Verrica Pharmaceuticals Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Verrica is a clinical-stage dermatology therapeutics company with no approved products and no product-sales revenue. Its pipeline includes VP-102, VP-315 and VP-103.
Financial performance and liquidity
- Revenue: Collaboration revenue was $37,000, down from $431,000 in Q1 2022. Revenue was from Torii-related supplies and development activity.
- Expenses and loss: Research and development expense was $2.739 million, up $294,000 year over year, primarily due to VP-102 manufacturing and CMC costs. General and administrative expense was $4.319 million, down $799,000, primarily due to lower compensation costs and decreased headcount. Total operating expenses were $7.126 million; operating loss was $7.089 million. Net loss was $6.589 million, or $0.15 per basic and diluted share, versus $8.470 million, or $0.31 per share, in Q1 2022.
- Cash flow: Operating activities used $4.590 million, compared with $8.340 million in Q1 2022. Investing activities used $11,000; financing activities provided $30.280 million, principally from the February equity and pre-funded warrant offering. Cash and cash equivalents increased by $25.679 million to $59.952 million.
- Balance sheet and debt: Current assets were $63.097 million and current liabilities were $2.643 million at March 31, 2023. Total liabilities were $3.793 million, including operating lease liabilities; the company had no outstanding debt after repaying its loans in July 2022. Stockholders’ equity was $64.846 million.
- Funding outlook: Management said existing cash should fund planned operations into the first quarter of 2024, but substantial additional financing will be needed. The filing states that recurring losses and financing needs raise substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements are issued.
Material changes and operating developments
- Net loss improved by $1.881 million year over year, reflecting lower operating expenses, higher interest income and no interest expense following repayment of debt in 2022. These benefits were partly offset by lower collaboration revenue and higher R&D expense.
- The February 2023 offering of 750,000 common shares and pre-funded warrants for 4,064,814 shares generated $30.3 million in net proceeds. The pre-funded warrants have a nominal exercise price and do not expire.
- Verrica resubmitted the VP-102 NDA for molluscum on January 23, 2023; the FDA accepted it on February 27 and set a July 23, 2023 PDUFA date. The resubmission followed manufacturing-facility deficiencies involving the former contract manufacturer; Piramal completed technology transfer in January 2023.
- VP-315 Part 2 of its Phase 2 basal cell carcinoma trial began in April 2023; Part 3 was expected to begin in the first half of 2024. Verrica planned to begin a VP-102 Phase 3 trial for external genital warts in the second half of 2024 and was evaluating timing for a VP-103 Phase 2 plantar-wart trial.
- Construction in process of $2.570 million relates to a product assembly and packaging line intended for commercial manufacturing upon future regulatory approval.
Outlook, risks and contingencies
- There is no product-sales revenue, and profitability is uncertain. Verrica expects significant ongoing losses and higher expenses as it advances clinical programs, seeks approvals and prepares for potential commercialization.
- Key risks include FDA review and approval of VP-102, clinical trial outcomes and timing, the need to raise additional capital, manufacturing and raw-material supply, and the possibility that any approved product may not achieve commercial success.
- A putative securities class action alleges failures to disclose manufacturing deficiencies related to VP-102. Defendants filed a motion to dismiss on April 5, 2023; the company intends to defend the case. Damages sought are unspecified.
- The company reported that the 2021 crude cantharidin purchase order, prepaid at $0.8 million, was received in April 2023. The 2022 order, prepaid at $0.7 million, had not been received as of the filing’s reporting date.
- Additional contingent payments under the Torii collaboration include up to $50 million in development, regulatory and sales milestones, plus tiered product transfer payments. VP-315 also carries potential milestone and royalty obligations to Lytix.
- Management reported effective disclosure controls as of March 31, 2023 and no material changes to internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Outcome and timing of the FDA’s review of the VP-102 NDA, including any action by the July 23, 2023 PDUFA date.
- Cash runway assumptions, anticipated financing needs and the company’s ability to raise capital on acceptable terms.
- Potential dilution from the pre-funded warrants and other equity awards; the filing reports 41,852,053 common shares outstanding at March 31, 2023, while the cover page reports 41,957,197 shares outstanding as of May 3, 2023.
- Progress and results of VP-315 and other clinical programs, as well as manufacturing readiness and cantharidin supply.
- Developments in the securities litigation and any financial or operational effects.