TD Cowen has revised its outlook on Verrica Pharmaceuticals (NASDAQ: NASDAQ:VRCA), reducing the price target to $10.00 from the previous $15.00.
Despite the adjustment, the firm maintains a Buy rating on the stock. The change in price target is attributed to an updated model in line with TD Cowen Biotech's Q3 earnings preview.
The analyst at TD Cowen noted that the price target adjustment comes after considering the inventory build of Verrica's product, Ycanth, during the second quarter.
It is anticipated that the third quarter will see a phase of destocking before sales stabilize based on demand. The revised sales forecast for Ycanth in 2024 now stands at $15 million, which represents a 222% increase.
The ongoing use of compounded cantharidin, a competing treatment, was also factored into the revised estimates. Adjustments were made to both the near-term estimates and the 2024 sales projections for Ycanth in response to these market dynamics.
In other recent news, Verrica Pharmaceuticals has seen significant changes in its board and operations. The company reported a temporary non-compliance with Nasdaq's listing rules following the resignation of board member Craig Ballaron, leading to a lack of a majority of independent directors.
Diem Nguyen was subsequently appointed to the board's Audit Committee. Verrica has been given a period to regain compliance, needing to meet the independence requirement by its next annual stockholders meeting or October 2, 2025.
The company has also undergone significant operational changes, including a strategic restructuring plan that reduced operational costs by about 50% and decreased sales territories from 80 to 35. This move followed a series of leadership exits, including the resignation of Chief Financial Officer, Terence Kohler. The restructuring resulted in a workforce reduction of 47 employees, leading to approximately $1.0 million in total expenses.
Verrica reported strong growth in the second quarter of 2024, with net product revenue reaching $4.9 million, primarily driven by increased demand for YCANTH. Total revenues for the quarter stood at $5.2 million, despite a GAAP net loss of $17.2 million.
The company's stock was downgraded from Buy to Hold by Needham, citing the reduction in Verrica's sales force and the departure of key executives as potential barriers to the company's growth. Conversely, RBC Capital maintained an Outperform rating for Verrica, albeit reducing the stock's price target to $13 from $14.
Lastly, Verrica reported positive preliminary open-label phase II data from VP-315 for the treatment of basal cell carcinoma, with complete clearance in 51% of treated lesions. Further insights into VP-315's clinical profile are expected to be revealed in the first quarter of 2025.
InvestingPro Insights
Verrica Pharmaceuticals' financial landscape offers a mixed picture, as revealed by recent InvestingPro data. The company's market capitalization stands at $68.27 million, reflecting its current market valuation. Notably, Verrica has demonstrated impressive revenue growth, with a 61.61% increase over the last twelve months as of Q2 2024, and a remarkable quarterly revenue growth of 2744.51% in Q2 2024. This aligns with TD Cowen's expectation of significant sales growth for Ycanth in 2024.
However, the company faces financial challenges. InvestingPro Tips highlight that Verrica is "quickly burning through cash" and "not profitable over the last twelve months." This is corroborated by the negative gross profit margin of -60.48% and an operating income margin of -563.14% for the last twelve months ending Q2 2024. These figures underscore the financial hurdles Verrica faces as it seeks to establish Ycanth in the market.
The stock's recent performance has been volatile, with a significant return over the last week (12.68%) contrasting sharply with a 77.27% decline over the past three months. This volatility may reflect market reactions to the company's product rollout and competitive pressures from compounded cantharidin, as mentioned in the TD Cowen analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Verrica Pharmaceuticals, providing deeper insights into the company's financial health and market position.
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