Caligan picks up a stake in Verona Pharma, seeing an opportunity to generate more value

Enterprise: Verona Pharma, a scientific stage biopharmaceutical firm, focuses on growth and commercialization of therapies for the remedy of respiratory ailments with unmet medical wants. The corporate’s product candidate is ensifentrine, an inhaled and twin inhibitor of the phosphodiesterase (PDE) 3 and PDE4 enzymes that acts as each a bronchodilator and an anti-inflammatory agent in a single compound. This remedy is in Section 3 scientific trials for the remedy of power obstructive pulmonary illness, bronchial asthma and cystic fibrosis. The corporate is creating ensifentrine in three formulations, together with nebulizer, dry powder inhaler and pressurized metered-dose inhaler. Verona Pharma was included in 2005 and is headquartered in London.

Inventory Market Worth: ~$3.16B ($38.58 per share)

Possession: n/a

Common Value: n/a

Activist Commentary: Caligan Companions was based by former Carlyle Group managing director David Johnson, and it launched its essential fund in 2022. It invests in a concentrated portfolio of small and midcap life sciences corporations, utilizing activism as a software to unlock worth. Caligan appears for corporations with differentiated mental property and sturdy property which have underperformed their friends. The agency will take board seats when it thinks it might probably add worth. The best way the agency thinks about biopharma investing is considerably distinctive. It appears for corporations which might be first at school and greatest at school of their therapies; corporations the place it has some draw back safety; corporations with administration staff; and alternatives the place the agency thinks it may add worth. Caligan appears to work constructively with boards and administration however won’t draw back from a proxy battle, if needed.

On Oct. 22, Caligan introduced that it has taken a place in Verona Pharma.

Verona Pharma is a scientific stage, pre-revenue, biopharmaceutical firm that focuses on the event and commercialization of therapies for the remedy of respiratory ailments with unmet medical wants. The corporate’s present product candidate and potential worth creator is ensifentrine (commercially “Ohtuvayre”), an inhaled and twin inhibitor that acts as each a bronchodilator and an anti-inflammatory agent. Ohtuvayre was just lately accredited by the FDA for upkeep remedy of power obstructive pulmonary illness (COPD) on June 26. Again in Could 2022, previous to this approval and when Caligan started constructing their preliminary place, the inventory was buying and selling within the mid-single digits and at basically money worth. With the business launch of Ohtuvayre, Verona’s first-ever marketed product, scheduled for the third quarter of 2024, the inventory has soared. Nonetheless, Caligan thinks there may be much more worth to be realized.

COPD, often known as “smoker’s lung,” is the third main reason behind demise worldwide that impacts over 380 million sufferers globally. Not solely is that this a humanitarian disaster, however a problem for our health-care methods. In simply the U.S. alone, over $24 billion in health-care prices are related to COPD administration. A profitable drug like Ohtuvayre wouldn’t simply enhance the life expectations of sufferers with COPD, however it might decrease prices for each health-care suppliers and COPD sufferers. At present, there are over 8.6 million U.S. COPD sufferers with over 4 million remaining symptomatic regardless of remedy from the present business therapies.

There may be nonetheless an enormous hole on this market, and Verona is presently on the trajectory of filling it with robust Section III knowledge exhibiting a major enhance in lung operate and a discount in exacerbations with minimal unintended effects. This supporting knowledge and the variety of unsuccessfully handled sufferers within the present market means that Verona may obtain a 20% affected person share for Ohtuvayre. If Verona can get 10% affected person share, this might translate into $4.5 billion of income for Ohtuvayre. However the story will get much more thrilling with potential indication enlargement for using Ohtuvayre for non-cystic fibrosis bronchiectasis (“NCFB”), a progressive inflammatory illness that causes everlasting lung injury with no present accredited therapies and whose signs mimic COPD. With a better than 1 million affected person inhabitants, this may very well be an enormous avenue for enlargement for Ohtuvayre if it have been to get accredited as an NCFB remedy. The one different potential participant within the NCFB market is biopharma peer Insmed’s drug brensocatib. The drug had mediocre success, exhibiting a 21% price of discount in exacerbations in Section III testing. Nonetheless, this was sufficient to skyrocket Insmed’s valuation over $7 billion in a single month. In early pooling evaluation, Ohtuvayre confirmed a 41% discount in exacerbations in COPD sufferers, nearly double brensocatib.

When Caligan introduced its Verona place final month, the inventory was buying and selling at $33.40 per share or a $2.5 billion enterprise worth. If it might probably attain a ten% affected person share for COPD and $4.5 billion of peak income, it’s buying and selling at one half of peak income. Mergers and acquisitions for related corporations are typically completed at 3-times to 4-times peak income, which might give Verona a value of $115 per share. If Ohtuvayre continues to maneuver by way of trials for NCFB and will get traction with sufferers, like Insmed, Caligan thinks that Verona Pharma may very well be value 7-times its valuation, or $218 per share.

Caligan solely invests within the health-care sector and has seen a variety of success. In October 2023, Caligan introduced an activist place in MorphoSys AG, a equally modeled biopharma firm with a Section III drug, that was set to commercialize in This fall of 2023. On the time, the inventory was buying and selling at 26.08 euros a share. After efficiently commercializing its star drug pelabresib, MorphoSys was subsequently offered to Novartis in February 2024 for two.7 billion euros or 68 euros per share. Caligan realized from that have that if a drug can enhance the usual of take care of sufferers, will probably be useful. In an trade with $140 billion coming off patent comparatively quickly, bigger pharma corporations have to do acquisitions, and people offers are normally within the $1 billion to $10 billion vary. Each of these factors bode very nicely for Verona, Caligan’s largest place in its portfolio.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.