Verrica Pharmaceuticals (NASDAQ: VRCA) flags going concern risk, adds $27.5M credit line
Verrica Pharmaceuticals, a dermatology-focused therapeutics company, reported Q2 2026 revenue of $5.9 million, down from $12.7 million a year earlier as prior results included an $8.0 million Torii milestone; core YCANTH product revenue increased to $5.1 million from $4.5 million. Higher R&D spending on the common warts Phase 3 program and VP‑315, along with expanded commercial infrastructure, drove operating expenses to $19.0 million and a net loss of $13.2 million for the quarter, with a six‑month net loss of $22.8 million.
Cash was $11.2 million at June 30, 2026, with $18.4 million used in operating activities in the first half, leading management to conclude that substantial doubt exists about the company’s ability to continue as a going concern within one year of issuance. A new senior secured PD Credit Agreement provides up to $27.5 million of borrowing capacity, including $12.5 million available at closing, but additional equity, debt or partnership funding is still contemplated. Verrica also recorded a $4.0 million class-action settlement liability and a $2.3 million insurance recovery, resulting in $1.7 million of net legal settlement expense.
Positive
- None.
Negative
- Substantial doubt about going concern: management concludes there is substantial doubt about the company’s ability to continue as a going concern within one year, even after considering the new PD Credit Agreement.
- High cash burn versus liquidity: first-half operating cash outflow of $18.4 million against period-end cash of $11.2 million increases reliance on new financing and partnerships.
- Legal settlement impact: a class-action term sheet results in a $4.0 million legal settlement liability and $1.7 million net expense after a $2.3 million insurance recovery, with related derivative actions still outstanding.
Filing Explained
The new facility adds secured borrowing capacity, while further S-3 funding is capped and warrant exercise could dilute existing holders.
The June 30 10-Q, an interim financial report, discloses that Verrica Pharmaceuticals entered the PD Credit Agreement on
The additional amount is borrowing capacity, not cash already received. Interest on outstanding borrowings is set at the greater of the stated SOFR-based rate or
The company also says its effective Form S-3 is subject to the baby-shelf limit: primary sales over a rolling 12-month period cannot exceed one-third of public float while the float remains below
At
One specified resolution path remains open: the
Key Figures
Total revenue Q2 2026: $5,862 thousand
Product revenue, net Q2 2026: $5,093 thousand
License and collaboration revenue Q2 2026: $769 thousand
+5 more
8 metrics
Total revenue Q2 2026
$5,862 thousand
For the three months ended June 30, 2026
Product revenue, net Q2 2026
$5,093 thousand
YCANTH sales for the three months ended June 30, 2026
License and collaboration revenue Q2 2026
$769 thousand
Torii-related revenue for the three months ended June 30, 2026
Net loss H1 2026
$22,835 thousand
Net loss for the six months ended June 30, 2026
Cash balance
$11,198 thousand
Cash as of June 30, 2026
Net cash used in operating activities
$18,441 thousand
Operating cash outflow for the six months ended June 30, 2026
PD Credit Agreement capacity
$27.5 million
Maximum principal of senior secured PD Credit Agreement
Legal settlement liability
$4,000 thousand
Accrued class-action settlement obligation at June 30, 2026
Key Terms
going concern basis, baby shelf rules, R&D funding liability, pre-funded warrants, +1 more
5 terms
going concern basis financial
"The consolidated financial statements have been prepared on a going concern basis"
baby shelf rules regulatory
"the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules.""
A baby shelf rule lets a smaller or emerging issuer pre-clear a modest amount of securities with regulators so it can sell them quickly later without a full new approval each time. For investors, it matters because it makes fundraising faster and more flexible for the company—affecting the timing of new share issues, potential dilution, and how easily the company can access cash when opportunities or needs arise, similar to a pre-approved short-term credit line.
R&D funding liability financial
"The R&D Funding Liability recorded on the balance sheet represents the portion that the Company will pay to Torii"
pre-funded warrants financial
"pre-funded warrants to purchase 5,305,164 shares of common stock in lieu of shares"
Pre-funded warrants are financial instruments that give investors the right to purchase a company's stock at a set price, but with most or all of the purchase price paid upfront. They function like a coupon or gift card for stock, allowing investors to buy shares later at a fixed price, which can be beneficial if they want to avoid future price increases. This makes them important for investors seeking flexibility and certainty in their investment plans.
abscopal-like effect medical
"additional data regarding the histologic assessment in non-injected lesions that suggests a potential abscopal-like effect."
An abscopal-like effect is when a local medical treatment, such as targeted radiation or an injected therapy, leads to beneficial changes in tumors or disease sites far away from where the treatment was applied. Investors should care because therapies that trigger this kind of whole-body response can extend a drug’s market potential, improve clinical trial outcomes for widespread disease, and influence regulatory and partnership value — like knocking down one domino that helps topple many others.
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FAQ
How did Verrica Pharmaceuticals (VRCA) perform financially in Q2 2026?
Verrica reported Q2 2026 revenue of $5.86 million and a net loss of $13.15 million. The prior-year quarter showed $12.70 million in revenue and a small net income, helped by an $8.0 million Torii milestone that did not recur in 2026.
What is Verrica Pharmaceuticals (VRCA) current cash position and liquidity outlook?
As of June 30, 2026, Verrica held $11.2 million in cash and used $18.44 million in operating cash during the first half. The company states there is substantial doubt about its ability to continue as a going concern and plans to rely on new financings and partnerships.
How is YCANTH performing commercially for Verrica Pharmaceuticals (VRCA)?
YCANTH product revenue, net, rose to $5.09 million in Q2 2026 from $4.53 million a year earlier. Growth reflects increased deliveries to distribution partners and higher dispensed applicator volume as the U.S. launch for molluscum contagiosum continues to ramp.
What role does the Torii collaboration play in Verrica Pharmaceuticals (VRCA) results?
License and collaboration revenue from Torii was $0.77 million in Q2 2026 versus $8.17 million a year earlier, when an $8.0 million milestone was recognized. Torii also funds a global Phase 3 program for common warts under an R&D funding arrangement.
What legal matters and settlements did Verrica Pharmaceuticals (VRCA) disclose?
Verrica agreed in principle to settle a securities class action, recording a $4.0 million legal settlement liability and a $2.3 million insurance recovery, for $1.7 million net expense. Related stockholder derivative actions are stayed pending completion of the settlement approval process.
What are the key terms of Verrica Pharmaceuticals (VRCA) PD Credit Agreement?
The PD Credit Agreement provides a senior secured facility of up to $27.5 million, with $12.5 million available at closing and an additional $15.0 million tied to milestones. Interest accrues at the greater of SOFR plus a margin or 12.50% per year, with maturity on December 31, 2030.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________________________
FORM 10-Q
______________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2026
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ____ to _____
Commission File Number: 001-38529
______________________________________________________
(Exact Name of Registrant as Specified in its Charter)
______________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
Registrant’s telephone number, including area code: (484 ) 453-3300
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of July 31, 2026, the registrant had 17,178,786 shares of common stock, $0.0001 par value per share, outstanding.
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VERRICA PHARMACEUTICALS INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||||||||
Item 1. | Consolidated Financial Statements (Unaudited) | 1 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 33 | ||||||
Item 4. | Controls and Procedures | 33 | ||||||
PART II. OTHER INFORMATION | ||||||||
Item 1. | Legal Proceedings | 33 | ||||||
Item 1A. | Risk Factors | 34 | ||||||
Item 5. | Other Information | 35 | ||||||
Item 6. | Exhibits | 37 | ||||||
Signatures | 38 | |||||||
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
VERRICA PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
| June 30, 2026 | December 31, 2025 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Collaboration receivable, billed and unbilled | |||||||||||
| Deferred R&D services, current portion (Note 10) | |||||||||||
| Insurance recovery asset | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use asset | |||||||||||
| Finance lease right-of-use asset | |||||||||||
| Deferred R&D services, non-current portion (Note 10) | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Legal settlement liability | |||||||||||
| Operating lease liability | |||||||||||
| Finance lease liability | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liability | |||||||||||
| Finance lease liability | |||||||||||
| R&D funding liability (Note 10) | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 5) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ issued and outstanding as of June 30, 2026 and December 31, 2025 | |||||||||||
Common stock, $ | |||||||||||
Treasury stock, at cost, | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
1
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The accompanying notes are an integral part of these consolidated financial statements.
2
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VERRICA PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | |||||||||||||||||||
| License and collaboration revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of product revenue | |||||||||||||||||||||||
| Cost of license and collaboration revenue | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Legal settlement, net of insurance recovery | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| (Loss) income from operations | ( | ( | ( | ||||||||||||||||||||
| Other expense: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Change in fair value of derivative liability | |||||||||||||||||||||||
| Other expense | ( | ( | ( | ( | |||||||||||||||||||
| Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Net (loss) income per share, basic | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Weighted average common shares outstanding, basic | |||||||||||||||||||||||
Net (loss) income per share, diluted | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Weighted average common shares outstanding, diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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VERRICA PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Shares | |||||||||||||||||||||||||||||||||||||||
| January 1, 2026 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Issuance costs | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
Torii warrant expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| March 31, 2026 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Torii warrant expense | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| June 30, 2026 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| January 1, 2025 | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| March 31, 2025 | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | $ | — | — | $ | |||||||||||||||||||||||||||||||||
| Exercise of pre-funded warrants | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| June 30, 2025 | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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VERRICA PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| For the Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock-based compensation | |||||||||||
| Depreciation expense | |||||||||||
| Non-cash interest expense | |||||||||||
| Loss on disposal of fixed assets | |||||||||||
| Loss on termination of financing lease | |||||||||||
| Amortization of operating lease right-of-use asset | |||||||||||
| Amortization of finance lease right-of-use asset | |||||||||||
Change in deferred R&D services and R&D funding liability | |||||||||||
Non-cash R&D expense related to Torii warrant vesting | |||||||||||
| Change in fair value of derivative liability | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Collaboration receivable, billed and unbilled | ( | ( | |||||||||
Insurance recovery asset | ( | ||||||||||
| Inventory | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
Legal settlement liability | |||||||||||
| Deferred revenue | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Operating lease liability | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Net cash used in investing activities | |||||||||||
| Cash flows from financing activities | |||||||||||
| Repayment of debt | ( | ||||||||||
| Repayment of finance lease | ( | ( | |||||||||
| Payment of equity issuance costs | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash and restricted cash | ( | ( | |||||||||
| Cash and restricted cash at the beginning of the period | |||||||||||
| Cash and restricted cash at the end of the period | $ | $ | |||||||||
Reconciliation of Cash and Restricted cash | |||||||||||
Cash | $ | $ | |||||||||
Restricted cash | |||||||||||
Total Cash and Restricted cash | $ | $ | |||||||||
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VERRICA PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| For the Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Supplemental disclosures | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Recognition of R&D funding liability | $ | $ | |||||||||
Change in deferred R&D services | $ | $ | |||||||||
| Finance lease liability extinguished as a result of lease termination | $ | $ | |||||||||
| Right-of-use asset obtained in exchange for lease obligation | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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VERRICA PHARMACEUTICALS INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1—Organization and Description of Business Operations
Verrica Pharmaceuticals Inc. (the "Company") was formed on July 3, 2013 and is incorporated in the State of Delaware. The Company is a therapeutics company developing and commercializing medications for the treatment of dermatologic diseases, including skin cancers. On July 21, 2023, the U.S. Food and Drug Administration ("FDA") approved YCANTH (VP-102) topical solution for the treatment of molluscum contagiosum in adult and pediatric patients two years of age and older. During the first quarter of 2026, the Company formed a wholly owned subsidiary in Ireland to facilitate regulatory filings in the European Union. The subsidiary had no material operations during the six months ended June 30, 2026.
Liquidity and Capital Resources
The Company has incurred substantial operating losses since inception and expects to continue to incur significant losses for the foreseeable future and may never become profitable. As of June 30, 2026, the Company has an accumulated deficit of $347.7 million and cash of $11.2 million. The Company has cash outflows from operations of $18.4 million for the six months ended June 30, 2026. On August 3, 2026, the Company entered into a credit agreement ("PD Credit Agreement") with PD Joint Holdings, LLC Series 2016-B, at which time $12.5 million became available and an additional $15.0 million will be available to borrow, subject to the satisfaction of certain milestones and customary conditions as well as compliance with specified covenants. Based on the current business plan and current capital resources, combined with the uncertainty regarding the availability of additional funding, the Company has concluded that substantial doubt exists regarding its ability to continue as a going concern within one year after the date these consolidated financial statements are issued. The Company plans to address the conditions that raise substantial doubt regarding its ability to continue as a going concern by, among other things, borrowing additional amounts available under the PD Credit Agreement and obtaining additional funding through equity offerings, debt financing, collaborations, strategic alliances and/or licensing arrangements. The consolidated 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 consolidated financial statements do not include any adjustments to the carrying amounts and classification of recorded assets, liabilities and reported expenses that might result should the Company be unable to continue as a going concern. See Note 12, "Subsequent Events," for additional information regarding the PD Credit Agreement.
There can be no assurance the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. If the Company is unable to raise capital when needed or on attractive terms, the Company would be forced to delay, reduce or eliminate commercialization efforts and development programs.
In November 2025, the Company sold an aggregate of (i) 6,499,826 shares of its common stock, (ii) with respect to certain purchasers pre-funded warrants to purchase 5,305,164 shares of common stock in lieu of shares and (iii) in either case, the accompanying Series C warrants to purchase 2,951,241 shares of common stock pursuant to securities purchase agreements with certain investors in a private placement ("Private Placement"). The purchase price per share of common stock and accompanying Series C warrant was $4.24125 per share and the purchase price for the pre-funded warrants and accompanying Series C warrant was $4.24115 per share. The Company received net proceeds of $49.1 million from the Private Placement, after deducting placement fees of $0.9 million.
The Company plans to secure additional capital in the future through amounts available under the PD Credit Agreement, equity or debt financings, partnerships, or other sources to carry out the Company’s planned commercial and development activities. The amount of proceeds the Company may be able to raise pursuant to its currently effective shelf registration statement on Form S-3 is limited. The Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these rules, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of the Company's common stock held by its non-affiliates. Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling its securities using its Form S-3 until such time as the Company's public float exceeds $75.0 million.
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Note 2—Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB").
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with U.S. GAAP for interim information and pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2025, filed as part of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
These unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods. However, the results of operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. Certain items have been reclassified in the prior year disclosure to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience as well as other pertinent industry and regulatory authority information, results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Segments
Operating segments are identified as components of an enterprise about which separate and discrete financial information is available for evaluation by the chief operating decision-maker ("CODM") in making decisions regarding resource allocation and assessing performance.
The Company views its operations and manages its business in one operating segment engaged in developing and commercializing medications for the treatment of dermatologic diseases including skin cancers. The Company’s Chief Executive Officer ("CEO"), as the CODM, regularly reviews the entity-wide financial and operational performance as a single unit. No financial information is disaggregated into separate lines of business and the Company does not differentiate the activities of its headquarters from the overall performance of the Company. The CEO makes resource allocation and business process decisions regarding the overall level of resources available and how to best deploy these resources.
The single segment’s principal measure of segment profit and loss is consolidated net (loss) income. The CEO considers actual and forecasted consolidated revenues, significant expenses, and consolidated net (loss) income when evaluating performance. Significant expenses are amounts regularly provided to the CEO and included in consolidated net (loss) income and include selling, general and administrative expenses and research and development expenses.
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The table below summarizes the significant revenue and expense categories regularly reviewed by the CEO for the three and six months ended June 30, 2026 and 2025:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | |||||||||||||||||||
| License and collaboration revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Less: | |||||||||||||||||||||||
Cost of product revenue | |||||||||||||||||||||||
Cost of license and collaboration revenue | |||||||||||||||||||||||
| Selling, general and administrative: | |||||||||||||||||||||||
| Commercial (including payroll) | |||||||||||||||||||||||
| General and administrative (including payroll) | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Total selling, general and administrative expense | |||||||||||||||||||||||
| Research and development: | |||||||||||||||||||||||
| YCANTH (VP-102) | |||||||||||||||||||||||
| VP-315 | |||||||||||||||||||||||
| Common warts | ( | ( | |||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Other unallocated expenses | |||||||||||||||||||||||
| Total research and development expense | |||||||||||||||||||||||
Legal settlement, net of insurance recovery | |||||||||||||||||||||||
Other: | |||||||||||||||||||||||
| Other expense (a) | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(a)Other expense includes interest income, interest expense, change in fair value of derivative liability and other expenses.
Cash
Restricted Cash
Restricted cash as of June 30, 2026 comprises a cash deposit of $0.3 million with JPMorgan Chase Bank, N.A. as required under the Commercial Credit Card Program with a balance equal to the outstanding credit limit on commercial credit cards. This is included in other non-current assets on the consolidated balance sheets.
Fair Value of Financial Instruments and Credit Risk
The Company is subject to credit risk from accounts receivable. As of June 30, 2026, one customer represented approximately 94 % of the Company's accounts receivable. Based on the Company's periodic credit evaluations, there have been no historical concerns with this customer.
Accounts Receivable
The Company had $10.9 million in accounts receivable as of June 30, 2026. As of June 30, 2026, the Company had no allowance for credit losses. An allowance for credit losses is determined based on the Company's assessment of the
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creditworthiness and financial condition of its customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected. Current payment terms for YCANTH (VP-102) are generally 60 days from the shipment date.
Inventory
Financial Instruments – Derivatives
The Company evaluates its 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.
As of June 30, 2025, the Company had a derivative liability related to a bifurcated settlement feature of the Company’s OrbiMed Credit Agreement (Note 9). The OrbiMed Credit Agreement provided for a five-year senior secured credit facility in an aggregate principal amount of up to $125.0 million (the "OrbiMed Loan Facility"). 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 consolidated statements of operations. The Company adjusted the liability for changes in fair value until the settlement of the OrbiMed Loan Facility, which occurred in November 2025.
Revenue
Product Revenue, Net
The Company recognizes revenue from sales of a single product, YCANTH (VP-102) (the "Product") in accordance with ASC Topic 606 – Revenue from Contracts with Customers. 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. The Company sells the Product to several pharmaceutical wholesalers and distributors (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 ("GTN") estimates using the expected value method, resulting in the Company’s reported "Product revenue, net" in the accompanying consolidated statements of operations. Product revenue, net reflects the amount the Company ultimately expects 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 the Company estimates for the various GTN categories discussed below. 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 ("GPO") 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.
Each of the GTN estimate categories are discussed below:
Product Returns Allowances: The Customers are contractually permitted to return purchased Product in certain circumstances. The Company estimates reserves for product returns using historical return rates, considering factors such as product held by customers, forecasted sales, and product expiration. Returned Product is typically destroyed, since substantially all returns are due to expiry 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 (the "End-Users") purchase the Product from the Customers at their applicable qualifying discounted price. The chargeback amount the Company incurs represents the difference between the Company’s contractual sales price to the Customers and the end-user’s applicable discounted purchase price under the government program.
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Medicaid Rebates: The Product is subject to state government-managed Medicaid programs, whereby rebates are issued to participating state governments, which may include supplemental rebates. 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 the Company to project the magnitude of its sales, by state, that will be subject to these rebates.
Managed Care Rebates: Managed care rebates represent our estimated obligations to third parties, primarily pharmacy benefit managers. Under the terms of these contracts, the Company offers rebates to these third parties. The rebates are calculated based on the applicable contracts, estimated during the period that the revenue is recognized and paid by the Company in subsequent periods.
Patient Assistance: The Company offers a voluntary co-pay patient assistance program intended to provide financial assistance to eligible patients with a prescription drug co-payment required by commercial payors. The calculation of the current liability for this assistance is based on an estimate of claims and the cost per claim that the Company expects 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 the Company’s 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 the Company’s applicable sales.
License and Collaboration Revenues
The Company has generated collaboration revenue through its licensing and collaboration arrangements. The terms of the arrangements typically include payments to the Company of one or more of the following: nonrefundable, up-front license fees; regulatory and commercial milestone payments; payments for manufacturing supply of product and services; materials shipped to support development; and royalties on net sales of licensed products.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps:
(i)identification of the promised goods or services in the contract;
(ii)determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;
(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 when (or as) the Company satisfies each performance obligation. The Company’s revenue arrangements may include the following:
Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone Payments: At the inception of an agreement that includes regulatory or commercial milestone payments, the Company evaluates whether each milestone is considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At each reporting period, the Company assesses the probability of achievement of each milestone under its current agreements. The Company did not 8.0
Royalties: If the Company is entitled to receive sales-based royalties from its collaborators, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the
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Company recognizes revenue at the later of (i) when the related sales occur, provided the reported sales are reliably measurable, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Manufacturing Supply and Research Services: Arrangements that include a promise for supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. If not, the supply services are recognized as collaboration revenue as the Company provides the services.
The Company receives payments from its licensees based on schedules established in each contract. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.
Deferred Revenue: The Company records deferred revenue when a customer prepays for goods or services, or when the Company has an unconditional right to bill but has not yet delivered the performance obligation. Deferred revenue is primarily comprised of deposits on customer product orders yet to be delivered. The Company expects to recognize all of the deferred revenue within the next 9 months.
Cost of Product Revenue
Cost of product revenue includes the cost of inventory sold, which includes direct manufacturing, production and packaging materials for YCANTH (VP-102) sales.
Cost of License and Collaboration Revenue
Cost of license and collaboration revenue consisted of commercial supplies and development activity with Torii.
Fair Value Measurement
ASC Topic 820, Fair Value Measurement, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
At June 30, 2026, the Company’s financial instruments included cash, accounts receivable, accounts payable and accrued expenses. The carrying amount of accounts payable, accounts receivable and accrued expenses approximate fair value due to the short-term maturities of these instruments. No
Net (Loss) Income Per Share
Basic net (loss) income per share is computed using the two-class method required for participating securities. Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period including pre-funded warrants to purchase shares of common stock that were issued in an underwritten offering in November 2024 and the Private Placement in November 2025 (see Note 6). The pre-funded warrants to purchase common stock are included in the calculation of basic and diluted net loss per share as the exercise price of $0.0001
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Potential shares of common stock are excluded from the diluted per share calculation when their effect is anti-dilutive, including in periods of net loss or when inclusion does not result in a decrease in earnings per share.
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders - basic | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Weighted average common shares outstanding - basic | |||||||||||||||||||||||
| Net (loss) income per share - basic | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Net (loss) income attributable to common stockholders - diluted | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Weighted average common shares outstanding - basic | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | |||||||||||||||||||||||
| Net (loss) income per share - diluted | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
The table below provides potential shares outstanding that were not included in the computation of diluted net loss per common share, as the inclusion of these securities would have been anti-dilutive:
| June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Shares issuable upon exercise of stock options | |||||||||||
| Non-vested shares under restricted stock grants | |||||||||||
| Shares issuable upon exercise of warrants pursuant to debt financing | |||||||||||
| Shares issuable upon exercise of warrants pursuant to Torii amendment | |||||||||||
| Shares issuable upon exercise of Series A and B warrants pursuant to 2024 equity financing | |||||||||||
Shares issuable upon exercise of Series C warrants pursuant to the Private Placement | |||||||||||
| Total | |||||||||||
The Series A warrants expired unexercised in November 2025 and therefore are not included in the shares issuable upon exercise as of June 30, 2026.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. ASU 2024-03 requires additional disclosure of specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The requirements will be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact that the adoption of ASU 2024-03 will have on its consolidated financial statements and disclosures.
In January 2025, the FASB issued ASU 2025-01, Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This update clarifies that all public business entities must adopt the guidance in ASU 2024-03 for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. This guidance is not expected to have a material impact on the Company's consolidated financial statements.
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Note 3 —Inventory
Inventory consisted of the following (in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventory | $ | $ | |||||||||
Note 4—Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| June 30, 2026 | December 31, 2025 | ||||||||||
| Gross to net reserves | $ | $ | |||||||||
| Compensation and related costs | |||||||||||
| Professional fees | |||||||||||
| Commercial-related costs | |||||||||||
| Clinical trials and drug development | |||||||||||
| Inventory | |||||||||||
| Other current liabilities | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
Note 5—Commitments and Contingencies
Litigation
On June 6, 2022, plaintiff Kranthi Gorlamari ("Plaintiff") filed a putative class action complaint captioned Gorlamari v. Verrica Pharmaceuticals Inc., et al., in the U.S. District Court for the Eastern District of Pennsylvania against us and certain of our current and former officers and directors ("Defendants"). On January 12, 2023, the Plaintiff filed an amended complaint alleging that Defendants violated federal securities laws by, among other things, failing to disclose certain manufacturing deficiencies at the facility where our contract manufacturer produced bulk solution for the YCANTH (VP-102) drug device and that such deficiencies posed a risk to the prospects for regulatory approval of YCANTH (VP-102) for the treatment of molluscum. The amended complaint seeks unspecified compensatory damages and other relief on behalf of Plaintiff and all other persons and entities which purchased or otherwise acquired our securities between the period from May 19, 2021 and May 24, 2022 (the "Putative Class Period").
On January 12, 2024, the Court granted in part and denied in part Defendants’ motion to dismiss the amended complaint. The Court held that Plaintiff’s claims relating to statements made in May and June 2021 were sufficiently pled, but dismissed Plaintiff’s claims relating to all other statements made during the Putative Class Period. On January 26, 2024, Plaintiff filed a second amended complaint in an attempt to cure certain of the deficiencies identified in the January 12, 2024 ruling. On September 3, 2024, the Court granted in part and denied in part Defendants’ motion to dismiss the second amended complaint. The Court dismissed Plaintiff’s claims related to one of the two individual defendants but held that Plaintiff’s claims against the Company and the other individual defendant were sufficiently pled. On March 4, 2026,
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the Court granted Plaintiff's motion for class certification. On July 10, 2026, following mediation in June, the parties subsequently entered into a term sheet reflecting an agreement in principle to settle the litigation. The settlement remains subject to customary conditions, including execution of final settlement documents, notice to the class and court approval. As a result of these developments, the Company recorded an accrued legal settlement liability of $4.0 million, representing the full amount of its estimated settlement obligation. Because the Company is the primary obligor under the term sheet and will be the primary obligor in the final settlement documents, the liability has been recognized on a gross basis and is presented as an accrued legal settlement liability in the consolidated balance sheets. The Company also recognized a separate insurance recovery asset of $2.3 million, representing amounts that are probable of recovery under its directors' and officers' liability insurance policies. The insurance recovery asset is presented separately within current assets in the consolidated balance sheets. The net impact of the settlement, after consideration of the expected insurance recovery, was $1.7
In addition, on October 21, 2024, May 12, 2025, and June 26, 2025, plaintiffs Ivan S. Cohen, Paul Cannon, and Joseph Bonaccorso, respectively, each filed a putative stockholder derivative lawsuit in the U.S. District Court for the Eastern District of Pennsylvania. Each derivative complaint names the Company as a nominal defendant and purports to bring claims on behalf of the company against certain of our current and former directors and officers for alleged violations of the federal securities laws and breaches of their fiduciary duties in relation to substantially the same factual allegations as the above-described Gorlamari class action lawsuit. Each derivative complaint primarily seeks to recover for the Company compensatory damages for losses allegedly sustained related to the facts alleged, restitution, and punitive damages. On December 16, 2024, the Court granted the parties' joint stipulation to stay the Cohen derivative lawsuit. On July 21, 2025, the Court granted the parties' joint stipulation in the Cohen and Cannon derivative lawsuits to consolidate the two actions and stay the consolidated action. On July 24, 2025, the plaintiff in the Bonaccorso derivative lawsuit filed a corrected complaint to clarify that the named plaintiff "is not Joseph (Joe) Bonaccorso, the former Chief Commercial Officer" of the Company. On July 29, 2025, the plaintiff in the Bonaccorso derivative lawsuit filed a notice voluntarily dismissing the action without prejudice. On August 5, 2026, the court in the consolidated Cohen and Cannon derivative action entered an order continuing the stay of the action until the conclusion of the settlement approval process in the Gorlamari class action lawsuit. The derivative actions are covered under the same directors' and officers' liability insurance policies as the securities class action, and amounts incurred in connection with these matters are applied against the same self-insured retention.
The Company is also involved in ordinary, routine legal proceedings that are not considered by management to be material. The Company's management believes the ultimate liabilities resulting from such legal proceedings will not materially affect the financial position of the Company or its results of operations or cash flows.
Note 6—Stockholders’ Equity
Common Stock
The Company had authorized 200,000,000 0.0001 one vote. Common stock owners are entitled to dividends when funds are legally available and declared by the Company's Board of Directors (the "Board").
November 2025 Offering
In November 2025, the Company sold an aggregate of (i) 6,499,826 shares of its common stock, (ii) with respect to certain purchasers pre-funded warrants to purchase 5,305,164 shares of common stock in lieu of shares and (iii) in either case, the accompanying Series C warrants to purchase 2,951,241 shares of common stock. The purchase price per share of common stock and accompanying Series C warrant was $4.24125 per share and the purchase price for the pre-funded Warrants and accompanying Series C warrant was $4.24115 per share. The Company received net proceeds of $49.1 million from the Private Placement, after deducting placement fees of $0.9 million.
Pre-funded Warrant Exercises
There were no pre-funded warrants exercised in the six months ended June 30, 2026. Pre-funded warrants for 70,100 shares of common stock were exercised in April 2025.
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Warrants
The following table summarizes the Company’s outstanding warrants, all of which are exercisable for shares of common stock:
| June 30, 2026 | |||||||||||||||||
| Number of warrants | Exercise Price | Expiration Date | |||||||||||||||
| Equity classified warrants | |||||||||||||||||
| Warrants issued in connection with OrbiMed Loan Facility | $ | 7/26/2033 | |||||||||||||||
| Warrants issued in connection with Torii amendment | $ | 5/14/2034 | |||||||||||||||
| Series B warrants issued pursuant to 2024 underwritten public offering | $ | 11/20/2029 | |||||||||||||||
| Series C warrants issued pursuant to the Private Placement | $ | 11/25/2030 | |||||||||||||||
| Pre-funded warrants issued pursuant to the Private Placement | $ | No expiration | |||||||||||||||
The OrbiMed warrants are eligible for a price adjustment if the Company consummates any share distribution at a price per common share less than the exercise price. As a result of the November 2024 Offering, the OrbiMed warrant exercise price was adjusted down to $34.50 per share. As a result of the Private Placement, the OrbiMed warrant exercise price was adjusted down to $23.55 per share. The Torii warrants become exercisable at different clinical milestones related to the global Phase 3 Program for common warts (the "Program"). The related expense is recognized as research and development expense as costs are incurred for the Program under the R&D funding arrangement (See Note 10).
Note 7—Stock-Based Compensation
Stock-based compensation expense, which includes expense for options, including market-based options, and restricted stock units, has been reported in the Company’s consolidated statements of operations as follows (in thousands):
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Selling, general and administrative | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
Cost of product revenue | |||||||||||||||||||||||
Cost of license and collaboration revenue | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
Stock Options
The following table summarizes the Company’s stock option activity for the six months ended June 30, 2026:
| Number of shares | Weighted average exercise price | Weighted average remaining contractual term (in years) | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding as of December 31, 2025 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Expired | ( | ||||||||||||||||||||||
| Outstanding as of June 30, 2026 | $ | $ | |||||||||||||||||||||
| Options vested and exercisable as of June 30, 2026 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value in the above table is calculated as the difference between fair market value of the Company’s common stock price and, as of June 30, 2026, the exercise price of the stock options. Total options granted of 1,633,113 consist of 1,117,449 market-based stock option awards and 515,664 service-based option awards.
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Service-Based Stock Option Awards
The weighted average grant date fair value per share for the employee and non-employee stock options granted during the six months ended June 30, 2026 was $5.10 . As of June 30, 2026, the total unrecognized compensation related to unvested stock option awards granted was $6.5 million, which the Company expects to recognize over a weighted-average period of 2.4 years.
Market-Based Stock Option Awards
In December 2025 and February 2026, the Board approved certain market-based stock option awards for members of the executive leadership team. The awards are subject to multiple substantive contingencies, including (i) approval by the Company's stockholders of an amendment to the 2018 Plan, (ii) achievement of specified stock price-based vesting conditions, and (iii) continued service. In June 2026, the Company's stockholders approved the amendment to the 2018 Plan, as described in the Company's definitive proxy statement filed with the Securities and Exchange Commission, resulting in the satisfaction of the applicable approval contingency. As a result, 1,117,449 stock options were granted during the quarter ended June 30, 2026, and the grant-date fair value of the awards was determined using a Monte Carlo simulation model to account for the stock price-based vesting conditions. The Company recognized stock-based compensation expense of $0.3 4.6 million, which the Company expects to recognize over a weighted-average period of 1.4 years.
Restricted Stock Units
Compensation expense related to RSUs is recognized in the Company’s consolidated statements of operations based on the fair market value at the date of grant over the period expected to vest. No no remaining unrecognized compensation expense related to RSUs.
Note 8—Leases
The Company leases office space located in West Chester, Pennsylvania that serves as the Company’s headquarters. The initial term expires on September 1, 2027. Base rent over the initial term is approximately $2.4 million, and the Company is also responsible for its share of the landlord’s operating expenses.
The Company entered into a fleet program to provide vehicles for its sales force. The vehicles are leased for a typical term of 52 months and classified as finance leases. The Company recorded $0.6 0.6
The components of lease expense are as follows (in thousands):
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Operating lease: | |||||||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
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Maturities of the Company’s operating leases, excluding short-term leases, as of June 30, 2026 are as follows (in thousands):
| Operating | Finance | ||||||||||
| 2026 (remaining 6 months) | $ | $ | |||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less imputed interest | ( | ( | |||||||||
| Lease liability | $ | $ | |||||||||
The weighted average remaining lease term and discount rates for the Company's leases as of June 30, 2026 are as follows:
| Operating | Finance | ||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Weighted average discount rate | % | % | |||||||||
Note 9—Debt
On July 26, 2023 (the "Closing Date"), the Company entered into a Credit Agreement (the "OrbiMed Credit Agreement"), by and between the Company, as borrower, and OrbiMed Royalty & Credit Opportunities IV, LP, a Delaware limited partnership (the "Initial Lender"). The Company borrowed $50.0 million under the OrbiMed Credit Agreement on July 26, 2023, resulting in net proceeds of approximately $44.1 million after payment of certain fees and transaction related expenses.
On November 25, 2025, the Company remitted $35.0 million in cash to fully settle and extinguish all amounts outstanding under its OrbiMed Credit Agreement. As a result of the settlement, the Company recognized a loss on extinguishment of debt of $1.5 million during the year ended December 31, 2025. The Company had a derivative liability related to a bifurcated settlement feature of the OrbiMed Credit Agreement. The derivative liability was remeasured to fair value immediately prior to settlement, resulting in a reduction to nil , with the corresponding change in fair value of the derivative liability recognized in the consolidated statement of operations.
For the three and six months ended June 30, 2025, the Company recognized interest expense related to the OrbiMed Credit Agreement of $2.1 million and $4.3 million, of which $1.4 million and $2.9 million, respectively, was interest on the term loan and $0.7 million and $1.4 million, respectively, was non-cash interest expense related to the amortization of deferred debt issuance costs and accrual of the final payment fee.
Note 10—License and Collaboration Agreements
Torii Agreements
On March 17, 2021, the Company entered into a collaboration and license agreement (the "Torii Agreement") with Torii, pursuant to which the Company granted Torii an exclusive license to develop and commercialize the Company’s product candidates that contain a topical formulation of cantharidin for the treatment of molluscum contagiosum and common warts in Japan, including YCANTH (VP-102). Additionally, the Company granted Torii a right of first negotiation with respect to additional indications for the licensed products and certain additional products for use in the licensed field, in each case in Japan.
As of June 30, 2026, the Company had received milestone payments from Torii in prior periods totaling $38.0 million, including an $8.0 million milestone payment in July 2025 and a $10.0 million milestone payment in September 2025, as described below. As of June 30, 2026, the Company is entitled to receive from Torii an additional $32.0 million in aggregate payments, contingent on achievement of specified regulatory and sales milestones, in addition to transfer price payments for supply of product, which will begin to be replaced by royalty payments as part of the manufacturing transfer.
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The transfer price and royalty payments shall be payable, on a product-by-product basis, beginning on the first commercial sale of such product and ending on the latest of (a) expiration of the last-to-expire valid claim contained in certain licensed patents in Japan that cover such product, (b) expiration of regulatory exclusivity for the first indication for such product in Japan, and, (c) (i) with respect to the first product, ten years after first commercial sale of such product, and, (ii) with respect to any other product, the later of (x) ten years after first commercial sale of the first product and (y) five years after first commercial sale of such product.
The Torii Agreement expires on a product-by-product basis upon expiration of Torii’s obligation under the agreement to make transfer price payments for such product. Torii has the right to terminate the agreement upon specified prior written notice to us. Additionally, either party may terminate the agreement in the event of an uncured material breach of the agreement by, or insolvency of, the other party. The Company may terminate the agreement in the event that Torii commences a legal action challenging the validity, enforceability or scope of any licensed patents.
The Company recognized collaboration revenue of $0.8 million and $8.2 million for the three months ended June 30, 2026 and 2025, respectively, related to commercial supply and development activity in the current period and including milestone revenue in the prior period. The Company recognized license and collaboration revenue of $1.5 million and $8.2 million for the six months ended June 30, 2026 and 2025, respectively. The cost of license and collaboration revenue consists of expenses incurred by the Company for commercial supply and to support development and testing services.
On May 14, 2024, the Company entered into the First Amendment to the Torii Agreement (the "First Amendment"). Pursuant to the First Amendment, the Company and Torii agreed on the framework of a cost sharing arrangement for the global Phase 3 program of YCANTH (VP-102) for the treatment of common warts (the "Program"), with Torii paying all the costs of the Program when due and the Company repaying Torii half of the cost (the "Company Portion"). The results of the Program will be utilized by the Company in the filing of its new drug application with the FDA for YCANTH (VP-102) for the treatment of common warts. The Company Portion accrues interest annually at the greater of (i) the one-month SOFR plus 2 % and (ii) 6 %. Torii may recoup the Company's share of the costs plus applicable interest against certain development milestone payments in the Torii Agreement that would otherwise be due to the Company under the terms of the Torii Agreement. In addition, if Torii has not received payment or other recoupment in full of the Company Portion plus applicable interest within 60 months after August 20, 2025, the date on which Torii made its first payment for the Program costs, Torii may invoice the Company for the remaining Company Portion plus applicable interest.
In conjunction with the First Amendment, the Company issued Torii a warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price per share of $95.60 . The warrant has a term of ten years and is exercisable only with respect to the shares that have vested as of the date of exercise. One-third of the shares underlying the warrant vested in December 2025, when the first patient was dosed in the Program, with the remaining vesting occurring one-third on the date that the database lock with respect to the trial occurs and one-third on the date the Company submits a new drug application to the FDA for YCANTH (VP-102) for the treatment of common warts.
On June 27, 2025, the Company entered into the Second Amendment to the Torii Agreement (the "Second Amendment"), which further revised the details of the cost sharing arrangement initially negotiated as part of the First Amendment. The Second Amendment accelerated an $8.0 million milestone payment, which was paid to the Company in July 2025, following Torii's approval of the study plan and execution of the agreement with the clinical research organization ("CRO"). The Company recognized revenue related to this milestone in the second quarter of 2025, when it became probable that the associated performance obligations were met. The milestone payment was initially conditioned upon the dosing of the first patient as part of the Program. In September 2025, Torii paid to the Company a $10.0 million milestone payment upon the approval of TO-208, referred to as YCANTH in the U.S., for molluscum contagiosum in Japan, in cash, rather than as an offset to costs of the Program as originally contemplated under the First Amendment. Torii will be paying the first $40.0 million of out-of-pocket costs when due, with the Company repaying to Torii half of such costs over time. Consistent with the First Amendment, to repay its portion of the costs of the Program, the Company will offset amounts otherwise due from Torii for future royalties, certain transfer price payments and remaining development milestones. To the extent the cost of the Program exceeds $40.0 million, the Company will pay such excess costs, up to a specified maximum amount, and Torii will repay to the Company half of such costs. The Second Amendment also sets forth that the Company will initiate a manufacturing transfer to Torii, which is expected to take several years, that will allow Torii to produce YCANTH (TO-208) applicators to be sold in Japan. In the interim, Torii will continue to purchase applicators from the Company. After the transfer of at least one component of the manufacturing process, the Company will begin earning royalties related to net sales in Japan of applicators manufactured by Torii and/or its manufacturing partners in lieu of the transfer price for completed applicators.
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The Company is accounting for the Second Amendment as a R&D funding arrangement since the Company is obligated to repay Torii regardless of the outcome of the research such that a substantive and genuine transfer of risk has not occurred. The R&D Funding Liability recorded on the balance sheet represents the portion that the Company will pay to Torii, as described above, and the corresponding R&D asset ("Deferred R&D Services") represents the Company's right to prepaid research and development services. The Deferred R&D Services asset is classified between current and non-current assets based on the expected timing of service performance.
The Company expenses the Deferred R&D Services within R&D expense as the services are performed by the CRO. Because the R&D Funding Liability is with a collaborator and the interest rate is below market, the Company is imputing interest expense using a 12 % market rate of interest, and the difference between the market rate of interest and the rate being charged by Torii reduces research and development expense. Interest expense of $0.1 million and $0.3 million was recognized during the three and six months ended June 30, 2026.
As part of the Program, the Company will also directly contract with third parties for certain clinical supply and distribution services that will be reimbursed by Torii and those reimbursements will be recognized as contra-research and development expense once incurred. For the three and six months ended June 30, 2026, the Company recognized $0.5 million and $0.8 million as contra-research and development expense. Since the inception of the Program, the Company has recorded $1.6 million as contra-research and development expense related to this project.
For the three and six months ended June 30, 2026, total program costs incurred under the arrangement were $6.5 million and $9.9 million, of which $3.3 million and $5.0 million represented the Company's share and was recognized as research and development expense. The remaining costs represented Torii's share of the program costs and were not reflected in the Company's Consolidated Statement of Operations. Since the inception of the Program, total program costs incurred under the arrangement were $12.2 million, of which $6.1 million represented the Company's share.
Lytix Agreement
In August 2020, the Company entered into an exclusive license agreement with Lytix Biopharma ASA ("Lytix") for the use of licensed technology, referred to as VP-315, to research, develop, manufacture, have manufactured, use, sell, have sold, offer for sale, import, and otherwise commercialize products for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic Merkel cell carcinoma (the "Lytix Agreement"). As part of the Lytix Agreement, the Company has paid Lytix milestone fees of $3.6 million in previous periods. The Company is also obligated to pay up to $111.0 million contingent on achievement of specified development, regulatory, and sales milestones, as well as tiered royalties based on worldwide annual net sales ranging in the low double digits to the mid-teens, subject to certain customary reductions. The Company’s 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 the Company 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 the Company from a sublicensee shall be shared with Lytix at a rate that is initially 50 % but decreases based on the stage of development of VP-315 at the time such sublicense is granted.
Note 11 – Related Parties
Note 12 – Subsequent Events
Distribution, Marketing and Supply Agreement
In July 2026, the Company entered into an exclusive distribution, marketing and supply agreement with Medomie Pharma Ltd. ("Medomie") pursuant to which Medomie received the exclusive rights to seek regulatory approval for and commercialize YCANTH for the treatment of molluscum contagiosum in Israel. Under the agreement, the Company will manufacture and supply YCANTH to Medomie and receive a share of product sales as well as certain regulatory and commercial milestone payments.
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Credit Agreement
On August 3, 2026, the Company entered into the PD Credit Agreement, between the Company and PD Joint Holdings, LLC Series 2016-B, an entity controlled by Paul B. Manning, a significant investor of the Company and Chairman of the Board. The PD Credit Agreement provides for a senior secured credit facility with a principal amount of up to $27.5 million, of which $12.5 million was made available on the closing date and an additional $15.0 million will be available upon the achievement of certain specified milestones and conditions, in each case subject to customary conditions.
Subject to certain exceptions, the obligations under the PD Credit Agreement are guaranteed by the Company's material subsidiaries. The obligations under the PD Credit Agreement are secured by all or substantially all of the assets of the Company and any subsidiary guarantors.
During the term of the facility, interest on any outstanding balance shall accrue at a rate per annum equal to the greater of (i) the sum of (x) the SOFR rate (which is the forward-looking term rate for a one-month tenor based on the secured overnight financing rate administered by the CME Group Benchmark Administration Limited, subject to a floor of 4.50 % per annum) plus (y) the applicable margin, which is initially 8.00 % per annum and may step down to 7.50 % or 7.00 % per annum upon the achievement of certain revenue milestones, and (ii) 12.50 % per annum. During the existence of an event of default, any outstanding amount under the facility will bear interest at a default rate equal to the otherwise applicable rate plus 3.00 % per annum. Interest may be paid in kind (PIK) and capitalized into the outstanding principal balance so long as no default has occurred and is continuing. The PD Credit Agreement matures December 31, 2030.
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Item 2. 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 (i) our unaudited interim consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2025 and 2024 included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the "SEC") on March 11, 2026. Our consolidated financial statements have been prepared in accordance with U.S. GAAP.
We own various U.S. federal trademark applications and unregistered trademarks, including our company name and YCANTH. All other trademarks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report are referred to without the symbols ® and ™, but such references should not be construed as an indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expect," "anticipate," "intend," "believe," "may," "plan," "seek" or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. In evaluating our business, you should carefully consider the information set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 11, 2026, in this Quarterly Report under Part II - Item 1A "Risk Factors," and in our other filings with the SEC.
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, initially targeting basal cell carcinoma or BCC.
Commercial Product
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 which as of July 31, 2026, consisted of 45 employee sales representatives in the United States focused on pediatric dermatologists, dermatologists, pediatricians and select other primary care healthcare providers.
In the fourth quarter of 2025, we also launched YcanthRx, 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.
By the end of 2026, we expect to expand the field sales force to approximately 50 employee sales representatives.
Additional Pipeline Products
YCANTH (VP-102) - Treatment of Common Warts
We are also advancing YCANTH (VP-102) for common warts through a separate regulatory approval process and have initiated a global Phase 3 program, or the Program, of YCANTH for the treatment of common warts with our partner, Torii. The first patient in the first Phase 3 clinical study (COVE-2) in the Program was dosed in the United States in
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December 2025, and the first patients were dosed in the second Phase 3 study (COVE-3) in the Program in the United States and Japan in June 2026. The Program is ongoing and new subjects continue to be enrolled in COVE-2, COVE-3 and through the long-term follow up study (COVE-4). Top-line data from our Program is expected in mid-2027.
On October 20, 2025, we announced that the Committee for Medicinal Products for Human Use of the European Medicines Agency provided positive feedback which supports the filing of a Marketing Authorization Application for YCANTH (VP-102) as a treatment for molluscum contagiosum in the EU with no requirement to complete additional clinical studies.
In July 2026, we entered into an exclusive distribution, marketing and supply agreement with Medomie Pharma Ltd. ("Medomie") pursuant to which Medomie received the exclusive rights to seek regulatory approval for and commercialize YCANTH for the treatment of molluscum contagiosum in Israel. We currently retain all global rights to YCANTH outside of Japan and Israel and we are exploring non-dilutive partnerships to fund development and commercialization for YCANTH (VP-102) for the treatment of molluscum contagiosum, as well as for common warts if approved, in additional geographic regions outside of the United States and Japan.
VP-315 - Treatment of Basal Cell Carcinoma
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 BCC, 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 have reported 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 BCC and other skin cancers.
We have obtained feedback from the FDA from the end-of-Phase 2 meeting in 2025 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 be needed post-approval. 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 for commencement of Phase 3 clinical trials. We may also pursue non-dilutive strategic partnerships to help fund the development and commercialization of VP-315.
Liquidity Overview
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 the OrbiMed Credit Agreement, pursuant to which we borrowed $50.0 million under the OrbiMed Loan Facility (as defined in Note 2), resulting in net proceeds of approximately $44.1 million after payment of certain fees and transaction related expenses. Amounts borrowed under the OrbiMed Loan Facility were scheduled to mature on July 26, 2028. On November 25, 2025, following the Private Placement described below, we fully extinguished the OrbiMed 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 $4.24125 per share and the purchase price for the Pre-Funded Warrants and accompanying Series C Warrant was $4.24115 per share. The Series C Warrants expire on November 25, 2030. We
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received net proceeds of $49.1 million from the private placement transaction, after deducting placement fees of $0.9 million.
Subsequent to June 30, 2026, we entered into the PD Credit Agreement that provides additional liquidity through committed borrowings and additional borrowing capacity, subject to certain conditions and covenant requirements. See Note 12, "Subsequent Events," for additional information regarding the PD Credit Agreement.
As of June 30, 2026, we had cash of $11.2 million. Based on our current business plan and current capital resources, including $12.5 million available under the PD Credit Agreement, 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 consolidated financial statements are issued. Our consolidated 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 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded asset amounts or the 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.
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 June 30, 2026, we had an accumulated deficit of $347.7 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, obtain secondary suppliers for key components of the YCANTH manufacturing process and scale up external manufacturing and distribution capabilities to commercialize YCANTH (VP-102) for the treatment of molluscum contagiosum and product candidates for which we may obtain regulatory approval;
•continue our ongoing clinical programs evaluating 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 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.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis.
A summary of our significant accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. However, we believe that the additional accounting policies disclosed in Note 2 to our consolidated financial statements are important to understanding and evaluating our reported financial results.
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. YCANTH (VP-102) is available for commercial sale and shipment for the
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treatment of patients by a healthcare provider in the United States. We sell the Product to several pharmaceutical wholesalers and 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 consolidated 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 Customers. 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 contagiosum and common warts in Japan. In September 2025, YCANTH (VP-102) received regulatory approval from Japan's Ministry of Health for treatment of molluscum contagiosum and in February 2026, Torii launched YCANTH as a new treatment option for molluscum in children over 2 years of age 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. Cost of product revenue also includes period costs related to excess and obsolete inventory write-downs.
Cost of License and Collaboration Revenue
The cost of license and collaboration revenue consists of payments for commercial product and manufacturing supply to support 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 molluscum contagiosum, potential follow-on indications for YCANTH (VP-102), including common warts, and our other product candidates in addition to 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,
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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.
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Results of Operations for the Three Months Ended June 30, 2026 and 2025
The following table summarizes our results of operations (in thousands):
| For the Three Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| Total revenue | |||||||||||||||||
| Product revenue, net | $ | 5,093 | $ | 4,534 | $ | 559 | |||||||||||
| License and collaboration revenue | 769 | 8,168 | (7,399) | ||||||||||||||
| Total revenue | 5,862 | 12,702 | (6,840) | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Cost of product revenue | 435 | 340 | 95 | ||||||||||||||
| Cost of license and collaboration revenue | 443 | 154 | 289 | ||||||||||||||
| Selling, general and administrative | 10,349 | 8,852 | 1,497 | ||||||||||||||
| Research and development | 6,034 | 1,846 | 4,188 | ||||||||||||||
| Legal settlement, net of insurance recovery | 1,698 | — | 1,698 | ||||||||||||||
| Total operating expenses | 18,959 | 11,192 | 7,767 | ||||||||||||||
| (Loss) income from operations | (13,097) | 1,510 | (14,607) | ||||||||||||||
| Other expense: | |||||||||||||||||
| Interest income | 111 | 228 | (117) | ||||||||||||||
| Interest expense | (164) | (2,131) | 1,967 | ||||||||||||||
| Change in fair value of derivative liability | — | 598 | (598) | ||||||||||||||
Other expense | (3) | (1) | (2) | ||||||||||||||
| Total other expense, net | (56) | (1,306) | 1,250 | ||||||||||||||
| Net loss | $ | (13,153) | $ | 204 | $ | (13,357) | |||||||||||
Product Revenue, Net
Product revenue, net was $5.1 million for the three months ended June 30, 2026, compared to $4.5 million for the three months ended June 30, 2025. The increase in product revenue, net was primarily related to an increase in deliveries of YCANTH to our distribution partners commensurate with an increase in dispensed applicator unit volume.
License and Collaboration Revenue
License and collaboration revenue was $0.8 million for the three months ended June 30, 2026, compared to $8.2 million for the three months ended June 30, 2025. License and collaboration revenue for the three months ended June 30, 2026 consisted primarily of commercial supply. License and collaboration revenue for the three months ended June 30, 2025 consisted of an $8.0 million milestone payment from Torii as well as supplies and development activity.
Cost of Product Revenue
Cost of product revenue for the three months ended June 30, 2026 and 2025 was $0.4 million and $0.3 million, respectively, consisting primarily of product costs related to the sale of YCANTH (VP-102).
Cost of License and Collaboration Revenue
Cost of license and collaboration revenue was $0.4 million and $0.2 million for the three months ended June 30, 2026 and 2025. Cost of license and collaboration revenue consisted of commercial product and supplies and development activity with Torii.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.3 million for the three months ended June 30, 2026, compared to $8.9 million for the three months ended June 30, 2025. Excluding the impact of stock-based compensation, the increase of $1.3 million was primarily due to increased commercial spend related to the expansion of the sales force.
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The following table summarizes our selling, general and administrative expense for the three months ended June 30, 2026 and 2025 (in thousands).
| For the Three Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| Commercial (including payroll) | $ | 5,676 | $ | 4,346 | $ | 1,330 | |||||||||||
| General and administrative (including payroll) | 3,874 | 3,918 | (44) | ||||||||||||||
| Stock-based compensation | 799 | 588 | 211 | ||||||||||||||
| Selling, general and administrative expense | $ | 10,349 | $ | 8,852 | $ | 1,497 | |||||||||||
Research and Development Expenses
Research and development expenses were $6.0 million for the three months ended June 30, 2026, compared to $1.8 million for the three months ended June 30, 2025. Excluding the impact of stock-based compensation, the increase of $4.1 million was primarily due to the increased costs related to the Program.
The following table summarizes our research and development expense by product candidate or, for unallocated expenses, by type, for the three months ended June 30, 2026 and 2025. Unallocated expenses include compensation and other personnel-related costs (in thousands):
| For the Three Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| YCANTH (VP-102) | $ | 808 | $ | 340 | $ | 468 | |||||||||||
| VP-315 | 68 | 33 | 35 | ||||||||||||||
| Common warts | 3,377 | (93) | 3,470 | ||||||||||||||
| Stock-based compensation | 396 | 300 | 96 | ||||||||||||||
| Other unallocated expenses | 1,385 | 1,266 | 119 | ||||||||||||||
| Research and development expense | $ | 6,034 | $ | 1,846 | $ | 4,188 | |||||||||||
Legal Settlement, net of Insurance Recovery
An agreement in principle was reached to settle certain legal proceedings, and for the three months ended June 30, 2026, $1.7 million was recorded representing the net expected impact after the insurance recovery. There was no expense related to legal settlements in the three months ended June 30, 2025.
Interest Income
Interest income was $0.1 million and $0.2 million for the three months ended June 30, 2026, and June 30, 2025, respectively. The decrease of $0.1 million was primarily due to lower cash balances.
Interest Expense
Interest expense was $0.2 million for the three months ended June 30, 2026, compared to $2.1 million for the three months ended June 30, 2025. The decrease of $2.0 million was primarily related to the settlement of the OrbiMed Loan Facility and termination of the OrbiMed Credit Agreement in November 2025, as discussed in Note 9 to our consolidated financial statements.
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Results of Operations for the Six Months Ended June 30, 2026 and 2025
The following table summarizes our results of operations (in thousands):
| For the Six Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| Total revenue | |||||||||||||||||
| Product revenue, net | $ | 9,383 | $ | 7,956 | $ | 1,427 | |||||||||||
| License and collaboration revenue | 1,502 | 8,185 | (6,683) | ||||||||||||||
| Total revenue | 10,885 | 16,141 | (5,256) | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Cost of product revenue | 979 | 763 | 216 | ||||||||||||||
| Cost of license and collaboration revenue | 788 | 168 | 620 | ||||||||||||||
| Selling, general and administrative | 20,338 | 17,700 | 2,638 | ||||||||||||||
| Research and development | 9,894 | 4,130 | 5,764 | ||||||||||||||
| Legal settlement, net of insurance recovery | 1,698 | — | 1,698 | ||||||||||||||
| Total operating expenses | 33,697 | 22,761 | 10,936 | ||||||||||||||
Loss from operations | (22,812) | (6,620) | (16,192) | ||||||||||||||
| Other expense: | |||||||||||||||||
| Interest income | 312 | 565 | (253) | ||||||||||||||
| Interest expense | (324) | (4,334) | 4,010 | ||||||||||||||
| Change in fair value of derivative liability | — | 852 | (852) | ||||||||||||||
Other expense | (11) | (1) | (10) | ||||||||||||||
| Total other expense, net | (23) | (2,918) | 2,895 | ||||||||||||||
| Net loss | $ | (22,835) | $ | (9,538) | $ | (13,297) | |||||||||||
Product Revenue, Net
Product revenue, net was $9.4 million for the six months ended June 30, 2026, compared to $8.0 million for the six months ended June 30, 2025. The increase in product revenue, net was primarily related to an increase in deliveries of YCANTH to our distribution partners commensurate with an increase in dispensed applicator unit volume.
License and Collaboration Revenue
License and collaboration revenue was $1.5 million for the six months ended June 30, 2026, compared to $8.2 million for the six months ended June 30, 2025. License and collaboration revenue for the six months ended June 30, 2026, consisted primarily of commercial supply. License and collaboration revenue for the six months ended June 30, 2025, consisted of an $8.0 million milestone payment as well as supplies and development activity.
Cost of Product Revenue
Cost of product revenue for the six months ended June 30, 2026 and 2025 was $1.0 million and $0.8 million, respectively, consisting primarily of product costs related to the sale of YCANTH (VP-102).
Cost of License and Collaboration Revenue
Cost of license and collaboration revenue was $0.8 million and $0.2 million for the six months ended June 30, 2026 and 2025. Cost of license and collaboration revenue consisted of commercial product and supplies and development activity with Torii.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $20.3 million for the six months ended June 30, 2026, compared to $17.7 million for the six months ended June 30, 2025. Excluding the impact of stock-based compensation, the increase of $2.6 million was primarily a result of increased commercial spend related to the expansion of the sales force.
The following table summarizes our selling, general and administrative expense for the six months ended June 30, 2026 and 2025 (in thousands).
| For the Six Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| Commercial (including payroll) | 11,373 | 8,628 | $ | 2,745 | |||||||||||||
| General and administrative (including payroll) | 7,573 | 7,699 | $ | (126) | |||||||||||||
| Stock-based compensation | 1,392 | 1,373 | 19 | ||||||||||||||
| Selling, general and administrative expense | $ | 20,338 | $ | 17,700 | $ | 2,638 | |||||||||||
Research and Development Expenses
Research and development expenses were $9.9 million for the six months ended June 30, 2026, compared to $4.1 million for the six months ended June 30, 2025. Excluding the impact of stock-based compensation, the increase of $5.6 million was primarily due to the increased costs related to the Program.
The following table summarizes our research and development expense by product candidate or, for unallocated expenses, by type, for the six months ended June 30, 2026 and 2025. Unallocated expenses include compensation and other personnel-related costs (in thousands):
| For the Six Months Ended June 30, | |||||||||||||||||
| 2026 | 2025 | Change | |||||||||||||||
| YCANTH (VP-102) | $ | 1,086 | $ | 711 | $ | 375 | |||||||||||
| VP-315 | 201 | 194 | 7 | ||||||||||||||
| Common warts | 5,008 | (66) | 5,074 | ||||||||||||||
| Stock-based compensation | 672 | 541 | 131 | ||||||||||||||
| Other unallocated expenses | 2,927 | 2,750 | 177 | ||||||||||||||
| Research and development expense | $ | 9,894 | $ | 4,130 | $ | 5,764 | |||||||||||
Legal Settlement, net of Insurance Recovery
An agreement in principle was reached to settle certain legal proceedings, and for the six months ended June 30, 2026, $1.7 million was recorded representing the net expected impact after the insurance recovery. There was no expense related to legal settlements in the six months ended June 30, 2025.
Interest Income
Interest income was $0.3 million and $0.6 million for the six months ended June 30, 2026 and June 30, 2025, respectively. The decrease of $0.3 million was primarily due to lower cash balances.
Interest Expense
Interest expense was $0.3 million for the six months ended June 30, 2026 compared to $4.3 million for the six months ended June 30, 2025. The decrease of $4.0 million was primarily related to the settlement of the OrbiMed Loan Facility and termination of the OrbiMed Credit Agreement in November 2025, as discussed in Note 9 to our consolidated financial statements.
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Liquidity and Capital Resources
As of June 30, 2026, we had cash of $11.2 million. Since our inception, we have incurred negative cash flows from our operations. We have financed our operations since inception primarily through sales of our convertible preferred stock, sales of our common stock, and $38.0 million from the Torii Agreement, which includes $8.0 million received in July 2025 and $10.0 million received in September 2025. Subsequent to June 30, 2026, we entered into the PD Credit Agreement that provides for committed borrowings and additional borrowing capacity, subject to certain conditions and covenant requirements.
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 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 $4.24125 per share and the purchase price for the Pre-Funded Warrants and accompanying Series C Warrant was $4.24115 per share. We received net proceeds of $49.1 million from the Private Placement, after deducting placement fees of $0.9 million.
On July 26, 2023, we entered into the OrbiMed Credit Agreement under which we borrowed $50.0 million, resulting in net proceeds to us of approximately $44.1 million after payment of certain fees and transaction related expenses. Amounts borrowed under the Loan Facility were set to mature on July 26, 2028. Based on our net revenue attributable to YCANTH on a trailing 12-month basis not meeting a specified amount set forth in the OrbiMed Credit Agreement as of December 31, 2024, we became obligated to start making principal payments starting in January 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 November 25, 2025, we paid $35.0 million to fully settle the debt related to the OrbiMed Credit Agreement.
Cash Flows
The following table summarizes our cash flows (in thousands):
| For the Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Net cash used in operating activities | $ | (18,441) | $ | (22,721) | |||||||
| Net cash used in investing activities | — | — | |||||||||
| Net cash used in financing activities | (246) | (8,212) | |||||||||
Net decrease in cash and restricted cash | $ | (18,687) | $ | (30,933) | |||||||
Operating Activities
During the six months ended June 30, 2026, operating activities used $18.4 million of cash, primarily resulting from a net loss of $22.8 million partially offset by the non-cash change in obligation for the R&D funding arrangement of $4.2 million, non-cash stock-based compensation of $2.1 million, and the amortization of right-of-use assets related to operating and financing leases of $0.4 million. Net cash used by changes in operating assets and liabilities consisted primarily of an increase in accounts receivable of $5.7 million, an increase in insurance recovery asset of $2.3 million, an increase in inventory of $0.5 million and a decrease in accounts payable of $0.5 million, partially offset by the change in legal settlement accrual of $4.0 million, increase in accrued expenses and other current liabilities of $1.7 million and an increase in deferred revenue of $0.6 million.
During the six months ended June 30, 2025, operating activities used $22.7 million of cash, primarily resulting from a net loss of $9.5 million partially offset by non-cash stock-based compensation of $1.9 million and non-cash interest expense of $1.4 million. Net cash used by changes in operating assets and liabilities consisted primarily of an increase in accounts receivable of $9.1 million and billed and unbilled license and collaboration revenue of $8.1 million partially offset by an increase in accounts payable and deferred revenue of $0.9 million and a decrease in prepaid expenses and other assets of $0.8 million.
Investing Activities
We did not use any cash in investing activities during the six months ended June 30, 2026 or 2025.
Financing Activities
During the six months ended June 30, 2026, net cash used by financing activities of $0.2 million was primarily due to the repayment of financing leases.
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During the six months ended June 30, 2025, net cash used by financing activities of $8.2 million was primarily due to the repayment of debt related to the OrbiMed Credit Agreement.
Funding Requirements
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. 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 June 30, 2026, we had an accumulated deficit of $347.7 million. We believe our cash of $11.2 million as of June 30, 2026, together with the initial committed borrowing of $12.5 million available under the PD Credit Agreement entered into subsequent to June 30, 2026, will not be sufficient to support our planned operations for at least one year from the date these consolidated financial statements are issued. The PD Credit Agreement also provides for up to an additional $15.0 million borrowing capacity that is subject to compliance with certain financial and other covenants and the satisfaction of applicable borrowing conditions. If these conditions are satisfied and the additional borrowings become available, we believe our liquidity would be sufficient to extend our cash runway into 2028. 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 consolidated 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, utilizing borrowings available under the PD Credit Agreement, subject to the terms and conditions thereof, and obtaining additional funding through equity offerings, debt financing, collaborations, strategic alliances and/or licensing arrangements. Our consolidated 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 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should we be unable to continue as a going concern. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. 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 contagiosum;
•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 commercial production of YCANTH (VP-102) and any product candidate we successfully commercialize; and
•the costs of establishing and maintaining sales and marketing capabilities for YCANTH (VP-102) 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
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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.
Contractual Obligations and Commitments
As of June 30, 2026, there have been no material changes to our contractual obligations and commitments as previously discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
There have been no material changes to our quantitative and qualitative disclosures about market risk as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2026.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(b) and 15d-15(b) of the Exchange Act that occurred during the quarter ended June 30, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 6, 2022, plaintiff Kranthi Gorlamari ("Plaintiff") filed a putative class action complaint captioned Gorlamari v. Verrica Pharmaceuticals Inc., et al., in the U.S. District Court for the Eastern District of Pennsylvania against us and certain of our current and former officers and directors ("Defendants"). On January 12, 2023, the Plaintiff filed an
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amended complaint alleging that Defendants violated federal securities laws by, among other things, failing to disclose certain manufacturing deficiencies at the facility where our contract manufacturer produced bulk solution for the YCANTH (VP-102) drug device and that such deficiencies posed a risk to the prospects for regulatory approval of YCANTH (VP-102) for the treatment of molluscum. The amended complaint seeks unspecified compensatory damages and other relief on behalf of Plaintiff and all other persons and entities which purchased or otherwise acquired our securities between May 19, 2021 and May 24, 2022.
On January 12, 2024, the Court granted in part and denied in part Defendants’ motion to dismiss the amended complaint. The Court held that Plaintiff’s claims relating to statements made in May and June 2021 were sufficiently pled, but dismissed Plaintiff’s claims relating to all other statements made during the Putative Class Period. On January 26, 2024, Plaintiff filed a second amended complaint in an attempt to cure certain of the deficiencies identified in the January 12, 2024 ruling. On September 3, 2024, the Court granted in part and denied in part Defendants’ motion to dismiss the second amended complaint. The Court dismissed Plaintiff’s claims related to one of the two individual defendants but held that Plaintiff’s claims against us and the other individual defendant were sufficiently pled. On March 4, 2026, the Court granted Plaintiff's motion for class certification. During the second quarter of 2026, we participated in a mediation with the plaintiffs and in July 2026, entered into a term sheet reflecting an agreement in principle to settle the litigation. The settlement remains subject to customary conditions, including execution of final settlement documents, notice to the class and court approval. As of June 30, 2026, we recorded an accrued legal settlement liability of $4.0 million related to the potential settlement. We also recorded an insurance recovery asset of $2.3 million representing amounts probable of recovery under its directors' and officers' liability insurance policies. As a result, the net expected impact to us is approximately $1.7 million. Subject to execution of final settlement documents, notice to the class and court approval, we expect the primary insurer for the applicable directors' and officers' liability insurance policies to fund its portion of the settlement amount directly into an escrow account established in connection with the settlement. We expect to fund our obligations from available cash resources.
In addition, on October 21, 2024, May 12, 2025, and June 26, 2025, plaintiffs Ivan S. Cohen, Paul Cannon, and Joseph Bonaccorso, respectively, each filed a putative stockholder derivative lawsuit in the U.S. District Court for the Eastern District of Pennsylvania. Each derivative complaint names us as a nominal defendant and purports to bring claims on our behalf against certain of our current and former directors and officers for alleged violations of the federal securities laws and breaches of their fiduciary duties in relation to substantially the same factual allegations as the above-described putative class action lawsuit. Each derivative complaint primarily seeks to recover for us compensatory damages for losses allegedly sustained related to the facts alleged, restitution, and punitive damages. On December 16, 2024, the Court granted the parties' joint stipulation to stay the Cohen derivative lawsuit. On July 21, 2025, the Court granted the parties’ joint stipulation in the Cohen and Cannon derivative lawsuits to consolidate the two actions and stay the consolidated action. On July 24, 2025, the plaintiff in the Bonaccorso derivative lawsuit filed a corrected complaint to clarify that the named plaintiff "is not Joseph (Joe) Bonaccorso, the former Chief Commercial Officer" of the Company. On July 29, 2025, the plaintiff in the Bonaccorso derivative lawsuit filed a notice voluntarily dismissing the action without prejudice. On August 5, 2026, the court in the consolidated Cohen and Cannon derivative action entered an order continuing the stay of the action until the conclusion of the settlement approval process in the Gorlamari class action lawsuit. The derivative actions are covered under the same directors' and officers' liability insurance policies as the securities class action, and amounts incurred in connection with these matters are applied against the same self-insured retention.
We are involved in ordinary, routine legal proceedings that are not considered by management to be material. We believe the ultimate liabilities resulting from such legal proceedings will not materially affect our financial position or our results of operations or cash flows.
Item 1A. Risk Factors
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission on March 11, 2026. During the second quarter of fiscal 2026, there were no material changes to our previously disclosed risk factors except as set forth below.
We may not be able to generate sufficient cash to service our indebtedness or borrow additional funds pursuant to our PD Credit Agreement.
We have entered into the PD Credit Agreement, pursuant to which the lenders have committed to provide $12.5 million of financing and an additional $15.0 million will be available upon achievement of certain specified milestones and conditions. Our obligations under the PD Credit Agreement are secured by all or substantially all of our assets.
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The PD Credit Agreement contains a number of covenants that, among other things, will limit or restrict our ability to: create liens and encumbrances; incur additional indebtedness; merge, dissolve, liquidate, or consolidate; make acquisitions, investments, advances, or loans; dispose of or transfer assets; pay dividends; amend certain material documents; redeem or repurchase certain debt; engage in certain transactions with affiliates; enter into certain restrictive agreements; and make certain capital expenditures. The PD Credit Agreement also contains customary financial covenants, including (i) a minimum annual YCANTH revenue covenant and (ii) a minimum liquidity covenant requiring us to maintain at least $5.0 million of liquidity at all times.
The PD Credit Agreement contains customary events of default, subject in certain cases to customary grace periods and thresholds, including: nonpayment of principal, interest, fees or other amounts; material inaccuracies in representations and warranties; failure to comply with covenants; cross-defaults with certain other indebtedness; bankruptcy and insolvency events; material monetary judgment defaults; impairment of any Loan Document or collateral document; other material adverse effects; delisting or suspension of our common stock from the Nasdaq Stock Market; and change of control. Upon the occurrence and during the continuance of an event of default, the Lender may terminate its commitments and declare all outstanding obligations under the PD Credit Agreement immediately due and payable.
Our ability to make scheduled monthly payments or to refinance our debt obligations depends on numerous factors, including the amount of our cash reserves and our actual and projected financial and operating performance. These amounts and our performance are subject to certain financial and business factors, as well as prevailing economic and competitive conditions, some of which may be beyond our control. We cannot assure you that we will maintain a level of cash reserves or cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, or that these actions would permit us to meet our scheduled debt service obligations. Failure to comply with the conditions of the PD Credit Agreement could result in an event of default, which could result in an acceleration of amounts due under the PD Credit Agreement. We may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the Lender could seek to enforce security interests in the collateral securing such indebtedness, which would harm our business.
In addition, if we are unable to borrow additional funds pursuant to the PD Credit Agreement, it could negatively impact our ability to fund our operations.
Item 5. Other Information
Rule 10b5-1 Trading Arrangements and Non-Rule 10b5-1 Trading Arrangements
During the three months ended June 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted terminated
New Credit Agreement
On August 3, 2026 (the "Closing Date"), we entered into a Credit Agreement (the "PD Credit Agreement") with PD Joint Holdings, LLC Series 2016-B (the "Lender"). The PD Credit Agreement provides for a senior secured credit facility in an aggregate principal amount of up to $27.5 million of which $12.5 million was made available on the Closing Date, subject to customary conditions, and up to an additional $15.0 million will be made available subject to the satisfaction of certain milestones, in each case subject to customary conditions. The term loans made under the PD Credit Agreement will mature on December 31, 2030.
Subject to certain exceptions, the obligations under the PD Credit Agreement are to be guaranteed by our material subsidiaries. The obligations under the PD Credit Agreement are secured by all or substantially all of our assets.
During the term of the facility, interest on any outstanding balance shall accrue at a rate per annum equal to the greater of (i) the sum of (x) the SOFR rate (which is the forward-looking term rate for a one-month tenor based on the secured overnight financing rate administered by the CME Group Benchmark Administration Limited, subject to a floor of 4.50% per annum) plus (y) the applicable margin, which is initially 8.00% per annum and may step down to 7.50% or 7.00% per annum upon the achievement of certain revenue milestones, and (ii) 12.50% per annum. During the existence of an event of default, any outstanding amount under the facility will bear interest at a default rate equal to the otherwise
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applicable rate plus 3.00% per annum. Interest may be paid in kind (PIK) and capitalized into the outstanding principal balance so long as no default has occurred and is continuing.
The PD Credit Agreement provides for the payment of an applicable prepayment premium in connection with certain voluntary prepayments and, following an event of default, upon the acceleration of the loans. The PD Credit Agreement requires mandatory prepayments with the proceeds of certain transactions and events, including (i) excess cash flow, (ii) proceeds from sublicenses, co-development, or strategic partnerships relating to VP-315, (iii) proceeds from commercialization partnerships, licenses or co-promotion agreements for YCANTH outside the United States and Japan, and (iv) the occurrence of certain liquidity events, including, among other things, a change of control, certain asset sales or licenses, a third-party refinancing, or the achievement of certain revenue or cash flow milestones.
Upon the occurrence of certain specified liquidity events, we will pay a final payment equal to the amount, if positive, by which a 16.00% gross internal rate of return on the aggregate principal amount of term loans made under the PD Credit Agreement (calculated from the draw date of each term loan to the date of such liquidity event) exceeds the sum of all interest and fees paid as of such date. Our obligation to pay the Final Payment survives repayment of all other obligations under the PD Credit Agreement and termination of the PD Credit Agreement.
The PD Credit Agreement contains customary financial covenants, including (i) a minimum annual YCANTH revenue covenant (subject to certain equity cure rights) and (ii) a minimum liquidity covenant requiring us to maintain at least $5.0 million of liquidity at all times (tested monthly).
The PD Credit Agreement contains customary events of default, subject in certain cases to customary grace periods and thresholds, including, among others, nonpayment of principal, interest, fees or other amounts; material inaccuracies in representations and warranties; failure to comply with affirmative or negative covenants; cross-defaults with certain other indebtedness; bankruptcy and insolvency events; material monetary judgment defaults; impairment of any Loan Document or collateral document; other material adverse effects; delisting or suspension of our common stock from the Nasdaq Stock Market; and change of control. Upon the occurrence and during the continuance of an event of default, the Lender may terminate its commitments and declare all outstanding obligations under the PD Credit Agreement immediately due and payable.
The PD Credit Agreement and the related security agreement also contain a number of customary representations, warranties, and covenants that, among other things, will limit or restrict our ability to (subject to certain qualifications and exceptions): create liens and encumbrances; incur additional indebtedness; merge, dissolve, liquidate, or consolidate; make acquisitions, investments, advances, or loans; dispose of or transfer assets; pay dividends or make other payments in respect of their capital stock; amend certain material documents; redeem or repurchase certain debt; engage in certain transactions with affiliates; enter into certain restrictive agreements; and make certain capital expenditures.
The foregoing description is only a summary of the terms of the PD Credit Agreement. It does not purport to be complete and is qualified in its entirety by reference to the full text of the PD Credit Agreement, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.2.
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Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. | Description | |||||||
3.1 (1) | Amended and Restated Certificate of Incorporation. | |||||||
3.2 (2) | Certificate of Amendment of the Amended and Restated Certificate of Incorporation | |||||||
3.3 (3) | Amended and Restated Bylaws. | |||||||
10.1 (4) | Amended and Restated 2018 Equity Incentive Plan | |||||||
| 10.2# | Credit Agreement, dated as of August 3, 2026, by and between the Company and PD Joint Holdings, LLC Series 2016-B. | |||||||
| 31.1 | Certification of Chief Executive Officer and President (Principal Executive Officer), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |||||||
| 31.2 | Certification of Interim Chief Financial Officer (Interim Principal Financial Officer), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |||||||
| 32.1* | Certifications of Chief Executive Officer and President (Principal Executive Officer) and Interim Chief Financial Officer (Interim Principal Financial Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | |||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
____________________________________________________
(1)Previously filed as Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-225104), filed with the Securities and Exchange Commission on May 22, 2018.
(2)Previously filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 001-38529), filed with the Securities and Exchange Commission on July 23, 2025.
(3)Previously filed as Exhibit 3.4 to the Company's Registration Statement on Form S-1 (File No. 333-225104), filed with the Securities and Exchange Commission on May 22, 2018.
(4)Previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-38529), filed with the Securities and Exchange Commission on June 9, 2026.
*These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
# Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC, certain portions of this exhibit have been redacted because the Company has determined that the information is not material and is the type that the Company treats as private or confidential. Pursuant to Item 601(a)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, an unredacted copy of this exhibit and any or all of such omitted exhibits or schedules.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| VERRICA PHARMACEUTICALS INC. | ||||||||
August 6, 2026 | By: | /s/ Jayson Rieger | ||||||
| Jayson Rieger | ||||||||
| Chief Executive Officer and President | ||||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ John J. Kirby | |||||||
| John J. Kirby | ||||||||
| Interim Chief Financial Officer | ||||||||
| (Interim Principal Financial Officer) | ||||||||
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