Verrica Pharmaceuticals Inc. (VRCA) Earnings Call Transcript & Summary

Yes. Thanks so much, everyone, for joining us. Ted, really great to see you again. And Joe, thanks for joining. I think this is your first conference with us. Next year. Hopefully, we see you live and in a flesh. So I appreciate that you both are here, and obviously, joined by my colleagues, Stacy and Georgi, who, as everyone knows, really makes up the brains of the organization, at least this team.

So I thought maybe, Ted, it would be best to start out as some folks may be new in hearing the story, and things are going to go from 0 to 100 really quickly. We hope, knock on wood, with commercialization, but maybe stepping back and framing the clinical data to date that makes us so excited about 102. And then maybe after we have that discussion, Joe or you can talk a little bit about the -- just the issue that 102 is going to solve for us.

Sure. Thank you, Ken, and thanks for having us. I would tell you that we completed 2 pivotal Phase III clinical trials for VP-102, CAMP-1 and CAMP-2, of which we had a SPA from the FDA on one of our Phase III programs. Now they're identical design programs. And the reason why we had a SPA on one and not the other is that we made a commitment to our 2 institutional investors, Perceptive and OrbiMed that we would start the trial by the AAD of 2018. So that's the only reason why we don't have a SPA on both. These 2 trials completed 2 months ahead of schedule, which I think speaks to the size of the market and also the high unmet need of molluscum contagiosum. The results, when you look at the pooled combined results, we had over 50% complete clearance of all molluscum lesions at day 84. So it's a 12-week study compared to 15% on vehicle. More importantly, when you look at lesion reduction, you see a meaningful benefit after the first dose. So VP-102 is dosed every 3 weeks. So after the first initial dose, you see a 30% reduction in lesions. So this is very meaningful to not only the patient, but also the caregiver. And then at the end of the study, you showed almost a 77% reduction in lesions compared to no change in baseline for vehicle. So again, very positive results. We had a p-value of 0.0001, so a strong delta there for our Phase III clinical trial.

Great. Maybe we'll pivot over to Ted, if you want to take it or Joe wants to take it. Really the issue, the size of the market, and then how is it currently treated for -- at this point?

Sure, Joe, do you want to talk about that?

Yes, sure, Ted, happy to do so. So right now, you're looking at a market prevalence of 6 million annually, and only about 1 million are getting diagnosed and half of that goes to treatment every year. So it's a very under-treated market. It has really no defined treatment paradigm to it. All of the current modalities are off-label, non-FDA approved, and caregivers are frustrated because this really becomes not only the child being impacted, but it becomes a household disease as well.

And so if a parent right now wants to treat the child, what are the steps that the dermatologist or the pediatrician take to try to resolve the issue?

So currently, the majority just goes to the pediatrician, right? They're typically the gatekeeper in this scenario. And they will -- more times than not, they're really watching and waiting right now. They're really not comfortable with what's out there. And eventually, it will either become a self-referral or the pediatrician will refer the caregiver out to a dermatologist or a pediatric dermatologists, who then has a choice of either a compounded cantharidin or using cryosurgery or curettage. And none of those are great options for what is predominantly a pediatric disease, right? The majority sits between the ages of 2 and 14, 15 years of age. So -- and then 50% of that resides in 6 years of age and under. So really not a lot of good choices, and some are very painful and may even cause scarring. So it's really -- it's just not solved right now the way it should be.

Okay. And you mentioned, obviously, curettage, it sounds obviously not something that you want to do for children. But you did just mention briefly compounded cantharidin. So could you just talk about -- is that a prevalent approach? Or is it really hit or missed? Is it something that's used quite a bit or not often at all?

Ted, do you want me to take that or? Yes. So compounded cantharidin is not widely available, right? And the other option is getting it imported from Canada. And again, both means of distribution are not widely available. Dermatologists who do receive it and use it often refer to it as jargon because it's not GMP compliant, it's either based and after they open that jar. And a typical jar may last 15 patients or so. The ether takes place and becomes very volatile and becomes very sticky and goody to work with. We also got a means of application that I'll quote with , it's very barbaric. They're using the back end of a wood in cue tip, right? So to using the wood inside to apply it to the lesion. So it's being used right now. It's being safely used by dermatologists, but it's something that is still not where they'd like to be. They think our opportunity with VP-102 provides a better treatment experience for both them as practitioners and the patient and caregiver.

So why don't you guys remind us the 102 now actual applicator and approach, really a lot of that innovation, let you brag a little bit about it, I don't know, Ted or Joe, which one of you want to take that?

I would tell you that our applicator took us years to design everything from the glass ampule because if you think about, the only way you can seal a glass ampule is with heat. And if -- to Joe's point, if you look at the compounded cantharidin and that is based in ether. And if you try to put heat to a glass ampule, either it would blow. So our formulation is based on acetone. We did a lot of work on the aperture of the tip. So this way the health care provider can precisely administer the medication precisely on the lesion, whether that lesion is 1 millimeter to several millimeters. So it was about a 3 years in design.

Great. Okay. Now let's talk about the actual regulatory review process. We were in one. Obviously, we had to backtrack. So maybe give us a little bit of a history the meeting you had with the agency, the work that you needed to do and the resubmission and just bring folks up to speed.

Sure. So what I would tell you is that the changes were all CMC and human factors related. In our human factor study, 13 of the 15 participants removed the cap on the applicator prior to breaking the ampule. The FDA had concerns about the potential of the solution leaking or sporting onto a healthy skin or potentially into somebody's eye. What we did is we did a couple of things. We conducted a pound or force ampule brake test to show what would be required to have the solutions sworn out, that was one. And then we added a safety measure, we took the shrink wrap, and we placed that around the cap, where the cap meets the tube of the applicator. And the shrink wrap clearly states that you are to remove the cap after you break the ampule. Now since we technically changed our packaging, the FDA came back to us and has required an additional 3 months of stability. The FDA then also pointed us in the -- in our CRL that we received that they would like us to have an ampule breaker, although we did not have any issues with any health care provider breaking the glass ampule in our Phase II or Phase III clinical trials. The good news is, we had already been working on an ampule breaker, so we had that in development. And then finally what the FDA asked us to do was to repeat the human factor study with the new packaging and also the ampule breaker, which we've done very successfully.

Okay. So obviously, a little bit of work is done, but more investment, making the product, I would argue even better in ensuring that this is going to be for good use. Okay, so here we are. We're coming up on the PDUFA date. I'm going to assume interaction. At this point, it's still early with the agency, but it's almost time, Ted, that you're going to be kicking it over to your buddy here, Joe, to really help ensure we execute on this. So maybe, Joe, you can step back and talk about a few different issues. One, obviously, sales force composition, who we're going to approach, and how we're going to do it. And then also be tube interesting to talk about price, and how we're going to approach this market to make sure that we have really open access. So why don't you take those 2 pieces? I know there are a lot, but love to hear you walk through them.

Yes. So the team is hard at work, as you can imagine, right, we're inside of 4 months now to our PDUFA and field force sizing has been completed. We're looking at a targeted university, a very focused launch at the beginning can. So we're looking at roughly about 7,000 office space, dermatologists, pediatric dermatologists, who reside mainly in the pediatric centers and institutions. And then there'll be a high decile of pediatricians who actually have shown the willingness to both diagnose and treat. Roughly about 7,000 targets. And when you think about your field force sizing, we're sitting at around 50 representatives, and we'll have a little strike team that will focus on institutions as well. And we think that will get us to about close to 90% of market coverage when you look at the patient claims data. So that's what we follow-up as our marker here because there's really no prescription data, right? There's no prescription drugs that are approved to follow. So we feel good about the footprint. We're also going to have field reimbursement managers deployed as this can fall as a buy-and-bill product as well as will be offered through a specialty pharmacy white back model. So we feel good about that. We've had tremendous discussions with the payer community. So one of the things we're very proud of is we engage them prior to even our Phase II data of being completed and shared. We got them involved early on, and this is how they prefer to work now. We got them involved in the value chain with us and had very -- have had very consistent discussions with them. And that's what makes me feel a bit at the end of the day. We've done a few pricing studies. We've had advisory boards. We've had one-on-one meetings. We've met with all the major players in the space. Predominantly, they feel this is a medical benefit because it's an in-office procedure. Medical benefit is a different pathway for formulary approval at launch. It's really not far different than the pharmacy side, which has a lot of rebates and contracting and lengthy review processes. The medical side seems to move very smoothly and quickly. So we feel that's a real positive. Regarding price, they've been very consistent. They've advised us to stay under the specialty tier, which is a list price of $670 on a per applicator basis. And they feel if we stay below that price, there's really not a large need to try any type of utilization techniques and management techniques as far as the prescription process for our health care professionals, which makes us happy, obviously. So we're going to heed the advice. We've built great relationships with the payer community. It's very consistent, very positive, and we know that line of demarcation sits at $670 for us on a per applicator basis.

Okay. And you mentioned the buy-and-bill, these clinicians used to that, to what degree are we going to have to hold hands in using that process?

So buy-and-bill has been kind of an on-again, off-again in dermatology, right? And a lot of the reasons for that is typically when your physicians have to outlay working capital for product, and then they're going through a miscellaneous J code process, waiting for a permanent J code. If a claim is denied or out the product cost, et cetera. So what we're doing through our consignment forward-deployed models, we're derisking that for physicians. So we think the uptake will be a little stronger on buy and bill. The J code submission is now truncated. It's on a quarterly review now. So if all goes well, we should have a notification on our J code by October 1 of this year, and then it will be formally published in January 1, 2022. So I think that takes some of the concern away. Forward-deployed inventory or consignment inventory, if you will, basically allows the physician to see if the product is approved, and the patient will pay for it before they have to submit reimbursement back to the distributor for cost of product. So our doctors that's resonating. And it's the type of place we are -- that every health care professionals in-house are looking for revenue opportunities within their practice. And this is an in-office procedure. So it certainly fits the model of acquiring the J code. It can only be administered in office. So we think everything is lining up to get early adoption and get doctors reinvigorated around buy and bill.

Okay. Interesting. Now on a product like this, I'm not quite sure given that I would assume most of the parents do eventually bring their children into the clinician. So I'm trying to understand if DTC matters here or really it's a clinician education because there's such a wide funnel that kind of comes in just really had the options that they would want. So can you talk about the balance between just promoting to the clinicians versus DTC? And if you were thinking of DTC kind of timing of something like that?

So I think philosophically that goes hand in hand, right? So cantharidin is known. It's not an unknown entity to the dermatology community, and there's a lot of speakers right now that at the weekly conferences are talking about new approaches to treat in molluscum. So that gives us a good general awareness going into the launch with our docs. And then on the DTC side, we've been really involved with disease awareness, Ken. We have a wonderful website called the aboutmolluscum.com, which really shares -- it's really one -- it's one source of the truth. That's how we like to look at it. There's a lot of information on the worldwide in -- that hear about molluscum, but we kind of bring that all to one point of interest for everyone. And we have caregiver videos on there, and we have KOL videos on there talking about disease. So we think DTC is important, right? We want to make sure that the caregiver is empowered and educated when they go to see their doctor and have an interactive discussion with them regarding treatment options because, again, this is a household disease and that gets missed a lot. If you have multiple siblings in the family, close to 50% of the time, this is going to spread from one child to the other. You have to stop playdate and after-school activities. And in a lot of homes you have both parents working and becomes a burden going back and forth. So we want to make sure they're educated. I think there's a balance there. Certainly, we're not looking to be on TV at half time of the Super Bowl or World Series or what have you. But we're looking to do a good grassroots campaign with search engine optimization and social advertising. And we see that in disease awareness, it's resonating. We have a really strong activated campaign right now, which we think will roll over nicely to our branded campaign when the time comes.

Okay. And then before we pivot off of this, and I turn to my colleagues to go deeper into the pipeline. Just do you want to talk about the competitive landscape that might be coming behind you. I don't know, Ted or Joe, if you want to handle that and talk about maybe timing advantage we have if knock on would the regulatory process plays out the way we expected to.

Sure. Happy to handle that, Ken. First, as a reminder, there's no FDA-approved products for molluscum. As you talked about some of the non-approved destructive therapies include cryotherapy, curettage, laser, natural remedies, these are all limited by unproven efficacy, pain, potential scaring and safety concerns. We do know there's one sponsor, which obviously, we applaud. We think it's great that they see the opportunity in the molluscum space, Novan Therapeutics. They're in the process of conducting a repeating a Phase III study. So they're, I would say, at least a year behind us.

Good. Okay. That's really helpful. Again, before I turn it over to Stacy and Georgi, I know my colleagues, and then maybe the opportunity regulatory a dad, but boy, my colleagues are aware of you all and are rooting for you quite a bit. And I remember getting a call over the summer -- a panic call. Are you guys ready yet? Is it on the market yet, there's a huge need, and it really is disruptive to parents and families? So totally appreciate that. Okay. Stacy, why don't I turn it over to you for -- to work further into the pipeline.

So some really big opportunities in the pipeline, but potentially a little bit more crowded. So I'm excited to hear what you guys have to say. First with the common warts Phase II results, do you guys mind reminding us the results and then maybe the opportunity and regulatory path forward?

Sure, on common warts. What I would tell you is we showed very positive results in our Phase II, 51% complete clearance of all warts at day 84. This was a 12-week study. The interactions with the FDA on our common warts program have been very positive. And the good news is they want to give us a broad label, which obviously is a good thing. However, in our discussion around our Phase III trial, they're asking us to look at patients -- patient populations that we did not study in our Phase II program. So for example, they want us to look at patients that have periungual warts, palmer warts, warts on the palm of the hands and also cluster warts. These are typically very difficult-to-treat warts. So it's never a good idea to go into pivotal Phase III clinical trials, if you have not studied these subjects in your Phase II. So what we're going to do is we're going to run another small Phase II study with about 30 subjects with these patient populations and then take this data and then go back to the FDA and discuss a design of a Phase III program.

So we -- our last Phase II program with the common warts, how was the enrollment fairly speedy, in my guess?

Well, prepandemic, yes, it was very speedy. So it's not -- when there's a prevalence of 22 million in the U.S. with common warts, it's not very challenging to enroll these patients into a trial.

So based on that, can you remind us the timing for all this initiation of the next Phase II study? And maybe when we might expect some more data?

Sure. So I would tell you right now, the top priority for the organization is to get VP-102 across the finish line for molluscum contagiosum. What we're saying is, once we get our product approved, then we'll look at our other programs, common warts, external general warts and then also plantar warts. We'll plan to do a small Phase II study in the second half of this year for common warts as well as we'll plan to go into a Phase III trial with external general warts in the second half of 2021.

Moving to external general warts, do you want to remind us the results as well and maybe the opportunity there?

Sure. Last year, we announced the positive results of our Phase II trial in external general warts, where we showed a 35% complete clearance of all external general warts at day 84. Again, a 12-week study. External general warts, they tend to be very refractive. They come back. They're very challenging. So we were very pleased with these results, especially when you look at vehicle, which was less than 3%. So there was a significant delta. And the idea is this is a painless upon application. So it was very well received for patients. We are requesting an end-of-Phase II meeting with the FDA this month. And then we plan to meet with the FDA to discuss the design of our pivotal Phase III clinical trials that we'll conduct starting in the second half of 2021.

Got it. And then the very earlier pipeline, the oncolytic virus, from our understanding, the IND filing is loaded for the first half of this year. So do you want to remind us how you found this asset? What synergies you guys might anticipate? And maybe the potential opportunity in skin cancers?

Sure. I would tell you that we're extremely excited about the potential for LTX-315. It's a first-in-class oncolytic peptide that is injected directly into the tumor to induce immunogenic cell death. We met with Lytix Biopharma at JPMorgan Conference last year in 2020 and really built and foster the business relationship, and we closed the worldwide licensing agreement in dermatology, oncology in August of 2020. Our focus initially will be on basal cell and squamous cell carcinoma. This will be another clinician-administered product, which really fits into our business model. That's our niche. We like assets that are clinician-administered. There are 5.4 million diagnoses of basal cell and squamous cell a year in the U.S., and those numbers continue to rise. And the common treatments today for basal cell and squamous cell are invasive. They're painful. They can cause scarring. And they also typically require the destruction of healthy skin. And so -- and what you're also hearing is more and more patients are experiencing what we call a surgical fatigue. They're tired of being cut all the time. So we see this as a game-changer potentially if this product works like we think it can.

And then timing following the IND for clinical development?

Right. So we'll file the IND in the first half of the year, and then we plan to go into clinic with Phase II clinical trials in the second half of 2021.

Got it. Okay. Thank you very much.

Thank you.

Yes, that's a great review. I don't know if we have -- Stacy or Georgi, do we have any questions on the dash?

No additional questions.

I don't believe we do. Okay. Well, guys, this was a really wonderful review and exciting time, and I know we're going to be pivoting quickly to knock-on-wood commercialization. So just a lot of things going on here. I don't know, Ted, if there's any part of the story that you think investors don't fully appreciate? Is it -- as you talk to them, I think for us, it's reminding investors just how quickly you are to potentially be on market. And I think it's surprising. Things tend to go slow and then all of a sudden speed up very quickly. And here we are. So any last words from you about things that may be not fully appreciated, or any commentary you want to give before we wrap it up?

Well, again, it's -- the challenge is really appreciating the size of this market. And I think if you think about -- again, we finished our clinical trials 2 months ahead of schedule. If you look at Novan, as I mentioned, it was about a year behind us. They've already enrolled ahead of schedule in their Phase III program. So you start thinking about the bolus of patients out there. Our opportunity of the 6 million prevalence, 1 million are being diagnosed, our goal is to increase the foot traffic into physician's offices. And as Joe pointed out, through our cost-effective social media, Mom blogs and things along those lines to get to these patients. But I also think, Ken, if you think about the timing of our launch, it couldn't come at a more ideal time because with a PDUFA date of June 23, to get your marketing materials approved, you're looking at 4 to 6 weeks later, it puts you right in the prime of back-to-school season. And hopefully, everyone will be vaccinated or at least will get the majority of the vaccinations completed by the summer. And that really puts it at an ideal time to launch a product like this at a back-to-school time. So we're very excited about that.

That's a great point, wonderful point. Okay. Well, thanks, Ted and Joe. We really appreciate you taking the time, and I hope you have a great rest of the conference. And then thank you to Stacy and Georgi for the Q&A as well. All right, take care guys.

Thanks, everyone.

Take care.

You're welcome.