Verrica's Ycanth Unlikely to Face Near-Term Competition, Analyst Upgrades Stock On FDA Approval

Monday, the FDA approved Verrica Pharmaceuticals Inc's VRCA Ycanth (cantharidin) topical solution for molluscum contagiosum (molluscum) in adult and pediatric patients two years of age and older.

Needham upgraded the stock to Buy from Hold with a price target of $10.

Needham analysts Serge Belanger and Rohit Bhasin have commented that the approval of Ycanth signifies the reemergence of cantharidin, a blistering agent commonly used to treat warts. 

While it was previously only accessible through compounding pharmacies, cantharidin will now be reintroduced into dermatology practices as an FDA-approved product.

The regulatory and financial uncertainties surrounding VRCA have been resolved, yet the stock has experienced downward pressure following FDA approval, suggesting a 'sell-on-news' sentiment.

The analysts say the current valuation underappreciates Ycanth's opportunity to become standard-of-care for molluscum and its potential for wider (initially off-label) use in other types of warts, which should appeal to larger derm players seeking bolt-on assets.

Needham models Ycanth generating peak sales in the $250 million range based on a 15% market share of the molluscum market and pricing in the $650/applicator range. Ycanth is unlikely to see near-term competition. 

The most near-term potential competitor to Ycanth is a berdazimer gel product (SB-206) developed by Novan Inc NOVN and is currently under FDA review with a 1/5/24 PDUFA target action date.

Novan recently filed for bankruptcy. 

The analyst does not think SB206 is a significant competitor to Ycanth (inferior efficacy), and it's now unclear if the product will launch if approved. 

Price Action: VRCA shares are up 9% at $5.57 on the last check Tuesday.