Verrica Pharmaceuticals Inc.

Good morning, ladies and gentlemen, and welcome to the Verica Pharmaceuticals Third Quarter 2023 Corporate Update and Earnings Conference call. 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 Verica Pharmaceuticals third quarter 2023 corporate update and earnings conference call. With me on the line this morning are Ted White, President and Chief Executive Officer of Verica Pharmaceuticals, Joe Bonacorso, Chief Commercial Officer, Terry Kohler, Chief Financial Officer, Dr. Gary Goldenberg, Verica's Chief Medical Officer, and Chris Hayes, Verica's Chief Legal Officer. As a reminder, during today's call, management will make forward-looking statements. These statements may include expectations related to the commercialization of Y-CAMP in the United States, Verica's clinical development programs and product candidates, as well as 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, Verica's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verica's SEC filings for important risk factors. Verica 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, we 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. Our earnings release that we issued today includes GAAP and non-GAAP reconciliations for these measures and is also available on the investor relations section of our website. I'll now turn the call over to Verica's President and CEO, Ted White. Ted?

Thank you, Kevin. And good morning, everyone. And thank you for joining us for our third quarter 2023 corporate update and earnings conference call. I'd like to begin today's call by providing a general update on the progress we've made since the second quarter. I'll then turn the call over to our Chief Commercial Officer, Joe Bonaccorso, who will provide a more detailed review of our commercial activities and launch of Y-CANTH in the United States. Following Joe's remarks, our Chief Financial Officer, Terry Kohler, will review our third quarter financial results. We'll then open up the call to take your questions. The third quarter of 2023 proved to be a momentous period for our company. In July, the FDA approved Y-CANTH for the treatment of molluscum contagiosum or molluscum. in adult and pediatric patients two years of age and older. The first ever FDA approved product aimed at treating the six million patients in the U.S. who suffer from this highly contagious viral skin infection. We are very pleased with the high awareness and initial reception of WICAMP. Physicians and their patients who suffer from luscombe have waited a long time to have a safe and effective FDA approved therapy to treat this disease. Based on the feedback we've received to date, we are confident in YCANT's ability to address this disease, including that the design of the applicator itself allows for precise administration to each lesion. In addition to the positive reception and feedback we've been receiving for YCANT, our distribution model is well received by the dermatologists and pediatric communities. As a reminder, Physicians can obtain Wycanth in two primary ways. The first is a white bag service with our specialty pharmacy partner, New Factor. The second is on buy-and-bill basis directly through our distributive partner, FFF Enterprise. We believe our buy-and-bill model is resonating well with healthcare providers, and we believe it will be a driver of future demand. As a reminder, under our buy and build model, YCANT is currently reimbursed under a miscellaneous J code, which is expected to be replaced by an assigned permanent J code by January 2024, which should be published by April of 2024. We were just granted a C code, which is used by hospitals and clinics on a temporary basis until our J code is assigned. We expect that physicians who select to use our buy and build distribution model will typically realize a 6% to 10% margin on ASP, which would not be available utilizing a specialty pharmacy in a white bag service. Our launch activities for YCANTH are supported by a favorable balance sheet, enabling us to execute our commercialization activities. Soon after receiving FDA approval for YCANTH, we announced a non-dilutive financing that extended our estimated cash runway into the first quarter of 2025. At this time, we believe we have sufficient capital to support the YCAMP launch and the continued advancement through phase two of VP315, our novel oncolytic peptide being studied for the treatment of basal cell carcinoma. I'll provide a brief on this program in just a minute. On August 21st, we held our WICANT National Launch Meeting to prepare for the launch of WICANT. By the end of September, all 60 sales representatives were deployed into the field and were actively calling on their targets among over 8,500 healthcare providers identified in our launch strategy. In August, we received our first sale of WICANT to our exclusive distributor, FFF Enterprises, which resulted in net YCAMP product revenues of $2.8 million in the third quarter. In a few minutes, Giovanna Corso will share some details with respect to our marketing and reimbursement strategies to support the launch of YCAMP. While we're obviously excited by the reception for YCAMP, we're also mindful that healthcare professionals continue to use unapproved contheritin-based products in some markets remain a challenge. Our efforts to clear the market of those unapproved drugs continue to proceed through the FDA and other available venues. To be clear, we believe that both federal and state law and regulations require, among other things, healthcare providers to have a valid prescription and a medical reason for prescribing a compounded product instead of prescribing our FDA approved product. Moreover, we believe that it is a violation of federal and state law and regulations for pharmacies and healthcare providers to order compounded contheritin as office stock for use on more than the single patient for whom they write a valid prescription, as well as procure product from unauthorized trading partners in violation of the DSCSA. In August, we also issued a statement in support of the FDA's recent action against certain retailers, including Amazon and Walmart, and manufacturers that warn consumers not to use unapproved products for the treatment of molluscum. We applaud the FDA's decisive actions to safeguard the public against these unapproved products, which supports the view that molluscum is a serious and prevalent health problem that requires medical intervention with therapies that have been rigorously tested and reviewed by regulatory authorities. As a reminder, Y-CANTS approval was based upon positive data from two well-controlled Phase III trials demonstrating the clinical safety and efficacy of Y-CANTS so that millions of people, primarily children who suffer from this viral infection, can finally receive a safe, effective, FDA-approved treatment for their condition. To further underscore our commitment to patient health, In September, we filed an import alert to halt the illegal importation of compounded contheridine from Canada into the United States. In October, we filed a citizen's petition to, among other things, remove contheridine from both the 503 and the 503 bulk substance list. We are also requesting that the FDA utilize its enforcement discretion to clear the market of all unapproved contheridine drugs and issue warning letters to those entities who are in violation of the applicable laws and regulations. And finally, we are investigating private right of action claims against individuals and entities who are violating the law. We also remain quite active on the educational front. On October 11th, we held a virtual KOL event for investors to discuss the approval of YCAMP, which featured Dr. Mark Kaufman, from Advanced Dermatology in Miami, Dr. Michael Cameron of Cameron Dermatology in New York City and also the Department of Dermatology at Mount Sinai, and Dr. Mercedes Gonzalez, Pediatric Dermatologist in the Dermatology of Miami. This event was well attended and attracted a broad array of institutional investors. Finally, I'd like to provide a brief update on BP315, our novel oncolytic peptide, which is being developed for the treatment of basal cell carcinoma, or BCC. In August, we announced the presentation of lesion clearance data from part one of our ongoing phase two trial. These data highlighted the anti-tumor response of BP315 as determined by clinical and histological clearance of treatment basal cell carcinoma lesions. Dr. Neil Bhatia, Director of Clinical Dermatology, Therapeutics, and Clinical Research in San Diego, and Principal Investigator for the study, presented the data at the 2023 American Academy of Dermatology Innovation Academy. Based on the early but encouraging results from Part 1, we recently expanded Part 2 of the ongoing trial. VP315 continues to show potential to be a non-surgical, non-invasive, therapeutic approach for the treatment of basal cell carcinoma, and we look forward to providing another update on this program in the first half of 2024. I'd now like to turn the call over to Joe Bonacorso, who will review our commercial activities and the YCAMP launch. Joe?

Thanks very much, Ted. As Ted mentioned earlier, our commercial team is fully in place, and we're starting to see the effects of our initial outreach in the markets. with growing interest in prescribing Wycanth amongst physicians and broad acceptance on the payer side. In just two months since commercial launch, we have amassed over 112 million lives covered on both commercial and managed Medicaid plans, including Anthem, CVS Caremark, and several blues plans like Horizon, Empire, New Jersey, Georgia, and Louisiana. In addition, we have already received state Medicaid fee-for-service coverage in New Jersey, Connecticut, Nevada, and Arkansas. Looking out six months from now, we estimate the number of lives under coverage will grow to approximately 140 million. As we mentioned in our July approval call, product sampling is a very important tool for our commercial activities at this early phase of our launch as we continue to grow reimbursement coverage. We continue to believe this strategy will drive adoption of Y-CAMP among healthcare providers. Our copay program is also working effectively. And through September, more than 85% of our patients paid $25 or less out of pocket based on our copay support program. To date, we have also gained formulary acceptance at over a dozen key institutions, including Akron Children's Hospital, Mount Sinai, MUCS, University of Miami, Stanford Lucille Packard Children's Hospital, Event Orlando Children's Hospital, Memphis Children's Hospital, and Northwell Hospital. In addition, we have several other institutions utilizing New Factor as a bridge as they contemplate their formulary process, such as Yale, UPMC, Montefiore, Temple, Dell's Children's. During the fourth quarter, we anticipate several wins at key institutions, including Lurie's Children's Hospital, Texas Children's Hospital, and UCSF. We currently have over 3,000 trained healthcare professionals and 1,300 offices sampled. We were also very active at major conferences this quarter, including the Fall Clinical Dermatology Conference and the American Academy of Pediatrics National Conference, where we conducted product trainings and education programs. Finally, as Ted noted earlier, we expect to receive a final J-code for YCAMP in January of 2024. which is expected to benefit the establishment of buying bill accounts. I'll now pass it to Terry to review our third quarter financial results.

Thanks, Joe. YCAMP revenues were $2.8 million in the third quarter of 2023, driven by the initial order from our sole distributor, FFF Enterprises. We also recognized collaboration revenues of $125,000 in the third quarter of 2023 related to the clinical supply agreement with Torrey Pharmaceuticals. Those collaboration revenues related to clinical supplies and development support for Torrey's Phase III clinical trial for molluscum contagiosum in Japan.

Consistent with new product launches towards the end of a quarter, revenue of Weikamp in the third quarter of 2023 primarily reflects inventory stocking at FFF. While the company expects additional orders from FFF in the fourth quarter of 2023, these orders may be less than those received in the third quarter of 2023, as we continue to build awareness and pull through demand among healthcare providers and patients in our first full quarter of commercialization. We expect inventory levels at FFF to normalize in the first half of 2024 as demand continues to grow. Gross margins for YCAF were 95% for the third quarter of 2023, which benefited from certain components of standard cost of goods sold, including bulk production and the applicator assembly of our registration batches, having them expensed as R&D prior to approval. Research and development expenses were $6.5 million in the third quarter of 2023 compared to $2.8 million in the same period of 2022. The increase of $3.7 million was primarily attributable to increased clinical costs driven by an increase in enrollment of patients in our part two of our phase two program studying BP315 for the treatment of basal cell carcinoma. Selling general and administrative expenses were $20 million in the third quarter of 2023, compared to $3.9 million in the same period of 2022. The increase of $16.1 million was primarily driven by the launch of YCAP in the quarter and the onboarding of the Salesforce and commercial support functions. For the third quarter of 2023, net loss on a GAAP basis was $24.8 million, or 54 cents per share, compared to net income of $83,000, or zero cents per share, in the same period in 2022. As a reminder, the earnings per share in 2022 included the impact of the $8 million Tory milestone payment related to the start of their Phase III clinical program for Moleskine in Japan. For the third quarter of 2023, non-GAAP net loss, which is calculated by adding back stock-based compensation and non-cash interest expense, was $14.8 million, or 32 cents per share, compared to a non-GAAP net gain of $2.9 billion, or 7 cents per share, for the same period in 2022. And finally, as of September 30th, 2023, Barrick had aggregate cash and cash equivalents of $84.3 million, and the company continues to believe its cash and cash equivalents will be sufficient to fund operations into the first quarter of 2025. I will now turn the call back over to Ted for closing remarks.

Thanks, Terry. As you can see, we believe that we're off to a positive start. The awareness of why can't is high and why can't is being well received. As the only FDA approved therapy for the treatment of molluscum, we expect to see continued growing demand throughout the fourth quarter and in 2024. Our commercial team is in place, fully operational, and has made significant inroads to bring this important new therapy to dermatologists and pediatricians. As always, we are in very close alignment with the FDA to help to remove any unapproved products from the market. In parallel with our commercial activities, we also continue to make significant progress with our lead pipeline asset, VP315, and expect to read out top line data on the ongoing phase two trial in the first half of 2024. With that, we'll now be happy to take your questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question we have is from Stacey Kueh of TD Cohen. Please go ahead.

Hi, good morning. Thanks so much for taking our questions. So we had a few. First, some really nice early onboarding of multiple hospitals. So can you just discuss your anecdotal early experience with establishing infrastructure with these institutions, early learnings, and maybe what's been going really well that has surprised you all? So that's the first question. And then second, appreciate the detailed update on compounded cantharidin. Just remind us how many FDA-registered compounding pharmacies produce cantharidin, and do you have any early thinking around the potential timing of this process? And if we could sneak a third, just very early, where is the average number of treatments trending right now? Thank you so much.

Yeah, so thank you, Stacey, for your question.

This is Joe Bonacorso. I'll take the question on the hospitals. So the early learnings are a lot of the institutions want to move away from compounding. So those are the ones that are adopting quickly to our opportunity with Y camp. Um, obviously we're working through the formulary process and we either working through the central pharmacy department where we're working through the ambulatory pharmacy, depending on the needs of the institution. And it also requires some infrastructure on earth on their end to get the EMR set up and their, their workflows and processes. So that's been a great learning for us as a young organization. Every time we have an institution established, we're able to take those learnings forward to the next opportunity, and as you can see, it's starting to multiply itself, and we're continuing to move forward here in the fourth quarter on it.

And then an update on .

Yes, Stacey. Hi, it's Chris Hayes. As to the number, I think your question was how many 503B pharmacies do we know? If that's the question, our internal and external investigations indicate that there are about three or four 503B pharmacies on the market who may be compounding confaridin. However, for the January through June period, there was a report that's filed with the FDA that they did not compound any during that time period. However, if you look at their websites and anecdotal evidence from prescribers indicate there are about three or four 503B pharmacies on the market right now. Given our efforts with the FDA and other intended efforts that we intend to pursue outside the FDA, we hope to have some traction and gain momentum in clearing the market within eight to 10 months.

Very helpful. And then my last question about the early, early average number of treatments trending.

Hey, Stacy, it's Joe again. Yeah. Hey, Stacy, it's Joe again. So, you know, it's a little too early to tell because for all intents and purposes, we got boots on the ground at the Labor Day a week. And then we're using a starter dose in most cases to get doctors to trial. And we're just starting to see now the flow in October and November of, you know, second and third refills coming in. So it's too early to establish a definitive number to give you right now. Unlike in oral medication, there's no DACON data you can pull daily on this. And as you know, we're every three weeks for therapy. So we're continuing to monitor that as well.

And Stacey, this is Ted. I would also point you to our Camp 1 and Camp 2 Phase 3 clinical trials, where after the first treatment, about 15% of the patients had complete clearance.

Wonderful. Thank you so much.

The next question we have is from Gregory Reinsdorf of RBC Capital Markets. Please go ahead.

Hey, good morning, Ted and team. Congrats on the progress and the start with Wycanth. Just two questions from me. As you really dig into building that awareness with respect to the launch, And we talk about or at least get anecdotal feedback on the clearance and the performance of Y-CAMP really maybe overextending beyond the label, certainly anecdotally. I'm just curious how you plan to maybe deliver those anecdotes collectively to enhance the buy-in across the clinician spectrum. community as folks get greater experience with Y-CAMP and build that awareness. And then secondly, Ted, I know you had an update on VP102 for common warts, and I know the focus is on the launch here, but I'm just curious how the FDA proceedings are potentially changing or at least reinforcing your expectations on timing for a phase three trial with common warts. Thanks again and congrats.

Thanks, Greg, for the question. So, Greg, regarding the you know, indications and KOLs. Listen, we've trained 42 KOLs nationally, and we plan to, you know, to utilize them to help, you know, communicate the YCAMP message, also white papers, and also point you to our recent virtual KOL event that was held recently with the positions I mentioned earlier. And then on Common Warts question, again, I think that, you know, We're not going to look at any trials until the second half of 2024 at the earliest.

Got it. Sounds great, Ted. Thanks again. Thank you.

The next question we have is from Serge Belanger of Niedermann Co. Please go ahead.

Hi, good morning. Thanks for taking my questions. I guess the first one on coverage, obviously you've done A lot of progress on the commercial and Medicaid front. Maybe just talk about when you expect to be at steady state coverage on both commercial and Medicaid. And then you're also establishing a white bag service. Just curious how widely you'll be establishing that service and if we should expect

most of the demand will come through that service until there is a j code established in early 2024. thanks yeah so serge thanks for your questions um you know first thing on coverage so the coverage is growing every day um you know prior to our our launch of this product you know i've said in prior conversations that this has been very consistent feedback from the payer community since we've been out there talking to them over the last few years It's exceeding, you know, in the first three months here, it's exceeding even where we thought it would be at over, you know, roughly 112 million lives covered. And that's going to continue to grow daily as we have more plans that are nearing the finish line on their final decisions. So we should get a steady state here by beginning of first quarter into first quarter of next year. The Medicaid states, you know, they work on their own secular schedule. So there's a group of states that have us under review now. And there'll be more after the new year, quarter one, all the way through April next year in Medicaid. But it's a very, you know, robust coverage landscape as we speak right now. Regarding white bag, we have an exclusive specialty pharmacy right now. And the mix is about 80% specialty to 20% buy and build, which is predictive of our modeling in the early going. And we are fully expecting to get a J code established in the first quarter of next year. which will continue to move it towards buying bill pretty rapidly.

Great. Thank you. You're welcome.

The last question we have is from Kent Bolivar of Brookline Capital Markets. Please go ahead.

Great. Thank you for taking my question. With regard to SG&A, you're now at 20 million dollars in the quarter. Sounds like the sales force is fully staffed. Launch activities are underway. Should this be a pretty steady state number looking out over the course of the next four to six quarters?

Yeah, thanks for that question, Kevin. So, SG&A costs were $20 million on a GAAP basis for the quarter. On an adjusted basis, excluding soft capital, about $12 million. Obviously, this is a significant step up year over year, given that we onboarded the sales force and launched the product in the quarter. But we, you know, that was only, we only had about six weeks of commercial activity, if you will, in this quarter. So there will be a step up going into Q4, you know, as we'll have the commercial team on board for that entire quarter and out in the field for that entire quarter. So you should expect to see a step up as we go into Q4.

Great. Thank you.

There are no further questions at this time. I would like to turn the floor back over to Ted White for closing comments.

Thank you, Apartheid. So, again, I'd like to leave everyone with the fact that we've got overall strong overall interest, including earlier than expected interest from pediatricians. As you heard from Joe, we have strong coverage with over 112 million lives and our effective coupon program where 9 out of 10 patients are paying no more than $25. We have a C code that's been issued, and it's important to note that it was posted in the new quarterly HCPCS file for January, which includes a full descriptor of YCAMS code C9164. This is a prelude to a J code being issued, which we fully anticipate in January. We're progressing at hospitals and also private equity group practices within dermatology. As you heard today, we're taking an aggressive stance on compounded cantharidin.

With that, I'd like to thank everyone for joining our call today.

This concludes today's conference. Thank you for joining us. You may now disconnect your lines.