20 June 2016

Proposed Placing and Notice of General Meeting

PR Newswire

The ‘Proposed Placing and Notice of General Meeting’ announcement for Verona Pharma plc released last Friday, 17 June 2016 at 16.54, has been re-released in the interest of market clarity. The announcement text is unchanged and is reproduced in full below.

THIS ANNOUNCEMENT IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR DISTRIBUTION WOULD BE UNLAWFUL. THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OR AN INVITATION TO ACQUIRE OR DISPOSE OF ANY SECURITIES. ATTENTION IS ALSO DRAWN TO THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

Verona Pharma plc

("Verona Pharma" or the "Company")

Proposed Placing to raise c. £44.7 million (US$63.3 million)

and

Notice of General Meeting

Capitalised terms in this announcement have the same meaning as in the Circular being published in conjunction with the proposed placing (unless otherwise indicated) and are also defined below.
 

17 June 2016, Cardiff – Verona Pharma plc (AIM: VRP), the drug development company focused on first-in-class medicines to treat respiratory diseases, announces that it has successfully secured funding commitments to raise gross proceeds of c. £44.7 million (US$63.3 million), through a conditional placing (the "Placing") with new and existing investors, including a number of specialist US, UK and European healthcare funds. The Placing was significantly oversubscribed.

The net proceeds of the Placing are expected to fund RPL554 through a Phase 2b clinical trial in chronic obstructive pulmonary disease (COPD) patients and additional Phase 2 studies in both COPD and cystic fibrosis.

MTS Securities, LLC is acting as the US placement agent and N+1 Singer is acting as the UK broker and nominated adviser in connection with the Placing. The Placing is not being underwritten.

Highlights

·        The Placing will raise gross proceeds of c. £44.7 million (US$63.3 million) through the issue of 1,555,796,345 Units at a price of 2.873 pence per Unit (each comprising one Placing Share and one Warrant)

·       The net proceeds of the Placing will predominantly be used to progress RPL554 through a Phase 2b clinical trial in COPD patients, and to fund additional clinical Phase 2 studies in COPD and cystic fibrosis as well as further supportive pre-clinical work

·       The funding enables the Company to materially advance the development of RPL554 and build on the significant progress made to date with the revised formulation

·       The cornerstone investors in the Placing are specialist healthcare focused funds Vivo Capital, OrbiMed and Edmond de Rothschild Investment Partners

               o  Other new investors include New Enterprise Associates, Novo A/S, Abingworth and Aisling Capital with participation of existing investors including Arix Bioscience, Hargreave Hale and Polar Capital

·        The Placing Price represents the average closing mid-market price of an Ordinary Share during the five trading days to 15 June 2016, being the last practicable date prior to investors signing their binding Placing commitments

·        Each Warrant will be exercisable into 0.4 of a Warrant Share, at an exercise price per Warrant Share of 3.4476 pence, being 120 per cent. of the Issue Price

·        On or shortly after Admission, representatives from certain of the investors will join the Board as non-executive directors

·      The Company has undertaken to use commercially reasonable efforts to procure a listing on NASDAQ and raise a further tranche of funding in the future

The Placing is conditional upon, amongst other things, approval by existing shareholders at a general meeting to be held at 11.00 a.m. on 22 July 2016 at the offices of Shakespeare Martineau LLP at Allianz House, 6th Floor, 60 Gracechurch Street, London, EC3V 0HR (the “General Meeting”). Admission of the Placing Shares to trading on AIM is expected to take place on 29 July 2016.

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

“We have made significant clinical progress with our first-in-class drug RPL554. This drug has shown the potential to become an important novel and complementary treatment option for patients with COPD, a debilitating and progressive disease that impacts about 65 million people worldwide and is still among the four leading causes of death globally.

“The funds raised from the Placing will allow the Company to focus on conducting a comprehensive Phase 2b clinical trial programme for nebulised RPL554 as a potential treatment for patients with COPD. We will also explore in the clinic for the first time the use of RPL554 as a novel treatment for cystic fibrosis expanding the potential of the drug into another respiratory disease where there remains a significant unmet need. This follows on from the compelling data we have generated in translational, preclinical models of this disease.”

David Ebsworth, Non-Executive Chairman of Verona Pharma added:

“The Board would like to thank both the proposed new and our existing shareholders for their support. Indeed, this powerful syndicate of highly experienced bioscience investors have conducted significant due diligence in the product ahead of investing in the proposed Placing announced today, which we believe further attests to the potential value of RPL554.

 “This funding will enable us to progress RPL554 through significant value inflection points. The strength of the data package for the product generated to date gives us confidence that a substantial Placing provides the optimal opportunity to retain maximum value in the Company without compromising our future strategic options.

“A subsequent listing of ADSs on NASDAQ as part of a US IPO for Verona Pharma is a natural evolution in our corporate strategy to focus on the US market opportunity, with its broadly accepted use of nebulisers in the treatment of patients with COPD. It will also allow the Company easier access to a larger pool of investors in the US who have a deep understanding of the healthcare market in which Verona Pharma operates.”

The Company’s lead drug, RPL554, is a dual phosphodiesterase PDE3/PDE4 inhibitor with both bronchodilator and anti-inflammatory properties that has the potential to become a novel treatment for patients with obstructive lung diseases such as chronic obstructive pulmonary disease (COPD), cystic fibrosis and potentially asthma. Furthermore, based on data generated to date, Verona Pharma believes RPL554 can provide relevant clinical and health economic benefits in a commercial setting.

A circular to Shareholders containing, amongst other things, the notice of the General Meeting (the “Circular”) will be published by the Company today and posted to Shareholders. An extract from the Circular is set out below. Copies of the Circular will be available at the Company’s website: www.veronapharma.com.

This announcement should be read in conjunction with the Circular in its entirety, which contains further details on the terms of the Placing and related matters.

-Ends-

For further information please contact:

Verona Pharma plc Tel: +44 (0)20 3283 4200
Jan-Anders Karlsson, Chief Executive Officer  
   
N+1 Singer (UK NOMAD and Lead Broker) Tel: +44 (0)20 7496 3000
Aubrey Powell / Jen Boorer  
   
MTS Securities, LLC (US Placement Agent) Tel: +1 (212) 887 2100
Mark Epstein, Partner  
   
FTI Consulting Tel: +44 (0)20 3727 1000
Simon Conway/Stephanie Cuthbert/Julia Phillips  

IMPORTANT NOTICE

The Circular is not an offer of securities for sale in the United States.  The securities being offered by the Company may not be offered or sold in the United States absent registration or an exemption from registration.  The offering of securities described in the Circular has not been and will not be registered under the United States Securities Act of 1933, and accordingly, any offer or sale of the securities may be made only in a transaction exempt from the registration requirements of the Securities Act.

Expected Timetable of Principal Events

Publication of the Circular 17 June 2016
   
Latest time and date for receipt of completed Forms of Proxy to be valid at the General Meeting 11.00 a.m. on 20 July 2016
   
General Meeting 11.00 a.m. on 22 July 2016
   
Announcement of results of General Meeting 22 July 2016
   
Admission and commencement of dealings in the Placing Shares on AIM 29 July 2016
   
Despatch of definitive share certificates for Placing Shares in certificated form by 16 August 2016
   
Despatch of definitive certificates for Warrants by 16 August 2016

Notes:

(1)    References to times in the Circular are to London time (unless otherwise stated).

(2)    The timing of the events in the above timetable and in the rest of the Circular is indicative only and may be subject to change.

(3)    If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement to an RIS and otherwise communicated to Placees.

(4)    Certain of the events in the above timetable are conditional upon, amongst other things, the approval of the Resolutions to be proposed at the General Meeting.

(5)    The Company’s SEDOL code is B06GSH4 and ISIN code is GB00B06GSH43.

(6)    The Warrants will not be separately admitted to trading on AIM, but the Warrant Shares which will arise following any valid exercise of Warrants will be admitted to trading as part of the single class of shares admitted to trading on AIM.

Key Statistics

Number of Existing Ordinary Shares in issue(1) 1,009,923,481
   
Number of Placing Shares 1,555,796,345
   
Proceeds of the Placing (before expenses) £44.7 million
  (US$63.3 million)
   
Net proceeds of the Placing receivable by the Company(2) £41.9 million
   
Percentage of Enlarged Share Capital represented by the Placing Shares 60.6 per cent.
   
Maximum number of Warrant Shares arising from potential exercise of Warrants(3) 622,318,538
   
Maximum percentage of Enlarged Share Capital represented by the Warrant Shares(3) 24.3 per cent.
   
Percentage of Enlarged Share Capital represented by the New Shares(3)  84.9 per cent.
   
Number of Ordinary Shares in issue immediately following the Placing 2,565,719,826
   
Market capitalisation of the Company immediately following the Placing at the Issue Price £73.7 million

Notes:

(1)    As at 16 June 2016, being the last practicable date prior to the date of the Circular and assuming no further issue of Ordinary Shares between the date of the Circular and Admission.

(2)    Net proceeds are stated after deduction of estimated total expenses of approximately £2.8 million.

(3)    Assumes all Warrants are exercised on a 'for cash' basis and no further issue of shares between Admission and the date of exercise. In practice the Warrants will likely be exercised after the US IPO and the number of Warrant Shares arising will be lower than the maximum if the cashless exercise mechanism is used by Warrantholders  (as described in more detail in paragraph 5 of part I and paragraph 4.4 of part III of the Circular).

Exchange rates

The rate of exchange used throughout the Circular, unless otherwise stated, is US$1.4158: £1.00 and £0.7061: US$1.00 being the closing rate on 16 June 2016, the last practicable date prior to the date of the Circular.

Letter from the Chairman

Introduction

The Company proposes to raise a total of approximately £44.7 million (before expenses) through a Placing of 1,555,796,345 Units with new and existing institutional investors at a price of 2.873 pence per Unit. Each Unit comprises one Placing Share and one Warrant. The Company has obtained conditional commitments to raise approximately £41.9 million (net of expenses).

The Placing comprises a UK Placing and a US Placing. The US Placing is being directed at US Persons only, and the Placing Shares to be issued thereunder will be admitted to trading on AIM on Admission.

N+1 Singer is acting as lead UK broker for the Company and MTS Securities, LLC is acting as US Placement Agent. The Placing is not being underwritten.

Each Warrant will be exercisable into 0.4 of a Warrant Share, at an exercise price per Warrant Share of 3.4476 pence, being 120 per cent. of the Issue Price. Further particulars of the Warrants including the conditions under which they may be exercised are provided below and in paragraph 4.4 of part III of the Circular. The Warrants will not be separately admitted to trading on AIM, but the new Warrant Shares will, following valid exercise of the Warrants in accordance with the terms of the Warrant Instrument, be admitted to trading as part of the single class of shares admitted to trading on AIM.

The net proceeds of the Placing will be used to progress RPL554 through several Phase 2 studies, including a Phase 2b study after which the Board will consider whether continuing development alone by the Company or partnering the drug candidate would be likely to provide a commercially attractive return for Shareholders.

The UK Placing and the US Placing are conditional, inter alia, upon the passing by the Shareholders of the Resolutions at the General Meeting, including special resolutions which will give the Company the required authority to dis-apply statutory pre-emption rights in respect of the allotment of the New Shares and to authorise the adoption of new articles of association (the “New Articles”), conditional on Admission. Subject to all relevant conditions being satisfied (or, if applicable, waived), it is expected that the Placing Shares will be admitted to trading on AIM on or around 29 July 2016 (with Warrant certificates delivered on or around 16 August 2016).

The purpose of this letter is to outline the reasons for the Placing and explain why the Board considers the proposals described in the Circular to be in the best interests of the Company and Shareholders as a whole, and why the Directors recommend that you vote in favour of the Resolutions, as they intend to do in respect of the Ordinary Shares held by them, in order to give effect to the Placing.

The Company has further agreed with Vivo Capital and the other US Purchasers to seek to raise a further tranche of funding in the future (“Tranche 2”), expected to be at an aggregate offering size reasonably acceptable to the Company and to the holders of a majority of the Units issued at Tranche 1, coupled with a listing of ADSs on NASDAQ (the “US IPO”).

Background to and reasons for the Placing

The Company has made significant progress on the development of its lead drug candidate, RPL554, to treat respiratory diseases with significant unmet medical needs, such as COPD, cystic fibrosis and potentially asthma. RPL554 is a first-in-class PDE3/PDE4 inhibitor currently being developed as a nebulised maintenance treatment for COPD patients with moderate to severe disease and possibly as a treatment of acute exacerbations of COPD in the hospital setting.

65 million people worldwide suffer from moderate to severe COPD and according to the World Health Organisation, COPD  was  among  the  four  leading  causes  of  death  globally in  2015  together with lower respiratory tract infections and after heart disease and stroke (http://www.who.int/mediacentre/factsheets/fs310/en/). Currently available drugs are aimed at long-term maintenance therapy, with the market dominated by large pharma. Despite the wide availability of these therapies, COPD patients suffer acute periods of worsening symptoms (exacerbations), which cause, in the US alone, some 1.5 million emergency department visits, 726,000 hospitalisations and 120,000 deaths per annum. There is an urgent need for new and more effective treatments.

The Company has successfully completed five early clinical phase 1 and phase 2a studies for RPL554, having dosed 105 subjects with an initial proof of concept formulation. These single and multiple dose studies of the previous nebulized formulation demonstrated that RPL554, when inhaled across a range of doses, is an effective bronchodilator in patients with COPD and asthma and has bronchoprotective properties (e.g. it reduces the hypersensitivity of airways to inhaled irritants). RPL554 has a rapid onset of action and the magnitude of the bronchodilator effect seems to be at least as profound as that of other commonly used bronchodilator drugs. RPL554 has also been demonstrated to have a potent anti- inflammatory effect in a number of pre-clinical models and in a clinical trial.

Since 2014, the Company focused on the development of a new proprietary suspension formulation of RPL554 which is stable, scalable and suitable for commercial use. The first phase 1/2a study with this new nebulised formulation started at the end of that year and the clinical phases of the SAD and MAD study in healthy subjects and the MAD study in COPD patients were completed in 2015 (in each case over 5.5 days, with twice daily dosing). 112 subjects took part in these phase 1/2a studies. The first two parts of the trial in healthy subjects indicated that the new formulation is well tolerated, as 16 times the previously used bronchodilator dose (vs. the old formulation) could be administered without reaching a maximum tolerated dose. Initial observations also revealed a longer residence time in the lung, lower peak plasma concentrations and a longer plasma half-life than the previously used formulation, suggesting that twice daily dosing may also be achievable. Positive headline data from the third and final part of the phase 1/2a trial with the new nebulised formulation was reported in September 2015, meeting its objective and demonstrating safety and tolerability in COPD patients with moderate severity of disease. Importantly, data also supported the findings from the first two parts of the trial. The data demonstrated that as designed, the new commercially scalable, suspension formulation is well tolerated at all doses with no reports of serious adverse events. Lung function was also significantly increased in all dose groups. This has allowed the Company to study a broad dose range and confirm that the duration of the bronchodilation effect seems appropriate for twice daily dosing.

Following this positive data from the Phase 1/2a study, and following full data from the final part of this trial, the Company has also completed and reported the outcomes of two additional phase 2a studies. As announced in June 2015, the Company conducted a second single-dose Phase 2a dose-finding study on RPL554 in 29 asthma patients in a double-blind, placebo-controlled, seven-way crossover study. The primary objective of this study was to establish the bronchodilator effect and duration of action as compared to the most widely used bronchodilator. Results from this study were reported in March 2016. The primary objective was met, with nebulised RPL554 demonstrating a dose-dependent and highly statistically significant (p<0.0001) bronchodilator response in asthma patients. The maximum bronchodilator effect of RPL554 in this study was comparable to the effect observed with the supramaximal dose (7.5mg) of nebulised salbutamol used in this study. RPL554 did not elicit any serious adverse events or adverse events of concern at any dose suggesting that the compound may have a large safety margin.

The Company has also investigated the possibility that RPL554 can be used in combination with existing bronchodilator drugs with a study in COPD patients that started in October 2015. The primary objective of the study was met, with RPL554 producing a highly significant (p<0.001) and a clinically meaningful additional (>60 per cent.) bronchodilation on top of standard doses of commonly used bronchodilators, salbutamol and ipratropium bromide. The bronchodilator effects seen with the combinations were significantly (p<0.001) larger than those of either salbutamol or ipratropium bromide alone, which were in turn all significantly greater than placebo. In addition, the combination of RPL554 with salbutamol or ipratropium bromide caused a significant reduction (p=0.0002 and p=0.004 respectively) 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. Consistent with previous studies, RPL554 was well tolerated both alone and in combination.

The Company also plans further studies in 2016 to explore the potential of RPL554 in cystic fibrosis.

The Board believes that RPL554 has the potential to become a novel treatment for patients with obstructive lung diseases such as COPD, cystic fibrosis and potentially asthma, and that it can provide clear healthcare economic benefits in a commercial setting. The Company has considered all available options for further funding of its development programmes, as without further capital the Company has sufficient resources to fund its near terms plans only. Having done so, the Board believes that the Placing is required in order to finance the Company adequately through to the end of the first Phase 2b study, a major value inflection point at which the Board considers it will be better placed to consider whether to continue development alone or to partner its drug candidates, should this provide a sufficiently attractive return at that time.

Use of Proceeds

The net proceeds of the Placing will be approximately £41.9 million, which are expected to fund RPL554 through a Phase 2b clinical trial in chronic obstructive pulmonary disease (COPD) patients and additional Phase 2 studies in both COPD and in cystic fibrosis. The net proceeds are expected to be allocated approximately as to:

Clinical development of RPL554 for COPD in a Phase 2b study and additional clinical Phase 2 studies such as:
(i)         Phase  2b 4-week dose-ranging study in COPD
(ii)         4 to 6-week anti-inflammatory study
(iii)        <1 week add-on study in COPD patients
(iv)        Cystic fibrosis pharmacodynamics/pharmacokinetic  study (proof of concept study to be funded separately later)
(v)        Preparatory  work for other clinical trials
£19.6 million
   
General working capital* £13.7 million
   
Pre-clinical development, including dry powder inhalation (DPI)/metered dose inhalation (MDI) £8.6 million
   
Total (net of estimated fees) £41.9 million

*covering continuing operating expenditure as increased for the above development work and for the anticipated costs of listing and maintaining the NASDAQ listing.

Principal terms of the Placing

The Company has conditionally raised a total of approximately £44.7 million (before expenses) by the Placing of 1,555,796,345 Units at the Issue Price to the Placees. Each Unit comprises one Placing Share and one Warrant over 0.4 of a Warrant Share. Further particulars of the Warrants are provided below.

The UK Placing is conditional, inter alia, upon:

(i)         the passing of the Resolutions;

(ii)         the Placing Agreement not having been terminated in accordance with its terms prior to Admission;

(iii)        written confirmation from the Company that, as far as it is aware (having made reasonable enquiries of the Directors, its advisers and the US Placees), there is no fact, matter or circumstance existing which would allow the US Purchasers to terminate the Purchase Agreement; and

(iv)        Admission.

If any of the above UK conditions are not satisfied or waived (where capable of waiver), the UK Units will not be issued and all relevant monies received from the investors in the UK Placing will be returned to them (at the risk of these investors and without interest) as soon as possible thereafter.

The US Placing is conditional, inter alia, upon (including certain customary conditions for a transaction of this nature):

(i)         the passing of the Resolutions;

(ii)         the receipt of a certificate of a Director confirming that the representations and warranties of the Company in the Purchase Agreement are true and correct in all material respects (except those that are qualified by materiality, which shall be true and correct in all respects) as of the date of the Purchase Agreement and as of Admission, and that all covenants, obligations and agreements of the Company required to be performed prior to Admission have been performed;

(iii)        the Placing Agreement not having been terminated in accordance with its terms prior to Admission; and

(iv)        Admission.

If any of the above US conditions are not satisfied or waived (where capable of waiver), the US Units will not be issued and all relevant monies received from the investors in the US Placing will be returned to them (at the risk of these investors and without interest) as soon as possible thereafter.

The New Shares when issued will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the admission of the Placing Shares to trading on AIM. It is expected that Admission will occur and that dealings in the Placing Shares will commence at 8.00 a.m. on 29 July 2016, at which time it is also expected that the Placing Shares will be enabled for settlement in CREST. A block listing application will be made in respect of the Warrant Shares for the purpose of admitting the Warrant Shares to trading on AIM in due course.

Shareholders in the Company who are not participating in the Placing proportionate to their economic interest will have their interest in the Company significantly diluted as a consequence of the issue of the New Shares. Furthermore, Shareholders who participate in the Placing, but who do not participate in Tranche 2, would be further significantly diluted as a consequence of the issue of Ordinary Shares as part of the US IPO.

Information relating to the Placing Agreement, the Purchase Agreement and the Placement Agent Agreement appear in paragraphs 4.1, 4.2 and 4.3 of part III of the Circular.

The Warrants

Each Warrant will be exercisable into 0.4 of a Warrant Share, at an exercise price per Warrant Share of 3.4476 pence, being 120 per cent. of the Issue Price. Upon exercise, fractional entitlements to Warrant Shares, determined on an aggregate basis with all other Warrants then being exercised by the applicable Placee, will be rounded down to the nearest whole Warrant Share.

The exercise price per Warrant is 3.4476 pence (being a 20 per cent. premium to the Issue Price) and each Warrant shall become exercisable on the earlier of: (i) the first anniversary of Admission; or (ii) the closing of Tranche 2, and the exercise period shall end on the fifth anniversary of such date. In the event that the Company announces the execution of a definitive agreement providing for an Acquisition prior to the closing of Tranche 2, the exercise period shall instead begin immediately following such announcement, and shall still end on the sixth anniversary of Admission.

The Warrants may be exercised either in cash or on a cashless exercise basis, whereby the Warrantholder will forfeit such number of Warrant Shares as represent at the relevant time the value of the exercise price, and receive bonus shares equal to the Warrantholder’s net entitlement. Such bonus shares will be issued by way of a capitalisation issue. Shareholders should note that the number of Warrant Shares to be forfeited in connection with a cashless exercise of Warrants will be determined by the future price of the Company’s Shares. Warrantholders must also be Shareholders in order to be able to exercise on a cashless exercise basis.

Warrantholders shall be entitled to require that their Warrant Shares be converted into ADSs, at the cost of the Company.

The terms of the Warrants include a Black-Scholes valuation provision that would be applicable on a reorganisation, consolidation, merger, demerger or sale of shares or transfer of all or substantially all of the assets of the Company, where the holders of the Company’s outstanding shares as of immediately before the transaction beneficially own less than a majority by voting powers of the outstanding shares of the surviving or successor entity as of immediately after the transaction, or the acquisition by any person of at least 50 per cent. of the voting power of the Company (“Acquisition”). The provision provides a basis for valuation of the Warrants in circumstances where the Warrants are not assumed for exchange-traded shares of the acquiring entity (or its ultimate parent) under circumstances where the Warrants continue until their expiry. In such circumstances, Warrantholders shall be entitled to receive or demand from the Company the Black-Scholes value per share in accordance with the provisions of the Warrants. Details of the Warrant and the Black-Scholes value calculation are described in more detail in paragraph 4.4 of part III of the Circular.

If Tranche 2 is completed within a year after Tranche 1, to the extent that any Placee does not fully subscribe for an equivalent value of Ordinary Shares or ADSs in Tranche 2 (including the value of any Ordinary Shares or ADSs acquired in any concurrent Exempt Placement made on substantially the same terms as the US IPO) as subscribed  for in Tranche 1, subject to allocations in Tranche 2 being potentially adjusted downwards by the underwriter in connection with the US IPO (on the terms set out in the Purchase Agreement)), such Placee will (subject to certain limited exceptional circumstances) forfeit any Warrants issued to it in Tranche 1. However, if the Placee’s allocation is reduced by the managing underwriter in the US IPO, then the required level of participation to retain the Warrants in full shall be only that amount that is allocated to the Placee in Tranche 2.

Given the potential cashless exercise mechanism of the Warrants (and also the possible forfeiture of Warrants as described above), it is likely, in the Company’s reasonably held opinion, that the number of Warrant Shares to be issued following the exercise of Warrants over time will be materially lower than the maximum number possible.

A block listing application will be made to the London Stock Exchange of 622,318,538 new Ordinary Shares to be admitted to AIM in connection with the prospective issue of the Warrant Shares. Once applied for, these new Ordinary Shares will be issued from time to time pursuant to the valid exercise of Warrants which is expected to be following the US IPO. The Company will make a further notification in this regard in due course.

Tranche 2 (US IPO)

Pursuant to the Purchase Agreement, the Company has agreed to use its commercially reasonable efforts to complete a firm commitment registered public offering of ADSs in the United States with an aggregate offering size reasonably acceptable to the Company and to the holders of a majority of the Units issued in Tranche 1, coupled with a listing of such ADSs on NASDAQ. The Company has agreed to use its commercially reasonable efforts to consummate the US IPO as promptly as possible and no later than 180 days following Admission, or by such later date as may be agreed by the Company and Placees holding a majority of the US Units issued in the US Placing. To the extent participating by a Placee in the US IPO would conflict with U.S. securities laws or other legal requirements so as to materially delay or interfere with the US IPO, investor participation in the US IPO may instead be effected through a concurrent Exempt Placement that would be made on substantially the same terms as the registered public offering. We refer to the US IPO and the concurrent Exempt Placement as Tranche 2. Following the US IPO and as requested by Placees, New Shares held by such Placees may be converted into ADSs (subject to any limitations under United States securities laws). The Company will pay the reasonable expenses of the Placees in respect of the conversion of New Shares issued in connection with the Placing into ADSs (to the extent required) at the appropriate time.

It is expected that the Company’s entire share capital will remain admitted to trading on AIM following the US IPO. Any such transaction will require separate approval by Shareholders. While the Company has agreed to use its commercially reasonable efforts to facilitate the US IPO, there is no certainty that the US IPO will proceed as targeted, or at all. Additional information in respect of the prospective US IPO is set out in part II of the Circular.

The ADSs will be negotiable instruments, representing ownership of Ordinary Shares. They are designed to facilitate the purchase, holding and sale of Ordinary Shares by US investors. Each of the offered ADSs will represent an exact number of Ordinary Shares. This number will be determined by the Directors during the offering process. Other than a potential Regulation S offering in the UK, there will be no offer to the public in the United Kingdom (including to the Company’s existing Shareholders generally) of ADSs or Ordinary Shares in connection with the US IPO.

Vivo Capital, a current Shareholder of the Company, is acting as a cornerstone investor in relation to the US Placing and is expected to act as a cornerstone investor in Tranche 2.

Novo Management Rights Letter

Pursuant to the Purchase Agreement, the Company has agreed to provide a customary management rights letter to Novo. Pursuant to the letter, which will be delivered prior to Admission, the Company will grant Novo certain contractual management rights relating to the Company, including matters such as (i) the right to consult with the Company’s management on significant business issues, (ii) examine  the Company’s books and records and inspect the Company’s properties, (iii) designate a non-voting representative on the Company’s board of directors, and (iv) receive information with respect to significant corporate actions.

The Company has agreed to deliver the Novo Management Rights Letter in order to assist Novo in avoiding becoming subject to the requirements of the U.S. Employee Retirement Income Security Act of 1974. According to the terms of the Novo Management Rights Letter, Novo has a right to designate a non-voting board observer to attend all meetings of the Board of Directors. The Novo Management Rights Letter will terminate on the earlier of (i) the consummation of the US IPO, or (ii) such time as Novo ceases to hold at least 50 per cent. of the shares held by it on closing of the Placing.

Board representation and the Relationship Agreements

The Company will enter into the Relationship Agreements with Vivo Capital, OrbiMed, Arix/Arthurian and Abingworth to regulate its relationships with those investors from Admission and to limit their influence over the Group’s corporate actions and activities and the outcome of general matters pertaining to the Group. Further details of the Relationship Agreements are provided in paragraph 4.6 of part III of the Circular. The Relationship Agreements will become effective on Admission.

Pursuant to the Relationship Agreements, the Company has further agreed, conditional on Admission, to appoint representatives designated by Vivo Capital, OrbiMed, Arix/Arthurian and Abingworth to the Board of Directors. The investors’ respective rights to maintain representatives on the Board of Directors shall continue for so long as each respectively continue to beneficially hold not less than the lesser of (i) 6.5 per cent. of the Company’s issued Ordinary Shares from time to time (with beneficial ownership for this purpose being determined without regard to any exercise limitations or conversion blockers), and (ii) 60 per cent. of the sum of the number of Ordinary Shares held by them on Admission and, after completion of the US IPO, the number of Ordinary Shares they are obligated to purchase in connection with the US IPO in order to avoid forfeiture of their Warrants.

Following Admission, Arix and Arthurian (WLSIF) are expected to own over 10 per cent. of the Enlarged Share Capital. Dr. Ken Cunningham, a non-executive director, will continue to serve as the appointed board representative of Arix/Arthurian.

As described above the Company entered into the Novo Management Rights Letter under which Novo has a right to designate a non-voting board observer to attend all meetings of the Board of Directors. Novo’s right to maintain a board observer on the Board of Directors shall continue until (i) the consummation of the US IPO, or (ii) such time as Novo ceases to hold at least 50 per cent. of the shares held by it on closing of the Placing.

Following Admission, the Company will conduct an executive search to recruit suitable senior finance resources.

New Articles

In connection with the issue of the Warrants and in order to facilitate the US Placing, it is proposed that the Company will adopt the New Articles at the General Meeting conditional upon the relevant special resolution being passed. The New Articles will incorporate certain amendments allowing for, inter alia, the issue of the Warrant Shares and ADSs.

The New Articles will also contain provisions allowing the Company to issue Warrant Shares in respect of the exercise of the Warrants (in accordance  with the terms of the Warrant Instrument) by way of a non pre- emptive bonus issue of fully paid up Warrant Shares to the relevant Warrantholder. Such bonus shares will be issued by way of a capitalisation issue. This change is required to allow for the cashless exercise of the Warrants in accordance with the terms of the Warrant Instrument, whereby the Warrantholder will forfeit Warrant Shares representing the cost of exercise, and receive Warrant Shares by means of a bonus issue as described above.

The principal changes to the current articles of association of the Company are summarized in part IV of the Circular. A copy of the New Articles is available for inspection on the Company’s website at www.veronapharma.com. Hard copies of the New Articles are available at the Company’s registered office from today until the date of the General Meeting, and at the place of and on the date of the General Meeting from 11.00 a.m. until the close of the meeting.

Recent trading and prospects

The Company reported a loss after tax of £7.42 million for the year ended 31 December 2015 (2014:

£2.76 million), broadly in line with market expectations and reflecting tight cost control despite the planned increase in R&D spend, especially on clinical studies.

The Company’s net cash outflow from operating activities for the year ended 31 December 2015 was

£6.35 million (2014: £3.54 million) reflecting clinical progress, with cash and cash equivalents as at

31 December 2015 of approximately £3.5 million (2014: £10 million). Having reported in the first half of 2016 on the Phase 1/2a trials described above, clinical activity is expected to be at a lower level in 2016 than in 2015 as the Company plans its next substantive batch of clinical and pre-clinical studies to be funded by the net proceeds of the Placing.

Risk factors and additional information

The attention of Shareholders is drawn to the risk factors set out in Part II of the Circular and the information contained in part III of the Circular, which provide additional information on the Verona Group. Shareholders are advised to read the whole of the Circular and not rely solely on the summary information presented in this letter.

General Meeting

The Directors do not currently have authority to allot all of the New Shares and, accordingly, the Board is seeking the approval of Shareholders to allot such shares at the General Meeting. Shareholder approval is not being sought at the General Meeting to issue any Ordinary Shares under Tranche 2.

A notice convening the General Meeting, which is to be held at the offices of Shakespeare Martineau LLP at Allianz House, 6th Floor, 60 Gracechurch Street, London EC3V 0HR at 11.00 a.m. on 22 July 2016, is set out at the end of the Circular. At the General Meeting, the following Resolutions will be proposed:

·      Resolution  1 which is an ordinary resolution to authorise the Directors to allot relevant securities up to an aggregate nominal amount of £1,555,796.35, being equal to 1,555,796,345 Placing Shares (i.e. the maximum number of Placing Shares available under the Placing).

·      Resolution 2 which is conditional on the passing of resolution 1 and is an ordinary resolution to authorise the Directors to issue Warrants to subscribe for Ordinary Shares up to an aggregate nominal amount of £622,318.54, being equal to 622,318,538 Ordinary Shares (i.e. the maximum number of Ordinary Shares that could be allotted pursuant to the exercise of the warrants).

·      Resolution 3 which is conditional on the passing of resolutions 1, 2, 4, 5 and 6 (inclusive) and is an ordinary resolution authorising the Directors to capitalise such sums as they may determine from time to time, not exceeding the amount standing to the credit of any of the Company’s reserve accounts from time to time or any sum standing to the credit of the profit and loss account or otherwise available for distribution from time to time to pay up in full, up to 622,318,538 Ordinary Shares and to allot and issue such new shares on a non-pre-emptive basis, and to do all acts and things to satisfy any entitlement to Warrant Shares.

·      Resolution 4 which is conditional on the passing of resolution 1 and is a special resolution to authorise the Directors to issue and allot 1,555,796,345 Placing Shares pursuant to the Placing on a non pre- emptive basis.

·      Resolution 5 which is conditional on the passing of resolution 2 and is a special resolution to authorise the Directors to issue and allot warrants to subscribe for 622,318,538 Ordinary Shares on a non pre-emptive basis.

·      Resolution 6 is a special resolution to adopt the New Articles.

The authorities to be granted pursuant to resolutions 1, 2, 4 and 5 shall expire on the conclusion of the Annual General Meeting (“AGM”) of the Company to be held in 2017 (unless renewed varied or revoked by the Company prior to or on that date) and shall be in addition to any Directors’ authorities to allot relevant securities and disapply statutory pre-emption rights granted at the Company’s AGM to be held in 2016, which shall expire on the conclusion of the AGM of the Company to be held in 2017. The authority given pursuant to resolution 3 shall expire on 30 July 2022 (unless renewed, varied or revoked by the Company prior to or on that date).

Action to be taken in respect of the General Meeting

The Directors unanimously consider that completion of the Placing is in the best interests of the Company and accordingly strongly recommend that you vote in favour of the Resolutions to be proposed at the General Meeting to give effect to the Placing, as they intend to do in respect of those Ordinary Shares in respect of which they have a beneficial interest, being 7,469,774 Ordinary Shares in aggregate, representing 0.74 per cent. of the current issued Ordinary Share capital of the Company as at the date of the Circular.

Enclosed with the Circular is a Form of Proxy for use by Shareholders at the General Meeting.

Related party matters

Dr. David Ebsworth, the Company’s Non-Executive Chairman, is investing in the Placing on the same terms as the other Placees.

Arix has agreed to subscribe for 64,517,620 units pursuant to the UK Placing. Arix is considered to be a related party under the AIM Rules by virtue of its conditional entitlement to indirectly acquire Arthurian, the general partner of WLSIF, an existing Substantial Shareholder. Its subscription is classified as a related party transaction under AIM Rule 13. The independent directors, who are for the purposes of Arix’s subscription, Dr. David Ebsworth, Dr. Jan-Anders Karlsson, Dr. Anders Ullman and Dr. Patrick Humphrey, consider having consulted with the Company’s nominated adviser, N+1 Singer that the terms of the participation by Arix in the UK Placing are fair and reasonable insofar as the Shareholders of the Company are concerned.

Irrevocable undertakings and indications of support

The Company has secured irrevocable undertakings from certain institutional shareholders to vote in favour of the Resolutions in respect of which they have a beneficial interest, representing 294,237,197 Ordinary Shares in aggregate or approximately 29.1 per cent. of the Existing Ordinary Shares. Together with the aggregate irrevocable undertakings from the Directors (which will be in the same form as the irrevocable undertakings secured from certain institutional shareholders), the Company has secured commitments from Shareholders holding, in total, 298,836,971 Ordinary Shares (comprising approximately 29.6 per cent. of the Existing Ordinary Shares) to vote in favour of the Resolutions. In addition, the Company has received verbal indications of support from Shareholders holding a total of 159,335,343 Ordinary Shares (representing approximately 15.8 per cent. of the Existing Ordinary Shares). In aggregate, the Company therefore reasonably considers that the Resolutions have the backing, from irrevocable commitments and verbal indications of support, of 458,172,314 Ordinary Shares or approximately 45.4 per cent. of the voting rights in the Company’s Shares.

Additional Information

Your attention is drawn to the risk factors and additional information set out in Parts II and III of the Circular. Shareholders are advised to read the whole of the Circular and not rely solely on the summary information presented in this letter.

Directors’ Recommendation and Voting Intentions

The Directors, acting in good faith, believe that the Placing and the passing of the Resolutions are most likely to promote the success of the Company for the benefit of its Shareholders as a whole. The Directors unanimously and strongly recommend the Shareholders to vote in favour of the Resolutions, as they intend to do in respect of their aggregate beneficial holdings of 7,469,774 Ordinary Shares representing approximately 0.74 per cent. of the Existing Ordinary Shares.

Total Voting Rights

The number of ordinary shares of 0.1 pence each in the capital of the Company in issue and number of voting rights following admission of all of the Placing Shares (subject, amongst other things, to the General Meeting) will be 2,565,719,826.  Following Admission, the above figure may be used by Shareholders as the denominator for the calculations by which they will determine whether they are required to notify their interest in, or a change to their interest in, the Company under the Financial Conduct Authority's Disclosure and Transparency Rules.

Definitions

“Abingworth” Abingworth  Bioventures VI  LP  (acting  through  its  manager, Abingworth LLP)
   
“Abingworth Relationship Agreement the relationship agreement to be entered into between the Company, Abingworth and N+1 Singer to regulate the Company’s relationship with Abingworth
   
“Acquisition” in relation to the Warrants, a reorganisation, consolidation, merger, demerger, sale of shares or transfer of all or substantially all of the assets of the Company, where the holders of the Company’s outstanding shares as  of  immediately before the  transaction beneficially own less than a majority by voting powers of the outstanding shares of the surviving or successor entity as of immediately after the transaction, or a scheme of arrangement or takeover offer
   
“Act” the Companies Act 2006
   
“Admission” the admission of the Placing Shares to trading on AIM following completion of the Placing
   
“ADSs” American Depositary Shares each of which will consist of a fixed number of Ordinary Shares or a right to receive a fixed number of Ordinary Shares, proposed to be issued pursuant to Tranche 2
   
“AIM” the AIM market operated by the London Stock Exchange
   
“AIM Rules the AIM Rules for Companies and guidance notes as published by the London Stock Exchange from time to time
   
“Arix” Arix Bioscience Limited
   
“Arix Relationship Agreement” the relationship agreement to be entered into between the Company, Arix, Arthurian and N+1 Singer, to regulate the Company’s relationship with Arix and Arthurian
   
“Arthurian” Arthurian Life Sciences SPV GP Limited, as the general partner of WLSIF
   
“Business Day” a day (other than a Saturday or Sunday) on which commercial banks are open for general business in London, England
   
“Company” or “Verona”  Verona Pharma PLC, a company incorporated and registered in England and Wales under the Companies Act 1985 with registered number 5375156
   
“Directors” or “Board” the directors of the Company as at the date of the Circular, whose names are set out on page 10 of the Circular
   
“Document” the Circular which for the avoidance of doubt does not comprise a  prospectus  (under the  Prospectus Rules) or  an  admission document (under the AIM Rules)
   
“Enlarged Share Capital” the  issued  ordinary share capital  of  the  Company following Admission, comprising the Existing Ordinary Shares and the Placing Shares
   
“Exempt Placement” an exempt placement of the Company’s securities in accordance with Regulation D and/or Regulation S
   
“Existing Ordinary Shares” the Ordinary Shares in issue as at the date of the Circular
   
“FCA” the Financial Conduct Authority
   
“Form of Proxy” the form of proxy for use in relation to the General Meeting enclosed with the Circular
   
“FSMA” the Financial Services and Markets Act 2000 (as amended)
   
“General Meeting” the General Meeting of the Company, convened for 11.00 a.m. on 22 July 2016 (or any adjournment thereof), notice of which is set out at the end of the Circular
   
“Group” the Company and its subsidiaries
   
“HMRC” Her Majesty’s Revenue & Customs
   
“ISIN” International Securities Identification Number
   
“Issue Price” 2.873 pence per Unit
   
“Issued Share Capital” the issued share capital of the Company as at 16 June 2016 (being the last practicable date prior to the date of the Circular)
   
“Listing Rules” the Listing Rules of the UKLA made in accordance with section 73A(2) of FSMA
   
“London Stock Exchange”  London Stock Exchange plc
   
“Money Laundering Regulations” Money  Laundering Regulations 2007,  the  money  laundering provisions of the Criminal Justice Act 1993, Part VIII  of FSMA (together with the provisions of the Money Laundering Sourcebook of the FCA and the manual of guidance produced by the Joint Money Laundering Steering Group in relation to financial sector firms), the Terrorism Act 2000, the Anti-Terrorism Crime and Security Act 2001, the Proceeds of Crime Act 2002 and the Terrorism Act 2006
   
“MTS Securities, LLC” MTS Securities, LLC, the Company’s placement agent based within the US in accordance with Regulation D
   
“N+1 Singer” Nplus1 Singer Advisory LLP, together with its associate Nplus1 Singer Capital Markets Limited, acting as lead UK broker to the Placing and as nominated adviser and UK broker to the Company
   
“NASDAQ” the NASDAQ Global Market or the NASDAQ Capital Market
   
“New Articles” the new articles of association of the Company proposed to be adopted at the General Meeting
   
“New Shares” the Placing Shares and the Warrant Shares (to the extent the Warrants are exercised)
   
“Notice of General Meeting” the notice convening the General Meeting as set out at the end of the Circular
   
“Novo” Novo A/S
   
“Novo Management Rights Letter” the management rights letter to be entered into between the Company and Novo
   
“OrbiMed” OrbiMed Private Investments VI, LP (acting through its general partner, OrbiMed Capital GP VI LLC, acting through its managing member, OrbiMed Advisors LLC)
   
“OrbiMed Relationship Agreement” the relationship agreement to be entered into between the Company, OrbiMed and N+1 Singer to regulate the Company’s relationship with OrbiMed
   
“Ordinary Shares”  ordinary shares of 0.1 pence each in the capital of the Company
   
“Placees” certain institutional and  other  investors subscribing for  Units (including the US Purchasers)
   
“Placement Agent Agreement” the  placement agent engagement relating to  the  US Placing between the Company and MTS Securities, LLC
   
“Placing” the UK Placing and the US Placing as further described in the Circular
   
“Placing Agreement” the placing agreement relating to the UK Placing entered into between the Company and N+1 Singer
   
“Placing Shares” up to 1,555,796,345 new Ordinary Shares to be issued pursuant to the Placing (which figure excludes the Warrant Shares)
   
“Posting” the posting of the Circular
   
“Prospectus Rules” the Prospectus Rules made in accordance with EU Prospectus Directive 2003/71/EC
   
“Purchase Agreement” the purchase agreement relating to the US Placing and Tranche 2 entered into between the Company and the US Purchasers
   
“Regulation D” Regulation D under the Securities Act
   
“Regulation S” Regulation S under the Securities Act
   
“Regulatory Information Service” has the meaning given in the AIM Rules
   
“Relationship Agreements” means the Vivo Relationship Agreement, the OrbiMed Relationship Agreement, the Arix Relationship Agreement and the Abingworth Relationship Agreement
   
“Resolutions” the resolutions to be proposed at the General Meeting as set out in the Notice of General Meeting
   
“Restricted Jurisdiction” United States of America, Canada, Australia, New Zealand, Japan, the Republic of South Africa or the Republic of Ireland and any other jurisdiction where the extension or availability of the Placing or distribution of the Circular would breach any applicable law
   
“Securities Act” the US Securities Act of 1933, as amended
   
“SEC” U.S. Securities and Exchange Commission
   
“Shareholders”  the holders of Existing Ordinary Shares
   
“Sterling” or “£” pounds sterling, the basic unit of currency in the UK
   
“Substantial Shareholder”  as defined in the AIM Rules, being a Shareholder who has an interest, directly or indirectly, in 10 per cent. or more of the Issued Share Capital or 10 per cent. or more of the voting rights
   
“Tranche 1”  the Placing
   
“Tranche 2” an anticipated placing of Ordinary Shares proposed to take place within 180 days of completion of Admission (or by such other date as may reasonably be agreed between the Company and Vivo), consisting of the US IPO and any concurrent Exempt Placement
   
“UK” or “United Kingdom”  the United Kingdom of Great Britain and Northern Ireland
   
“UK Placing” the conditional placing of UK Units by N+1 Singer (which, for the avoidance of doubt, does not include the US Units to be subscribed for by the US Purchasers) on the terms and subject to the conditions of the Placing Agreement
   
“UK Units”  Units to be issued under the UK Placing
   
“UKLA” the UK Listing Authority
   
“Unit” a unit comprising one Placing Share and one Warrant
   
“US” or “United States” the United States of America, its territories and possessions, any State of the United States and the District of Columbia
   
“US$” the United States dollar, the basic unit of currency of the United States of America
   
“US IPO” the proposed registration by the Company under the Securities Act of the ADSs to be issued in Tranche 2 and the listing of ADSs on NASDAQ as further detailed in paragraph 6 in part I of the Circular
   
“US Placing” the conditional placing of US Units by MTS Securities, LLC (which, for the avoidance of doubt, does not include the UK Units to be placed by N+1 Singer under the Placing Agreement) on the terms and subject to the conditions of the Purchase Agreement and the Placement Agent Agreement
   
“US Purchasers” the US and certain other persons acquiring Units pursuant to the Purchase Agreement, all being “accredited investors” within the meaning of Rule 501(a) of Regulation D
   
“US Units” Units to be issued under the US Placing
   
“Vivo Capital” Vivo Capital Fund VIII L.P.
   
“Vivo Relationship Agreement” the relationship agreement to be entered into between the Company, Vivo Capital and N+1 Singer to regulate the Company’s relationship with Vivo Capital
   
“Warrantholders” the  holder  of  the  Warrants,  each  being  referred  to  as  a “Warrantholder”
   
“Warrant Instrument” the warrant instrument to be entered into in respect of the Warrants, a summary of which is in part III “Additional  Information”
   
“Warrants” the 622,318,538 warrants to subscribe for 0.4 of an Ordinary Share each, constituted by the Warrant Instrument as more particularly described at paragraph 5 of part I and paragraph 4.4 of part III of the Circular
   
“Warrant Shares” up to 622,318,538 new Ordinary Shares which are the subject of the exercise of the Warrants
   
“WLSIF” The Wales Life Sciences Investment Fund LP

Glossary of Technical Terms

”bronchodilator” a substance that increases potential airflow to the lungs by dilating (enlarging) the airway
   
“COPD” chronic obstructive pulmonary disease
   
“MAD” multiple ascending dose, used in the context of a study to investigate safety, tolerability and pharmacokinetics of a drug
   
“SAD” single ascending dose, used in the context of a study to investigate the safety tolerability and pharmacokinetics of a drug
   
“supramaximal dose” being much higher or greater than what is considered or usually maximal; being greater or higher than the corresponding maximal

For further information please contact:

 

Verona Pharma plc
Jan-Anders Karlsson, CEO
Tel: +44 (0)20 3283 4200
info@veronapharma.com

N+1 Singer (Nominated Adviser and UK Broker)
Aubrey Powell / James White
Tel: +44 (0)20 7496 3000

 

 

FTI Consulting
Simon Conway / Stephanie Cuthbert / Natalie Garland-Collins
Tel: +44 (0)20 3727 1000
veronapharma@fticonsulting.com

ICR, Inc. (US Media and Investor enquiries)
James Heins
Tel: +1 203-682-8251
James.Heins@icrinc.com

Stephanie Carrington
Tel. +1 646-277-1282
Stephanie.Carrington@icrinc.com


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Verona Pharma plc
3 More London Riverside, London SE1 2RE
T: +44 (0)203 283 4200

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