Verrica Pharmaceuticals Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Verrica is a dermatology therapeutics company; its commercial product, YCANTH, was FDA-approved in July 2023 for molluscum contagiosum and launched in the U.S. in August 2023.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $3.826 million | $0.037 million |
| Net product revenue | $3.232 million | None |
| Collaboration revenue | $0.594 million | $0.037 million |
| Operating expenses | $22.425 million | $7.126 million |
| Loss from operations | $18.599 million | $7.089 million |
| Net loss | $20.331 million | $6.589 million |
| Net loss per share, basic and diluted | $0.44 | $0.15 |
| Cash used in operating activities | $19.947 million | $4.590 million |
Product cost of revenue was $0.546 million, including a $0.3 million obsolete-inventory write-off. Collaboration cost was $0.592 million, leaving little contribution from that revenue. Management noted product costs are temporarily lower because some materials were expensed before approval; it estimated Q1 product cost would have been $0.7 million had those prior costs been included.
Cash and cash equivalents were $48.939 million at March 31, down $20.608 million from year-end 2023. Accounts receivable was $7.002 million; current assets were $61.376 million and current liabilities $19.365 million. Long-term debt, net of discounts and issuance costs, was $42.848 million; the loan’s gross principal was $50 million and it matures in July 2028. Q1 interest expense was $2.319 million, including $1.8 million cash interest and $0.5 million non-cash expense. Stockholders’ equity was $1.508 million, and accumulated deficit was $250.779 million.
Material changes and operating developments
- Revenue reflects initial YCANTH commercialization, compared with no product revenue in Q1 2023. Sales are primarily to one pharmaceutical wholesaler/distributor.
- SG&A increased $12.020 million to $16.339 million, mainly from the commercial ramp: sales-force compensation, recruiting, benefits and travel (+$6.2 million), marketing and sponsorships (+$2.3 million), other commercial activity (+$1.9 million), and legal costs (+$0.6 million). The company had 77 U.S. sales representatives.
- R&D increased $2.209 million to $4.948 million, principally from VP-315 clinical-trial costs (+$1.5 million) and increased headcount costs (+$0.6 million).
- Cash used in operations rose to $19.947 million from $4.590 million; Q1 2024 financing activities used $0.661 million, including $0.509 million in debt amendment fees. Q1 2023 financing had provided $30.280 million, principally from an equity and pre-funded warrant offering.
Outlook, risks, and contingencies
- Runway and going concern: Management expects March 31 cash to fund planned operations only into Q1 2025 and disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Verrica expects significant ongoing losses and says additional financing is needed; it may have to delay, reduce, or eliminate development or commercialization activities if funding is unavailable on acceptable terms.
- Debt access and terms: The OrbiMed facility provides up to $125 million, with additional tranches subject to revenue targets: up to $25 million by June 30, 2024, $30 million by December 31, 2024, $10 million by March 31, 2025, and $10 million by June 30, 2025. Interest is the greater of SOFR or 4%, plus 8%. The company reported covenant compliance at March 31. On May 6, 2024, lenders waived the credit agreement’s going-concern requirement for the Q1 statements; Verrica paid a $100,000 amendment fee.
- Development: Verrica expected top-line results from the VP-315 Phase 2 basal-cell-carcinoma trial in Q2 2024. It was evaluating Phase 3 plans for YCANTH in common warts and external genital warts, and expected to seek further FDA guidance on common warts in Q2 2024. Timing for a VP-103 plantar-warts Phase 2 trial remained under evaluation.
- Commercial and estimation risks: Near-term commercial revenue depends on one product and is concentrated in one primary distributor. Product returns, rebates, chargebacks, discounts and fees are estimated and may differ materially from actual amounts.
- Litigation: A securities class action concerning alleged disclosures about manufacturing deficiencies remains pending. The court allowed certain May and June 2021 statement claims to proceed and dismissed claims concerning other statements; a motion to dismiss the second amended complaint was pending as of April 22, 2024. Damages sought are unspecified.
Important facts for investors to verify
- YCANTH sales growth, end-user demand, distributor inventory, collections, and actual gross-to-net deductions.
- Cash burn and financing availability relative to the stated Q1 2025 runway, including whether revenue targets permit access to additional debt tranches.
- VP-315 trial results and the timing, cost, and FDA requirements for follow-on indication trials.
- Debt interest, fees, covenants, and any future amendments or financing-related dilution.
- Developments in the securities litigation and any resulting financial exposure.