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Jayson Rieger

Thank you, John. Good evening, everyone. And thank you for joining us for our fourth quarter and full year 2024 corporate update call. As most of you are aware, in the fourth quarter of 2024, we began a transition period at Verrica, including a significant change to our commercial organization, a leadership transition, and a significant capital raise in November.
We are executing on our turnaround plan with a more focused commercialization strategy for YCANTH while substantially reducing costs across the organization. In a few moments, I'll describe in more detail the progress we have made and continue to make on this plan. And why I believe we are now on a trajectory toward sustainability as a company with a clear focus on maximizing YCANTH utilization for the treatment of molluscum contagiosum and advancing our late stage pipeline programs. We continue to support our development partner, Torri Pharmaceutical, in their effort to obtain approval from Japanese regulators for TO-208, referred to as YCANTH in the United States. And we were happy to see their filing of a new drug application in Japan for TO-208 during the fourth quarter of 2024.
We are also excited to continue to work with Lytix Biopharma in advancing our basal cell carcinoma asset, BP-315. At our update at the end of Q3 last fall, we indicated a belief that it could be into the first quarter of this year before we saw business stabilization and the signs of working through channel inventory. I am pleased to report that we have already seen new purchases from our distributors in the fourth quarter to replace depleted inventory levels ahead of what we had previously anticipated. We look forward to updating you with more details regarding Q1 2025 dispense units in the near future.
We are making significant progress in advancing our clinical stage pipeline, which includes pursuing YCANTH for common warts as an additional indication, as well as our novel oncolytic peptide, BP-315, the treatment of basal cell carcinoma. Each of these programs represent potential key value drivers for our company and, in my view, remain underappreciated assets given each program's potential to become first-in-class treatments in two large dermatological conditions with significant unmet medical need. We are in a unique development position where we believe we will be able to advance our common wart program through Phase 3 in collaboration with Torri and also achieve key data and regulatory feedback for our basal cell program with minimal additional cash outlay for Verrica.
We also made significant progress with respect to our financial position, raising approximately $42 million in an equity follow-on offering in November and subsequent to the end of the quarter, obtaining a waiver of going concern covenant for the quarter and year ended December 31, 2024 and the first quarter of 2025 from our lending partner, OrbiMed.
I will now provide an update on our commercial activities for YCANTH and related results from the quarter. In November, we announced a new commercialization strategy focused on driving demand for YCANTH in territories with high prevalence of molluscum and established strong insurance coverage for YCANTH. This focus was also intended to make Verrica become a leaner and more efficient company in the process. I am pleased to say that, over the last several months, that is exactly what has happened.
As announced in our business update in December, we've reduced our operating expense burn rate by approximately 50% while not only maintaining our prior sales levels but also achieving positive growth in dispense applicator units in the fourth quarter compared to the prior quarter. Our sales representatives have substantially increased their productivity, measured as an average of sales per selling day, and we are now seeing the results of their efforts. Our fourth quarter operating results do reflect the beginning of this success and we expect to see further reflection of this strategy in the results of the first quarter of 2025 and beyond.
In the fourth quarter, we reported YCANTH dispense applicator units of 8,654 versus the prior quarter units of 7,706, which represents sequential quarterly growth of 12.3%. And when compared to the second quarter of 2024 of 5,975 units, the YCANTH applicator unit growth increased by 44.8%.
Another important dimension of our commercial realignment was to make it easier for physicians to order and acquire YCANTH on a buy-and-build basis. We therefore introduced a new single applicator configuration for YCANTH, or the one count, which became commercially available this quarter. We believe the one count will reduce acquisition costs for physician practices in certain channels and potentially expand distribution and patient access to YCANTH. Furthermore, we have made great strides in increasing access to the pharmacy benefit route by adding local specialty pharmacies to our strong relationship with Nufactor, our nationwide specialty pharmacy.
With respect to YCANTH inventory, we believe we have now fully reserved for distributor inventory reasonably expected to be returned to a lower than anticipated pull-through and observed a significant reduction in distributor inventory levels from our active distributors exiting the fourth quarter. Based on our latest data, we believe that inventory has now reached a stable, normalized level where demand for YCANTH applicator units will translate into new demand-driven revenue regularly going forward into 2025.
I'd now like to discuss our plans to develop YCANTH for the treatment of common warts. Recall that earlier last year, we amended our licensing agreement with our development and commercialization partner, Torri Pharmaceutical, which enabled us to equally split the cost of a new planned global Phase 3 clinical program in common warts. Torri previously agreed to fund Verrica's portion of the cost as an offset to Torri's future payment obligations to Verrica for meeting regulatory milestones and royalties to sales of YCANTH for molluscum contagiosum and common warts in Japan.
As we noted in December, Torrey filed a new drug application in Japan seeking approval of YCANTH called TO-208 in Japan for the treatment of molluscum, and we look forward to helping Torrey reach an estimated 1.6 million molluscum patients in Japan after they obtain regulatory approval. Furthermore, Torri will make a milestone payment of $8 million to Verrica upon initiation of a Phase 3 clinical trial with initiation of the global program potentially starting as early as mid-2025. Considering the fact that there are approximately 22 million patients in the US alone with common warts and no FDA approved therapies, this makes common warts the single largest unmet need in all of dermatology.
Under our amended funding structure with Torri, the capital required for Verica to fund this large Phase 3 program is expected to have almost no impact on our cash position, which in my view is fairly remarkable considering that this is a global registrational trial where we will still retain 100% of commercial rights to YCANTH in the U.S. and elsewhere around the world other than Japan.
I'd now like to focus the recent progress we have made in advancing our late stage clinical oncology asset, VP-315. In October 2024, we presented two posters at the 2024 Fall Clinical Dermatology Conference featuring positive preliminary top line results of VP-315 for the treatment of basal cell carcinoma. The posters include safety and histologic clearance data from 82 patients with up to two target basal cell carcinoma tumors in part two of the Phase 2study.
As a reminder, part two of the phase two study was designed to explore dosing regimens to help us identify the recommended regimen for a Phase 2 study program as we identified 8 milligrams as the optimal dose in part one of the study.
Preliminary top line results showed that approximately 51% of tumors treated with VP-315 achieved complete histological clearance. For those patients with a residual tumor achieved, on average, approximately 71% reduction in tumor size. VP-315 was well tolerated. No treatment related serious events were reported in the study and most treatment related adverse events were mild to moderate.
Most recently, we presented the results from a post hoc analysis of the data from part two of the study at the 2025 Winter Clinical Dermatology Conference, which demonstrate that treatment with VP-315 led to a calculated objective response rate or ORR of 97%, which is defined as the percentage of study subjects who do not demonstrate disease progression and who experienced at least 30% reduction in tumor size along with partial or complete response following treatment. This is quite a compelling observation as it suggests that nearly every subject of the study obtained benefit from VP-315 treatment.
We still expect to report genomic and immune response data for this trial in the coming months and to receive minutes from an end of phase two meeting in the first half of 2025, which will be critical for gaining alignment for the advancement of the program into Phase 3 trials. We are highly encouraged by these positive preliminary top-line results, which we believe demonstrate the potential for VP-315 to change treatment paradigm for patients with basal cell carcinoma, the most common form of skin cancer.
Over the last several months, I've had the opportunity to speak with many investors about Verrica. And without a question, I believe our common warts program and basal cell carcinoma programs are two significantly underappreciated assets. To that end, we will continue to provide updates on the progress of these pipeline programs while the majority of the organization remains laser focused on the YCANTH for molluscum commercial efforts.
I'll now turn the call over to our Interim Chief Financial Officer, John Kirby, to discuss our recent financing activities and to review our fourth quarter and full year 2024 financials.

John Kirby

Thanks, Jayson. I'd like to start by covering our recent financing activities, which have enabled us to strengthen our balance sheet. In November, we raised $42 million in a public offering of common stock, refunded warrants, and accompanying Series A and B warrants. As you will recall, in July, 2023, Verrica entered into a debt financing with OrbiMed, and upon closing of the agreement, we borrowed $50 million from the facility. In February of this year, we negotiated with OrbiMed a waiver of certain covenants under our credit agreement, including the requirement that there be no going concern qualification with respect to the financial statements for the period ended December 31, 2024 and March 31, 2025.
Turning to the financial results, for the fourth quarter and full year of 2024, we reported total revenues of $0.3 million, which was substantially all YCANTH revenue. Net YCANTH revenue reflects shipments to our distributor partners, offset by standard gross to net adjustments, including actual or anticipated product returns, all invoice discounts and distribution fees, and expenses.
For the full year 2024, we reported total revenue of $7.6 million versus $5.1 million in the prior year. Total revenue for 2024 included net product revenue of $6.6 million versus net product revenue of $4.7 million in the prior year. As a reminder, YCANTH became available for commercial sale and shipment to patients in August of 2023. And so we did not recognize any product revenue prior to that point. Collaboration revenues of $29,000 in the fourth quarter of 2024 related to our supply of applicators to Torri in connection with their development and commercialization activities.
For the full year 2024, collaboration revenue was $1 million compared to half a million dollars for the year ended December 31, 2023. Similarly to the fourth quarter, collaboration revenue for the full year 2024 and 2023 was related to supplies and development activity provided to Torri as needed support to the clinical supply agreement.
Gross profit margins for the full year 2024 were 72%. Cost of product revenue of $1.9 million included $0.9 million of obsolete inventory costs. Research and development expenses of $1.2 million in the fourth quarter of 2024 decreased versus the fourth quarter of 2023 by $4.2 million. Primarily driven by a $2.1 million decrease of clinical trial costs related to VP-315, as well as costs related to increased headcount of $1.2 million and a decrease in regulatory costs of $0.7 million.
For the full year 2024, research and development expenses were $11.8 million compared to $20.3 million for the year ended December 31, 2023. The decrease of $8.5 million was primarily attributable to reductions of costs related to YCANTH pre-approval activity of $3.8 million and decreased clinical costs for VP-315 of $3.1 million.
Selling general and administrative expenses of $10 million in the fourth quarter of 2024 decreased versus the fourth quarter of 2023 by $6.8 million, reflecting our commercial realignment activity and realization of cost savings. For the full year 2024, selling general and administrative expenses were $58.8 million compared to $47.3 million for the year ended December 31, 2023. The increase of $11.5 million was primarily a result of higher expenses related to commercial activities for YCANTH for the treatment of molluscum, including increased compensation, recruiting fees, benefits and travel due to ramp up of sales force of $8.5 million as well as increased commercial related costs of $5.1 million.
GAAP net loss was $16.2 million or $0.24 per share for the fourth quarter of 2024 compared to a GAAP net loss of $24.6 million or $0.53 per share for the fourth quarter of 2023. GAAP net loss was $76.8 million or $1.48 per share for the full year 2024 compared to a GAAP net loss of $67 million or $1.48 per share for the prior year. On a non-GAAP basis, which excludes stock-based compensation, non-cash interest expense and change in fair value of embedded derivatives for the full year 2024, net loss was $64.6 million or $1.25 per share compared to a net loss of $51.8 million or $1.14 per share in the full year 2023.
And finally, as of December 31, 2024, Verrica had aggregate cash and cash equivalents of $46.3 million. Under GAAP, the cash and cash equivalents as of December 31, 2024 would not be sufficient to fund operations for the one-year period following the release of our financial statements.
However, should Verrica receive the $8 million milestone payment from Torri triggered by the initiation of the Phase 3 clinical trial in Japan for common warts, or receive a portion of the $25 million in proceeds from the exercise of Series A warrants issued as part of our November 2024 equity financing, which expire in November of 2025, we could have sufficient cash to fund our operations for such period. Nonetheless, we will continue to prudently use our cash and explore opportunities to further bolster the strength of our balance sheet.
Before turning the call back over to Jayson, I'd like to provide some additional details which relate to partitioning of our debt into current and long-term liabilities and the increase in valuation of embedded derivatives related to our OrbiMed agreement. Verrica did not meet thresholds specified in the OrbiMed debt agreement as of December 31, 2024, thus triggering the initiation of principal payments beginning in 2025. As principal payments have begun in 2025, OrbiMed was required to reclassify the debt balance previously classified as all long-term debt to have both a current and long-term component on the balance sheet.
Finally, I'd like to address embedded derivatives in the structure of the OrbiMed debt facility and its impact of their valuation on our financials. Since inception of this debt, the repayment of the debt prior to the balloon payment was deemed to not be probable and therefore the derivatives were valued at zero. However, since we are now required to make monthly principal repayments, the embedded derivatives, which include the exit fee and repayment fee, were deemed to have value. For the fourth quarter, the change in fair value of the embedded derivatives resulted in a non-cash expense of $2.6 million in our statement of operations.
I'll now turn the call back to Jayson for closing remarks.

Jayson Rieger

Thanks, John. Although I arrived at Verrica just a few months ago, I can tell you that we have made an extraordinary amount of progress over a very short period of time. We are faithfully executing on our new strategic initiatives across every area of our company, and I believe we are now on a pathway towards strong and sustainable growth for YCANTH and our development programs.
We have cut non-essential spending as we execute on our strategy. Core to our commercial strategy is an emphasis on fostering an environment that will lead to more solid, long-term relationships with the physicians and the patients that we serve. As I mentioned earlier, we are also excited about the outstanding progress we are making in our clinical stage pipeline. As these programs continue to advance, we believe investors will see the massive potential of these programs, each of which could become the new standard of care in their respective indications.
In summary, the Verrica team has executed with a true sense of purpose and urgency in the few short months since I joined in November. As a commercial stage company with a robust pipeline, we are excited about the future of Verrica. We are seeing the fruits of the efforts over the last few months take hold as reflected by increased ease of access to YCANTH by HGPs, increased dispensed units, reduction in channel inventory, and advancement of our pipeline programs, all at a pace ahead of our initial thoughts late last year.
In YCANTH, we not only have a commercial product for the treatment of molluscum that is already back on a positive growth trajectory, but we also are uniquely positioned to address the largest and most underserved population in all of dermatology in common warts, as well as perhaps change the paradigm in which HGPs treat basal cell carcinoma through VP-315.
I would like to thank all of my Verrica teammates, both in the field and in our corporate organization. Going through a turnaround is difficult and requires substantial additional efforts to properly execute, and the way that I am seeing our team respond to tough situations has strengthened my resolve that we can be successful and achieve positive outcomes for our physician customers and their patients. We believe we will emerge from this transition as a much stronger and capable team, when working in close alignment to ensure that Verrica achieves its potential and becomes one of the most innovative, high-growth companies in dermatology drug development.
With that, we'll be now happy to take your questions. Operator?

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Stacy Ku, TD Cowen.

Stacy Ku

Hey, thanks so much for taking our questions and congratulations on the progress. So maybe a first question around maybe that patient demand. You talked about the applicators that are dispensed, but are you getting a sense around the number of patients, roughly, that are being treated with YCANTH, maybe from average dosing? Maybe talk about the feedback that you're getting from clinicians about whether or not it's now getting a little bit easier to access YCANTH, whether they're able to kind of get that infrastructure that you're trying to improve. So that's the first question.
And then obviously, the second question is looking to '25. Can you comment what you're seeing early in the year in terms of YCANTH adoption? Now that we're in March, understand that you're trying to stay high level, but how's the new single applicator doing? How's broadening to pediatricians? Any type of maybe high level commentary about early '25 would be appreciated as you're trying to kind of change the strategy.
And then maybe the last comment is going to be around your expectations on sales for '25. Consensus is around $15 million. So maybe discuss your thoughts on where sell side is versus some of the sales force investment and potential R&D investment as it relates to your guidance to be cash positive monthly operating results by year end. Thank you so much.

Jayson Rieger

Well, thank you, Stacey. This is Jayson. I appreciate all those questions. I'll try and tackle them in order. If I leave something out, please feel free to follow up. In general, we're seeing very good adoption and interest in the use of YCANTH for the treatment of molluscum, both across the pediatrician market, but also our core dermatology market as well. The patients who are seeking the dermatologist and the pediatricians and are getting treated.
Obviously, we published our clinical results and the efficacy and safety of YCANTH has been disclosed and has been well accepted by the medical professionals. And we're seeing the continued use of the product. Depending on the pediatrician or the dermatologist, we'll see them using obviously several applicators or sometimes one depending on the need of that patient. We still encourage treatment to clearance as we did in our clinical study and as the FDA helped us in designing that program. The mixture of those treating with YCANTH continues to be a blend of all healthcare providers as we continue to roll out the program.
In terms of 2025, I think we're continuing to see good momentum that we saw going into the end of last year. As we discussed in the past, we expected this to be a turnaround and would take into the first quarter to realize. And we're starting to see that traction even ahead of our original schedule. We're still being cautiously optimistic, but remain optimistic and confident. We'll continue to see growth in the business. And we're wrapping up the quarter and we'll be disclosing updates on that, obviously, in the next few months as the quarter comes to a close.
In terms of guidance and consensus. At this point, we're going to just leave guidance where the analysts have left it so far. And as we gain momentum in the year and have better clarity on that, we may have further conversations. But at this point, our policy is not to provide revenue guidance.

Stacy Ku

Okay, incredibly helpful. Thank you.

Jayson Rieger

Thank you, Stacy.

Operator

Gregory Renza, RBC Capital Markets.

Gregory Renza

Great, great. Hey, good afternoon, Jayson and team. Congrats on the progress ahead of schedule. Thanks for taking my question. Jayson, maybe just building on your commentary as you're focusing the field force and your efforts and as you've really geared towards that demand generation. I'm just curious if you could comment on maybe some of those seasonal tailwinds or even sort of the periodic headwinds that can occur throughout a year as certainly we enter the warmer months, the spring and the summer. Do you have any views on what you're hearing as far as potential lifts or momentum that you get as it converges with the demand generation you're working on? Thanks so much.

Jayson Rieger

No problem. So I would say that we've been establishing this business to be poised for both changes in seasonality if they are to occur. Often there is commentary that as the weather warms up and kids are more active outside that could continue to support the growth. And we're building our sales force and our team to be prepared for both the seasonality should it occur going into the second quarter and third quarter or beyond this year as the weather warms up.
Fortunately, beautiful weather out today. I think spring is rapidly approaching and we'll see that obviously there was some rough winter weather this year. And we've been very, very optimistic by what we've seen so far. Given the weather, the time of year, the deductible season, et cetera. And so we remain cautiously optimistic about what this quarter and the upcoming quarters will look like.

Gregory Renza

That's helpful. And maybe just a longer term question. Maybe just remind us of how you're framing up the barriers to generic entry, the ultimate IP protection that you see with respect to YCANTH.

Jayson Rieger

We actually have a very robust IP portfolio that takes us well into the future. And in terms of generics, obviously that's a long way off. Historically, the compounders have been the predominant concern and we're working through both any challenges from them, but also just going to where the market is and we're finding good adoption to our product. They have historically removed the 503B compounders from the market, predominantly from Canada. That settlement was announced last year and we're moving forward with our program and finding good adoption.

Gregory Renza

Thanks again, I'll hop back in the queue.

Jayson Rieger

Thanks, Greg.

Operator

Serge Belanger, Needham & Company.

Serge Belanger

Hi, this is John on for Serge today. Thanks for taking our questions. So first on YCANTH, you've previously spoken on looking to expand usage beyond dermatologists and into the pediatric setting. Just wanted to gauge what sort of impact you've had on this front thus far and what you aim to achieve in terms of distribution between pediatrics and dermatologists in the future.

Jayson Rieger

So to that front, I would say that we are focusing on where the patients are going and we've seen a growth in the pediatric market. The product did start in the derms and I would say the derms have been a customer base that's both loyal to us and we continue to both focus on and support. And we have found in some cases, our pediatric derms, other derms have worked with us to expand access to their pediatric colleagues in the same community.
At this moment, I would say the majority of our customers are still dermatologists who see the patients, but we're seeing a very large growing percentage of the pediatrician treating with YCANTH. So I would expect over time, that mix is probably going to waffle back and forth between 60-40, 40-60, depending on how this product rolls out but we're rapidly approaching sort of that equilibrium now.

Okay, that's great. Thank you. And real quick on the VP-315, obviously we'll see some additional data and FDA minutes in the first half here. But considering your new cost structure, I was just curious what your plans are in terms of timing to move this program into Phase 3s.

Jayson Rieger

Yeah, so as we've indicated before, we're very fortunate that all the, the majority of the expense for that program was spent in the prior year. And the remaining data that's being collected in the regulatory interactions are de minimis in cost. Once we have that data in hand and that full package, we'll evaluate the program. It'll also help us determine what the cost of that development program might look like. And we can then explore the best way to advance the program with all options available to us. The company does currently own the full rights to the program.
So we have lots of opportunity for developing and advancing it and we'll make a disclosure on what we may or may, what we may do to advance it once we have definitive FDA feedback and can confirm on what a development plan looks like.

Great, thank you.

Jayson Rieger

Yeah.

Operator

Kemp Dolliver, Brookline Capital Markets.

Kemp Dolliver

Great, thanks. You're seeing a sequential uptick in demand for applicators and continuing to make some progress. What do you think you need to do to achieve what I think you've described as a hockey stick improvement in demand at some point?

Jayson Rieger

Sure, so I think, you know, growth in any business requires two things. Acquisition of new customers as well as continued use utilization and growth of existing customers. Fortunately we're seeing both in this business as we've done the turnaround and are moving forward. Our sales reps are very, very active in the field in dealing with customer needs. Our reimbursement teams are there to help. We have an expanded access through telesales to cover white space and additional support.
And ultimately it's going to require advancing into larger markets. And so we have historically worked with and are engaging with some of the larger practices, both that exist in the pediatric and the dermatology community as well as expanding with the independent pharmacies and our pharma distribution partner, Nufactor. I think those are ways that we can provide product in a scalable way to customers and start seeing extra reach. So I think that's one of -- those are some of the key areas we'll see expansion and growth in the market.

Kemp Dolliver

Thank you.

Operator

It appears we have no further questions at this time. I will turn the conference back to Mr. Rieger for any additional or closing comments.

Jayson Rieger

Thank you, operator. I'd like to thank you all for joining this evening. And we look forward to providing updates on our progress throughout 2025. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.