Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) Q2 2024 Earnings Call Transcript

Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) Q2 2024 Earnings Call Transcript August 14, 2024

Verrica Pharmaceuticals Inc. beats earnings expectations. Reported EPS is $-0.37, expectations were $-0.43.

Operator: Good morning, and welcome to the Verrica Pharmaceuticals Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Please note today’s call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to today’s host, Chris Calabrese from LifeSci Patterners. Please go ahead.

Kevin Gardner: Thank you, operator. Hello, everyone, and welcome to Verrica Pharmaceuticals second quarter 2024 corporate update and earnings conference call. With me on the line this morning are Ted White, President and Chief Executive Officer of Verrica; Joe Bonaccorso, Chief Commercial Officer; Terry Kohler, Chief Financial Officer; Dr. Gary Goldenberg, Verrica’s Chief Medical Officer; and Chris Hayes, Verrica’s Chief Legal Officer. As a reminder, during today’s call, management will make forward-looking statements. These statements may include expectations related to the launch and commercialization of YCANTH VP-102 for the treatment of molluscum contagiosum in the United States, regulatory developments, the development and potential benefits of Verrica’s product candidates, our expected cash runway, as well as overall business strategy and planned operations.

These forward-looking statements are based on the company’s current expectations and involve inherent risks and uncertainties. And based on those risks and uncertainties, Verrica’s actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verrica’s SEC filings for important Risk Factors. Verrica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. In addition, during today’s call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.

There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent. Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of our website. I’ll now turn the call over to Verrica’s President and CEO, Ted White. Ted?

Ted White: Thank you, Kevin, and good morning, everyone, and thank you for joining us for the second quarter 2024 earnings call. I’m pleased to report that we continue to make progress across our business, including with the commercial launch of YCANTH and the exciting data being generated from our development stage pipeline. Starting with YCANTH. For the second quarter, we recorded product revenue net of $4.9 million, which reflects growth in demand for YCANTH as well as the expansion of our distribution footprint with the addition of Cencora as a specialty distribution partner and the related impact of a one-time stock and order. Cencora allows us to provide additional customer support through their GPO IPN, which is intended to target dermatologists and drive further buy and bill account growth through IPN’s membership.

We’ve also added Vizient as a GPO for hospitals, and we believe we will see a positive impact on YCANTH pull through demand in the second half of the year. We believe that we’ve addressed many big operational hurdles. And in the back half of the year, we must focus on capturing market share and driving adoption. We continue to focus on simplifying the process for physicians to treat patients. On April 1, YCANTH received the permanent J-Code from CMS, and on July 1, CMS published the Part B schedule listing YCANTH reimbursement at an average selling price plus 6%. This created visibility for commercial insurers to further establish their own allowables, which represents the maximum amount a plan will pay for covered healthcare service. I’m pleased to report that as of today, insurance companies covering approximately 98% of commercial lives with YCANTH coverage have formally published their allowables, which is now visible to physicians electronically at the time of diagnosis.

We believe that this should drive confidence in payer coverage and additional same day treatment for established buy and bill accounts. In addition to driving growth in buy and bill, we continue to promote YCANTH’s value proposition for specialty pharmacy customers, as we look to maximize adoption across both channels. In a moment, Joe will talk more about our commercial strategy and specific efforts to build additional momentum in the commercialization of YCANTH. We continue to make progress in removing products containing compounded cantharidin in the US. In July, we announced a litigation settlement with Dormer Laboratories that will discontinue the sale by Dormer of compounded cantharidin products in the United States. As the largest supplier of non-FDA approved cantharidin containing products into the US market, the settlement with Dormer marks a major win for patients who seek access to a safe, effective and FDA approved therapy for the treatment of molluscum.

While we expect this sentiment will have a positive impact on demand for YCANTH, removing compounded cantharidin from the marketplace will take time, as compounded products typically have a six-month dating. We therefore remain focused on customer conversion, but we recognize it will take some time for Dormer’s previously sold inventory to work its way through offices. While our main focus remains developing the market opportunity for YCANTH for the treatment of molluscum, we think that’s just the beginning for this unique and innovative product. The next major opportunity for YCANTH is for the treatment of common warts, and with a prevalence of approximately 22 million patients in the US alone and no FDA approved therapies, common warts represents one of the largest unmet needs in all of dermatology.

We continue to make important progress in advancing our common warts program. During the quarter, we amended our existing licensing agreement with Torii Pharmaceutical so that both companies will jointly conduct and split the costs of a global pivotal Phase 3 trial for YCANTH in common warts. Torii will fund Verrica’s portion of the costs as an offset to Torii’s future payment obligations to Verrica, based on regulatory milestones and sales of YCANTH from molluscum contagiosum and common worts in Japan. In addition, Torii will make a milestone payment of $8 million to Verrica upon the first patient dosed in Japan in the Phase 3 trial. Importantly, this amendment should benefit both parties from a cost and time to market standpoint, and the new funding structure is expected to have minimal impact on our near-term cash position.

Initiation of a global Phase 3 study remains subject to feedback from the US FDA and Japan’s Pharmaceuticals and Medical Device Agency on the proposed design of the Phase 3 trial. We expect to receive feedback from the FDA and the PMDA in Q4 of this year. And based on our current timeline estimates, we anticipate initiating the Phase 3 trial in the first half of 2025. If YCANTH is successfully developed, approved and commercialized for the treatment of common warts, we anticipate a high degree of call point overlap and marketing synergies with our current molluscan promotion of YCANTH. Now I’d like to briefly review the exciting data we announced this morning for our lead pipeline candidate, VP-315, which is being developed for the treatment of basal cell carcinoma.

By the way of background, VP-315 is a potential first-in-class oncolytic peptide that has been engineered to provide more targeted delivery to stimulate the patient’s immune system and destroy cancer cells. We are developing VP-315 as a therapy that can serve as a potential non-surgical alternative to surgery, including Mohs surgery, or as a neoadjuvant chemotherapeutic for basal cell carcinomas, including advanced basal cell. As the most common type of cancer globally, we expect that the commercial opportunity for basal cell carcinoma is sizable, with approximately 3.6 million diagnoses each year in the United States alone. The Phase 2 study is an open label proof-of-concept trial designed to assess the safety and tolerability, dose regimen and efficacy of VP-315 in biopsy confirmed basal cell carcinoma.

Preliminary efficacy data based on 90 out of 93 lesions treated show that the treatment with VP-315 resulted in approximately 51% complete histologic clearance rate of basal cell carcinoma. In addition, of the patients who had residual carcinoma, those residual tumors showed approximately 71% reduction in tumor size. Taken together, this represents approximately 86% overall reduction in tumor size across all lesions treated. These results, if confirmed in a pivotal study, make a strong argument for the use of VP-315 as first line therapy in the treatment of local and advanced basal cell carcinoma, which will either eliminate the need for additional treatment entirely or significantly reduce the size of the excision and the surgical burden associated with other treatment regimens, including Mohs surgery.

No treatment related series adverse events were reported in the Phase 2 study and most treatment related adverse events were classified as mild to moderate. As expected, with injection site pain being the most common adverse event. Based on these positive efficacy and safety data from the Phase 2 trial, we believe VP-315 has significant potential to become an important first line treatment option for basal cell carcinoma, for use prior to surgery, or instead of oral therapies which have significant systemic side effects. We are obviously very pleased with these clinical data and we intend to hold a KOL event in the near future to discuss in more detail the results from the VP-315 Phase 2 study and provide additional insight into physician use case.

I’ll now turn the call over to Joe to review our commercial progress. Joe?

Joe Bonaccorso: Thanks very much, Ted. As Ted mentioned earlier, in the second quarter we saw pull through demand for YCANTH grow sequentially quarter-over-quarter. The increase in demand reflects an increase in unit suspense through a specialty pharmacy and a higher number of units sold to hospitals and buying bill offices, including Walgreens community stores. Although YCANTH showed growth versus the prior quarter, we remain focused on accelerating growth in the second half of the year. We believe that many of our accomplishments from the second quarter, including our settlement with Dormer Labs and the reseat of a permanent J-Code from CMS and the establishment of allowables across the commercial coverage will translate into increased demand for YCANTH in the second half of 2024 and beyond.

In the third quarter, we are working aggressively to grow applicator demand by focusing on the expansion of our buy and bill accounts, which includes the addition of GPOs Vizient for hospitals and IPN for dermatology practices. The targeted conversion of physician practices that were former users of compounded cantharidin, and placing an emphasis on driving adherence through treat to clear messaging and medical education. Our coverage footprint also continues to expand and in the second quarter we added a number of new Medicaid states, including Michigan, Louisiana, Alabama and West Virginia. With respect to total lives under coverage as of July 31, we have reached 234 million lives under coverage, which encompasses 139 healthcare plans banning commercial, Medicaid, Tricare and Federal employee plans.

With the permanent J-Code in place and allowables established on most commercial plans, we believe broader acceptance by prescribers will continue as the reimbursements process becomes more efficient. We’re also very focused on optimizing coverage under the commercial and state Medicaid plans by working with the payer universe to eliminate prior authorizations and other administrative burdens that may potentially be a barrier to patients being able to receive an approved treatment. Finally, on our last call, I discussed the addition of 20 new pediatric reps in the major MSAs across the country. I am very pleased with the productivities of these new professionals to our salesforce, which we believe is driving increased awareness and utilization of YCANTH and major pediatric medical practices.

Pediatricians are also showing interest in buy and bill as they prefer to control the patient journey and have the ability to treat same day. I’ll now pass it to Terry to review our fourth quarter and year-end financial results. Terry?

Terry Kohler: Thanks Joe. For the second quarter of 2024, we reported total revenues of $5.2 million, which included YCANTH net revenues of $4.9 million. YCANTH’s revenue reflects a combination of X factory shipments to FFF related to demand pull through, as well as a one-time impact of an initial stock in order from our new specialty distributor Cencora, which represented approximately 54% of YCANTH revenue in the quarter. Gross product margins for the second quarter of 2024 were 93%, which continued to benefit from certain components of standard cost of goods sold, including bulk production and the assembly of applicators from our registration batches having been expensed as R&D prior to approval. Research and development expenses of $3.3 million in the second quarter of 2024 decreased versus the second quarter of 2023 by $2.4 million, driven primarily by a reduction in clinical trial costs related to VP-315 and CMC costs related to preapproval YCANTH spend in the prior year period.

Selling, general and administrative expenses of $16.5 million in the second quarter of 2024 increased versus the second quarter of 2023 by $10.6 million, driven primarily by commercial activity for YCANTH. GAAP net loss was $17.2 million, or $0.37 per share for fiscal second quarter 2024, compared to a GAAP net loss of $11 million, or $0.24 per share for the prior year period. On a non-GAAP basis, which excludes stock-based compensation and noncash interest expense, the second quarter of 2024, net loss was $14.4 million, or $0.31 per share, compared to a net loss of $9.4 million, or $0.21 per share for the second quarter of 2023. And finally, as of June 30, 2024, Verrica had aggregate cash and cash equivalents of $31.9 million. The company expects that its cash and cash equivalents as of June 30, 2024 will be sufficient to fund operations into the first quarter of 2025.

I’ll now turn the call back over to Ted for closing remarks.

Ted White: Thanks Terry. As we progress through the third quarter, we are laser focused on the launch of YCANTH and accelerating YCANTH demand in the second half of the year. We achieved important wins across multiple areas of our business, significant amounts of compounded cantharidin have been removed from the US market, and we will continue to be vigilant on this front. CMS published favorable YCANTH allowables on July 1, and we continue to focus on expanding our buy and bill accounts and demand with the addition of Cencora IPN and Vizient as GPOs, targeting physician groups and hospitals. We also made considerable progress in our pipeline. We expect to continue advancing YCANTH for the treatment of common warts through our amended agreement with Torii and the exciting top line data we released today on our Phase 2 data for VP-315 for the treatment of basal cell carcinoma.

Our company remains very excited about VP-315’s unique and differentiated product profile, which has the potential to be a primary and neoadjuvant noninvasive therapy that addresses a significant unmet medical need in dermatology. That concludes our formal remarks and I’ll now turn the call over to the operator for Q&A.

Q&A Session

Operator: Thank you. The floor is now open for your questions. [Operator Instructions] Our first question will come from Stacy Ku with TD Cowen. Please go ahead.

Stacy Ku: Good morning. We had a few questions. Just first on YCANTH. Can you put some metrics around the progress you’ve made in removing compounded cantharidin? And just a better understanding around the timeline of when things might resolve, just help set some expectations there. And a quick follow up on kind of the stocking you’ve discussed in a lot of detail. Where do you expect it to normalize versus where it is now? So those are our YCANTH questions. And then for VP-315, obviously, the treatment paradigm for BCC has a lot of surgery. So, kind of curious, what’s the pathway forward that could help build enthusiasm beyond the typical cutting out the lesion? What are your early thoughts in study design? And what kind of follow up do you think will be necessary to confirm long-term complete histological clearance?

What do you think clinicians will want to see? And then one more question, if possible, and I can come back and follow up. Do you see any greater success in certain lesions? Kind of curious about the success you’ve seen, maybe on the face. Thanks so much.

Ted White: Thank you, Stacy. This is Ted. I’ll handle the first part on the compounded cantharidin and then turn it over to Terry and then over to Gary Goldenberg for the VP-315. So, on the compounded cantharidin, as you know, we’ve announced that we’ve been successful with both Lighters [ph] and Dormer Laboratories. Typical compounded cantharidin has a shelf life of around six months. We know that in Dormer Laboratories specifically, there were over 24,000 vials shipped to the United States. So we expect that that inventory has to bleed out from offices. And so, when you think about it, the last shipment was made in April of 2024. So, with a six-month shelf life, we expect that to bleed out in the second half of the year. And I’ll turn the — the next part over to Terry.

Terry Kohler: Sure. Good morning, Stacy. So, in your question on inventory and normalization, I think our expectations that we’re going to continue to grow demand aggressively over the back half of the year here. So, I think we expect inventory to normalize in the channel in the back half of the year and be normalized by early 2025.

Stacy Ku: Okay. Do you expect it to have some kind of expectations or guidance around the percentage of realized revenue, kind of the inventory, just to help set expectations?

Terry Kohler: Yeah. Well, certainly, we know distributors are going to take into account inventory on hand and future demand expectations as they think about what the appropriate level of X factory orders will be in the back half of the year. But we can’t give any guidance on revenues at this stage or comment really on the cadence of any future X factory orders.

Stacy Ku: Okay. Understood.

Operator: Thank you. Our next question will come from Gregory Renza with RBC Capital Markets.

Ted White: Todd, hold on a second.

Terry Kohler: Just as a pause, I want to make sure we answer the 315 question as well.

Gary Goldenberg: Yes, can you hear me? Stacy? Thank you for the questions. Okay. So regarding the paradigm, we believe that based on our Phase 2 data, and it’s Phase 2 and that Phase 3, but based on the Phase 2 data, we believe that this product, the VP-315, has the ability to shift the treatment paradigm. I think if you look at our favorable safety profile in the Phase 2 study, we’re very pleased with that. And as you know, Phase 2 really is a safety study. It’s a dose escalation safety study. We did not see any severe adverse events related to the treatment. So that’s a very positive development. If you look at efficacy data for complete histologic clearance and also for tumor size reduction, essentially shrinking the tumor, we believe that VP-315 has the potential to be the treatment of choice between biopsy and diagnosis and potential need for surgery.

Right now, in vast majority of patients, you get a diagnosis with a biopsy, your next step is surgery. We believe that VP-315 has the potential to be that step in between. In 51% of subjects in our study, there was complete histologic clearance, meaning that there would be no need for a surgical intervention. In those patients who did not have histologic clearance, there was a 71% reduction in lesion size. What does that mean for a patient? It means that if they do have to have surgery later on, the surgery now is much smaller. It’s decreased by more than 50%. So, their surgical scar, the operation itself is now much smaller than it would have been prior to using VP-315. So, we really believe that this has potential to shift the treatment paradigm.

As far as the follow up, time needed and what dermatologists would like to see. I think it’s too early to comment. I think these are the things that we will discuss with the agency in our end of Phase 2 meeting, which we anticipate to have it in the first half of next year. But I think at this point, we are all very excited about the potential of this molecule to shift the treatment paradigm for the 3.6 million-plus patients with basal cell carcinoma in the United States alone.

Operator: Thank you. We’ll now go to. Our next question comes from Gregory Renza with RBC Capital Markets.

Gregory Renza: Great. Thanks. Good morning, Ted. Congrats on the progress. Thanks for taking my question, Ted, as you and Joe and the team talk about really accelerating and doubling down on execution for YCANTH in the market, just wanted to ask if you could just add additional color on some of those levers that you’re pulling. How are you prioritizing the detailing there? I know you provided some comments in your prepared remarks. Just curious, how important is that same day treatment and lowering those barriers for prior authorizations? I know you’ve seen that come down. And as we’re about a year or so into launch, just provide some of your commentary on the trajectory from here in light of all the execution detailing that you’re doing. Thanks.

Ted White: Sure. Thank you, Greg, for the question. So, listen, I would tell you a couple things. Prior authorizations, we typically see that in our Medicaid and our managed Medicaid area of business, and we are actively working with those accounts as we speak to negotiate to get those PAs removed. Difference between a medical benefit and a pharmacy benefit, and a medical benefit policy, you cannot treat the same day until you get the authorization code. So, it’s not like a pharmacy benefit where you can do an electronic prior authorization, cover my meds, et cetera. Medical benefit is different. So, this is a key area that we’re focusing on in order to get these PAs removed. Again, we typically see it in managed Medicaid and state Medicaid, and then also the Blue Cross blue shields of the world.

So that’s number one. Number two is we’re looking to pull a lever with our copay program. Right now, our copay program is — there’s a variance between $25 to $75. You’ll be hearing shortly that we’ll be streamlining that process and making it more simplistic for customers and for the patients. So that’s another lever. I also think that the other lever we have with IPN with Cencora, they have a strong footprint in dermatology. And now we’ll be able to do contracting with them and be able to talk, spread that — as you know, our field force cannot talk about with customers. And then, of course, we have Vizient for the institutions. And then finally, looking at payers, while we have strong coverage, we like to get even stronger coverage and look to go to a dual benefit where we have a pharmacy benefit as well as a medical benefit.

And those are the levers that we’re actively working on as we speak.

Gregory Renza: That’s great. Thank you. And just one more maybe for Terry. Just on the sampling, can you just give us a state of the contribution there and the expectations? And then maybe I’ll just lob in as you see the demand and maybe some of that predictability. I know you didn’t provide refraining from guidance on, of course, inventory, but just largely, do you have a timeline as to when you would feel comfortable just internally on projections to provide larger, longer term guidance when it comes to YCANTH revenues? Thanks again, and congrats, guys, on the quarter and the data.

Terry Kohler: Thanks, Greg. Good morning. So, on the guidance front, that’s something that we’ll consider as we get closer to 2025, it’s not something that we’ll do in the back half of this year. And then on the sample program, so we continue to sample, but I would tell you the sampling has gone significantly down and will continue to go down, we believe, over the back half of the year. Joe, is that.

Joe Bonaccorso: Yeah. I mean, we look at the sample program as trade doses because they are a starter dose, right, to help a patient. So that continues to go down as we’re continuing to build our coverage and same day treatment for physicians. So, to Terry’s point, that’s going to continue to taper down dramatically on the back half of the year here.

Gregory Renza: Great. Thanks, guys.

Operator: Thank you. Our next question will come from Glen Santangelo with Jefferies. Please go ahead.

Glen Santangelo: Yeah. Thanks for taking my questions. Hey, Ted, I mean, you commented multiple times, obviously, about the settlement against Dormer Labs, and that’s obviously a major step forward. But can you say sort of confidently at this point, you’re not really seeing any incremental compounded cantharidin sort of come into the market at this point. Do you feel like that window has closed?

Ted White: Hi, Glen. Yeah. So, I could tell you incrementally no, we’re not seeing any incremental compounded cantharidin the market. Are there isolated cases where there’s been compounded cantharidin seen? Yes, absolutely. And what I mean by that is, that’s — the Dormer inventory that’s bleeding out.

Glen Santangelo: Right. So, I think what we’re all trying to do is we’re all trying to sort of reconcile maybe the $2.3 million in revenues you had this quarter with FFF, with the sort of the comments that you made in the back in the press release that you expect prescription growth quarter over quarter in the back half, sort of taken into consideration that it may take some time to bleed out the compounded cantharidin sort of in the market. So, you think we start — we’re starting to see that now. I mean, we’re midway through 3Q, I don’t know if there’s any sort of commentary you can give us sort of at this point, but maybe you feel like we’re at the point where we’re going to start to see that inflection in Scripps because, the compounded cantharidin is sort of almost worked its way fully through the system. Is that kind of the message you’re trying to send?

Ted White: Absolutely. I mean, we expect to see the inflection with the Dormer now bleeding out. We’re already seeing, Glen, accounts that were on the Dormer target list. As you know, Dormer — we know those accounts, and we’re already seeing orders from those accounts starting to come in as those accounts bleed out their inventory.

Glen Santangelo: Perfect. And maybe my last question is sort of on Legend’s product. You’re obviously aware that there was another company that got approval. I don’t know if you could sort of comment on the competitive landscape, if there’s anything else sort of you’re paying attention to and how that approval, might ultimately be impacting the market positively or negatively for you.

Ted White: Yeah, no, great question. We’re fully aware of [indiscernible]. And listen, I would tell you we think it’s great that somebody else recognizes the opportunity within molluscum and look for us, I think it only helps Verrica because it’s going to increase the share of voice around molluscum. Our customers know that cantharidin is the gold standard for the treatment of molluscum contagiosum. Again, we only see that as a benefit to us.

Glen Santangelo: Okay, thanks. Thank you, Ted.

Ted White: Thank you, Glen.

Operator: Thank you. Our next question will come from Oren Livnat with H.C. Wainwright. Please go ahead.

Oren Livnat: Let me unmute first. Thank you. Pretty exciting time over there. I have a couple questions on 315 and YCANTH, if I may. Just firstly, I’m really curious if you saw shrinkage in any tumors that weren’t directly treated with 315. Essentially, I’m wondering if you saw a systemic immunological response and was there any control against matched tumors intra patient? And bigger picture, if you think about this product strategically, obviously this is also medical dermatology, which overlaps with where you’re at. Clearly a different market than the pediatric focus you have now. Presumably it could be maximized by a larger company as well when you talk about multi blockbuster potential. So, going forward, do you think about trying to maybe partner this and focus on YCANTH, or are you keeping all your options open, which I assume will be your answer, and then YCANTH follow ups after that? Thanks.

Ted White: Sure, Oren. This is Ted. So absolutely, we want to keep all of our options open as it relates to 315, including partnerships. So — and I’ll turn that next part over to Gary to answer the other questions that you had.

Gary Goldenberg: Thanks, Ted. Oren, hi. Thanks for the question. So, regarding abscopal effect, it was one of the secondary endpoints in our protocol. At this point, we’re not ready to comment regarding abscopal effect. The only thing I can say is that we did have a few tumors where we did look for abscopal effect and just stay tuned for those data. The only thing we’re able to discuss now are the safety and the preliminary top line results.

Oren Livnat: And just lastly, on 315, you mentioned in the press release you’re excited to continue to explore these properties in tissue and blood samples, I think. Does that indicate potentially trying to quickly broaden the potential indications? You might target learning more on that front, or is this about needing to better characterize the product, maybe in the mechanism of action in the current BCC program? And then on YCANTH, can you just talk about the forward deployed inventory model a little more, which I don’t think you addressed recently. How’s that playing out in the field? When you look at orders, are physicians stocking essentially in the office to have some on the table if and when they want to actually pull the trigger and use it? How much of that versus just in time, essentially ordering even in office such. So, they’re just — we can see what they’re using. Do you have visibility with FFF on that front? How much is actually being used?

Gary Goldenberg: Okay, Oren. Gary, first question. Yeah, sorry, Ted, please.

Ted White: No, no good.

Gary Goldenberg: So, I just want to address the tissue in the blood samples. So, I think, we’re just looking at the basal cell subjects that we studied in our Phase 2 study at this point. And if you look at VP-315 as an immune modulator, as an oncolytic peptide, it works by at least the proposed mechanism of action or the one that’s been elucidated to this point is that it works by activating a local immune response to tumor specific antigens. So, you lyse tumor cells, you reveal those antigens which are normally protected by the tumor, and then you get an immune stimulation. We want to study this further. We want to see exactly what kind of immune response we’re getting in the tissue and whether or not we are getting one in the blood samples, which would give us a window to understanding of whether or not we’re going to see a systemic response to basal cell antigens, which I think would be exciting.

But at this point, it’s just simply to characterize further the MOA and the immune response we’re getting by injecting VP-315 into the tumors.

Oren Livnat: Perfect. Thank you.

Joe Bonaccorso: Yeah. It’s Joe. Oren, how are you?

Oren Livnat: Great, thanks.

Joe Bonaccorso: Good. So, regarding your question, the forward deployed inventory is still a part of our core model. That is an opportunity for physicians who would rather consign in the inventory, if you will, forward deploy it in and then get billed as they’re treating patients. We also like to keep our buy and bill model agile. We have some physicians that are more interested in volume tier discounts and often voice discounting as well. So, we’re seeing a blended approach on the buy and bill side. And again, we try to keep our program agile enough to reflect the needs of the customer and what that particular customer is interested in.

Oren Livnat: All right, thanks. I’ll follow up after. Appreciate it.

Joe Bonaccorso: You’re welcome.

Operator: Thank you. Our next question will come from Serge Belanger with Needham. Please go ahead.

Serge Belanger: Hi. Good morning. Thanks for taking your questions. A couple on YCANTH to start off with. I guess going forward, should we expect any additional distributor or GPO partnerships and maybe what the impact is on the overall net pricing as you continue expanding the GPO field here. And then on VP-315, I guess, for Gary, obviously, pretty exciting data in basal cell carcinoma. Do you feel this derisks the program for squamous cell carcinoma? And is that one of the other non-melanomas you expect to target going forward? Thanks.

Terry Kohler: Hi, Serge, good morning. It’s Terry. I’ll answer the first part around the pricing. So, with the addition of Cencora, we still believe that our overall net sales as a percentage of gross sales is going to continue to be in that 45% to 50% range over time. We’ll continue to evaluate that and monitor as we move forward, but that’s still our expectation.

Ted White: Yeah. Serge, for the second part, about the possibility of activating our market further with distributors or opportunities. Look, I mean, we have to remain opportunistic as an organization. This is a big market, and we certainly are exploring ways to make sure we can reach the customers that need the product. It could be through an expansion, perhaps of some degree, to some regional pharmacies, or we can look into further opportunities that might help in areas such as the Department of Defense and other customer segments that we’re spending time in. So really, the message here is we’ll look to be opportunistic and be mindful as we’re building it out.

Gary Goldenberg: Serge, regarding your question on FCC, just a reminder that we do have the global rights to develop VP-315 for basal cell carcinoma, squamous cell carcinoma, and non-metastatic melanoma, and non-metastatic Merkel cell carcinoma. I think at this point we’re focused on basal cell since it is the most common malignancy in humans with over 3.6 million cases in the United States. But it doesn’t mean that we wouldn’t think about another opportunity like squamous cell, which is the second most common skin cancer in humans. Doesn’t mean that we wouldn’t think about that at some point. But right now, I think our focus remains basal cell. Moving forward with an end of Phase 2 meeting sometime in the first half of next year, discussing a Phase 3 program with the agency, and then hopefully moving forward into the Phase 3 program.

Serge Belanger: Great. Just a follow up on YCANTH. You just talk about the mix of prescribers between derms and peds since you deployed your pediatric salesforce. Maybe just comment on if you’ve seen any off-label use of the product, too, for some of the word indications.

Ted White: Yes. We can’t support off-label use, as you know, and our copay program doesn’t cover for that. So, we have no visibility into what’s happening in the practice because we can’t support it. The second piece of it is the dermatologist, pediatric dermatologist, hospital base continued to be the major treaters of molluscum, but our pediatric team is making quick inroads here, having just deployed in April. What’s been fascinating to us is not only the outreach and the interest from the pediatrician, but the willingness to take the product into their office on direct purchase because they like to treat patients same day and do it under the supervision of a healthcare professional.

Operator: Thank you. Our last question will come from Kemp Dolliver with Brookline Capital Markets. Please go ahead.

Kemp Dolliver: Great. Thank you. Two brief questions on YCANTH. First, you had previously expected gross margin to start to normalize at a lower level around this time, which hasn’t yet occurred. What are you thinking about that now? Has this been pushed out into, say, 2025, or will we start to see it in the second half of the year?

Terry Kohler: Morning, Kemp. This is Terry. Yes, we would expect to see that, those start to happen in the second half of the year. But just as a reminder, over the long-term, we still expect gross margins to be in that low 90s percentage. Obviously, we have — we’re focused on continuing to drive cost down as we move forward. So, there’s a potential that we could see some of that benefit pull through in 2025, but too early to talk about that at this stage. So, I think, that low 90s is still a good place for us to be in from a gross margin standpoint.

Kemp Dolliver: Great. Thank you. And the second question is, going back to the compounded shipments by Dormer and Lighters. Ted, I think you quoted a number. What was that number again?

Ted White: Well, what we know is about 24,000 vials have been shipped to the US from Dormer Laboratories.

Kemp Dolliver: Okay, great. And no visibility on what Lighters had been doing prior to your agreement with them?

Ted White: No.

Kemp Dolliver: Great. Thank you.

Ted White: Thank you.

Operator: Thank you. That concludes our question-and-answer session. I will now turn the call back to Ted White for closing remarks.

End of Q&A:

Ted White: Thank you, operator. I’d like to thank all of you for joining us this morning. We’re obviously very pleased with the significant accomplishments in the second quarter of 2024, including today’s announcement on the positive top line results of 315 for basal cell carcinoma. And we look forward to providing another update on our third quarter earnings call in November. Thank you.

Operator: Thank you. This does conclude the Verrica Pharmaceuticals second quarter 2024 earnings conference call. You may disconnect your lines at this time, and have a wonderful day.