Verrica Pharmaceuticals Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Financial amounts below are in U.S. dollars; millions are used unless otherwise stated.
Business context and reporting period
Verrica is a development-stage dermatology therapeutics company with no approved products and no product sales. Its lead candidate, VP-102, is a cantharidin drug-device combination being developed for molluscum contagiosum, external genital warts, and common warts. Other candidates are VP-315 for dermatological cancers, including basal cell carcinoma, and VP-103 for plantar warts.
The audited financial statements were prepared under U.S. GAAP. KPMG issued an unqualified opinion and highlighted substantial doubt about the company’s ability to continue as a going concern. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Financial and operating metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Collaboration revenue | $9.0 million | $12.0 million |
| Research and development | $12.2 million | $15.9 million |
| General and administrative | $17.4 million | $27.0 million |
| Total expenses | $30.3 million | $42.9 million |
| Loss from operations | $(21.3) million | $(30.9) million |
| Net loss | $(24.5) million | $(35.1) million |
| Basic and diluted loss per share | $(0.72) | $(1.30) |
| Net cash used in operating activities | $(18.7) million | $(27.6) million |
- Revenue was entirely collaboration revenue, principally from Torii. FY 2022 included an $8.0 million milestone triggered by Torii’s first patient dosed in a Japanese Phase 3 trial and $1.0 million for supply and development activity. FY 2021 revenue reflected the $12.0 million Torii license payments.
- Cash and cash equivalents were $34.3 million at year-end, versus $15.8 million in 2021; marketable securities were nil, down from $54.6 million. Total assets were $44.7 million and total liabilities were $4.7 million.
- Verrica repaid all debt on July 11, 2022, paying approximately $43.8 million, including principal, final payment fee, and accrued interest. Year-end debt was nil. The repayment generated a $1.4 million noncash extinguishment loss.
- FY 2022 investing cash flow was positive $54.0 million, mainly reflecting marketable-security sales and maturities. Financing cash flow was negative $16.9 million, primarily due to debt repayment, partly offset by $26.9 million net proceeds from the July stock offering.
- No product gross margin or product-sales margin is reported because the company had no product sales. The filing does not provide a clear basis for assessing commercial profitability or product-level margins.
Material changes versus FY 2021
- Net loss narrowed by $10.6 million, as operating expenses decreased by $12.6 million; however, collaboration revenue also declined by $3.0 million.
- R&D expense fell $3.7 million, mainly due to lower VP-102 chemistry, manufacturing and controls costs and lower VP-315 milestone expense, partly offset by higher VP-315 clinical costs.
- G&A expense fell $9.6 million, primarily due to lower VP-102 pre-commercial spending and reductions in headcount, insurance, professional fees, and other operating costs.
- Cash and cash equivalents rose year over year, while marketable securities were liquidated and the company’s debt was fully repaid.
Outlook, commentary, risks, and unusual items
- VP-102 regulatory path: The FDA issued a Complete Response Letter in May 2022, with the sole cited deficiency relating to the inspection status of former contract manufacturer Sterling, which was on OAI status. Verrica selected Piramal Pharma Solutions, completed technology transfer in January 2023, and resubmitted the NDA on January 23, 2023. The FDA accepted it on February 27, 2023 and set a July 23, 2023 PDUFA goal date. These are post-year-end developments, and approval was not assured.
- Pipeline plans: Management expected to begin VP-315 Phase 2 trial Part 2 in Q2 2023 and Part 3 in the second half of 2023. It planned to dose the first patient in a VP-102 external genital warts Phase 3 program in the second half of 2024. Timing for VP-103 trials remained undetermined; further Phase 2 work for common warts was under evaluation.
- Liquidity and going concern: Management estimated year-end cash plus $30.1 million net proceeds from a February 2023 stock and pre-funded-warrant offering would fund planned operations into Q1 2024. Nevertheless, it stated that substantial additional financing would be needed and that substantial doubt about continuing as a going concern remained. The estimate depends on assumptions and spending, trial, regulatory, and financing outcomes.
- Commercial and execution risks: The company has no sales infrastructure or commercial track record and depends on third parties for manufacturing and supply. Risks include FDA review or inspection issues at the new manufacturer, cantharidin supply reliance on a supplier in China, clinical and regulatory uncertainty, competition from compounded cantharidin and other therapies, and uncertain coverage and reimbursement.
- Collaboration and obligations: Torii may owe up to $50.0 million in further milestone payments, plus tiered supply transfer payments tied to net sales. Under the VP-315 license, Verrica may owe Lytix up to $111.0 million in contingent milestones and tiered royalties in the low double digits to mid-teens.
- Litigation: A putative securities class action, amended in January 2023, alleges that Verrica and certain current and former officers and directors failed to disclose manufacturing deficiencies relevant to VP-102 approval prospects. Damages sought are unspecified; the case was in early stages, and the company said it intended to defend itself.
- Other unusual item: Verrica had prepaid $1.5 million for crude cantharidin purchase orders from 2021 and 2022 that had not been shipped by year-end 2022.
Most important facts for investors to verify
- Whether the FDA acted on the VP-102 NDA by the July 23, 2023 goal date, and whether Piramal’s manufacturing facility and the transferred process met FDA requirements.
- Whether cash burn, trial costs, and launch preparation remain consistent with management’s Q1 2024 runway estimate, and what additional financing may be required.
- Whether Torii’s Japanese Phase 3 program progresses and whether future milestone or supply payments are achieved.
- Whether VP-315 and other pipeline programs meet stated clinical timelines and produce supportive efficacy and safety data.
- The status and potential financial or operational impact of the securities class action and the outstanding cantharidin supply orders.
- The dilution and ownership impact of the February 2023 offering, which included pre-funded warrants to purchase 4,064,814 shares.