Verona Pharma : Admission of Placing Shares

THIS ANNOUNCEMENT IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA OR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.

("Verona Pharma" or the "Company")

• The Placing has secured funding to raise gross proceeds of £44.7 million (approximately US$63.3 million at the exchange rate of 17 June 2016).

• The net proceeds of the Placing of approximately £41.9 million will be used as follows:

  • predominantly to progress its lead candidate, RPL554, through a Phase 2b clinical trial in COPD patients;

  • to fund additional clinical Phase 2 studies in COPD and cystic fibrosis;

  • to fund further supportive pre-clinical work, including the development of a dry powder inhaler (DPI) or metered dose inhaler (MDI); and

  • for general working capital purposes.

• The Board anticipates that, with additional funds successfully obtained and deployed as described above, RPL554 will continue to progress through what are expected to be further significant value inflection points.

• The Board is now evaluating its drug development plans and looks forward to providing the Company's enlarged shareholder base with further updates in due course

Pursuant to the oversubscribed Placing, the Company has issued 1,555,796,345 Units to new and existing investors at the Placing Price of 2.873 pence per Unit. Each Unit comprises one Placing Share and one Warrant (with an entitlement to subscribe for 0.4 of an Ordinary Share at a per share exercise price of 120% of the Placing Price or 3.4476 pence).

Following Admission, the number of Ordinary Shares in issue and the number of voting rights following Admission of the Placing Shares is 2,565,719,826. This 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 FCA's Disclosure and Transparency Rules.

As part of the Placing, Dr. David Ebsworth, Non-Executive Chairman of the Company, purchased a further 614,455 Ordinary Shares via his purchase of the same number of Units. Following Admission and Dr. Ebsworth's participation in the Placing, the Company confirms that the Directors of the Company now hold the following interests in the issued share capital of the Company:

Additional information relating to the Warrant Shares, the Company's Block Listing and its prospective US IPO is contained below.

Defined terms used in this announcement shall have the same meaning as those terms defined and used in the Circular dated 17 June 2016.

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.

Verona Pharma plc is a UK-based clinical stage biopharmaceutical company focused on the development of innovative prescription medicines to treat respiratory diseases with significant unmet medical needs, such as chronic obstructive pulmonary disease (COPD), asthma and cystic fibrosis.

Verona Pharma's lead drug, RPL554, is a first-in-class drug currently in phase II trials 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. 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. The Company is also exploring the potential of the drug in different diseases, such as cystic fibrosis, where it is in pre-clinical testing and has recently received a Venture and Innovation Award from the Cystic Fibrosis Trust.

Sixty-five million people worldwide suffer from moderate to severe COPD and the World Health Organisation (WHO) expects COPD to be the 3rd leading cause of death globally by 2020. It is the only major chronic disease with increasing mortality. 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 A&E visits, 726,000 hospitalisations and 120,000 deaths per annum.

Bronchodilator therapy is considered to be the standard of care, and agents can be administered via handheld devices such as metered dose inhaler (MDI), dry powder inhaler (DPI) and by nebulisers. The nebulised bronchodilator market was worth about $1 billion in 2014 in the US1. RPL554 is being developed

by Verona Pharma as an add-on therapy to the "Standard of Care" with the objectives of providing rapid and pronounced improvement in lung function, reduced symptoms and both shortened duration of hospital stays and reduced re-admission rates 30 days after discharge from hospital. Studies to date on RPL554 have demonstrated that it has a strongly differentiated 3-way mode of action, being: (1) bronchodilation (the relaxation of smooth muscle in the airway); (2) anti-inflammatory effects on cells and (3) ion channel activation in epithelial cells, with increased mucociliary clearance of the airway.

1 IMS Consulting Group market research 2014

At the recent GM, the Company obtained full authority from Shareholders to issue and allot up to 622,318,538 Warrant Shares, being the maximum possible number of further new Ordinary Shares which may arise following the valid exercise of Warrants in due course.

None of the Warrant Shares are included in the Total Voting Rights figure above. For the avoidance of doubt, the Warrants themselves will not be separately admitted to trading on AIM, but any Warrant Shares issued and allotted following the valid exercise of Warrants will become part of the single class of Ordinary Shares admitted to trading on AIM and will rank pari passu with all other Ordinary Shares.

The Warrants are capable of exercise on the earlier of the Company's planned US IPO or the anniversary of Admission of the Placing Shares, and the exercise period shall end on the fifth anniversary of such date. In the event that the Company announces a definitive agreement providing for an Acquisition prior to the closing of Tranche 2, the exercise period shall instead begin immediately following such announcement but still end as above.

The Warrants may be exercised either in cash or on a cashless exercise basis, whereby the Warrantholder will forgo such number of Warrant Shares as represent at the relevant time the value of the cost of exercise, and receive bonus shares equal to the Warrantholder's net entitlement. Shareholders should note that the net number of Warrant Shares to be received 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 any of their Warrants on a cashless exercise basis.

The maximum number of Warrant Shares above assumes that all Warrants are exercised on a 'for cash' basis. The number of Warrant Shares arising will be lower than the maximum possible if the cashless exercise mechanism is used by any Warrantholders (as is described in more detail in paragraph 5 of part I and 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, 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.

Based on the application to the London Stock Exchange for a block admission of Warrant Shares, the Company has been granted a block listing over a total of up to 513,143,965 Ordinary Shares. The Company expects to apply for extensions to the block listing for the purpose of issuing additional Warrant Shares from time to time, as appropriate. Verona Pharma retains full authority to issue and allot new Ordinary Shares to satisfy the exercise of Warrants in full.

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 the Placing, 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. 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.