UNITED STATES SECURITIES AND EXCHANGE COMMISSION ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact Name of Registrant as Specified in its Charter) For the transition period from to For the quarterly period ended June 30, 2023 OR Commission File Number: 001-38529 WASHINGTON, DC 20549 FORM 10-Q ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Verrica Pharmaceuticals Inc. (Mark One) Indicate by check mark whether the regis ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 46-3137900 (State or other jurisdiction of incorporation or organization) 44 West Gay Street, Suite 400 West Chester, PA 19380 (Address of principal executive offices) (Zip Code) (I.R.S. Employer Identification No.) Registrant's telephone number, including area code: (484) 453-3300 N/A For the quarterly period ended Marc ...

[Part I](index=5&type=section&id=PART%20I) [Business](index=5&type=section&id=Item%201.%20Business) Verrica Pharmaceuticals is a dermatology therapeutics company focused on developing medications for skin diseases, with its lead product VP-102 targeting molluscum contagiosum, external genital warts, and common warts, and other pipeline candidates for dermatological oncology and plantar warts [Overview and Pipeline](index=5&type=section&id=Overview%20and%20Pipeline) - Verrica is a dermatology therapeutics company developing medications for skin diseases, with a focus on clinician-administered therapies for conditions with high unmet needs[16](index=16&type=chunk) Product Candidate Pipeline | Product Candidate | Indication | Development Stage | | :--- | :--- | :--- | | **VP-102 (YCANTH)** | Molluscum Contagiosum | NDA Resubmitted (PDUFA: July 23, 2023) | | | External Genital Warts | Phase 3 to be initiated in 2H 2024 | | | Common Warts | Phase 2 Completed; evaluating additional Phase 2 | | **VP-315** | Dermatological Oncology (Basal Cell Carcinoma) | Phase 2 Initiated (April 2022) | | **VP-103** | Plantar Warts | Preclinical; Phase 2 timing to be determined | [VP-102 Development Program](index=9&type=section&id=VP-102%20Development%20Program) - VP-102 is a proprietary drug-device combination containing a **0.7% w/v topical solution of cantharidin**, designed to be the first FDA-approved treatment for molluscum, addressing limitations of current compounded formulations regarding safety, purity, and ease of administration[39](index=39&type=chunk)[40](index=40&type=chunk) - The NDA for VP-102 for molluscum has a complex history with the FDA, receiving multiple Complete Response Letters (CRLs) primarily due to manufacturing facility deficiencies at a contract manufacturing organization (CMO), not related to the product's clinical safety or efficacy. The company has since changed its CMO for the bulk solution and resubmitted the NDA[24](index=24&type=chunk)[25](index=25&type=chunk)[51](index=51&type=chunk) Phase 3 CAMP-1 & CAMP-2 Topline Results (Molluscum) | Metric | CAMP-1 | CAMP-2 | | :--- | :--- | :--- | | **Primary Endpoint: Complete Clearance at Day 84** | | | | VP-102 Group | 46% | 54% | | Placebo Group | 18% | 13% | | p-value | <0.0001 | <0.0001 | | **Mean Lesion Reduction at Day 84** | | | | VP-102 Group | 69% | 83% | | Placebo Group | +20% (increase) | 19% | - For External Genital Warts (EGW), a Phase 2 trial showed **statistically significant complete clearance** for VP-102 versus placebo. The company plans to initiate a Phase 3 trial in the second half of 2024[26](index=26&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) - For Common Warts, the Phase 2 COVE-1 trial showed **51.4% of subjects in Cohort 2 achieved complete clearance** at Day 84. The company is evaluating an additional Phase 2 trial based on FDA feedback for the Phase 3 protocol[59](index=59&type=chunk)[61](index=61&type=chunk) [Other Pipeline Programs](index=14&type=section&id=Other%20Pipeline%20Programs) - VP-315, for dermatological oncology, is in a Phase 2 trial for Basal Cell Carcinoma. Part 1 of the trial demonstrated a **favorable safety and tolerability profile with no serious adverse events**. Part 2 is expected to initiate in Q2 2023[62](index=62&type=chunk) - VP-103 is a second cantharidin-based product candidate being developed for plantar warts. The company is currently conducting necessary drug development activities and evaluating the timing for a Phase 2 clinical trial[63](index=63&type=chunk) [Operations and Strategy](index=14&type=section&id=Operations%20and%20Strategy) - The company relies on third-party contract manufacturers for its product candidates and has a five-year supply agreement with a Chinese supplier for naturally-sourced cantharidin, with exclusivity in North America[64](index=64&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk) - Commercialization strategy for VP-102 in the U.S. involves building a specialized sales force of **50-60 representatives** targeting pediatric dermatologists and dermatologists. For Japan, the company has partnered with Torii Pharmaceutical[71](index=71&type=chunk) - The company faces competition from existing treatments like cryotherapy, compounded cantharidin, and off-label drugs. Novan has also submitted an NDA for a molluscum treatment. If VP-102 is approved, it may limit the compounding of similar cantharidin products under FDCA Sections 503A and 503B[75](index=75&type=chunk)[76](index=76&type=chunk) - The company's intellectual property includes **two issued U.S. patents** for the VP-102 formulation and device, expiring in **2035 and 2038**, respectively. It also has patents covering methods of preparing and purifying cantharidin[81](index=81&type=chunk)[83](index=83&type=chunk) [License Agreements](index=8&type=section&id=License%20Agreements) Torii Pharmaceutical Agreement (Japan) | Payment Type | Amount | Status | | :--- | :--- | :--- | | Upfront/Option Payments | **$12.0 million** | Received ($0.5 million in 2020, $11.5 million in 2021) | | Milestone Payment | **$8.0 million** | Received (July 2022) | | Potential Future Milestones | **$50.0 million** | Contingent on development, regulatory, and sales events | | Transfer Price Payments | **Mid-30s to mid-40s % of net sales** | Contingent on commercial sales | Lytix BioPharma Agreement (VP-315) | Payment Type | Amount | Status | | :--- | :--- | :--- | | Initial/Milestone Payments | **$3.5 million** | Paid ($0.25 million initial, $2.25 million in Feb 2021, $1.0 million in May 2022) | | Potential Future Milestones | **$111.0 million** | Contingent on development, regulatory, and sales events | | Royalties | **Low-double digits to mid-teens % of net sales** | Contingent on commercial sales | [Government Regulation](index=20&type=section&id=Government%20Regulation) - The company's products are subject to extensive regulation by the FDA in the United States and other government authorities. VP-102 is regulated as a drug-device combination product, requiring review from both the Center for Drug Evaluation and Research (CDER) and the Center for Devices and Radiological Health (CDRH)[99](index=99&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk) - Upon potential approval of VP-102, the company will be subject to post-approval requirements, including regulations on manufacturing (cGMP), marketing, advertising, and reporting of adverse events. The FDA can withdraw approval if compliance is not maintained[126](index=126&type=chunk)[130](index=130&type=chunk) - The company's business practices are subject to federal and state healthcare laws, including the Anti-Kickback Statute, False Claims Act, and HIPAA, which restrict relationships with healthcare providers and payors[139](index=139&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks, including a history of net losses and the need for substantial additional funding, which raises doubts about its ability to continue as a going concern - **Financial Risks:** The company has a history of significant losses (**$24.5 million in 2022**) and an accumulated deficit of **$163.5 million**. It will need substantial additional funding to continue operations, and there is substantial doubt about its ability to continue as a going concern[176](index=176&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - **Regulatory & Development Risks:** The timing for VP-102 approval is uncertain due to past CRLs related to CMO deficiencies. There is a risk that the FDA may not approve the resubmitted NDA. Clinical development is a lengthy, expensive process with an uncertain outcome[191](index=191&type=chunk)[193](index=193&type=chunk)[231](index=231&type=chunk) - **Commercialization & Competition Risks:** The company faces substantial competition, including from compounded cantharidin products which may continue to be available even if VP-102 is approved. Market success depends on physician and patient acceptance, as well as adequate reimbursement from payors[241](index=241&type=chunk)[243](index=243&type=chunk)[252](index=252&type=chunk) - **Third-Party Reliance Risks:** The company relies on a single supplier in the PRC for its naturally-sourced raw material and on third-party CMOs for manufacturing. Any disruption in this supply chain could significantly impair business operations[271](index=271&type=chunk)[275](index=275&type=chunk) [Unresolved Staff Comments](index=76&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - There are no unresolved staff comments from the SEC[389](index=389&type=chunk) [Properties](index=76&type=section&id=Item%202.%20Properties) The company's headquarters is located in a leased 11,201 square foot office space in West Chester, Pennsylvania - The company leases **11,201 square feet** of office space in West Chester, PA, which serves as its headquarters. The lease commenced on **September 1, 2020**, with an initial term of **seven years**[390](index=390&type=chunk) [Legal Proceedings](index=76&type=section&id=Item%203.%20Legal%20Proceedings) The company is a defendant in a putative class action lawsuit filed in June 2022, alleging federal securities law violations related to manufacturing deficiencies - A putative class action lawsuit was filed against the company in **June 2022**, alleging violations of federal securities laws related to non-disclosure of manufacturing deficiencies at a CMO facility for VP-102[392](index=392&type=chunk) - The lawsuit seeks unspecified compensatory damages for individuals who acquired the company's securities between **May 19, 2021, and May 24, 2022**. The litigation is in its early stages[393](index=393&type=chunk) [Mine Safety Disclosures](index=77&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[395](index=395&type=chunk) [Part II](index=78&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=78&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock is listed on the Nasdaq Global Select Market under the symbol "VRCA", with no cash dividends paid or anticipated - The company's common stock trades on the Nasdaq under the symbol **\"VRCA\"**[399](index=399&type=chunk) - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[398](index=398&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=79&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For the year ended December 31, 2022, Verrica reported a net loss of $24.5 million, a decrease from a $35.1 million net loss in 2021, with cash and cash equivalents of $34.3 million [Results of Operations](index=85&type=section&id=Results%20of%20Operations) Results of Operations (in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Collaboration revenue | $9,032 | $12,000 | | Research and development | $12,198 | $15,929 | | General and administrative | $17,405 | $26,979 | | **Loss from operations** | **($21,296)** | **($30,908)** | | **Net loss** | **($24,487)** | **($35,080)** | - Collaboration revenue decreased to **$9.0 million** in 2022 from **$12.0 million** in 2021. The 2022 revenue includes an **$8.0 million** milestone payment from Torii, while 2021 revenue was from the upfront license payment[440](index=440&type=chunk) - Research and development expenses decreased by **$3.7 million** to **$12.2 million** in 2022, primarily due to lower CMC costs for VP-102 and a smaller milestone payment to Lytix for VP-315[441](index=441&type=chunk) - General and administrative expenses decreased by **$9.6 million** to **$17.4 million** in 2022, driven by lower pre-commercial activities for VP-102 and reductions in headcount and other operating costs[444](index=444&type=chunk) [Liquidity and Capital Resources](index=86&type=section&id=Liquidity%20and%20Capital%20Resources) - As of December 31, 2022, the company had cash and cash equivalents of **$34.3 million**[451](index=451&type=chunk) - The company believes its existing cash, plus net proceeds of **$30.1 million** from a February 2023 offering, will be sufficient to fund operations into the **first quarter of 2024**. However, these conditions raise substantial doubt about the company's ability to continue as a going concern[420](index=420&type=chunk)[464](index=464&type=chunk) - In July 2022, the company voluntarily repaid its outstanding debt of approximately **$43.8 million** in full, satisfying all obligations under its loan agreements[454](index=454&type=chunk)[568](index=568&type=chunk) Cash Flow Summary (in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($18,650) | ($27,582) | | Net cash provided by (used in) investing activities | $54,041 | ($998) | | Net cash (used in) provided by financing activities | ($16,870) | $33,646 | [Quantitative and Qualitative Disclosures About Market Risk](index=90&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate sensitivity on its cash equivalents and marketable securities, with minor exposure to foreign currency exchange rate risk - The primary market risk is interest rate sensitivity on cash and investments, but due to their short-term nature, the impact of rate changes is not expected to be material[470](index=470&type=chunk) - The company has some exposure to foreign currency risk from international vendors but does not currently hedge this risk[471](index=471&type=chunk) [Financial Statements and Supplementary Data](index=91&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The audited financial statements for 2022 and 2021 are presented, with the auditor's report highlighting substantial doubt about the company's ability to continue as a going concern - The report from the independent registered public accounting firm, KPMG LLP, includes a 'Going Concern' paragraph, noting that the company's substantial operating losses raise substantial doubt about its ability to continue as a going concern[477](index=477&type=chunk) Key Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $34,273 | $15,752 | | Total Assets | $44,721 | $80,125 | | Total Liabilities | $4,688 | $47,520 | | Accumulated Deficit | ($163,453) | ($138,966) | | Total Stockholders' Equity | $40,033 | $32,605 | Key Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Collaboration Revenue | $9,032 | $12,000 | | Total Expenses | $30,328 | $42,908 | | Net Loss | ($24,487) | ($35,080) | | Net Loss Per Share | ($0.72) | ($1.30) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=112&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[581](index=581&type=chunk) [Controls and Procedures](index=112&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of **December 31, 2022**[582](index=582&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **December 31, 2022**[585](index=585&type=chunk) [Other Information](index=112&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[589](index=589&type=chunk) [Part III](index=113&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=113&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the **2023 Proxy Statement**[593](index=593&type=chunk) [Executive Compensation](index=113&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the **2023 Proxy Statement**[593](index=593&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=113&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the **2023 Proxy Statement**[594](index=594&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=113&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the **2023 Proxy Statement**[594](index=594&type=chunk) [Principal Accountant Fees and Services](index=113&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the **2023 Proxy Statement**[595](index=595&type=chunk) [Part IV](index=114&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=114&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the exhibits filed as part of the Annual Report, including corporate governance documents, material contracts, and certifications - The financial statements are included in **Item 8** of this report[596](index=596&type=chunk) - A list of exhibits filed with the report is provided, including material agreements such as the Lytix License Agreement and the Torii Collaboration and License Agreement[597](index=597&type=chunk)[600](index=600&type=chunk) [Form 10-K Summary](index=117&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[604](index=604&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38529 Verrica Pharmaceuticals Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 46-3137900 (State or other juri ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38529 Verrica Pharmaceuticals Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 46-3137900 (State or other jur ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-38529 Verrica Pharmaceuticals Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 46-3137900 (State or other jurisdiction of incorporation or organizat ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38529 Verrica Pharmaceuticals Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 46-3137900 (State or other ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) OR Verrica Pharmaceuticals Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 46-3137900 (State or other jurisdiction of incorporation or organization) 44 West Gay Street, Suite 400 West Chester, PA 19380 (Address of principal executive offices) (Zip Code) (I.R.S. Employer Identification No.) Registrant's telephone number, including area code: (484) 453-3300 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) For the quarter ended March 31, 2021, the company reported a significant increase in total assets to $108.1 million, driven by a follow-on public offering and a new license agreement. The company recognized $12.0 million in license revenue, resulting in a substantially reduced net loss of $0.9 million compared to $9.8 million in the prior-year period. Cash flows were primarily influenced by financing activities, including $28.1 million net proceeds from a stock issuance and $5.0 million from debt [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) As of March 31, 2021, total assets increased to $108.1 million from $74.2 million at year-end 2020, primarily due to a rise in cash and cash equivalents and a new license receivable. Total liabilities grew to $46.3 million, mainly from an increase in debt, while stockholders' equity more than doubled to $61.8 million following a recent stock offering Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,101 | $10,686 | | License receivable | $11,500 | $0 | | **Total Assets** | **$108,102** | **$74,154** | | Current debt, net | $40,669 | $35,315 | | **Total Liabilities** | **$46,292** | **$41,168** | | **Total Stockholders' Equity** | **$61,810** | **$32,986** | [Condensed Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the three months ended March 31, 2021, the company generated $12.0 million in license revenue, a new revenue stream compared to the same period in 2020. This revenue offset operating expenses, leading to a minimal net loss of $0.9 million, or ($0.04) per share, a significant improvement from the $9.8 million net loss, or ($0.39) per share, in Q1 2020 Q1 2021 vs Q1 2020 Statement of Operations (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | License revenue | $12,000 | $0 | | Research and development | $5,362 | $4,892 | | General and administrative | $6,578 | $4,988 | | Income (loss) from operations | $60 | ($9,880) | | **Net loss** | **($936)** | **($9,822)** | | **Net loss per share** | **($0.04)** | **($0.39)** | [Condensed Statements of Cash Flows](index=6&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) In Q1 2021, net cash used in operating activities was $10.8 million, influenced by a new $11.5 million license receivable. Investing activities provided $10.8 million from net sales of marketable securities. Financing activities were the primary source of cash, providing $33.4 million from a common stock issuance ($28.1 million net) and new debt proceeds ($5.0 million), resulting in a net cash increase of $33.4 million Cash Flow Summary for the Three Months Ended March 31 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($10,785) | ($7,906) | | Net cash provided by investing activities | $10,835 | $18,274 | | Net cash provided by financing activities | $33,365 | $34,877 | | **Net increase in cash and cash equivalents** | **$33,415** | **$45,245** | [Notes to Condensed Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Key notes highlight significant events in Q1 2021, including a collaboration and license agreement with Torii that generated $12.0 million in revenue, a follow-on public offering raising $28.1 million, and an additional $5.0 million borrowed under a mezzanine loan agreement. The company also disclosed a probable future non-compliance with a minimum liquidity debt covenant, leading to the classification of all outstanding debt as a current liability - The company entered into a collaboration and license agreement with Torii Pharmaceutical Co., Ltd. in March 2021, granting Torii exclusive rights to develop and commercialize cantharidin-based product candidates in Japan. This resulted in an **$11.5 million upfront payment** received in April 2021 and recognized as revenue in Q1[80](index=80&type=chunk)[81](index=81&type=chunk) - The company borrowed an additional **$5.0 million** on March 1, 2021, under its Mezzanine Loan Agreement. Due to a probable future breach of the minimum liquidity covenant, the entire outstanding debt principal and fees have been classified as a **current liability**[54](index=54&type=chunk)[64](index=64&type=chunk) - In March 2021, the company completed a follow-on public offering, selling 2,033,899 shares of common stock which resulted in net proceeds of **$28.1 million**[19](index=19&type=chunk)[97](index=97&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's focus on developing its lead product candidate, VP-102, for molluscum and warts, highlighting the resubmission of its NDA with a PDUFA date of June 23, 2021. The analysis of Q1 2021 results emphasizes the $12.0 million license revenue from the Torii agreement, which significantly reduced the net loss. The company believes its existing cash, combined with the Torii upfront payment, is sufficient to fund operations through the second quarter of 2023, despite acknowledging the probability of not meeting a debt covenant within the next year [Overview](index=18&type=section&id=Overview) Verrica is a dermatology therapeutics company focused on commercializing its lead product candidate, VP-102, for molluscum contagiosum and common warts. The company resubmitted its NDA for VP-102 for molluscum in December 2020, with an FDA PDUFA goal date of June 23, 2021. A recent collaboration with Torii Pharmaceutical for the Japanese market and a follow-on public offering have strengthened the company's financial position - The company's lead product candidate is **VP-102**, a drug-device combination for treating molluscum and common warts, conditions with no current FDA-approved treatments[89](index=89&type=chunk) - The NDA for VP-102 for the treatment of molluscum was resubmitted in December 2020, and the FDA has set a **PDUFA goal date of June 23, 2021**[90](index=90&type=chunk) - The company entered into a collaboration and license agreement with Torii Pharmaceutical for VP-102 in Japan, receiving an **$11.5 million upfront payment** in April 2021[93](index=93&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For Q1 2021, the company reported $12.0 million in license revenue from the Torii agreement, compared to none in Q1 2020. Research and development expenses increased by $0.5 million to $5.4 million, primarily due to a $2.3 million milestone payment to Lytix. General and administrative expenses rose by $1.6 million to $6.6 million due to increased headcount and pre-commercial activities for VP-102 Comparison of Results for the Three Months Ended March 31 (in thousands) | Item | 2021 | 2020 | Change | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | License revenue | $12,000 | $0 | $12,000 | Revenue recognized from the Torii Agreement | | Research and development | $5,362 | $4,892 | $470 | Increased due to a $2.3M milestone payment to Lytix | | General and administrative | $6,578 | $4,988 | $1,590 | Increased headcount and pre-commercial activities | | **Net loss** | **($936)** | **($9,822)** | **$8,886** | Driven by new license revenue | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2021, the company had $87.7 million in cash, cash equivalents, and marketable securities. Liquidity was bolstered by a March 2021 public offering that raised $28.1 million net, and an additional $5.0 million drawn from its loan facility. The company believes its current funds, plus the $11.5 million upfront payment from Torii received in April 2021, are sufficient to fund operations at least through Q2 2023. However, it is probable the company will not be in compliance with its minimum liquidity debt covenant within the next twelve months - The company believes its existing cash, cash equivalents, and marketable securities as of March 31, 2021, combined with the **$11.5 million Torii payment**, will be sufficient to support planned operations at least through the **second quarter of 2023**[97](index=97&type=chunk)[139](index=139&type=chunk) - The company raised net proceeds of **$28.1 million** from a follow-on public offering in March 2021[119](index=119&type=chunk) - Management believes it is probable that the company will not be in compliance with its **minimum liquidity ratio covenant** at some point in the next twelve months, which has led to the classification of its debt as a **current liability**[130](index=130&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company states that there have been no material changes to its quantitative and qualitative disclosures about market risk from those previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There have been **no material changes** to the company's market risk disclosures since the last Annual Report on Form 10-K[147](index=147&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2021. No material changes to internal control over financial reporting were identified during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2021[148](index=148&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter that materially affected, or are reasonably likely to materially affect, these controls[152](index=152&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any material legal proceedings and is not aware of any pending or threatened legal actions that could have a material adverse effect on its business or financial condition - The company is **not currently involved in any material legal proceedings**[153](index=153&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company states there have been no material changes to the risk factors previously disclosed in its 2020 Annual Report on Form 10-K. A summary of key risks is provided, covering areas such as financial position, product development, commercialization, dependence on third parties, and intellectual property - There have been **no material changes** to the risk factors described in the Annual Report for the fiscal year ended December 31, 2020[154](index=154&type=chunk) - Key risk categories include: - Financial Position and Capital Needs (history of losses, need for additional funding) - Product Candidate Development (reliance on VP-102 success) - Commercialization (competition, reimbursement challenges) - Dependence on Third Parties (raw material supply, collaborations) - Intellectual Property (ability to obtain and protect patents)[155](index=155&type=chunk)[156](index=156&type=chunk)[162](index=162&type=chunk) [Recent Sales of Unregistered Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Recent%20Sales%20of%20Unregistered%20Securities%20and%20Use%20of%20Proceeds) The company reports no recent sales of unregistered equity securities during the period - There were **no sales of unregistered equity securities** in the reported period[164](index=164&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, most notably the Collaboration and License Agreement with Torii Pharmaceutical Co., Ltd., and the required CEO and CFO certifications under the Sarbanes-Oxley Act - Key exhibits filed include the **Collaboration and License Agreement with Torii Pharmaceutical Co., Ltd.**, dated March 17, 2021, and officer certifications[172](index=172&type=chunk)

[PART I](index=5&type=section&id=PART%20I) Overview of the company's business, operations, and associated risks [Business](index=5&type=section&id=ITEM%201.%20BUSINESS) Verrica Pharmaceuticals is a clinical-stage dermatology therapeutics company focused on developing and commercializing treatments for skin diseases [Overview](index=5&type=section&id=Overview) Key product candidate VP-102 targets molluscum and warts, with an NDA resubmission and strategic collaborations - Verrica's lead product candidate, VP-102, is a proprietary drug-device combination for treating molluscum contagiosum and common warts, both of which have no FDA-approved treatments[13](index=13&type=chunk) - The company resubmitted its New Drug Application (NDA) for VP-102 for molluscum in December 2020, and the FDA has set a PDUFA goal date of June 23, 2021; the initial Complete Response Letter (CRL) cited Chemistry, Manufacturing, and Controls (CMC) and human factors issues, with no clinical deficiencies[14](index=14&type=chunk) - Verrica entered into a collaboration with Torii Pharmaceutical to develop and commercialize cantharidin-based products in Japan, receiving an **$11.5 million upfront payment** and eligibility for up to **$58.0 million in milestones**[17](index=17&type=chunk)[18](index=18&type=chunk) - The company licensed LTX-315 from Lytix Biopharma for dermatological oncology and plans to submit an Investigational New Drug (IND) application in the first half of 2021[19](index=19&type=chunk) - The estimated total addressable U.S. market for molluscum is over **$1 billion**, affecting an estimated **6 million people**[21](index=21&type=chunk) [Our Pipeline](index=8&type=section&id=Our%20Pipeline) Overview of the company's product candidates and their current development phases Product Candidate Pipeline Status | Product Candidate | Indication | Pre-IND | Phase 2 | Phase 3 | NDA | Next Expected Milestone | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **VP-102 (YCANTH)** | Molluscum Contagiosum | | | ✓ | ✓ | PDUFA Goal Date: June 23, 2021 | | | Common Warts | | ✓ | | | Evaluate potential second Phase 2 trial | | | External Genital Warts | | ✓ | | | End-of-Phase 2 meeting in Q2 2021 | | **VP-103** | Plantar Warts | ✓ | | | | Initiate Phase 2 trial | | **LTX-315** | Dermatological Oncology | ✓ | | | | Submit US IND during 1H 2021 | [Clinical Development Program](index=8&type=section&id=Clinical%20Development%20Program) Summary of clinical trial results and development plans for lead product candidates - In two pivotal Phase 3 trials (CAMP-1 and CAMP-2), VP-102 demonstrated statistically significant complete clearance of all treatable molluscum lesions compared to placebo (**46% and 54% vs. 18% and 13%**, respectively; p<0.0001)[41](index=41&type=chunk)[42](index=42&type=chunk) - The Phase 2 COVE-1 trial for common warts showed positive results, with Cohort 2 (which allowed for wart paring) achieving a **51.4% complete clearance rate** at Day 84[51](index=51&type=chunk) - Following positive topline results from the Phase 2 trial of VP-102 for external genital warts in November 2020, the company requested an end-of-Phase 2 meeting with the FDA in Q1 2021[27](index=27&type=chunk)[54](index=54&type=chunk) - The company is developing VP-103 for plantar warts and LTX-315 for dermatological oncology, with plans to initiate a Phase 2 trial for VP-103 and submit an IND for LTX-315 in the first half of 2021[28](index=28&type=chunk)[29](index=29&type=chunk)[58](index=58&type=chunk) [Manufacturing](index=13&type=section&id=Manufacturing) Reliance on third-party manufacturers and a single-source supplier for key raw materials - Verrica does not own manufacturing facilities and relies on third-party contractors for the manufacture of its product candidates[59](index=59&type=chunk) - The company has a five-year supply agreement with a Chinese supplier for naturally-sourced cantharidin, which grants Verrica exclusivity for the raw material in North America[60](index=60&type=chunk)[62](index=62&type=chunk) - As of January 31, 2021, the company possessed sufficient raw cantharidin and API to produce over **14 million finished drug product applicators**[61](index=61&type=chunk) [Commercialization](index=14&type=section&id=Commercialization) Plans for U.S. sales force and anticipated market access for VP-102 - The company plans to build a specialized U.S. sales force of approximately **50 to 60 representatives** to target dermatologists and pediatricians[67](index=67&type=chunk) - A market research study surveying payors representing over **105 million lives** indicated that, given the unmet need, the majority of patients would likely have access to VP-102 with minimal restrictions if approved[68](index=68&type=chunk) [Competition](index=14&type=section&id=Competition) Competitive landscape for molluscum and warts, including existing and pipeline therapies - There are currently no FDA-approved prescription therapies for molluscum, common warts, or plantar warts; competition includes off-label therapies, cryotherapy, curettage, and compounded cantharidin[70](index=70&type=chunk) - If VP-102 is approved, compounding of similar cantharidin products may be restricted under FDCA Sections 503A and 503B, though exceptions for individual patient needs could still allow for competition[70](index=70&type=chunk) - Several other companies are developing potential treatments for molluscum (Veloce Biopharma, Leo Pharma, Novan) and common warts (Aclaris Therapeutics)[72](index=72&type=chunk) [Intellectual Property](index=15&type=section&id=Intellectual%20Property) Overview of patent portfolio, licensing agreements, and associated financial terms - The company's patent portfolio covers cantharidin formulations, applicator devices, and methods of use, but not the cantharidin molecule itself; utility patents from pending applications are projected to expire between **2034 and 2041**[74](index=74&type=chunk)[75](index=75&type=chunk) - Verrica obtained an exclusive worldwide license from Lytix Biopharma for LTX-315, with financial terms including upfront/milestone payments of **$2.5 million**, up to **$111.0 million in future milestones**, and tiered royalties[79](index=79&type=chunk)[80](index=80&type=chunk) - The company granted Torii Pharmaceutical an exclusive license for cantharidin-based products in Japan, for which Verrica will receive an **$11.5 million upfront payment**, up to **$58.0 million in milestones**, and tiered transfer price payments[83](index=83&type=chunk)[85](index=85&type=chunk) [Government Regulation and Product Approval](index=17&type=section&id=Government%20Regulation%20and%20Product%20Approval) Regulatory framework for drug-device combination products and compliance with healthcare laws - VP-102 is regulated as a drug-device combination product, requiring review coordination between the FDA's Center for Drug Evaluation and Research (CDER) and Center for Devices and Radiological Health (CDRH)[90](index=90&type=chunk) - The company may be entitled to **five years of non-patent exclusivity** if VP-102's active ingredient is characterized as a New Chemical Entity (NCE), with a potential **six-month pediatric extension**[113](index=113&type=chunk) - The business is subject to extensive healthcare laws, including the federal Anti-Kickback Statute, False Claims Act, HIPAA, and the Physician Payments Sunshine Act, which govern interactions with healthcare providers and payors[128](index=128&type=chunk)[129](index=129&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - The Affordable Care Act (ACA) and other healthcare reform initiatives continue to create an uncertain environment regarding drug pricing, reimbursement, and market access[146](index=146&type=chunk)[147](index=147&type=chunk) [Risk Factors](index=30&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces substantial financial, operational, and regulatory risks, including significant losses, capital needs, reliance on VP-102 approval, supply chain dependencies, and intense competition [Risks Related to Financial Position and Capital Needs](index=31&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Capital%20Needs) Significant historical losses, limited cash runway, and debt covenants pose financial challenges - The company has a history of significant losses, with a net loss of **$42.7 million** in 2020 and an accumulated deficit of **$103.9 million** as of December 31, 2020; it has never generated revenue and expects to incur losses for the next several years[168](index=168&type=chunk) - Existing cash is expected to fund operations only through the first quarter of 2022, and substantial additional funding will be required to meet objectives[176](index=176&type=chunk)[180](index=180&type=chunk) - The company has **$40.0 million in debt** with restrictive covenants, including a minimum liquidity requirement that it may not be able to meet without additional financing, which could lead to debt acceleration[187](index=187&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) [Risks Related to Product Development](index=35&type=section&id=Risks%20Related%20to%20the%20Development%20of%20Our%20Product%20Candidates) Uncertainty and complexity of clinical trials and regulatory approval for drug-device combination products - The company's business is highly dependent on the successful development, regulatory approval, and commercialization of its lead product candidate, VP-102[191](index=191&type=chunk) - Clinical development is a lengthy, expensive, and uncertain process; delays in trials, patient enrollment difficulties, or unfavorable results could prevent or delay marketing approval[195](index=195&type=chunk)[199](index=199&type=chunk)[203](index=203&type=chunk) - VP-102 is a drug-device combination product, which may result in a more complex and lengthy regulatory review process due to the need for coordination between different FDA centers[218](index=218&type=chunk) [Risks Related to Commercialization](index=43&type=section&id=Risks%20Related%20to%20the%20Commercialization%20of%20Our%20Product%20Candidates) Challenges in market acceptance, competition from existing therapies, and securing adequate reimbursement - Even if approved, VP-102 may fail to achieve market acceptance from physicians, patients, and payors[232](index=232&type=chunk) - The company faces substantial competition from existing treatments, off-label products, and compounded cantharidin, which may still be available under certain conditions even after VP-102's approval[238](index=238&type=chunk)[240](index=240&type=chunk) - Commercial success is highly dependent on obtaining adequate coverage and reimbursement from third-party payors, which is uncertain and may be difficult to secure[251](index=251&type=chunk) [Risks Related to Dependence on Third Parties](index=48&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) Reliance on single-source suppliers and contract organizations introduces supply chain and operational risks - The company relies on a single supplier based in the People's Republic of China for its raw material, naturally-sourced cantharidin, posing significant supply chain, environmental, and geopolitical risks[273](index=273&type=chunk)[276](index=276&type=chunk) - The COVID-19 pandemic has already caused delays in planned clinical trials for common warts and plantar warts and could continue to adversely impact the business[279](index=279&type=chunk) - Verrica relies on third-party contract manufacturers for its products and CROs for its clinical trials, which reduces direct control over these critical functions and introduces risks related to performance, compliance, and cost[266](index=266&type=chunk)[282](index=282&type=chunk) [Risks Related to Intellectual Property](index=54&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Limited patent protection for the active ingredient and potential for costly intellectual property litigation - The active ingredient, cantharidin, is a naturally occurring compound and its composition of matter is not patentable; patent protection is limited to specific formulations, devices, and methods of use, which may allow competitors to develop non-infringing alternatives[315](index=315&type=chunk) - The company may become involved in expensive and time-consuming lawsuits to protect its patents or defend against claims that it is infringing on the intellectual property rights of others[317](index=317&type=chunk)[321](index=321&type=chunk) [Risks Related to Legal and Regulatory Compliance Matters](index=61&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Compliance%20Matters) Extensive healthcare laws, promotion regulations, and evolving pricing scrutiny pose compliance and market access risks - The company's business is subject to extensive federal and state healthcare laws, including anti-kickback, false claims, and privacy regulations; violations can lead to substantial penalties[332](index=332&type=chunk) - The FDA strictly regulates the promotion of prescription products, and any improper promotion of off-label uses could result in significant liability[338](index=338&type=chunk) - Ongoing healthcare reform and heightened scrutiny of pharmaceutical pricing create an uncertain regulatory environment that could negatively impact the company's ability to profitably sell its products[344](index=344&type=chunk)[349](index=349&type=chunk) [Risks Related to Employee Matters and Managing Our Growth](index=67&type=section&id=Risks%20Related%20to%20Employee%20Matters%20and%20Managing%20Our%20Growth) Dependence on key personnel and challenges in managing organizational expansion - The company is highly dependent on its key executives and scientific personnel and faces intense competition in recruiting and retaining qualified individuals[355](index=355&type=chunk)[356](index=356&type=chunk) - Expected expansion of operations and employee headcount may create difficulties in managing growth effectively[357](index=357&type=chunk) [Risks Related to Ownership of Common Stock](index=68&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock%20and%20Our%20Status%20as%20a%20Public%20Company) Stock price volatility, concentrated ownership, and reduced disclosure as an emerging growth company - The company's stock price may be volatile, and a substantial portion of its common stock is concentrated among executive officers, directors, and principal stockholders, which may limit the influence of other stockholders[360](index=360&type=chunk)[369](index=369&type=chunk) - As an "emerging growth company," Verrica is permitted to have reduced disclosure and governance requirements, which may make its stock less attractive to some investors[371](index=371&type=chunk) - A material weakness in IT general controls was identified in 2019 and remediated as of December 31, 2020[377](index=377&type=chunk)[599](index=599&type=chunk) [Properties](index=74&type=section&id=ITEM%202.%20PROPERTIES) The company leases office space in West Chester, Pennsylvania; it entered into a new seven-year lease for 11,201 square feet of office space to serve as its new headquarters, with the lease commencing on September 1, 2020 - The company entered into a new seven-year lease for **11,201 square feet** of office space in West Chester, PA, which commenced on September 1, 2020, to serve as its new headquarters[393](index=393&type=chunk) [Legal Proceedings](index=74&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) A putative class action lawsuit filed against the company and certain executive officers in July 2020, alleging federal securities law violations, was voluntarily dismissed by the plaintiff in December 2020 - A putative class action complaint filed against the company on July 14, 2020, was voluntarily dismissed with prejudice as to the plaintiff on December 21, 2020[395](index=395&type=chunk) [PART II](index=75&type=section&id=PART%20II) Financial performance, capital resources, and market information for the company's common equity [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=75&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Verrica's common stock trades on the Nasdaq Global Select Market under the symbol "VRCA"; the company has never paid cash dividends and does not plan to in the foreseeable future, partly due to restrictions in its loan agreements; in December 2020, the company repurchased 424,429 shares of its common stock from a former executive - The company has never declared or paid cash dividends and does not anticipate doing so; its loan agreements also restrict dividend payments[399](index=399&type=chunk) - In December 2020, the company repurchased **424,429 shares** of common stock from its former Chief Scientific Officer at a price of **$0.0001714 per share**[404](index=404&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=76&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Verrica reported a net loss of $42.7 million for 2020, an increase from $28.2 million in 2019, driven by higher G&A expenses related to stock-based compensation and pre-commercial activities for VP-102; the company ended 2020 with $65.5 million in cash, cash equivalents, and marketable securities; it secured a debt facility in March 2020, drawing $35.0 million; management believes existing cash, combined with an $11.5 million upfront payment from its Torii collaboration, will fund operations at least through the first quarter of 2022, but notes it is probable the company will not meet a minimum liquidity covenant on its debt without additional financing [Results of Operations](index=81&type=section&id=Results%20of%20Operations) Analysis of operating expenses and net loss for the fiscal year 2020 compared to 2019 Results of Operations (in thousands) | | For the Year Ended December 31, | Change | | :--- | :--- | :--- | :--- | | | **2020** | **2019** | **($)** | | **Operating expenses:** | | | | | Research and development | $15,673 | $15,436 | $237 | | General and administrative | $24,508 | $14,644 | $9,864 | | **Total operating expenses** | **$40,181** | **$30,080** | **$10,101** | | **Loss from operations** | **($40,181)** | **($30,080)** | **($10,101)** | | Interest income | $521 | $1,877 | ($1,356) | | Interest expense | ($3,033) | $— | ($3,033) | | **Net loss** | **($42,694)** | **($28,207)** | **($14,487)** | - General and administrative expenses increased by **$9.9 million** in 2020, primarily due to higher stock-based compensation costs (including a **$4.8 million modification expense**), increased headcount, and pre-commercial activities for VP-102[440](index=440&type=chunk) - Research and development expenses remained relatively flat, increasing by **$0.2 million** to **$15.7 million** in 2020[439](index=439&type=chunk) [Liquidity and Capital Resources](index=82&type=section&id=Liquidity%20and%20Capital%20Resources) Overview of cash position, debt obligations, and future funding requirements - As of December 31, 2020, the company had **$65.5 million** in cash, cash equivalents, and marketable securities[446](index=446&type=chunk) - In March 2020, the company entered into a loan agreement and borrowed **$35.0 million** in term loans; an additional **$5.0 million** was borrowed on March 1, 2021[447](index=447&type=chunk)[448](index=448&type=chunk) - The loan agreement contains a minimum liquidity covenant; the company has classified the entire debt as a current liability because it believes it is probable that it will not be in compliance with this covenant at some point in the next twelve months without additional financing[458](index=458&type=chunk) Cash Flow Summary (in thousands) | | For the Year Ended December 31, | | :--- | :--- | :--- | | | **2020** | **2019** | | Net cash used in operating activities | ($30,207) | ($27,408) | | Net cash (used in) provided by investing activities | ($3,580) | $25,955 | | Net cash provided by financing activities | $35,232 | $423 | [Financial Statements and Supplementary Data](index=88&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section contains the company's audited financial statements for the fiscal years ended December 31, 2020 and 2019, as audited by KPMG LLP; key financial data includes a net loss of $42.7 million for 2020, total assets of $74.2 million, and total liabilities of $41.2 million as of year-end 2020; the accompanying notes detail significant accounting policies, debt obligations, stock-based compensation, and recent collaboration agreements [Financial Statements](index=89&type=section&id=Financial%20Statements) Summary of key financial data from the balance sheet and statement of operations Key Financial Data (as of and for the year ended Dec 31, 2020, in thousands) | Metric | Amount | | :--- | :--- | | **Balance Sheet:** | | | Cash and cash equivalents | $10,686 | | Total assets | $74,154 | | Current debt, net | $35,315 | | Total liabilities | $41,168 | | Total stockholders' equity | $32,986 | | **Statement of Operations:** | | | Total operating expenses | $40,181 | | Net loss | ($42,694) | | Net loss per share | ($1.71) | [Notes to Financial Statements](index=94&type=section&id=Notes%20to%20Financial%20Statements) Details on debt covenants, stock-based compensation, and significant collaboration agreements - The company's debt agreement includes a minimum liquidity covenant; management believes it is probable this covenant will not be met in the next twelve months without additional financing, leading to the classification of all outstanding debt as a current liability[502](index=502&type=chunk)[578](index=578&type=chunk) - In December 2020, an agreement with the former Chief Scientific Officer was modified, resulting in the immediate recognition of **$4.8 million** in stock-based compensation expense[559](index=559&type=chunk) - In March 2021, the company entered into a collaboration and license agreement with Torii Pharmaceutical, which includes an **$11.5 million upfront payment** and up to **$58 million in potential milestones**[588](index=588&type=chunk)[589](index=589&type=chunk) - In August 2020, the company entered into an exclusive license agreement with Lytix Biopharma, paying a **$0.3 million upfront fee** and committing to potential future milestones of up to **$111.0 million** plus royalties[591](index=591&type=chunk) [Controls and Procedures](index=109&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020; a material weakness in information technology (IT) general controls related to segregation of duties, which was identified in 2019, was successfully remediated during 2020 - A material weakness in IT general controls, first disclosed in the 2019 Form 10-K, was remediated as of December 31, 2020[598](index=598&type=chunk)[599](index=599&type=chunk) - The remediation plan involved transferring key administrative access for an IT system to a third-party IT vendor[599](index=599&type=chunk)[602](index=602&type=chunk) - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[594](index=594&type=chunk) [PART III](index=110&type=section&id=PART%20III) Information on corporate governance, executive compensation, and security ownership [Directors, Executive Officers and Corporate Governance](index=110&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information required by this item is incorporated by reference from the company's 2021 Proxy Statement[607](index=607&type=chunk) [Executive Compensation](index=110&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive and director compensation is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information required by this item is incorporated by reference from the company's 2021 Proxy Statement[607](index=607&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=110&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information regarding security ownership and equity compensation plans is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information required by this item is incorporated by reference from the company's 2021 Proxy Statement[608](index=608&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=110&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information regarding related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information required by this item is incorporated by reference from the company's 2021 Proxy Statement[608](index=608&type=chunk) [Principal Accountant Fees and Services](index=110&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information required by this item is incorporated by reference from the company's 2021 Proxy Statement[609](index=609&type=chunk) [PART IV](index=111&type=section&id=PART%20IV) Listing of exhibits and financial statement schedules filed with the annual report [Exhibits and Financial Statement Schedules](index=111&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the exhibits filed as part of the Annual Report, including corporate governance documents, material contracts such as loan agreements and license agreements, and certifications required by the Sarbanes-Oxley Act - This section contains a list of all exhibits filed with the Form 10-K, including the company's certificate of incorporation, bylaws, material contracts, and required certifications[610](index=610&type=chunk)[611](index=611&type=chunk)