Caligan takes a stake in Verona Pharma, sees alternative to generate extra worth

Enterprise: Verona Pharma, a scientific stage biopharmaceutical firm, focuses on growth and commercialization of therapies for the therapy 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 therapy of continual obstructive pulmonary illness, bronchial asthma and cystic fibrosis. The corporate is growing 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 Price: n/a

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

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 therapy 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 lately accredited by the FDA for upkeep therapy of continual obstructive pulmonary illness (COPD) on June 26. Again in Might 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 primarily money worth. With the industrial 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, generally known as “smoker’s lung,” is the third main explanation for loss of life worldwide that impacts over 380 million sufferers globally. Not solely is that this a humanitarian disaster, however a problem for our health-care programs. 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 the moment, there are over 8.6 million U.S. COPD sufferers with over 4 million remaining symptomatic regardless of therapy from the present industrial therapies.

There may be nonetheless an enormous hole on this market, and Verona is at the moment on the trajectory of filling it with robust Section III knowledge exhibiting a big enhance in lung perform 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 might 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 growth 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 might be an enormous avenue for growth for Ohtuvayre if it have been to get accredited as an NCFB therapy. The one different potential participant within the NCFB market is biopharma peer Insmed’s drug brensocatib. The drug had mediocre success, exhibiting a 21% fee 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 will possibly 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 firms are typically achieved at 3-times to 4-times peak income, which might give Verona a value of $115 per share. If Ohtuvayre continues to maneuver by trials for NCFB and will get traction with sufferers, like Insmed, Caligan thinks that Verona Pharma might be price 7-times its valuation, or $218 per share.

Caligan solely invests within the health-care sector and has seen plenty 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 autumn 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 discovered from that have that if a drug can enhance the usual of take care of sufferers, it will likely be helpful. In an business with $140 billion coming off patent comparatively quickly, bigger pharma firms have to do acquisitions, and people offers are often 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.