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

Monday, the FDA approved Verrica Pharmaceuticals Inc's (NASDAQ: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 (NASDAQ: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.