Verrica Pharmaceuticals - Earnings Call - Q1 2025

Executive Summary

• YCANTH demand accelerated: Q1 product revenue was $3.4M, driven by 10,102 dispensed applicator units, up 16.7% sequentially; management expects revenue to more closely track units as distributor inventories normalize.
• Operating discipline improved: SG&A fell to $8.8M (–$7.5M YoY) and R&D to $2.3M (–$2.6M YoY), shrinking GAAP net loss to $9.7M (–$10.6M YoY) and non-GAAP net loss to $7.8M (–$10.0M YoY).
• Strong beat vs consensus*: Revenue $3.439M vs $2.531M estimate; GAAP EPS –$0.10 vs –$1.32 estimate; gross product margin approximately 88%.
• Guidance cadence: No formal revenue guidance; cash runway remains contingent on an $8M Torii milestone (global Phase 3 common warts initiation) or Series A warrant exercises ($25M potential proceeds).
• Pipeline catalysts: VP-315 post-hoc Phase 2 ORR 97% and end-of-Phase 2 FDA meeting concluded; additional genomic/immune response data and Phase 3 design update expected mid-2025; Phase 3 common warts program co-sponsored with Torii could initiate as early as mid-2025.

What Went Well and What Went Wrong

What Went Well

• Demand-led growth: Dispensed YCANTH units reached 10,102 in Q1 (+16.7% QoQ) with $3.4M product revenue; management cited normalized distributor inventory and stronger pull-through.
• Cost structure reset: SG&A down to $8.8M (–$7.5M YoY) and R&D to $2.3M (–$2.6M YoY) as commercialization strategy was refocused and sales force optimized.
• Positive margin profile: Gross product margins approximately 88% in Q1, indicating healthy unit economics as obsolete inventory costs taper.

Selected quotes:

• “For the first time, we dispensed more than 10,000 applicator units in a quarter…translated to $3.4 million in revenue in the first quarter” — Jayson Rieger, CEO.
• “We believe YCANTH distributor inventory levels have normalized, and we expect that dispensed applicator units will now more closely track to our revenues.” — Jayson Rieger, CEO.
• “Gross product margins for the first quarter of 2025 were approximately 88%.” — John Kirby, CFO.

What Went Wrong

• Cash runway uncertainty: Under GAAP, cash and equivalents ($29.6M at 3/31) are not sufficient for one year absent milestone/warrant proceeds.
• Finance costs persist: Interest expense remained elevated at $2.2M, reflecting OrbiMed borrowing; embedded derivative fair value changes impacted prior quarter results.
• No formal revenue guidance: Management declined full-year revenue guidance; investors must rely on dispensed unit disclosures and qualitative traction.

Transcript

Operator (participant)

Evening, ladies and gentlemen, and welcome to the Verrica Pharmaceuticals First Quarter 2025 Corporate Update Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. 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.

Kevin Gardner (Managing Director)

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.

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 an 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.

Jayson Rieger (President and CEO)

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 7th, we pre-announced 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 YCANTH by pediatricians, dermatologists, and other healthcare professionals, and their patients, continues to grow, we believe YCANTH's distributor invenTorii 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 for 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 healthcare professionals prefer to write prescriptions, and we've seen strong adoption to this approach since the relaunch. As previously noted, YCANTH invenTorii 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 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 this study, which could begin as early as mid-2025. As we've 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 at a future milestone 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 two of our phase II study, demonstrated that 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 suggest 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 the 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 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 in our decision-making, and I 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.

John Kirby (Interim CFO)

Thanks, Jayson. 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-to-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 VP-315, 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, non-cash 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. Finally, as of March 31st, 2025, Verrica had aggregate cash and cash equivalents of $29.6 million. Under GAAP, the cash and cash equivalents as of March 31st, 2025, would not be sufficient to fund operations for the one-year period following the release of our financial statements.

However, should Verrica receive the $8 million milestone payment from Torii 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 Jayson for closing remarks.

Jayson Rieger (President and CEO)

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 contagiosum. 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 (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. Once again, that is star and one for your questions. We'll move first to Stacy Ku with TD Cowen. Your line is open.

Stacy Ku (Analyst)

Hey there. Thanks so much for taking our questions, and congratulations on your Q1 performance. First, maybe you could just further discuss your success in targeting pediatricians, maybe talk about the current split of pediatric derms versus pediatrics writing YCANTH. That's the first question. 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? Do you expect YCANTH to show some seasonality as it relates to patient demand as we kind of enter the summer months? The last question is on 2025 full year. Consensus is around $15 million, so we'd 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 inventory.

Sounds like it's stable, so just want to make sure we have that correct. Thank you so much.

Jayson Rieger (President and CEO)

Thanks, Stacy. This is Jayson. I appreciate the questions. If I do not answer all your questions, please track me down for anything I left off. In terms of split between derms and peds, we are seeing an ever-growing number of pediatricians writing the product, but a still large percentage of our customers are the derms, and they still remain strong advocates of our product and users of the product. I would say rather than the dynamic splitting, we are 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 is 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, commonly going 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 YCANTH is available for treatment for the patients. I think that's going to continue to contribute to the growth of YCANTH penetration and the units that we're dispensing. 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 did see meaningful revenue and dispensed applicator units. As our distributors are ordering more frequently and in smaller quantities, those numbers should mirror each other much closer going forward. We hope to continue to see the momentum that we saw the end of last quarter continue to rise in this quarter as well.

Stacy Ku (Analyst)

Okay. Wonderful. Thanks so much.

Jayson Rieger (President and CEO)

Thanks, Stacy.

Operator (participant)

We'll take our next question from Gregory Renza with RBC Capital Markets. Your line is open.

Hey, guys. It's Anishan for Greg. Congrats on the progress this quarter, and thanks for taking our questions. 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? Second, as we think of accessibility, you previously mentioned an expansion into pharmacy benefit. Could you just help us think about how this will improve access for YCANTH versus previous periods? Thanks so much.

Jayson Rieger (President and CEO)

Yeah, in terms of the accounts receivable, it's interesting you noticed that. We do offer 60-day payment terms to our distributors. As the product is pulling through and then they're passing it through, as we've normalized the inventory levels, we'd expect that to semi-stabilize and sort of continue to generate cash going forward. Because we're getting smaller orders and more frequent orders, that should stabilize in terms of conversion to cash from a receivable. In terms of the pharmacy benefit, I would say the mix of our business continues to grow both on the pharmacy side, 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.

Particularly on the pharmacy side, we have added a number of independent pharmacies, which has proven to be a convenient mechanism for some clinicians to order the product, have it white-bagged right to their office, and treat their patients, in addition to those who prefer to do the buy-and-bill model and have it on hand that same day. We have seen both, and our commercial team has done an excellent job of expanding our benefit coverage. I would say that we have robust now coverage growing in both Medicaid and commercial across both of the pharmacy and the medical benefit.

Great. Thanks so much. Appreciate the color.

Yep, no problem.

Operator (participant)

We'll move next to Serge Belanger with Needham & Company. Your line is open.

Serge Belanger (Analyst)

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

Jayson Rieger (President and CEO)

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

Serge Belanger (Analyst)

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?

John Kirby (Interim CFO)

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 could do the back-of-the-envelope math to get to the rough percentage.

Serge Belanger (Analyst)

Got it. Thanks.

John Kirby (Interim CFO)

Thank you.

Operator (participant)

We'll move next to Kemp Dollaver with Brookline Capital Markets. Your line is open.

Kemp Dolliver (Analyst)

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

Jayson Rieger (President and CEO)

The reordering actually is a very interesting aspect of the business that we're tracking very closely. Historically, I would say a large percentage of the growth in the business or stabilization of the business was a mix of loss of [old bus.] loss of accounts that were not reordering and 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. 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.

Kemp Dolliver (Analyst)

Any comments on the applicators per patient?

Jayson Rieger (President and CEO)

We're not giving you 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 two-three treatment cycles where clinicians are feeling their patients are achieving the medical benefit that they are desiring.

Kemp Dolliver (Analyst)

Great. Thank you. What are trends you're 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, etc.?

Jayson Rieger (President and CEO)

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 post some openings for both expanding in existing territories where we have demand or territories where new demand is growing. 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 areas we're trying to target, grow and/or there's additional demand. It's been a very, very positive impact on that front.

Kemp Dolliver (Analyst)

Great. Thank you.

Operator (participant)

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.

Jayson Rieger (President and CEO)

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.

Operator (participant)

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