Verrica Pharmaceuticals(VRCA) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Verrica reported $8.1 million H1 2024 net product revenue, but a $37.5 million net loss and $31.9 million cash raise going concern doubts Balance Sheets Cash and total assets decreased, liabilities increased, resulting in a $13.3 million stockholders' deficit from prior equity Balance Sheet Summary (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $31,930 | $69,547 | | Accounts receivable | $10,026 | $4,248 | | Total current assets | $47,318 | $77,530 | | Total assets | $52,010 | $81,597 | | Liabilities & Equity | | | | Total current liabilities | $20,051 | $17,024 | | Long-term debt | $42,751 | $42,874 | | Total liabilities | $65,310 | $61,834 | | Total stockholders' (deficit) equity | ($13,300) | $19,763 | Statements of Operations Q2 2024 net product revenue was $4.9 million, but increased SG&A led to a $17.2 million net loss; H1 2024 net loss reached $37.5 million Statements of Operations Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $4,892 | $0 | $8,124 | $0 | | Total revenue | $5,177 | $182 | $9,003 | $219 | | Selling, general and administrative | $16,522 | $5,937 | $32,861 | $10,256 | | Research and development | $3,319 | $5,725 | $8,267 | $8,464 | | Loss from operations | ($15,206) | ($11,616) | ($33,805) | ($18,705) | | Net loss | ($17,186) | ($10,990) | ($37,517) | ($17,579) | | Net loss per share | ($0.37) | ($0.24) | ($0.81) | ($0.40) | Statements of Cash Flows H1 2024 net cash used in operations significantly increased to $36.3 million, resulting in a $37.6 million net cash decrease, ending at $31.9 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($36,305) | ($9,259) | | Net cash used in investing activities | ($11) | ($70) | | Net cash (used in) provided by financing activities | ($1,301) | $30,196 | | Net (decrease) increase in cash | ($37,617) | $20,867 | | Cash and cash equivalents at end of period | $31,930 | $55,140 | Notes to Financial Statements Notes reveal 'going concern' warning due to limited cash ($31.9 million) into Q1 2025, failure to meet debt targets, and details on revenue recognition - The company has substantial doubt about its ability to continue as a going concern, with cash and cash equivalents of $31.9 million as of June 30, 2024, expected to be sufficient only into the first quarter of 2025[13] - Verrica did not achieve the revenue target required to borrow an additional $25.0 million tranche under its Credit Agreement as of June 30, 2024, and does not anticipate borrowing additional tranches[13][45] - Cost of product revenue is initially lower because approximately $5.7 million in manufacturing costs for YCANTH were expensed as R&D prior to FDA approval; these previously expensed materials are now being used for commercial production[20][24] - The company settled litigation with Dormer Labs for $0.8 million, resulting in Dormer discontinuing the sale of cantharidin-containing products in the U.S[31] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses YCANTH's launch and pipeline, noting $8.1 million revenue offset by SG&A, reiterating liquidity risk and going concern doubts Overview Verrica launched YCANTH in August 2023 for molluscum contagiosum and is advancing its pipeline, including a Phase 3 trial for common warts - YCANTH was approved by the FDA on July 21, 2023, for molluscum contagiosum and commercially launched in August 2023 with a specialized sales force of 77 representatives[55] - The company is advancing its pipeline, including a global Phase 3 trial for YCANTH in common warts, with costs split equally with partner Torii, set to begin in H1 2025[55][56] - Preliminary positive results were announced in August 2024 for the Phase 2 trial of VP-315 in basal cell carcinoma, showing the treatment was well-tolerated and achieved approximately 51% complete histological clearance[56] Results of Operations Q2 2024 total revenue was $5.2 million, with net loss widening to $17.2 million due to increased SG&A; H1 2024 net loss reached $37.5 million Comparison of Results for the Three Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Product revenue, net | $4,892 | $0 | $4,892 | | Selling, general and administrative | $16,522 | $5,937 | $10,585 | | Research and development | $3,319 | $5,725 | ($2,406) | | Net loss | ($17,186) | ($10,990) | ($6,196) | - The increase in SG&A expenses in Q2 2024 was driven by a $7.2 million increase in compensation and related costs for the sales force ramp-up, $1.7 million in other commercial activity, and $1.1 million in legal costs[71] - Approximately 54% of the Q2 2024 net product revenue was from a one-time stock-in order from a newly added specialty distributor[69] Liquidity and Capital Resources The company's $31.9 million cash is sufficient only into Q1 2025, raising going concern doubts, and it failed to access an additional $25 million debt tranche - The company's existing cash of $31.9 million is projected to fund operations only into the first quarter of 2025, which raises substantial doubt about its ability to continue as a going concern[94] - The company did not achieve the revenue target as of June 30, 2024, and was unable to borrow an additional $25.0 million tranche from its Loan Facility; it does not intend to borrow additional tranches[89] Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($36,305) | ($9,259) | | Net cash (used in) provided by financing activities | ($1,301) | $30,196 | | Net (decrease) increase in cash | ($37,617) | $20,867 | Quantitative and Qualitative Disclosures About Market Risks No material changes were reported regarding the company's quantitative and qualitative market risk disclosures since the prior annual report - There have been no material changes to the company's market risk disclosures since the last annual report[97] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024[98] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[99] PART II. OTHER INFORMATION Legal Proceedings The company is defending a putative class action lawsuit alleging undisclosed manufacturing deficiencies for YCANTH, with a motion to dismiss pending - A putative class action lawsuit (Gorlamari v. Verrica Pharmaceuticals Inc.) alleges the company failed to disclose manufacturing deficiencies for YCANTH; a motion to dismiss the second amended complaint is pending[100] Risk Factors Key risks include substantial doubt about going concern due to limited cash into Q1 2025, inability to draw further debt, and potential accelerated debt repayment - The company's financial statements have been prepared on a going concern basis, but there is substantial doubt about its ability to continue due to recurring losses and a cash runway only into Q1 2025[102] - The company was unable to borrow an additional $25.0 million tranche under its Credit Agreement due to not meeting revenue targets and does not expect to borrow more, limiting its capital resources[102] - Failure to meet specified revenue targets on a trailing 12-month basis, starting with the test period ending December 31, 2024, would require the company to begin repaying the principal on its outstanding debt in monthly installments[102] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or officers initiated or altered any Rule 10b5-1 trading plans during the three months ended June 30, 2024[104] Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to the Credit Agreement with OrbiMed and the Collaboration and License Agreement with Torii - Key exhibits filed include the Third, Fourth, and Fifth Amendments to the Credit Agreement with OrbiMed and the First Amendment to the Collaboration and License Agreement with Torii[105][106]