Verrica Pharmaceuticals Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited and amounts below are in U.S. dollars. The company is a dermatology therapeutics developer with no approved products or product-sale revenue. Its lead candidate, VP-102, is being developed for molluscum, external genital warts and common warts.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparator |
|---|---|---|
| License revenue | $0.431 million | $12.0 million |
| Research and development expense | $2.723 million | $5.362 million |
| General and administrative expense | $5.118 million | $6.578 million |
| Operating loss | $7.410 million | Operating income of $0.060 million |
| Net loss | $8.470 million; $0.31 per share | $0.936 million; $0.04 per share |
| Net cash used in operating activities | $8.340 million | $10.785 million |
There is no product-sales gross margin to report; margins are not meaningful for the current license-revenue model. Q1 2022 comprehensive loss was $8.503 million. At March 31, total assets were $71.617 million, total liabilities $46.199 million, stockholders’ equity $25.418 million, and accumulated deficit $147.436 million.
Cash and cash equivalents were $10.407 million, marketable securities $11.497 million, and restricted cash $40.000 million, for $61.904 million in combined cash, equivalents, securities and restricted cash. The restricted deposit is required under the mezzanine loan facility. Debt was reported at a net carrying amount of $41.999 million; gross term-loan proceeds were $40.0 million, with a $3.75 million final payment fee and unamortized discounts and issuance costs affecting the carrying value.
Changes versus the prior comparable period
- Revenue fell by $11.569 million. Q1 2021 included $12.0 million of Torii license revenue recognized upon exercise of its option; Q1 2022 revenue was $0.431 million for Torii supply and development activity.
- R&D expense declined by $2.639 million, primarily because Q1 2021 included a one-time $2.3 million Lytix regulatory milestone payment.
- G&A expense declined by $1.460 million, primarily due to lower VP-102 pre-commercial costs, partly offset by higher headcount-related expense.
- Net loss increased by $7.534 million as the prior-year quarter included the Torii license revenue. Operating cash use improved by $2.445 million, but Q1 2022 included a $1.7 million decrease in accounts payable and accrued expenses.
Investing activities provided $43.013 million in Q1 2022, mainly from sales and maturities of marketable securities, rather than operating cash generation. Financing activities used $0.018 million; the prior-year period included $28.1 million of net equity proceeds and $5.0 million of debt proceeds.
Outlook, risks and notable items
- Management said cash, cash equivalents and marketable securities at March 31, 2022 were expected to fund planned operations into the third quarter of 2022. The filing states substantial additional financing is needed and raises substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements.
- The March 2022 loan amendments removed certain liquidity-ratio and trailing-revenue covenants, but require a separate SVB money-market balance equal to outstanding term loans. The company also waived its right to draw on the $5.0 million revolving line. Term loans are interest-only through February 28, 2023, then payable over 12 monthly installments, with maturity on March 1, 2024. The company said it was covenant-compliant at March 31, 2022, but believed it likely could not maintain the required minimum cash balance within 12 months without additional financing; accordingly, debt and final payment fees were classified as current liabilities.
- VP-102’s resubmitted molluscum NDA had an FDA PDUFA goal date of May 24, 2022. The filing recounts earlier complete response letters, including one related to a contract manufacturing facility and user-interface recommendations; the company reported resolution of the facility inspection issue before its November 2021 resubmission.
- The company planned to begin a Phase 3 VP-102 external-genital-warts trial, with first-patient dosing targeted for the first half of 2023. It was evaluating further VP-102 work for common warts and a Phase 2 VP-103 plantar-warts trial; COVID-19 had delayed the previously planned VP-103 trial. The first patient in a Phase 2 LTX-315 basal-cell-carcinoma trial was dosed in April 2022.
- Funding may require equity, debt or partnerships; unavailable or unfavorable financing could force delays, reductions or elimination of development or commercialization plans. Other cited risks include clinical and regulatory uncertainty, competition including compounded cantharidin products, reimbursement, dependence on third-party suppliers and collaborators, and intellectual-property protection. Management reported no material changes to the prior Form 10-K risk factors and no material legal proceedings.
Important facts for investors to verify
- Whether the FDA acted on the VP-102 molluscum NDA by its May 24, 2022 PDUFA date, and the outcome and any required follow-up.
- Available unrestricted liquidity after accounting for the $40.0 million restricted deposit, cash burn, and the timing and terms of any additional financing.
- Loan terms, required minimum cash balance, current classification of debt, and the company’s ability to meet repayment obligations without triggering default or acceleration provisions.
- Progress, costs and timing of VP-102, VP-103 and LTX-315 trials, including the planned 2023 external-genital-warts Phase 3 trial.
- Potential Torii milestone and supply-related payments: the filing describes up to $58 million in contingent aggregate milestones, but these are not assured or necessarily near-term.