                 10,006          20,751          15,082          49,621 
              ==============  ==============  ==============  ============== 
 
 
   (e)  Liquidity risk 
 
   The Group periodically prepares working capital forecasts for the 
foreseeable future, allowing an assessment of the cash requirements of 
the Group, to manage liquidity risk. The following table provides an 
analysis of the Com Group's financial liabilities. The carrying value of 
all balances approximates to their fair value. The Group's maturity 
analysis for the derivative financial instrument from the issue of 
warrants is given in note 19. 
 
 
 
 
                                             BETWEEN   BETWEEN 
                                  LESS THAN   1 AND 2   2 AND 5     OVER 
                                    1 YEAR     YEARS     YEARS     5 YEARS 
                                  ---------  --------  --------  ---------- 
                                  GBP'000s   GBP'000s  GBP'000s   GBP'000s 
At December 31, 2019 
Trade payables                      1,455       --        --        -- 
Accruals                            6,806       --        --        -- 
Lease liability(2)                      476       557        --        -- 
Assumed contingent liability(1)          --        --        --     1,807 
                                  ---------  --------  --------  -------- 
Total                                 8,737       557        --     1,807 
                                  =========  ========  ========  ======== 
 
 
   (1)  This table includes the undiscounted amount of the assumed 
contingent liability. See note 21. 
 
   (2)  This table includes the undiscounted amount of the finance lease 
liability. See note 2.18. 
 
 
 
 
 
 
                                             BETWEEN   BETWEEN 
                                  LESS THAN   1 AND 2   2 AND 5     OVER 
                                    1 YEAR     YEARS     YEARS     5 YEARS 
                                  ---------  --------  --------  ---------- 
                                  GBP'000s   GBP'000s  GBP'000s   GBP'000s 
At December 31, 2018 
Trade payables                      2,839       --        --        -- 
Other payables                       12         --        --        -- 
Accruals                            4,882       --        --        -- 
Assumed contingent liability(1)          --        --        --     1,807 
                                  ---------  --------  --------  -------- 
Total                                 7,733        --        --     1,807 
                                  =========  ========  ========  ======== 
 
 
   (1)  This table includes the undiscounted amount of the assumed 
contingent liability. See note 21. 
 
   3.2  Fair value estimation 
 
   The carrying amounts of cash and cash equivalents, receivables, accounts 
payable and accrued liabilities approximate to fair value due to their 
short-term nature. The carrying amount of the assumed contingent 
liability approximates to fair value as the underlying assumptions are 
currently similar. 
 
   For financial instruments that are measured in the Consolidated 
Statement of Financial Position at fair value, IFRS 7 requires 
disclosure of fair value measurements by level of the following fair 
value measurement hierarchy: 
 
 
   -- Quoted prices (unadjusted) in active markets for identical assets or 
      liabilities (level 1); 
 
   -- Inputs other than quoted prices included within level 1 that are 
      observable for the asset or liability, either directly or indirectly 
      (level 2); and 
 
   -- Inputs for the asset or liability that are not based on observable market 
      data (level 3). 
 
 
   For the year ended December 31, 2019, and 2018, fair value adjustments 
to financial instruments measured at fair value through profit and loss 
resulted in the recognition of finance income of GBP1.6 million in 2019 
and a finance loss of GBP1.2 million in 2018. 
 
   The fair value of financial instruments that are not traded in an active 
market is determined by using valuation techniques. These valuation 
techniques maximize the use of observable market data where it is 
available and rely as little as possible on entity specific estimates. 
If all significant inputs required to ascertain the fair value of an 
instrument are observable, the instrument is included in level 2. If one 
or more of the significant inputs are not based on observable market 
data, the instrument is included in level 3. 
 
 
 
 
                                  Level 3     Total 
                                  --------  ---------- 
                                  GBP'000s   GBP'000s 
At December 31, 2019 
Derivative financial instrument        895       895 
Total                                  895       895 
                                  ========  ======== 
 
 
   Movements in Level 3 items during the years ended December 31, 2019, and 
2018 are as follows: 
 
 
 
 
Derivative financial instrument                         2019       2018 
                                                      --------  ---------- 
                                                      GBP'000s   GBP'000s 
At January 1                                            2,492      1,273 
Fair value adjustments recognized in profit and loss   (1,597)     1,219 
                                                      ------- 
At December 31                                            895      2,492 
                                                      =======   ======== 
 
 
   Further details relating to the derivative financial instrument are set 
out in notes 4 and 19 of these financial statements. 
 
   In determining the fair value of the derivative financial instrument, 
the Group applied the Black Scholes model; key inputs include the share 
price at reporting date, estimations on timelines, volatility and 
risk-free rates. These assumptions and the impact of changes in these 
assumptions, where material, are disclosed in note 19. 
 
   3.3  Change in liabilities arising from financing activities 
 
   The Group has provided a reconciliation so that changes in liabilities 
arising from financing activities, including both changes arising from 
cash flows and non-cash changes can be evaluated. 
 
 
 
 
                                                  2019 
                                     Derivative financial instrument 
                                                GBP'000s 
At January 1                                              2,492 
Fair value adjustments - non cash                        (1,597) 
At December 31                                              895 
                                    ===========================  ==== 
 
 
   See note 19 for information relating to the derivative financial 
instrument. 
 
 
 
 
                                                   2019 
                                              Lease liability 
                                                 GBP'000s 
At January 1                                           316 
Capitalization of rental leases - non cash           1,061 
Payment of lease liability - cash                     (426) 
At December 31                                         951 
                                             ============= 
 
 
   See note 14 and note 2.18 for information relating to capitalized 
leases. 
 
   4. Critical accounting estimates and judgments 
 
   The preparation of financial statements in conformity with IFRS requires 
the use of accounting estimates and assumptions that affect the reported 
amounts of assets and liabilities at the date of the financial 
statements and the reported amounts of income and expenses during the 
reporting period. Although these estimates are based on management's 
best knowledge of current events and actions, actual results ultimately 
may differ from those estimates. IFRS also requires management to 
exercise its judgment in the process of applying the Group's accounting 
policies. 
 
   The areas involving a higher degree of judgment or complexity, or areas 
where assumptions and estimates are significant to the consolidated 
financial statements are as follows: 
 
   (a)  Assumed contingent liability 
 
   The Group has a material liability for the future payment of royalties 
and milestones associated with contractual liabilities on ensifentrine, 
acquired as part of the acquisition of Rhinopharma. The estimation of 
the amounts and timing of future cashflows requires the forecast of 
royalties payable and the estimation of the likelihood that the 
regulatory approval milestone will be achieved (see notes 2.12 and 21). 
The estimates for the assumed contingent liability are based on a 
discounted cash flow model. Key estimates included the calculation of 
deferred consideration are: 
 
 
   -- development, regulatory and marketing risks associated with progressing 
      the product to market approval in key target territories; 
 
   -- market size and product acceptance by clinicians, patients and 
      reimbursement bodies; 
 
   -- gross and net selling price; 
 
   -- launch of competitive products; 
 
   -- probabilities of success; and 
 
   -- time to crystallization of contingent consideration. 
 
 
   When there is a change in the expected cash flows or probabilities of 
success, the assumed contingent liability is re-measured with the change 
in value recognized in the IP R&D asset it relates to. This is a change 
in accounting policy for the year ended December 1, 2019, (see 2.18). 
The assumed contingent liability is measured at amortized cost with the 
discount unwinding in finance expense throughout the year. Actual 
outcomes could differ significantly from the estimates made. 
 
   The Group has judged that the probabilities of success will change when 
it moves from one stage of clinical development to another. Management 
have determined that, for the purposes of assessing probabilities of 
success, the Group will move from Phase 2 to Phase 3 after an End of 
Phase 2 Meeting with the Food and Drug Administration ("FDA") in the US 
that provides confidence over ensifentrine's historical development 
program and planned Phase 3 program. A remeasurement of the liability at 
this time is likely to result in a significant increase in both the 
liability and the corresponding IPR&D asset. The Group has previously 
announced that it expects to meet with the FDA in the first half of 
2020. The Group notes that there is no guarantee that the meeting will 
take place in the timeframe anticipated or that there will be a 
successful outcome. 
 
   Should the probabilities of success and estimates of cash flows change 
there will be a material increase in the assumed contingent liability 
and corresponding IP R&D asset. The amount will be dependent on feedback 
from the FDA and the probabilities of success applied. Should the 
Company determine that it has moved from Phase 2 to Phase 3 then the 
value of the liability could increase by between GBP15 million and GBP30 
million; the increase in the value of the liability will give rise to an 
approximately equivalent increase in the value of the IP R&D asset, as 
described further in Note 2.7. 
 
   The value of the assumed contingent liability as of December 31, 2019 
amounted to GBP1.1 million. (2018: GBP1.0 million). 
 
   (b)  Valuation of the Derivative Financial Liability 
 
   In July 2016, the Company issued 31,115,926 units to new and existing 
investors at the placing price of GBP1.4365 per unit. Each unit 
comprises one ordinary share and one warrant. The warrants entitle the 
investors to subscribe for in aggregate a maximum of 12,401,262 ordinary 
shares. 
 
   In accordance with IAS 32 and the Group's accounting policy, as 
disclosed in note 2.14, the Group classified the warrants as a 
derivative financial liability to be presented on the Group's 
Consolidated Statement of Financial Position. 
 
   The fair value of these warrants is determined by applying the 
Black-Scholes model. Assumptions are made on inputs such as term, 
volatility and risk free rate in order to determine the fair value per 
warrant. For further details see note 19. 
 
   5. Earnings per share 
 
   Basic loss per ordinary share of 30.3p (2018: 18.9p) for the Group is 
calculated by dividing the loss for the year ended December 31, 2019 by 
the weighted average number of ordinary shares in issue of 105,326,638 
as of December 31, 2019 (2018: 105,110,504). Potential ordinary shares 
are not treated as dilutive as the entity is loss making and such shares 
would be anti-dilutive. 
 
   6. Segmental reporting 
 
   The Group's activities are covered by one operating and reporting 
segment: Drug Development. There have been no changes to management's 
assessment of the operating and reporting segment of the Group during 
the year. 
 
   All non-current assets are based in the United Kingdom. 
 
   7. Operating loss 
 
   Group 
 
 
 
 
                                                          Year ended              Year ended 
                                                       December 31, 2019       December 31, 2018 
                                                      ------------------  --------------------------- 
                                                           GBP'000s                GBP'000s 
Operating Loss is stated after charging / 
(crediting): 
Research and development costs: 
Employee benefits (note 8)                                         4,688    3,360 
Amortization of patents (note 12)                                    102       85 
Legal, professional consulting and listing fees                      537      161 
Other research and development expenses                           28,149   15,688 
                                                      ------------------   ------  ------------------ 
Total research and development costs                              33,476   19,294 
                                                      ------------------   ------  ------------------ 
General and administrative costs: 
Employee benefits (note 8)                                         3,093    3,240 
Legal, professional consulting and listing fees                    2,155    1,296 
Amortization of computer software (note 12)                            4        5 
Depreciation of property, plant and equipment (note 
 13)                                                                  16        8 
Depreciation of right-of-use assets (note 14)                        382        - 
Operating lease charge -- land and buildings                           -      384 
Loss / (gain) on variations in foreign exchange rate                 345       (9) 
Other general and administrative expenses                          1,612    1,373 
                                                      ------------------   ------  ------------------ 
Total general and administrative costs                             7,607    6,297 
                                                      ------------------   ------  ------------------ 
Operating loss                                                    41,083   25,591 
                                                      ==================   ======  ================== 
 
 
 
   During the periods indicated, the Group obtained the services from and 
paid the fees of the Group's auditors and their associates as detailed 
below: 
 
 
 
 
                                                            Year ended           Year ended 
                                                         December 31, 2019    December 31, 2018 
                                                        ------------------  -------------------- 
                                                             GBP'000s             GBP'000s 
Audit of Verona Pharma plc and consolidated financial 
 statements                                                            148                 114 
Audit related services                                                  52                  68 
Other services                                                          67                  86 
                                                        ------------------  ------------------ 
Total                                                                  267                 268 
                                                        ==================  ================== 
 
 
   Audit-Related Services 
 
   For the year ended December 31, 2019, audit related services include 
fees for quarterly interim reviews. 
 
   For the year ended December 31, 2018, audit related services include 
fees for quarterly interim reviews. 
 
   Other Services 
 
   For the year ended December 31, 2019, other services related to advice 
relating to fund raising. 
 
   For the year ended December 31, 2018, other services related to a review 
of the Company's F-3 shelf registration statement. 
 
   8. Directors' emoluments and staff costs 
 
   Group 
 
 
 
 
                                                            Year ended          Year ended 
                                                         December 31, 2019   December 31, 2018 
                                                        ------------------  ------------------ 
The average number of employees (excluding directors) 
 of the Group during the year: 
Research and development                                                13                   7 
General and administrative                                               9                   7 
                                                        ------------------  ------------------ 
Total                                                                   22                  14 
                                                        ==================  ================== 
 
 
 
 
 
 
                                                          Year ended          Year ended 
                                                       December 31, 2019   December 31, 2018 
                                                      ------------------  ------------------ 
                                                           GBP'000s            GBP'000s 
Aggregate emoluments of directors: 
Salaries and other short-term employee benefits                      850                 830 
Social security costs                                                112                  94 
Incremental payment for additional services                           26                  26 
Other pension costs                                                   10                  10 
                                                      ------------------  ------------------ 
Total directors' emoluments                                          998                 960 
Share-based payment charge                                           925               1,337 
                                                      ------------------  ------------------ 
Directors' emoluments including share-based payment 
 charge                                                            1,923               2,297 
                                                      ==================  ================== 
 
 
 
 
 
 
                                    Year ended          Year ended 
                                 December 31, 2019   December 31, 2018 
                                ------------------  ------------------ 
                                     GBP'000s            GBP'000s 
Aggregate executive officers 
costs: 
Wages and salaries                           1,150                 857 
Social security costs                           98                  83 
Share-based payment charge                     751                 769 
Other pension costs                             21                  19 
                                ------------------  ------------------ 
Total executive officers costs               2,020               1,728 
                                ==================  ================== 
 
 
 
 
 
 
                                   Year ended          Year ended 
                                December 31, 2019   December 31, 2018 
                               ------------------  ------------------ 
                                    GBP'000s            GBP'000s 
Aggregate other staff costs: 
Wages and salaries                          2,788               1,622 
Social security costs                         265                 150 
Share-based payment charge                    765                 795 
Other pension costs                            46                  34 
                               ------------------  ------------------ 
Total other staff costs                     3,864               2,601 
                               ==================  ================== 
 
 
   The Group considers key management personnel to comprise directors and 
executive officers. 
 
   The Group operates defined contribution pension schemes for its 
employees and executive director. The total pension cost during the year 
ended December 31, 2019 was GBP77 thousand (2018: GBP63 thousand). There 
were no prepaid or accrued contributions to the scheme at December 31, 
2019 (2018 GBPnil) 
 
   Company 
 
 
 
 
                                                            Year ended           Year ended 
                                                         December 31, 2019    December 31, 2018 
                                                        ------------------  -------------------- 
The average number of employees (excluding directors) 
 of the Company during the year: 
Research and Development                                                 5                   4 
General and Administrative                                               8                   4 
Total                                                                   13                   8 
                                                        ==================  ================== 
 
 
 
 
 
 
                                                          Year ended           Year ended 
                                                       December 31, 2019    December 31, 2018 
                                                      ------------------  -------------------- 
                                                           GBP'000s             GBP'000s 
Aggregate emoluments of directors: 
Salaries and other short-term employee benefits                      850                 830 
Social security costs                                                112                  94 
Incremental payment for additional services                           26                  26 
Other pension costs                                                   10                  10 
                                                      ------------------  ------------------ 
Total directors' emoluments                                          998                 960 
Share-based payment charge                                           925               1,337 
                                                      ------------------  ------------------ 
Directors' emoluments including share-based payment 
 charge                                                            1,923               2,297 
                                                      ==================  ================== 
 
 
 
 
 
 
                                      Year ended           Year ended 
                                   December 31, 2019    December 31, 2018 
                                  ------------------  -------------------- 
                                       GBP'000s             GBP'000s 
Aggregate executive officers 
costs: 
Wages and salaries                               592                 532 
Social security costs                             75                  73 
Share-based payment charge                       639                 957 
Other pension costs                               21                  19 
Total executive officers costs                 1,327               1,581 
                                  ==================  ================== 
 
 
 
 
 
 
                                   Year ended           Year ended 
                                December 31, 2019    December 31, 2018 
                               ------------------  -------------------- 
                                    GBP'000s             GBP'000s 
Aggregate other staff costs: 
Wages and salaries                          1,241                 984 
Social security costs                         172                 118 
Share-based payment charge                    447                 571 
Other pension costs                            46                  34 
Total other staff costs                     1,906               1,707 
                               ==================  ================== 
 
 
   The Group considers key management personnel to be the aggregate of 
directors and executive officers. 
 
   The Company operates a defined contribution pension schemes for its. 
employees and executive director. The total pension cost during the year 
ended December 31, 2019 was GBP77 thousand (2018: GBP63 thousand). There 
were no prepaid or accrued contributions to the scheme at December 31, 
2019 (2018: GBPnil). 
 
   In respect of Directors' remuneration, the Company has taken advantage 
of the permission in Paragraph 6(2) of Statutory Instrument 2008/410 to 
omit aggregate information that is capable of being ascertained from the 
detailed disclosures in the audited section of the Directors' 
Remuneration Report which form part of these Consolidated Financial 
Statements. 
 
   9. Finance income and expense 
 
 
 
 
                                                                Year ended          Year ended 
Group                                                        December 31, 2019   December 31, 2018 
                                                            ------------------  ------------------ 
                                                                 GBP'000s            GBP'000s 
Finance income: 
Interest received on cash balances                                         754                 861 
 
Foreign exchange gain on translating foreign currency 
 denominated balances                                                       --               1,922 
Fair value adjustment on derivative financial instruments 
 (note 19)                                                               1,597                  -- 
Total finance income                                                     2,351               2,783 
                                                            ==================  ================== 
 
 
 
 
 
 
                                                                Year ended          Year ended 
                                                             December 31, 2019   December 31, 2018 
                                                            ------------------  ------------------ 
                                                                 GBP'000s            GBP'000s 
Finance expense: 
Fair value adjustment on derivative financial instruments 
 (note 19)                                                                  --               1,219 
Interest on discounted lease liability                                      50                  -- 
 
Foreign exchange loss on translating foreign currency 
 denominated balances                                                      305                  -- 
Unwinding of discount factor related to the assumed 
 contingent arrangement (note 21)                                          119                 106 
                                                            ------------------  ------------------ 
Total finance expense                                                      474               1,325 
                                                            ==================  ================== 
 
 
   Company 
 
 
 
 
 
 
                                                                Year ended           Year ended 
                                                             December 31, 2019   December 31, 2018 
                                                                 GBP'000s             GBP'000s 
Finance income: 
Interest received on cash balances                                         754                  861 
 
Foreign exchange gain on translating foreign currency 
 denominated balances                                                       --                1,922 
Fair value adjustment on derivative financial instruments 
 (note 19)                                                               1,597                   -- 
Total finance income                                                     2,351                2,783 
                                                            ------------------   ------------------ 
                                                                    Year ended       Year ended 
                                                             December 31, 2019   December 31, 2018 
                                                            ------------------   ------------------ 
                                                                      GBP'000s        GBP'000s 
Finance expense: 
Fair value adjustment on derivative financial instruments 
 (note 19)                                                                  --                1,219 
Interest on discounted lease liability                                      39                   -- 
 
Foreign exchange loss on translating foreign currency 
 denominated balances                                                      305                   -- 
Unwinding of discount factor related to the assumed 
 contingent arrangement (note 21)                                          119                  106 
                                                            ------------------   ------------------ 
Total finance expense                                                      463                1,325 
                                                            ==================   ================== 
 
 
 
   10. Taxation 
 
 
 
 
                                                         Year ended            Year ended 
                                                      December 31, 2019     December 31, 2018 
                                                    --------------------  -------------------- 
                                                          GBP'000s              GBP'000s 
Analysis of tax credit for the year 
Current tax: 
U.K. tax credit                                          (7,250)               (4,290) 
U.S. tax charge                                              56                    30 
Adjustment in respect of prior periods                      (71)                   28 
                                                    -----------   ------  -----------  ------- 
Total tax credit                                         (7,265)               (4,232) 
                                                    ===========   ======  ===========   ====== 
 
Factors affecting the tax credit for the year 
Loss on ordinary activities before taxation             (39,206)              (24,133) 
                                                    ===========   ======  ===========   ====== 
 
Multiplied by standard rate of corporation tax of 
 19% (2018: 19%)                                         (7,449)               (4,585) 
Effects of: 
Non-deductible expenses                                     515                   540 
Fair value adjustment on derivative financial 
 instruments                                               (303)                  232 
Research and development incentive                       (3,119)               (1,846) 
Temporary differences not recognized                         (6)                   (3) 
Difference in overseas tax rates                             16                     8 
Tax losses carried forward not recognized                 3,152                 1,394 
Adjustment in respect of prior periods                      (71)                   28 
                                                    -----------   ------  -----------  ------- 
Total tax credit                                         (7,265)               (4,232) 
                                                    ===========   ======  ===========   ====== 
 
 
   U.K. corporation tax is charged at 19% (2018: 19.00%) and U.S. federal 
and state tax at 27.6% (2018: 27.6%). 
 
   The following tables represent deferred tax balances recognized in the 
Consolidated Statement of Financial Position. There were no movements in 
either the deferred tax asset or the deferred tax liability. 
 
 
 
 
                         As at December 31, 2019    As at December 31, 2018 
                        -------------------------  ------------------------- 
                                GBP'000s                   GBP'000s 
Deferred tax assets                     332                        250 
Deferred tax 
 liabilities                           (332)                      (250) 
                        -------------------   ---  ------------------- --- 
Net balances                             --                         -- 
                        ===================  ====  ===================  ==== 
 
 
   The deferred tax liability relates to the difference between the 
accounting and tax bases of the IP R&D intangible asset. A deferred tax 
asset relating to UK tax losses has been recognized and offset against 
the liability. 
 
   Factors that may affect future tax charges 
 
   The Group has U.K. tax losses available for offset against future 
profits in the United Kingdom. However an additional deferred tax asset 
has not been recognized in respect of such items due to uncertainty of 
future profit streams. As of December 31, 2019, the unrecognized 
deferred tax asset at 17% is estimated to be GBP9.27 million (2018: 
GBP6.65 million at 17%). 
 
   11. Goodwill 
 
   Group and Company 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Goodwill at January 1 
 and December 31                            441                      441 
 
 
   Goodwill represents the excess of the purchase price over the fair value 
of the net assets acquired in connection with the acquisition of 
Rhinopharma in September 2006. Goodwill is not amortized, but is tested 
annually for impairment. 
 
   The Group has one CGU so goodwill is tested for impairment together with 
its intangible assets. It was tested with reference to the Group's 
market capitalization as of December 31, 2019, the date of testing of IP 
R&D and goodwill impairment. The market capitalization of the Group was 
approximately GBP65.3 million as of December 31, 2019, (2018: 92.2 
million) compared to the Group's net assets of GBP33.9 million (2018: 
GBP63.4 million). Therefore, no impairment was required. 
 
   The Group notes that after the reduction in its share price since 
December 31, 2018, and before the increase by December 31, 2019, at 
various points in the three months to March 31, 2019, the market value 
of the Group was less than its net book value. The Group therefore 
carried out an impairment review as at March 31, 2019. From market 
research the Group assessed, among other inputs, potential patient 
numbers from likely physician prescribing patterns, price points, the 
time from possible launch to peak sales, script rejection, attrition 
rates and probability of success. The Group also carried out a 
sensitivity analysis on key assumptions and assessed that a reasonable 
change in these assumptions would not lead to the value in use falling 
below net book value. Consequently, management determined that the 
Group's value in use exceeded the carrying value of the Group's assets 
and that no impairment was required. 
 
   At various other points in the year ended December 31, 2019, the market 
value of the Group was less than its net book value. Consequently, 
management re-performed the impairment review quarterly, and identified 
no changes to market conditions, the competitive landscape, market 
research insights or other factors that would change its conclusions. As 
a result, management determined that the Group's value in use exceeded 
the carrying value of the Group's assets and that no impairment was 
required at those dates. 
 
   12. Intangible assets 
 
   Group and Company 
 
 
 
 
                                   Computer 
                          IP R&D    software   Patents      Total 
                         --------  ---------  ----------  ---------- 
                         GBP'000s  GBP'000s    GBP'000s    GBP'000s 
Cost 
At January 1, 2018 
 (Restated)                 1,953         11     727        2,691 
Additions                      --          4     251          255 
Disposals                      --         --      (6)          (6) 
                         --------  ---------  ------      ------- 
At December 31, 2018 
 (Restated)                 1,953         15     972        2,940 
                         --------  ---------  ------      ------- 
Accumulated 
amortization 
At January 1, 2018             --          6     232          238 
Charge for year                --          5      85           90 
Disposals                      --         --      (6)          (6) 
                         --------  ---------  ------      ------- 
At December 31, 2018           --         11     311          322 
                         --------  ---------  ------      ------- 
Net book value 
At December 31, 2018 
 (Restated)                 1,953          4     661        2,618 
                         ========  =========  ======      ======= 
 
 
 
 
 
 
                                   Computer 
                          IP R&D    software  Patents     Total 
                         --------  ---------  --------  ---------- 
                         GBP'000s  GBP'000s   GBP'000s   GBP'000s 
Cost 
At January 1, 2019          1,953         15       972     2,940 
Additions                      --          3       242       245 
                         --------  ---------  --------  -------- 
At December 31, 2019        1,953         18     1,214     3,185 
                         --------  ---------  --------  -------- 
Accumulated 
amortization 
At January 1, 2019             --         11       311       322 
Charge for year                --          4       102       106 
                         --------  ---------  --------  -------- 
At December 31, 2019           --         15       413       428 
                         --------  ---------  --------  -------- 
Net book value 
At December 31, 2019        1,953          3       801     2,757 
                         ========  =========  ========  ======== 
 
 
   Intangible assets comprise patents, computer software and an IP R&D 
asset that arose on the acquisition of Rhinopharma and investment in 
patents to protect ensifentrine. 
 
   The IP R&D asset acquired through the business combination was initially 
recognized at fair value. Subsequent movements in the assumed contingent 
liability that relate to changes in estimated cash flows or 
probabilities of success are recognized as additions to the IP R&D asset 
that it relates to. This is a change in accounting policy (see note 
2.18). The asset is not amortized and is tested annually for impairment. 
 
   Patents are amortized over a period of ten years and are tested annually 
for impairment. 
 
   Intangible assets are tested for impairment with goodwill, as the Group 
has only one CGU. See note 11 for information about the impairment 
review. 
 
   13. Property, plant and equipment 
 
   Group and Company 
 
 
 
 
                           Computer 
                            hardware    Total 
                           ---------  ---------- 
                           GBP'000s    GBP'000s 
Cost 
At January 1, 2018                26        26 
Additions                         13        13 
                           ---------  -------- 
At December 31, 2018              39        39 
                           ---------  -------- 
Accumulated depreciation 
At January 1, 2018                10        10 
Charge for the year                8         8 
                           ---------  -------- 
At December 31, 2018              18        18 
                           ---------  -------- 
Net book value 
At December 31, 2018              21        21 
                           =========  ======== 
 
 
 
 
 
 
                           Computer 
                            hardware    Total 
                           ---------  ---------- 
                           GBP'000s    GBP'000s 
Cost 
At January 1, 2019                39        39 
Additions                         38        38 
At December 31, 2019              77        77 
                           ---------  -------- 
Accumulated depreciation 
At January 1, 2019                18        18 
Charge for the year               16        16 
                           ---------  -------- 
At December 31, 2019              34        34 
                           ---------  -------- 
Net book value 
At December 31, 2019              43        43 
                           =========  ======== 
 
 
 
   14. Right-of-use assets - property leases 
 
   The right-of-use asset relates to rented office space in London and New 
York where the Group generally enters in to leases for terms of less 
than three years. Before the adoption of IFRS 16 these leases were 
classified as operating leases. 
 
   Group 
 
   The Consolidated Statement of Financial Position shows the following 
amounts relating to leases: 
 
 
 
 
                           Year ended 
                        December 31, 2019    As of January 1, 2019* 
                      --------------------  ------------------------ 
                            GBP'000s                GBP'000s 
Right-of-use assets 
Right-of-use assets               971                      326 
                                  971                      326 
                      ===============  ===  ==================  ==== 
 
Lease liabilities 
Current                          (460)                    (316) 
Non Current                      (491)                      -- 
                      ---------------       ------------------  ---- 
                                 (951)                    (316) 
                      ===============       ================== === 
 
 
   Additions to the right-of-use assets were GBP1,047,000 and were 
recognized when the Group was reasonably certain to extend the leases. 
The additions related to both of the Group's office locations, both of 
which agreements have similar terms and conditions. 
 
   To calculate the value of the lease liabilities the Group applied a 
discount rate of 8%. 
 
   The leases end in 2021 and 2022 and include options to extend them. The 
Group has determined it is not yet reasonably certain to operate the 
option to extend the leases and so has recognized lease payments only to 
these points in its calculation of the lease liabilities. 
 
   The right-of-use lease assets are depreciated over the term of the 
leases. 
 
   The Consolidated Statement of Comprehensive Income includes the 
following amounts relating to leases: 
 
 
 
 
                                                          Year ended            Year ended 
                                                       December 31, 2019     December 31, 2018 
                                                     --------------------  -------------------- 
                                                           GBP'000s              GBP'000s 
Depreciation charge of right-of-use assets 
Right-of-use assets                                         (382)                          -- 
                                                            (382)                          -- 
                                                     ===========   ======  ================== 
 
Interest expense (including finance cost)                     50                           -- 
Expense relating to short-term leases (included in            78                           -- 
 general and administrative expenses) 
 
 
   The total cash outflow for leases in 2019 was GBP492,000. 
 
   Company 
 
   The right-of-use asset relates to rented office space in London where 
the Company generally enters in to leases for terms of less than three 
years. Before the adoption of IFRS 16 these leases were classified as 
operating leases. 
 
   The Company's Statement of Financial Position shows the following 
amounts relating to leases: 
 
 
 
 
                           Year ended 
                        December 31, 2019    As of January 1, 2019* 
                      --------------------  ------------------------ 
                            GBP'000s                GBP'000s 
Right-of-use assets 
Right-of-use assets               731                      326 
                                  731                      326 
                      ===============  ===  ==================  ==== 
 
Lease liabilities 
Current                          (335)                    (316) 
Non Current                      (419)                      -- 
                      ---------------       ------------------  ---- 
                                 (754)                    (316) 
                      ===============       ================== === 
 
 
   Additions to the right-of-use assets were GBP718,000 and were recognized 
when the Company was reasonably certain to extend the leases. The 
additions related to the Company's office location. 
 
   To calculate the value of the lease liabilities the Company applied a 
discount rate of 8%. 
 
   The leases end in 2022. The Company has determined it is not yet 
reasonably certain to operate the option to extend the leases and so has 
recognized lease payments only to these points in its calculation of the 
lease liabilities. 
 
   The right-of-use lease assets are depreciated over the term of the 
leases. 
 
   The Consolidated Statement of Comprehensive Income includes the 
following amounts relating to leases: 
 
 
 
 
                                       Year ended            Year ended 
                                    December 31, 2019     December 31, 2018 
                                  --------------------  -------------------- 
                                        GBP'000s              GBP'000s 
Depreciation charge of 
right-of-use assets 
Right-of-use assets                          (313)                      -- 
                                             (313)                      -- 
                                  ===============       ================== 
 
Interest expense (including                    39                       -- 
 finance cost) 
 
 
   The total cash outflow for leases in 2019 was GBP348,000. 
 
   15. Prepayments and other receivables 
 
   Group 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Prepayments                               1,309                    1,362 
Other receivables                         1,461                    1,101 
                         ----------------------  ----------------------- 
Total prepayments and 
 other receivables                        2,770                    2,463 
                         ======================  ======================= 
 
 
   The prepayments balance includes prepayments for insurance and clinical 
activities. 
 
   Company 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Prepayments                               1,331                    1,346 
Other receivables                         1,437                    1,069 
Amounts due from group 
 undertakings                               325                      187 
                         ----------------------  ----------------------- 
Total prepayments and 
 other receivables                        3,093                    2,602 
                         ======================  ======================= 
 
 
   Amounts due from group undertakings are unsecured, interest free and 
repayable on demand. 
 
   The prepayments balance includes prepayments for insurance and clinical 
activities. 
 
   16. Investment in subsidiaries 
 
   The Company has two wholly owned subsidiaries, Rhinopharma Limited and 
Verona Pharma Inc. 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Net book value: 
At the start of the 
 year                                       913                      877 
Capital contribution 
 arising from 
 share-based payments                       429                       36 
                         ----------------------  ----------------------- 
Net book amount at the 
 end of year                              1,342                      913 
                         ======================  ======================= 
 
 
   A capital contribution arises where share-based payments are provided to 
employees of the subsidiary undertaking, Verona Pharma Inc, settled with 
equity to be issued by the Company. 
 
   The Company's investments comprise interests in Group undertakings, 
details of which are shown below: 
 
 
 
 
Name of undertaking            Verona Pharma Inc.  Rhinopharma Limited 
Country of incorporation            Delaware        British Columbia 
                                      USA                Canada 
                               ------------------  ------------------- 
Description of shares held           $0.001         Without Par Value 
                                  Common stock        Common shares 
                               ------------------  ------------------- 
Proportion of shares held by 
 the Company                          100%                100% 
 
 
   Verona Pharma Inc. was incorporated on the 12 December 2014 under the 
laws of the State of Delaware, USA and has its registered office at 2711 
Centerville Road, Suite 400, City of Wilmington 19808, County of New 
Castle, Delaware, United States of America. 
 
   Rhinopharma Limited is incorporated under the laws of the Province of 
British Columbia, Canada and has its registered office at Suite 700, 625 
Howe Street, Vancouver, British Columbia, Canada V6C 2T6.  Rhinopharma 
Limited was a drug discovery and development company focused on 
developing proprietary drugs to treat allergic rhinitis and other 
respiratory diseases prior to its acquisition by the Company on 
September 18, 2006. 
 
   17. Share Capital 
 
   Group and Company 
 
   The movements in the Company's share capital are summarized below: 
 
 
 
 
 
                                       Number of      Share Capital 
Date                 Description         shares     amounts in GBP'000s 
----------------   ----------------   -----------  -------------------- 
January 1, 2018                       105,017,401                 5,251 
 August 9, 2018      Vesting of RSUs        58,112                     3 
  September 20, 
       2018          Vesting of RSUs       251,125                    12 
      As at December 31, 2018         105,326,638                 5,266 
      As at December 31, 2019         105,326,638                 5,266 
 
 
   The total number of authorized ordinary shares, with a nominal value of 
GBP0.05 each, is 200,000,000 (share capital of GBP10,000,000). All 
105,326,638 ordinary shares at December 31, 2019 are allotted, 
unrestricted, called up and fully paid. All issued shares rank pari 
passu. 
 
   During 2018, the Company issued 309,237 ordinary shares upon vesting of 
employee restricted share units. 
 
   18. Share-based payments charge 
 
   Group and Company 
 
   The Group operates various share based payment incentive schemes for its 
staff. 
 
   In accordance with IFRS 2 "Share Based Payments," the cost of 
equity-settled transactions is measured by reference to their fair value 
at the date at which they are granted. Where equity-settled transactions 
were entered into with third party service providers, fair value is 
determined by reference to the value of the services provided. For other 
equity-settled transactions fair value is determined using the 
Black-Scholes model. The cost of equity-settled transactions is 
recognized over the period until the award vests. No expense is 
recognized for awards that do not ultimately vest. At each reporting 
date, the cumulative expense recognized for equity-based transactions 
reflects the extent to which the vesting period has expired and the 
number of awards that, in the opinion of the Directors at that date, 
will ultimately vest. 
 
   The costs of equity-settled share-based payments to employees are 
recognized in the Statement of Comprehensive Income, together with a 
corresponding increase in equity during the vesting period. During the 
twelve months ended December 31, 2019, the Group recognized a 
share-based payment expense of GBP2.44 million (2018: GBP2.90 million). 
The charge is included within both general and administrative costs as 
well as in research and development costs and represents the current 
year's allocation of the expense for relevant share options. 
 
   The Group operates an Unapproved Share Option Scheme under which options 
were issued before 31 December 2016. The Group also operates a tax 
efficient EMI Option Scheme under which options were issued before 31 
December 2016. In 2017 the Group commenced the 2017 Incentive Award Plan 
under which the Group grants share options and Restricted Stock Units 
("RSUs") to employees and directors. 
 
   Since 2017 options are issued with an exercise price at the share price 
the evening before the date of issue. They vest over terms of one to 
four years. 
 
   RSUs also vest over terms of one to four years. In the year ended 
December 31, 2019, the Company modified the terms of all the RSUs issued 
prior January 1, 2019, to include a market based performance condition. 
The Company's share price must be maintained above GBP2 for thirty days 
for the RSUs to vest, in addition to the existing service condition. The 
RSUs vest after a five year term irrespective of whether the GBP2 market 
condition was met. This modification did not result in an increase in 
the fair value of the RSUs. The RSUs issued in the year ended December 
31, 2019, also include the same market condition and five year term. 
 
   In the year ended December 31, 2019, under the 2017 Incentive Award Plan, 
the Group granted 5,569,050 (2018: 2,090,847) share options and 740,496 
RSUs (2018: 273,390).  The total fair values of the options and RSUs 
were estimated using the Black-Scholes option-pricing model for 
equity-settled transactions and amounted to GBP2.25 million (2018: 
GBP2.32 million). The cost is amortized over the vesting period of the 
options and RSUs on a straight-line basis. 
 
   The following assumptions were used for the Black-Scholes valuation of 
share options and RSUs granted in 2018 and 2019. For the options granted 
under the Unapproved Scheme the table indicates the ranges used in 
determining the fair-market values, aligning with the various dates of 
the underlying grants. The volatility is calculated using historical 
weekly averages of the Group's share price over a period that is in line 
with the expected life of the options and RSUs. 
 
 
 
 
                              Unapproved     Restricted Stock 
Issued in 2018                   Scheme           Units 
Options granted                   2,090,847           273,390 
Risk-free interest rate       1.08% - 1.22%     1.08% - 1.22% 
Expected life of options      5.5 - 7 years     5.5 - 7 years 
Annualized volatility        69.88% -71.35%    69.88% -71.35% 
Dividend rate                         0.00%             0.00% 
Vesting period                 1 to 4 years      1 to 4 years 
 
                              Unapproved     Restricted Stock 
Issued in 2019                   Scheme           Units 
-------------------------   ---------------  ---------------- 
Options granted                   5,569,050           740,496 
Risk-free interest rate       0.39% - 0.82%     0.76% - 0.82% 
Expected life of options      5.5 - 7 years     5.5 - 7 years 
Annualized volatility       67.98% - 69.71%   63.82% - 69.71% 
Dividend rate                         0.00%             0.00% 
Vesting period                 1 to 4 years      1 to 4 years 
 
 
 
   The Group had the following share options movements in the year ended 
December 31, 2019: 
 
 
 
 
 Year                     At                                           At 
  of       Exercise     January    Options    Options    Options    December    Expiry 
issue     price (GBP)   1, 2019    granted    forfeited   expired   31, 2019     date 
------   ------------  ---------  ---------  ----------  --------  ----------  --------- 
                                                                                 June 1, 
2012      2.50 - 7.50     99,993         --         --        --       99,993       2022 
                                                                               April 15, 
2013                2     99,990         --         --   (19,998)      79,992       2023 
                                                                                July 29, 
2013             2.00    159,999         --         --        --      159,999       2023 
                                                                                 May 15, 
2014             1.75    109,998         --         --        --      109,998       2024 
                                                                                 May 15, 
2014             1.75     49,998         --         --        --       49,998       2024  * 
                                                                                 January 
2015             1.25     41,997         --         --        --       41,997   29, 2025  * 
                                                                                 January 
2015             1.25    549,999         --         --        --      549,999   29, 2025 
                                                                                February 
2016                2    240,000         --         --        --      240,000    2, 2026 
                                                                                February 
2016             2.00     21,996         --         --        --       21,996    2, 2026  * 
                                                                               August 3, 
2016             1.80    676,664         --         --        --      676,664       2026 
                                                                               September 
2016             1.89    299,997         --         --        --      299,997   13, 2026 
                                                                               September 
2016             2.04    300,000         --         --        --      300,000   16, 2026 
                                                                               April 26, 
2017     1.32 - 1.525  4,093,164         --         --        --    4,093,164       2027 
                                                                                March 8, 
2018             1.46  2,008,319         --    (34,614)       --    1,973,705       2028 
                                                                               March 29, 
2019           570.00         --  3,903,050    (87,356)       --    3,815,694       2029 
                                                                                June 11, 
2019           595.00         --    346,000         --        --      346,000       2029 
                                                                                  August 
2019           457.00         --    100,000         --        --      100,000   22, 2029 
                                                                                November 
2019            0.436         --    720,000         --        --      720,000    6, 2029 
                                                                                November 
2019           445.00         --    500,000         --        --      500,000   26, 2029 
Total                  8,752,114  5,569,050   (121,970)  (19,998)  14,179,196 
=======  ============  =========  =========  =========   =======   ==========  ========= 
 
 
   *  Options granted under the EMI Scheme. 
 
   The Company had the following RSU movements in the year ended December 
31, 2019: 
 
 
 
 
                         At 
           Exercise    January                                    At 
 Year of     price       1,      Units     Units     Units     December   Expiry 
   issue     (GBP)      2019     granted   vested   forfeited  31, 2019    date 
           ---------   -------  --------  -------  ----------  ---------  ------ 
                                                                           April 
                                                                             26, 
2017                   729,987        --       --          --    729,987    2027 
                                                                           March 
                                                                              8, 
2018                   132,486        --       --          --    132,486    2028 
                                                                           March 
                                                                             29, 
2019                             740,496       --          --    740,496    2027 
                       -------  --------  -------  ----------  --------- 
Total                  862,473   740,496       --          --  1,602,969 
=====================  =======  ========  =======  ==========  =========  ====== 
 
 
   Outstanding and exercisable share options by scheme as of December 31, 
2019: 
 
 
 
 
                                        Weighted 
                                         average       Weighted 
                                        exercise       average 
                                        price in    exercise price 
                                         GBP for      in GBP for 
Plan         Outstanding  Exercisable  Outstanding   Exercisable 
-----------  -----------  -----------  -----------  -------------- 
Unapproved    13,965,212    5,552,293         1.12          1.55 
EMI              213,984      213,984         3.06          3.06 
Total         14,179,196    5,766,277         1.15          1.61 
===========  ===========  ===========  ===========  ============ 
 
 
   As of December 31, 2019 there were no restricted share options 
exercisable (2018: nil) and there is no exercise price for restricted 
share options. 
 
   The options outstanding at December 31, 2019 had a weighted average 
remaining contractual life of 7.7 years  (2018: 8.0 years). For 2018 and 
2019, the number of options granted and expired and the weighted average 
exercise price of options were as follows: 
 
 
 
 
                                                 Weighted average 
                                    Number of     exercise price 
                                      options          (GBP) 
                                    ----------  ------------------ 
At January 1, 2018                  7,527,458               1.53 
  Options granted in 2018: 
      Employees                     1,222,089               1.46 
      Directors                       868,758               1.46 
  Options forfeited in the year      (799,524)              1.43 
  Options expired in the year         (66,667)              1.75 
                                    ---------   ---------------- 
At December 31, 2018                8,752,114               1.53 
                                    =========   ================ 
Exercisable at December 31, 2018    3,542,884               1.66 
                                    =========   ================ 
 
 
 
 
 
 
                                                  Weighted average 
                                     Number of     exercise price 
                                      options           (GBP) 
                                    -----------  ------------------ 
At January 1, 2019                   8,752,114               1.53 
 
  Options granted in 2019: 
      Employees                      4,042,106               0.55 
      Directors                      1,526,944               0.53 
  Options forfeited in the year       (121,970)              0.82 
  Options expired in the year          (19,998)              2.00 
                                    ----------   ---------------- 
At December 31, 2019                14,179,196               1.15 
                                    ==========   ================ 
Exercisable at December 31, 2019     5,766,277               1.60 
                                    ==========   ================ 
 
   The following table shows the number of RSUs issued, exercised and 
forfeited in 2018. The fair value of each unvested RSU at grant date was 
GBP1.46. 
 
 
 
 
                                 Number of 
                                    RSUs 
                                ------------ 
At January 1, 2018              1,052,236 
  Granted: 
      Employees                   136,404 
      Directors                   136,986 
  RSUs vested in the year        (309,237) 
  RSUs forfeited in the year     (153,916) 
At December 31, 2018              862,473 
                                ========= 
 
 
   The following table shows the number of RSUs issued in 2019. There were 
no RSUs forfeited, canceled or vested in 2019. The fair value of each 
unvested RSU granted in 2019 was GBP0.57. 
 
 
 
 
                                 Number of 
                                    RSUs 
                                ----------- 
At January 1, 2019                862,473 
  Granted: 
      Employees                   474,072 
      Directors                   266,424 
  RSUs vested in the year              -- 
  RSUs forfeited in the year           -- 
                                --------- 
At December 31, 2019            1,602,969 
                                ========= 
 
 
   The cost is amortized over the vesting period of the options on a 
straight-line basis. The expense for the Group during 2019 amounted to 
GBP2.9m and GBP0.04m in relation to Verona Pharma Inc is held as an 
investment. 
 
   19. Derivative financial instrument 
 
   Group and Company 
 
   On July 29, 2016, the Group issued 31,115,926 units to new and existing 
investors at the placing price of GBP1.4365 per unit. Each unit 
comprises one ordinary share and one warrant. 
 
   The warrant holders can subscribe for 0.4 of an ordinary share at a per 
share exercise price of GBP1.7238. The warrant holders can opt for a 
cashless exercise of their warrants, whereby the warrant holders can 
choose to exchange the warrants held for reduced number of warrants 
exercisable at nil consideration. The reduced number of warrants is 
calculated based on a formula considering the share price and the 
exercise price of the warrants. The warrants are therefore classified as 
a derivative financial liability, since their exercise could result in a 
variable number of shares to be issued. 
 
   The warrants entitled the investors to subscribe for, in aggregate, a 
maximum of 12,401,262 shares. The warrants can be exercised until May 2, 
2022. 
 
   In the year ended December 31, 2019, no warrants were forfeited (2018: 
nil). 
 
   The table below presents the assumptions in applying the Black-Scholes 
model to determine the fair value of the warrants. 
 
 
 
 
                      As of December 31, 2019      As of December 31, 2018 
                    ---------------------------  --------------------------- 
Shares available 
 to be issued 
 under warrants                 12,401,262                   12,401,262 
Exercise price           GBP        1.7238            GBP        1.7238 
Risk-free interest 
 rate                                0.540%                       0.760% 
Expected term to 
exercise                        2.34 years                   3.34 years 
Annualized 
 volatility                          65.56%                       60.72% 
Dividend rate                         0.00%                        0.00% 
 
 
   As per the reporting date, the Group updated the underlying assumptions 
and calculated a fair value of these warrants amounting to GBP0.9 
million. The variance of GBP(1.6) million is recorded as finance income 
in the Consolidated Statement of Comprehensive Income. 
 
 
 
 
                                                Derivative    Derivative 
                                                 financial     financial 
                                                 instrument    instrument 
                                                -----------  ------------- 
                                                   2019          2018 
                                                -----------  ------------- 
                                                 GBP'000s      GBP'000s 
At January 1                                         2,492         1,273 
Fair value adjustments recognized in profit or 
 loss                                               (1,597)        1,219 
                                                ----------   ----------- 
At December 31                                         895         2,492 
                                                ==========   =========== 
 
 
   For the amount recognized at December 31, 2019, the effect when the 
following parameter deviates up or down is presented in the below table. 
 
 
 
 
                                  Volatility 
                                   (up / down 
                                    10% pts) 
                                 ------------- 
                                   GBP'000s 
Variable up                            1,306 
Base case, reported fair value           895 
Variable down                            535 
 
 
   20. Trade and other payables 
 
   Group 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Trade payables                            1,455                    2,839 
Other payables                               --                       12 
Accruals                                  6,806                    4,882 
                         ----------------------  ----------------------- 
Total trade and other 
 payables                                 8,261                    7,733 
                         ======================  ======================= 
 
 
   Company 
 
 
 
 
                           As of December 31, 
                                  2019            As of December 31, 2018 
                         ----------------------  ------------------------- 
                                GBP'000s                 GBP'000s 
Trade payables                            1,455                    2,839 
Other payables                               --                       12 
Amount due to group 
 undertakings                             1,474                      722 
Accruals                                  6,327                    4,696 
                         ----------------------  ----------------------- 
Total trade and other 
 payables                                 9,256                    8,269 
                         ======================  ======================= 
 
 
   Amounts due to group undertakings are unsecured, interest free and 
repayable on demand. 
 
   21. Assumed contingent liability related to the business combination 
 
   Group and Company 
 
   The value of the assumed contingent liability as of December 31, 2019 is 
GBP1.1 million (2018: GBP1.0 million). The increase in value of the 
assumed contingent liability during 2019 amounted to GBP0.1 million 
(2018: GBP0.1 million). 
 
   The assumed contingent liability relates to the acquisition, in 2006, of 
rights to certain patents and patent applications relating to 
ensifentrine and related compounds under which the Group is obliged to 
pay royalties to Ligand (see 2.12). 
 
   The assumed contingent liability is measure at the expected value of the 
milestone payment and royalty payments. This expected value is based on 
estimated future royalties payable, derived from sales forecasts, and an 
assessment of the probability of success using standard market 
probabilities for respiratory drug development. The risk-weighted value 
of the assumed contingent arrangement is discounted back to its net 
present value applying an effective interest rate of 12%. 
 
   The assumed contingent liability is accounted for as a liability and its 
value is measured at amortized cost using the effective interest rate 
method, and is re-measured for changes in estimated cash flows or when 
the probability of success changes. 
 
   Re-measurements relating to changes in estimated cash flows and 
probabilities of success are recognized in the IP R&D asset it relates 
to ("see 2.7"). This is a change in accounting policy for the year ended 
December 1, 2019 (see 2.18). The unwind of the discount is recognized in 
finance expense. 
 
   The Group considers that probabilities of success will change when it 
moves from one stage of clinical development to another. See note 4 for 
a further discussion of this. 
 
 
 
 
                                                2019       2018 
                                              --------  ---------- 
                                              GBP'000s   GBP'000s 
January 1                                         996        875 
Impact of changes in foreign exchange rates       (12)        15 
Unwinding of discount factor                      119        106 
                                              -------   -------- 
December 31                                     1,103        996 
                                              =======   ======== 
 
 
   There is no material difference between the fair value and carrying 
value of the financial liability. 
 
   For the amount recognized as at December 31, 2019, of GBP1,103 thousand, 
the effect if underlying assumptions were to deviate up or down is 
presented in the following table (assuming the probability of success 
does not change): 
 
 
 
 
                                 Discount rate    Revenue 
                                   (up / down    (up / down 
                                    1 % pt)      10 % pts) 
                                   GBP'000s      GBP'000s 
Variable up                              1,067        1,135 
Base case, reported fair value           1,103        1,103 
Variable down                            1,141        1,071 
 
 
   22. Related parties transactions and other shareholder matters 
 
   (i)  Related party transactions 
 
   The Directors have authority and responsibility for planning, directing 
and controlling the activities of the Group and they therefore comprise 
key management personnel as defined by IAS 24, ("Related Party 
Disclosures"). 
 
   Directors and key management personnel remuneration is disclosed in note 
8. 
 
   (ii)  Other shareholder matters 
 
   The Group has entered into the following arrangements with parties who 
are significant shareholders of the Group, though they are not classed 
as related parties. 
 
   The Group entered into relationship agreements with Vivo Ventures Fund 
VII, L.P., Vivo Ventures VII Affiliates Fund, L.P., Vivo Ventures Fund 
VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. (collectively, "Vivo 
Capital"), Orbimed Private Investments VI L.P. ("Orbimed") and 
Abingworth Bioventures VI L.P. ("Abingworth"). As agreed in these 
relationship agreements, the above parties invested in the Group as part 
of the July 2016 Placement, and the Group agreed to appoint 
representatives designated by Vivo Capital, OrbiMed and Abingworth to 
the board of directors, who are Dr. Mahendra Shah, Mr. Rishi Gupta, and 
Dr. Andrew Sinclair. 
 
   The appointment rights within the relationship agreement with Arix and 
Arthurian terminated on closing of the Global Offering on April 26, 
2017. Dr Cunningham agreed to continue to serve on the Group's board of 
directors as an independent director. The respective appointment rights 
under the remaining relationship agreements will automatically terminate 
upon (i) Vivo Capital, OrbiMed or Abingworth (or any of their 
associates), as applicable, ceasing to beneficially hold 6.5% of the 
issued ordinary shares, or (ii) the ordinary shares ceasing to be 
admitted to AIM. 
 
   Piers Morgan, Chief Financial Officer of the Group, and his spouse 
purchased 88,415 ordinary shares in total for GBP53 thousand from the 
market in the year ended December 31, 2019 (2018: GBPnil). 
 
   Dr. Jan-Anders Karlsson, Chief Executive Officer of the Group, purchased 
3,250 ordinary shares for GBP5 thousand from the market in the year 
ended December 31, 2018. There was no similar transaction as at December 
31, 2019. 
 
   Dr. David Ebsworth, Chairman of the Group, purchased 247,600 ordinary 
shares for GBP124 thousand from the market in the year ended December 
31, 2019 (2018: GBP14 thousand). 
 
   At December 31, 2018, there was a receivable of GBP126 thousand due from 
one director and two key management personnel relating to tax due on 
RSUs that vested in the year ended December 31, 2018. This receivable 
was repaid, together with interest at a rate of 3.9% per annum, by March 
6, 2019. There was no such balance as at December 31, 2019. 
 
   In the year ended December 31, 2019, a director provided consultancy 
services for GBP26 thousand (2018: GBP26 thousand). 
 
   23. Events after the reporting date 
 
   On February 3, 2020, the Group announced the appointment of David 
Zaccardelli as chief executive officer with effect from February 1, 
2020, following the retirement of Jan-Anders Karlsson, PhD. The Group 
also announced the appointment of Mark Hahn as chief financial officer 
with effect from March 1, 2020, as successor to Piers Morgan. 
 
   VERONA PHARMA PLC 
 
   CONVENIENCE TRANSLATION 
 
   We maintain our books and records in pounds sterling and we prepare our 
financial statements in accordance with IFRS, as issued by the IASB. We 
report our results in pounds sterling. For the convenience of the reader 
we have translated pound sterling amounts in the tables below as of 
December 31, 2019, and for the year ended December 30, 2019 into US 
dollars at the noon buying rate of the Federal Reserve Bank of New York 
on December 31, 2019, which was GBP1.00 to $1.3269. These translations 
should not be considered representations that any such amounts have been, 
could have been or could be converted into US dollars at that or any 
other exchange rate as of that or any other date. 
 
   CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR 
ENDED DECEMBER 31, 2019 (UNAUDITED) 
 
 
 
 
                                                            Year Ended December 31, 
                                                             2019               2018 
                                                     ---------------------   ---------- 
                                                     GBP' 000s     $'000s     GBP'000s 
Research and development costs                       GBP(33,476)  $(44,419)  GBP(19,294) 
General and administrative costs                         (7,607)   (10,094)      (6,297) 
Operating loss                                          (41,083)   (54,513)     (25,591) 
Finance income                                            2,351      3,120        2,783 
Finance expense                                            (474)      (629)      (1,325) 
                                                     ----------    -------   ---------- 
Loss before taxation                                    (39,206)   (52,022)     (24,133) 
Taxation -- credit                                        7,265      9,640        4,232 
Loss for the year                                       (31,941)   (42,382)     (19,901) 
                                                     ----------    -------   ---------- 
Other comprehensive (loss) / income 
Exchange differences on translating foreign 
 operations                                                 (33)       (44)          38 
                                                     ----------    -------   ---------- 
Total comprehensive loss attributable to owners of 
 the company                                         GBP(31,974)  $(42,426)    GBP(19,863) 
                                                     ===========   =======   ============= 
 
 
 
   CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 
31, 2019, AND DECEMBER 31, 2018 (UNAUDITED) 
 
 
 
 
                As of December 31,  As of December 31,  As of December 31, 
                       2019                2019                2018 
                   GBP'000s             $'000s             GBP'000s 
ASSETS 
Non-current 
assets: 
Goodwill                   441                 586                 441 
Intangible 
 assets                  2,757               3,658               2,618 
Property, 
 plant and 
 equipment                  43                  57                  21 
Right-of-use 
 asset                     971               1,288                  -- 
Total 
 non-current 
 assets                  4,212               5,589               3,080 
                --------------      --------------      -------------- 
 
Current 
assets: 
Prepayments 
 and other 
 receivables             2,770               3,676               2,463 
Current tax 
 receivable              7,396               9,814               4,499 
Short term 
 investments             7,823              10,380              44,919 
Cash and cash 
 equivalents            22,934              30,431              19,784 
Total current 
 assets                 40,923              54,301              71,665 
                --------------      --------------      -------------- 
Total assets            45,135              59,890              74,745 
                ==============      ==============      ============== 
 
EQUITY AND 
LIABILITIES 
Capital and 
reserves 
attributable 
to equity 
holders: 
Share capital            5,266               6,987               5,266 
Share premium          118,862             157,718             118,862 
Share-based 
 payment 
 reserve                10,364              13,752               7,923 
Accumulated 
 loss                 (100,627)           (133,522)            (68,633) 
Total equity            33,865              44,935              63,418 
                --------------      --------------      -------------- 
 
Current 
liabilities: 
Derivative 
 financial 
 instrument                895               1,188               2,492 
Lease 
 liability                 460                 610                  -- 
Trade and 
 other 
 payables                8,261              10,961               7,733 
Total current 
 liabilities             9,616              12,759              10,225 
                --------------      --------------      -------------- 
 
Non-current 
liabilities: 
Assumed 
 contingent 
 liability               1,103               1,464                 996 
Non-current 
 lease 
 liability                 491                 652                  -- 
Deferred 
 income                     60                  80                 106 
Total 
 non-current 
 liabilities             1,654               2,196               1,102 
                --------------      --------------      -------------- 
Total equity 
 and 
 liabilities            45,135              59,890              74,745 
                ==============      ==============      ============== 
 
 
 
 
 
 

(END) Dow Jones Newswires

February 27, 2020 02:00 ET (07:00 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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