All right. Good afternoon. Thanks for joining our 45th Annual Healthcare Conference. I'm Stacy Ku, part of the biotech team, and we're happy to be hosting Verrica. With us today, we have Jayson Rieger, CEO, and John Kirby, CFO, in the audience. I believe you both started in November, so a few months fresh. Looking forward to getting an update on the new strategic vision and where we are in the YCANTH launch for molluscum contagiosum. First, before we kind of drill down into some questions, maybe provide a brief background on yourself, brief overview of YCANTH, and then we can kind of go into molluscum contagiosum.
Perfect. Thank you, Stacy, and thank you for hosting. Jayson Rieger, CEO of Verrica Pharmaceuticals, started in November with John, so we're just past our sort of 100-day anniversary, almost four months. Quite a whirlwind of experience, and we'll get into that, I'm sure. My background is a PhD chemist by training, so scientist, you know, early in my career, did an MBA and started business school, sort of thinking about how do you make a business out of science and understand the science and how they interact with each other. The passion for developing products began when I was a grad student. I started a biotech with my advisor back in high school, and that company got fired a few times and learned about how you advance products through the pipeline with personal accountability. I've run manufacturing, regulatory, clinical science, all aspects of drug development.
That led sort of to an advancement of my career. About 10 years ago, I began at a family office investment group doing portfolio operations and biotech investing. The deal there was you could pick any investment you want, but you're going to co-invest with us, and you're going to own and operate that business. It gives you a different mindset on how to run a business and execute on a business when it's your own capital and you're more of an entrepreneur operator versus just a passive investor. It actually turns out that the third investment that I did while in that role was in Verrica Pharmaceuticals. While I am new to the company and the CEO role, I was very involved in the company early when it was a founder in the office, you know, in his garage with an idea.
It was preclinical at the time. We figured out a way to run that business and get it to the place where it was for an approval product. I handed off the keys to a new manager team when the company went public, stayed involved in helping sort of the science advance for the programs, but ultimately came back in October when they were looking for capital and, you know, became an opportunity that I couldn't say no to. Very often, you don't want to leave the role of a venture operator. It's a great place to be as an investor. I found the opportunity that really I was very passionate about for a number of years, excited about the programs, had a history with the science and the assets, and was really looking forward to helping it become the asset it really could.
In terms of YCANTH and molluscum, YCANTH is a drug-device combination product for treatment of molluscum contagiosum, primarily a childhood disease driven by a pox virus. It leads to pustules and sort of skin lesions. They're treated every few weeks, about three weeks, for two or three treatments, typically to get complete resolution. It's about 6 million children with molluscum a year in terms of a prevalence. It is a very, very high unmet need. Historically, only about 10% of those patients were actually getting treated. We're very excited about the opportunity for the product and really bringing treatment to these patients where these lesions can often last up to 13 months on average. It is a long time for the disease to be prevalent, and also it is very contagious.
As we talk a little bit more about the broader opportunity for molluscum, cantharidin is obviously an agent that many KOLs were familiar with. Maybe just talk through usage of cantharidin and alternatives as we think about the opportunity for YCANTH.
Sure. When I'm doing drug development historically, and when we first had the premise of investing in this company, you love molecules where you know they're going to work. There's a lot of data, anecdotal from the compounders and various forms of the molecule throughout the world, that it works. When you think about development, that's a really good place to de-risk an asset. You also realize that there's familiarity with the asset and the key active ingredient. That gives medical professionals a level of comfort with what the molecule will do, how to use it, et cetera. The problem was it was treated in a very unregulated and non-consistent form. You could order a bottle of compounded material, it would come in a large bottle, often used across multiple patients.
Because of the volatile solvents in the product, they would evaporate over time, so the concentration was different, the thickness was different, and the purity was different. As you think about the medical professional, if they got comfortable using cantharidin in that form, then you would think this would be even more well received because you would have consistent formulation, consistent way to apply the product, a very simple and elegant drug-device combination. What we found is the receptivity towards, wow, this is a great product. It is now FDA-approved and insured by medical professionals, excuse me, by the insurance companies, and the healthcare professionals can charge reimbursement codes as for doing the procedure as well as reimbursement for the use of the product.
Yeah. It's interesting in our KOL checks as well, the other options like curettage or liquid nitrogen were always ones that were from a clinician's perspective, not ideal because you're essentially inflicting the pain in the office versus something like cantharidin where you go home, you have the blistering, which is on target, and then the patient gets better. Okay. As we think about current objectives and obviously a unique background as you step into kind of the CEO role, what are you seeing in terms of kind of the YCANTH maybe rewriting of the launch strategy? What are your major goals?
When we stepped in back in November, the company had a lot of really hardworking employees and a lot of hardworking people involved in the company, but they'd not really had success. Part of growing a business is having a culture of learning how to win and winning. Ultimately, the first goal was, let's level set, figure out what was working and what was not working, and move forward. The first thing that was not working ultimately was the expenses were too high. We had to level set the cost structure of the business and reduce the burn. Importantly, we did that in the first 30 days of the business and implemented those changes. It's never easy to restructure a business, but ultimately, that's what you have to do. We did that number one.
Number two, we had to secure the balance sheet. We did that by raising a $42 million round in November. That really secured the ability to have cash to operate the business going into this year. Third, we had to understand what did not work on the launch. The couple of things that we realized was talk to the customers, talk to the employees and the sales reps, and understand what was working on the insurance side. Because ultimately, when you think about the success of a commercial product, it is the patient journey and the clinician journey and the drug journey that you have to really understand all those steps. Where does the patient fit into it? The patient wakes up in the morning, and caregiver often would say, "My child has bumps. It looks like a rash. It is something I do not know.
What should I do?" They'll often call their pediatrician or their dermatologist, depending on what type of doctor they normally see. They'll go and see that medical professional. The medical professional will diagnose it as molluscum if that's the case. They will figure out what a treatment modality would be. If it was in the pediatrician, often they did not treat because there was no FDA-approved product. They did not want to use curettage or liquid nitrogen like you were just talking about due to the pain in the office and the potential scarring. They would do one of two things. Either tell the patient it will go away eventually, or for other patients, refer them to a dermatologist, which often can take several months to get an appointment.
As we thought through that process, we began to understand we have to target a different way of catching the disease when it's first diagnosed. We began by educating both the pediatricians about the availability of a product because now they're more encouraged to refer to a dermatologist or, in some cases, treat themselves. As you think through that process, rather than the 500,000 patients who were getting treated in some way prior to YCANTH's approval, now we're going after the whole 6 million patient prevalence as an addressable market. We also thought about executing on the commercial side from a distribution of the product to the doctor. Besides the patient being available and knowing what's going on, we're going to go to the healthcare professional. Number two was, how does the doctor get the product?
When the company originally launched, it was a buy-and-bill approach. The doctor would buy the product, store the product, and then have it available to treat the patient. There were some challenges with coverage. It was also a very expensive product for them to lay out the capital for prior to reimbursement. We started making access to the product available through specialty pharmacies. Specialty pharmacies offer two different advantages. One, they can manage the insurance reimbursement process. Number two, they can ship it to the office. Ultimately, we set that up for distribution. Number two, we also have begun to engage with local independent and regional pharmacies where the doctor already has a relationship of trust and engagement with that pharmacy. They write the script there, and they can either courier or bring it over.
That relationship really helps in terms of making access to the product. Ultimately, it's building a business that's sustainable for growth. That's what we're really excited about, and that's what we're trying to do right now.
How is the progress going with reaching out to more pediatric kind of clinicians and switching away from the dermatology?
I would say we've heard that comment a couple of times, and I always want to make it clear. I don't think we're switching away from dermatology. I think we're expanding access to the pediatricians, which I think is really important. What we're seeing in the engagement in community by community is there's a synergy between both practitioners. Sometimes the dermatologists in those areas really want to treat, and the pediatrician will diagnose and send that referral over to the doctor with the diagnosis. That's one way to expedite the treatment. They don't have to come in and get a diagnosis and then seek treatment. That's number one. Number two, sometimes the dermatologists, they don't have the bandwidth to treat the patients.
They're happy to go out into the community and educate the local pediatricians on how to treat the product, treat the patients with the product, and move forward. Importantly, this product can be administered by any trained healthcare professional in the office. Whether it's a mid-level, a PA, a doctor, a nurse, et cetera, they're all capable of being trained in treating the patients. In an office flow, that actually works pretty well.
You've talked about a little bit your sales force resizing. It sounds like it's around 35 now. Is that sufficient to kind of maximize YCANTH? What are you seeing in kind of recent months that gives you conviction this commercial strategy is working?
When we started, we realized that we had spread the company too thin. There were lots of reps, lots of territories, but not always the coverage and access in those areas to fully utilize those sales representatives. We leaned down the areas to high-target clinicians, high-target population densities, and created better access. We also aligned that with where we had good both medical and pharmacy benefit. I think that was a key thing that we learned in assessing the market was when they started the program, it was mostly medical benefit coverage, both commercial and Medicaid. What we saw was some doctors were not willing to do the medical benefit approach by buying and billing the product. By expanding to the pharmacy benefit, we had to get additional coverages to cover that distribution model or that insurance plan in the other areas.
Ultimately, that's how we've done it. From a sales rep market perspective, what we announced in December of last year was that even with all the restructuring, both in reduction and spend in marketing and sales force, we saw an uptick in the amount of product that was dispensed. That's a testament to the people we have left, their work ethic, and what they're trying to get done. We're seeing an uptick with this more lean model. We buttress that with inside salespeople and people who call on white space. Importantly, the independent pharmacy route that I mentioned earlier, what you're seeing is those pharmacists can also engage with their doctors in those areas. It's a tag team effect to amplify what the sales force in those areas can do.
Okay. Understand. Last question on kind of clinician outreach. What do you expect is going to be the split between the pediatric side of things and dermatologists?
I would say we're still predominantly dermatology-focused. We're expanding to the peds. The ped market is about five or six times the number of healthcare providers. Ultimately, I think there'll be a mix. We still see a very large amount of scripts written from especially ped derms, for example. The ped derms are also big advocates of the educational programs, the learnings, the teachings, the conferences, et cetera. I think we'll see that blend start to change over time. Ultimately, the dermatologists will be a core aspect of our business. As we think through that distribution model, and I'm sure we'll talk about our pipeline down the road, common warts is also a disease seen by the same medical professionals, derms and peds. Ultimately, other pipeline program for basal cell carcinoma is also a derm product.
As you think through our targeting engagement with these healthcare providers, it's a long-term relationship. Our goal is to make their experiences positive and also for their patients.
Okay. When we were doing some of our clinician checks, we did hear from some KOLs that they are still users of cantharidin. Obviously, that's something that old management was fairly kind of transparent about. They were really kind of doing the whack-a-mole when it came to the U.S. and then trying to kind of work with competitors from Canada. Just can you walk through insights into when maybe kind of at least the substantial Canadian supply is maybe going to potentially dwindle? I think last shipment was April of last year. Timelines there, what's being done today. I do think as we think about the value proposition and you're seeing the growing demand, compounded c antharidin is a little bit of a piece that investors want to get into.
I have a slightly different view on compounded cantharidin than others have had in the past. I'll share that. One, there are some doctors that have used compounded cantharidin, and they're committed to doing it, and you're changing their practice of medicine. Over time, I think we will get them to come along for the YCANTH story and do that. There are large numbers of dermatologists who aren't using YCANTH or aren't using compounded cantharidin. There are even more in terms of the pediatricians who've never used compounded products at all. As you think through the marketing of the product, you go after the customers that are willing to engage. There is a large number of institutions, hospitals, or practices that simply don't want to use a compounded product when an FDA-approved one is available. We're going after this in two approaches.
One, if a doctor has been using compounded cantharidin for 40 years and they're committed to using it in their practice, and that's the way they're always going to do it, we can't tell a doctor how to practice medicine. We make this product available, and what we're finding is they're trying the product. Over time, they'll gradually move away. If there's patients that have no insurance or they come in and they want to treat that day and they don't have the product available, they may do that. Ultimately, compounding cantharidin for multi-use bottles is not the way the compounding legislation has been written. We have tried to encourage doctors to, A, adhere to what those policies are and make YCANTH and sell it on the attributes of the product, and also sell it to the areas where new customers can be to utilize it.
In terms of the Canadian supply, we actually did a great job, and our legal team worked with Dormer Labs to settle with them. The supply of product coming in through Canada seems to be nearly gone from what we can tell in the marketplace. There are a lot of probably smaller, little areas where people make one bottle or two bottles for a local doctor. When we find examples of those, we'll contact them. Oftentimes, they'll just stop. It is a process we're trying to do. Spending all of our energy fighting that is not as valuable as selling on the merits of our product. We're doing our best to distribute YCANTH. As we get better coverage for the product and more awareness, we're seeing an uptick in the product.
Okay. Understood. I understand that we'll have an earnings update next week. I think we'll try to stay big picture, but at least for YCANTH over the next few years, kind of what do you think the trajectory could grow? We started out by talking about the prevalence, obviously, a great deal of patients that are out there, but also a slow-moving disease, lots of patients everywhere. Just help us understand how you're thinking about what type of penetration rates are reasonable. It's obviously still early, but any thoughts would be appreciated.
I would say that with no approved product, there were about 10% of the patients already getting treated of some kind. When you think, is there an ability to get to a market prevalence of more than 10%? Absolutely. Do we believe we could capture a large percentage? Absolutely. When you think about a model where 6 million is the total addressable market, you do not need a very large percentage to build a very viable business. Ultimately, our goal is to capture as much of that as possible as we go through and expand access to the pediatricians and the dermatologists, as well as primary care and other places where patients are seen for treatment of molluscum. I think we will start to see a penetration that is meaningful in that percentage.
Okay. Understood. Obviously, YCANTH previously was VP-102, and you are bringing forward development in common warts. Do you just want to talk about that opportunity, collaboration with Torii Pharmaceutical, and timing?
Yeah. Torii is an excellent partner. They ran a well-run phase III trial, submitted it last year for approval. That is under regulatory review in Japan at the moment. We are continuing to work with them for commercial readiness, et cetera. In terms of common warts, that would expand the market by three to three and a half times versus where just the molluscum size of the market is right now. Being an excellent partner, Verrica was originally going to do their own study, and Torii was going to do their own study. We reached out and actually entered an agreement to do a global phase III program across both countries to satisfy PMDA and FDA regulations.
As you would imagine, that involves meeting with the FDA, getting feedback, then going to PMDA, getting feedback, then going back to the FDA to get complete alignment on those programs. We're in the very home stretches of getting that done. Torii had agreed to split the cost of that 50/50 with Verrica on the global development program. Importantly, as we announced last year, Torii agreed to also front the portion of Verrica's portion of that trial costs out of future milestones and royalties in Japan. As you think about a company like Verrica having the opportunity with a commercial stage asset, but an ability to do a second indication with a large expansion with costs that are absorbed by the other partner initially, that's a huge opportunity for us.
We're very, very excited about doing that and expect that we'll continue to make progress towards starting that trial this year.
Obviously, it's still very early, and you kind of alluded to it, but is it going to be similar clinicians that are treating, or is it going to be a little different?
We expect it will be predominantly the same type of pediatric and dermatology clinicians that will treat the product.
Okay. How large could common warts be relative to molluscum?
Probably three to three and a half times, so about 20 million prevalence. You think about the opportunity there, it's quite large. For any of those folks who have had common warts and had them frozen off, it does hurt. It's often not very effective, and they can recur. I think based on our phase II data that we've seen, we're hoping we'll replicate that and create a new paradigm for treatment of common warts going forward.
Okay. You also have VP-315, which I believe you sourced as well. Maybe talk about that process there, why you decided to kind of enlighten it for Verrica and kind of the recent data that's been disclosed.
Yeah. In my previous role, I used to look at a lot of opportunities and came across that one and introduced the two companies back four or five years ago. Ultimately, it led to a license, and I was involved in helping them design and execute on that clinical study. When I came to join Verrica in this role, I was very excited that that pipeline program was still there and advancing, and the data had just started to come up. We saw a near 50% reduction to complete histological clearance in patients treated with VP-315. That's a tremendous data set. The safety results were also very compelling with no serious adverse events. We also recently reported that objective response rate of 97% for that product.
That means that 97% of the patients who had their lesions treated either saw a reduction greater than 30% or complete histological clearance and not getting worsened in the disease progression. When you think about that from the patient's perspective, half the patients will see a complete regression of the lesion. The other half saw almost two-thirds reduction in size. Whether you ultimately need surgery or need to move forward with treatment, you've now significantly made it easier on the surgeon, and you also have introduced the opportunity for patients not to have to go through surgery. For patients who've had basal cell, they tend to recur. They tend to have multiple surgeries, and they get tired and surgical fatigue.
We're very, very excited about that program and have indicated that we will be reaching out to the FDA for the phase II meeting to advance on what the design of that phase III program will look like, as well as releasing additional data on the immunohistochemistry and genomics for the program.
What has been kind of the KOL feedback as you dialogue? Obviously, it's an oncolytic virus, so a little bit unique mechanism of action.
Actually, I'll draw the distinction there because it actually is an oncolytic peptide, so much closer to a traditional small molecule versus a true biologic. That makes it easier on manufacturing, lower cost of goods, more stability, et cetera. That's well received versus oncolytic viruses, which can have other adverse side effects, et cetera. Number two, I think the receptivity has been interesting by the two camps. One, the dermatologists who do not do Mohs surgery, and this gives them an opportunity to treat their patients. Number two, in speaking to the Mohs surgeons who intuitively you might think would not be receptive to a product that reduces the number of Mohs surgeries they do, they actually are very favorable because, number one, it is likely better for the patient to try this product first.
It does reduce the burden of how large the incision is and how difficult the surgery might be. I think there's going to be receptivity for the product and hopefully change the way in which people think about treatment of basal cell carcinoma.
Okay. Are you going to target both Mohs surgeons and kind of a general dermatologist, or?
Ultimately, I think commercial strategy would be for both, but I think there's plenty of opportunity in basal cell. It's one of the largest skin diseases out there.
Okay. Understood. As we go back to kind of YCANTH, I do want to end there. Just talk about patent exclusivity now that we are working on a relaunch. What kind of durability could we expect?
I think we disclosed previously we have patents extending 2034 to potentially 2041, so quite a large patent runway. We have NCE exclusivity for the molecule. There's a lot of know-how around our applicator, the manufacturing of the product, and the distribution. We're very excited about the robustness of the patent state and our know-how around distributing the product. I think we're well poised for success going forward.
Okay. And one more question on kind of the YCANTH, as we think about durability, how should we think about competitive entrance?
It's actually interesting. Some people welcome competition, and some people are fearful of it. I would welcome competition in that it validates that there's a real market and there's a real opportunity to treat these patients. Whether a competitor actually gets launched or not is still to be determined and when that might be. I think it presents an opportunity both for patients and for awareness of the disease. We would be happy to put YCANTH up head-to-head against anyone and be very confident in our data and our safety data. It also allows the medical professionals to continue to engage with the patient and treat their disease actively. It's also, we believe, a more convenient dosing product, whereas it takes the burden off the caregiver.
Having to do a product every single day to treat their child over a long period of time just allows the medical professional to do that and rapidly eliminate the lesions.
Okay. Understood. We're going to pause for a moment to see if anyone has any questions. Okay. In the final moments, just walk through maybe the cadence of updates that we might expect this year as you're walking through, trying to address multiple aspects of the YCANTH rebound.
I would say, number one, we're really excited about where the company is right now. Over the last four months, we've seen a change in the uptick in availability of the product and access to the product, belief by our customers in the product, belief by the medical professionals and their patients, and in our employees. We've seen a commitment and buy-in to this new approach of engaging, sense of urgency, and execution. As we think about the milestones this year, it's continued to obviously focus on YCANTH execution, sales growth, and distribution. Beyond that, it's beginning of the common wart clinical study with Torii, hopefully updates on regulatory approval in Japan, and the additional data readouts in the first half of this year for VP-315.
For a small company, we're very excited about a number of milestones and the ability to focus on execution and sharing with investors and everyone else about the success we're having.
Wonderful. With that, thank you so much for your time.
No problem. Thank you.