Results

Verrica Pharmaceuticals Inc.

03/11/2026 | Press release | Distributed by Public on 03/11/2026 06:12

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Item 1A. "Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Overview
We are a therapeutics company developing and commercializing medications for the treatment of dermatologic diseases, including skin cancers. Our commercial product and portfolio of product candidates are clinician administered therapies in areas of high unmet need. Our current product portfolio consists of one approved product with several potential follow-on indications, as well as an additional pipeline product. Our commercial product, YCANTH (VP-102), was approved by the U.S. Food and Drug Administration, or FDA, in July 2023 for the treatment of molluscum in adult and pediatric patients two years of age and older. YCANTH (VP-102) is a proprietary drug-device combination that contains a GMP-controlled formulation of cantharidin. We are currently developing YCANTH (VP-102) for a potential follow-on indication for the treatment of common warts. Our second development candidate, VP-315, is an oncolytic peptide-based injectable therapy for the potential treatment of dermatology oncologic conditions, including basal cell carcinoma or BCC.
We commercially launched YCANTH (VP-102) in August 2023 in the United States for the treatment of molluscum. We have built a specialized sales organization consisting of 40 employee sales representatives in the United States focused on pediatric dermatologists, dermatologists, pediatricians and select other primary care healthcare providers, or HCPs. In 2026, we expect to expand the field sales force to 50 employee sales representatives. In the fourth quarter of 2025, we also launched YCANTH-Rx, a non-dispensing pharmacy, in order to streamline and simplify the provider experience by allowing offices to send YCANTH prescriptions to the same place, regardless of the patient's insurance coverage, for triage to an in-network dispensing pharmacy.
We are also advancing YCANTH (VP-102) for common warts through a separate regulatory approval process and have initiated a global Phase 3 study, or the Program, in common warts with our partner, Torii, with first patient dosed in December 2025. In the future, we also intend to pursue commercialization for YCANTH (VP-102) for the treatment of molluscum, as well as YCANTH (VP-102) for common warts if approved, in additional geographic regions, either alone or together with a strategic partner. In late 2025, we received regulatory feedback that we can pursue a submission for registration in Europe without the need for additional Phase 3 clinical studies and are currently working towards that submission.
We are also developing VP-315 for the treatment of BCC and potentially additional dermatological oncology indications. In November 2025, we presented additional data at the Society for Immunotherapy of Cancer 40th Annual Meeting, which showed that VP-315 induced a robust local immune response with both cell-mediated and humoral components, effectively shifting the tumor microenvironment from an immunosuppressive to an anti-tumor state, and additional data regarding the histologic assessment in non-injected lesions that suggests a potential abscopal-like effect. Since that presentation, there has been a growing interest in this program across a broad audience. We believe this reflects the high response rates observed in the study and the potential for VP-315 to change the paradigm for the treatment of basal cell carcinoma, particularly for patients wishing to avoid or reduce their surgical burden and recovery. Our enthusiasm is further supported by the suggested potential for less scarring and improved compliance versus other therapeutic options such as surgery and topicals, as either a primary or neoadjuvant treatment for superficial and nodular tumors. We have also continued to evaluate the abscopal response in 14 observed but not treated lesions in the Phase 2 study and are excited to report that 3 out of the 14 lesions had complete histologic clearance and that there was a 67% overall reduction in tumor size across all 14 lesions. If this overall product profile could be demonstrated in pivotal Phase 3 testing, we believe VP-315 has the potential to emerge as a non-surgical, immunotherapy treatment option for basal cell carcinoma and other skin cancers.
We have also obtained feedback from the FDA from the end-of-Phase 2 meeting this year that supports an efficient Phase 3 program and path to registration for VP-315. This includes two Phase 3 studies of approximately 100 subjects each in placebo-controlled studies with a primary endpoint of complete clearance at week 14. Additional long-term follow-up clinical studies will all be deferred to post approval commitments. We believe these data, coupled with the
EOP2 regulatory feedback, further support the clinical efficacy and histologic clearance observed in the Phase 2 BCC trial. These data support the advancement of the Phase 3 Program and we have initiated clinical and chemistry, manufacturing and controls (CMC) activities to prepare commencement of Phase 3 clinical trials. We may also pursue non-dilutive strategic partnerships to help fund the development and commercialization of VP-315.
Since our inception in 2013, our operations have focused on developing YCANTH (VP-102) and expanding our development pipeline (which includes VP-315), organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, conducting clinical trials and commercializing YCANTH. We have funded our operations primarily through the sale of equity and equity-linked securities and through borrowings under loan agreements.
On July 26, 2023, we entered into a credit agreement with OrbiMed Royalty & Credit Opportunities IV, LP, or OrbiMed pursuant to which we borrowed $50.0 million under the Loan Facility (as defined in Note 10) on July 26, 2023, or the Credit Agreement, resulting in net proceeds of approximately $44.1 million after payment of certain fees and transaction related expenses. Amounts borrowed under the Loan Facility were scheduled to mature on July 26, 2028. On November 26, 2025, following our Private Placement described below, we fully extinguished the Loan Facility by paying a cash settlement amount of $35.0 million.
On November 23, 2025, we entered into Securities Purchase Agreements with certain investors, or the Purchasers, pursuant to which we sold and issued in a private placement, or the Private Placement, an aggregate of (i) 6,499,826 shares of our common stock, (ii) with respect to certain Purchasers, pre-funded warrants to purchase 5,305,164 shares of common stock, or the Pre-Funded Warrants, in lieu of shares and (iii) in either case, accompanying Series C warrants to purchase 2,951,241 shares of common stock, or the Series C Warrants. The purchase price per share of common stock and accompanying Series C Warrant was $4.2413 per share and the purchase price for the Pre-Funded Warrants and accompanying Series C Warrant $4.2412 per share. The Series C Warrants expire on November 23, 2030. We received net proceeds of $49.1 million from the private placement transaction, after deducting placement fees of $0.9 million.
As of December 31, 2025, we had cash and cash equivalents of $30.1 million, which we believe to be sufficient to support our planned operations into the first quarter of 2027. Based on our current business plan and current capital resources, we have concluded that there is substantial doubt regarding our ability to continue as a going concern within one year after the date the accompanying financial statements are issued. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded asset amounts and classification of liabilities that might result should we be unable to continue as a going concern.
We plan to secure additional capital in the future through equity or debt financings, partnerships, or other sources to carry out our planned commercial and development activities. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate continued and future commercialization efforts and/or research and development programs.
Since inception, we have incurred significant losses. For the years ended December 31, 2025 and 2024, our net loss was $17.9 million and $76.6 million, respectively. As of December 31, 2025, we had an accumulated deficit of $324.9 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. Our expenses may increase in connection with our ongoing activities, as we:
•continue to establish our commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize YCANTH (VP-102) for the treatment of molluscum and product candidates for which we may obtain regulatory approval;
•continue our ongoing clinical programs evaluating YCANTH (VP-102) for the treatment of common warts and VP-315 for the treatment of BCC and potentially additional dermatological oncology indications;
•pursue regulatory approvals in the United States and, potentially, other parts of the world for YCANTH (VP-102) for the treatment of common warts and VP-315 for the treatment of BCC;
•adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;
•maintain, expand and protect our intellectual property portfolio;
•hire and retain clinical, manufacturing, commercialization and scientific personnel; and
•incur additional legal, accounting and other expenses while operating as a public company.
Components of Results of Operations
Product Revenue, Net
We recognize revenue from sales of YCANTH (VP-102), or the Product, in accordance with ASC Topic 606 - Revenue from Contracts with Customers. We sell the Product to several pharmaceutical wholesaler/distributors, or the Customers, who in turn sell the Product directly to pharmacies, clinics, hospitals, and federal healthcare programs. Revenue is recognized as the Product is physically delivered to the Customers.
Gross product sales are reduced by corresponding gross-to-net, or GTN, estimates using the expected value method, resulting in our reported "Product revenue, net" in the accompanying statements of operations. Product revenue, net reflects the amount we ultimately expect to realize in net cash proceeds, taking into account the current period gross sales and related cash receipts and the subsequent cash disbursements on these sales that we estimate for the various GTN categories as well as adjustments for any potential future product returns from distributors. The GTN estimates are based upon information received from external sources, such as written or oral information obtained from our customers with respect to their period-end inventory levels and sales to end-users during the period, in combination with management's informed judgments. Due to the inherent uncertainty of these estimates, the actual amount of product returns, government chargebacks, prompt pay discounts, commercial rebates, Medicaid rebates, co-pay assistance and distribution, data, and group purchasing organizations, or GPOs, administrative fees may be materially above or below the amount estimated. Variance between actual amounts and estimated amounts may result in prospective adjustments to reported net product revenue.
License and Collaboration Revenue
License and collaboration revenue represents revenue from the Torii Agreement pursuant to which we granted Torii an exclusive license to develop and commercialize our product candidates that contain a topical formulation of cantharidin for the treatment of molluscum and common warts in Japan, including YCANTH (VP-102). On June 27, 2025, we entered into the Second Amendment to the Torii Agreement, as previously amended. The Second Amendment provided for the acceleration of an $8.0 million milestone payment which was paid to us in July 2025, following Torii's approval of the study plan and execution of the Clinical Research Organization agreement, or CRO agreement. In September 2025, Torii paid us a $10.0 million milestone payment upon the approval of TO-208, referred to as YCANTH in the U.S., for molluscum in Japan.
Operating Expenses
Cost of Product Revenue
Cost of product revenue includes the cost of inventory sold, which includes direct manufacturing and supply chain costs. Prior to FDA approval, all product purchased from such suppliers was included as a component of research and development expense, as we were unable to assert that the inventory had future economic benefit until YCANTH (VP-102) received FDA approval. Pursuant to the supply agreement, we purchased and included in research and development expenses approximately $4.5 million of raw cantharidin and processed active pharmaceutical ingredient, or API, prior to FDA approval. The raw cantharidin and processed API is sufficient to produce approximately 17 million finished drug product applicators to be used for commercially saleable product and other YCANTH (VP-102) product candidates. In addition, we purchased other components and services related to YCANTH (VP-102) for commercially saleable product and included approximately $1.2 million in research and development expenses prior to FDA approval. As a result, cost of product revenue related to YCANTH (VP-102) initially reflected a lower average per unit cost of materials as previously expensed inventory was utilized for commercial production and sold to customers. On a pro forma basis, were we to have included those costs previously expensed as a component of cost of product revenue, our cost of product revenue for the year ended December 31, 2024 would have been $2.6 million. For the year ended December 31, 2025, including those costs previously expensed as a component of cost of product revenue would have had an immaterial impact on our cost of product revenue.
Cost of License and Collaboration Revenue
The cost of license and collaboration revenue consists of payments for commercial and clinical supply to support the commercial launch of YCANTH (VP-102) in Japan as well as continued development and testing services pursuant to the Torii Clinical Supply Agreement.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of salaries and related costs for personnel in sales, executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other selling, general and administrative expenses include cost of samples, sponsorships, consumer and health care professional marketing and advertising expense, insurance costs, and professional fees for audit, tax and legal services.
Research and Development Expenses
Research and development expenses consist of expenses incurred in connection with the discovery and development of YCANTH (VP-102) for the treatment of common warts, continued development for the treatment of molluscum and our other product candidate, VP-315 for BCC. We expense research and development costs as incurred. These expenses include:
•expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our clinical trials and preclinical studies;
•manufacturing and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply and commercial supply, including manufacturing validation batches;
•outsourced professional scientific development services;
•employee-related expenses, which include salaries, benefits and stock-based compensation;
•expenses relating to regulatory activities; and
•laboratory materials and supplies used to support our research activities.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we increase personnel costs, including stock-based compensation, initiate and conduct clinical trials of YCANTH (VP-102) in patients with common warts and VP-315 for BCC and potentially additional dermatological oncology indications and prepare regulatory filings for our product candidates.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from YCANTH (VP-102) or our other product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:
•the number of clinical sites included in the trials;
•the length of time required to enroll suitable patients;
•the number of patients that ultimately participate in the trials;
•the number of doses patients receive;
•the duration of patient follow-up; and
•the results of our clinical trials.
Our expenditures are subject to additional uncertainties, including the manufacturing process for our product candidates, the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the
development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
Results of Operations for the Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations (in thousands):
For the Year Ended December 31,
2025 2024 Change
Revenue:
Product revenue, net $ 15,285 $ 6,574 $ 8,711
License and collaboration revenue
20,292 992 19,300
Total revenue 35,577 7,566 28,011
Operating expenses:
Cost of product revenue 2,192 1,853 339
Cost of license and collaboration revenue 1,249 887 362
Selling, general and administrative 35,220 58,822 (23,602)
Research and development 8,855 11,840 (2,985)
Loss on disposal of assets 246 83 163
Total operating expenses 47,762 73,485 (25,723)
Loss from operations (12,185) (65,919) 53,734
Other income (expense):
Interest income 929 1,417 (488)
Interest expense (7,742) (9,412) 1,670
Change in fair value of derivative liability 2,648 (2,648) 5,296
Loss on extinguishment of debt (1,533) - (1,533)
Other expense (3) (17) 14
Total other expense, net (5,701) (10,660) 4,959
Net loss $ (17,886) $ (76,579) $ 58,693
Product Revenue, Net
Product revenue, net was $15.3 million for the year ended December 31, 2025, compared to $6.6 million for the year ended December 31, 2024. The increase in product revenue, net was primarily related to an increase in deliveries of YCANTH to our distribution partners. For the year ended December 31, 2024, product revenue, net was partially offset by an increase in our returns reserve of $3.2 million for estimated returns from our distributors. We determined it was more than probable that product held by certain distributors would be returned based on lower than forecasted sell-through and expiration of product.
License and Collaboration Revenue
License and collaboration revenue was $20.3 million for the year ended December 31, 2025, compared to $1.0 million for the year ended December 31, 2024. License and collaboration revenue for the year ended December 31, 2025 primarily consisted of $18.0 million in milestone payments from Torii and $2.3 million in commercial supply activity. License and collaboration revenue for the year ended December 31, 2024 consisted of supplies and development activity with Torii.
Cost of Product Revenue
Cost of product revenue was $2.2 million for the year ended December 31, 2025, compared to $1.9 million for the year ended December 31, 2024. The increase consisted of higher product costs primarily related to the increase in sales of
YCANTH (VP-102) of $0.7 million, offset by a lower obsolete inventory reserve of $0.3 million during the year ended December 31, 2025.
Cost of License and Collaboration Revenue
License and collaboration revenue costs were $1.2 million for the year ended December 31, 2025, compared to $0.9 million for the year ended December 31, 2024. The change of $0.3 million was due primarily to costs associated with the initial commercial supply for Torii's product launch in early 2026.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $35.2 million for the year ended December 31, 2025, compared to $58.8 million for the year ended December 31, 2024. Excluding the impact of stock-based compensation, the decrease of $20.6 million was primarily a result of lower expenses related to commercial activities for YCANTH (VP-102) for the treatment of molluscum, including decreased compensation, recruiting fees, benefits and travel of $6.9 million related to a smaller sales force, decreased compensation of $2.7 million due to termination of non-sales employees, decreased commercial-related costs of $6.6 million, decreased travel and fleet-related costs of $2.0 million and decreased legal and administrative costs of $2.3 million.
On October 1, 2024, we terminated 47 employees to reduce costs and optimize the efficiency of our field sales force, or the Restructuring. At that time, we reduced the number of sales territories from 80 to approximately 35, with a focus on those territories that have historically shown a high prevalence of molluscum. In connection with the Restructuring, we incurred a one-time charge totaling approximately $0.7 million related to one-time employee termination costs. In addition, we recognized an impairment charge for right-of-use assets associated with leased vehicles of $0.3 million for the year ended December 31, 2024 in selling, general and administrative expenses. This restructuring charge was substantially paid out by December 31, 2024.
The following table summarizes our selling, general and administrative expense for the years ended December 31, 2025 and 2024 (in thousands).
For the Year Ended December 31,
2025 2024 Change
Commercial (including payroll) $ 18,612 $ 34,485 $ (15,873)
General and administrative (including payroll) 14,356 19,118 (4,762)
Stock based compensation 2,252 5,219 (2,967)
Selling, general and administrative expense $ 35,220 $ 58,822 $ (23,602)
Research and Development Expenses
Research and development expenses were $8.9 million for the year ended December 31, 2025, compared to $11.8 million for the year ended December 31, 2024. Excluding stock-based compensation, the decrease of $2.1 million was primarily attributable to decreased clinical costs for VP-315 of $3.0 million, partially offset by increased costs related to the Program of $0.2 million and increased compensation related costs of $0.7 million.
The following table summarizes our research and development expense by product candidate or, for unallocated expenses, by type, in thousands, for the years ended December 31, 2025 and 2024. Unallocated expenses include compensation and other personnel-related costs.
For the Year Ended December 31,
2025 2024 Change
VP-315 $ 478 $ 3,522 $ (3,044)
YCANTH (VP-102) 1,537 1,566 (29)
Common warts 797 522 275
Stock based compensation 1,066 1,945 (879)
Other unallocated expenses 4,977 4,285 692
Research and development expense $ 8,855 $ 11,840 $ (2,985)
Loss on Disposal of Assets
For the years ended December 31, 2025 and 2024, we recognized a $0.2 million and $0.1 million loss on disposal of assets, respectively.
Interest Income
Interest income was $0.9 million and $1.4 million for the years ended December 31, 2025 and 2024, respectively. The decrease of $0.5 million was primarily due to a lower cash balance.
Interest Expense
Interest expense of $7.7 million and $9.4 million for the years ended December 31, 2025 and 2024, respectively, consisted of interest expense pursuant to the Credit Agreement entered into on July 26, 2023. The decrease of $1.7 million was primarily due to a lower principal balance. We paid $35.0 million to settle all outstanding obligations under the Credit Agreement in November 2025.
Change in Fair Value of Derivative Liability
Our Credit Agreement contained a bifurcated settlement feature classified as a derivative liability which was remeasured each accounting period. The derivative liability was remeasured to fair value immediately prior to the settlement of the Credit Agreement in November 2025, resulting in a reduction to nil. As of December 31, 2024, the fair value of the embedded derivative was valued at $2.6 million, as a result of the acceleration of principal payments, repayment fee and exit fee.
Results of Operations for Years Ended December 31, 2024 and 2023
For a discussion and analysis of changes in financial condition and results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 11, 2025.
Liquidity and Capital Resources
Overview
Since our inception, we have incurred net losses and negative cash flows from our operations. We have financed our operations since inception primarily through sales of our convertible preferred stock, the sale of our common stock, borrowings under loan agreements and $38.0 million from the Torii Agreement. In November 2024, we closed an underwritten offering of 4,551,824 shares of our common stock (and, in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 223,595 shares of our common stock, or the Pre-Funded Warrants), and in either case, accompanying Series A warrants to purchase 2,387,703 shares of our common stock at an exercise price of $10.68 per share of common stock, or the Series A Warrants, and Series B warrants to purchase 2,387,703 shares of our common stock at an exercise price of $13.35 per share of common stock, or the Series B Warrants, at a combined public offering price of $8.90 per share of common stock and accompanying Series A and Series B Warrants (or $8.899 per Pre-Funded
Warrant and accompanying Series A and Series B Warrants). The offering resulted in net proceeds of $39.6 million, after deducting underwriting discounts and commissions, and offering expenses.
On November 23, 2025, we sold an aggregate of (i) 6,499,826 shares of common stock, (ii) with respect to certain Purchasers, the Pre-funded warrants in lieu of shares of common stock and (iii) in either case, accompanying Series C warrants to purchase 2,951,241 shares of our common stock, referred to herein as the Series C Warrants. The purchase price per share of Common Stock and accompanying Series C Warrant was $4.2413 per share and the purchase price for the Pre-Funded Warrants and accompanying Series C Warrant $4.2412 per share. We received net proceeds of $49.1 million from the Private Placement, after deducting placement fees of $0.9 million.
As of December 31, 2025, we had cash and cash equivalents of $30.1 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.
In addition, we have an operating lease for office space in West Chester, Pennsylvania with obligations through September 1, 2027 of $0.6 million including imputed interest.
We entered into a fleet program to provide vehicles for our sales force. The vehicles are leased for a typical term of 52 months and classified as finance leases with obligations of $1.2 million through February 2030 including imputed interest.
On July 26, 2023, we entered into the Credit Agreement which provided for a $125.0 million Loan Facility. We borrowed $50.0 million on July 26, 2023, resulting in net proceeds to us of approximately $44.1 million after payment of certain fees and transaction related expenses. Based on our net revenue attributable to YCANTH on a trailing 12-month basis not meeting a specified amount set forth in the Credit Agreement as of December 31, 2024, we became obligated to start making principal payments starting on January 1, 2025. We were obligated to repay the principal amount of the loan on the last day of each month in equal monthly installments through the maturity date, together with the applicable repayment premium and the exit fee. On June 10, 2025, we entered into the sixth amendment and waiver to the Credit Agreement, or the Sixth Amendment, pursuant to which the Lenders waived specified covenants under the Credit Agreement, including the requirements under Section 7.1(b) and Section 7.1(c) of the Credit Agreement that there be no "going concern" qualification with respect to the financial statements for the quarters ending June 30, 2025, September 30, 2025 and the quarter and year ended December 31, 2025. In connection with the Sixth Amendment, we paid an amendment fee of $0.1 million. On November 26, 2025, we paid $35.0 million to fully settle the debt related to the Credit Agreement.
On January 24, 2025, we received written notice from the Nasdaq Stock Market indicating that we were not in compliance with the minimum bid price requirement for continued listing. Failure to regain compliance could have resulted in delisting of our common stock, which would have adversely affected the liquidity of our common stock and our ability to access the capital markets. To regain compliance and maintain our Nasdaq listing, we effected a one-for-ten reverse stock split on July 25, 2025. Following the reverse stock split, we regained compliance with the minimum bid price requirement. Maintaining our Nasdaq listing is important to our stockholder liquidity and our ability to raise additional capital.
Cash Flows
The following table summarizes our cash flows (in thousands):
For the Year Ended December 31,
2025 2024
Net cash used in operating activities (17,627) (60,927)
Net cash used in investing activities - (19)
Net cash provided by financing activities 1,445 37,728
Net decrease in cash and cash equivalents (16,182) (23,218)
Operating Activities
During the year ended December 31, 2025, operating activities used $17.6 million of cash, primarily resulting from a net loss of $17.9 million as well as the non-cash change in fair value of embedded derivative of $2.6 million, partially offset by the loss of $1.5 million on the extinguishment of debt, noncash stock-based compensation of $3.3
million, non-cash interest expense of $2.5 million, the non-cash change in obligation for the R&D funding liability of $0.8 million and non-cash amortization of operating and finance lease right-of-use assets of $0.6 million. Net cash used by changes in operating assets and liabilities consisted primarily of an increase in accounts receivable of $5.2 million, a decrease in accrued expenses and other current liabilities of $1.3 million and an increase in prepaid expenses and other assets of $0.3 million, partially offset by an increase in deferred revenue of $0.8 million.
During the year ended December 31, 2024, operating activities used $60.9 million of cash, primarily resulting from a net loss of $76.6 million, partially offset by noncash stock-based compensation of $7.1 million, non-cash interest expense of $2.2 million, non-cash change in fair value of embedded derivative of $2.6 million and non-cash amortization of operating and finance lease right-of-use assets of $0.9 million. Net cash provided by changes in operating assets and liabilities consisted primarily of a decrease in accounts receivable of $4.2 million partially offset by a decrease in accounts payable and accrued expenses of $0.9 million, and an increase in prepaid and other assets of $1.1 million.
Investing Activities
During the year ended December 31, 2025, no cash was used in investing activities. Net cash used in investing activities during the year ended December 31, 2024 was primarily related to the purchase of property and equipment of $27,000.
Financing Activities
During the year ended December 31, 2025, net cash provided by financing activities of $1.4 million was primarily related to cash proceeds of $49.8 million, net of issuance costs from the issuance of common stock, Prefunded warrants, and Series C Warrants in November 2025, partially offset by repayment of debt and debt settlement totaling $47.8 million.
During the year ended December 31, 2024, net cash provided by financing activities of $37.7 million, was primarily related to net cash proceeds of $39.6 million net of issuance costs from the issuance of common stock, Prefunded Warrants, Series A Warrants and Series B Warrants in November 2024, partially offset by payment of debt amendment costs of $1.1 million and repayment of finance leases of $0.9 million.
Funding Requirements
Our first commercial sale of YCANTH (VP-102) occurred in August 2023 to a pharmaceutical distributor. While we expect to continue to generate revenue from the sale of YCANTH (VP-102), our expenses may increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. We will need substantial additional financing to fund our operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to reduce operating expenses, delay, reduce or eliminate our research and development programs and/or continued and future commercialization efforts. In addition, the amount of proceeds we may be able to raise pursuant to our currently effective shelf registration statement on Form S-3 is limited. As of the filing of this Annual Report on Form 10-K, we are subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these rules, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of our common stock held by non-affiliates. Therefore, we will be limited in the amount of proceeds we are able to raise by selling securities using our Form S-3 until such time as our public float exceeds $75.0 million.
We have incurred substantial operating losses since inception and expect to continue to incur significant losses for the foreseeable future and may never become profitable. As of December 31, 2025, we had an accumulated deficit of $324.9 million. We believe our cash and cash equivalents of $30.1 million as of December 31, 2025 will be sufficient to support our planned operations into the first quarter of 2027. Based on our current business plan and current capital resources, combined with the uncertainty regarding the availability of additional funding, we have concluded that there is substantial doubt regarding our ability to continue as a going concern within one year after the date these financial statements are issued. We plan to address the conditions that raise substantial doubt regarding our ability to continue as a going concern by, among other things, obtaining additional funding through equity offerings, debt financing and refinancings, collaborations, strategic alliances and/or licensing arrangements. Our financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our future capital requirements, and timing, will depend on many factors, including:
•the level of sales achieved, and costs related to the commercialization of YCANTH (VP-102) for the treatment of molluscum;
•the costs, timing and outcome of regulatory review of our product candidates;
•the scope, progress, results and costs of our clinical trials;
•the scope, prioritization and number of our research and development programs;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•our ability to maintain compliance with covenants under our loan agreements;
•the extent to which we acquire or in-license other product candidates and technologies;
•the impact on the timing of our clinical trials and our business;
•the costs to scale up and secure manufacturing arrangements for commercial production of YCANTH (VP-102) for the treatment of molluscum and any product candidate we successfully commercialize; and
•the costs of establishing and maintaining sales and marketing capabilities for YCANTH (VP-102) for the treatment of molluscum and any product candidate that obtains regulatory approval.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, YCANTH (VP-102), and our other product candidates, if approved, may not achieve commercial success. Our commercial revenues will be derived solely from sales of YCANTH (VP-102) in the near term. We may need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders' rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Other Contractual Obligations and Commitments
On August 7, 2020, we entered into an exclusive license agreement, or the Lytix Agreement, with Lytix, pursuant to which we obtained a worldwide, exclusive, royalty-bearing license, with the right to sublicense, for certain technology of Lytix to research, develop, manufacture, have manufactured, use, sell, have sold, offer for sale, import and otherwise commercialize VP-315 for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic Merkel cell carcinoma. Our right to manufacture the active pharmaceutical ingredient is limited to certain instances, and Lytix is obligated to manufacture and supply our clinical and commercial needs for such active pharmaceutical ingredient. We are obligated to use commercially reasonable efforts to develop and to commercialize the product, which development and commercialization will be overseen by a joint steering committee. Lytix has agreed not to pursue any products in the field of dermatology other than VP-315 for use in metastatic melanoma and metastatic Merkel
cell carcinoma. Lytix has granted us an exclusive option to negotiate for an exclusive license for use of VP-315 in additional dermatological indications.
In connection with entering the Lytix Agreement, we made an initial payment of $250,000 and additional payments of $2.3 million during the year ended December 31, 2021 and $1.0 million during the year ended December 31, 2022 upon the achievement by Lytix of certain regulatory milestones. Additionally, we are obligated to pay up to $111.0 million contingent on achievement of specified development, regulatory, and sales milestones, and tiered royalties based on worldwide annual net sales ranging in the low double digits to the mid-teens, subject to certain customary reductions. Our obligation to pay royalties expires on a country-by-country and product-by-product basis on the later of the expiration or abandonment of the last to expire licensed patent covering VP-315 anywhere in the world and expiration of regulatory exclusivity for VP-315 in such country. Additionally, all upfront fees and milestone-based payments received by us from a sublicensee will be treated as net sales and will be subject to the royalty payment obligations under the Lytix Agreement, and all royalties received by us from a sublicensee shall be shared with Lytix at a rate that was initially 50% but decreases based on the stage of development of VP-315 at the time such sublicense is granted.
Critical Accounting Estimates
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While we describe our significant accounting policies in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our financial statements.
Revenue Recognition
We recognize YCANTH (VP-102) revenue in accordance with Accounting Standards Codification, or ASC 606 - Revenue from Contracts with Customers. Our revenue recognition analysis consists of the following steps: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue as we satisfy each performance obligation.
YCANTH (VP-102) became available for commercial sale and shipment to patients with a prescription in the United States in the third quarter of 2023. We sell our products to pharmaceutical wholesalers/distributors (i.e., our customers) who in turn sell our products directly to pharmacies, clinics, hospitals, and federal healthcare programs. Revenue from our product sales is recognized as physical delivery of product occurs (when our customer obtains control of the product), in return for agreed-upon consideration.
The transaction price that we recognize for YCANTH (VP-102) revenue is our gross product sales reduced by our corresponding gross-to-net, or GTN, estimates using the expected value method, resulting in our reported "net sales" in the accompanying Statements of Operations. Net sales reflects the amount we ultimately expect to realize in net cash proceeds, taking into account our current period gross sales and related cash receipts, and the subsequent cash disbursements on these sales that we estimate for the various GTN categories discussed below. These estimates are based upon information received from external sources (such as written or oral information obtained from our customers with respect to their period-end inventory levels and sales to end-users during the period), in combination with management's informed judgments. Due to the inherent uncertainty of these estimates, the actual amount incurred (of some, or all) of product returns, government chargebacks, prompt pay discounts, commercial rebates, Medicaid rebates, and distribution, data, and GPO administrative fees may be above or below the amount estimated, then requiring prospective adjustments to our reported net sales.
These GTN estimate categories (that comprise our GTN liabilities) are each discussed below:
Product Returns Allowances: The Customer is contractually permitted to return purchased product in certain circumstances. We record discrete reserves if product held by distributors, forecasted sales and expiration of product warrant a reserve. As historical data for returns of the product becomes available over time, we will utilize historical return rates of the product in making our estimates. Returned product is typically destroyed, since substantially all returns are due to expire and cannot be resold.
Government Chargebacks: The product is subject to pricing limits under certain federal government programs, including Medicare and the 340B drug pricing program. Qualifying entities, or the End-Users, purchase the product from the Customer at their applicable qualifying discounted price. The chargeback amount we incur represents the difference between our contractual sales price to the Customer and the end-user's applicable discounted purchase price under the government program.
Medicaid Rebates: The product is subject to state government-managed Medicaid programs, whereby rebates are issued to participating state governments. These rebates arise when a patient treated with the Product is covered under Medicaid, resulting in a discounted price for the Product under the applicable Medicaid program. The Medicaid rebate accrual calculations require us to project the magnitude of our sales, by state, that will be subject to these rebates.
Patient Assistance: We offer voluntary co-pay patient assistance programs intended to provide financial assistance to eligible patients with a prescription drug co-payment required by payors and coupon programs for cash payors. The calculation of the current liability for this assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with YCANTH (VP-102) that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period.
Distribution, Data, and GPO Administrative Fees: Distribution, data and GPO administrative fees are paid to authorized wholesalers/distributors of our products for various commercial services including contract administration, inventory management, delivery of end-user sales data, and product returns processing. These fees are based on a contractually-determined percentage of our applicable sales.
Research and Development Costs
We rely on third parties to conduct our preclinical studies and clinical trials, and to provide services, including manufacturing of product in connection with the clinical trials. At the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs. As of December 31, 2025, we did not make any material adjustments to our prior estimates of accrued research and development expenses.
Financial Instruments - Derivatives
We evaluate our financial instruments to determine if the financial instrument itself or any embedded components of a financial instrument potentially qualify as derivatives required to be separately accounted for in accordance with ASC Topic 815, Derivatives and Hedging.
The derivative liability related to a bifurcated settlement feature of the Credit Agreement (see Note 10). The derivative liability was subject to re-measurement at each reporting period, at each balance sheet date and any change in fair value was recognized as a component of change in fair value of derivative liability in the statements of operations. We adjusted the liability for changes in fair value until the settlement of the Loan Facility in November 2025. The derivative liability was classified as a Level 3 liability.
Smaller Reporting Company Status
We are a "smaller reporting company," meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We will continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the
market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and we have reduced disclosure obligations regarding executive compensation.
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