UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2018

Commission File Number:  001-38067

Verona Pharma plc

(Exact Name of Registrant as Specified in Its Charter)

3 More London Riverside

London SE1 2RE UK

+44 203 283 4200

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

On March 9, 2018, Verona Pharma plc (the “Company”) distributed its Annual Report and Accounts for the year ended December 31, 2017 (the “2017 Annual Report”), Notice of Annual General Meeting (the “Notice”) and a Form of Proxy (the “Proxy”) to its shareholders.

The 2017 Annual Report, Notice and Proxy are furnished herewith as Exhibits 1, 2, and 3, respectively, to this Report on Form 6-K.

EXHIBIT INDEX

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Exhibit 1

Company Number 05375156

VERONA PHARMA PLC

ANNUAL REPORT AND ACCOUNTS

YEAR ENDED DECEMBER 31, 2017

VERONA PHARMA PLC

CONTENTS

VERONA PHARMA PLC

DIRECTORS, SECRETARY AND ADVISORS

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VERONA PHARMA PLC

HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2017

The Company’s product candidate RPL554, is a first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase 3 and 4, or PDE3 and PDE4, that acts as both a bronchodilator and an anti-inflammatory agent in a single compound. Verona Pharma is developing RPL554 for the treatment of chronic obstructive pulmonary disease (“COPD”) and cystic fibrosis (“CF”), and potentially asthma.

OPERATIONAL AND DEVELOPMENT HIGHLIGHTS

·                  Initiated four clinical studies, two of which have been successfully completed ahead of schedule:

·                  Positive top-line data from a Phase 2a clinical trial in COPD with RPL554 when dosed in addition to tiotropium (Spiriva®), compared to placebo:

·                  Demonstrated statistical significance across all primary and secondary efficacy outcome measures, as well as a clear dose response;

·                  Achieved significant and clinically meaningful additional improvement in peak lung function when added to tiotropium, a widely used drug to treat COPD;

·                  Produced a marked reduction in Functional Residual Capacity and in Residual Volume (both measures of trapped air in the lung) as compared to tiotropium alone;

·                  Achieved faster onset-of-action when added to tiotropium; and

·                  Both study doses of RPL554 were well tolerated as add-on treatments to tiotropium; adverse reactions were consistent with previous studies with RPL554 and tiotropium. No cardiovascular-related or gastrointestinal related adverse reactions were reported.

·                  Positive top-line data from U.S. pharmacokinetic (“PK”) trial demonstrated that inhalation of nebulized RPL554 provides optimal delivery of a clinical dose to the lungs of patients:

·                  IND opening study in US;

·                  Confirmed inhaled RPL554 is an appropriate form of administration for patients with chronic COPD and other respiratory disorders;

·                  Demonstrated absorption occurs primarily in the lungs following inhaled administration, consistent with inhalation being the optimal form of delivery of medications for the treatment of COPD and asthma; and

·                  Low oral bioavailability of swallowed medication and low blood levels of RPL554 after inhalation, suggest limited contribution to systemic effects by inhaled RPL554.

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·                  Ongoing 4-week, Phase 2b dose-ranging clinical trial in Europe in approximately 400 patients to investigate the efficacy, safety, and dose-response of nebulized RPL554 for the maintenance treatment of COPD;

·                  Study enrolment progressed ahead of expectations and patient enrolment now completed, as announced on February 13, 2018 (after the year end); and

·                  Top-line data now expected early in the second quarter of 2018, sooner than previous guidance of mid-2018 and original guidance of second-half of 2018.

·                  Ongoing Phase 2a clinical study to evaluate the PK and pharmacodynamic (“PD”) profile and tolerability of RPL554 in up to 10 CF patients as well as examine the effect on lung function:

·                  Top-line data expected in late first quarter of 2018, sooner than previous guidance of the first half of 2018.

·                  Initiated development of RPL554 as dry powder inhaler (“DPI”) and metered dose inhaler (“pMDI”) formulations for maintenance treatment of COPD.

·                  Strengthened the management team through the addition of Richard Hennings as Commercial Director and Dr Desiree Luthman as VP Regulatory Affairs.

·                  Entered into a global strategic services agreement with IQVIA (formerly known as QuintilesIMS), in which IQVIA agreed to serve as sole provider of core clinical trial services for Verona Pharma’s RPL554 clinical development programs.

FINANCIAL HIGHLIGHTS

·                  Successfully raised £70 million ($89.9 million) gross, through a global offering comprising an initial public offering (“IPO”) on the Nasdaq Global Market (“Nasdaq”), and a concurrent European private placement, together with a shareholder private placement;

·                  Verona Pharma American Depositary Shares (“ADSs”) now listed on Nasdaq under the symbol VRNA; each ADS represents 8 Verona ordinary shares;

·                  For the year ended December 31, 2017, reported operating loss of £29.8 million (full year 2016: £7.0 million) and reported loss after tax of £20.5 million (full year 2016: loss after tax of £5.0 million), reflecting the preparation and initiation of clinical trials and pre-clinical activities;

·                  Reported loss per share of 23.4 pence for the year ended December 31, 2017 (full year 2016: loss per share 15.0 pence);

·                  Net cash used in operating activities for the year ended December 31, 2017 of £20.7 million (full year 2016: £5.6 million); and

·                  Cash, cash equivalents and short-term investments at December 31, 2017 amounted to £80.3 million (December 31, 2016: £39.8 million).

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POST PERIOD

·                  Intention to conduct a further Phase 2 clinical trial to evaluate RPL554 when dosed in addition to LAMA/LABA therapy, compared to placebo;

·                  Planned commencement in the second half of 2018, with top-line data expected in 2019.

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VERONA PHARMA PLC

CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S JOINT STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017

OVERVIEW

We are a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapeutics for the treatment of respiratory diseases with significant unmet medical needs. Our product candidate, RPL554, is a first-in-class, inhaled, dual inhibitor of the enzymes phosphodiesterase 3 and 4, or PDE3 and PDE4, that acts as both a bronchodilator and an anti-inflammatory agent in a single compound. We are not aware of any therapy in a single compound in clinical development or approved by the U.S. Food and Drug Administration, or FDA, or the European Medicines Agency, or EMA, for the treatment of respiratory diseases that acts as both a bronchodilator and anti-inflammatory agent. We believe RPL554 has the potential to be the first novel class of bronchodilator in over 40 years. We have clinically completed twelve Phase 1 and 2 clinical trials for RPL554 with over 700 subjects enrolled; ten of these studies have been reported, one study is expected to report late in the first quarter of 2018 and one study is expected to report early in the second quarter of 2018. In our clinical trials, treatment with RPL554 has been observed to result in statistically significant improvements in lung function as compared to placebo. Statistically significant means that there is a low statistical probability, typically less than 5%, that the observed results occurred by chance alone. Our clinical trials also have shown clinically meaningful and statistically significant improvements in lung function when RPL554 is added to commonly used short- and long-acting bronchodilators as compared to either bronchodilator administered as a single agent. RPL554 also has shown anti-inflammatory effects and been well tolerated in our clinical trials, and has not been observed to result in the gastrointestinal or other side effects commonly associated with roflumilast, the only PDE4 inhibitor currently on the market for the treatment of chronic obstructive pulmonary disease, or COPD. We are developing RPL554 for the treatment of patients with COPD and for the treatment of patients with cystic fibrosis, or CF.

We believe there is an urgent and unmet medical need for new and more effective treatments for COPD to reduce the number and burden of symptoms, reduce acute periods of worsening symptoms, or exacerbations, and establish a consistent and durable response to treatment. In addition, in CF, a fatal inherited disease, we believe the bronchodilatory and anti-inflammatory effects of RPL554 may be beneficial. We believe RPL554, if approved, has the potential to become an important and novel treatment and standard of care for COPD and CF patients. We may also explore, alone or with a collaborator, the development of RPL554 to treat asthma and other respiratory diseases.

According to the World Health Organization (WHO), over one billion people suffer from chronic respiratory diseases. Among the most common of these afflictions is COPD, which is a progressive respiratory disease for which there is no cure. COPD damages the airways and the lungs and leads to shortness of breath, impacting a person’s ability to perform daily activities. Chronic inflammation plays a central role in the pathology of the disease, and is particularly prominent in the airways of COPD patients. COPD includes chronic bronchitis, which refers to the inflammation of the lung and airways that results in coughing and sputum production, and emphysema, which refers to a destruction of distal lung tissue, or air sacs. In some cases, patients with COPD experience exacerbations, which are estimated to cause approximately 1.5 million emergency department visits, 687,000 hospitalizations and 129,000 deaths per year in the United States alone. According to the WHO, COPD is expected to become the third leading cause of death globally by 2030, with 210 million people worldwide suffering from the disease. It is estimated that there are 24 million people with COPD in the United States, only half of whom have been diagnosed. Of those diagnosed with COPD in the United States, more than 2 million suffer from severe or very severe forms of the disease. Total annual medical costs relating to COPD in the United States were estimated to be $32 billion in 2010 and are projected to rise to $49 billion in 2020. Whereas the number of

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patients diagnosed with COPD in the US continues to increase annually, the growth in numbers in more developing countries, like China, is significantly higher.  The prevalence of COPD in China is estimated to be about 8% of the population aged over 40 and this percentage is expected to increase in coming years. Global sales of drugs currently indicated for COPD in major markets were approximately $15 billion in 2015 and are expected to grow to $20 billion by 2025.

COPD patients are commonly treated with bronchodilators, which seek to relieve airway constriction and make it easier to breathe, and inhaled corticosteroids, which seek to reduce lung inflammation. For patients with more severe disease who experience recurrent exacerbations, and for whom inhaled corticosteroids are not effective, an oral formulation of a PDE4 inhibitor, which is an anti-inflammatory agent, may also be used as treatment. Despite the wide availability of these therapies, many COPD patients continue to suffer exacerbations and have continued respiratory symptoms, which limit their daily activities. Furthermore, current therapies have not demonstrated an ability to change the progressive decline in lung function or reduce the mortality associated with COPD. We believe there is an urgent and unmet medical need for new and more effective treatments for COPD to reduce the number and burden of symptoms, reduce exacerbations and establish a consistent and durable treatment response.

CF is the most common fatal inherited disease in the United States and Europe. CF causes impaired lung function and is commonly associated with repeat and persistent lung infections due to the inability to clear thickened phlegm, or mucus, from the lung. This condition often results in frequent exacerbations and hospitalizations. There is no cure for CF and although current therapies are leading to longer lifespans the median age of death for CF patients is still only around 40 years. CF is considered a rare, or orphan, disease by both the FDA and the EMA. According to the Cystic Fibrosis Foundation, more than 30,000 people in the United States and more than 70,000 people worldwide are living with CF and approximately 1,000 new cases of CF are diagnosed each year. The FDA and the EMA provide incentives for sponsors to develop products for orphan diseases, and we plan to seek orphan drug designation for RPL554 from both regulators in treating CF. CF patients require lifelong treatment with multiple daily medications, frequent hospitalizations and, ultimately, lung transplants in some end-stage patients. The quality of life for CF patients is compromised as a result of spending significant time on self-care every day and frequent outpatient doctor visits and hospitalizations. CF patients take an average of seven medications daily. In the 12-month period ended June 30, 2016, global sales of drugs currently indicated for CF totaled $4.1 billion. The global market for CF drugs is expected to increase to $7.0 billion by 2020.

RPL554 is a first-in-class, inhaled, dual inhibitor of PDE3 and PDE4. Phosphodiesterases, or PDEs, are well known and validated therapeutic targets, and many PDE inhibitors, with different specificities, are currently available in the market for other indications. PDE3 is present in airways and the lung, and inhibition of this enzyme is primarily responsible for the bronchodilatory action of RPL554. PDE4 is found in inflammatory and epithelial cells, and inhibition of this enzyme contributes to RPL554’s anti-inflammatory activity. PDEs metabolize the critical signaling molecules, cyclic adenosine monophosphate, or cAMP, and cyclic guanosine monophosphate, or cGMP. By inhibiting PDE3 and PDE4, RPL554 increases the levels of cAMP and cGMP, resulting in bronchodilator and anti-inflammatory effects. RPL554 also stimulates the cystic fibrosis transmembrane conductance regulator, or CFTR, which is an ion channel in the epithelial cells lining the airways. Mutations in the CFTR protein result in poorly or non-functioning ion channels, which cause CF and are potentially important in COPD. CFTR stimulation leads to improved electrolyte balance in the lung and thinning of the mucus, which facilitates mucociliary clearance and leads to improved lung function and potentially a reduction in lung infections. Dual inhibition of PDE3 and PDE4 has been observed to be more effective than inhibition of either PDE alone

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at relaxing airway smooth muscle cells and suppressing the activation and functions of pro-inflammatory cells residing in the lung, both of which are commonly understood to play a significant role in COPD and CF.

CLINICAL DEVELOPMENT IN 2017

COPD - nebulized formulation

We are developing RPL554 in a nebulized formulation for the maintenance treatment of COPD patients. We also are developing RPL554 in a nebulized formulation as an add-on therapy to short acting bronchodilators and other commonly used therapies for the treatment of hospitalized patients with acute exacerbations of COPD.

To evaluate RPL554 in a nebulized formulation for COPD we commenced four clinical trials in 2017, with two completed during the year and two ongoing. Our completed studies included our IND-opening study in the US.

In September 2017 we reported positive data from a Phase 2a clinical trial evaluating RPL554 compared to placebo in approximately 30 patients with COPD as an add-on therapy to tiotropium, a commonly used long acting bronchodilator:

·                  RPL554 demonstrated a significant and clinically meaningful additional improvement in peak lung function when added to tiotropium, a widely used drug to treat COPD;

·                  RPL554 also achieved a faster onset-of-action when added to tiotropium vs tiotropium alone;

·                  RPL554 opened peripheral airways as measured by improvements in airway resistance and compliance, suggesting that RPL554 treatment may reduce dyspnea (shortness of breath), a major debilitating symptom of COPD; and

·                  RPL554 demonstrated statistical significance across all primary and secondary efficacy outcome measures, as well as a clear dose response at 6 mg dose compared to 1.5 mg dose.

Also in September 2017 we reported positive data from a Phase 1 single-dose pharmacokinetic, or PK, trial in 12 healthy volunteers. A PK trial involves the study of the process of bodily absorption, distribution, metabolism and excretion of a drug. Our IND-opening study, conducted in the United States, confirmed that:

·                  RPL554 absorption occurs primarily via the lungs following inhaled administration, consistent with optimal inhaled delivery of medications for the treatment of COPD and asthma; and

·                  Low oral bioavailability and blood levels following inhalation of RPL554 suggest that swallowed medication contributes little to systemic effects of RPL554.

On February 13, 2018 we provided an update on enrollment in our four-week Phase 2b dose ranging clinical trial in approximately 400 patients, for which dosing is now completed, with data now anticipated early in the second quarter of 2018, which is earlier than previous guidance of mid-2018.

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COPD - pMDI and DPI formulations

In addition to our nebulized formulation of RPL554, we are developing RPL554 in both pressurized metered dose inhaler, or pMDI, and dry powder inhaler, or DPI, formulations for the maintenance treatment of COPD. We plan to select a pMDI and a DPI formulation as part of an expansion to the RPL554 clinical development program to the treatment of patients with moderate to severe chronic obstructive pulmonary disease (COPD).  It is estimated that, in the United States, approximately 4.5 million patients with moderate to severe COPD use inhalers for maintenance therapy.

Delivery of orally inhaled drugs by pMDI or DPI is a mainstay of maintenance treatment for patients with moderate to severe COPD. Successful development of a pMDI or DPI formulation of RPL554 for moderate disease would greatly expand the addressable market for the drug and represents a multi-billion dollar potential opportunity. We believe that over 90% of patients with diagnosed COPD use inhalers, such as a pMDI or DPI, rather than a nebulizer, to administer treatment.

We plan to commence pre-clinical studies for RPL554 in these formulations in 2018, followed by the first clinical trials in healthy subjects or patients with COPD.

We may also explore the development of RPL554 in pMDI and/or DPI formulations for the treatment of asthma and other respiratory diseases.

Cystic Fibrosis

In April 2017 we announced the commencement of a Phase 2a single dose PK and pharmacodynamics, or PD, trial evaluating RPL554 in approximately ten CF patients. A PD trial involves the study of the biochemical and pharmacological effects of a drug and its mechanism of action, including the correlation of the drug’s actions and effects with its mechanism of action.

On February 13, 2018 we provided an update on enrollment in this Phase 2a PK and PD trial, with data now anticipated in late first quarter of 2018, which is earlier than previous guidance of first half of 2018.

PREVIOUS STUDIES WITH RPL554

In our clinical trials, RPL554 has shown rapid onset and durable bronchodilation in healthy subjects and patients with COPD or asthma when inhaled from a nebulizer. In addition, RPL554 has been observed to be complementary and additive when administered as an add-on therapy to other currently marketed bronchodilators. In 2017 we announced the results of a Phase 2a clinical trial of RPL554 in 30 patients with COPD. Our primary objective in this clinical trial was to evaluate the improvement in lung function, as measured by the maximal volume of air a person can forcefully exhale in one minute, FEV1, and the duration of action of RPL554. We evaluated RPL554 administered as an add-on therapy to a commonly used bronchodilator tiotropium, marketed as Spiriva. We observed clinically meaningful and statistically significant improvement in lung function, as measured by FEV1, when RPL554 was administered as an add-on therapy to a standard dose of tiotropium as compared to a standard dose of tiotropium alone. In this clinical trial, we observed the effect size, or peak improvement was 127 ml and 104 ml for 1.5mg and 6mg doses respectively over tiotropium alone. P-value is a conventional statistical method for measuring the statistical significance of clinical results. A p-value of 0.05 or less represents statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance. In addition, RPL554 administered as an add-on therapy to tiotropium resulted in a statistically significant reduction in time of onset of bronchodilation as compared to tiotropium alone. The data from this study was highly consistent with the results of a previous Phase 2a clinical trial we announced in 2016 of

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RPL554 in 36 patients with COPD. Our primary objective in that clinical trial was to evaluate the improvement in lung function, as measured by FEV1, and the duration of action of RPL554. We evaluated RPL554 administered as a single agent as compared to placebo and two commonly used bronchodilators, albuterol, also known as salbutamol and marketed as Ventolin, and ipratropium, marketed as Atrovent. We also evaluated RPL554 administered as an add-on therapy to either albuterol or ipratropium, in each case as compared to albuterol or ipratropium alone. We observed that RPL554 administered as a single agent produced statistically significant improvements in lung function, as measured by FEV1, as compared to placebo, with a p-value of less than 0.001. P-value is a conventional statistical method for measuring the statistical significance of clinical results. We also observed clinically meaningful and statistically significant improvement in lung function, as measured by FEV1, when RPL554 was administered as an add-on therapy to standard doses of albuterol and ipratropium as compared to standard doses of either bronchodilator alone. In this clinical trial, we observed the effect size, or peak improvement minus placebo improvement, was 51% higher for the add-on-therapy of RPL554 with albuterol as compared to albuterol alone, and 66% higher for the add-on-therapy of RPL554 with ipratropium as compared to ipratropium alone. In addition, RPL554 administered as an add-on therapy to either albuterol or ipratropium resulted in a statistically significant reduction in time of onset of bronchodilation as compared to albuterol or ipratropium alone.

CORPORATE

RPL554 is protected by granted and pending patents. We believe that medicinal products containing RPL554 are protected by our IP beyond 2035. We have worldwide commercialization rights for RPL554. We raised £70m in gross proceeds from investors from our April 2017 global offering comprising an initial public offering (“IPO”) on the Nasdaq Global Market (“Nasdaq”), and a concurrent European private placement, together with a shareholder private placement. Members of our management team, which we have strengthened and expanded during the year, and our board of directors have extensive experience in large pharmaceutical and biotechnology companies, particularly in respiratory product development from drug discovery through commercialization and have played important roles in the development and commercialization of several approved respiratory treatments, including Symbicort, Daliresp/Daxas, Spiriva and Flutiform.

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FINANCIALS

The operating loss for the year ended December 31, 2017 was £29.8 million (2016: £7.0 million) and the loss after tax for the year ended December 31, 2017 was £20.5 million (2016: £5.0 million).

Research and Development Costs

Research and development costs were £23.7 million for the year ended December 31, 2017 as compared to £4.5 million for the year ended December 31, 2016, an increase of £19.2 million. The increase was attributable to a £12.3 million increase in clinical trial expenses related to the initiation of four, and completion of two, Phase 2 clinical trials of RPL554.  In addition, we increased spending on contract manufacturing and other formulation work by £2.7 million and toxicology and other pre-clinical development by £1.2m.  Our salary costs increased by £0.3m and our share-based payment charge by £1.2 million as we expanded our team and initiated a new long term incentive plan to drive development of RPL 554.  Furthermore, our spend on third party consultants increased by £0.8 million and patent and other costs by £0.3 million.

General and Administrative Costs

General and administrative costs were £6.0 million for the year ended December 31, 2017 as compared to £2.5 million for the year ended December 31, 2016, an increase of £3.5 million. The increase was attributable to £0.8 million increase in our salary costs and a £1.1 million increase in our share-based payment charge as we built the team to support the activities of the Group.  There was an increase of £1.3 million of costs in preparation for and relating to the Global Offering, as well as ongoing compliance and other costs due to listing our ADSs on the Nasdaq stock market.  We also incurred costs of £0.4 million developing our commercial strategy for RPL 554.

Finance Income and Expense

Finance income was £7.0 million for the year ended December 31, 2017 and £1.8 million for the year ended December 31, 2016. The increase in finance income was primarily due to a decrease in the fair value of the warrant liability of £6.6 million caused by changes in the underlying assumptions for measuring the liability of the warrants issued in the July 2016 Placement, including the price and volatility of our ordinary shares and the unwinding of the expected life of the warrants.

Finance expense was £2.5 million for the year ended December 31, 2017 as compared to £0.8 million for the year ended December 31, 2016. The increase was primarily due to the foreign exchange loss on translation of foreign currency denominated cash and cash equivalents and short term investments.

Taxation

Taxation for the year ended December 31, 2017 amounted to a credit of £4.7 million as compared to a credit of £1.0 million for the year ended December 31, 2016, an increase in the credit amount of £3.7 million. The credits are obtained at a rate of 14.5% of 230% of our qualifying research and development expenditure, and the increase in the credit amount was primarily attributable to our increased expenditure on research and development.

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Cash Flows

The decrease in net cash used in operating activities to £20.7 million for the year ended December 31, 2017 from £5.6 million for the year ended December 31, 2016 was primarily due to an increase in loss before taxation driven by higher research and development costs.

The increase in net cash used in investing activities to £49.5 million for the year ended December 31, 2017 from £41 thousand for the year ended December 31, 2016 was due to placing funds raised in the Global Offering on term deposits with maturities of more than three months at inception.

The net cash of £63.2 million received from financing activities to for the year ended December 31, 2017 was the cash raised from the Global Offering. The £41.2 million received for the year ended December 31, 2016 was the cash received from the sale of our equity securities and warrants in connection with the July 2016 Placement.

Cash, cash equivalents and short-term investments

Net cash, cash equivalents and short-term investments at December 31, 2017 increased to £80.3 million from £39.8 million at December 31, 2016 primarily due to the global offering offset by cash spent on research and development activities.

Net assets

Net assets increased to £79.9 million at the year ended December 31, 2017 from £34.5 million at the year ended December 31, 2016. This increase was primarily due to the net cash of £63.2 million raised from the issue of shares offset by the increased expenditure from research and development costs.

OUTLOOK AND STRATEGY

We intend to become a leading biopharmaceutical company focused on the treatment of respiratory diseases with significant unmet medical needs. The key elements of our strategy to achieve this goal include:

·                  Rapidly advance the development of nebulized RPL554 for the maintenance treatment of COPD in moderate and severe patients.

·                  For the maintenance treatment of severe COPD patients we are progressing the development of RPL554 in a nebulized formulation. We are currently conducting a four-week Phase 2b dose ranging clinical trial in approximately 400 patients; data from this study is now expected early in the second quarter of 2018.

·                  Following completion of this ongoing 4-week Phase 2b clinical trial we will evaluate and possibly adjust the overall and near-term development plans for RPL554. Depending on the data from all clinical trials conducted with RPL554 to date, future interactions with regulatory authorities and our commercial assessment of different development options for RPL554 we will consider any opportunity to focus and accelerate our development plans for RPL554, including proceeding more rapidly towards Phase 3 clinical trials, particularly with nebulized RPL554 for the maintenance treatment of COPD.

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·                  For the maintenance treatment of severe COPD patients, we also plan to conduct a further Phase 2a clinical trial to evaluate RPL554 when dosed in addition to LAMA/LABA therapy, compared to placebo. We expect to commence this study late in the second half of 2018, with top-line data expected in 2019.

·                  RPL554 for nebulized administration is currently presented in a glass vial with a flip, tear-up cap. This format is adequate for clinical trials but patient acceptance in a commercial setting is expected to be improved by a switch to presenting the suspension formulation of RPL554 in plastic ampules. We will investigate the feasibility to manufacture and supply RPL554 nebulized suspension formulation in plastic ampules. In addition to patient acceptance, switching to plastic ampules may also be more cost-effective for manufacturing in larger volumes. A decision on presentation form will be made before the start of Phase 3 clinical trials; during this evaluation process we will also review and optimize the nebulized suspension formulation as part of a quality by design program.

·                  For the treatment of COPD patients who may prefer the more convenient administration of an inhaler device, we are developing RPL554 in inhaler formulations. We plan to commence pre-clinical studies for RPL554 in these formulations in 2018, followed by the first clinical trials in healthy subjects or patients with COPD.

·                  Proceeding more rapidly towards Phase 3 clinical trials with nebulized RPL554 for the maintenance treatment of COPD may require us to focus our financial and other resources on maintenance treatment of COPD with nebulized and inhaled formulations of RPL554 in the short term, which may alter our timing to commence further trials using RPL554 in other indications.

·                  Advance the development of nebulized RPL554 for the treatment of acute exacerbations of COPD. We are developing RPL554 as an add-on therapy to short acting bronchodilators and other commonly used therapies for the treatment of hospitalized patients with acute exacerbations of COPD. The timing for future studies in this indication may be dependent on any decision to move more rapidly towards Phase 3 clinical trials with nebulized RPL554 for the maintenance treatment of COPD.

·                  Develop RPL554 for the treatment of CF. The timing for future studies in this indication may be dependent on any decision to move more rapidly towards Phase 3 clinical trials with nebulized RPL554 for the maintenance treatment of COPD.

·                  Pursue development of RPL554 in other forms of respiratory disease.  We believe that RPL554’s properties as an inhaled, dual inhibitor of PDE3 and PDE4 give it broad potential applicability in the treatment of other respiratory diseases. We may explore development of RPL554 to treat other forms of respiratory disease following development of RPL554 for the treatment of COPD and CF.

·                  Pursue development of RPL554 in other forms of respiratory disease.  We believe that RPL554’s properties as an inhaled, dual inhibitor of PDE3 and PDE4 give it broad potential applicability in the treatment of other respiratory diseases. We may explore development of RPL554 to treat other forms of respiratory disease following development of RPL554 for the treatment of COPD and CF.

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·                  Seek strategic collaborative relationships.  We may seek strategic collaborations with market leading biopharmaceutical companies to develop and commercialize RPL554. We believe these collaborations could provide significant funding to advance the development of RPL554 while allowing us to benefit from the development or commercialization expertise of our collaborators.

·                  Acquire or in-license product candidates for the treatment of respiratory diseases.  We plan to leverage our respiratory disease expertise to identify and in-license or acquire additional clinical stage product candidates that we believe have the potential to become novel treatments for respiratory diseases with significant unmet medical needs.

We would like to thank the staff and Board members for all their contributions and shareholders for their continued support during a successful year.

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VERONA PHARMA PLC

STRATEGIC REPORT FOR THE YEAR ENDED DECEMBER 31, 2017

The Directors present their strategic report together with the audited consolidated financial statements, audited company financial statements and auditors’ report for the year ended December 31, 2017.

Principal activity

The Company was incorporated on February 24, 2005. On September 18, 2006 the Company successfully acquired all the shares of Rhinopharma Limited, a private company incorporated in Canada, and changed its name to Verona Pharma plc (the “Company” or the “Parent”). On December 12, 2014, the Company established a U.S subsidiary, Verona Pharma, Inc., in the state of Delaware. The Company, Rhinopharma Limited and Verona Pharma, Inc. are collectively referred to as the “Group”.

The principal activity of the Group is the development of novel, “first-in-class” drugs for the treatment of chronic respiratory diseases, such as chronic obstructive pulmonary disease (COPD), cystic fibrosis and asthma.

Review of the business strategy and future prospects

The Chairman and Chief Executive Officer’s joint statement on pages 5 to 13 describes the Group’s activities, strategy and future prospects. The Directors’ report describes the Group’s results for the year ended December 31, 2017.

Key Performance Indicators (“KPIs”)

The Company is a development stage business and does not yet generate significant revenues or other operating cash inflows. The Company therefore uses a mix of Financial and Non-financial KPIs to monitor its activities. Financial KPIs can typically be compared over a period of years; Non-financial KPIs may change from year to year depending on the development stage of the Company’s programs.

1.                                      Research and development spend during the year

Strategic objective: Investment in R&D to generate future revenue for the Group.

Key Performance Indicator: R&D expenditure of £23.7 million (2016: £4.5 million).

Definition: Costs including labor, materials and other expenditure incurred by the Group on research and development.

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2.                                      Cash and short-term investments held at year end

Strategic objective: Availability of financial resources to progress the development of the Group’s research and development activities.

Key Performance Indicator: Year end cash and short-term investments of £80.3 million (2016: £39.8 million).

Definition: Cash and cash equivalents plus term deposits with maturities over three months at date of investment.

3.                                      Demonstration of activity of RPL554 when dosed in addition to tiotropium (Spiriva®)

Strategic objective: Show that RPL554 provides a significant and clinically meaningful benefit when added to tiotropium, a widely used drug to treat COPD.

Key Performance Indicator: Improvement in FEV1 and faster time to onset.

Definition: >100 ml peak FEV1 (additional bronchodilation) on the third day of dosing, compared to placebo.

Progress during year ended December 31, 2017: RPL554 produced a statistically significant dose dependent additional improvement compared to placebo (1.5 mg, p=0.002; 6 mg, p<0.001).

4.                                      Conduct a 4-week Phase 2b dose-ranging clinical trial in Europe in approximately 400 patients

Strategic objective: to progress the development of nebulized RPL554 for the maintenance treatment of COPD through later stage clinical development.

Key Performance Indicator: Initiate study for top-line data to be reported in 2018.

Definition: Study to investigate the efficacy, safety, and dose-response of nebulized RPL554 for the maintenance treatment of COPD.

Progress during year ended December 31, 2017: announced on July 26, 2017 that first patients had been dosed. Top-line data now expected early in the second quarter of 2018, earlier than previous guidance of mid-2018.

5.                                      Conduct an initial Phase 2a clinical study in CF patients

Strategic objective: to initiate the development of RPL554 in CF patients.

Key Performance Indicator: Initiate study for top-line data to be reported in 2018.

Definition: to evaluate the PK and PD profile and tolerability of RPL554 in up to 10 CF patients as well as examine the tolerability of the compound.

Progress during year ended December 31, 2017: announced on April 4, 2017 that first patient had been dosed. Top-line data now expected late in first quarter of 2018, earlier than previous guidance of the first half of 2018.

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6.                                      Attain a dual-listing on Nasdaq

Strategic objective: to broaden the pool of potential investors in the Company.

Key Performance Indicator: Introduction of Verona Pharma ADSs to trading on Nasdaq.

Definition: to raise further funds and establish a trading facility for the Company’s American Depositary Shares (ADSs) on Nasdaq.

Progress during the year ended December 31, 2017: on April 28, 2017 the Company completed its Nasdaq IPO, together with a concurrent European private placement and a shareholder private placement, to raise approximately $89.9 million before expenses. The Company’s ADSs are now traded on Nasdaq with the symbol VRNA; each ADS represents 8 ordinary shares in the Company.

Pipeline

The following table depicts the potential indications for RPL554 and their current development status:

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Gender of Directors and employees

We recruit individuals who have the skills, experience and integrity needed to perform the roles to make Verona Pharma a successful company. We recruit without regard to sex or ethnic origin, appointing and thereafter promoting staff based upon merit.

The profile of the Group’s employees at December 31, 2017 was as follows:

A senior manager is an employee who has the responsibility for planning, directing or controlling the activities of the Group.

Environmental matters

Our operations, including our research, development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release and disposal of and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.

As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, our production and development efforts may be interrupted or delayed.

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Greenhouse Gas Emissions

We have used the Greenhouse Gas (“GHG”) Protocol Corporate Accounting and Reporting Standard (revised edition) data gathered to fulfil our requirements under the CRC Energy Efficiency scheme, and emission. Our greenhouse gas emission estimates for 2017 and 2016 have been prepared in accordance with the UK government’s Department for Environment, Food and Rural Affairs  (DEFRA) guidance document Environmental Reporting Guidelines: Including Mandatory GHG emissions reporting guidance from June 2013.

We are a company with a small number of employees. We have serviced offices and we work with our partners to outsource our operations.  As a result we do not emit greenhouse gases from our own activities, nor do we purchase electricity, heat or steam for our own use. (Scope 1 and scope 2 disclosures).

However, we are aware that our activities do have an impact on GHG emissions through the work of our partners and our activities such as business travel. (Scope 3 disclosures). We have discussed with our partners the impact of our operations on emissions but they not enough have been able to provide the information for us to provide a meaningful analysis.

Whilst we have few employees we have activities in the US and Europe and we need to fly our employees, directors and consultants to effectively manage our business and operations. We recognize that we do have control over business travel and have therefore chosen to disclose our estimated related greenhouse gas emissions. For 2017 we estimate that our business travel resulted in the emission of 350 tCO2-e (2016: 190 tCO2- e).

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Strategy, Business Model and Approach to Risk

We intend to become a leading biopharmaceutical company focused on the treatment of respiratory diseases with significant unmet medical needs. Our current focus is on RPL554, which we are developing for the treatment of patients with COPD. We believe there is an urgent and unmet medical need for new and more effective treatments for COPD to reduce the number and burden of symptoms, reduce acute periods of worsening symptoms, or exacerbations, and establish a consistent and durable treatment response. We are also developing RPL554 for the treatment of CF, a fatal inherited disease where we believe the bronchodilatory and anti-inflammatory effects of RPL554 may be beneficial. We believe RPL554, if approved, has the potential to become an important and novel treatment and standard of care for COPD and CF patients. We may also explore, alone or with a collaborator, the development of RPL554 to treat asthma and other respiratory diseases.

We are developing RPL554 in a nebulized formulation for the maintenance treatment of COPD patients as a single agent and add-on therapy and for the treatment of CF. We are also developing RPL554 in a nebulized formulation as an add-on therapy to short-acting bronchodilators and other commonly used therapies for the treatment of hospitalized patients with acute exacerbations of COPD.

In addition to our nebulized formulation of RPL554, we are developing RPL554 in both dry powder inhaler, or DPI, and metered dose inhaler, or pMDI, formulations for the maintenance treatment of COPD. We may explore the development of RPL554 in these formulations for the treatment of asthma and other respiratory diseases.

According to the World Health Organization, over one billion people suffer from chronic respiratory diseases. Among the most common of these afflictions is COPD, which is a progressive respiratory disease for which there is no cure. COPD damages the airways and the lungs and leads to shortness of breath, impacting a person’s ability to perform daily activities. In some cases, patients experience acute exacerbations, which are estimated to cause approximately 1.5 million emergency departments, 687,000 hospitalizations and 129,000 deaths per year in the United States alone. According to the World Health Organization, COPD is the third leading cause of death globally, with 210 million people worldwide suffering from the disease. Global sales of drugs currently indicated for COPD were $10.6 billion in 2016 and are expected to grow to $15.6 billion in 2019.

According to the Cystic Fibrosis Foundation, more than 30,000 people in the United States and more than 70,000 people worldwide are living with CF and approximately 1,000 new cases of CF are diagnosed each year. CF is the most common fatal inherited disease in the United States and Europe. CF causes impaired lung function and is commonly associated with repeat and persistent lung infections due to the inability to clear thickened phlegm, or mucus, from the lung. This condition often results in frequent exacerbations and hospitalizations. There is no cure for CF and the median age of death for CF patients is 37 years. CF is considered a rare, or orphan, disease by both the U.S. Food and Drug Administration and the European Medicines Agency.

Drug development is inherently risky. There is no certainty that RPL554 will progress successfully through development, obtain regulatory approval and become a marketable product. Verona Pharma’s internal development expertise and knowledge of respiratory diseases should however allow it to develop RPL554 in a manner that will substantially reduce, but which cannot eliminate, this risk in the future. All of the Group’s activities involve an ongoing assessment of risks and the Group seeks to mitigate such risks where possible. The Board has undertaken an assessment of the principal risks and uncertainties facing

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the Group, including those that would threaten its business model, future performance, solvency and liquidity. In addition, the Board has considered the longer-term viability of the Group including factors such as the prospects of the Group and its ability to continue in operation for the foreseeable future. The Board considers that the disclosures outlined in the Group’s Strategic Report and the further detailed risk factors included in Form 20-F filed with the SEC, are appropriate given the stage of development of the business. The Board considers that these disclosures provide the information necessary for shareholders to assess the Group’s future viability and potential requirements for further capital to fund its operations.

Having carried out a review of the level of risks that the Group is taking in pursuit of its strategy, the Board is satisfied that the level of retained risk is appropriate and commensurate with the financial rewards that should result from achievement of its strategy.

RISKS ASSOCIATED WITH OUR BUSINESS

In common with other pharmaceutical development companies, the Group faces a number of risks and uncertainties. Internal processes are in place to help identify, manage and mitigate these risks.

The main risks have been identified as follows:

·                  We have a limited operating history, have never generated any product revenue, have incurred significant operating losses since our inception, expect to incur significant operating losses for the foreseeable future and may never achieve or maintain profitability.

·                  We will need additional funding to complete the development and commercialization of RPL554, if approved, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

·                  We depend heavily on the success of RPL554, our only product candidate, and we cannot give any assurance that RPL554 will receive regulatory approval for any indication, which is necessary before it can be commercialized.

·                  RPL554 is in early-stage clinical development. If clinical trials of RPL554 are prolonged or delayed, or if RPL554 in later stage clinical trials fails to show the desired safety and efficacy, we or our collaborators may be unable to obtain required regulatory approvals and be unable to commercialize RPL554 on a timely basis, or at all.

·                  We may encounter regulatory issues or changes that increase our costs and delay or impede our development and commercialization efforts.

·                  Britain’s proposed withdrawal from the European Union has created significant uncertainty about the future relationship between the United Kingdom and the EU, including applicability of laws and regulations, as well as potentially negative impacts on economic conditions, trade and financial markets.

·                  We rely, and expect to continue to rely, on third parties to conduct our clinical trials and pre-clinical testing, and to manufacture our product candidates for pre-clinical and clinical testing, and those third parties may not perform satisfactorily, which could delay our product development activities.

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·                  If we are unable to adequately protect our technology, or to secure and maintain freedom to operate or issued patents protecting our product candidates, others could preclude us from commercializing our technology and products or compete against us more directly.

·                  We face significant competition from other biotechnology and pharmaceutical companies.

·                  Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel.

On behalf of the Board

Dr. Jan-Anders Karlsson

Chief Executive Officer

27 February, 2017

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VERONA PHARMA PLC

DIRECTORS’ REPORT FOR THE YEAR ENDED DECEMBER 31, 2017

The Directors present their report together with the audited financial statements for the year ended December 31, 2017.

Results and dividends

The Group results for the year are set out on page 61. There was a loss for the year after taxation amounting to £20.5 million (2016: loss of £5.0 million).  This reflects a planned increase in research and development expenditure offset by the gain recorded from the decrease in the fair value of the warrants. In view of the loss for the period, further planned expenditure on drug development and in the absence of distributable reserves the Directors cannot recommend the payment of a dividend (2016: £nil). Net cash, cash equivalents and short-term investments at December 31, 2017 increased to £80.3 million from £39.8 million at December 31, 2016 primarily due to the global offering offset by cash spent on research and development activities.

Research and Development Activities

The Chairman and Chief Executive Officer’s joint statement describes the Group’s research and development strategy and activities.

Directors

The directors of the company who were in office during the year and up to the date of signing of the financial statements were:

Executive Director

Jan-Anders Karlsson

Non-executive Directors

David Ebsworth

Ken Cunningham

Anders Ullman

Patrick Humphrey (resigned, April 15, 2017)

Rishi Gupta

Mahendra Shah

Andrew Sinclair

Vikas Sinha

To the extent permitted by the U.K. Companies Act 2006, we are empowered to indemnify our directors against any liability they incur by reason of their directorship. We have also entered into a deed of indemnity with each of our directors and executive officers and this has been in place since March 31, 2017. In addition to such indemnification, we provide our directors and executive officers with directors’ and officers’ liability insurance.

Pensions

Verona Pharma plc operates a defined contribution pension scheme open to all Executive Directors and employees.

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Political and charitable contributions

There were no political or charitable contributions made by the Company during the year ended December 31, 2017 (2016: £nil).

Future developments

The Chairman and Chief Executive Officer’s joint statement describes the Group’s activities, strategy and future prospects.

Significant shareholders

The Company has been notified, in accordance with Chapter 5 of the FCA’s Disclosure and Transparency Rules, of the interests in its ordinary shares as at December 31, 2017 of 3% shareholders and above:

Capital Structure

As at December 31, 2017, the Company has 105,017,400 5p ordinary shares, all of which rank pari passu.  All shares are admitted to trading on the AIM market of the London Stock Exchange and American Depositary Shares (“ADSs”) are traded on Nasdaq following the global offering on April 26, 2017.

As part of the July 2016 placement the Company issued 31,115,927 warrants that give the warrant holder the right to subscribe for 0.4 of an ordinary share at a per share exercise price 172p (see note 20). As at December 31, 2017, there were 31,003,155 warrants outstanding with rights over 12,401,262 ordinary shares.

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Corporate Governance

The Corporate Governance report describes the corporate governance of the Group.

Principal Risks and Uncertainties

See the Strategic Report for a discussion of risks facing the Group.

Financial risk management

We are exposed to a variety of financial risks. Our overall risk management program seeks to minimize potential adverse effects of these financial risks on our financial performance.

Credit Risk

We consider all of our material counterparties to be creditworthy. We consider the credit risk for each of our counterparties to be low and do not have a significant concentration of credit risk at any of our counterparties.

Liquidity Risk

We manage our liquidity risk by maintaining adequate cash reserves at banking facilities, and by continuously monitoring our cash forecasts, our actual cash flows and by matching the maturity profiles of financial assets and liabilities.

Market Risk

Foreign currency risk reflects the risk that the value of a financial commitment or recognized asset or liability will fluctuate due to changes in foreign currency rates. Our financial position, as expressed in pounds sterling, are exposed to movements in foreign exchange rates against the U.S. dollar and the euro. Our main trading currencies are pounds sterling, the U.S. dollar and the euro. We are exposed to foreign currency risk as a result of operating transactions and the translation of foreign bank accounts. We monitor our exposure to foreign exchange risk, sensitivity analysis and exposure is described further in note 3.1 in the financial statements. We have not entered into foreign exchange contracts to hedge against gains or losses from foreign exchange fluctuations.

Interest rate risk reflects the risk that the value of a financial instrument will fluctuate as a result of change in market interest rates on classes of financial assets and financial liabilities. We do not hold any derivative instruments to manage interest rate risk.

Auditors

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors for another year. In accordance with Section 489 of the Companies Act 2006, a resolution proposing that PricewaterhouseCoopers LLP be re-appointed as auditors of the Company and that the Directors be authorized to fix their remuneration will be proposed at the Annual General Meeting.

Annual General Meeting

A notice of Annual General Meeting of the Company will be sent out in due course, setting out time, date and location of the meeting, together with the resolutions relating to the business which the Company proposes to conduct at such meeting.

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Statement of Directors’ responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to:

·                  select suitable accounting policies and then apply them consistently;

·                  state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and IFRSs as adopted by the European Union have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements;

·                  make judgements and accounting estimates that are reasonable and prudent; and

·                  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors of the ultimate parent company are responsible for the maintenance and integrity of the of the ultimate parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group and company’s performance, business model and strategy.

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Each of the directors, whose names and functions are listed in Directors’ Report confirm that, to the best of their knowledge:

·                  the company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the company;

·                  the group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the group; and

the Directors’ Report includes a fair review of the development and performance of the business and the position of the group and company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the Directors’ Report is approved:

·                  so far as the director is aware, there is no relevant audit information of which the group and company’s auditors are unaware; and

·                  they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and company’s auditors are aware of that information.

On behalf of the Board.

Dr. Jan-Anders Karlsson

Chief Executive

February 27, 2017

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VERONA PHARMA PLC

CORPORATE GOVERNANCE FOR THE YEAR ENDED DECEMBER 31, 2017

CORPORATE GOVERNANCE REPORT

It is the Board’s belief that good corporate governance is integral to a successful business, and the company seeks to apply the highest standards of corporate governance appropriate to its size and stage of development.

Verona Pharma’s shares are listed on AIM and Nasdaq, and the company is therefore not required to follow the UK Corporate Governance Code (“the Code”). We seek to comply with the Code so far as it is practical to do so, balancing these requirements against the needs of the business and investing our cash resources in the further development of RPL554 which, if successful, has the potential to generate substantial additional value for our shareholders. It is also important that we are able to attract and retain appropriate individuals with experience of running and governing dual-listed companies. Accordingly, there may be circumstances in which our policies are not aligned with best practice in the UK.

THE BOARD OF DIRECTORS

At December 31, 2017, the Board comprised 7 non-Executive Directors, and one Executive Director.

The Board typically has six scheduled meetings per year (approximately every two months), with additional Board meetings and Board sub-committee meetings convened as circumstances and business needs dictate. The Board is responsible to the shareholders for the proper management of the Company and sets the overall direction and strategy of the Company, reviews scientific, operational and financial performance, and approves management appointments. All key operational and investment decisions are subject to Board approval.

There is a clear separation of the roles of Chief Executive Officer and non-Executive Chairman. The non-Executive Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and ensuring the non-Executive Directors are properly briefed on matters. The Chief Executive Officer has the responsibility for implementing the strategy of the Board and managing the day to day business activities of the Group.

In accordance with our Articles of Association, one third of our directors retire from office at every annual general meeting of shareholders. Retiring directors are eligible for re-election and, if no other director is elected to fill his or her position and the director is willing, shall be re-elected by default.

BIOGRAPHIES

Jan-Anders Karlsson, Ph.D. Dr. Karlsson has served as our Chief Executive Officer and on our board of directors since June 2012. From January 2005 to May 2012, Dr. Karlsson was the Chief Executive Officer of S*BIO Pte Ltd, a biotechnology company in Singapore. Previously to S*BIO, Dr. Karlsson was Executive Vice President and head of Pharma Global Research at Bayer HealthCare AG in Germany. Dr. Karlsson received an M.Sc. in pharmacy from Uppsala University and a Doctor of Medical Science (Ph.D.) in clinical experimental pharmacology from the University of Lund.

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David Ebsworth, Ph.D. Dr. Ebsworth has served as the Non-Executive Chairman of our board of directors since December 2014. From October 2009 to August 2014, Dr. Ebsworth served as Chief Executive Officer of Vifor Pharma, based in Zürich, the specialty pharma division of Galenica AG Group, a pharmaceutical wholesaler and retailer, and as a member of Galenica’s Executive Committee. In 2012, Dr. Ebsworth was also named as Chief Executive Officer of Galenica and as Chairman of Galenica’s Executive Committee, positions he held until August 2014. Dr. Ebsworth received a Ph.D. in industrial relations from the University of Surrey.

Ken Cunningham, M.D. Dr. Cunningham has served as a Non-Executive Director on our board of directors since September 2015.  Dr. Cunningham serves as the non-executive chairman of the board of directors of Abzena plc and of MedherantLtd.  Dr. Cunningham received a degree in medicine from St. Mary’s, Imperial College, London University.

Rishi Gupta. Mr. Gupta has served as a Non-Executive Director on our board of directors since July 2016.  Since 2002, Mr. Gupta has held various positions at OrbiMed Advisors LLC, a global healthcare investment firm, where he is currently a Private Equity Partner. Mr. Gupta currently is a member of the board of directors of Avitide, Inc. and Turnstone Biologics, Inc. Mr. Gupta received an A.B. in biochemical sciences from Harvard College and a J.D. from the Yale Law School.

Mahendra Shah, Ph.D. Dr. Shah has served as a Non-Executive Director on our board of directors since July 2016.  Since March 2010, Dr. Shah has served as a Managing Director of Vivo Capital, a healthcare investment firm. Dr. Shah is also the founder and Executive Chair of Semnur Pharmaceuticals, Inc., a specialty pharmaceutical company. Dr. Shah serves as a member of the board of directors of Fortis Inc., a specialty pharmaceuticals company, Crinetics Pharmaceuticals, Inc., Soleno Therapeutics, Inc., Impel Neuropharma, Inc., and several other private companies in the biopharmaceutical and biotechnology industries. Dr. Shah received his Ph.D. in industrial pharmacy from St. John’s University and a Master’s Degree in Pharmacy from L.M. College of Pharmacy in Gujarat, India

Andrew Sinclair, Ph.D. Dr. Sinclair has served as a Non-Executive Director on our board of directors since July 2016. Since 2008, Dr. Sinclair has held various positions at Abingworth LLP, a life sciences investment group, where he is currently a Partner and Portfolio Manager. Dr. Sinclair is a member of the Institute of Chartered Accountants in England and Wales and received a Ph.D. in chemistry and genetic engineering at the BBSRC Institute of Plant Science, Norwich, and a B.Sc. in microbiology from King’s College London.

Vikas Sinha. Mr. Sinha has served as a Non-Executive Director on our board of directors since September 2016. Since January 2018, Mr. Sinha has served as an Executive Partner of MPM Capital, Inc., a life sciences investment company. From 2005 to 2016, Mr. Sinha was the Chief Financial Officer of Alexion Pharmaceuticals, Inc., a biotechnology company. Mr. Sinha holds a master’s degree in business administration from the Asian Institute of Management. He is also a qualified Chartered Accountant from the Institute of Chartered Accountants of India and a Certified Public Accountant in the United States.

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Anders Ullman, M.D., Ph.D. Dr. Ullman has served as a Non-Executive Director on our board of directors since September 2015. Since 2016, he has served as Head of the COPD Centre at Sahlgrenska University Hospital, Sweden. From 2013 to 2014, Dr. Ullman was Executive Vice President and Head of Research and Development in the BioScience business unit of Baxter International Inc., a healthcare company, which became Baxalta Inc. From 2007 to 2013, Dr. Ullman was Executive Vice President, Head of Research and Development at Nycomed Pharma Private Limited, which was acquired by Takeda Pharmaceutical Company Limited. Dr. Ullman received a M.D. and a Ph.D. in clinical pharmacology from the University of Gothenburg.

Committees of our Board of Directors

Our Board has three standing committees: an Audit Committee, a Remuneration Committee and a Nomination and Governance Committee.

Audit Committee of the Board

The Audit Committee, which consists of Vikas Sinha, Dr. David Ebsworth and Dr. Andrew Sinclair assists the Board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Mr Sinha serves as Chairman of the Audit Committee. The Audit Committee consists of members of our Board who are financially literate and are also considered to be “audit committee financial experts” as defined by applicable SEC rules and have the requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. Our Board has determined that all of the members of the Audit Committee satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. The Audit Committee will be governed by a charter that complies with Nasdaq rules.

The Audit Committee’s responsibilities include:

·                  recommending the appointment of the independent auditor to the general meeting of shareholders;

·                  the appointment, compensation, retention and oversight of the independent auditor;

·                  pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;

·                  evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to our Board on at least an annual basis;

·                  reviewing and discussing with the executive officers, our Board and the independent auditor our financial statements and our financial reporting process; and

·                  considering and recommending to our Board whether the audited financial statements be approved.

The Audit Committee will meet as often as one or more members of the Committee deem necessary, but in any event will meet at least four times per year. The Audit Committee will meet at least once per year with our independent auditor, without our executive officers being present.

PricewaterhouseCoopers LLP (PwC) has been the Group’s auditor since 2016. PwC operate procedures to safeguard against the possibility of their objectivity and independence being compromised. This includes the use of quality review partners, consultation with internal compliance teams and the carrying out of an annual independence procedure within their firm. PwC report to the Audit Committee on matters including independence and non-audit fees on an annual basis. The audit partner changes every five

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years. The amount charged by the external auditors for the provision of services during the twelve month period under review is set out in note 7 to the Financial Statements.

Remuneration Committee of the Board

The Remuneration Committee, which consists of Dr. Ken Cunningham, Dr. David Ebsworth and Rishi Gupta, assists the Board in determining directors’ and senior executives’ compensation. Dr Cunningham serves as Chairman of the Committee.

The Remuneration Committee’s responsibilities include:

·                  identifying, reviewing and proposing policies relevant to the compensation of the Company’s directors and executive officers;

·                  evaluating each executive officer’s performance in light of such policies and reporting to the Board;

·                  analyzing the possible outcomes of the variable remuneration components and how they may affect the remuneration of the executive officers;

·                  recommending any equity long-term incentive component of each executive officer’s compensation in line with the remuneration policy and reviewing our executive officer compensation and benefits policies generally;

·                  appointing and setting the terms of reference for any remuneration consultants who advise the Committee and obtain benchmarking data with respect to the directors’ and executive officers’ compensation; and

·                  reviewing and assessing risks arising from our compensation policies and practices.

The Directors’ Remuneration Report is presented on pages 34 to 53.

Nomination and Governance Committee of the Board

The Nomination and Governance Committee, which consists of Dr. David Ebsworth, Dr. Mahendra Shah and Dr. Anders Ullman, assists our Board in identifying individuals qualified to become executive and non-executive directors of our Company consistent with criteria established by our Board and in developing our corporate governance principles. Dr Ebsworth serves as Chairman of the Committee.

The Nomination and Governance Committee’s responsibilities include:

·                  reviewing and evaluating the structure, size and composition of our Board and making recommendations with regard to any adjustments considered necessary;

·                  drawing up selection criteria and appointment procedures for Board members;

·                  identifying and nominating, for the approval of our Board, candidates to fill vacancies on the Board and its corresponding committees;

·                  keeping under review the leadership needs of the Company, both executive and non-executive, and planning the orderly succession of such appointments; and

·                  assessing the functioning of our Board and individual members and reporting the results of such assessment to the Board.

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Attendance at Board and committee Meetings

The Directors attended the following Board and committee meetings during the year:

Risk Management and Internal Control

The Board is responsible for the systems of internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. The Board reviews the effectiveness of these systems annually by considering the risks potentially affecting the Group.

In addition to consideration of financial risk as part of the review of broader internal control, this is the first year that the Group is required to assess and report on the effectiveness of the internal controls over financial reporting under Section 404(a) of the Sarbanes-Oxley Act. As the Group currently qualifies as an ‘emerging growth company’, as defined in the Jumpstart Our Business Start-Ups Act of 2012, Verona Pharma is currently exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. The Group will lose this exemption at the earlier of when it fails to qualify as an emerging growth company or the financial year ended December 31, 2022.

The Group does not consider it necessary to have an internal audit function due to the small size of the administrative function. This need is evaluated on an annual basis. There is a detailed monthly review and authorization of transactions by the Chief Financial Officer and Chief Executive Officer.

A comprehensive budgeting process is completed once a year, shortly prior to the start of each new financial year, which is reviewed and approved by the Board; a further reforecasting exercise is prepared mid-year, which is also reviewed and approved by the Board. Detailed management accounts are produced on a monthly basis, with all significant variances investigated promptly. The management accounts are reviewed and commented on by the Board at the meetings every two months and are reviewed on a monthly basis by the management team and budget holders.

The Group maintains appropriate insurance cover, including in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on an annual basis.

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Corporate Social Responsibility

The Board of Verona Pharma recognizes the importance of sound corporate governance and strives, where practicable for a company of its size and nature, to comply with the standards of good practice prescribed by the UK Corporate Governance Code (2016) in its four specified areas:

·                  Board leadership and effectiveness

·                  Directors’ remuneration

·                  Accountability with respect to financial practices

·                  Relations with shareholders

Whistle-blowing

The company has formal arrangements in place to facilitate ‘whistle-blowing’ by employees through a contract with a third party service provider. If a complaint is made to this third party, the content is sent anonymously by email to the Company’s Compliance Officer, so that appropriate action can be taken.

Employment

The company endeavors to appoint employees with appropriate skills, knowledge and experience for the roles they undertake and thereafter to develop, incentivize and retain staff. The Board recognizes its legal responsibility to ensure the well-being, safety and welfare of the company’s employees and maintain a safe and healthy working environment for them and our visitors. If an employee has a concern about unsafe conditions or tasks, they are encouraged to report their concerns immediately to their manager or the Company’s legal counsel.

Diversity Policy

The company is fully committed to the elimination of unlawful and unfair discrimination and values the differences that a diverse workforce brings to the organization. The company endeavors to not discriminate because of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race (which includes color, nationality and ethnic or national origins), religion or belief, sex or sexual orientation. The company will undertake an annual review of its policies and procedures to establish its position with regard to compliance and best practice, including administering a questionnaire to all employees to establish employees’ perception of diversity.

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Relations with shareholders

The Board values good relations with the Company’s shareholders and understands the importance of effectively communicating the Company’s operational and financial performance as well as its future strategy.  The Company’s website provides financial information as well as historical news releases and matters relating to corporate governance.

The Chairman of the Board and the CEO maintain ongoing dialogue with shareholders and communicate their views to the Board.  The Board recognizes it is accountable to shareholders and ensures that their views are taken into account in agreeing the Company’s strategy and other operational matters.

Annual and interim results are communicated by regulatory news services as are ad hoc operational and regulatory releases.  Shareholders may also attend the Annual General Meeting where they can discuss matters with the board.

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VERONA PHARMA PLC

DIRECTORS’ REMUNERATION REPORT FOR THE YEAR ENDED DECEMBER 31, 2017

Letter from the Chair of the Remuneration Committee

Dear Shareholders,

On behalf of the Remuneration Committee, I am pleased to present our Directors’ Remuneration Report for the year ended December 31, 2017, which will be subject to an advisory vote, and our Remuneration Policy which will be subject to a binding vote under resolutions to be proposed at the 2018 Annual General Meeting. The outcome of these votes will also be considered carefully by the Remuneration Committee in the formulation and approval of the Company’s future Remuneration Policy.

Remuneration Policy

This is the first year that the Company has been required to put the Remuneration Policy (“Policy”) to shareholders for approval. The Policy is set out in full within the Directors’ Remuneration Report and will be proposed as a resolution at the next Annual General Meeting of the Company, a notice of which will be sent out in due course setting out the time, date and location of the meeting, together with resolutions relating to the business which the Company proposes to conduct at such meeting.

Key decisions and activities in the year ended December 31, 2017

Since January 1, 2017 the Committee has undertaken the following key decisions and activities:

·                  Conducted a thorough benchmarking exercise of the remuneration structure and overall compensation of the Company’s Executive Director and other senior management using a comparator group of listed life science companies, a number of which are at a similar stage of clinical development and with a similar market capitalization or net assets. This exercise led to a recommendation, which was accepted by the Board, to increase the Executive Director’s annual base salary from £250,000 to £290,000 in recognition of the significant increase in the responsibilities and complexity of the role as a dual-listed company;

·                  Adopted a new incentive award plan, the 2017 Incentive Plan, under which we may grant cash and equity-based incentive awards to eligible employees in order to attract, incentivise and retain the skilled individuals we need to operate our business;

·                  Awarded under the 2017 Incentive Plan share options to all employees and Restricted Stock Units (“RSUs”) to the Company’s Executive Director and other members of the senior management team;

·                  Reviewed the remuneration of the Chairman and non-Executive Directors using the comparator group of life science companies referred to above, taking into account the additional work load and responsibilities of certain non-Executive Directors who chair the Company’s Board Committees. This review led to a recommendation to the Board, which was accepted, to terminate the previous arrangements for the incremental payment to the Chairman for additional services (amounting to a payment in 2016 of £44,000) and to correspondingly increase the Chairman’s annual fee from £80,000 to £108,000. In addition, the Chair of the Audit Committee received a fee of £12,000 per annum and the Chair of the Remuneration Committee received a fee of £10,000, in each case in addition to their annual Director’s fee;

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·                  Assessed the Company’s performance against the corporate objectives set for the 2016 financial year and recommended to the Board the level of bonuses to be paid to the Executive Director and other senior management in respect of the financial year ended December 31, 2016, to be included within the 2016 annual report and accounts. This recommendation was accepted by the Board;

·                  Recommended to the Board the annual bonus objectives for the financial year ended December 31, 2017 for the Executive Director. Performance against these objectives has been assessed by the Remuneration Committee following completion of the financial year ended December 31, 2017 and the Committee has recommended to the Board the level of bonuses to be paid to the Executive Director and members of the senior management team in respect of the financial year ended December 31, 2017. The Board has accepted this recommendation and such amounts have been included within these 2017 annual report and accounts; and

·                  Recommended to the Board the annual bonus objectives for the financial year ended December 31, 2018 for the Executive Director. Performance against these objectives will be assessed by the Remuneration Committee following completion of the financial year ended December 31, 2018.

The Company has made significant progress during 2017 in the clinical development of RPL554, with the initiation of four clinical trials during 2017, two of which have already reported encouraging positive top-line data earlier than expected, and in strengthening the financial position of the Company through a global offering comprising an initial public offering (“IPO”) on the Nasdaq Global Market (“Nasdaq”) and a concurrent European private placement, together with a shareholder private placement to raise £70 million ($89.9 million) gross.

With the IPO on Nasdaq and a growing workforce, the Company has undertaken an extensive review of its remuneration policies and procedures. Furthermore, to support the clinical development and commercialization of RPL554, the Company has expanded its competencies by hiring two additional members to the senior management team, Desiree Luthman as vice-president, regulatory affairs, and Richard Hennings as commercial director.

I hope that you remain supportive of our remuneration approach and will vote in favor of both resolutions.

Yours faithfully,

Dr Ken Cunningham

Chair of the Remuneration Committee

February 27, 2018

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Annual Report on Remuneration

The information in this part of the Directors’ Remuneration Report (‘DRR’) is subject to audit.

Single total figure of remuneration of each Director

The Directors received the following remuneration for the years ended December 31, 2017 and December 31, 2016:

(1) Resigned April 15, 2017.

(2) Resigned January 7, 2016.

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(i) Share based payments represent the intrinsic value of share options that vested during the years ended December 31, 2016 and December 31, 2017 and the intrinsic value of RSUs granted in the year ended December 31, 2017.  The intrinsic value is the difference between the share price on the date of vesting and the exercise price of the option or, in the case of RSUs, the share price on the day of issue. The face value of the awards is defined as the market value of the shares on the date of grant.  This was £1.33 per share, meaning the total face value of the options and RSUs issued in 2017 was £2,303,551.  However, the options were issued with an exercise price of £1.32, the price of shares issues in the Global Offering.  As a result the fair value of the awards differs from the face value.  The fair value of the options and RSUs issued in the 2017 was £1,733,039.

(ii) Other benefits represent healthcare benefits.

Annual performance bonus

The Company has a discretionary bonus scheme for all employees and the Executive Director. Bonus payments are a percentage of base salary based on performance measured against target objectives and, dependent upon the position of the employee within the Company, also against stretch objectives. For the Executive Director’s bonus during the 2017 performance period, the total of the target bonus objectives was 66% and the total of the stretch bonus objectives was an additional 66% of base salary, giving a maximum bonus potential of 132% of base salary.  Considering the actual performance achieved and the associated bonus weighting of each objective, the Remuneration Committee considered it appropriate to make a bonus award to the Executive Director equivalent to 87.6% of base salary. The annual bonus award will be payable in cash in February 2018.

Specific details of the actual performance objectives are considered commercially sensitive and therefore are not disclosed in detail. However, the objectives used to measure the Executive Director’s performance included the following:

·                  financial goals, including completion of the Company’s Nasdaq IPO;

·                  pre-clinical and clinical development activities relating to RPL554; and

·                  commercial-related objectives.

Long term incentive awards during the financial year

Executive Directors may be granted long term incentive awards at the discretion of the Remuneration Committee. During the 2017 performance period, following adoption of the 2017 Incentive Plan, the Executive Director was awarded options to subscribe for the Company’s ordinary shares split into two different types of awards:

·                  options to subscribe for ordinary shares (“Options”), whereby each option has an exercise price equivalent to the closing market ordinary share price on the day prior to grant; and

·                  restricted share units (“RSUs”), whereby each unit represents a right to receive one ordinary share per RSU, or an amount in cash or other consideration.

In accordance with the Remuneration Policy, the vesting of awards was set by the Remuneration Committee with the objective of aligning long-term employee interests with those of shareholders and providing a competitive remuneration structure that attracts, incentivizes and retains all employees in the key markets in which the Company operates. To provide a consistent remuneration structure across these

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markets and a structure that is competitive in the US in which the Company competes for candidates, during the 2017 performance period, awards granted to the Executive Director and senior management vest 50% in three substantially equal annual installments following the grant date and 50% in four substantially equal annual installments following the grant date.

In general, the awards are subject to a service condition and may be exercised at any time between the vesting date and the tenth anniversary of the date of grant. Awards which do not vest at the end of the vesting period will lapse permanently.

During the 2017 performance period, in order to provide a competitive remuneration package consistent with US market practice, Options were granted to one US-based non-Executive Director.  These Options vest in three substantially equal annual installments following the grant date.  None of the other existing non-Executive Directors hold or have been granted Options.

Payments to past Directors

There were no payments to past Directors made during the financial year ending December 31, 2017.

Payments for Loss of Office

There were no payments made to Directors for Loss of Office during the financial year ending December 31, 2017.

Statement of Directors’ Shareholding and Share Interests

The CEO is required to build and retain a significant holding in the Company. Under his employment agreement, as amended, Dr. Karlsson is required to invest an amount equal to £130,000 in the Company through the purchase of the Company’s ordinary shares. Currently Dr. Karlsson holds 89,150 shares, as disclosed in the table below, representing an investment of £124,500. Subject to permitted trading periods under the Company’s Share Dealing Policy, it is Dr. Karlsson’s intention to further increase his investment in the Company.

The table below details the total number of shares owned (including their beneficial interests), the total number of share options held, the number of share options vested but not yet exercised and the total number of restricted share units (“RSUs”) held as at December 31, 2017:

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The interests of the Directors in the Company’s share options and RSUs is as follows:

All options are subject to service rather than performance conditions.

(i)                                     The options vested in 3 tranches, the first third of options vested on June 1, 2013, the second third on June 1, 2014 and the final third on June 1 2015.

(ii)                                  The options vested in 3 tranches, the first third of options vested on July 29, 2014, the second third on July 29, 2015 and the final third on July 29, 2016.

(iii)                               The options vested in 3 tranches, the first third of options vested on May 15, 2015, the second third on May 15, 2016, and the final third on May 15, 2017.

(iv)                              Half of these options vested on January 29, 2017 and the final half will vest on January 29, 2018.

(v)                                 These options will vest in two tranches with one half vesting on February 9, 2018 and the other half vesting on February 9, 2019.

(vi)                              These options will vest in two tranches with one half vesting on August 3, 2018 and the other half vesting on August 3, 2019.

(vii)                           These options will vest 50% in three tranches and 50% in four tranches. For the options vesting in three tranches, one third will vest on April 26, 2018, one third will vest on April 26, 2019 and the final third will vest on April 26, 2020. For the options vesting in four tranches, one quarter will vest on April 26, 2018, one quarter will vest on April 26, 2019, one quarter will vest on April 26, 2020 and the final quarter will vest on April 26, 2021.

(viii)                        These options will vest in three tranches; one third will vest on April 26, 2018, one third will vest on April 26, 2019 and the final third will vest on April 26, 2020.

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Directors’ interests

The beneficial and non-beneficial interests in the Company’s shares of the Directors and their families as at December 31, 2017 were as follows:

Interests are shown after taking into account the 50-for-1 share consolidation approved by shareholders on February 8, 2017.

Total Shareholder Return

The graph below shows the Company’s performance, measured by total shareholder return, for UK ordinary shares listed on AIM against the AIM All Share Index (AIM: VRP). The AIM All Share Index has been selected for this comparison because Verona Pharma has been trading on this exchange for over five years and is considered to be the most suitable comparator index.

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CHIEF EXECTUTIVE OFFICER TOTAL REMUNERATION HISTORY

As this is the first year that Verona Pharma has prepared a Directors Remuneration Report, the exemption not to disclose 5 years of history of remuneration has been taken.

PERCENTAGE CHANGE OF CHIEF EXECTUTIVE OFFICER TOTAL REMUNERATION

The table below shows the percentage change in remuneration of the Chief Executive Officer and the Group’s employees as a whole as set out below between the year ended December 31, 2016 and the year ended December 31, 2017:

(1)Other employees did not receive taxable benefits in 2016 so a comparison is not possible.

Relative importance of spend on pay

The Committee considers the company’s research and development expenditure relative to salary expenditure for all employees, to be the most appropriate metric for assessing overall spend on pay due to the nature and stage of the company’s business. Dividend distribution and share buy-back comparators have not been included as the company has no history of such transactions. The graph below illustrates the gross pay to all employees per year as compared to research and development expenditure and illustrates the year-on-year change.

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Structure and Role of Remuneration Committee and Approach to Remuneration Matters

The Remuneration Committee is comprised of Dr. Ken Cunningham, who chairs the Committee, Dr. David Ebsworth and Mr. Rishi Gupta. The constitution of the Committee is in compliance with the provisions of the UK Corporate Governance Code (the “Code”), and the members of the Committee are Independent Directors as defined in Rule 10A-3 under the US Securities Exchange Act.

The Committee’s approach to remuneration matters is to enable the Company to attract and retain talent, incentivize long-term value generation and effectively manage the Company’s cash resources. It is the belief of the Committee that this is best achieved through a greater emphasis on variable rather than fixed remuneration, comprised of a mix of base salary and benefits, along with the flexibility to appropriately reward and incentivize with variable pay and longer term incentives, as described within the Remuneration Policy.

As an AIM listed company, we are not required to comply with the Code. Notwithstanding, when applying the Policy to Executive Directors, the Committee gives consideration to the provisions and principles of the Code.  Operation of the Policy will largely be compliant with the remuneration elements of the Code, but we are aware that in certain instances we will differ from the Code. These instances reflect differences in US market practice when compared to the UK, and the need to balance our governance obligations against the importance of offering competitive remuneration packages in the markets in which we compete and operate.

The terms of reference of the Committee can be found on our website at www.veronapharma.com.

External advice

During the year, the Company engaged Mercer (US) Inc. to support management and the Committee with advice on remuneration matters, in particular peer-group benchmarking of Director and senior management remuneration and implementation of the 2017 Incentive Plan that was approved at the Annual General Meeting of shareholders in April 2017. The Company also engaged Aon Consulting Ltd to support management in the valuation of option awards granted under the 2017 Incentive Plan. The Committee is satisfied that Mercer (US) Inc. and Aon Consulting Ltd provide independent and objective advice.  During 2017 fees of £60,000 were paid to Mercer (US) Inc. and  fees of £5,000 were paid to Aon Consulting Ltd.

Proposed Application of the Remuneration Policy for the Year Ended December 31, 2018

i) Fixed elements of remuneration

In accordance with the Remuneration Policy, the Remuneration Committee has considered the Executive Director’s base salary in the context of a number of factors, including the annual market benchmarking exercise carried out by Mercer, changes in responsibilities or a significant increase in the scale or complexity of the role since the last review and broader employee increases.

With effect from 1 January 2018, the base salary of the Executive Director is £300,000, which is approximately 25% below the benchmarked peer group median of CEO base salaries.

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ii) Variable elements of remuneration

Short-term incentives

In February 2018, the Board, accepting the recommendation of the Remuneration Committee, established performance objectives for the Executive Director against which the Committee will determine the annual bonus payable for the 2018 performance period. For the 2018 performance period, the target bonus will be 66% of base salary and the stretch bonus will be an additional 66% of base salary, giving a maximum bonus potential of 132% of base salary. The detail behind these objectives is currently considered to be commercially sensitive as they relate to the strategy that the company intends to take with respect to the advancement of the RPL554 clinical development program and the Company’s financial and commercial goals. To the extent that the objectives do not comprise commercially sensitive information, the Company expects to disclose both the objectives and performance against those objectives in next year’s Directors’ Remuneration Report.

Long-term incentive awards

The Company anticipates that long term incentives for 2018 will be awarded at the earliest practicable opportunity. The Company has historically awarded share options to all employees in order to align long-term employee interests with those of shareholders. Details of the awards to the Executive Director will be disclosed in the necessary Regulatory Information Service announcement, and in the Annual Report on Remuneration for the year ended December 31, 2018.

iii) Chairman and Non-Executive Director fees

Chairman fees

The Chairman is paid a flat fee to include attendance at meetings, committee memberships, and all other related activities. The current chairman fee was reviewed in 2017 as part of the benchmarking exercise undertaken by Mercer having regard to the peer group of life sciences companies referred to above.

Non-Executive Director cash fees

Non-Executive Directors are paid a basic fee. In addition to the basic fee, committee fees may be paid for chairmanship or membership of a Board committee. Non-Executive Director fees were reviewed in 2017 as part of the benchmarking exercise undertaken by Mercer having regard to the peer group of life sciences companies referred to above.

The table below shows the annual fees currently payable to our Chairman and non-Executive Directors.  These fees will be maintained at the same level for the 2018 performance period. In addition, there will be no equity awards to the Chairman or non-Executive directors.

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The Remuneration Policy provides that Executive Directors may have contracts with an indefinite term provided the contracts have a notice period which does not exceed 12 months.

Dr. Ken Cunningham, Dr. Anders Ullman and Mr. Vikas Sinha have letters of appointment which are subject to a three-month notice period. Dr. Mahendra Shah, Dr. Andrew Sinclair and Mr. Rishi Gupta have been designated as non-Executive Directors of our Board under relationship agreements we entered into in June 2016 with entities affiliated with each of Vivo Capital, Abingworth and OrbiMed, respectively.  The appointment rights under these relationship agreements will automatically terminate upon the respective entity ceasing to beneficially hold 6.5% of our issued ordinary shares, or our ordinary shares ceasing to be admitted to AIM.

The non-Executive Directors’ remuneration is reviewed by the Board annually. In accordance with the Company’s Articles of Association, one third of Directors are subject to retirement by rotation at each AGM. Dr. David Ebsworth and Dr. Anders Ullman will be retiring by rotation at the next AGM and, being eligible, will seek re-election.  Pursuant to our Articles of Association, if no other director is elected to fill their respective positions and the directors are willing, they shall be re-elected by default.

Details of Directors’ service contracts or letters of appointment are as follows:

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The information in this part of the Directors’ Remuneration Report is not subject to audit.

Directors’ Remuneration Policy

The Policy will be subject to a binding Shareholder vote at the 2018 AGM and, if approved, would be expected to remain in force until the AGM in 2021 with no requirement to vote again on the Policy in the intervening years provided that no changes are proposed.

Remuneration philosophy

The aim of the Policy is to enable the Group to offer remuneration packages that are designed to promote the long-term success of the Group by:

·                  being sufficiently competitive to enable the Group to attract, incentivize and retain the Executive Directors and management it needs to operate its business;

·                  supporting and rewarding the delivery of the Group’s strategy and corporate objectives and ultimately creating value for shareholders;

·                  aligning Executive Directors and management with the long-term interests of shareholders and helping to retain them by delivering a significant element of remuneration in shares;

·                  effectively managing the Group’s cash resources; and

·                  being flexible enough to cope with the Group’s changing needs as it grows and the strategy evolves.

Currently the Group has only one Executive Director, but the Policy will apply equally to any additional Executive Directors who may be appointed in future.

The Committee annually reviews the operation of the remuneration packages to ensure they are operating within an acceptable risk profile and that they do not inadvertently encourage any economic, social or governance issues.

Remuneration Policy

Remuneration Policy for Executive Directors

The total remuneration for the Executive Director is made up of the following elements:

·                  Salary;

·                  Benefits;

·                  Annual bonus;

·                  Long-term incentive awards; and

·                  Pension.

The Company adopted the 2017 Incentive Plan on completion of the Nasdaq IPO in April 2017, and since January 1, 2017 the Company has only granted equity incentives under the 2017 Incentive Plan.

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In respect of any annual bonus paid, the Executive Director is required to invest a proportion of his after-tax bonus in purchasing shares in the Company and is required to build and retain an investment equivalent to at least 100% of his starting base salary.

The Committee operates the annual bonus and 2017 Incentive Plan, in accordance with their rules, and where relevant, the AIM and SEC Rules. To maintain an efficient administrative process, the Committee retains the following discretion relating to remuneration:

a. the eligibility to participate in the plans;

b. the timing of grant of awards and any payments;

c. the size of awards and payments (subject to the maximum limits set out in the Policy table above and the respective plan rules);

d. the determination of whether any performance conditions have been met;

e. determining a good or bad leaver under the terms of the plans;

g. adjustments required in certain capital events such as rights issues, corporate restructuring, events and special dividends; and

h. the annual review of performance objectives for the annual bonus plan and, if applicable, the 2017 Incentive Plan.

In certain exceptional circumstances, such as a material acquisition/divestment of a Group business or a change in the broader business environment, which mean the original performance conditions are no longer appropriate, the Committee may adjust the objectives, alter weightings or set different measures as necessary, to ensure the conditions achieve their original purpose and are not materially less difficult to satisfy.

Historical equity incentive awards

Awards which were granted prior to January 1, 2017 are disclosed separately in this Remuneration Report. These awards remain eligible to vest, based on their original terms which are described separately in the Directors’ Report on Remuneration.

Annual bonus

The annual bonus is designed to drive the achievement of the Company’s strategic and corporate objectives. These targets are agreed by the Board and selected because of their importance in value creation for shareholders. Objectives are weighted for Executive Directors in proportion to the degree of importance of that objective for the Company. The weightings are agreed by the Remuneration Committee.

Remuneration on recruitment

The remuneration package for any new Executive Director will be determined by the Remuneration Committee in accordance with the terms of the Policy at the time of appointment (including salary, benefits, annual bonus, long-term incentive awards and pension). It is recognised that in order to attract and recruit talented individuals the Policy needs to allow sufficient flexibility with respect to remuneration

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on recruitment. The following policies apply to the remuneration on recruitment of new Executive Directors:

Salary: Base salary will be determined based on the responsibilities of the role, experience of the individual and current market rates. It may be considered necessary to appoint a new Executive Director on or below market rates (e.g. to reflect limited board experience). In such circumstances, phased increases above those of the wider workforce may be required over an appropriate time period, to bring the salary to the desired market level, subject to the continued development in the role.

Annual bonus: The ongoing annual bonus maximum will be in line with that outlined in the Policy table for existing Executive Directors, pro-rated to reflect the period of service. Depending on the timing or nature of an appointment it may be necessary to set different initial performance measures and targets for the first year of appointment.

Long-term incentive awards: 2017 Incentive Plan awards are granted in line with the policy outlined for existing Executive Directors. An award may be made shortly following an appointment (provided the Company is not in a closed period under its Share Dealing Policy). For internal appointments, existing awards will continue on their original terms.

Benefits: Benefits provided should be in line with those of existing Executive Directors. For external and internal appointments, where required to meet business needs, reasonable relocation support will be provided. In addition, if it becomes necessary to appoint a new Executive Director from outside the UK, additional benefits may be provided to reflect local market norms or legislation.

Pension: A company contribution or cash supplement up to the maximum as outlined for existing Executive Directors.

Sign-on payments and buy-out awards: To enable the recruitment of exceptional talent, the Committee may offer additional cash and/or share-based remuneration to take account of and compensate for remuneration that the Director is required to relinquish when leaving a former employer. The Committee will seek to structure any such replacement awards to be no more generous overall in terms of quantum or vesting than the award to be forfeited from the previous employer and will take into account the timing, form and performance requirements of the awards forgone. Where appropriate, any long-term incentive awards will be granted under the 2017 Incentive Plan, however, the Remuneration Committee will have discretion to make use of the flexibility to make awards under any relevant exemptions in the AIM and SEC Rules.

For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role will be allowed to pay out according to its terms. In addition, any other contractual remuneration obligations existing prior to appointment may continue.

The fees for any new Chairman and non-Executive Director appointments will be set in accordance with the prevailing policy and at a level that is consistent with those of the existing Chairman and non-Executive Directors.

Policy for payments on loss of office

The company does not have a policy of fixed term employment contracts, however, all Directors put themselves forward for re-election at the Annual General Meeting. The notice period for the existing

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Executive Director’s employment contract is twelve months and three months for the existing Chairman’s and non-Executive Directors’ letters of appointment from either party.

The Committee’s approach to payments in the event that an Executive Director’s employment is terminated is to take account of the individual circumstances including the reason for termination, individual performance, contractual obligations and the terms of the equity incentive plans in which the Executive Director participates.

Termination by notice from the Company: up to 12 months’ notice, with the discretion for the Remuneration Committee to make a payment in lieu of notice for base salary, pro-rated maximum bonus, pension and other benefits that would otherwise have been paid during the notice period.

Annual bonus: There is no automatic contractual entitlement to bonus on termination, although this may be considered in the discretion of the Remuneration Committee.

Long-term incentives: whether any long-term incentive awards would vest and be exercisable upon loss of office would be subject to the relevant plan rules under which such award was granted, which allow vesting and exercise of awards in the event of death, retirement, ill-health, injury, redundancy and any other reason at the discretion of the Remuneration Committee. The Committee retains discretion to determine the extent to which the award will vest, taking into consideration the circumstances. Unvested awards normally lapse, although the Committee retains the power to determine, in accordance with the “good leaver” provisions of the relevant plan rules, what proportion of unvested awards will be retained and what proportion will lapse. In determining this, the Committee will give consideration to the reason for leaving, the extent of achievement of performance objectives at the date of leaving and may decide to time pro-rate awards. On a change of control, all unvested awards vest on the date of change of control.

Additional payments: The Committee reserves the right to make payments it considers reasonable under a compromise or settlement agreement, including payment or reimbursement of reasonable legal and professional fees, untaken holiday and any payment in respect of statutory rights under employment law in the UK or other jurisdictions. Payment or reimbursement of reasonable outplacement fees may also be provided.

Remuneration Policy for Non-Executive Directors

The Remuneration Committee is responsible for evaluating and making recommendations to the Board on fees payable to the Chairman. The Chairman does not participate in discussions in respect of fees. The Chairman and Chief Executive Officer are responsible for evaluating and making recommendations to the Board on the fees payable to the Company’s non-Executive Directors.

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