Good morning. Welcome to the H.C. Wainwright's Second Annual BioConnect Investor Conference at Nasdaq. My name is Oren Livnat, Specialty Pharmaceuticals Analyst here at H.C. Wainwright. It's my pleasure to welcome for a brief chat today, Verrica Pharmaceuticals. With us today is President and CEO, Ted White. I do cover Verrica with a buy rating, so for anyone listening here and watching on the webcast, feel free to reach out to me separately with any questions. Welcome, Ted.
Good morning, Oren. Thanks.
Good to chat with you again. I think the last time we did one of these things was in September. Since then, it's been a very exciting time, I can imagine, at your company. You're about two quarters into the launch of your flagship product, YCANTH, the first-ever FDA-approved product for molluscum contagiosum. And in that span, stocks, I think, nearly doubled, certainly bucked the trend in recent medical dermatology launches by outperforming early expectations, which has made my life easier, so I appreciate it. And I'm just hoping today you can just talk to investors. I guess, firstly, just give a brief overview of molluscum, Verrica's strategy, and pipeline opportunities, and then we'll dig further into the details.
Sure. Happy to. So molluscum contagiosum is probably, first of all, one of the top 50 diagnoses worldwide, but it's a disease that most people never heard of. As the name implies, contagiosum, molluscum is a highly contagious viral skin disease. It's a form of a pox virus that lasts on average up to 13 months to several years. It typically affects children ages two to 14, although adults can get molluscum, and it's typically in a form of an STD. The typical patient will present anywhere from 10-30 lesions, and the challenge is that, as I mentioned, it's contagious. Children typically pick and scratch these lesions and then auto-inoculate themselves in other parts of the body.
In addition, if they have siblings, you have a greater than 50% chance of spreading it to siblings, so it becomes a really household nightmare. In school, the lesions are required to be covered, so that presents a lot of challenges, also social issues, extracurricular activities, et cetera. YCANTH is the first FDA-approved treatment for molluscum, and prior to that, the challenges in destructive therapies such as cryotherapy and curettage had major drawbacks and challenges. Mainly, it was painful and also the potential for scarring.
Right. I'm sure there's people listening on the call now who know the challenges of molluscum and getting rid of molluscum. It's quite persistent and challenging. So now your product, YCANTH, is out there. Like I said, it's been a nice first couple of quarters. Can you just talk about the rapid ramp first in insurance coverage, which has actually, I think, really surprised a lot of people in this space, in dermatology? How has it compared to your expectations, first of all, and what I'm really interested in is when you talk about access and covered lives, it doesn't always mean a lot of access. It's sometimes just a umbrella term thrown around with hundreds of millions of lives.
Can you talk about on the ground, really, what kind of access do you have, and what does that mean for patients and doctors?
Absolutely. So listen, the key to any, any product launch is access, right? And I think one of the, the key distinctions for YCANTH is that we're covered under a medical benefit, not a pharmacy benefit. And traditionally, in dermatology, you know, most of your products are covered under a pharmacy benefit. So that's a huge, significant difference for us, and, I think that's led to the, the outstanding coverage that we have. Now, I will tell you the current coverage of 228 million covered lives exceeded our expectations, for sure. And, and again, primarily that's on the medical benefit side, but we are starting to see some plans that want to do a dual benefit of a medical as well as a, as a pharmacy benefit.
In addition to coverage, you know, we received our J-Code was issued-
Right
... in January, we got fully published first week of April, and we've seen a significant lift in sales as a result of that. So we're very encouraged by that and a lot more interest in buy-and-bill, which you would expect to have once you get the J-Code issued.
We'll talk more about that J-Code for sure. In the office now, what's the level of hassle factor, I guess, in your experience with regards to prior auth with all this coverage you have now?
Yeah, no, great question. So, we definitely have prior authorizations that are in place, but they're confirmatory prior authorizations. So what I mean by that is you're, you're confirming the diagnoses, you're confirming that the patient's at least two years of age or older, and you're also confirming that they have at least one molluscum lesion. So it's, they're soft PAs, but nonetheless, they are PAs. Although we do have plans such as UnitedHealthcare, Anthem, Cigna, that require no prior authorization.
All right.
New York State Medicaid, where we're at right now, it is, no, no prior authorization as well.
All right. When we think about the unmet need in the space, you know, what are you hearing now that your product's out there from, in terms of awareness among dermatology, pediatric practices? I know it's quite early in the launch, but, you know, what are you hearing about the product profile and reception to that?
Yeah, no, the reception has been really outstanding, and the applicator is the star of the show. So you know, you're hearing that, you know, now they're enabling to apply cantharidin more precisely onto a lesion, a better end-user experience. So again, the applicator is the star of the show.
What are we hearing about the importance of this product to practice economics, right? 'Cause that's something that's unique about this opportunity, right? A lot of practices are getting squeezed on margins now and the reimbursement side. How excited are they to have this to be able to make some money?
... Well, listen, I think they're really-
Treat patients, of course.
Yeah, of course. I think, you know, it's better, it's, it's a better experience all the way around for the patient-
Yeah
... you know, for the healthcare provider. What I've always liked about this opportunity is when you have a revenue opportunity for the healthcare provider, it provides a partnership. So you're partnering with these practices, and whether or not they elect to buy and bill, because remember, you know, they're getting a CPT destruction code for applying the medication to-
Mm-hmm
... to the patient. So there's the office visit, and then there's that CPT destruction code. It's not like you're writing a prescription and sending them out the door. And then, of course, if they elect to buy and bill, then there's that additional revenue opportunity with an ASP plus model.
All right, so you have a hybrid distribution model now, which is pretty unique. You've got both specialty pharmaceutical, you know, white bag service, so to speak, and as you just mentioned a couple of times, buy and bill. Can you just talk about the momentum towards the latter? You know, it was mostly upfront, especially pharmacy at the initial launch, and we're already seeing pretty rapid adoption of buy and bill. So can you talk about that momentum, especially, you know, into April and May as the J-Code was published, April 1?
April one, yes. Yeah, so, to your point, at launch, I would tell you we were primarily specialty pharmacy-
Mm
... white bag service. Because, you know, look, dermatologists in particular were have gotten burnt on J-Codes and have misconceptions about the miscellaneous J-Code, even though, you know, we try to make it as simple as possible, white glove service, et cetera. But clearly, we had a lot of customers that were on the sideline waiting for us to get that J-Code. When we got the J-Code, you know, greater than 40% lift that we've seen in utilization, as well as interest in setting up buy and bill accounts. So we expect the pendulum to change, it to swing over to the buy and bill side now that that J-Code is in effect, and obviously, because of obviously, the revenue opportunity.
Is that an instant on, or should we think about, you know, what point in this year should we think about more broad uptake, and acceptance of a J-Code, and, I guess confidence in reimbursement?
Well, I haven't seen too many light switches-
Yeah
... in my career, so I would tell you it'll be, it'll build over time.
Okay.
Yeah, month-over-month, quarter-over-quarter.
Help us understand the importance of the buy and bill model in a practice to patients, physicians, and also, I guess, to you guys, economically?
Well, the main thing for the patients is allows for same-day treatment, right? Because if you use a white- bag model, then obviously you have to send the prescription in, and then you have to wait for that product to get shipped to the office. It's not ideal. So when you're dealing with a disease where you're highly contagious, parents want to get the child treated immediately. So that's really one of the key benefits to the buy and bill, that product will be in stock at the physician's office.
Mm-hmm.
And then again, from an efficiency standpoint, again, it's more efficient for the office. And then again, as we talked about, you know, the revenue, the economics for it.
Is there a difference in familiarity with buy and bill and J-Code usage across your different segments of customers? You've got an institutional business, you got pediatric dermatologists and even peds, which we'll talk about more.
Yeah, they all, all those segments are very familiar with buy and bill, whether it be pediatricians with vaccines. You know, dermatologists, they're doing buy and bill, they do buy and sell. You know, they're used to buying products, you know, whether it be cosmeceuticals, whether it be aesthetics, et cetera. So, you know, they're used to this type of a model.
And I know we didn't touch on it today, but in the past, we've talked about how you have a pretty unique approach to buy and bill, right? I think you called it forward-deployed inventory, some call it consignment model. Can you just talk about how that's unique and what's been the initial reception of that? Is it unique with your... Are your customers surprised that they don't have to go out of pocket upfront? Is that new?
Yeah. Well, listen, we try to bring innovation to the space-
Yeah
... and so we try to offer flexibility on the buy and bill. So we offer two forms of buy and bill: traditional buy and bill, where we'll give an off, we'll give a discount-
Mm-hmm
... based on the volume that they purchased. And then for those physicians that say, "You know what? I just don't want to outlay the working capital," then we have this, as you call it, this forward deployed, is more of a consignment model. And where the product is at the office, it's consigned. Once the physician utilizes the product, then they have 60 days to pay for the product. So we try to offer them, you know, flexibility.
So you sort of remove the at-risk capital investment from a practice perspective?
That's right.
All right. And to touch on pediatrics, so I think on the last call or even earlier, you mentioned an expansion of the field force into the pediatric space. First, like, can you remind me how many reps are out there now in general? And was this expansion of peds earlier than you'd originally planned?
Yeah. So let me-
Yeah
... let me start with the number of representatives we have. So we have 53 dermatology representatives in the top 53 MSAs across the country.
Mm-hmm.
In addition, we have eight hospital representatives, and then we have 20 dedicated pediatric representatives in the top 20 MSAs in the country.
Mm.
Now, we've always said we're gonna go to pediatrics, but we wanted to be mindful and thoughtful because today, you know, pediatricians up until the approval of YCANTH, pediatricians were referring patients to dermatologists.
Right.
So we were very sensitive to that referral network that was going on. But the challenge was we're receiving so much inbound traffic from pediatricians that wanted to see a representative, wanted samples, wanted to know how they can get the product, that we decided that, you know what? We can't afford to wait because there was just too much, too much interest. So we start with 20 pediatric representatives. We also are working with Main Street Vaccines, which is a pediatric buying group that-
Mm
... that's helping us as well. And then we'll, you know, we'll continue to assess that particular segment.
So this is a cantharidin and a single-use applicator. cantharidin itself is not new to dermatologists, right? They've been using unapproved compounded cantharidin for many years. I guess now that your product's out there, can you just talk about the feedback on physician experience with your product as opposed to compounded products?
Yeah, well, it's like you're comparing apples and oranges. So compounded cantharidin, first of all, it's ether-based, so every time you open up that jar of cantharidin, that ether blows off, it changes the concentration, and it makes it stronger, which leads to over blistering. And then instead of becoming a solution, it almost forms like a jelly-like, so it's very challenging. In addition, it's applied very antiquatedly by a wooden stick. So they dip a stick in the jar and then drip it onto the patient. It's also a multi-use jar, so you gotta, you gotta think about cross-contamination. So, again, as I mentioned, YCANTH, our applicator, you know, it's really the star of the show. It, it's simple, it's easy, and it-- more importantly, it allows for precise administration of cantharidin to the lesions.
Now that your product's approved, and we've seen this before, sometimes there's a lot of controversy around removing a compounded alternative from the market. But can you talk about what sort of momentum you've had and success you've had in either on the FDA, legal, or otherwise, fronts in removing unapproved cantharidin from the market?
Yeah. So I would tell you, we've had tremendous success in our efforts against compounded cantharidin and, on many fronts. So first, you know, the 503B pharmacies, these are the larger compounding pharmacies in the United States. Pleased to report that no one has compounded cantharidin in 2024. One of the largest ones, Leiters, based on the West Coast that supply a lot of the hospitals and IDNs, we came to a successful resolution with them. They are no longer compounding cantharidin. And then, the other main source of cantharidin was the illegal importation from Canada, with Dormer Labs. And so we announced in our quarterly earnings that we've come to an agreement with Dormer Labs.
I hope to provide greater details on that here in the coming days, but we've come to a successful resolution there. I would tell you that, I think we underestimated how much compounded cantharidin was in the market. There's a significant amount, so, we think that this agreement with Dormer is, is really going to open things up for us.
I don't know if you'd comment on this, and I don't know what that agreement looks like, but, for people who do have a jar sitting on their shelf, that's a potential customer of yours. Are they incentivized to switch to your product even before that is used up?
Again, if they're in a buy and bill model-
Yeah
... absolutely, yes, they'd be incentivized to use our product.
Okay.
Yes.
So let's talk about the pipeline for YCANTH. I mean, it's sort of like a little pipeline and a product, I guess you could say. Right now you have the molluscum indication, but just last week, after earnings, you announced a partnership with your existing Japanese partner for YCANTH to have them partially fund common warts phase III. So can you just talk about, you know, a broad outline of the deal, timing to market potentially for that opportunity, and how de-risked you sort of view that label expansion?
Sure. So first and foremost, we're really excited about the opportunity in common warts. You know, we thought we were going to go into common warts first. It's a much bigger market. I've always said common warts is the Holy Grail of dermatology. There's no FDA-approved therapies. And again, the same challenges that exist for molluscum prior to the YCANTH treatment exist for common warts. Cryotherapies, too painful, salicylic acid, lasers, that's the challenge, and it's an HPV virus that sits deep down into the skin, and it's really tough to penetrate. As a reminder, our phase II study for common warts, we showed a 51% complete clearance, which no drug to date has shown that type of efficacy. So we're very excited about that. We also believe that's a very de-risked program.
Our partner in Japan, as you mentioned, Torii, is really excited about warts. They're the ones that have been pushing us to keep developing into the common warts. So we're gonna do a global phase III program, and so basically, they're fronting us our costs of the trial. We're gonna split the trial costs in half, but based on future milestones and royalties on molluscum, they're going to pay for our trial-
Mm-hmm
... here in the United States. So obviously, you know, a great opportunity for us, and then also to, you know, expedite this and get this to the market. We're saying that we'll start the trial in the first half of 2025. We still need to get final sign-off on the FDA and also the PMDA before we go into that trial.
Beyond common warts, what other applications do you see for topical cantharidin?
Yeah, I think the most logical would be external genital warts, which we also conducted a phase II study, and we also have the green light from the FDA to go into a phase III program for that indication. And then I think looking at plantar warts, and there, we'll probably look at a higher concentration of cantharidin.
Mm-hmm.
But listen, when you think about it, you know, between molluscum, common warts, external genital warts, plantar warts, you know, YCANTH has the ability to affect greater than 10% of the U.S. population, so significant opportunity.
Right. So if you have a long runway and multiple label expansions for this product, how do you think about the durability? How should investors think about the durability and exclusivity of this product in light of that, you know, regarding potential competition, generic or otherwise?
Yeah, no, great question. So first of all, you know, we, we were granted NCE-
Mm-hmm
... we're Orange Book listed, and a lot of folks didn't think we were gonna get that, so we did get that. Now, cantharidin being naturally sourced, the IP for us is really on the applicator, the method of use on our specific formulation, our ether-free formulation. Our IP takes us out to 2041, so multiple decades. And in addition, I'd like to remind everyone that, you know, we started a process several years ago to see if we can make cantharidin synthetically.
Right. Right.
And, so, you know, we were able to do it on a small scale. Most recently, we did a large scale, and so, you know, we'll have to go back to the FDA to determine what needs to be done in order to bring synthetic to the market. But when that happens, obviously, that's gonna provide additional, IP.
... All right, and in the time we have left, I don't want to give short shrift to your pipeline, but I'd be remiss if I didn't touch on VP-315. It's a little more outside of my wheelhouse. This is for basal cell carcinoma, but you expect preliminary phase II data next month, right, or the end of June, so it's right around the corner. Can you just high level tell us, you know, what are you looking for in this readout? What sort of benchmarks or analogs should we be thinking about as we try to decide, you know, how robust this data is?
Yeah, no, great question. So, you know, we've announced last patient was dosed in December. As a reminder, this is a first-in-class oncolytic peptide that's intratumoral injection. And top line readout will be, you know, let's call it mid- to late June. We're looking at it as a, you know, as a primary therapy for basal cell carcinoma, or as a neoadjuvant therapy for basal cell carcinoma. I think what we'll look at is to see what the percent of basal cell reductions we see, and then for those that have basal cell remaining, what percent was remaining to determine what the next steps would be.
I guess how would this be differentiated in the current landscape of BCC therapy?
Yeah. So I think if you look at the, you know, non-invasive, you look at some of the orals that are, that are out there, like, ODOMZO and Erivedge, they have a lot of systemic side effects, with it. So, you know, if we, if we see, you know, good tolerability, good side effects, you can reduce the lesion, and so therefore, you know, maybe, not as a big of as an incision. Because surgical fatigue is a, is a real thing-
Right
... especially in basal cell, and particularly when you have things on your face, you know, your ears. Patients are really looking for a non-invasive approach to basal cell carcinoma.
So assuming things look as you hope, let me frame the opportunity here. You know, what is the market size with regards to, you know, non-surgical treatments, maybe neoadjuvant therapy? How should we think about this opportunity? And also, how does it synergize with your current business, which is clearly a very different focus?
Yeah. No. Well, listen, there's a lot of synergies. First of all, this is a significant market, 5 million, you know, cases. It's the basal cell, largest form of non-melanoma skin cancer out there, and it's growing, you know, daily. We see a lot of synergies because, you know, dermatologists now will be able to treat. You know, 99% of the time you have a basal cell, you're going to get referred on to a Mohs surgeon. What's interesting, Oren, is what we for this product, we did a reverse business development. We started with the payers, and we wanted to see what the reimbursement landscape was with, with, for this product. Because it's clinician administered, it fits right into our model of clinician administered assets.
There's going to be a CPT code, okay? There's going to be a buy and bill opportunity. So the same thing for molluscum will apply for this product. And so now the dermatologist has the opportunity, you know, financially to, there's a financial incentive for them for this product before they get moved on to a Mohs surgeon, if they need to get a Mohs surgeon.
Right. And some practices will maybe just pre-treat with this, even if they're doing the surgery themselves, perhaps. Right?
Correct.
Okay. I guess we're already over. So just quickly, lastly, on the financial side, can you just remind us of what your balance sheet's looking like, the runway, and, you know, do you have plans to address that runway going forward?
Yeah. So we know we announced at the end of the quarter, we closed the quarter with $48.9 million, and then we've said that that will take us out to Q1 of 2025. And look, I think we're always looking for ways we can extend our cash runway, and you know, we always want to be opportunist.
All right. Well, I appreciate it. I look forward to the upcoming data and the ongoing launch.
Great.
Wish you the best of luck.
Thank you.
Thank you.