Good afternoon. Welcome to Needham's 23rd Annual Healthcare Conference. I'm Serge Belanger, one of the Healthcare Analysts at Needham. We're happy to have for our next afternoon session here Verrica Pharmaceuticals. We have the company's President and CEO, Ted White, with us. He's going to talk to us about the ongoing launch of YCANTH that started last year. So I'll hand it over to Ted. He can give us an overview of the company and maybe the initial launch of YCANTH. And then, we'll move on to some Q&A.
Great. Thank you, Serge. Pleasure to be with you. Verrica Pharmaceuticals. We are a dermatology therapeutics company based in West Chester, Pennsylvania, about 40 minutes outside of the Philadelphia area. We're really focused on addressing high unmet needs within medical dermatology. Our lead asset, YCANTH, was recently approved by the FDA as the first commercial product for the treatment of molluscum contagiosum, which is a viral skin disease that primarily affects children ages two to 14. This is a disease, as the name implies, contagiosum is highly contagious. Typical patients have this disease for 13 months and up to several years if untreated. So it becomes a real challenge. We just recently launched YCANTH in September of last year. I can tell you that we are laser-focused on the commercial success of YCANTH.
We were recently issued a J-code in January that was published in April. And so our focus now is really on growing buy-and-bill accounts across the specialties that we interact with. We also recently announced the pediatric expansion, where we added additional headcount to a pediatric field force, due to the fact of the demand that we have seen from pediatricians. And, of course, we continue our efforts against the compounding concern that exists. And I'm happy to report that, you know, we're on the back end of that with regards to the compounding.
Okay. Great. I know the initial focus of the launch has really been on, you know, establishing the infrastructure. You mentioned expanding the sales effort to pediatrics, the reimbursement process. So maybe if you can talk about the current state of payer coverage, where you are, what needs to be done, and where you think you'll be by year-end this year.
Yeah. No, great question, Serge. So I would tell you the success of any product launch is coverage, payer coverage. And, I'm happy to report that as of today, we have 228 million covered lives, which is really, you know, a significant accomplishment given the fact that we've only been on the market for, you know, for a few months. This totals 80 commercial plans, Medicaid and managed Medicaid plans in the U.S. And, you know, again, primarily this is a medical benefit as expected because, you know, this is a clinician-administered asset. We do have some plans that are dual benefit, where it's medical and pharmacy. Happy to report that the majority of prior authorizations are soft PAs, with the indication of a patient being at least two years of age or older and with a diagnosis of molluscum.
You know, currently today, approximately 20% of the plans do not have a prior authorization or a step edit in place. Step edits, I would tell you, are less of an issue. We have maybe one or two state Medicaid plans, but that's really the exceptions there. As far as, like, what still needs to be done, you know, again, I wouldn't tell you ensuring that the J-code is published with all the plans, you know, continuing to drive buy-and-bill adoption. Because until the J-code, most customers were utilizing our specialty pharmacy, Nufactor, with what we call white-bag, where the product is shipped to the office with the patient's name on it. Now that the J-code's been established, it's now converting those customers over to buy-and-bill.
Also continue getting reimbursement and getting on with the state Medicaid plans. And then we'll also now look to remove some of the prior authorizations that are in place now that we're out six months. And then continue with a look at opportunities where we can have a dual benefit of a pharmacy and medical benefit.
Okay. And remind me again, the kind of the breakdown for the molluscum as an indication between commercial and you mentioned state Medicaid plans. Is that I assume those are the two major ones, but what's the breakdown between both of them?
Yeah. So, as I mentioned, we have about 80 commercial plans covering about 170 million lives. Medicaid, we've got 45 million lives that are covered. And then on the managed Medicaid side, we have about 33 million lives that are covered. So in total, 228 million covered lives.
Okay. And then, so with the initial launch, I guess, you know, who have you been targeting with your sales force, in terms of specific physicians or dermatologists, pediatricians?
Yeah. So the main focus for this disease is really on dermatologists, pediatric dermatologists, of which, you know, we know there's about 400. These specialists typically reside in the major teaching institutions, although there are some out in the community, but the majority are in the institutions. And then high-decile pediatricians who are currently treating molluscum.
Got it. And I think you've talked about, I think, during the last quarterly call, trying to penetrate institutions. You again mentioned Kaiser and the Mayo Clinic. Maybe just highlight, you know, how different that is than the other targeting you've done and how you can ramp up sales and usage via institutionals.
Sure. So I would tell you we're keenly focused on children's hospitals. As you mentioned, some of those Kaisers and Mayos, you know, just this past month, we added 18 formulary wins, you know, institutions such as Children's Hospital of Philadelphia, Rady Children's Hospital in San Diego, UNC, Emory, Cleveland Clinic, UPMC, Henry Ford, to the likes. So these are important accounts for us because, once they get on formulary, it becomes a binary event. And a lot of these facilities, a lot of these institutions have outpatient clinics where these patients are being driven to. So it's an important segment for us, because, again, the outpatient clinics that, you know, they can really drive significant business.
When you say, sorry, when you say binary events, once you get on formulary, that becomes an automatic regular order? Is that what you think about it? Okay.
Right. That's right. Yeah. Once you, you know, but listen, it's a comprehensive process, right? Because it starts with, you know, a KOL champion. You've got to meet with pharmacy department, the finance department, you know, making sure that the financials and on how all that works, the clinical presentation, the actual P&T committee, and then, obviously, the formulary acceptance. But once they load it into their system, as I mentioned, it becomes a binary event.
Okay. Were these all institutions that were, you know, using compounding cantharidin or not using anything, and now they actually have an approved FDA products, or they're moving to it?
Yeah. I would say it varies depending upon accounts. You know, some accounts had the compounding cantharidin. Others didn't. It just depends on the institution.
Okay. And I think you've also entered into a few distribution agreements. One with Walgreens. I think more recently, the DMS.
Correct.
So how does that play in the whole launch and uptake of the product?
Yeah. So what I'll say is the first step for Walgreens was their specialty pharmacy agreement. Because they have brick-and-mortar stores in all the states, and that's going to help us capture state Medicaid business. So that was an important first step. Now, the next step for Walgreens specifically is the stocking and pulling through their community health system stores. You know, this month, we're targeting around 43 stores over the next month. And this is where you walk into the Walgreens, and they have a clinic, and you know, you will get treated. And the DMS, interesting, DMS, which they're one of the prime vendors for the military, for the Department of Defense, they approached us. They were getting inquiries on YCANTH and looking to acquire the product.
So DMS reached out to Verrica, and so we were recently able to put that agreement into place.
Okay. Do these agreements come with discounting, rebating, or?
There's a small distribution fee, but, you know, nothing like you would see from a buy-and-bill type of thing.
Got it. That makes sense. Okay. I think what's unique about YCANTH is cantharidin has been extremely well-known within the derm community. So in terms of awareness, I think you start where most new launches don't get that benefit, right? But I think the product is still well-known among the newer dermatologists and the ones that just graduated. Or are they still kind of familiar with YCANTH or cantharidin and how it was previously used?
Well, the good news is, yes. So there's wide acceptance. There's wide, widespread knowledge of cantharidin. It's a well-known, appreciated compound. Again, considered the gold standard for the treatment of warts and molluscum and other skin lesions. And also, cantharidin's used in med school as one of the because it's such a repeatable test that they do it in med school. So, answer your question, you know, very high awareness of the compound, which is half the battle.
Okay. And were most dermatologists still using a cantharidin product, either from a compounded product or some other unauthorized source?
Yeah. I think one of the biggest, you know, because there's no data available on compounded cantharidin, we, you know, we tried, and there was no data sources available. IQVIA, you know, none of the big data houses have any of that information. I don't think we really appreciated how much compounded cantharidin was out in the market at the time of launch. Again, we've made successful headwinds, and like I said, we're on the back end of it. But, you know, there was more than we actually anticipated.
Okay. So in terms of efforts to get rid of those products, I know the FDA seemed pretty active, at least last year. Just curious how their efforts have continued and, if you've been successful in kind of removing most of these products from the market.
Yeah. So we've done a couple of things, Serge. The first thing we did was we filed a citizens' petition. That's to have cantharidin removed off the bulk substance list. We're due to hear back from the agency this month, so we expect to hear something, you know, in the month of April on that. The second thing we did is we filed a drug import alert, which is for the importation of cantharidin to the U.S. And this is primarily from Canada. And we know who that supplier is. It's Dormer Labs, which we've also announced that we had issued a lawsuit against. Now, the good news is Dormer has come to the table, and, you know, we're in negotiations with them. And as I mentioned, I think we're on the back end of that.
And then we've also sent cease and desist letters out to known 503(a) pharmacies and also 503(b) pharmacies. Now, the good news on the 503(b) pharmacies, these are your larger pharmacies that are compounding that, basically, supply product to institutions. No 503(b) has manufactured cantharidin in 2004. One of the largest 503(b) pharmacies that supplies IDNs and institutions has agreed to stop manufacturing and distributing their cantharidin. They sent letters to all of their members and directed them to Verrica. And we have since, you know, received orders from these accounts. So, again, right now, I would tell you, there's a handful of 503(a)s. These are mom-and-pops that supply, you know, individual doctors' offices. And again, Dormer is on the one yard.
Got it. Maybe it makes sense to just review the molluscum market opportunity. You've been out on the market now for nine, I guess, and well, yeah, about nine months. Curious how you look at the if your, the market size is as big as you thought it was and, what, you know, how is it being served in terms of who's prescribing the products, who's treating molluscum, just to get a better idea of how to target the opportunity?
Yeah. No, great, great, great question. So, you know, again, you know, reminder, it's a viral skin disease, highly contagious form of a pox virus. You know, the good news is, as I spoke to earlier about our insurance coverage, you know, over 200 million lives covered. So that just tells you that the payers recognize that this is a need, an unmet need, and for reimbursement. So I think that speaks to, you know, the size of the market. Up until YCANTH, as I mentioned, no approved products and destructive therapies that were available had major drawbacks such as pain and potential scarring. And you imagine that, you know, the bulk of patients are really between the ages of two and eight years of age.
And, you know, you might be able to cryo one or two lesions, but you're not going to be able to get 10 to 30 lesions on a child. It's just not going to happen. So that's really, you know, that's really the opportunity. The other opportunity is we know the prevalence of 6 million for molluscum, with 1 million being diagnosed because of no FDA-approved therapies until the approval of YCANTH. So our opportunity is to grow the number of diagnosed. And, you know, we also know that that number is understated, from IQVIA. You know, one of the key findings with this is that there's a strong correlation between molluscum contagiosum and atopic dermatitis. In fact, 30% of patients in our clinical trials had atopic dermatitis.
You know, targeting physicians with, you know, that had high utilization in areas of atopic dermatitis is a key area for us as well.
Okay. So since you're the only product approved as a in-office procedure for molluscum.
Right.
Have you noticed any competition from the other product that's also approved? I'm not sure if it has launched yet, but if it has, has there been an impact, and do you see it as being a potential competitor down the road?
Sure. Well, ZELSUVMI got approved back in January. And of course, you know, Novan is no longer around, but Ligand picked the product up. They recently announced that, they're going to form a separate entity to launch the product, towards the later part of 2024. Now, look, I would tell you, to be honest, we, you know, I think it's really beneficial, for YCANTH if when this product launches. And I say that because the increased share of voice around molluscum will ultimately benefit YCANTH, as I mentioned, you know, cantharidin being the gold standard for the treatment of molluscum. And, you know, when you have a product like ours that's, has precise, pain-free application, you know, clinician-administered, you know, presents a great opportunity for us.
Yeah. So it sounds like everything's coming into place in terms of the launch and the infrastructure. What do you think is the biggest challenge right now? I mean, are patients aware? I guess it would be the parents and caretakers. Are they aware of that there is a product approved for molluscum? That's something you can improve on?
Yeah. Well, listen, there's always areas that we can improve on, for sure. But I would say that there's definitely high awareness of YCANTH, both in, you know, in the medical community. I think the opportunity is to, you know, to get the more caregivers. And, because they're the ultimate gatekeeper for the health plans and, obviously, for their child's, you know, medical visits. So, you know, we'll be doing and have done eight physician campaigns that are highly targeted through banner ads and email marketing. We're also advertising to parents and caregivers on Facebook, Instagram, and Google. So I would say very cost-effective means of getting to that target audience. We're also in the process of developing a media asset to run across YouTube and popular streaming services.
So, I think those are some of the areas that, you know, we'll look to drive further utilization.
Okay. And I remember from speaking with KOLs , who had used compounded cantharidin and was kind of the de facto treatment for warts. Curious if you've seen a lot of off-label use for warts at this point.
Well, I see some of the medical requests that come into the office. And I can tell you that there's been definitely some inquiries about the product being used, you know, off-label.
Okay. Good segue to talk about the potential label expansion into warts. I think you've had discussions with the FDA about what that pathway would look like. Maybe if you can just highlight what the trials would look like, maybe timelines and things like that.
Sure. So, I guess as a reminder that, you know, we have the green light to enter into a phase III clinical trial program for common warts. We had a Type C meeting with the agency, and we've gained alignment. We're also currently exploring a global phase III trial for common warts with our Japanese partner, Torii. And if that is implemented successfully, that would have a minimum impact on our cash runway. So, we're up to, we're excited. Let's just say we're excited about that potential opportunity. These would be, when we do kick off the trial, I think the earliest we would look to start this trial would be the end of the year, you know, early in Q1, January. And this would be two phase III programs.
We're probably looking at, you know, somewhere around 700, you know, 700 patients in that clinical trial. Obviously, we like the idea of doing a global program because, you know, we can get the program done a lot quicker.
Yeah. And remind me again, your Japanese partner, Torii Pharmaceuticals, they have the rights to molluscum, or they have the rights to warts also?
Yeah. Yeah. They have the rights to the VP-102 in Japan. And that includes molluscum and warts.
Got it. Okay. So that's when you're talking about a global program, obviously, it would encompass most likely Japan and Europe too. Got it. Okay. And then your other pipeline product, VP-315, for basal cell carcinoma. I think we're expecting a readout imminently. I think it's in sometime in the second quarter.
Yes.
Give us a program overview and what that readout will be.
Sure. So as a reminder, VP-315 is a first-in-class oncolytic peptide that's injected directly into the tumor to induce immunogenic cell death, which is being studied as a primary therapy or as a neoadjuvant therapy chemotherapy for basal cell carcinoma. It has a dual mechanism of action. You know, first, it kills the tumor cells, and then two, triggers immune response targeting the tumor cells. You know, we like this opportunity. You know, there's you know 3.5 million-3.6 million diagnosed each year. Currently, today, 98% of those patients are treated with surgery, typically Mohs surgery. And you know, there's always some type of residual. And you know, we like to say that there's a real thing such as surgical fatigue, where patients are just you know tired of getting treated or getting cut and getting surgery.
So there's really a need for a nonsurgical alternative and better ways to shrink a tumor. And I think if you look at the opportunity for this product, you know, skin cancer accounts for, you know, $8 billion in total healthcare costs. And non-melanoma skin cancer represents 59% of the overall category. So, that 90% of these patients are over the age of 50. So, again, you know, a significant market opportunity for us.
Okay. So we're going to see phase II trial data, kind of proof of concept?
Yeah. So phase II data, top-line readout will be in June. Just a reminder that this is a two-part phase II trial. We had over 60, you know, over 60 subjects in the part 2 of the study utilizing 8 mg, which was the top strength. There were multiple cohorts, but we focused really on Cohort 4 and Cohort 5. Cohort 4 was two treatments, two consecutive days. And Cohort 5 was three treatments, for three consecutive days. The primary endpoint being complete clearance of basal cell tumors and the reduction in tumor size. We announced that the last patient was dosed in December of 2023. And again, top-line results, you know, let's call it late June. So we're excited to see that data.
Next steps here would be straight to phase III?
Yeah. So the next steps is based on, you know, what we see. Then I think once we have all the final data, we'll schedule an end-of-phase II meeting with the agency and discuss, you know, next steps, for a potential phase III program.
Okay. And thinking way ahead here, physicians that treat basal cell carcinoma, kind of a lot of the same dermatologists that would also treat molluscum and the warts, same group?
Yeah. Your target audience virtually remains the same, although now you pick up Mohs surgeons. But a lot of Mohs surgeons are now tied into dermatology group practices. So, you know, the same, you know, the same, same target audience space.
Okay. I guess next, maybe if you just want to talk about where you are in terms of financials, cash balance, operating runway, those kinds of things?
Sure. So, what I would say is we ended the year with $69 million in cash, which is sufficient to get us into the second quarter of 2025. But I can tell you that, you know, we have a step up in 2024, given that we've added an additional 20 pediatric sales representatives to the field force. That's, you know, given the inbound traffic and inbound demand that we've been receiving. So you'll see the step up from that addition of those sales representatives.
Okay. And then in terms of catalysts and milestones for 2024, I guess quarterly sales gives us a pretty good update on the launch. And we're going to see data from VP-315. And yeah.
Yeah. So I would say the upcoming catalyst for the company first and foremost, obviously, is the launch commercial trajectory, would be number one. Top-line results of VP-315, which I indicated would be likely in late June.
June. Yeah.
Then, I would also say the visibility into a cost-effective approach to obtaining a common warts indication for YCANTH, you know, conducting that global trial with our partner in Japan.
Got it. Maybe just to wrap up, any facet of the Verrica story that you think remains underappreciated or even misunderstood by investors?
Well, I think a couple of things that.
We only have five minutes, so.
Yeah. Well, listen, I think a couple of things. I think number one is how de-risked the other indications are for YCANTH, that, you know, common warts that we've shown, you know, great success in our phase II program. Again, the fact that cantharidin's been widely used for, you know, since the 1950s for the treatment of warts, external genital warts, plantar warts, et cetera. And that, you know, with the other indications that we plan to get, you know, we'll have the ability to affect over 10% of the U.S. population, between molluscum and warts. So that's definitely number one. And number two is, you know, an Orange Book, listed NCE, with a robust IP that extends out to 2041 is probably another area that goes, unappreciated.
Yeah. Okay. All right. Well, I guess we'll end it here. I want to thank you for spending time with us this afternoon. Great overview of Verrica and YCANTH's opportunity.
Oh, I appreciate the time, sir.