Verrica Pharmaceuticals Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in millions of dollars unless stated otherwise. Verrica is a clinical-stage dermatology therapeutics company; it had no approved products and generated no product sales.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| License revenue | $0 | $0 | $12.0 | $0 |
| Research and development expense | $3.8 | $5.0 | $12.6 | $13.4 |
| General and administrative expense | $8.0 | $4.6 | $21.9 | $14.7 |
| Total operating expenses | $11.8 | $9.6 | $34.4 | $28.1 |
| Net loss | $12.8 | $10.5 | $25.5 | $29.7 |
| Net loss per share | $0.47 | $0.42 | $0.95 | $1.19 |
- The $12.0 million year-to-date license revenue came from the Torii Japan collaboration: the $0.5 million option payment received in 2020 and an $11.5 million upfront payment received in April 2021. No license revenue was recorded in Q3.
- Year-to-date operating cash use was $18.9 million, versus $24.1 million in 2020. Investing activities used $5.0 million and financing activities provided $33.6 million; cash and cash equivalents increased $9.8 million to $20.4 million.
- At September 30, cash, cash equivalents and marketable securities totaled $79.5 million, compared with $65.5 million at December 31, 2020. Current assets were $83.2 million and total assets were $88.8 million.
- Debt had a $41.3 million net carrying value and was classified as current because of covenant and acceleration concerns, although contractual maturity is March 2024. The term loans bear floating interest with a 7.25% minimum; a $3.75 million final payment fee is also due under specified circumstances.
- There is no meaningful operating margin comparison: the company had no product sales and continues to report operating losses.
Material changes versus prior comparable periods
- Q3 net loss increased $2.3 million year over year, mainly as higher G&A expense more than offset lower R&D expense. G&A rose $3.4 million, reflecting increased headcount, insurance, professional and other costs, and VP-102 pre-commercial activity; R&D fell $1.2 million, primarily on lower CMC and clinical costs.
- For the first nine months, net loss narrowed $4.2 million despite operating expenses increasing $6.3 million. The $12.0 million Torii license revenue drove the improvement; G&A rose $7.1 million, while R&D declined $0.8 million, including a $2.3 million Lytix regulatory milestone expense in 2021.
- Interest expense increased to $3.2 million for the nine months from $2.0 million, principally reflecting the loan agreement that began in March 2020. March 2021 financing included $28.1 million net proceeds from an equity offering and $5.0 million of additional term debt.
Outlook, developments and risks
- Management estimated existing cash, cash equivalents and marketable securities would fund planned operations into the third quarter of 2022, but said substantial additional financing would be required. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after the financial statements were issued.
- Although Verrica was compliant with loan covenants at September 30, it believed it was probable that it would fail the minimum liquidity covenant at some point in the following 12 months without additional financing. A breach could make outstanding debt and related amounts payable on demand; debt also contains subjective acceleration provisions. Future financing may require equity dilution, restrictive debt terms, or licensing and collaboration concessions.
- On September 17, 2021, the FDA issued a Complete Response Letter for the VP-102 molluscum application, citing general quality deficiencies at a contract manufacturer’s facility, not product-specific clinical, safety or CMC deficiencies. The FDA also issued a General Advice Letter recommending improvements to the product’s user interface. On November 5, the company reported the facility inspection was closed with a “voluntary action indicated” classification and would not directly negatively affect the FDA’s assessment regarding that facility; Verrica said it was engaging with the FDA on next steps. Approval timing remains uncertain.
- Management planned to pursue VP-102 development for common and external genital warts, with a Phase 3 external genital warts trial intended for the second half of 2022. A previously planned VP-103 plantar-warts Phase 2 trial was delayed as a direct result of COVID-19. Verrica submitted an IND for LTX-315 in October 2021.
- The Torii agreement offers up to $58 million in contingent development, regulatory and sales milestones, plus product supply payments tied to net sales; these are not guaranteed. The Lytix agreement carries up to $111 million in contingent milestones and tiered royalties.
- Management said COVID-19 had not significantly affected reported financial results through the period, while noting its future impact remained uncertain. No material changes to previously disclosed risk factors or contractual obligations were reported. No material legal proceedings were identified.
Important facts for investors to verify
- FDA follow-up, any additional requirements, and the timeline and conditions for potential VP-102 approval after the CRL and facility inspection closure.
- Cash burn, financing plans, and the company’s ability to remain above the minimum liquidity covenant; monitor whether debt could become immediately payable.
- Whether the projected runway into Q3 2022 remains achievable as clinical, manufacturing and commercialization spending evolves.
- Progress and timing of planned trials for VP-102, VP-103 and LTX-315, including the COVID-related VP-103 delay.
- Potential dilution and the likelihood, timing and conditions of Torii milestone and product-supply payments.