Afternoon. Welcome to day one of the Jefferies Healthcare Conference. My name is Dennis Ding, biotech analyst here at Jefferies. I have the great pleasure of having Verrica Pharmaceuticals here with us. We have CEO Jason Rieger. Welcome. Why don't we kick things off with just a brief background and overview about the company, where you are today, and just kind of what's been happening over the last few years, just sort of as a background, and then we can go from there.
Sure. Thank you, Dennis, and thank you for allowing us to have this conversation today. Verrica Pharmaceuticals is a dermatology-focused company, in-office treatment primarily at the moment with our commercial stage asset, YCANTH, for the treatment of molluscum contagiosum. The product was launched in July of last year and has been on the commercial market since that period of time. Myself, I joined the company in November of last year, so just over six months ago, and began to sort of restructure sort of the commercial launch of the program. Molluscum is about a 6 million prevalence disease, primarily pediatrics, and very, very underserved and historically not a lot of—there's no commercially available treatments for it. Curettage or cryotherapy would be the approaches that would be taken primarily by dermatologists.
YCANTH now offers a product for patients and HCPs to administer in the office and address a contagious disease that lasts 13 months on average and up to five years. The company began about six or seven years ago when it went public, worked through FDA approval from preclinical through to commercialization. We ran into a few challenges getting the drug approved, but ultimately launched the product, and now the management team has come on board, reinitiated the commercial strategy. I'm sure we'll talk a little bit about that today. Also focusing on the expansion of our pipeline. The same molecule in YCANTH, active ingredient in cantharidin, can be used historically for common warts. We've run a phase II study for that and are looking to start a phase III trial with our Japanese partner, Torii Pharmaceutical.
They've also run a study in molluscum, completed phase III results, and filed for approval in Japan last year, which could also occur as early as this year. We have an asset for basal cell carcinoma that we're happy to talk to us in phase II. Completed phase II, had an end of phase II meeting, and we'll be writing updates to the street on that later this year.
Okay. For people who aren't familiar with molluscum, can you just give a brief background as to what it looks like, how it feels, and then how does YCANTH work, and what's kind of the clinical profile of YCANTH?
Absolutely. Molluscum is in a pox virus family of diseases. Most people describe it as very similar to a chickenpox kind of virus, but unlike chickenpox, which resolves in a few weeks, this can be a year or longer. It is also very contagious. If children scratch or itch, it can transfer to other children, siblings. It can live on clothing or toys, and importantly, has a several-week incubation period. While a lesion may disappear, if you touched other parts of your skin, it can incubate and a few weeks later show up as little pustule bumps. YCANTH is a vesicant, so it's a very mild blistering agent. You apply it with a precision applicator that was designed by Verrica. You put a small drop of product—these should be put a small drop of product on the lesion.
Within 12- 24 hours, typically, a small water blister will form, very similar to if you're working in the yard. That will resolve in 24 - 48 hours after that, and that destroys the lesion. It also stimulates your immune system to recognize the virus and eradicate it. Because the incubation period of the virus can be a few weeks before a new lesion would appear, the clinical regimen is typically repeat administration in the office about every three weeks. What we're finding is most patients either completely eradicate or substantially eradicate all their lesions with two to three treatments.
Okay. Great. Since your approval and you guys have been out there launching, what's the feedback been from the clinicians in terms of the efficacy profile of YCANTH?
The clinicians have been very, very pleased with the efficacy and the safety profile of YCANTH. Our clinical studies were very robust from our phase III studies. The FDA set a bar of 100% clearance as the achievement goal, and we exceeded that. We achieved that in our phase III programs. We also showed significant data reducing the number of lesions that were present dramatically, both from the first visit, new and existing lesions over the course of a 12-week cycle of study of up to four treatments. In the placebo group, for example, during that same period of time, the net number of lesions those patients had was closer to zero in terms of change versus 80% reduction for those on YCANTH. It dramatically and quickly eliminates those lesions. As you do follow-up visits, you continue to catch any new lesions that might show up.
Okay. What about reimbursement and some of the strategy there on the ground and how things may have changed over the last 12 months?
Yeah. Reimbursement was probably the biggest challenge the company faced early on. Because it is a drug-device combination product, we launched with a temporary J -code and in a buy-and-bill model. That is where the doctor would buy the product at a discount. A patient comes in, they would treat the patient, and then they would handle the insurance adjudication and could possibly make a small profit on the drug in addition to doing the procedure for treatment of the lesions. Unfortunately, there are some challenges in that reimbursement model. Since that time, over the last six months and even before that, since I have been there, they have been focused very heavily on expanding the insurance coverage. The permanent J -code was issued, is now present as of Q3 last year. That has now reduced the risk for clinicians to get reimbursed.
As we began thinking about the flow of the patient and how they access the drug and the treatment of the disease, typically a child wakes up, parent helping the guy ready for school, notices bumps on the skin, and mom or dad will then call the pediatrician and bring them in and say, "Hey, what do you think? Is this a problem? Something I should worry about? Should we get treated?" The pediatrician historically had nothing to do. There was no treatment they could offer. They tell the parent, "Go home, watch it for a year or longer and see what happens." Some parents wanted to seek treatment. They would go to the dermatologist. Dermatologists would use a compounded product or off-label products to try and treat the disease. Historically, the active ingredient in YCANTH, cantharidin, was known to be a very potent molecule for this.
It was just not formulated in a GMP process. The quality control was not there. Importantly, the stability of the product was not there. There was no stability program. YCANTH addresses all those things. The extent of the blistering that can form is directly proportional to the concentration. Having a very stable concentration allows a doctor to have a more predictable outcome for the patient and for the treatment of the disease. As we think through the distribution model, pediatricians, as they're the first line of defense against the disease, would either refer to a dermatologist, and we still see a large percentage of our customers are dermatologists. The pediatricians do not really do buy and bill. We began to establish a specialty pharmacy approach for the treatment of the disease and providing the product.
Doctor would write a script like they normally would to a specialty pharmacy. The pharmacy could either courier over the product or ship it to the doctor's office. It would show up, and the patient could get treated. Importantly, we set up a copay assist program where the maximum out-of-pocket for the patient was $25 for up to two applicators. It makes the cost burden to the patient manageable. The clinician doesn't have to deal with any of the paperwork for buy and bill or reimbursement, but still can do the procedure code to treat the patient. Our mixture of business now has shifted from that original buy and bill approach to a pharmacy approach, both regional and national sort of specialty pharmacy distribution channel. That mixture has really expanded the access to a larger number of patients.
Okay. Maybe go into a little bit more detail in terms of coverage. Where were you before and where are you today, and how do you think that will be evolving going forward?
When the product was launched, it was launched under the medical benefit, primarily on the commercial side, as many of the patients seeking treatment of the dermatologist were having commercial pay. Since then, there's been an expansion both into the Medicaid portion, where there's a large number of Medicaid patients, particularly seeing the pediatricians, and also expanding to the pharmacy benefit. As you think through those two approaches, both of them required insurance, both Medicaid, managed Medicaid, and commercial plans. Our team has worked very diligently to expand that access and make it more seamless for the clinicians to write the script and it get fulfilled. Every day, our team is constantly negotiating with the payers to expand that access, and we're seeing that really start to grow. We've recently reported we have over 220 million lives covered under either medical or pharmacy benefit, and we continue to try and get as much dual coverage across the country as we can across every plan as we possibly can.
Okay. Do you have any kind of timelines on that? How are you going to update investors around the progress?
We continue to make progress every quarter. I would say that a lot of those plans can take 3 months to 12 months to go through. We began that process last year, so I'd expect we'd have material advancement in sort of getting good coverage across both those to the extent it's possible across all states this year. That's sort of the working goal we keep having, to have a large number of covered lives that have access to at least one type of benefit. There are certain states or certain plans for an HCP administered product that would mandate that only the medical benefit is applicable versus the pharmacy, but there are a lot of plans that also do dual benefit. We're working on solutions to allow for as many patients to get treated and the doctor to treat with the type of prescribing approach that they prefer.
Okay. Can you walk us through the journey from when a patient goes into the doctor for diagnosis, and then the doctor prescribes it, and then there's a bunch of steps in between until the patient actually gets treated? Just walk us through that because I think it's kind of important to understand that it's not like necessarily the same-day treatment, right? Is there any kind of opportunity to narrow that window?
I would say there's several scenarios to this. One, patient presents to a pediatrician. They either can write the script and have it couriered over. The important aspect of that is pediatricians are very used to 15-minute urgent care sick child visits. Easy for the patient to go home and come back later that week when the drug comes in, making sure it gets covered. We do have a robust sampling program to allow for same-day treatment when applicable for the clinician. If that clinician doesn't want to treat, they can refer to a dermatologist. When they make the referral, they can refer with the diagnosis so that the drug can be ordered and adjudicated for the patient before they show up for that visit. There's also the possibility of under certain plans where the doctor has done buy and bill, they could get treated that same day.
What we try and match and marry up to is what is the patient's need and what is their risk for coverage in terms of are they willing to pay for the drug, and is the doctor still willing to do it at that time? This is a disease that's not life-threatening, it can last up to a year and sometimes is actually diagnosed more routinely as a secondary diagnosis when you're in for a well-child visit, either in for an upper respiratory infection. The clinician would say, "Hey, by the way, you've got molluscum.
Do you want to treat it?" We've heard a lot of conversations even through that today in various presentations where people have said training the doctor to diagnose and then make a referral is things patients have had for a long time, but this is a way to expedite the cure and the resolution of the disease. We're finding that's the most important is having access to a safe and efficacious product that rapidly addresses the resolution of the disease is the most important, then making sure the coverage is there. If there is a few days in that delay, it's not that big a deal. Importantly, when they make that visit and the drug's there, they usually schedule that follow-up visit for three weeks later as it's the typical treatment cycle. If there is an extra visit, it's one time at the beginning, and then all the other visits are scheduled. The patient comes in and there are the number of lesions, they can order another applicator and have it there for that follow-up visit if necessary.
Okay. Can you remind us, because you guys reported Q1 recently, just remind us how much YCANTH revenue was in Q1? And then now that we're in the last month of Q2, just talk about the underlying demand trends and should we be expecting quarter-over-quarter sequential growth?
We don't typically give guidance on sort of the revenue projections, etc. When we took over the management of the company back in Q4 of last year, we reduced the sales force, reduced the burn of the company by about half and the sales force by about two-thirds, and we still show about 12% quarter-over-quarter growth versus Q3. In Q1, we showed over 16% growth over Q4. That was our first real quarter of starting to operate the business post-restructuring, post-new sales force, and having completed a financing last year in November. We saw solid momentum going through that quarter and growth throughout the quarter, achieving our 10,000 applicator milestone, which is the goal we set for ourselves as an ambitious sort of milestone goal for the company.
We're hoping to continue to seize on that momentum going into this year, into this quarter and throughout the year. We're seeing good robust demand and importantly, repeat purchases by the same clinicians whereas they're getting comfortable using the product, accessing the product, and with its performance. We're seeing more routine use of this product by the same clinicians and adoption by new clinicians who are also very happy with sort of the new distribution model where they can access it in multiple different ways and more conveniently.
Have you talked about how many doctors are using YCANTH?
We have not disclosed that yet. In some cases, we know hospital systems that purchase the product in a buy and bill way, but how many clinicians within that hospital are dispensing it is not always transparent to us, as well as there are often practices that have a dozen doctors within them. If they're doing buy and bill, we'll know the office is purchasing and using, and we'll see that. We have brought in some larger practices, and we start seeing ramps. Where we do have that data, there is an example that I've seen recently where there were a few, and now there are more than a dozen who are starting to write and get comfortable. As they start getting comfortable and using it, you start to see that momentum build. I think that's a nice thing we're starting to see with the product as people get comfortable with the access of it and familiarity with the treatment cycle.
Okay. As you think about the rest of the year, I forget what consensus is exactly, but there is growth through the rest of the year.
Yes.
Where is there upside relative to consensus? What needs to happen on the ground? Is there coverage, right, in terms of Medicare or something like that? Is it something else? Is it just time and just letting doctors get more comfortable with the drug so that they can repeat prescriptions? How are you thinking about that? Where are some pushes and pulls on that dynamic?
I would say there's several fold. One, bringing a product into a hospital system or a large private equity group takes time. They have their bureaucracy and processes, and oftentimes we start with one champion and go through that process, and they do it, and then it continues to expand. Throughout this year, we set out a goal when we first started, before we'd had any experience with the asset of, in running a business of an entrepreneur and a company in this environment, what is the first thing you need to do is manage your expenses and grow the business to be at least approaching operation break-even. That's sort of the goal we set for ourselves, and we're still working very hard to achieving that goal by the end of this year on a month-over-month basis.
If we can achieve that goal, that's a very robust accomplishment from where we started last year and provides a lot of opportunity for a sustainable business, a global business based on sort of YCANTH for molluscum alone, and also to support the timeline where our phase III program for common warts can get initiated with our Japanese partner. I should say that's a really interesting opportunity to expand to over 20 million patients versus 6 million patients. Through the relationship we have with Torii, it's a really important study. We're going to run it as a joint global study where the costs are shared 50/50. Importantly, they're going to front Verrica's portion of that trial and fund it out of future milestones and royalties, in addition to providing us an $8 million milestone upon the initiation of that trial. As you think through what we're trying to do, it's operate a very efficient business, sensitive to the market dynamics, access to capital, etc. We're being judicious with our capital, but deploying it in a way to drive growth. We see a trend towards growth and are optimistic that we can achieve that by the end of the year.
Okay. You also mentioned that as part of the restructuring, the sales force got reduced by two-thirds. With the new sales force or, I guess, with the reduction in sales force, how can you ensure that productivity is still good and that as you continue to monitor that through the year, that they're still being productive and that they're ramping up, etc.?
I would just say I'm extremely proud of the accomplishment of our commercial team. They took a challenging environment and really hit the ground running. We had reps step up and do more with less. What we're finding is we're getting a higher number of dispensed units and applicators per rep than when we had 85 reps. You are seeing a much higher productivity and growth in that base. We've actually hired reps over the last quarter, and a number of them are actually kicking off because we've expanded coverage into certain states or territories, or the pickup in business has been such that we need to divide some territories so that they can cover and have more touchpoints as there's just so much demand on their time.
I would say that the productivity of our sales team and our commercial leadership team has been really, really focused on great customer experience. Our support functions from field reimbursement managers, market access, trade, marketing, etc., have been right there lockstep with the team. What we found is it's a collaborative effort for a product like this to make sure the doctor has a great experience, their patient has a good experience, and the reimbursement for the office staff as the adjudication or the pharmacy all works. We have a very team-focused effort now at Verrica where we might have a small sales force in the scheme of what people think is traditional, but we have very, very unique and sort of marketing approaches, social media, and an operational team that's used to being entrepreneurial.
We're leveraging that with the collaboration and, importantly, the pharmacies that we're working with because some of those pharmacies actually have their own sales force and their own marketing teams, and they have their own customer base with great relationships with these doctors. Our team can leverage that as a resource as well. When you think through how are we growing a business by maintaining our expenses, we're doing so by leveraging all those resources available to us and growing the business in that way.
Sure. At what point would you consider rebuilding out the sales force as revenue starts ramping more and more? At some point, as it inflects, is that kind of in the cards or is that over the next 12- 24 months or how?
Yeah, I would say that the sales team has been empowered to say when they're seeing the demand and the reps can't keep up with the demand they're seeing, that they can incrementally come forward and we'll bring another rep in. We've also set our compensation structure up in a way where the reps are very commission-oriented. They're incentivized to get up early, sell, and touch those doctors and make sure it's a great customer experience. I think that really, really works. As I think about the way we structured the business and managed the costs, we cut down the costs in a way that we have the cash to take opportunities and make the most of them.
If there comes a time in the budget that says, "Hey, look, I could use three more reps because this territory has really taken off," or "My market access team has found we just got great coverage in a state. We're picked up another large plan in a large state like Florida or Texas or California or New York," we can add another rep and add another territory. Many companies can have multiple reps within Manhattan versus one. We will expand those things as it makes sense and that we can get their return on investment. Our first goal for our reps is how quickly can they get to covering their costs? From there, how do they grow the business? Ultimately, that's sort of the way we're running it and empowering them to be sort of entrepreneurial in doing so.
Okay. Great. Can you remind us your cash position?
Yeah. We ended last quarter with $29.6 million, and we're continuing to operate the business going forward.
Okay. What's the runway? Have you had guidance on that?
We indicated in our last financials that we hit a going concern in terms of a cash liquidity covenants in Q3 of this year. However, that does not take into account certain changes in our revenue projections, our milestone from Torii, and other activities. We also, in our last financing, included a warrant coverage that has $25 million of warrants that come due in November of this year, depending on us achieving a stock price of $1.07. We also maintain global rights to all of our assets other than the license for YCANTH in Japan for molluscum and common warts. We have many opportunities to sort of do creative value creation and cash generation while we still grow the business and move forward.
What about things like debt? Remind us if you do have debt.
The company took on, in the initial launch, a $50 million debt facility from OrbiMed. We have begun repaying principal and interest on that on a straight line amortization over the next approximately three years or so. Balance is about $45 million plus or minus at this point. We continue to work well with our OrbiMed partners on ways to continue to serve our site debt and be compliant with the covenants of the program.
Sure. In the last few minutes, maybe you can make some closing remarks in terms of what are investors missing at this point, and what can you do to get confidence back in the business and for growth to reaccelerate?
It's a very good question. Our number one goal when we came in was execute. Say what you're going to do and actually do it. Very, very unique opportunity in a company with a commercial stage asset, large unmet need, and not really a lot of competition. The ability to expand that market to three times the size with the label expansion, our common wart trial that's for phase III with Torii Pharmaceutical, and to have that program funded with our partner. That's a really unique opportunity. We also have a basal cell carcinoma program that showed very compelling phase II data on efficacy and safety in terms of reduction in lesions. 50% complete histological clearance after just two to three treatments at the week 12. The other remaining lesions that were not 100% histologically cleared were reduced in size by about two-thirds.
We had a calculated objective response rate of 97%. As you think through this company, we have a robust pipeline, late stage, a commercial asset in a growing market. We raised capital last year. We've got a milestone in about $8 million coming from Torii initiation of that phase III trial. We have warrant structure. We have a robust set of investors in our company that have provided financial support throughout the company's history and have shown good conviction for this company. I wake up every day about executing, and the mindset of this organization is executing. What we've done is tell people what we're going to do, and then we've actually been achieving it. The response from investors has very much been, "You're accomplishing what you said. That's what we love to see in this environment in particular.
Continue to do so, and we're watching your company very closely." I think that's all we can ask for is people to watch what we're doing and keep an eye on us because we have quite a few milestones upcoming this year in terms of results from our end of phase II meeting, our commercial milestones in advancing the product, as well as initiation of our common wart program. That's a lot to happen for a small company, and we're hoping to continue to make a big impact and execute.
Okay. Very good. Thanks so much, Jason. It's good seeing you. Best of luck in terms of the path forward.
Thanks so much. We appreciate it.
Take care.