VRP.L Regulatory News (VRP)

VERONA PHARMA PLC - Final Results

PR Newswire

London, June 3

Verona Pharma plc

("Verona Pharma" or the "Company")

Financial results for the year ended 31 December 2015

A year of significant clinical progress

03 June 2016, Cardiff – Verona Pharma plc (AIM: VRP.L), the drug development company focused on first-in-class medicines to treat respiratory diseases, today announces its audited results for the twelve months ended 31 December 2015.

2015 OPERATIONAL HIGHLIGHTS

· Completed a series of successful clinical trials with a novel proprietary suspension formulation for nebulisation of RPL554

o a Phase I/IIa Single Ascending Dose/Multiple Ascending Dose (SAD/MAD) study in 80 healthy subjects and in 32 COPD patients (study 007)

o a Phase IIa dose-finding study in 29 asthma patients (study 008)

o a Phase IIa study examining the effect of adding RPL554 to standard doses of common bronchodilator drugs in 30 COPD patients (study 009)

· New clinical data obtained in >170 subjects with the new suspension formulation of RPL554 strongly supports its continued development

o Studies continue to demonstrate the excellent bronchodilator properties of RPL554

o Formulation is much better tolerated than the earlier solution formulation prototype, with no maximum tolerated dose observed even at 16 times the active bronchodilator dose

o New formulation is suitable for twice daily dosing

o Formulation provides for a longer pulmonary residence time, lower peak plasma exposure and longer half-life in blood than the earlier formulation suggesting a more pronounced effect locally in the lung and comparatively less effects in other organs in the body

· Data published at the North America Cystic Fibrosis Conference and in a peer-reviewed scientific journal demonstrates that RPL554 enhances CFTR1 activation, suggesting its potential use in cystic fibrosis patients

· Filed multiple patents on RPL554 to extend IP coverage beyond 2030

· Appointed Dr Ken Newman as Chief Medical Officer, and Dr Ken Cunningham and Dr Anders Ullman as Non-Executive Directors of the Board

2015 FINANCIAL HIGHLIGHTS

· Loss after tax of £7.42m (2014: £2.76m) broadly in line with market expectations, reflecting tight cost control despite the planned increase in R&D spend especially on clinical studies

· Loss per share of 0.73 pence (2014: 0.32 pence)

· Net cash outflows from operating activities during the year of £6.35m (2014: £3.54m) reflecting clinical progress, with cash and cash equivalents as at 31 December 2015 of £3.52m (2014: £9.97m)

POST PERIOD

· Positive headline data from RPL554 Phase IIa dose-finding study in asthma patients demonstrates substantial bronchodilator effect and excellent tolerability at broad range of doses

o Data suggests drug could be meaningful new addition, alone or in combination, for the treatment of COPD

· Positive headline data from RPL554 Phase IIa add-on study demonstrates a highly significant and clinically meaningful additional bronchodilator effect when RPL554 is administered on top of standard doses of the commonly used bronchodilators salbutamol and ipratropium bromide

o The combination of RPL554 with salbutamol or ipratropium bromide caused a significant reduction in trapped air in the lung (residual volume) as compared to salbutamol or ipratropium bromide alone

§ Suggesting that RPL554 treatment may reduce dyspnea, a major debilitating symptom of COPD

o Consistent with previous studies, RPL554 was well tolerated both alone and in combination

§ No effect on vital signs or ECG parameters

§ No gastro-intestinal adverse events recorded

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

“During the year Verona Pharma made substantial clinical progress with its lead compound, RPL554, further highlighting its potential to be an important novel and complementary treatment option for patients with COPD and other respiratory diseases. To date, over 275 subjects have been included in clinical trials with RPL554, which have consistently shown that the drug is well tolerated, generating highly significant and clinically meaningful data.

COPD affects over 300 million people worldwide and to date there has been limited true innovation in developing better medicines for this debilitating and progressive disease. The Board continues to believe that RPL554, with its novel mode of action, represents a very attractive commercial opportunity for generating significant value for shareholders.”

1 Cystic fibrosis transmembrane conductance regulator (CFTR) is the membrane protein and chloride ion channel which is dysfunctional in cystic fibrosis patients and responsible for their respiratory symptoms

-ENDS-

About Verona Pharma

Verona Pharma's lead drug, RPL554, is a first-in-class drug currently in Phase II trials as a nebulised treatment for acute exacerbations of COPD in the hospital setting. The drug is a dual phosphodiesterase (PDE) 3/4 inhibitor and therefore has both bronchodilator and anti-inflammatory effects, which are essential to the improvement of patients with COPD and asthma.

Verona Pharma is also building a broader portfolio of RPL554-containing products to maximise its benefit to patients and its value. This includes the very significant markets for COPD and asthma maintenance therapy. In addition, the Company is exploring the potential of the drug in different diseases, such as cystic fibrosis, where it is in pre-clinical testing and has received a Venture and Innovation Award from the UK Cystic Fibrosis Trust.

For further information, please contact:

CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S JOINT STATEMENT

INTRODUCTION

Verona Pharma is a specialist pharma company developing first-in-class drugs for patients with chronic, debilitating respiratory diseases that are not adequately treated by existing medicines. The Company’s strategy is to accelerate shareholder value creation, by focusing its resources on its lead programme RPL554, an innovative inhaled, dual phosphodiesterase (PDE) 3 and 4 inhibitor, as a nebulised treatment for patients in hospital with acute exacerbations of chronic obstructive pulmonary disease (COPD) to facilitate and speed up recovery and reduce the risk of early recurrence of symptoms and re-hospitalisation after discharge from hospital. Many of these patients become hospitalised as a result of an acute worsening of their disease that cannot be prevented or properly treated by their current medications and they are therefore in need of more intensive care and treatment. RPL554’s unique and very attractive properties, being both an effective bronchodilator and anti-inflammatory agent in the same compound, should be beneficial to these patients. In addition, the Company is exploring the use of nebulised RPL554 in maintenance treatment of COPD patients with moderate to severe disease. RPL554’s unique properties could also translate into activity in other respiratory disorders including cystic fibrosis and asthma.

The Company is also currently exploring the potential of the drug in cystic fibrosis, where it is in pre-clinical testing. Cystic fibrosis is a genetic disease with a shortened lifespan in need of new and effective treatments. In addition, RPL554 delivered in a Dry Powder Inhaler (DPI) or Metered Dose Inhaler (MDI) device could be beneficial as a chronic maintenance treatment for patients with COPD and subsequently in asthma, although such development is longer and more costly compared to that required for the development of a nebulised formulation and would therefore ultimately require a collaboration with a larger partner to complete the required larger scale clinical trials and subsequent commercialisation.

RPL554 provides an opportunity to treat patients with respiratory diseases that are not optimally treated with currently available drugs. The Board believes there is no other compound which demonstrates RPL554’s unique mechanism of action, or any other novel type of bronchodilator currently in clinical development. The yearly market for nebulised bronchodilators in the US is about $1 billion1 providing a very attractive commercial opportunity. Additionally, the cystic fibrosis market (expected to grow to > $5billion in 2018; GlobalData July 2014) and the market for maintenance treatment of COPD patients (worldwide COPD market to reach >$13bn by 2020; Evaluate Pharma Sept 2015) with a DPI/MDI are very large and provide significant upside sales potential for RPL554.

2015 YEAR IN REVIEW

During 2015, the Company completed a series of clinical trials with the new proprietary suspension formulation of RPL554 for use in a nebuliser. The first Phase I/IIa clinical trials with the new formulation of RPL554 started in December 2014 at Medicines Evaluation Unit, Manchester, UK and completed around mid-year. Based on the positive data from the initial Single Ascending Dose (SAD) part of this study, the Board decided to accelerate development of RPL554. Consequently, two additional Phase IIa trials completed their clinical phases before year end 2015. Top-line data from the asthma study was reported in March 2016 and the data from the second study in COPD patients was reported in May 2016. Both studies met their primary endpoints and reported very positive efficacy data together with the observation that RPL554 was well tolerated in both studies.

Verona Pharma strengthened its senior management team with a new CMO, Dr Kenneth Newman from January 2015. Two Non-Executive Directors, Dr Ken Cunningham and Dr Anders Ullman, two physicians highly experienced in the development of respiratory medicines, were appointed to the Company’s Board of Directors in September 2015. Verona Pharma also listed its shares on the Frankfurt Xetra exchange (part of Deutsche Börse in Germany) to facilitate trading for investors located outside of UK.

Verona Pharma continued to investigate RPL554 in pre-clinical models of cystic fibrosis, providing further evidence for RPL554 activating the ion channel (CFTR, cystic fibrosis transmembrane conductance regulator) that is dysfunctional in cystic fibrosis patients and responsible for their respiratory symptoms. Improving the functioning of this ion channel may enhance mucociliary clearance in the airways of these patients and improve their lung function. This work was supported by an Award from the Cystic Fibrosis Trust, UK. The new data in cystic fibrosis was presented in Phoenix, US, in October, and published in a peer-reviewed manuscript in American Journal of Physiology in November 2015, further enhancing the profile of RPL554.

Additionally, the Company filed a number of patent applications on RPL554, including a patent on the new suspension formulation, to further strengthen the patent portfolio and extend the patent life of the compound beyond 2030.

1 IMS Consulting Group market research 2014

RPL554

RPL554 is a novel inhaled dual PDE3/PDE4 inhibitor that was selected for clinical development following pre-clinical studies that demonstrated both potent bronchodilator and anti-inflammatory properties. To these properties a potential effect directly on mucociliary clearance can also be added. RPL554 is currently being developed as a very promising first-in-class treatment for patients with chronic respiratory diseases such as COPD and potentially cystic fibrosis as both diseases are characterised by obstructed airways, chronic inflammation of the lung and impaired mucociliary clearance. Future studies may also indicate a potential role in the treatment of asthmatics.

With the original proof-of-concept solution formulation for nebulisation, the Company successfully completed a number of early Phase I and II clinical studies with RPL554 in over 100 subjects. Data demonstrated that the compound is a potent bronchodilator in human subjects. As the bronchodilator response is rapid in onset, cost-effective single-dose studies could be performed. Anti-inflammatory effects of RPL554 in a human model of COPD-like inflammation were examined after six days of treatment with the original solution formulation of the compound before subjects were challenged on the last day by an irritant agent that provokes a COPD-like inflammatory response in their airways. RPL554 significantly reduced the number of neutrophils (an inflammatory cell type recognised for its central role in COPD, cystic fibrosis and severe asthma) together with all other cell types such as eosinophils, lymphocytes and macrophages in the sputum. These data indicate that RPL554 has anti-inflammatory properties, most likely due to inhibition of PDE4 (or perhaps the combined inhibition of PDE3 and PDE4; Lancet Resp Med 2013*).

To date, RPL554 has been used in different formulations in clinical trials involving >275 human subjects, over 170 of which have received the novel, proprietary suspension formulation. These single and multiple dose studies suggest that RPL554, when inhaled across a range of doses, is an effective bronchodilator and anti-inflammatory agent and is an excellent candidate for further development.

· Studies continue to demonstrate the excellent bronchodilator properties of RPL554 indicating that it is able to produce large improvements in lung function in healthy subjects as well as patents with mild, moderate or severe lung disease

· Data from the asthma study indicate that RPL554 can produce an improvement in lung function at least as large as the most commonly used rescue bronchodilator, salbutamol

· The Company is strongly encouraged by the observation that RPL554 is consistently well tolerated in these studies. The new suspension formulation is much better tolerated than the earlier solution formulation prototype, with no maximum tolerated dose observed even at 16 times the active bronchodilator dose

· New formulation is suitable for twice daily dosing, which is convenient for patients

· Formulation provides for a longer pulmonary residence time, lower peak plasma exposure and longer half-life in blood than the earlier formulation, suggesting a more pronounced effect locally in the lung and comparatively less effects in other organs in the body

The suspension formulation of RPL554 has been developed for use in nebulisers and this formulation will be used in the further clinical development of the compound. The manufacture of this new formulation is scalable and shows stability suitable for commercialisation. The first Phase I/IIa clinical trial with the new formulation of RPL554 started in December 2014 at MEU, Manchester, UK.

SAD/MAD Phase I/II study in healthy volunteers and COPD patients

The first SAD/MAD study enrolled 80 healthy subjects and 32 COPD patients. Increasing dose levels were tested in both the single dose SAD and the multiple dose (MAD, treatment twice daily for 5.5 days) parts of the study with the pre-specified highest dose being approximately 16 times greater than the dose used in earlier reported clinical studies, using the previous formulation of RPL554. The drug was well tolerated across all doses and no maximum tolerated dose could be reached. Importantly, there were no cardiovascular events of concern and a lack of PDE4-inhibitor-like adverse events. Pharmacokinetic data showed lower peak plasma levels and a significantly longer half-life of the drug in plasma, than that observed with the previous formulation. This suggests that the new suspension formulation results in a longer residence time for RPL554 in the lung and slower release into the blood stream, suggesting that twice-daily dosing may be appropriate.

Dose-finding Phase IIa study in asthma patients

A Phase IIa dose-finding study was conducted in 29 patients with moderate asthma in UK and Sweden. The study met its primary objective, with nebulised RPL554 demonstrating a dose-dependent bronchodilator response in asthma patients. RPL554 pharmacokinetics was linear across the whole dose range. At the highest doses of both compounds, RPL554 produced the same maximum bronchodilator effect as that by a supramaximal dose of nebulised salbutamol (7.5 mg, a dosed occasionally used in the hospital emergency room). Even the lowest RPL554 dose of 0.4mg was significantly superior (p

Phase IIa study in COPD patients

A Phase IIa add-on bronchodilator study was conducted in 30 patients with moderate to severe COPD in UK. The primary objectives of the study were met: RPL554 when used in combination with other common bronchodilators was as well tolerated as the individual drugs given alone. Furthermore, nebulised RPL554 produced a significantly (pin vitro data showing a synergistic effect between RPL554 and anti-muscarinic drugs in human large and small airways. The combination with the beta2 agonist seemed to be additive, as observed in earlier pre-clinical studies. These data suggest that RPL554 could be both a stand-alone treatment as well as a very attractive combination partner to existing treatments for COPD. 

The Company is highly encouraged by the results demonstrated with this new suspension formulation of RPL554 and is preparing plans to progress this formulation into a Phase IIb clinical programme to investigate treatment of acute exacerbations in COPD and maintenance treatment of COPD patients with a nebuliser.

Cystic fibrosis

Further experiments were performed in cells obtained from the airways of cystic fibrosis patients to demonstrate that RPL554 is an activator of CFTR, the ion channel that is dysfunctional and causes the respiratory problems in patients with cystic fibrosis. These data were presented at the North America Cystic Fibrosis conference in Phoenix, US, in October 2015 and in a peer-reviewed manuscript in the American Journal of Physiology published in November 2015. This work continues with the support of a Venture and Innovation Award from the UK Cystic Fibrosis Trust, the first to be granted to a biotech company by the Trust. Cystic fibrosis is a rare, orphan disease, and therefore provides a very attractive development and market opportunity for the Company. The Company plans to commence clinical work for this indication in 2017.

FINANCIALS

The loss from operations for the year ended 31 December 2015 was £7.42m (2014: £2.76m). Research and development expenditure amounted to £7.27m (2014: £2.63m) and reflected an increase in expenditures on the RPL554 programme by £4.88m to £7.15m (2014: £2.27m). The increase in expenditure on the RPL554 programme was primarily due to a planned acceleration of the development of the new nebulised formulation programme.

Administrative expenses for the year were £1.71m (2014: £1.16m). R&D costs are expected to be offset by R&D tax credits of approximately £1.53m receivable in 2016.

As at 31 December 2015, the Company had approximately £3.52 million in cash and cash equivalents.

MANAGEMENT AND STAFF

In January 2015, the Company appointed Dr Kenneth Newman as Chief Medical Officer. Dr Newman is an experienced pharmaceutical and biotechnology industry executive with extensive experience in clinical development, particularly for the treatment of respiratory disease. Prior to joining Verona Pharma, Dr Newman was Chief Development Officer at Mesoblast Inc. Previously, Dr Newman held the positions of Chief Medical Officer at Acton Pharmaceuticals, VP, Medical Affairs at Boehringer Ingelheim and several positions at Forest Laboratories (now Allergan). Dr Newman began his professional career at the National Jewish Medical and Research Center, Denver, Colorado.

The Company also significantly strengthened the Board of Directors during the year. Dr Anders Ullman, who joined the Board in September 2015, was previously EVP R&D at Nycomed (now Takeda) and was responsible for the development and approval of roflumilast (Daxas®) for the treatment of COPD. He also oversaw the initiation of a post-approval Phase IV study (the REACT study) which was published in the Lancet in February 2015. This study demonstrated that treatment with the PDE4 inhibitor roflumilast leads to a 24% reduction in severe COPD exacerbations even in the presence of “double” or “triple” therapy. Subsequently AstraZeneca purchased the commercial rights to roflumilast from Takeda.

Dr Ken Cunningham, who also joined the Board in September, was the CEO of Arakis, a respiratory company sold to Sosei. He was also a former CEO of Skyepharma plc, which developed the orally inhaled drug Flutiform®, which is approved in Europe and Japan for the treatment of asthma and licensed to Mundipharma. Ken was also chairman of Prosonix, an inhalation development company, purchased by Circassia in 2015.

By adding Dr Ullman and Dr Cunningham to the Board, we have significantly expanded the expertise on the Board both in terms of respiratory medicine and significant transaction experience.

Post period end, Biresh Roy, Chief Financial Officer, stepped down from the Board with immediate effect but remains with Verona Pharma for up to six months to allow time for a suitable successor to be appointed and for an orderly handover. The Board has commenced a search for his successor and a further announcement will be made in due course. The Board thanks Biresh for his many contributions to the Company at what has been a formative time for Verona Pharma, as it has delivered on important operational and clinical goals it set at the time of the 2014 financing, on or ahead of budget in a timely manner.

OUTLOOK

The US has about 12 million patients diagnosed with COPD, and it is expected that there are almost as many again that remain undiagnosed. About 9% of COPD patients prefer to use a nebuliser over other types of inhalation devices, so they are comfortable that they have actually received the medication. This is potentially a large market for RPL554.

The Board believes that RPL554, with its unique bronchodilator, anti-inflammatory and CFTR activator properties, is capable of addressing specific patient groups that are currently under-treated and for which there is limited competition in the form of new types of drugs with both bronchodilator and anti-inflammatory properties, such as patients with COPD, cystic fibrosis and possibly asthma. The Board believes that RPL554 therefore presents a very attractive commercial opportunity for generating significant value for shareholders.

We have made considerable clinical progress with RPL554 since the March 2014 fundraising. The complete set of Phase IIa data is expected by end Q2 2016 after which the Company will prepare the compound for Phase IIb studies. The completion of these studies represents the next significant value inflection point for the Company.

The Directors are currently considering all options for further funding of such studies. As part of this process, and as previously stated, the Board recognises that an experienced and resourceful commercial partner could bring significant value to the development of a DPI/MDI formulation of RPL554 for chronic maintenance treatment in COPD and potentially other respiratory diseases. The Company therefore continues to be involved in business development discussions around the RPL554 programme and may undertake some limited additional clinical work to enhance to prospects of an attractive partnership. The Company intends to partner its drug candidates only when it can extract a commercially attractive return for the Company and its shareholders.

The Company will continue to operate with a strong focus and financial discipline, and remains very positive about its progress to date and the opportunities for its lead drug development programme in COPD.

We would like to thank the staff and Board members for all their contributions and shareholders for their continued support during a successful year.

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2015

GROUP STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

The financial statements were approved by the Board of Directors on 2 June 2016 and signed on its behalf by:

Company Number: 05375156

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

The financial statements were approved by the Board of Directors on 2 June 2016 and signed on its behalf by:

Company Number: 05375156

GROUP STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2015

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2015

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2015

1. General information

Verona Pharma plc (“the company”) and its subsidiaries (together “the group”) develop innovative prescription medicines to treat respiratory diseases.

The company is a public limited company, which is listed on the Alternative Investment Market (AIM) and incorporated and domiciled in the UK.

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 Verona Pharma plc have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.14.

2.2. Going concern

During the year ended 31 December 2015 the Group made a loss of £7,416,768 (2014: a loss of £2,758,730). At the year-end date the Group had net assets of £5,586,655 (2014: £12,604,480) of which £3,524,387 was cash and cash equivalents.

The operation of the Group is currently being financed from funds that the Company raised from share placings. On 24 March 2014 the Company announced that it had raised £14.0 million in gross proceeds from a placing, subscription and open offer.

These funds have been used primarily to support the development of RPL554 in moderate and severe COPD as well as corporate and general administrative expenditures.

The Group's capital management policy is to only raise sufficient funding to finance the Group's near term objectives of its clinical development programmes. Based on considerable clinical progress with RPL554 since the March 2014 fundraising, the next significant value inflection point is expected to be completion of phase 2b studies (which will require funding). The Directors are currently considering all options for further funding of such studies. As part of this process, and as previously stated, the Company recognises that the right commercial partner could bring significant value to the development of RPL554 for chronic maintenance treatment in COPD and perhaps asthma. The Company therefore continues to be involved in business development discussions around RPL554.

The Directors believe that the Group has sufficient funds to complete the current clinical trials, to cover corporate and general administration costs and for it to comply with all its current and foreseeable commitments and, accordingly, are satisfied that the going concern basis remains appropriate for the preparation of these financial statements.

2.3. Basis of consolidation

These group financial statements include the accounts of Verona Pharma plc and its wholly-owned subsidiaries Rhinopharma Limited and Verona Pharma Inc. The purchase method of accounting is used to account for the acquisition of Rhinopharma Limited.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. 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 capitalised and subject to an impairment review, both annually and when there are indications that the carrying value may not be recoverable.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.

Rhinopharma Limited and Verona Pharma Inc. adopt the same accounting policies as the Company.

2.4. Foreign currency translation

Items included in the Group's financial statements are measured using the currency of the primary economic environment in which the Group operates ("the functional currency"). The financial statements are presented in pounds sterling ("£"), which is the functional and presentational currency of the Company and the 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 profit and loss account. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as 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 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 resulting exchange differences are recognised in other comprehensive income.

2.5. Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

2.6. 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 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 realised or the deferred liability is settled.

Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available against which the temporary differences can be utilised.

2.7. Research and development costs

Capitalisation 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 capitalised to date, given the early stage of the Group’s product development

Expenditure on research and development activities that do not meet the above criteria is charged to the Statement of Comprehensive Income as incurred.

2.8. 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 so as 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:

2.9. Intangible assets and goodwill

(a) Group Goodwill

Group 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 capitalised and amortised on a straight-line basis over the estimated useful lives of the patents of ten years.

2.10. Impairment of intangible assets and goodwill

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value (less costs of disposal) and value in use.

2.11. Pension

The Group operates a defined contribution pension scheme. Contributions payable for the year are charged to the Statement of Comprehensive Income. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the Statement of Financial Position. The Group has no further payment obligation once the contributions have been paid.

2.12. Share based payments

The Group operates a number of equity-settled, share-based compensation plans. The fair value of share-based payments under such schemes is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

The fair value calculation of share-based payments requires several assumptions and estimates as disclosed in note 19. The calculation uses the Black-Scholes model.

For equity-settled share-based payments where employees of subsidiary undertakings are rewarded with shares issued by the Parent Company, a capital contribution is recorded in the subsidiary, with a corresponding increase in the investment in the Parent Company.

Where warrants have been issued to external parties as recompense for services supplied, the fair value of warrants is charged to the Statement of Comprehensive Income over the period of services are received and a corresponding credit is made to reserves.

2.13. Investments in subsidiaries

Investments in subsidiaries are shown at cost less any provision for impairment.

2.14. Critical accounting judgements and estimates

The preparation of financial statements in conformity with International Financial Reporting Standards 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. IFRSs also require management to exercise its judgement in the process of applying the Group’s accounting policies.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows:

(a) Going Concern

The financial statements have been prepared on a going concern basis, which assumes that sufficient funds will be available for the Company and Group to continue in operational existence for the foreseeable future. More details are set out in note 2.2.

(b) Impairment of intangible assets

Determining whether an intangible asset is impaired requires an estimation of whether there are any indications that its carrying value is not recoverable.

At each reporting date, the Group reviews the carrying value of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Details of the Group’s assessment of the carrying value of goodwill are disclosed in note 15.

(c) Share based payments

The Group records charges for share based payments. For option based share based payments management estimate certain factors used in the option pricing model, including volatility, vesting date of options and number of options likely to vest. If these estimates vary from actual occurrence, this will impact on the value of the equity carried in the reserves. Further details of the Group’s estimation of share based payments are disclosed in note 19.

2.15. New standards, amendments and interpretations adopted by the Group

The following standards have been adopted by the Group for the first time for the financial year beginning on or after 1 January 2015. They do not materially impact on the Group results:

· Annual improvements 2011 - 2013

2.16. New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2015 and not early adopted

A number of new standards and amendments to standards and interpretations have been endorsed for annual periods beginning after 1 January 2015 (noted below), and have not been early adopted in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the group.

· Annual improvements 2014 (2012-2014 cycle)

· Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation

· Amendments to IAS 16, 'Property, plant and equipment'

· Amendments to IAS 27, 'Separate financial statements' on the equity method

· Amendment to IAS 1, 'Presentation of financial statements' on the disclosure initiative

· Amendment to IFRS 10, 11 and 12 on transition guidance

· Amendments to IAS 32 and IFRS 7 Financial instruments on asset and liability offsetting

· IAS 28 (revised), 'Investments in associates and joint ventures'

· IFRS 13, 'Fair value measurement'

· Amendment to IAS 12,'Income taxes' on deferred tax

· Amendment to IAS 16, 'Property, plant and equipment' and IAS 38,'Intangible assets', on depreciation and amortisation

· Amendment to IAS 36, 'Impairment of assets' on recoverable amount disclosures.

A number of new standards and amendments to standards and interpretations have been issued but are not yet endorsed for annual periods beginning after 1 January 2015 (noted below), and have not been adopted in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group.

· IFRS 15 Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2018)

· IFRS 9 Financial instruments (effective for annual periods beginning on or after 1 January 2018)

3. Earnings per share

Basic loss per share of 0.73p (2014: loss of 0.32p) for the Group is calculated by dividing the loss for the period by the weighted average number of ordinary shares in issue of 1,009,923,481 (2014: 866,743,656).

Potential ordinary shares are not treated as dilutive as the entity is loss making. 

4. Segmental information

The Group has determined that its operating segments be reported on a product pipeline basis as this best reflects the Group’s activity cycle. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors.

The Group’s product pipeline is dedicated to the research, discovery and development of new therapeutic drugs for the treatment of acute and chronic respiratory diseases. Two products had reached the clinical stage: RPL554 and VRP700. However VRP700 was abandoned in 2015 in order to concentrate on RPL554. The basic research figures are for NAIPs, which were also abandoned in 2015.

Segment information by operating segment is as follows:

At the end of the financial year, the Group was still in the early development stage and therefore had no turnover in either 2014 or 2015.

Segment information by geographical segment for 2015 is as follows:

Segment information by geographical segment for 2014 is as follows:

During the year the Group obtained services from the Group’s auditors and its associates as detailed below:-

Factors that may affect future tax charges

At the year-end date the Group has unused United Kingdom tax losses available for offset against suitable future profits in the United Kingdom. A deferred tax asset has not been recognised in respect of such losses due to uncertainty of future profit streams. The contingent deferred tax asset at 18% (2014: 20%) is estimated to be £2,244,221 (2014: £2,464,229).

9. Investments in subsidiaries

The Company currently has two wholly owned subsidiaries, Rhinopharma Limited and Verona Pharma Inc.

A capital contribution arises where share-based payments are provided to employees of subsidiary undertakings settled with equity to be issued by the Company.

The Company’s investments comprise interest in Group undertakings, details of which are shown below:

Verona Pharma Inc. was incorporated on the 12 December 2014 under the laws of the State of Delaware, USA. Rhinopharma Limited is incorporated under the laws of the Province of British Columbia, Canada. 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 18 September 2006.

The classes within trade and other receivables do not include impaired assets.

Amounts due from Group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.

Amounts due to Group undertakings are not interest bearing and have no fixed repayment date.

Intangible assets comprise the Group’s investment in patents to protect RPL554. Patents are amortised over a period of ten years and are regularly reviewed for impairment to ensure the carrying amount exceeds the recoverable amount in accordance with note 2.10.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the acquisition of Rhinopharma Limited in September 2006. Goodwill is capitalised and allocated to appropriate research projects, in Verona’s case RPL554. They are deemed to have indefinite useful life and so are not amortised. Annual impairment test of the research projects (‘RPs’) is performed by comparing the expected recoverable amount of the RPs to the carrying amount of the RPs. 

Recognising that the Group is still in pre-revenue phase and that the research projects are not yet ready for commercial use, management assesses the recoverable amount of such goodwill with reference to Verona’s market capitalisation. As at 31 December 2015 this was several times the carrying value of goodwill. Accordingly management believe it is appropriate to carry goodwill at full historical value.

16. Called up share capital

The movements in the share capital are summarised below:

18. Related parties transactions

The Company was charged £2,375,898 by Simbec-Orion, a group of which Prof. Trevor Jones is a Director. At the year end, the Company owed £172,955 to this related party (2014: £Nil).

Arthurian Life Sciences Limited is also a company of which Prof. Trevor Jones is a Director. At the year end, the Company owed £nil to this related party (2014: £23,040). The £23,040 owed as at the end of 2014 was settled in early 2015. This was the only transaction with Arthurian Life Sciences Limited in 2015.

Arthurian Life Sciences Limited acts as General Partner for the Wales Life Sciences Investment Fund, which itself is a substantial shareholder in the Company.

The Directors of the Company 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. Remuneration of Directors is disclosed in the Directors’ emoluments report on page 15.

19. Share-based payments charge

Included within general and administrative costs is a share-based payment charge of £398,943 (2014: £192,187). The share based payment charge represents the current year’s allocation of the expense for relevant share options between 2012 and 2015. All options issued prior to 2012 are fully expensed. The Company grants share options under an unapproved share option plan (the 'Unapproved Plan') and under tax efficient Enterprise Management Incentive arrangements (the 'EMI Plan'). Under the Unapproved Plan, options are granted to employees, directors and consultants to acquire shares at a price to be determined by the Board. In general, options are granted at a premium to the share price at the date of grant, vest over three years and are exercisable during a period ending ten years after the date of grant. Options are also issued to advisors under the Unapproved Plan: such options generally vest immediately and are exercisable between one and two years after grant. Under the EMI Plan, options are granted to employees and directors who are contracted to work at least 25 hours a week for the Company or for at least 75% of their working time. The options granted under the EMI Plan will be exercisable at a price and in accordance with a vesting schedule determined by the Board at the time of grant and will have an exercise period of 10 years from the date of grant.

The Company granted 5,100,000 (2014: 9,500,000) share options under the EMI Plan and 27,500,000 (2014: 15,500,000) share options under the Unapproved Plan during the current year with total fair values estimated using the Black-Scholes option-pricing model of £370,542 (2014: £240,163). The cost is amortised over the vesting period of the options on a straight-line basis and £173,131 is included in the charge to general and administrative costs noted above. The following assumptions were used for the Black-Scholes valuation of share options granted in 2015, 2014, 2013, and 2012.

The Company had the following share options movements in the year:

*10,000,000 directors’ options with expiry date on 18 September 2011 were extended for five years to 18 September 2016.

**options granted to agents upon closing of a Placing or financing facility.

***options granted under the EMI Plan.

Outstanding and exercisable share options by Plans at 31 December 2015:

The weighted average exercise price (WAEP) of options at the year-end is as follows:

20. Loss of the parent company

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 £7,441,785 (2014: loss of £2,757,996), which has been included in the Group’s income statement.

21. Control

The Company is not under the control of any individual or group of connected parties.

22. Financial commitments

As at 31 December 2015 the Group and Company were committed to making the following payments under non-cancellable operating leases in the year to 31 December 2016.

23. Financial instruments

(a) Fair values

The carrying amounts of cash and cash equivalents, short-term investments, receivables, and accounts payable and accrued liabilities, approximate to fair value due to their short-term nature.

(b) Credit risk

Credit risk reflects the risk that the Group may be unable to recover contractual receivables. The Group is still in the development stage; therefore, no policies are required at this time to mitigate this risk.

(c) 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. At 31 December 2015, cash and cash equivalents include €3,503, US$8,315, CAD$1,463, SEK4,299 and accounts payable and accrued liabilities include balances of €276,981, US$98,654 and SEK2,218,684.

(d) Financial risk management

The Directors recognise 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.

(e) 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 (“KPIs”) to ensure its research activities are progressing in line with expectations, controlling costs and placing unused funds on deposit to conserve resources and increase returns on surplus cash held.

(f) Interest rate risk

At 31 December 2015, the Group had cash deposits of £3,524,387 (2014: £9,969,759). The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows: