Verrica Pharmaceuticals Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing was signed March 17, 2021. Verrica is a clinical-stage dermatology therapeutics company and had no approved products or product-sales revenue.
Business context and development
The lead candidate, VP-102, is a topical cantharidin drug-device combination being developed for molluscum contagiosum and warts. Its molluscum NDA received an FDA Complete Response Letter in July 2020 seeking additional chemistry, manufacturing and controls information and human-factors validation; the FDA identified no clinical deficiencies. Verrica resubmitted the NDA in December 2020, and the FDA accepted it for filing in February 2021, setting a June 23, 2021 PDUFA goal date.
Other programs include VP-102 for common and external genital warts, VP-103 for plantar warts, and licensed candidate LTX-315 for dermatological oncology. COVID-19 delayed planned common-wart Phase 3 and plantar-wart Phase 2 trial starts. In March 2021, after year-end, Verrica entered a Japan collaboration with Torii, including an $11.5 million upfront payment, up to $58.0 million in contingent milestones and tiered product-supply payments.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $15.7 million | $15.4 million |
| General and administrative expense | $24.5 million | $14.6 million |
| Total operating expenses / operating loss | $40.2 million | $30.1 million |
| Net loss | $42.7 million | $28.2 million |
| Net loss per share, basic and diluted | $1.71 | $1.13 |
| Net cash used in operating activities | $30.2 million | $27.4 million |
At December 31, 2020, cash and cash equivalents were $10.7 million and marketable securities were $54.8 million, totaling $65.5 million. Total assets were $74.2 million; stockholders’ equity was $33.0 million. No meaningful operating margin is reported because the company had no revenue.
Year-end debt had $35.0 million gross principal and was presented as $35.3 million current debt, net of unamortized discount and issuance costs and including the accrued final payment fee. The loans carry floating rates, are secured by substantially all assets other than most intellectual property, and mature in 2024. The company reported covenant compliance at year-end but said it was probable that it would fail the minimum-liquidity covenant at some point in the next 12 months without additional financing. Because of that assessment and subjective acceleration provisions, the debt was classified as current. Management stated it believed available resources could cover operations for at least 12 months from issuance of the financial statements; its stated runway estimate through the first quarter of 2022 included the expected Torii upfront payment.
Material changes, outlook and risks
- Net loss increased by $14.5 million year over year. General and administrative expense rose $9.9 million, primarily reflecting higher stock-based compensation, headcount, insurance, professional fees and pre-commercial spending. The 2020 expense included $4.8 million from modifying a former executive’s stock award.
- R&D expense was broadly stable, increasing $0.2 million, as higher CMC and compensation costs were partly offset by lower molluscum clinical costs. Interest expense was $3.0 million in 2020 following the borrowing; interest income declined by $1.4 million.
- Cash used in operations increased $2.8 million. Financing activities provided $35.2 million, principally from debt proceeds; investing activities used $3.6 million.
- Management expects significant continuing losses and expenses, including for clinical development, regulatory review, manufacturing readiness and potential commercialization. It gave no revenue or profitability guidance.
- Key risks include FDA approval and manufacturing/human-factors execution; dependence on China-linked natural cantharidin supply and third-party manufacturers; reimbursement and market acceptance; competition, including permitted compounded products; and the need for additional capital and compliance with loan covenants. COVID-19 could further disrupt trials, suppliers, regulatory inspections or commercialization.
- A putative securities class action filed in 2020 was dismissed in December with prejudice as to the named plaintiff and without prejudice as to unnamed class members. The filing reports no other legal proceeding as material.
Most important facts for investors to verify
- The FDA’s June 23, 2021 action on the resubmitted molluscum NDA and whether CMC and human-factors requirements were resolved.
- Actual receipt and use of the Torii upfront payment, and the conditions, timing and likelihood of contingent milestones and supply payments.
- Cash burn, financing needs and compliance with the minimum-liquidity covenant, including any lender waiver, amendment or acceleration risk.
- Trial timing and full results for VP-102 in warts, VP-103 and LTX-315, including COVID-related delays.
- Commercial readiness, cantharidin supply security, reimbursement prospects and the extent to which compounding rules could limit competition.