2023-08-08 16:44:55 ET
Summary
- Verona Pharma plc is a London-based biopharma company focused on developing respiratory disease treatments.
- The company recently submitted a NDA for its primary drug candidate that is targeting the large and growing COPD market.
- The stock has risen impressively since late-stage trial results came out late in 2022. However, insiders have been consistently selling shares in 2023.
- More upside to the rally or is the next move to the downside? An analysis follows below.
The truth will set you free. But not until it is finished with you . ? David Foster Wallace.
Today, we put Verona Pharma plc ( VRNA ) in the spotlight. The company recently submitted a NDA for its primary drug candidate which is targeting the large and growing COPD market. The stock has risen substantially based on positive trial results that came out late last year to support that marketing application. More upside on the horizon or is it time to take some profits off the recent rally? An analysis follows below.
Company Overview:
Verona Pharma plc is a clinical-stage biopharma concern based in London, England. The company is focused on the development and commercialization of therapies for the treatment of respiratory diseases with unmet medical needs. Currently, the shares trade just north of $19.00 and sport an approximate market capitalization of $1.6 billion.
Verona's primary drug candidate is being developed for the treatment for chronic obstructive pulmonary disease or COPD and other respiratory diseases. It is called Ensifentrine, and it combines bronchodilator and anti-inflammatory properties in one compound.
March Company Presentation
This selective inhaled dual inhibitor of PDE3 and PDE4 is being developed as a " first-in-class" maintenance treatment for COPD. This is a large and growing market, with many products already approved for treatment.
March Company Presentation
Management believes Ensifentrine can carve out a significant niche in the COPD market due to its novel profile.
March Company Presentation
Late in 2022, the company posted positive Phase 3 data from a study "ENHANCE-1" that met the trial's primary endpoint. Trial results showed the ensifentrine enabled improved lung function, reduced symptoms of COPD and improved quality of life. Ensifentrine also reduced the rate and risk of COPD exacerbations by 36% over 24 weeks. Verona announced positive results from another late-stage study evaluating ensifentrine to treat COPD "ENHANCE-2" in October of last year as well. The company submitted its NDA for ensifentrine in June of this year. The FDA should accept the submission sometime this quarter, with a PDUFA date late in the first half of 2024.
March Company Presentation
Ensifentrine is also being pursued as a potential treatment for other indications. However, Verona's primary focus is on the approval and rollout to treat COPD. So much so, other trial developments were not even mentioned on the company's last quarterly earnings conference call .
March Company Presentation
Analyst Commentary & Balance Sheet:
Since second quarter results were posted on August 3rd, four analyst firms including Wedbush and Truist Financial have reissued Buy ratings on VRNA with price targets proffered ranging from $30 to $35 a share.
Approximately six percent of the outstanding float in the shares is currently held short. Verona ended its second quarter with approximately $270 million worth of cash and marketable securities on its balance sheet. Management noted on its recent earnings press release that it:
Believes these cash and cash equivalents, expected cash receipts from the UK tax credit program and funding expected to become available under the $150.0 million debt facility, will enable Verona Pharma to fund planned operating expenses and capital expenditure requirements through at least the end of 2025, including the commercial launch of ensifentrine in the US, if approved "
Several insiders have been frequent and consistent sellers of the shares so far in 2023. These insiders hold roughly $15 million worth of shares collectively so far this year. One beneficial owner also disposed of approximately $10 million worth of equity in May as well. There has been no insider buying in the shares so far in 2023.
Verdict:
Jefferies believes Ensifentrine can eventually pull in $1 billion annually to treat COPD due to its unique mechanism of action. Jefferies analyst also assigns a 90% to 95% probability of FDA approval. If/when approved, Ensifentrine would be the first new novel mechanism of action product approved for the maintenance treatment of COPD in over a decade.
March Company Presentation
That said, it appears to be a crowded market and expenses are likely to shoot up significantly to support the marketing rollout of the new drug. Verona plans to have operating expenses of between $20 million to $25 million per quarter until the launch of ensifentrine, projected for the back half of 2024. The current analyst firm projections see Verona with anywhere between $10 million to $70 million worth of sales in FY2024 and expects a loss of better than a buck a share in FY2024.
FDA approval seems highly likely based on trial data and analyst firm opinions. How fast Verona gains sales traction with this new product is the $64,000 question for investors. Much will depend on fast management can get ensifentrine approved/reimbursed and into large programs like Medicare Advantage and Medicare part B, especially garnering the coveted J-code. This should take three to six months after FDA approval.
March Company Presentation
Verona will also have to establish an effective sales force of approximately 100 sales representatives. Given it is hard to establish any sort of reliable sales ramp projections at the moment, I am going to stay on the sidelines around Verona Pharma plc. However, this is a name I will circle back on when the company has a couple of quarters of sales from ensifentrine to digest and a more reliable sales ramp model can be built.
Those who deny freedom to others, deserve it not for themselves ? Abraham Lincoln.
For further details see:
Verona Pharma: Targeting The Large COPD Market