Buckley Capital: Verona Pharma ($VRNA) Investment Case
Introduction In their Q1 2025 investor letter, Buckley Capital highlights their investment in Verona Pharma (VRNA) as part of their healthcare portfolio strategy. The firm presents VRNA as a successful special situation investment that has grown to become a 5%+ position due to strong performance. Buckley Capital emphasizes their approach to healthcare investments, focusing on de-risked assets that don’t require scientific analysis at a molecular level but rather an assessment of market opportunity, commercialization potential, and valuation inefficiencies. Their investment in VRNA exemplifies their opportunistic strategy in the healthcare space and demonstrates their ability to identify undervalued companies with strong growth prospects that are insulated from broader economic factors like tariffs.
Business Overview
- Developer of ensifentrine (Ohtuvayre), a novel bronchodilator and anti-inflammatory agent
- Focused on maintenance treatment for Chronic Obstructive Pulmonary Disease (COPD)
- First significant new therapy for COPD treatment in approximately 20 years
- Product targets “smoker’s lung,” a condition that affects approximately 400 million people worldwide
Market Position
- Addresses a large patient population with 8.6 million COPD patients treated in the United States
- Targets the estimated 4.3 million U.S. COPD patients who remain symptomatic despite treatment
- Uniquely positioned as the first novel mechanism for COPD treatment in two decades
- Potential market share advantage due to concentrated prescriber base (60% of COPD patients seen by just 3,000 clinicians)
Performance Analysis
- Attractive Entry Point:
- Buckley Capital initiated position in late May/early June 2024 following share price decline
- Stock dropped from low $20s to $12 approaching FDA approval date
- Presented as an “anti-merger arbitrage” special situation after anticipated buyout didn’t materialize
- Market Potential:
- Consensus estimates for peak sales initially at $1-1.5 billion, which Buckley considered far too conservative
- Buckley’s analysis suggested potential for $4.5 billion in peak sales
- Estimated 10%+ market share capture potential based on precedent drugs in the space
- Investment valued at approximately 1x forward earnings assuming commercial success
Growth Runway
- Product launch has “exceeded all expectations” since August 2024
- Strong commercial performance validating Buckley’s investment thesis
- Potential for earnings estimates to prove conservative as market penetration continues
- Significant share price appreciation since product launch, with further upside potential
Market Dynamics and Opportunities
- Novel treatment addressing significant unmet need in COPD market
- Limited competition with no major innovations in the space for two decades
- Strong prescriber concentration creating efficient market penetration opportunity
- Product success largely independent of broader economic conditions and tariff concerns
Valuation and Capital Allocation
- Entered position with potential for “10x return or greater” if drug successful
- Trading at estimated ~1x EBITDA looking approximately 5 years out at time of purchase
- Potential 50%+ EBITDA margin at scale
- Share price has “traded up substantially” since product launch
Risks
- While not explicitly detailed, initial investment thesis hinged on FDA approval
- Potential market share capture dependent on physician adoption
- Competition from established COPD treatments
- Execution risks associated with commercialization strategy
Other Key Points
- No direct exposure to tariff impacts or economic slowdowns
- Product success largely independent of overall economic activity
- Part of Buckley’s broader strategy to hold positions in companies that perform well regardless of economic environment
- Representative of Buckley’s opportunistic approach to healthcare investing, focusing on commercial potential rather than scientific discovery
Buckley Capital views Verona Pharma as a successful healthcare investment that exemplifies their approach to special situations. They believe the product launch has validated their thesis and that significant upside remains as the drug continues to establish itself in the COPD treatment market.
