Verrica Pharmaceuticals Inc.

Q2 2024 Earnings Conference Call

8/14/2024

speaker
Operator
Good morning and welcome to the Verica Pharmaceuticals second quarter 2024 earnings 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. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may remove yourself by pressing star 2. Please note, today's call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to today's host, Kevin Gardner, Managing Director with LifeSide Partners. Please go ahead.
speaker
Kevin Gardner
Thank you, Operator.
speaker
spk07
Hello, everyone, and welcome to Verica Pharmaceuticals' second quarter 2024 Corporate Update and Earnings Conference Call. With me on the line this morning are Ted White, President and Chief Executive Officer of Verica, Joe Bonacorso, Chief Commercial Officer, Terry Koehler, 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 YCANT, VP102, for the treatment of Molluscum contagiosum, in the United States, regulatory developments, the development and potential benefits of Verica's product candidates, our expected cash runway, 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 gap to non-gap 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?
speaker
Ted White
Thank you, Kevin, and good morning, everyone, and thank you for joining us for our second quarter 2024 earnings call. I'm pleased to report that we continue to make progress across our business including with the commercial launch of YCAMP and the exciting data being generated from our development stage pipeline. Starting with YCAMP, for the second quarter, we recorded product revenue net of $4.9 million, which reflects growth in demand for YCAMP, as well as the expansion of our distribution footprint with the addition of Sincora as a specialty distribution partner and the related impact of a one-time stock in order. Sincora allows us to provide additional customer support through their GPO IPN, which is intended to target dermatologists and drive further buy-and-bill account growth through IPN's membership. We've also added Vizient as a GPO for hospitals, and we believe we will see a positive impact on Wycanth's pull-through demand in the second half of the year. We believe that we've addressed many big operational hurdles, and in the back half of the year, we must focus on capturing market share and driving adoption. We continue to focus on simplifying the process for physicians to treat patients. On April 1st, Wycanth received the permanent J code from CMS, and on July 1st, CMS published the Part B Schedule listing Wycanth reimbursement at an average selling price plus 6%. This created visibility for commercial insurers to further establish their own allowables. which represents the maximum amount a plan will pay for covered health care service. I'm pleased to report that as of today, insurance companies covering approximately 98% of commercial lives with YCAMP coverage have formally published their allowables, which is now visible to physicians electronically at the time of diagnosis. We believe that this should drive confidence in payer coverage and additional same-day treatment for established buy-and-bill accounts. In addition to driving growth in buy and build, we continue to promote YCAM's value proposition for specialty pharmacy customers, as we look to maximize adoption across both channels. In a moment, Joe will talk more about our commercial strategy and specific efforts to build additional momentum in the commercialization of YCAM. We continue to make progress in removing products containing compounding contheridine in the U.S. In July, we announced a litigation settlement with Dormer Laboratories that will discontinue the sale by Dormer of compounded contheritin products in the United States. As the largest supplier of non-FDA-approved contheritin-containing products into the U.S. market, the settlement with Dormer marks a major win for patients who seek access to a safe, effective, and FDA-approved therapy for the treatment of molluscum. While we expect this settlement will have a positive impact on demand for Y-CAMP, removing compounded contheritin from the marketplace will take time. as compounded products typically have a six-month dating. We therefore remain focused on customer conversion, but we recognize it will take some time for Dormer's previously sold inventory to work its way through offices. While our main focus remains developing the market opportunity for Wycanth for the treatment of molluscum, we think that's just the beginning for this unique and innovative product. The next major opportunity for Wycanth is for the treatment of common warts. And with a prevalence of approximately 22 million patients in the U.S. alone and no FDA-approved therapies, Common Warts represents one of the largest unmet needs in all of dermatology. We continue to make important progress in advancing our Common Warts program. During the quarter, we amended our existing licensing agreement with Torrey Pharmaceutical so that both companies will jointly conduct and split the costs of a global pivotal Phase III trial for WICAMP in Common Warts. Tori will fund Verica's portion of the cost as an offset to Tori's future payment obligations to Verica based on regulatory milestones and sales of Wycanth for molluscum contagiosum and common warts in Japan. In addition, Tori will make a milestone payment of $8 million to Verica upon the first patient dosed in Japan in the Phase III trial. Importantly, this amendment should benefit both parties from a cost and time-to-market standpoint. and the new funding structure is expected to have minimal impact on our near-term cash position. Initiation of a global Phase III study remains subject to feedback from the U.S. FDA and Japan's Pharmaceuticals and Medical Device Agency on the proposed design of the Phase III trial. We expect to receive feedback from the FDA and the PMDA in Q4 of this year. And based on our current timeline estimates, we anticipate initiating the phase three trial in the first half of 2025. If Y-CANTH is successfully developed, approved, and commercialized for the treatment of common warts, we anticipate a high degree of cold point overlap and marketing synergies with our current molluscum promotion of Y-CANTH. Now I'd like to briefly review the exciting data we announced this morning for our lead pipeline candidate, BP315, which is being developed for the treatment of basal cell carcinoma. By the way of background, VP315 is a potential first-in-class oncolytic peptide that has been engineered to provide more targeted delivery to stimulate the patient's immune system and destroy cancer cells. We are developing VP315 as a therapy that can serve as a potential non-surgical alternative to surgery, including Mohs surgery, or as a neoadjuvant chemotherapeutic for basal cell carcinomas, including advanced basal cell. As the most common type of cancer globally, we expect that the commercial opportunity for basal cell carcinoma is sizable, with approximately 3.6 million diagnoses each year in the United States alone. The Phase II study is an open-label, proof-of-concept trial designed to assess the safety and tolerability, dose regimen, and efficacy of VP315 in biopsy-confirmed basal cell carcinoma. Preliminary efficacy data based on 90 out of 93 lesions treated show that the treatment with VP315 resulted in approximately 51% complete histologic clearance rate of basal cell carcinoma. In addition, of the patients who had residual carcinoma, those residual tumors showed approximately 71% reduction in tumor size. Taken together, This represents approximately 86% overall reduction in tumor size across all lesions treated. These results, if confirmed in a pivotal study, make a strong argument for the use of VP315 as first-line therapy in the treatment of local and advanced basal cell carcinoma, which will either eliminate the need for additional treatment entirely or significantly reduce the size of the excision and the surgical burden associated with other treatment regimens, including Mohs surgery. No treatment-related serious adverse events were reported in the Phase II study, and Mohs treatment-related adverse events were classified as mild to moderate, as expected, with injection site pain being the most common adverse event. Based on these positive efficacy and safety data from the Phase II trial, we believe VP315 has significant potential to become an important first-line treatment option for basal cell carcinoma for use prior to surgery or instead of oral therapies, which have significant systemic side effects. We are obviously very pleased with these clinical data, and we intend to hold a KOL event in the near future to discuss in more detail the results from the VP315 Phase II study and provide additional insight into physician use case. I'll now turn the call over to Joe to review our commercial progress. Joe?
speaker
Joe
Thanks very much, Ted. As Ted mentioned earlier, in the second quarter, we saw pull-through demand for Weikamp grow sequentially quarter over quarter. The increase in demand reflects an increase in unit suspense through a specialty pharmacy and a higher number of units sold to hospitals and buying bill offices, including Walgreens community stores. Although Weikamp showed growth versus the prior quarter, We remain focused on accelerating growth in the second half of the year. We believe that many of our accomplishments from the second quarter, including our settlement with Dormer Labs and the receipt of a permanent J code from CMS and the establishment of allowables across the commercial coverage, will translate into increased demand for WICAN in the second half of 2024 and beyond. In the third quarter, we are working aggressively to grow applicator demand by focusing on the expansion of our buy and bill accounts. which includes the addition of GPOs Vizient for hospitals and IPN for dermatology practices. The targeted conversion of physician practices that were former users of compounded contheritin and placing an emphasis on driving adherence through treat to clear messaging and medical education. Our coverage footprint also continues to expand. And in the second quarter, we added a number of new Medicaid states, including Michigan, Louisiana, Alabama, and West Virginia. With respect to total lives under coverage as of July 31st, we have reached 234 million lives under coverage, which encompasses 139 healthcare plans spanning commercial, Medicaid, TRICARE, and federal employee plans. With the permanent J code in place and allowables established on most commercial plans, we believe broader acceptance by prescribers will continue as the reimbursement process becomes more efficient. We're also very focused on optimizing coverage under the commercial and state Medicaid plans by working with the payer universe to eliminate prior authorizations and other administrative burdens that may potentially be a barrier to patients being able to receive an approved treatment. Finally, on our last call, I discussed the addition of 20 new pediatric reps in the major MSAs across the country. I am very pleased with the productivities of these new professionals to our sales force, which we believe is driving increased awareness and utilization of YCAMP and major pediatric medical practices. Pediatricians are also showing interest in buying Bill as they prefer to control the patient journey and have the ability to treat same day. I'll now pass it to Terry to review our fourth quarter and year-end financial results. Terry?
speaker
Terry
Thanks, Joe. For the second quarter of 2024, we reported total revenues of $5.2 million, which included YCAMP net revenues of $4.9 million. YCAMP's revenue reflects a combination of ex-factory shipments to Triple F related to demand pull-through, as well as a one-time impact of an initial stock-in order from our new specialty distributor, Sencora, which represented approximately 54% of YCAMP revenue in the quarter. Gross product margins for the second quarter of 2024 were 93%, which continued to benefit from certain components of standard cost of goods sold, including bulk production and the assembly of applicators from our registration batches, having been expensed as R&D prior to approval. Research and development expenses of $3.3 million in the second quarter of 2024 decreased versus the second quarter of 2023 by $2.4 million, driven primarily by a reduction in clinical trial costs related to VP315 and CMC costs related to pre-approval WICAMP spend in the prior year period. Selling general administrative expenses of $16.5 million in the second quarter of 2024 increased versus the second quarter of 2023 by $10.6 million, driven primarily by commercial activity for WICAMP. Gap net loss was $17.2 million, or 37 cents per share, for fiscal second quarter 2024, compared to a gap net loss of $11 million, or 24 cents per share, for the prior year period. On a non-GAAP basis, which excludes stock-based compensation and non-cash interest expense, the second quarter of 2024 net loss was $14.4 million, or 31 cents per share, compared to a net loss of $9.4 million, or 21 cents per share, for the second quarter of 2023. And finally, as of June 30, 2024, Verica had aggregate cash and cash equivalents of $31.9 million, The company expects that its cash and cash equivalents as of June 30th, 2024, will be sufficient to fund operations into the first quarter of 2025. I'll now turn the call back over to Ted for closing remarks.
speaker
Ted White
Thanks, Terry. As we progress through the third quarter, we are laser focused on the launch of YCAMP and accelerating YCAMP demand in the second half of the year. We achieved important wins across multiple areas of our business. Significant amounts of compounded contheridine have been removed from the U.S. market, and we will continue to be vigilant on this front. CMS published favorable Y-CANTH allowables on July 1st, and we continue to focus on expanding our buy-and-bill accounts and demand with the addition of Sencora, IPN, and Vizient as GPOs, targeting physician groups and hospitals. We also made considerable progress in our pipelines. We expect to continue advancing Y-cancer for the treatment of common warts through our amended agreement with Torrey and the exciting top-line data we released today on our Phase II data for VP315 for the treatment of basal cell carcinoma. Our company remains very excited about VP315's unique and differentiated product profile, which has the potential to be a primary and neoadjuvant non-invasive therapy that addresses a significant unmet medical need in dermatology. That concludes our formal remarks, and I'll now turn the call over to the operator for Q&A.
speaker
Operator
Thank you. The floor is now open for your questions. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. If at any time your question has been answered, you may remove yourself from the queue by pressing star 2. Again, to ask a question, please press star 1. Our first question will come from Stacy Ku with TD Cowan.
speaker
Kevin Gardner
Please go ahead.
speaker
Stacey
We had a few questions. Just first on why camp. Can you put some metrics around the progress you've made in removing competitive cantharidin? And just a better understanding around the timeline of when things might resolve. Just help set some expectations there. And a quick follow-up on kind of the stocking you've discussed in a lot of detail. Where do you expect it to normalize versus where it is now? So those are our why can't questions. And then for BP315, obviously the treatment paradigm for BCC has a lot of surgery. So kind of curious, what's the pathway forward that could help build enthusiasm beyond the typical cutting out the lesion? What are your early thoughts on study design? And what kind of follow-up do you think will be necessary to confirm long-term complete histological clearance? What do you think clinicians will want to see? And then one more question, if possible, and I can come back and follow up. Do you see any greater success in certain lesions? Kind of curious about the success you've seen maybe on the face. Thanks so much.
speaker
Ted White
Thank you, Stacey. This is Ted. I'll handle the first part on the compounded cantharidin and then turn it over to Terry and then over to Gary Goldenberg for the BP315. Thank you. So on the compounded contheridine, as you know, we've announced that we've been successful with both lighters and dormer laboratories. Typical compounded contheridine has a shelf life of around six months. We know that in dormer laboratories specifically, there were over 24,000 vials shipped to the United States, so we expect that that inventory has to bleed out from offices, and so When you think about it, the last shipment was made in April of 2024. So with a six-month shelf life, we expect that to bleed out in the second half of the year. And I'll turn the next part over to Terry. Sure. Good morning, Stacey.
speaker
Terry
Good morning, Stacey. So your question on inventory and normalization, I think, you know, our expectations are we're going to continue to grow demand aggressively over the back half of the year here. And so I think we expect inventory to normalize in the channel in the back half of the year and be normalized by early 2025. Okay.
speaker
Stacey
Do you expect it to have some kind of expectations or guidance around the percentage of realized revenue, kind of the inventory? just to help set expectations?
speaker
Terry
Yeah, well, certainly, you know, we know distributors are going to take into account inventory on hand and future demand expectations as they think about what the appropriate level of X factory orders will be in the back half of the year. But we can't give any guidance on revenues at this stage or comment really on the cadence of any future X factory orders.
speaker
spk04
Okay, understood.
speaker
Operator
Thank you. Our next question will come from Gregory Renda with RBC Capital Markets.
speaker
Terry
Todd, hold on a second. Just as a pause, I think we want to make sure we answer the 315 question as well.
speaker
Garrett
Yes, can you hear me? Casey, hi. Thank you for the questions. Okay, so regarding the paradigm, we believe that based on our Phase II data, and it's Phase II, not Phase III, but based on the Phase II data, we believe that this product, the BP315, has the ability to shift the treatment paradigms. I think if you look at our favorable safety profile in the Phase 2 study, we're very pleased with that. And as you know, Phase 2 really is a safety study. It's a dose escalation safety study. We did not see any severe adverse events related to the treatment, so that's a very positive development. If you look at efficacy data for complete histologic clearance and also for tumor size reduction, essentially shrinking the tumor, We believe that BP315 has the potential to be the treatment of choice between biopsy and diagnosis and potential need for surgery. Right now, in the vast majority of patients, you get a diagnosis with a biopsy, your next step is surgery. We believe that BP315 has the potential to be that step in between. In 51% of subjects in our study, there was complete histologic clearance, meaning that there would be no need for a surgical intervention. In those patients who did not have histologic clearance, there was a 71% reduction in lesion size. What does that mean for a patient? It means that if they do have to have surgery later on, the surgery now is much smaller. It's decreased by more than 50%. So their surgical scar, the operation itself, is now much smaller than it would have been prior to using BP315. So we really believe that this has potential to shift the treatment paradigm. As far as the follow-up time needed and what dermatologists would like to see, I think it's too early to comment. I think these are the things that we will discuss with the agency in our end-of-phase student meeting, which we anticipate to happen in the first half of next year. But I think at this point, we are all very excited about the potential of this molecule to shift the treatment paradigm for the 3.6 million-plus patients with basal cell carcinoma in the United States alone.
speaker
Kevin Gardner
Thank you. We'll now go to our next question.
speaker
Operator
It comes from Gregory Rinza with RBC Capital Markets.
speaker
spk11
Great. Thanks. Good morning, Ted. Congrats on the progress. Thanks for taking my question. Ted, as you and Joe and the team talk about it really accelerating and doubling down on execution for Wycanton in the market, I just wanted to ask if you could just add additional color on some of those levers that you're pulling. How are you prioritizing the detailing there? I know you provided some comments in your prepared remarks. I'm just curious, how important is that same-day treatment and lowering those barriers for prior authorizations? I know you've seen that come down. And as we're about a year or so into launch, just wanted to provide some of your commentary on the trajectory from here in light of all the execution detailing that you're doing. Thanks.
speaker
Ted White
Sure. Thank you, Greg, for the question. So, listen, I would tell you a couple things. Prior authorizations, we typically see that in our Medicaid and our managed Medicaid area of business. and we are actively working with those accounts as we speak to negotiate to get those PAs removed. Difference between a medical benefit and a pharmacy benefit. In a medical benefit policy, you cannot treat the same day until you get the authorization code. So it's not like a pharmacy benefit where you can do an electronic prior authorization, cover my meds, et cetera. Medical benefit is different. So this is a key area that we're focusing on in order to get these PAs removed Again, we typically see it in managed Medicaid and state Medicaid and then also the Blue Cross Blue Shields of the world. So that's number one. Number two is we're looking to pull a lever with our copay program. Right now our copay program is there's a variance between $25 to $75. You'll be hearing shortly that we'll be streamlining that process and making it more simplistic for customers and for the patients. So that's another lever. I also think that the other lever we have with IPN, which they have a strong footprint in dermatology, and now we'll be able to do contracting with them and be able to talk spread that, as you know, our field force cannot talk about with customers. And then, of course, we have Vizient for the institutions. And then finally, looking at payers, while we have strong coverage, we like to get even stronger coverage and look to go to a dual benefit where we have a pharmacy benefit as well as a medical benefit.
speaker
Kevin Gardner
And those are the levers that we're actively working on as we speak. That's great. Thank you.
speaker
spk11
And just one more maybe for Terry. Just on the sampling, can you just give us a state of the contributions there and the expectations? And then maybe I'll just lob in, as you see the demand and maybe some of that predictability, I know you didn't provide, refraining from guidance on, of course, some inventory, but just largely, did you have a timeline as to when you would feel comfortable just internally on projections to provide larger, longer-term guidance when it comes to why can't the revenues? Thanks again, and congrats, guys, on the quarter and the data.
speaker
Terry
Thanks, Grant. Good morning. So on the guidance front, you know, that's something that we'll consider as we get closer to 2025. It's not something that we'll do in the back half of this year. And then on the sample program, so, you know, we continue to sample, but I would tell you the sampling has gone significantly down and will continue to go down, we believe, over the back half of the year. Joe, is that?
speaker
Joe
Yeah, I mean, we look at the sample program as trade doses because they are a starter dose, right, to help patients. So that continues to go down as we're continuing to build our coverage and same day treatment for physicians. So to Terry's point, that's gonna continue to taper down dramatically on the back half of the year here.
speaker
Kevin Gardner
Great, thanks guys.
speaker
Operator
Thank you, our next question will come from Glen Santangelo with Jefferies, please go ahead.
speaker
Glen Santangelo
Oh yeah, thanks for taking my questions. Hey Ted, I mean you commented multiple times, obviously, about the settlement against Dormer Labs. And that's obviously a major step forward. But can you say sort of confidently at this point, you're not really seeing any incremental compounded cathartin sort of come into the market at this point? Do you feel like that window has closed?
speaker
Ted White
Hi, Glenn. Yeah. So listen, I could tell you incrementally, no, we're not seeing any incremental compounded cathartin in the market. You know, are there isolated cases where there's been compounded contagion seen? Yes, absolutely. And what I mean by that is, you know, that's, you know, the dormer inventory that's bleeding out.
speaker
Glen Santangelo
Right. So I think what we're all trying to do is we're all trying to sort of reconcile maybe the $2.3 million in revenues you had this quarter with FFF, you know, with the sort of the comments that you made in the back end of press release that you expect prescription growth quarter over quarter in the back half, you know, sort of taken into consideration that it may take some time to bleed out, you know, the compounded cathartin sort of in the market. So you think we start, we're starting to see that now. I mean, we're midway through 3Q. I don't know if there's any sort of commentary you can give us sort of at this point, but maybe you feel like we're at the point where we're going to start to see that inflection in scripts because, you know, the compounded cathartin is sort of, you know, almost worked its way fully through the system. Is that kind of the message you're trying to send?
speaker
Ted White
Absolutely. I mean, we expect to see the inflection with the dormer now bleeding out. We're already seeing, Glenn, accounts that were, you know, on the dormer target list. As you know, dormer, you know, we know those accounts and we're already seeing orders from those accounts starting to come in as those accounts bleed out their inventory. Perfect.
speaker
Glen Santangelo
And maybe my last question is sort of on Ligand's product. You're obviously aware that there's another company that got approval. I don't know if you could sort of comment on the competitive landscape, if there's anything else sort of you're paying attention to and how that approval, you know, might ultimately be impacting the market positively or negatively for you.