Verrica Pharmaceuticals Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; amounts below are in U.S. dollars. Verrica is a dermatology therapeutics company with no approved products and no product-sales revenue.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| License revenue | $8.319m | — | $8.964m | $12.000m |
| Research and development expense | $2.946m | $3.763m | $9.833m | $12.572m |
| General and administrative expense | $3.925m | $8.005m | $14.216m | $21.866m |
| Operating income (loss) | $1.448m | ($11.768m) | ($15.085m) | ($22.438m) |
| Net income (loss) | $0.083m | ($12.829m) | ($18.555m) | ($25.540m) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | ($13.696m) | ($18.884m) |
- Q3 license revenue included an $8.0m Torii development milestone and $0.3m for clinical supplies and development activity. No product-sales revenue was reported. The small quarterly profit reflected this license revenue; it does not indicate product commercialization.
- Nine-month license revenue declined from the prior year, when it included Torii’s $11.5m upfront payment. Nine-month net loss narrowed by $7.0m, mainly alongside lower operating expenses; R&D decreased $2.7m and G&A decreased $7.7m.
- As of September 30, cash and cash equivalents were $32.473m and marketable securities were $6.981m, totaling $39.454m. Current assets were $43.395m and current liabilities were $3.078m. The filing does not present a product gross margin; the quarterly operating result includes license revenue.
- Verrica repaid all debt on July 11, 2022, paying approximately $43.8m; no debt remained on the September 30 balance sheet. The repayment included principal, final payment fee and accrued interest. Q3 included a $1.437m loss on debt extinguishment.
- Net cash used in operations was $13.696m for the first nine months. Investing activities provided $47.287m, primarily from marketable-security maturities and sales; financing activities used $16.870m, reflecting debt repayment partly offset by equity proceeds.
- In July, the company issued 13.575m shares at $2.10 per share, receiving $26.9m net. Shares outstanding were 41.094m at November 2, 2022, versus 27.519m at December 31, 2021.
Material changes, outlook and risks
- VP-102 regulatory status: FDA issued a Complete Response Letter on May 24, 2022, citing deficiencies at contract manufacturer Sterling’s facility. Verrica reported that the FDA had completed its review of the application and label, but would not accept a resubmission listing Sterling as primary manufacturer while Sterling remained on “official action indicated” status. Verrica selected Piramal Pharma Solutions as an alternative bulk-solution manufacturer; technology transfer was ongoing. Management expected to resubmit the NDA in Q1 2023. Approval timing remained uncertain, with no assurance of approval.
- Cash runway and going concern: Management said available cash, cash equivalents and marketable securities were expected to support planned operations into Q3 2023. The company expects significant future losses, says substantial additional financing is needed, and disclosed substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements. Further equity or debt financing, partnerships or other funding may be required; inability to obtain capital could force delays or cuts to development and commercialization plans.
- Pipeline: Verrica expected to begin a Phase 3 VP-102 trial for external genital warts with first patient dosing in the first half of 2024; it was evaluating an additional Phase 2 study for common warts. The first patient in a Phase 2 VP-LTX-315 basal cell carcinoma study was dosed in April 2022, with Part 1 expected to conclude in Q1 2023. Timing for a VP-103 plantar-warts Phase 2 trial remained under evaluation.
- Other costs and commitments: A workforce reduction of 20 employees was completed in June 2022, with approximately $0.5m in one-time termination costs. Torii could owe up to $50m in additional contingent milestones, plus tiered supply payments; these are not guaranteed proceeds. The Lytix agreement includes up to $111m in contingent milestones and tiered royalties.
- Legal contingency: A putative securities class action filed in June 2022 alleges that the company and certain executives failed to disclose manufacturing deficiencies relevant to VP-102’s regulatory prospects. The complaint seeks unspecified damages; the case was at an early stage, and the company said it intended to defend itself. The allegations have not been established.
Important facts for investors to verify
- Whether the Piramal technology transfer, validation and stability work proceeded successfully and whether the VP-102 NDA was resubmitted and accepted on the expected timetable.
- Current cash burn, financing needs and runway relative to the company’s stated Q3 2023 estimate, including potential dilution from future fundraising.
- Progress, costs and timing of VP-102 and other pipeline trials, and whether regulatory or manufacturing delays change development plans.
- Developments in the securities litigation and any material change in potential exposure.
- Achievement of Torii’s contingent milestones and the timing and commercial significance of any future supply payments.