Verrica Pharmaceuticals Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The unaudited statements are prepared under U.S. GAAP. Verrica is a clinical-stage dermatology company and has not generated product revenue.
Financial position and results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $3.6 million | $1.0 million | $4.5 million | $1.5 million |
| General and administrative expense | $2.5 million | $0.1 million | $3.5 million | $0.2 million |
| Operating expenses / operating loss | $6.1 million | $1.1 million | $8.0 million | $1.7 million |
| Interest income | $0.15 million | None | $0.19 million | None |
| Net loss | $6.0 million | $1.1 million | $7.8 million | $1.7 million |
| Net loss per share, basic and diluted | $1.04 | $0.38 | $1.82 | $0.58 |
- Liquidity: Cash and cash equivalents were $103.1 million at June 30, 2018, versus $8.7 million at December 31, 2017. Total current liabilities were $3.1 million; total assets were $104.7 million. The filing reports no debt.
- Cash flow, six months: Operating activities used $5.8 million; investing activities used $0.1 million; financing activities provided $100.4 million. Cash increased by $94.5 million.
- Margins: Not applicable; the company had no revenue.
- Accumulated deficit was $20.3 million at June 30, 2018. Stock-based compensation was $1.6 million for the first half.
Changes and notable transactions
- Compared with the prior-year quarter, Q2 operating expenses rose $5.0 million and net loss rose $4.9 million. The company attributed higher R&D expense principally to VP-102 Phase 2 and Phase 3 activity, added clinical support staff, stock compensation, and former chief scientific officer consulting costs. Higher G&A reflected personnel, stock compensation, and external services.
- Verrica completed its IPO on June 19, selling 5.75 million shares at $15 per share and receiving $78.4 million in net proceeds. Earlier in 2018, it raised $21.0 million gross from Series C preferred stock. The IPO converted all outstanding preferred stock into common stock.
- In March, the monthly fee under the related-party PBM Capital services agreement increased from $2,500 to $50,000, effective April 1. Fees incurred under the agreement were $157,500 in the first half of 2018.
Outlook, risks, and contingencies
- Management said existing cash was expected to fund operations and capital needs for at least 24 months. This is an estimate dependent on development costs, trial progress, regulatory requirements, and other assumptions; the company expects continued losses and rising expenses.
- Verrica had initiated two Phase 3 trials of VP-102 for molluscum, including one under an FDA Special Protocol Assessment, and was enrolling a Phase 2 trial for common warts. It expected top-line results from the molluscum and common-wart trials in the first half of 2019; if molluscum results were favorable, it planned to submit an NDA in 2019. These are forward-looking plans, not assurances of results or approval.
- VP-102 is a cantharidin drug-device combination. Key risks include clinical or regulatory failure or delay, trial enrollment, manufacturing and device development, reliance on third parties, competition from compounded cantharidin and other treatments, reimbursement and commercialization uncertainty, and dependence on naturally sourced cantharidin from China. The company also disclosed foreign-exchange exposure on a Chinese-yuan purchase order and said it did not hedge that risk.
- A March purchase order covered approximately $2.3 million of crude cantharidin; about $0.5 million had been purchased by June 30. A July 16, 2018 supply agreement established a five-year initial term and supplier exclusivity in North America subject to minimum purchase requirements and forecasts.
- No litigation was reported. The filing disclosed a $0.4 million accrued obligation under the former chief scientific officer’s consulting agreement and a sublease requiring approximately $0.1 million in annual rent through May 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track enrollment, timing, final results, and FDA implications for the VP-102 trials; confirm whether the anticipated results and NDA timetable were achieved.
- Monitor cash burn and operating-expense growth against management’s 24-month runway estimate, including planned commercialization and public-company costs.
- Verify cantharidin supply continuity, minimum purchase obligations, supplier exclusivity terms, and exposure to Chinese-yuan movements.
- Review the related-party PBM services arrangement and former chief scientific officer consulting commitments.
- Assess the durability of any future product protection and market opportunity in light of compounding rules, competing treatments, reimbursement, and the company’s patent limitations.