Verrica Pharmaceuticals Inc. — Q2 2022 Form 10-Q
Business context and period. This unaudited report covers the three and six months ended June 30, 2022. Verrica is a clinical-stage dermatology therapeutics company with no approved products and no product-sales revenue. Its lead candidate, VP-102, is being developed for molluscum, external genital warts and common warts.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| License revenue | $0.214m | — | $0.645m | $12.0m |
| Research and development | $4.162m | $3.447m | $6.885m | $8.809m |
| General and administrative | $5.173m | $7.284m | $10.291m | $13.861m |
| Operating loss | $9.121m | $10.731m | $16.531m | $10.670m |
| Net loss | $10.168m | $11.775m | $18.638m | $12.711m |
| Basic and diluted loss per share | $0.37 | $0.43 | $0.68 | $0.46 |
At June 30, 2022, cash and cash equivalents were $5.430m, marketable securities $8.968m, and restricted cash $40.0m, for total cash, cash equivalents, marketable securities and restricted cash of $54.4m. Current liabilities were $45.711m, including $42.293m of net debt classified as current; stockholders’ equity was $16.333m. There were no product sales, so product gross margins are not applicable; the filing does not present a meaningful operating margin.
For the first six months, operating cash outflow was $15.521m, investing cash inflow $45.218m, and financing cash outflow $0.019m. Operating cash use increased from $8.286m in the prior-year period. Investing inflow mainly reflected marketable-security maturities and sales, not operating earnings.
Material changes and notable items
- Q2 net loss narrowed by $1.607m year over year, with lower G&A—primarily reduced VP-102 pre-commercial spending—partly offset by higher R&D, including a $1.0m Lytix milestone payment.
- Six-month net loss increased by $5.927m year over year. Prior-year results included $12.0m of Torii license revenue, including an $11.5m upfront payment; 2022 license revenue primarily related to Torii clinical supplies and development activity.
- On May 31, the company approved and completed a workforce reduction of 20 employees. It recorded approximately $0.5m of one-time termination costs, substantially paid by June 30.
- After quarter-end, Verrica raised $26.8m net in a July public offering of 13.575m shares at $2.10 per share. On July 11, it repaid all loan-agreement debt for approximately $43.9m, using the $40.0m restricted cash collateral and cash on hand; no prepayment penalty was incurred.
Outlook, risks and contingencies
- Management said the June 30 resources, July offering proceeds and debt repayment would fund planned operations into the third quarter of 2023. The company nevertheless expects significant future losses, needs substantial additional financing, and disclosed substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements.
- The FDA issued a Complete Response Letter for VP-102’s molluscum NDA on May 24, 2022. The stated deficiency concerned the contract manufacturer Sterling’s facility, which was classified as “official action indicated”; the filing says the issues were not specific to VP-102. Following a June Type A meeting, Verrica expected to resubmit the NDA in Q1 2023. Approval timing remains uncertain and approval may never occur.
- Verrica is engaging Piramal Pharma Solutions as an alternative bulk-solution supplier; technology transfer, validation and stability batches may cause delays or additional costs. Management expects to initiate a Phase 3 external-genital-warts trial, with first patient dosing targeted for the first half of 2024. Timing for a VP-103 plantar-warts Phase 2 trial was still under evaluation; COVID-19 had delayed its initiation.
- The company began dosing patients in an LTX-315 Phase 2 basal-cell-carcinoma trial in April 2022. It expects research and development spending to rise with ongoing and planned programs, while G&A is expected to decline in the short term following restructuring.
- A putative securities class action filed June 6, 2022 alleges failures to disclose manufacturing deficiencies and seeks unspecified damages. The case was in its early stages; Verrica stated it intends to defend itself.
Important facts for investors to verify
- Progress at Sterling and Piramal, and whether the expected Q1 2023 VP-102 resubmission and subsequent FDA review remain on schedule.
- Actual cash runway after the July offering and debt repayment, quarterly operating cash use, and timing and terms of additional financing.
- Whether VP-102 trials and the planned external-genital-warts Phase 3 program proceed on the stated timelines, and the status of VP-103 and LTX-315 development.
- Developments in the securities litigation and any resulting financial or operational effects.
- The effects of the July share issuance on ownership dilution and future capital needs.