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Verona Pharma swims against the current with astonishing fundraise

The junior biotech saw its share price soaring following a fundraise worth double its market capitalisation. What made it so successful?

Verona Pharma - Verona Pharma swims against the current with astonishing fundraise

Verona Pharma PLC (LON:VRP)(NASDAQ:VRNA) soared on Friday after completing an oversubscribed private placement.

At a time when companies are forced to place shares at steep discount to shore up their balance sheets, seeing a stock rocketing nearly 80% on such announcement was quite the news to end the week.

READ: Verona Pharma raises US$200mln from oversubscribed private placement and subscription

What’s more, the junior biotech raised enough money to more than double its market capitalisation.

In fact, the financing conducted by Jefferies brought in gross proceeds of £159mln, while shares were changing hands at 46.5p on Thursday at close, valuing the company at £70mln.

The cash will be used to fund Verona’s phase III ENHANCE clinical programme to treat chronic obstructive pulmonary disease (COPD) with its inhaled nebulised drug, ensifentrine.

The treatment is different to anything currently out on the market for COPD in that it has a dual-action. It opens the patient’s airways and reduces inflammation in the lungs by inhibiting the enzymes phosphodiesterase 3 and 4.

Ensifentrine has not shown side effects such as nausea, vomiting and weight loss, that halted previous attempts to develop similar drugs. In fact, it has been well-tolerated in clinical trials involving more than 1,300 people to date.

An agreement with the regulator

According to Adam Barker, analyst at Shore Capital, there is an unmet need for COPD treatment though it is not clear yet where ensifentrine could sit in the intervention path for patients.

People suffering from this disease often need more therapy because it often fails on treatment as the disease progresses.

But before embarking in a phase III trial, Verona consulted with the US Food & Drug Administration to agree on what outcome had the best chance of getting approval.

Specifically, the regulator provided its input on the dosing, primary and secondary endpoints, patient population and study design.

The market liked this strategy, Barker explained, alongside a good data package from the phases I and II of clinical trials.

So highly regarded industry names such as RA Capital, one of America’s leading biotech investors, backed the phase III because they see potential for success.

All in one go

As pointed out by Barker, the fundraise was quite large as investors preferred to dish out the money all at once, rather than fund the trial in ‘instalments’.

In this way, Verona has enough money to run its trial without turning to the market again.

It may also be that the healthcare sector is considered more favourably at the moment, considering how fast companies have reacted to the COVID-19 pandemic.

Investors have been impressed by the race to a vaccine or a treatment, which shone a light on pharma stocks.

Data drives interest

But, says Barker, that’s not why Verona attracted so much interest from new and existing shareholders.

“Even if you see more positive sentiment towards healthcare, it still depends on the quality of the individual companies. In this case Verona had a large data set, a clear path forward agreed with the regulator and clear inflexion points: a track record investors could look at and say ‘I agree’ or ‘I don’t agree with this’,” he told Proactive.

“Companies like Verona do tend to attract a more healthcare-focused fund because they are a bit more data-driven, if they didn’t have that data package they would be very wary of investing.”

Shares soared 79% to 83p on Friday before close.

Quick facts: Verona Pharma

Price: 77.5 GBX

AIM:VRP
Market: AIM
Market Cap: £321.27 m
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