Verrica Pharmaceuticals Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a separate fourth-quarter report; quarterly financial results are not clearly provided in the filing text.
Business context
Verrica is a clinical-stage dermatology therapeutics company with no approved products and no product-sales revenue. Its lead candidate, VP-102, is a cantharidin drug-device combination being developed for molluscum contagiosum, external genital warts and common warts. The company is also developing VP-103 for plantar warts and licensed candidate LTX-315 for dermatological oncology, initially basal cell carcinoma.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| License revenue | $12.0 million | None |
| Research and development expense | $15.9 million | $15.7 million |
| General and administrative expense | $27.0 million | $24.5 million |
| Operating loss | $30.9 million | $40.2 million |
| Interest expense | $4.3 million | $3.0 million |
| Net loss | $35.1 million | $42.7 million |
| Net loss per share | $1.30 | $1.71 |
| Net cash used in operations | $27.6 million | $30.2 million |
The $12.0 million of revenue arose from the Torii Japan license, including the $0.5 million option payment received in 2020 and the $11.5 million payment received in 2021. It is not product-sales revenue. Product margins are not applicable because Verrica had no commercial product sales.
At year-end, cash and cash equivalents were $15.8 million and marketable securities were $54.6 million, totaling $70.4 million. Total assets were $80.1 million, total liabilities $47.5 million, and stockholders’ equity $32.6 million. Accumulated deficit was $139.0 million.
Debt principal outstanding was $40.0 million, with a $3.75 million final payment fee. The balance sheet reported $41.7 million of debt, net, as a current liability. Debt bears floating interest and is secured by substantially all assets other than intellectual property, subject to specified exceptions. The company also had $2.0 million of operating lease payments remaining, including imputed interest.
Material changes and developments
- Revenue increased from zero to $12.0 million due to the Torii license. Net loss narrowed by $7.6 million, but the improvement was principally associated with license revenue; operating expenses increased $2.7 million and interest expense rose $1.3 million.
- Research and development expense was broadly stable. It included a $2.3 million Lytix regulatory-milestone payment; lower VP-102 CMC costs partly offset this and other increases.
- General and administrative expense rose $2.5 million, reflecting higher headcount, insurance, professional fees, operating costs and pre-commercial activity. FY2020 included a $4.8 million stock-award modification expense, which partially explains the comparative movement.
- Cash from financing was $33.6 million, including $28.1 million net proceeds from a March 2021 stock offering and $5.0 million of additional debt proceeds. Shares outstanding increased to 27.5 million at year-end from 25.4 million a year earlier.
- Marketable securities were $54.6 million, versus $54.8 million at year-end 2020. Operating cash use declined to $27.6 million from $30.2 million.
Outlook, management commentary and key risks
- VP-102 molluscum review: FDA accepted the NDA resubmission in December 2021 and set a May 24, 2022 PDUFA date. The September 2021 complete response letter cited general quality deficiencies at a contract manufacturer and user-interface recommendations; FDA reported no clinical, safety or product-specific CMC deficiencies. The manufacturer inspection was closed with a VAI classification.
- Clinical evidence: In the two Phase 3 molluscum trials, complete clearance at Day 84 was 46% and 54% for VP-102, versus 18% and 13% for placebo. The company reported mainly mild-to-moderate application-site reactions and no treatment-related serious adverse events in those trials.
- Development plans: Verrica planned to start VP-102 Phase 3 work for external genital warts in the second half of 2022, with first patient dosing expected in the first half of 2023. It was evaluating another Phase 2 study for common warts; timing for VP-103 plantar-wart trials was undetermined. The FDA accepted the LTX-315 IND in November 2021, and the company expected to begin a basal cell carcinoma Phase 2 trial in early 2022.
- Liquidity and going concern: Management said year-end cash and investments were expected to fund planned operations into the third quarter of 2022, but additional financing would be needed. The financial statements were prepared on a going-concern basis, and management and the auditor identified substantial doubt about the company’s ability to continue as a going concern within one year after issuance. The company expected it might fail debt covenant requirements without additional financing.
- Subsequent debt amendments: On March 1, 2022, after year-end, amendments removed the minimum liquidity-ratio and minimum trailing six-month product-revenue requirements. They required a separate SVB money-market balance at least equal to outstanding term loans and extended the interest-only period through February 28, 2023, followed by 12 monthly principal-and-interest payments. The filing also says that without additional financing, compliance with the new minimum-cash requirement is probable to fail at some point in the next 12 months.
- Principal risks: Further FDA review or approval delays, financing and covenant pressure, dependence on third-party manufacturing, and reliance on naturally sourced cantharidin from China. Additional risks include commercial uptake, reimbursement, competition from other therapies and permitted compounding, clinical execution, and COVID-19-related disruption. The company had no manufacturing facilities and 38 employees at year-end.
- Torii and Lytix economics: Torii may owe up to $58.0 million in contingent milestones and tiered transfer-price payments in the mid-30% to mid-40% range of net sales. Lytix terms include up to $111.0 million of contingent milestones and tiered royalties in the low double digits to mid-teens, subject to contract terms.
Important facts for investors to verify
- Whether VP-102 received FDA approval by the May 24, 2022 PDUFA date, and the final label, required studies and commercialization timing.
- Available financing, updated cash runway and compliance with the amended debt facility’s minimum-cash covenant; also confirm debt balances, repayment obligations and any further amendments.
- Whether expected Torii milestones and supply payments are achieved, and the timing and costs of Japanese development.
- Manufacturing readiness, supply continuity for cantharidin, and any new FDA inspection or quality findings.
- Whether planned trials begin on schedule and whether clinical results support broader development plans.
- Coverage, reimbursement, physician adoption and competitive effects, including FDA enforcement of limits on compounded cantharidin.