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

Good evening, ladies and gentlemen, and welcome to the Verrica Pharmaceuticals First Quarter 2025 Corporate Update Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I will now turn the call over to our host, Kevin Gardner of LifeSci Advisors. You may begin your conference.

Thank you, operator. Hello, everyone, and welcome to Verrica Pharmaceuticals First Quarter 2025 Corporate Update Conference Call. With me on the line this evening are Jayson Rieger, President and Chief Executive Officer of Verrica Pharmaceuticals; Noah Rosenberg, Chief Medical Officer; John Kirby, Interim Chief Financial Officer; and David Zawitz, Chief Operating Officer. As a reminder, during today's call, management will make forward-looking statements. These statements may include expectations related to the commercialization of YCANTH for the treatment of molluscum contagiosum in the United States, continued revenue growth, regulatory developments, the development of Verrica's product candidates, the company's expected cash runway and its ability to obtain funding for future operations and Verrica's overall business strategy and planned operations. These forward-looking statements are based on the company's current expectations and involve inherent risks and uncertainties. And based on those risks and uncertainties, Verrica's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verrica's SEC filings for important risk factors. Verrica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. In addition, during today's call, management will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. The earnings release that the company issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of Verrica's website. I'll now turn the call over to Verrica's President and CEO, Jayson Rieger.

Thank you, Kevin, and good evening, everyone, and thank you for joining us for our first quarter 2025 corporate update call. I'm pleased to report that our focused commercialization strategy is helping to drive increased demand for YCANTH. On April 7, we preannounced strong sequential growth in the first quarter with YCANTH's dispensed applicator units increasing 16.7% over the fourth quarter of 2024 and rising above 10,000 units per quarter for the first time since the launch of the product. As announced today, this also resulted in $3.4 million in revenue for the quarter. I'm further excited to say that we have seen momentum build throughout Q1 and are working to continue to capture that momentum. As demand for YCANTHs by pediatricians, dermatologists and other health care professionals and their patients continues to grow, we believe YCANTH distributor inventory levels have normalized, and we expect that dispensed applicator units will now more closely track to our revenues. Importantly, we are executing on our commercial strategy as a much leaner and more capital-efficient company, which I believe will place us on a strong and sustainable growth trajectory. In parallel with our commercial progress, Verrica's clinical stage pipeline also continues to advance. We continue to work with our development and commercialization partner, Torii Pharmaceutical, to initiate our Phase III program of YCANTH in the treatment of common warts. Meanwhile, we continue to advance our novel oncolytic peptide, VP-315, which has shown promising safety and efficacy data in Phase II trials for the treatment of basal cell carcinoma, having recently held an end of Phase II meeting with the FDA to discuss the design of our Phase III program. Given the significant unmet need for both of these indications, we believe developing these programs has the potential to significantly grow the value of our company. I will now provide a more detailed update on our commercial activities for YCANTH. During the first quarter of 2025, the full effects from our revised commercialization strategy, which we began to implement in Q4 of last year, helped drive demand for YCANTH. As we have previously noted, we initially focused on territories with high prevalence of molluscum and established strong insurance coverage. The productivity of our sales force also improved substantially during the first quarter. Our average dispensed applicator unit per selling day continues to trend favorably, giving us additional confidence that our new commercial strategy is working. To that end, we have recruited new sales representatives to work in new territories, splitting certain large markets and entering other new markets to capitalize on improving demand. Throughout the first quarter, we also continued adding local independent regional pharmacies to our strong relationships with our national specialty pharmacy partners. Our approach to distribution of YCANTH has been to focus where physicians and other health care professionals prefer to write prescriptions, and we have seen strong adoption to this approach since the relaunch. As previously noted, YCANTH inventory levels appear to have normalized as we are seeing multiple orders each month from our distribution partners rather than larger infrequent stocking orders. Going forward, we believe shipments of YCANTH applicator units will more closely reflect the underlying demand from physicians and patients and that this closer relationship will translate into steadier revenue growth as we continue the relaunch. Finally, our cost-cutting measures have taken hold, and our quarterly expenses are reflective of that. We would expect that going forward, we will selectively add to sales personnel in geographic areas where we have good coverage but no representative and add additional sales representatives in markets where there are enough potential customers to warrant multiple representatives in that market. I'd like to now also provide a brief update on our clinical stage pipeline. As previously reported with respect to YCANTH, our Japanese development and commercialization partner, Torii Pharmaceutical, filed in late 2024, a new drug application in Japan, seeking approval of YCANTH, designated in Japan as or TO-208 for the treatment of molluscum. With an estimated over 1.6 million patients in Japan alone, molluscum represents a significant market opportunity for YCANTH, and we look forward to Torii sharing updates on the regulatory approval process later this year. We are also working with Torii to launch a global Phase III study evaluating YCANTH in the United States for TO-208 in Japan for the treatment of common warts. Verrica remains eligible to receive a milestone payment of $8 million upon the initiation of the study, which could begin as early as mid-2025. As we previously stated, the cost of this study will be split 50-50 with Torii, but Verrica's portion will be paid by Torii and reimbursed by Verrica out of future milestones and transfer price payments. Regarding our Phase III-ready clinical oncology asset, VP-315, which we are developing for the treatment of basal cell carcinoma, as previously disclosed in January, a post-hoc analysis of data from our Phase II or part 2 of our Phase II study demonstrated treatment with VP-315 led to a calculated objective response rate or ORR of 97%. ORR was defined as the percentage of study subjects who did not demonstrate disease progression and who experienced at least 30% reduction in tumor size, along with a partial or complete response following treatment. We believe positive preliminary top line results from our Phase II study suggests that VP-315 has the potential to change the treatment paradigm for patients with basal cell carcinoma, the most common form of skin cancer. As noted on our fourth quarter call, we expect to announce additional genomic and immune response data for VP-315 in mid-2025. We are also encouraged by our recent end of Phase II meeting with the FDA. After reviewing the final meeting minutes and this additional data, we plan on providing a global development program update later this quarter. Finally, I would like to mention recent appointments to our senior management and Board of Directors. In March, we announced that Dr. Noah Rosenberg joined Verrica team as our new Chief Medical Officer. Noah is a highly accomplished pharmaceutical executive and physician who brings deep expertise in both drug development and commercialization. As CMO, he will play an instrumental role in advancing of our goal for YCANTH to become the standard of care for the treatment of molluscum contagiosum and in advancing our clinical stage programs. Following Noah's appointment in early April, we welcomed Dr. Gavin Corcoran to our Board of Directors. Over his career, Gavin has built an outstanding track record of developing and launching innovative medicines as well as creating significant value through strategic transactions. As we execute our strategic objectives, his expertise will help guide us on our decision-making and look forward to working with him as we enter our next phase of growth. I will now turn the call over to our Interim Chief Financial Officer, John Kirby, to review our first quarter 2025 financials.

Thanks, Jason. In the first quarter of 2025, we reported total revenues of $3.4 million, which was substantially all YCANTH revenue. Net YCANTH revenue reflects shipments to our distribution partners, offset by standard gross to net adjustments, including actual or anticipated product returns, off-invoice discounts, distribution fees, co-pay programs and other rebates. Collaboration revenues totaling $17,000 in the first quarter of 2025, which related to our supply of applicators to Torii in connection with their development and commercialization activities. Gross product margins for the first quarter of 2025 were approximately 88%. Cost of product revenue of $0.4 million included $47,000 of obsolete inventory cost. Research and development expenses of $2.3 million in the first quarter of 2025 decreased versus the first quarter of 2024 by $2.6 million, driven primarily by a $2.1 million decrease in clinical trial expenses related to VT315 as well as costs related to a decrease in regulatory and medical affairs expenses of $0.4 million. Selling, general and administrative expenses of $8.8 million in the first quarter of 2025 decreased versus the first quarter of 2024 by $7.5 million, driven primarily by the implementation of our more focused commercial strategy for YCANTH. GAAP net loss was $9.7 million or $0.10 per share for the first quarter of 2025, compared to a GAAP net loss of $20.3 million or $0.44 per share for the first quarter of 2024. On a non-GAAP basis, which excludes stock-based compensation, noncash interest expense, and change in fair value of embedded derivatives, the first quarter of 2025 net loss was $7.8 million or $0.08 per share compared to a net loss of $17.8 million or $0.38 per share for the first quarter of 2024. And finally, as of March 31, 2025, Verrica had aggregate cash and cash equivalents of $29.6 million. Under GAAP, the cash and cash equivalents as of March 31, 2025, would not be sufficient to fund operations for the 1-year period following the release of our financial statements. However, should Verrica receive the $8 million milestone payment from Tori triggered by the initiation of the Phase III clinical trial in Japan for common warts or should we receive a portion of the $25 million in proceeds from the exercise of Series A warrants issued as part of our November 2024 equity financing, which expire in November of 2025, we could have sufficient cash to fund operations for such period. Nonetheless, we will continue to apply discretion in our use of cash and explore opportunities to further bolster the strength of our balance sheet while still advancing our commercial and clinical development efforts. I'll now turn the call back over to Jason for closing remarks.

Thanks, John. Based on our focused commercialization strategy and more capital-efficient operating structure, I believe Verrica remains on a pathway for strong and sustainable growth. The positive feedback we are receiving from the field also tells us that brand recognition for YCANTH continues to grow amongst both dermatologists and pediatricians. In addition, we see patient access continuing to improve along with strong and predictable reimbursement from Medicaid and commercial payers, all of which we believe point towards YCANTH becoming the new standard of care for the treatment of molluscum contagosis. As YCANTH continues to grow, our late-stage pipeline provides another exciting source of value for our company and shareholders. We believe our program in common warts and basal cell carcinoma each hold significant potential value, and we look forward to providing updates on these programs in the near future. With that, we would now be happy to take any questions. Operator?

[Operator Instructions] We'll move first to Stacy Ku with TD Cowen.

Congratulations on your Q1 performance. So first, maybe could you further discuss your success in targeting pediatricians? Maybe talk about the current split of pediatric derms versus pediatrics writing YCANTH. So that's the first question. And then the second question, maybe as we think about the summertime, potential increase in molluscum patients, what kind of preparation is ongoing to really capture these patients? And do you expect YCANTH could show some seasonality as it relates to patient demand as we kind of enter the summer months? And then the last question is on the 2025 full year. Consensus is around $15 million. So would love to hear your thoughts around the Q1 performance and how it relates to the rest of the year. Maybe talk about the dynamic between patient demand and maybe some additional pull-through of inventory. It sounds like it's stable. So I just want to make sure we have that correct.

Thanks, Stacy. This is Jason. I appreciate the questions. And if I don't answer all your questions, please track me down for anything I left off. In terms of the split between derms and peds, we're seeing an ever-growing number of pediatricians writing the product, but a still a large percentage of our customers are the derms, and they still remain strong advocates of our product and users of the product. So I would say, rather than the dynamic splitting, we're seeing growth in both, which is very exciting for the penetration of the product, but also the availability of it for the patients. In terms of the summer months, it's kind of interesting that you asked that. There tends to be modest speculation on seasonality for molluscum, although as the weather does get better and kids are outside more, they commonly go to pools where molluscum can be transmitted with sharing of towels, et cetera. There may be some seasonality uptick. We are doing a fair amount of sort of marketing to clinicians and some social media activities to sort of continue to build awareness for molluscum as a disease, but also that the YCANTH is available for treatment for the patients. So I think that's going to continue to contribute to the growth of YCANTH penetration and the units that we're dispensing. And in terms of 2025 for full year consensus and guidance, I appreciate you asking that. The company at this point is not going to give guidance for the year. We will continue, though, however, to share the number of dispensed applicator units. We'll try to update that on a quarterly basis when that information becomes available and share the revenue during our quarterly filings. As you can see, this quarter, we saw meaningful revenue and dispensed applicator units. And as our distributors are ordering more frequently and in smaller quantities, those numbers should mirror each other much closer going forward. And we hope to continue to see the momentum that we saw at the end of last quarter continue to rise in this quarter as well.

We'll take our next question from Gregory Renza with RBC Capital Markets.

It's Anish on for Greg. Congrats on the progress this quarter. Just a couple from us. First, how are you thinking about the conversion time between accounts receivable and top line revenue for YCANTH? How has that been trending and likely to trend through the rest of the year? And second, as we think of accessibility, you previously mentioned expansion into pharmacy benefits. Can you just help us think about how this will improve access for YCANTH versus previous periods?

So yes. So in terms of the accounts receivable, it's interesting, you noticed that. So we do offer 60-day payment terms to our distributors. So as the product is pulling through and then they're passing it through, as we normalize the inventory levels, we'd expect that to semi-stabilize and continue to generate cash going forward. And because we're getting smaller orders and more frequent orders, that should stabilize in terms of conversion to cash from receivables. In terms of the pharmacy benefit, I would say the mix of our business continues to grow both on the pharmacy distribution side, as well as the medical benefit, which is the buy-and-bill approach. We see growth in both sides of that business. And particularly on the pharmacy side, we've added a number of independent pharmacies, which has proven to be a convenient mechanism for some clinicians to order the product, have it bag right to their office and treat the patients in addition to those who prefer to do the buy-and-bill model and have it on hand that same day. So we've seen both in our commercial team have done an excellent job of expanding our benefit coverage. So I would say that we have robust now coverage growing in both Medicaid and commercial across both of the pharmacy and the medical benefit.

We'll move next to Serge Belanger with Needham & Company.

A couple of questions. First on patient access, just a follow-up on the prior question. When you're looking at the overall TAM for molluscum, how should we look at the split between commercial and Medicaid coverage for the indication?

So we would say that in the pediatrician world, there is a large percentage of pediatric patients who are covered under Medicaid. There's going to be a lot of dependency on the state as well. And then on the derm side, there's a higher percentage of commercial pay, but there are obviously commercial and Medicaid on both sides. But we're seeing growth on both sides of that across states where we have good, robust coverage.

Got it. And then maybe a quick one for John. Just where currently are gross to nets and where do you think they'll get to once we get to kind of a more steady state level?

So Serge, I don't think we've spoken directly to the gross to net split. But if you look at the number of applicator units and that as it's tracking to aligning with the sales demand that we've reported, you can do the back of the envelope math to get to the rough percentage.

We'll move next to Kemp Dolliver with Brookline Capital Markets.

A couple of questions. What are you seeing in terms of reordering and then also number of applicators per patient?

So the reordering actually is a very interesting aspect of the business that we're tracking very closely. And historically, I would say a large percentage of the reorder -- there was the growth in the business or stabilization of the business was a mix of loss of old loss of accounts that were not reordering and sort of bringing up new customers. In this last quarter, we're starting to see a solid growth and retention of customers that have been here and ordered previously and continuing to reorder. And that's a fundamental part of our business model, which means likely that the clinicians are having a positive experience, both in acquisition of the product and treatment of their patients and using it as a going-forward part of their practice for the treatment of patients with molluscum.

And any comments on the applicators per patient?

So we're not giving you a specific guidance on that. In our clinical study, we allowed for up to four applicators -- four treatment cycles to be used. I would say, clinically, as we saw originally, we're probably closer to the 2 to 3 treatment cycles where clinicians are feeling their patients are achieving the medical benefit that they are desiring.

Great. And what trends are you seeing in sales force turnover? I mean you are starting to rebuild the sales force, but have you seen turnover level off? Are you seeing less involuntary turnover, et cetera? I would say we're seeing -- in this industry, there tends to be some turnover. We're seeing some very solid retention of our core performers and quite a bit of interest as we put post some openings for both expanding in existing territories where we have demand or territories where new demand is growing. So we're excited about our team and we're trying to maintain a relatively stable number to where we were after our reduction in force last year and may incrementally grow as our sales -- the sales -- the areas we're trying to target grow and/or there's additional demand. So it's been a very, very positive impact on that front.

And this does conclude the question-and-answer portion of the call. I would now like to turn it back to Jayson Rieger for any additional or closing remarks.

Thank you, operator. I'd just like to thank everyone for joining the call this evening. We look forward to providing updates on our progress throughout 2025. Have a nice evening.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.