
PART I. FINANCIAL INFORMATION Financial Statements (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 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 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 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 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 Q18081 - 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 liability5464 - 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 million1997 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 treatments89 - 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, 202190 - 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 202193 Results of Operations 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 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 202397139 - The company raised net proceeds of $28.1 million from a follow-on public offering in March 2021119 - 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 liability130 Quantitative and Qualitative Disclosures About Market Risks 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-K147 Controls and Procedures 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, 2021148 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls152 PART II. OTHER INFORMATION Legal Proceedings 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 proceedings153 Risk Factors 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, 2020154 - 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)155156162 Recent Sales of Unregistered Securities and Use of Proceeds The company reports no recent sales of unregistered equity securities during the period - There were no sales of unregistered equity securities in the reported period164 Exhibits 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 certifications172