Verrica Pharmaceuticals(VRCA) - 2022 Q4 - Annual Report

Part I Business 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 - 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] 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 - 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][40] - 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][25][51] 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][54][56] - 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][61] Other Pipeline Programs - 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] - 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] Operations and Strategy - 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][65][67] - 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] - 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][76] - 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][83] License Agreements 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 - 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][101][103] - 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][130] - 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][141][143] Risk Factors 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][183][184] - 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][193][231] - 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][243][252] - 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][275] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments from the SEC[389] Properties 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] Legal Proceedings 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] - 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] Mine Safety Disclosures This item is not applicable to the company - None[395] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[398] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] Liquidity and Capital Resources - As of December 31, 2022, the company had cash and cash equivalents of $34.3 million[451] - 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][464] - 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][568] 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 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] - The company has some exposure to foreign currency risk from international vendors but does not currently hedge this risk[471] Financial Statements and Supplementary Data 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] 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 The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[581] Controls and Procedures 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] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[585] Other Information The company reports no other information - None[589] Part III Directors, Executive Officers and Corporate Governance 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] Executive Compensation 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accountant Fees and Services 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] Part IV Exhibits and Financial Statement Schedules 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] - 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][600] Form 10-K Summary This item is not applicable - Not applicable[604]