Verrica Pharmaceuticals Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Verrica is a development-stage medical dermatology company with no approved products and no product revenue. Its lead candidate, VP-102, is a topical cantharidin drug-device combination.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.487 million | $0.927 million |
| General and administrative expense | $3.539 million | $0.961 million |
| Total operating expenses | $8.026 million | $1.888 million |
| Interest income | $0.547 million | $0.041 million |
| Net loss | $7.479 million | $1.847 million |
| Net loss per share, basic and diluted | $0.30 | $0.65 |
| Net cash used in operating activities | $6.917 million | $2.154 million |
- At March 31, 2019, cash and cash equivalents were $24.427 million and marketable securities were $58.855 million, totaling $83.282 million. Management said these resources were expected to fund operations and capital needs at least through the end of 2020.
- Total assets were $85.979 million; total liabilities were $3.218 million, including operating lease liabilities. The filing reports no material financing commitments or debt facility. Current assets were $84.677 million versus current liabilities of $3.062 million.
- Q1 cash increased by $14.156 million, mainly because $21.070 million of net investing cash inflow reflected marketable-security maturities and sales exceeding purchases. This was not operating cash generation.
- Operating expenses and net loss rose substantially year over year, largely from later-stage VP-102 trials, added personnel and stock-based compensation, and public-company costs. Net loss per share is not directly comparable: weighted-average shares increased to 24.86 million from 2.85 million following the 2018 IPO and conversion of preferred shares.
- Margins are not meaningful because the company had no revenue. Accumulated deficit was $40.464 million.
Business developments, outlook, and risks
- In January 2019, Verrica reported positive top-line results from the Phase 3 CAMP-1 and CAMP-2 molluscum trials: significantly more VP-102-treated subjects achieved complete clearance of treatable lesions than placebo subjects. The company reported no serious adverse events in VP-102-treated subjects. CAMP-1 was conducted under an FDA special protocol assessment agreement.
- Management planned to submit an NDA for VP-102 for molluscum in the second half of 2019. The Phase 2 COVE-1 common-warts trial was ongoing, with top-line results expected in Q2 2019; a Phase 2 external-genital-warts trial was planned for Q2 2019, and an IND for VP-103 in plantar warts was planned for the second half of 2019.
- Verrica intended to pursue U.S. self-commercialization of VP-102, which would require building commercial capabilities. Management expected R&D expense to increase as programs and regulatory work advanced, and G&A expense to increase significantly during the remainder of 2019 and in 2020.
- The company cautioned that clinical development, FDA review, manufacturing scale-up, and commercialization involve uncertainty; trials may require more time or resources, candidates may fail or be delayed, and additional capital may be needed. If financing is unavailable on acceptable terms, Verrica may have to delay, reduce, or end programs.
- Related-party services agreement: PBM Capital Group, affiliated with the company’s board chair and largest stockholder group, provided support services. The monthly fee was reduced to $26,333 effective January 1, 2019; Q1 expense was $79,000.
- Other notable items: adoption of lease accounting created a $275,000 right-of-use asset and $278,000 lease liability at quarter-end. The filing reports no legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2019.
Important facts for investors to verify
- Whether the planned second-half 2019 NDA submission occurred, and the subsequent FDA review status, requirements, and timing.
- Full clinical-trial data and safety findings for CAMP-1 and CAMP-2, plus outcomes and timelines for COVE-1 and planned additional trials.
- Cash use against the stated end-of-2020 runway, including increased trial, manufacturing, regulatory, and planned commercialization spending.
- The assumptions behind potential regulatory exclusivity and the feasibility, cost, and timing of commercial manufacturing and a U.S. sales organization.
- The nature and oversight of ongoing PBM-related services and other related-party balances or arrangements.