Verrica Pharmaceuticals Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Verrica is a clinical-stage dermatology therapeutics company; it had no approved products and no product-sale revenue.
Business context and developments
The company’s lead candidate, VP-102, is under FDA review for molluscum contagiosum. The FDA extended the application’s review goal date to September 23, 2021, to review information including the training program and distribution model. Verrica is also developing VP-102 for common and external genital warts, VP-103 for plantar warts, and LTX-315 for dermatological oncology indications.
Under its Japan collaboration with Torii, Verrica recognized $12.0 million of license revenue in the first half of 2021, including the previously received $0.5 million option payment and an $11.5 million upfront payment. The agreement provides for up to $58 million in contingent milestones and tiered product-supply payments. Verrica paid Lytix a $2.3 million regulatory milestone in February, recorded in R&D expense.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| License revenue | $0 | $0 | $12.0 million | $0 |
| R&D expense | $3.4 million | $3.5 million | $8.8 million | $8.4 million |
| G&A expense | $7.3 million | $5.1 million | $13.9 million | $10.1 million |
| Total operating expense | $10.7 million | $8.6 million | $22.7 million | $18.5 million |
| Net loss | $11.8 million | $9.4 million | $12.7 million | $19.2 million |
| Basic and diluted loss per share | $0.43 | $0.38 | $0.46 | $0.77 |
At June 30, cash and cash equivalents were $24.7 million and marketable securities were $65.4 million, totaling $90.1 million. Current assets were $93.4 million and current liabilities were $45.3 million; the company reported $52.2 million of stockholders’ equity. There is no meaningful product gross margin disclosed because Verrica had no product sales.
Six-month operating cash use was $8.3 million, versus $16.5 million a year earlier. Investing activities used $11.3 million, primarily reflecting net purchases of marketable securities; financing provided $33.6 million, including $28.1 million net proceeds from a March share offering and $5.0 million of additional term debt.
Term debt had $40.0 million gross principal and a $3.75 million final payment fee; reported net debt was $41.0 million after unamortized discounts and issuance costs. The entire balance was classified as current because of covenant and acceleration provisions. Term loans mature March 1, 2024, carry floating interest with a 7.25% floor, and are interest-only through March 2022 unless the optional additional loan is drawn.
Changes, outlook, risks and unusual items
- Q2 net loss increased by $2.4 million year over year, principally as G&A rose $2.2 million amid higher headcount, insurance, professional fees and pre-commercial spending. First-half net loss improved by $6.5 million, mainly because of the $12.0 million Torii license revenue, partly offset by higher operating expenses and interest expense.
- Management said June 30 cash, cash equivalents and marketable securities should fund planned operations into at least the first quarter of 2023. Separately, management considered it probable that Verrica would fail its minimum-liquidity covenant at some point within 12 months absent additional financing, potentially making debt and fees payable on demand. Management nevertheless believed it could fund operations for at least 12 months from issuance of the statements.
- The company was in covenant compliance at June 30, 2021. The loan agreement permits acceleration in specified circumstances, including covenant breaches and certain subjective material-adverse-change events. A further $10 million term loan was conditionally available only if VP-102 received FDA approval before September 30, 2021 and liquidity conditions were met.
- Verrica expects continuing operating losses and higher R&D, commercialization-preparation and operating costs, and may need additional financing. The timing and cost of development and potential revenue remain uncertain; no profitability guidance was provided.
- COVID-19 directly delayed initiation of the planned VP-103 Phase 2 plantar-warts trial. The filing states the broader pandemic’s future business and financial impact remains uncertain. No material changes to previously disclosed risk factors or material legal proceedings were reported.
Most important facts for investors to verify
- Whether the FDA acted on the VP-102 molluscum application by the September 23, 2021 goal date and what any action required.
- Cash burn and financing needs relative to the stated runway, and whether the minimum-liquidity covenant was met or additional capital obtained.
- Debt terms, potential acceleration exposure, and whether the conditional $10 million loan became available.
- Progress and costs for VP-102’s other indications, VP-103, and LTX-315, including the COVID-related trial delay.
- Whether Torii milestone or supply payments were achieved; the $58 million milestone amount is contingent, not guaranteed revenue.