UK pharmaceutical companies seem to have a particular affinity with the respiratory sector. Chronic obstructive pulmonary disorder (COPD) and asthma sufferers have been well catered for by AstraZeneca (AZN) and GlaxoSmithKline (GSK), whose drugs have dominated the market for many years. But this domination has led to a lack of innovation, particularly in the acute care and hospital setting, and therefore a lack of novel treatments.
- Potential "blockbuster" drug
- Operating in the huge respiratory marketplace
- Positive clinical trial results
- Strong net cash position
- Competition from branded and generic products
- Focused on a single drug
Verona Pharma (VRP) wants to break that mould. Its lead drug candidate - and currently its central area of focus - RPL554 is said to be the first drug in its class for the treatment of severe COPD, asthma and cystic fibrosis. It's potential to act as both a bronchodilator and an anti-inflammatory means it can open airways and reduce underlying disease symptoms, which makes it significantly different to existing drugs.
Following excellent early-stage clinical trial results, Verona has recently published equally promising stage two clinical data. In COPD, RPL554 proved to be significantly beneficial for severely ill patients, and in asthma it achieved comparable results to a very high dose of salbutamol, the current standard of care.
But respiratory is a very competitive space. Both GSK and Astra are in the final stage of trials for new COPD and asthma management drugs which will have a 'first mover' advantage. Plus, due to the old age of many of the best-in-class treatments, the market is saturated with cheaper unbranded products which can undercut the prices of newly launched branded drugs. But the market is huge and so is the potential for Verona to make big money should RPL554 succeed in clinical trials. The World Health Organisation estimates that roughly three million people a year die of COPD and it is these severely ill patients for whom RPL554 is ideally targeted. Furthermore, with the potential to test in cystic fibrosis - a disease which currently has very limited treatment options - it could be fast-tracked through clinical studies, which may lead to an earlier-than-expected launch.
Financially, Verona is well placed after raising £44.7m with the sale of new shares at 2.873p a pop in July. These funds will support the second tranche of phase two clinical trials before the end of 2016, and allow for further pre-clinical studies into cystic fibrosis. If things go well, pivotal phase three trials could be commenced by the end of 2018 - in small-cap pharma terms that's really not too long away. Come the start of the phase three trials, Verona will have to return to the market, and its current supportive investor base, for more funds. We'd hope it would be doing this on the back of strong phase two data and with and a higher share price to match.
VERONA PHARMA (VRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3.1p | MARKET VALUE: | £79.5m | |
| TOUCH: | 3-3.2p | 12-MONTH HIGH: | 5p | 2p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | na | |
| NET ASSET VALUE: | 0.16* | NET CASH: | £1.2m** | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 0 | -3.8 | -0.3 | nil |
| 2015 | 0 | -8.8 | -0.7 | nil |
| 2016*** | 0 | -10.3 | -0.5 | nil |
| 2017*** | 0 | -22.7 | -0.9 | nil |
| % change | - | - | - | - |
Normal market size: 50,000 Market makers: 5 Beta: 0.25 *Includes intangible assets of £1.87m, or 0.07p a share **Excludes £44.7m raising after the financial period-end ***Broker N+1 Singer estimates, adjusted PTP and EPS figures | ||||
