Verrica Pharmaceuticals Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; unaudited. Verrica is a pre-revenue medical dermatology company developing treatments for skin diseases.
Business context and outlook
Lead candidate VP-102, a topical cantharidin drug-device combination, is being developed for molluscum contagiosum, common warts and external genital warts. Management reported positive top-line results from Phase 3 CAMP-1 and CAMP-2 molluscum trials and Phase 2 COVE-1 common-warts trial. It planned to submit an NDA for molluscum in the second half of 2019, request an FDA End-of-Phase-2 meeting for common warts, and report external-genital-warts trial results in the second half of 2020. The company also expected to submit an IND for VP-103 for plantar warts in the second half of 2019.
Financial results
| Metric (USD millions, except per-share data) | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | 3.9 | 3.5 | 8.4 | 4.4 |
| General and administrative expense | 3.6 | 2.0 | 7.1 | 2.9 |
| Total operating expenses / operating loss | 7.5 / (7.5) | 5.5 / (5.5) | 15.5 / (15.5) | 7.4 / (7.4) |
| Net loss | (7.0) | (5.3) | (14.5) | (7.2) |
| Net loss per share, basic and diluted | (0.28) | (0.92) | (0.58) | (1.66) |
| Interest income | 0.5 | 0.2 | 1.1 | 0.2 |
Margins are not meaningful because the company had no product revenue. The lower comparative 2018 weighted-average share count, following the 2018 IPO, affects per-share comparisons.
- Liquidity at June 30, 2019: Cash and cash equivalents were $19.9 million and marketable securities were $58.9 million, totaling $78.8 million. Current assets were $79.7 million; current liabilities were $4.3 million.
- Debt and equity: No material financing commitments such as credit lines or guarantees were reported. Total liabilities were $4.4 million; stockholders’ equity was $76.8 million. Accumulated deficit was $47.5 million.
- Cash flow, H1 2019: Operating activities used $12.0 million; investing activities provided $21.3 million, primarily from net sales and maturities of marketable securities; financing activities provided $0.2 million from stock-option exercises. Cash increased $9.6 million.
- Cash use: Operating cash use was $5.8 million in H1 2018. Net loss increased to $14.5 million from $7.2 million in H1 2018, as operating expenses rose substantially.
Material changes and notable items
- Q2 operating expenses increased $2.1 million year over year. R&D growth reflected manufacturing scale-up and NDA preparation costs, partly offset by lower molluscum clinical-development costs. G&A growth reflected increased staffing and compensation, public-company costs, insurance, professional fees and pre-commercial market research.
- H1 operating expenses increased $8.2 million year over year, driven by the same development and corporate cost categories. Higher interest income partly offset operating losses.
- The company adopted lease accounting guidance in 2019 and recorded an operating lease right-of-use asset and liability. On July 1, 2019, it signed a seven-year lease for a new headquarters expected to open in mid-2020; base rent over the initial term is $1.3 million, plus its share of operating expenses.
- Management stated existing cash, cash equivalents and marketable securities were expected to fund operations and capital requirements at least through the end of 2020. It expects expenses and operating losses to continue and increase; additional financing may be needed, with potential dilution or other restrictions.
- No material changes to previously disclosed risk factors were reported. Legal proceedings: none. Management concluded disclosure controls were effective as of June 30, 2019.
Important facts for investors to verify
- Whether the planned 2019 molluscum NDA submission occurred and its regulatory status, including any FDA requirements or review timing.
- Clinical-trial data, safety findings and next milestones for VP-102 and VP-103; topline results do not establish approval or commercial success.
- Cash burn, investment balances and the assumptions behind the stated runway through year-end 2020, especially as development and commercialization spending rises.
- Potential funding needs and resulting dilution or financing terms, as well as the new headquarters lease’s total occupancy costs.
- Comparability of 2018 figures: the filing retrospectively applied a change in stock-compensation attribution method to the 2018 comparative results.