Turnaround Plan Will Commercialize YCANTH And Advance Pipeline

Key Takeaways

• Cost reductions and focus on YCANTH commercialization could improve future revenues and net margins, aiding the turnaround plan.
  
• New market opportunities and pipeline progress with VP-315 and YCANTH could significantly boost future revenue if successful.
  
• Leadership changes and regulatory reliance introduce uncertainty, financial complexities, and potential risks to earnings, revenue, and stability.

Catalysts

A clinical-stage dermatology therapeutics company, engages in the development and sales of medications for the treatment of skin diseases in the United States.

• Verrica is executing a turnaround plan, reducing costs while focusing on the commercialization of YCANTH for molluscum contagiosum and advancing pipeline programs, which could enhance future revenue and improve net margins.
  
• The partnership with Torii Pharmaceutical for the development and potential approval of YCANTH in Japan represents a new market opportunity, potentially boosting international revenues and earnings.
  
• Progress in the clinical stage pipeline with VP-315 for basal cell carcinoma and YCANTH for common warts, both targeting large unmet needs, could significantly contribute to future revenue growth if approved and commercialized.
  
• Recent financial activities, including a capital raise and debt restructuring, have strengthened the company's financial position, which could stabilize operating cash flows and support further R&D investment.
  
• The introduction of a new single applicator configuration for YCANTH and expansion into pediatric territories are expected to drive demand and market penetration, positively impacting future revenue streams.

Verrica Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verrica Pharmaceuticals's revenue will grow by 92.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1012.1% today to 2.6% in 3 years time.
• Analysts expect earnings to reach $1.4 million (and earnings per share of $-0.03) by about May 2028, up from $-76.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $42.8 million in earnings, and the most bearish expecting $-23.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 328.6x on those 2028 earnings, up from -0.6x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 17.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Verrica Pharmaceuticals Future Earnings Per Share Growth

Risks

• The leadership transition and significant changes within the commercial organization could create instability and uncertainty, potentially impacting earnings as the company adapts to its new structure.
  
• The reliance on successful regulatory approval of YCANTH (TO-208) in Japan could affect future revenue projections if not achieved, impacting earnings from international markets.
  
• The need for additional funding and dependence on a capital raise highlights potential risks to financial stability, which could affect net margins if costs increase or if funding is not secured.
  
• Lower-than-anticipated pull-through of YCANTH and the associated increase in product returns may adversely impact revenue, reflecting unpredictability in the company's sales and distribution efforts.
  
• The company's litigation and valuation of embedded derivatives create financial complexities that could affect net earnings through increased expenses or liabilities.

Valuation

• The analysts have a consensus price target of $3.333 for Verrica Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $53.9 million, earnings will come to $1.4 million, and it would be trading on a PE ratio of 328.6x, assuming you use a discount rate of 6.7%.
• Given the current share price of $0.46, the analyst price target of $3.33 is 86.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.