Okay, thanks, and good afternoon, everybody, for our final presentation of the day. We're excited to have Verrica Pharmaceuticals here with us. Representing the company to my left is Ted White, who's the President and CEO. We also have Terry Kohler, who's the CFO, sitting in the audience. So thank you, guys, for coming. I'll introduce myself. I think I know most of you, but for those of you I don't, I'm Glen Santangelo. I cover a couple of sectors at Jefferies. I cover especially pharmaceuticals, as well as healthcare information technology and animal health. So why don't we just sort of dive right into it, I guess.
You know, Ted, I get it. We're a couple of weeks away from the quarter that was just reported, but maybe that's a good place to start. So why don't you just quickly review the most recent quarter results, and then let's dive in. Since this is sort of a general presentation, we can maybe, you know, after that, just do a quick overview of the company. We'll talk about molluscum, and we'll just sort of take it from there, if that's okay?
Sure. So thank you. And yeah, so we ended the quarter with net revenues of $3.2 million, and you know that was a step up from Q4. And you know that's related to demand, forward-looking demand, and also opening up various distribution channels, including the military. And you know, for background, Verrica is a dermatology therapeutics company. We're based in West Chester, Pennsylvania. We're focused on clinician-administered assets that help treat high unmet needs within medical dermatology, and YCANTH being the first FDA-approved therapy for molluscum contagiosum, a viral skin disease that affects 6 million children in the U.S. each year.
Okay, perfect. All right, well, maybe why don't you just talk us through molluscum contagiosum, how big you think the market opportunity is. You said 6 million people a year, and as you said, you got approval for the first treatment for that, and YCANTH that was approved last July, right? So here we are, she's doing the math on that. It's 10, 11 months in already, right? So maybe you can sort of talk through the launch process, how things are going, and then we'll dive in.
Sure. So again, we launched the product in September of last year. We were approved in July of 2023, built the organization, the commercial infrastructure. We have about 50 representatives, dermatology representatives that are covering the top 50 MSAs in the country. We just added 20 pediatric sales representatives focused on the top MSAs for pediatrics. We have about seven institutional representatives that are focused on large children's hospitals. And then we have a team of about four or five reimbursement specialists that are working with our sales associates on the reimbursement. Part of our strategy was to obtain a J-Code . We received our J-Code in January, which became fully published on April 1st. And we've seen a nice uptake in the number of buy and bill accounts across the country, and we continue to see that.
As a reminder, providers have two ways of obtaining our product. Since it's clinician-administered, they can buy and bill the product, or they can go through a white bag model through a specialty pharmacy, all through our single source distributor, FFF .
Hey, Ted, so let's talk about the treatment landscape before YCANTH, right? Because I think that's important to the discussion. You said there are 6 million cases a year. Why does molluscum contagiosum remain a big unmet need?
Yeah, so the challenge with molluscum contagiosum up until YCANTH, there were no FDA approvals. And the challenge was that destructive therapies that were used to treat this disease, such as cryotherapy, curettage, have major drawbacks, such as pain and also the potential for scarring. The benefit of YCANTH is the fact that it's painless upon application. So you start thinking about your target audience, particularly pediatricians, who obviously didn't have anything to treat this disease, and they do not want to be associated with pain. YCANTH becomes an excellent option for them because, again, it's painless upon application.
Okay, well, we've talked in the past, right, about the challenge created by compounded cantharidin that's on the market. Maybe could you just talk about maybe what dermatologists might have been doing in addition to those destructive therapies?
Yeah, so with regards to compounding cantharidin, we've made tremendous progress in this area. I will say that cantharidin has been the gold standard for the treatment of molluscum. It's been around since 1950 for the treatment of molluscum contagiosum, as well as common warts. Again, cantharidin was never FDA approved. Important to note, we did receive our NCE, we're Orange Book listed. The challenge with compounding cantharidin is that it's based in ether, and it becomes very volatile, and it leads to over-blistering. We've been very successful with the compounding pharmacies here in the U.S., particularly the 503Bs. We know they have not manufactured in 2024.
One of the largest importers of compounding cantharidin, Dormer Labs, we have come to a successful resolution with them. Effective May 1st, they are no longer selling any cantharidin products into the U.S., which is a significant win for the organization.
Okay, could you maybe walk us through the commercial strategy that you've employed, sales force plan, sort of where you are in that journey in terms of those managed care conversations and building out that commercial sales force?
Sure. So as I mentioned, you know our field force, 50 dermatology representatives, 20 pediatric representatives, eight institutional representatives. Multi-prong approach, our target audience is obviously dermatologists, pediatric dermatologists, of which there's about 400. These specialists tend to reside in your teaching institutions, your large children's hospitals. And then we're also focused on high decile pediatricians who are diagnosing and treating molluscum. Also important to note that we're very proud. We've done a lot of heavy lifting. As of today, we have 228 million lives that are commercially covered. And of those 228 million lives, 55% have no prior authorizations. Those plans that do have prior authorizations, they're confirmatory prior authorizations, meaning that you have to confirm the diagnosis of molluscum. Of the patient is two years of age and at least has one molluscum lesion.
You just said in that previous answer that you had 52 sales reps and 20 sales reps focusing on pediatrics. Those were recently hired, right? So you can talk about when you brought them on and maybe what the initial reception to those?
Sure. So our plan was always to go into pediatrics, but I have to be honest, not this early in launch, because when you think about it, these patients go to the pediatricians first. The pediatricians did not have anything to treat this disease, so they referred on to the dermatologist. So we're very sensitive to that referral networking that was taking place. But because we received such an increased demand from pediatricians, we've received inbound traffic on our website, on the YCANTH website from pediatricians requesting a visit, information about the product, information on how to obtain the product. We decided to initiate the pediatric field force sooner. So again, we're starting with 20 representatives. We'll continue to look at the model and evaluate it.
Yeah, I was going to say, are these the right numbers? What do you think for now, for 2024? Maybe give it a couple of quarters and see?
Correct. I mean, look, I mean, dermatologists, you've got about 14,000 targets. Obviously, with pediatricians, a much larger market, you've got 87,000 pediatricians. We got to be very targeted in our approach with pediatricians.
All right, just in terms of your commercial strategy, can you talk about the pricing update and maybe then we'll segue into sort of reimbursement?
Sure. I mean, our sales price is $685. And what's nice about our model, again, it's clinician-administered, so it's a medical benefit. So there's a revenue opportunity for the healthcare provider. So you think about the patient flow coming into an office, the physician will be able to bill the E&M for the office visit, a CPT destruction code for the destruction of a lesion. And then on top of it, if the physician elects to buy and bill, there's a revenue opportunity. Typically, you see ASP + 6%.
Yeah, maybe that's, you know, I'm sorry, before I get to this next question, let's talk about sort of your conversations with managed care. How do you feel like the company stands from a coverage perspective at this point in time?
Yeah, as I mentioned earlier.
Can we touch on gross to net as part of that?
Yeah, so I mean, again, as I mentioned, we've got excellent coverage. Again, 228 million lives. I do not expect those lives to continue to improve. I think we're at a good steady state. What I do expect to happen is two things. As I said earlier, we've got about 55% of the plans, there's no prior authorizations. That's the number I'd like to see continue to improve. So we'll have more plans that have no prior authorizations. And you typically see prior auths for a brand new product in a new category. That's nothing new. So we'll continue to improve upon that.
Yeah, could we maybe spend a second and let's talk about the fact that it's covered under the medical benefit first, the pharmacy benefit, because I think that's a big deal for people, right? I mean, you know, there is a financial benefit to the dermatologist here, so let's talk about that. And because we get the question if someone already has something, for example, compounded cantharidin that's working, why would this dermatologist want to make the switch? So maybe you can just sort of describe that whole dynamic.
Sure, well, that's a two-pronged approach. So if a customer already has a compounded cantharidin, they're paying for that out of their own pocket. That's not reimbursable. So the opportunity with YCANTH is that now they're going to get reimbursed on the product. So dermatologists don't typically like to go out of pocket for things. So that's the issue with the compounded cantharidin. And then your second part, Glen, I'm sorry, the question?
Yeah, I'm sorry. I mean, we were sort of talking about the motivation of the dermatologists, right, where they can get reimbursed on the medical benefit, ASP + 6%, and there's actually a financial incentive to ultimately want to make that switch.
That's right. Yeah, so medical benefits because it's clinician-administered. The benefit's twofold. One for the provider, as I mentioned, they typically get ASP + 6%. But medical claims are also reimbursed much quicker. And then finally, for the manufacturer, for Verrica itself, today there are no rebates on medical benefit products. That's not to say that there won't be rebates moving forward or in the future, but today there's no rebates on medical benefit products. Now, we do have some plans that have a dual benefit of a medical benefit and a pharmacy benefit, but the majority of the plans are a medical benefit.
I think you mentioned earlier on in your comments that the company got the permanent J-C ode, which went into effect on April 1st. For those that may not be familiar with that, could you maybe just describe how meaningful that is from a reimbursement perspective? And I'm kind of curious that we're now more than two months past you getting that permanent J-C ode. What sort of impact you've seen that have on the physicians and their prescribing patterns?
Yeah, absolutely. So the J-C ode obviously is a significant catalyst for the company. It streamlines reimbursement. It's a systematic code that's used across commercial payers as well as federal programs. So less likely for any type of billing errors. It was fully published the first week of April. Right now, the next thing we're waiting for is the allowables to be posted, or I should say published, and we'll have that completed by the end of June. But again, it just helps streamline the billing process and less risk for errors when providers bill.
Has it had a noticeable impact on your business in the past couple of months?
Yeah, we've seen a strong uptick in the month of April when it became published, North of 42%, which was great to see. We continue to see new buy and bill accounts being added on a daily basis.
What's that 42% number?
Increase in buy and bill accounts.
Oh, okay, perfect.
Because of that permanent J-C ode.
You know, just back to the pricing for a second, you gave us the number of $685 with a gross to net, maybe somewhere in the 50% range?
That's right.
Okay, any sort of pushback you're getting at all from derms, physicians, payers, anything just sort of given that there was a cheaper alternative out there, but now there's not? I'm just kind of curious as to the feedback you're getting on the pricing.
Well, the feedback's been very positive, especially on the product itself and on the applicator. Pushback, listen, we're changing behaviors. You've got it. We're converting a market that was, again, for the dermatologists who had compounded cantharidin. But overall, it's been very positive.
Okay. All right, maybe can we go back and talk about the first quarter? You did $3.2 million. When I think about the gross to net, you sort of suggested, right, we're talking somewhere around 9,000-10,000 prescriptions. Is that roughly the right math?
I don't know if we've stated what the prescriptions were.
Okay. All right, well, you know, I'm just trying to put it in perspective, right? I'm not asking for guidance or anything like that. But when we look at sort of the revenue expectations for the year, kind of there's a general assumption that revenues are probably going to increase roughly $2 million on a sequential quarter basis, right? And just sort of doing that math really quickly, you know, it's kind of like an extra 5,000-6,000 scripts incrementally on a quarterly basis. Now you got the J-C ode, you got extra sales reps in the field. Right? Am I thinking about the cadence correctly? And as we look at the remaining three quarters of the year, should it be almost like hopefully a steady climb?
Yeah, I think that's right. I think that the message is we've done a lot of the heavy lifting. And I say that because we've taken care of the compounding pharmacies. We've got the J-C ode that's in effect. We've got our NCE that's been listed, which is published in the Red Book, which is your guidelines for the pediatrics. So the heavy lifting's been done. And now it's continuing to execute. And we expect to see things ramp up in the second half of the year.
Besides pediatrics, besides the J-C ode, besides the managed care negotiations, it feels like the pieces are sort of coming together. And you just said the heavy lifting has kind of been done. Is there anything else sort of on your radar screen, you know, as you think about making even faster progress on the launch, things like you'd like to address or areas you'd like to focus on?
The only other thing would be, again, to increase the number of commercial plans that have no prior authorizations. But again, the majority of heavy lifting's been done.
Okay. What about on the competitive landscape? Any products that you see across the competitive landscape that we should be thinking about or you're focused on?
Well, I mean, obviously we know there's one product, Zelsuvmi, that's coming out. It's a Ligand product that was approved back in January. We know they'll be launching sometime here in the second half of this year. This will be a take-home product. It's a form of nitric oxide. You know, obviously, as I mentioned before, cantharidin is the gold standard for the treatment of molluscum. But we also think it's great that they're launching because I think it's going to be more noise in the marketplace. And that only helps Verrica and YCANTH. But the difference being is that we're clinician-administered. So there's obviously a revenue opportunity for the healthcare provider from a CPT code, from an ASP plus model, where that product, obviously, there's no financial incentive for the end user.
And also, if you think about our target audience being dermatologists, they're more procedure-oriented.
Okay. All right. Maybe, I'm sorry, just one more question on the revenue side. Talk about molluscum and the seasonality attached to that as we think about the revenue cadence. Should we be considering the seasonality at all and sort of as we model the cadence of the quarters?
Yeah, well, listen, molluscum contagiosum is all year round, but you definitely see a spike in the warmer weather months. Now we're coming up on it, obviously. Now that school's out, kids will be congregating. Kids are getting ready to go to summer camps. So we definitely expect to see an increase.
Okay. And you did talk a few minutes ago about the battle you've waged on compounded cantharidin in the market. You've made significant progress. Is there more to do, or do you feel like that threat has been, I don't want to call it neutralized, right? But it feels like less of an issue today than it did when we were here 12 months ago.
You know, 100%. I mean, the major threats have been taken care of. But listen, you know, it's a little bit of a game of whack-a-mole where we've got to expect that maybe some others pop up. So we'll always be on guard for that. But I can tell you that the bolus, the majority has been addressed and taken care of.
You know, we've also talked about common warts, right, as a significant opportunity for a label expansion. Could you talk about that market and compare that to molluscum so we can start to think about how meaningful of an opportunity that could be?
Yeah, absolutely. So I've always said that common warts is the holy grail of dermatology because it's a huge addressable market, 22 million prevalence and no FDA-approved therapies. And like molluscum contagiosum, challenges are that destructive therapies, again, pain, scarring. And common warts, it's an HPV virus. Those viruses live deeper in the skin, so it's really tough to penetrate. Our phase II trial for common warts, as a reminder, we showed 51% complete clearance, which is really outstanding when you're comparing it to nothing. You got to remember, patients have already gone over the counter. They've tried Compound W, they've tried the salicylic acids. That's why they're going to the healthcare provider for treatment. So huge, huge addressable market that can really open things up for us here in the U.S.
We recently announced our partner in Japan, Torii Pharmaceuticals, where we're going to run a global phase III program for common warts. We'll look to kick this program off in the first half of 2025. My goal is to get it off in the first quarter. And also a reminder, we did issue a press release that we were able to get Torii to front our costs for this trial. So it'll be no negative impact on our cash runway.
Ted, how long does it take to run a phase III program like that, global phase III program?
Well, it's going to be.
As you think about a path towards a commercial product.
Sure. So I think for the trial, it's going to be probably a year if there is a follow-up period that we'll have to do that the FDA has asked us to do for the program. So we're probably looking at a good two years for this program.
Okay. All right. And in addition to sort of YCANTH and warts, you have another drug candidate, VP-315. Do you want to talk about that opportunity?
Sure. So 315 is a first-in-class oncolytic peptide that we're currently in a phase II study for basal cell carcinoma. This would be a non-invasive procedure. This is an intratumoral injection. And we're excited about this asset. We're going to have preliminary top-line data readout here. Let's call it end of June, early July. So coming out soon. What we're looking or what we'll disclose is two things. The percent of lesions that have been cleared and then also those lesions, those tumors that were not cleared, what was the percent of tumor reduction. So we'll look at this as either a primary or a neoadjuvant therapy.
Can you talk about this target market? How big is it sort of relative to the other two?
Again, it's a significant addressable market. Right now, there's about 3.6 million patients with basal cell carcinoma. Another 2.5 million when you think about squamous cell carcinoma. It's a growing number as patients. We're seeing more and more patients being diagnosed with basal cell carcinoma. And then there's a real need for a non-invasive procedure because I will tell you, 95% of the time you're going to go to a Mohs surgeon and have it cut out, which is an all-day process. Patients are looking for an alternative. They don't want the scarring. They just don't want any surgery. So surgical fatigues are really high.
So the Mohs surgery is the only other treatment paradigm?
Correct. Or radiation, which is not a great option.
Okay. A lot of good things in the works. So I feel like we should talk about the balance sheet here, right? You had $49 million in cash at the end of the last quarter?
That's correct. That'll take us into Q1 of 2025.
Q1 of 2025.
Yes.
Now, obviously, well, let's sort of put that in perspective relative to the operating expenses in 1Q, right? Because you expanded the sales force, right, as it exists today. Fortunately, in terms of Compound W, it seems like that's not going to cost a lot of incremental money to run a phase III trial. But hard for us to appreciate what the cost may be to keep pushing the VP-315 asset down the field. So how do we think about the cadence of operating expenses just based on everything you have going on in the R&D pipeline?
Yeah. Well, listen, I think we're always going to be opportunistic as it relates to financing. But there was definitely a step up in the cost. We do have a debt facility in place with OrbiMed. But again, it's definitely a step up as far as on a quarterly basis.
Is that another $75 million available to you from OrbiMed?
Yes, that's correct.
Okay. So when we think about cash through 1Q 2025, that includes or excludes that $75 million?
That excludes.
That excludes. Okay. So it could theoretically be. You could even have a greater runway.
Correct.
Okay. Well, listen, we have a minute and a half left. It's a small enough room. If there's a quick question from the audience, I think Ted might be happy to take it. Alternatively, I want to leave Ted the last minute to get the last word in. And if there's anything else you want to leave with the investment community here today.
Yeah. Again, my last message is, as I mentioned earlier, that we've done a lot of the heavy lifting, or I should say the heavy lifting's been done with regards to addressing the compounders, the J-C ode, the insurance coverage, 228 million lives covered. We got the Orange Book listing for the NCE. So again, all of the heavy lifting has been done for this product.
Okay. All right. Well, I guess we'll end it there. Thank you very much for your time. Really appreciate it. Ted and Terry, thank you guys for coming.
Thank you.
We look forward to continuing the dialogue.
Great.