Verrica Pharmaceuticals Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Verrica is a clinical-stage dermatology company with no approved products and no product revenue. Its lead candidate, VP-102, is a cantharidin drug-device combination being developed for molluscum and common warts; VP-103 is planned for plantar warts.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $3.5 million | $1.1 million | $8.0 million | $2.6 million |
| General and administrative expense | $3.7 million | $0.2 million | $7.2 million | $0.4 million |
| Net loss | $6.7 million | $1.4 million | $14.6 million | $3.0 million |
| Net loss per share | $0.27 | $0.48 | $1.30 | $1.06 |
- At September 30, cash and cash equivalents were $38.3 million and marketable securities were $58.7 million, totaling approximately $97.0 million. Total assets were $98.8 million; total liabilities were $2.5 million, all current. No debt or credit facility was reported.
- Nine-month operating cash use was $11.0 million. Investing cash use was $58.7 million, primarily purchases of marketable securities; financing provided $99.4 million. Cash and cash equivalents increased $29.6 million from year-end 2017.
- Accumulated deficit was $27.0 million. No meaningful operating margins are available because the company has not generated revenue.
Changes and notable transactions
- Expenses and losses rose substantially year over year, driven by VP-102 Phase 2/3 clinical work, increased staffing and stock-based compensation, and higher public-company costs, including insurance and professional fees. Nine-month stock-based compensation was $3.1 million.
- The June 2018 IPO generated $78.4 million in net proceeds from 5.75 million shares sold at $15 per share. Earlier in 2018, Series C preferred stock raised $21.0 million gross. All preferred stock converted into common stock at the IPO closing.
- Management fees under the related-party PBM Capital services agreement increased to $50,000 per month effective April 1, 2018, from $2,500 per month. Expense under the agreement was $150,000 in Q3 and $307,500 for the nine months.
Outlook, risks and contingencies
- Management expected existing cash, cash equivalents and marketable securities to fund operations for at least 24 months; this estimate depends on assumptions and development costs may increase. The company expects significant operating losses and rising R&D and G&A expenses.
- The company reported positive Phase 2 Innovate results for molluscum: median lesion reduction of 98% at week 12, complete clearance of treatable lesions in 50% of trial completers, negligible systemic exposure, and no serious adverse events. Two fully enrolled Phase 3 trials, CAMP-1 and CAMP-2, were expected to produce topline results in Q1 2019; an NDA filing in 2019 was planned if results were favorable. A common-warts Phase 2 trial was enrolling, with topline results expected in the first half of 2019. These are forward-looking expectations, not assured outcomes.
- Key risks include clinical-trial failure or delay, FDA review and drug-device regulatory complexity, lack of commercial infrastructure, reimbursement and market-acceptance uncertainty, and competition from other therapies and compounded cantharidin. The filing notes the company had no issued patents at the time, and cantharidin compounding could remain a competitive factor.
- Supply risk is concentrated in naturally sourced cantharidin from China. A purchase order totals approximately $2.3 million, with about $0.5 million purchased and $1.8 million remaining at quarter-end; it is denominated in Chinese yuan. A five-year supply agreement restricts the supplier from supplying cantharidin-related material to other North American customers, subject to minimum purchase requirements.
- There was no litigation reported. A consulting agreement with the former Chief Scientific Officer resulted in $0.3 million accrued at quarter-end. The filing reports no off-balance-sheet arrangements and states disclosure controls were effective.
Important facts for investors to verify
- Whether CAMP-1 and CAMP-2 met endpoints and whether results support the planned NDA timing.
- Actual cash burn, development spending and runway relative to management’s 24-month estimate.
- Cantharidin supply continuity, purchase commitments, supplier exclusivity conditions and exposure to yuan fluctuations.
- Potential dilution from equity awards and shares eligible for resale after IPO lockups, as well as the extent of insider and affiliate ownership.
- Patent protection, NCE and pediatric exclusivity eligibility, and the regulatory and commercial scope for compounded cantharidin.