vrca-10k_20201231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020

Commission File Number: 001-38529

Verrica Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

10 North High Street, Suite 200 West Chester, PA 19380

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (484) 453-3300

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbol Name of Each Exchange on which Registered

Common Stock, $0.0001 par value VRCA The Nasdaq Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐No☒

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☒ No ☐

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☒ No ☐

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 ☐ Accelerated filer ☐

Non-accelerated filer ☒ Small 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. ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of Verrica Pharmaceuticals Inc.’s voting and non-voting common equity held by non-affiliates as of June 30, 2020 (the last business day of the registrant's most recently completed second fiscal quarter) based on the closing sale price of $11.01 as reported on the Nasdaq Global Market on that date was approximately $173.2 million.

As of March 15, 2021, the registrant had 25,441,113 shares of common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, for its 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

• our plans to develop and commercialize our product candidates;

• the clinical utility of our product candidates;

• our commercialization, marketing and manufacturing capabilities and strategy;

• our intellectual property position;

• our ability to identify, recruit and retain key personnel;

• the impact of laws and regulations;

• the impacts of the COVID-19 pandemic on our business;

You should refer to Item 1A. “Risk Factors” in this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward‐looking statements. As a result of these factors, we cannot assure you that the forward‐looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward‐looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward‐looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Annual Report represent our views as of the date of this Annual Report. We anticipate that subsequent events and developments may cause our views to

change. However, while we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward‐looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report.

Unless otherwise indicated or the context otherwise requires, all references in this Annual Report to "the Company," "we," "our," "ours," "us" or similar terms refer to Verrica Pharmaceuticals Inc. "Verrica," the Verrica logo, YCANTH and other trademarks or service marks of Verrica Pharmaceuticals Inc. appearing in this Annual Report are the property of Verrica Pharmaceuticals Inc. This Annual Report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners.

Table of Contents

Page

PART I

Item 1. Business 4

Item 1A. Risk Factors 29

Item 1B. Unresolved Staff Comments 73

Item 2. Properties 73

Item 3. Legal Proceedings 73

Item 4. Mine Safety Disclosures 73

PART II

Item 6. Selected Financial Data 74

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 86

Item 8. Financial Statements and Supplementary Data 87

Item 9A. Controls and Procedures 108

Item 9B. Other Information 109

PART III

Item 10. Directors, Executive Officers and Corporate Governance 109

Item 11. Executive Compensation 109

Item 14. Principal Accountant Fees and Services 109

PART IV

Item 15. Exhibits and Financial Statement Schedules 110

PART I

ITEM 1. BUSINESS

Overview

We area dermatology therapeutics company committed to the development and commercialization of novel treatments that provide meaningful benefit for people living with skin diseases.Our leadproductcandidate,VP-102, isa proprietarydrug-devicecombinationof our noveltopical solutionof cantharidin,a widelyrecognized,naturallysourcedagentto treattopicaldermatologicalconditions, administeredthroughour single-useprecisionapplicator.We areinitiallydevelopingVP-102 forthetreatmentof molluscumcontagiosum,or molluscum,a highlycontagiousand primarilypediatricviralskindisease,and commonwarts.Therearecurrentlyno productsapprovedby theU.S.Food and Drug Administration,or FDA, nor istherean establishedstandardof careforeitherof thesediseases, resultingin significantundertreated populationsin two of thelargestunmetneedsin dermatology.In additionto patentprotectionwe areseeking, VP-102 has thepotentialto be thefirstFDA-approvedproductformolluscumand foritsactivepharmaceutical ingredient, or API, to be characterizedas a new chemicalentity,or NCE,with thefiveyearsof non-patent regulatoryexclusivityassociatedwith thatdesignation.We alsobelieveVP-102 has thepotentialto qualifyfor pediatricexclusivity in common warts,which would provideforan additionalsixmonthsof non-patentexclusivity.

In January 2019, we reported positive top-line resultsfromour Phase 3 CAMP-1 and CAMP-2 pivotaltrials with VP-102 for the treatment of molluscum. Both clinical trials evaluated the safety and efficacy of VP-102 compared to placebo. In each trial, we observed that a clinically and statistically significant proportion of subjects treated with VP-102 achieved complete clearance of all treatable molluscum lesions compared to subjects treated with placebo. VP-102 was well-tolerated in both trials, with no serious adverse events reported in VP-102 treated subjects CAMP-1 was conductedundera specialprotocolassessment,or SPA, agreement with theFDA. Based on the results from these trials, we submitted a new drug application, or NDA, to the FDA for VP-102 for the treatment of molluscum in September 2019. In November 2019, we received notice that the FDA accepted the NDA for filing, with a Prescription Drug User Fee Act, or PDUFA, goal date of July 13, 2020. In July 2020, we received a Complete Response Letter, or CRL, from the FDA for our NDA. The CRL indicated the need for additional information regarding certain aspects of the chemistry, manufacturing and controls, or CMC, processes for the drug/device combination as well as human factors validation. The FDA did not identify any clinical deficiencies. A Type A meeting was held with the FDA to discuss the issues that were identified in the CRL and the resubmission of the NDA for VP-102 in October 2020. We resubmitted our NDA for VP-102 for the treatment of molluscum in December 2020. In February 2021, we received notice that the FDA accepted the resubmitted NDA for filing, with a PDUFA goal date of June 23, 2021.

In June 2019, we announced positive topline results from our COVE-1 Phase 2 open label clinical trial of VP-102 for the treatment of verruca vulgaris, or common warts. Based on feedback from the FDA regarding a potential Phase 3 trial protocol, we are currently evaluating conducting an additional Phase 2 clinical trial of VP-102 for the treatment of common warts.

In addition, we are also developing VP-102 forthetreatmentof external genital warts. We initiated a Phase 2 clinical trial evaluating the optimal dose regimen, efficacy, safety and tolerability of VP-102 in patients with external genital warts in June 2019. In November 2020, we announced positive topline results from our Phase 2 clinical trial of VP-102 for the treatment of external genital warts. Based on the results of the Phase 2 trial, we requested an end of Phase 2 meeting with the FDA in the first quarter of 2021. In addition, we are conducting necessary drug development activitiesforVP-103, our secondcantharidin-basedproductcandidate, and are evaluating when to initiate a Phase 2 clinical trial for the treatment of plantar warts. Except as provided for in the Torii Agreement, we retainexclusive,royalty-freerightsto VP-102 and VP-103acrossall indications.

On March 17, 2021, we entered into a collaboration and license agreement, or the Torii Agreement, with Torii Pharmaceutical Co., Ltd., or Torii, 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, including VP-102. Additionally, we 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.Pursuant to the Torii Agreement, we are entitled to receive an up-front payment from Torii of $11.5 million. Additionally, we are entitled to receive from Torii an additional $58.0 million in aggregate payments contingent on achievement of specified development, regulatory, and sales milestones, in addition to tiered transfer price payments for supply of product in the percentage range of the mid-30s to the mid-40s of net sales.

In August 2020, we entered into an exclusive license agreement with Lytix Biopharma AS, or Lytix, pursuant to which we obtained an exclusive worldwide license for certain technology of Lytix to develop LTX-315 for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic merkel cell carcinoma. We intend to initially focus our development of LTX-315 on basal cell and squamous cell carcinomas. We intend to submit an Investigational New Drug Application, or IND, for LTX-315 in the first half of 2021.

Molluscumisa highlycontagiouscommonskindiseasecausedby a pox virusthatproducesmultiple raisedflesh-coloredpapules,or skinlesions.Molluscumtypicallypresentswith 10 to 30 lesionsand can present with over100 lesions.If leftuntreated,molluscumlesionspersistforan averageof 13 months,with somecases remainingunresolvedformorethantwo years.The symptomsof molluscumtendto causeconsiderableanxiety, and parentsfrequentlyseektreatmentdue to itshighlycontagiousnatureand physicalappearance.

We estimateapproximately6 millionpeoplein theUnitedStateshave molluscum. Of the 6 million people with molluscum, we estimate that approximately 1 million are diagnosed annually. Molluscumhas a 5% to 11% prevalenceratein childrenwith thegreatestincidencein individualsaged one to 14 yearsold. Accordingly,we estimatethisrepresentsa totaladdressableU.S.marketof over$1 billion.We believethatthe molluscumprevalenceratein theEuropeanUnion isatleastas high as in theUnitedStates.

Compounded cantharidinhas been used formanyyearsby dermatologiststo treatmolluscum,but ithas manylimitations.Those limitationsincludethatitisnot FDA-approved,couldhave highlyvariablepurity,isnot readilyavailableand isoftennot producedin accordancewith good manufacturingpractices,or GMP. In addition,theformulationand administrationof compoundedcantharidinisnot standardizedand ispoorly controlled.Otherexistingtherapies,such as cryotherapy, curettageand lasersurgeryarealsoused, but areoften painfuland mayleadto scarring.The potentialforscarringand painmakesmanyof thesetreatmentsparticularly unsuitableforchildren.As a result,a significantneed existsfora clinicallyprovenand FDA-approvedtreatment formolluscum.

We have designedVP-102 to addressthesignificantlimitationsof currentcompoundedcantharidin formulationsforthetreatmentof molluscum,includingwith respectto safety,purity,efficacy, stabilityand ease of administration.VP-102 containsthefirstGMP-controlledformulationof cantharidinwith a defined pharmaceuticalbatchprocessand an API thatisgreaterthan99% pure. We believeVP-102 addressesthe shortcomingsassociatedwith currenttherapies,includingpainand discomfort,potentialscarringand inconsistent outcomes,and has thepotentialto be thefirstFDA-approvedproductforthetreatmentof molluscum.

We arealsodevelopingVP-102 forthetreatment of common warts. Common warts typically result in two to five lesions. We estimate approximately 22 million people in the United States have common warts and the total addressable U.S. market to be over $1 billion with an estimated 2 million patient visits for common warts each year. In the United States, approximately 50% of the patients who seek treatment for common warts are children, and approximately 25% of common warts patients are treated by pediatricians. We believe that the common wart patient opportunity in the European Union is at least as large as that in the United States. There are currently no FDA-approved products indicated for the treatment of common warts. While common warts can be treated with slow acting, over-the-counter products, the warts tend to be highly refractory and a cause for multiple consultations. We believe that cantharidin’s role as a widely recognized and effective blistering agent for the treatment of skin lesions, coupled with VP-102’s safety and efficacy data in clinical trials for the treatment of molluscum and convenient ease of administration, will allow VP-102 to address many of the shortcomings associated with current therapies. In June 2019, we announced positive topline results from our COVE-1 Phase 2 open label clinical trial of VP-102 for the treatment of common warts. COVE-1 included two cohorts that evaluated the safety and efficacy of VP-102 in

subjects with up to six warts. In both cohorts, VP-102 achieved positive results in both the primary endpoint of complete clearance of all treatable warts at Day 84 and the secondary endpoint of the percentage reduction of warts, VP-102 was well-tolerated with no serious adverse events reported. Based on feedback from the FDA regarding a potential Phase 3 trial protocol, we are currently evaluating conducting an additional Phase 2 clinical trial of VP-102 for the treatment of common warts.

In addition, we are also developing VP-102 for the treatment of external genital warts. External genital warts are a viral skin disease caused by the human papilloma virus, or HPV, which forms lesions on the surface of the skin. An estimated 17% of the approximately 4.1 million patient visits for all types of warts are for the treatment of external genital warts. We initiated a Phase 2 clinical trial evaluating the optimal dose regimen, efficacy, safety and tolerability of VP-102 in patients with external genital warts in June 2019. In November 2020, we announced positive topline results from our Phase 2 clinical trial of VP-102 for the treatment of external genital warts. Based on the results of the Phase 2 trial, we requested an end of Phase 2 meeting with the FDA in the first quarter of 2021.

We alsointendto developour secondcantharidin-basedproductcandidate,VP-103, forthetreatmentof plantarwarts.An estimatedone-thirdof theapproximately4.1 millionannualpatientvisitsforalltypesof warts areforthetreatmentof plantarwarts,which arewartslocatedon thebottomof thefoot.We are conducting necessary drug development activitiesforVP-103 and are evaluating when to initiate a Phase 2 clinical trial for the treatment of plantar warts. We believewe have theopportunityto expand our proprietarycantharidinformulationsforthe treatmentof additionaldermatologicalconditionswith high unmetneeds.

We also intend to develop our third product candidate, LTX-315, for the treatment of dermatological oncology indications. We intend to submit an IND for LTX-315 in the first half of 2021.

We believethecurrentmedicaldermatologylandscapeprovidesan opportunityto establishourselvesas a leaderin thespace.Witha moreconcentratedprescribingbaseof dermatologistsversusothermedical specialties,our management’sproventrackrecordand experiencein new productlaunches,and thesignificant clinicalbenefitsdescribedabove, we believea targetedsalesand marketingorganizationof approximately50 to60 salesrepresentativesshouldenableus to capturemarketshareswiftlyin theUnitedStates,particularlyin our currentindicationsof focus.

Our Pipeline

The followingtablesummarizesour productcandidates. Except as provided by the Torii Agreement, we retainexclusive,royalty-freerightsforVP-102 (YCANTH) and VP-103.

VP-102 forthe Treatmentof Molluscum

We aredevelopingVP-102 as a proprietarydrug-devicecombinationof a novel0.7% w/v topical solutionof cantharidinadministeredthroughour single-useprecisionapplicator.VP-102 has thepotentialto be the first FDA-approved treatmentformolluscum and we believe it willaddressmanyof theshortcomingsassociatedwith currenttherapies,includingpainand discomfort,scarringand lackof effectiveness.

We have designedVP-102 to addressthesignificantlimitationsof currentcompoundedcantharidin formulationsforthetreatmentof molluscum,with respectto safety,purity,efficacy, stabilityand easeof administration.VP-102 containsthefirstGMP-controlledformulationof cantharidinwith a defined pharmaceuticalbatchprocessand an API thatisgreaterthan99% pure.

Our proprietarysingle-useapplicatorallowsforpreciseapplicationto eachlesion.Our applicator containsa sealedglassampuleprovidinglong-termroomtemperaturestabilitywithoutthechangesin concentrationdue to evaporationseenin compoundedformulations.

ClinicalDevelopmentforMolluscum

In January 2019, we announced positive topline results from our Phase 3 CAMP-1 and CAMP-2 pivotal trials with VP-102 for the treatment of molluscum. Based on the results from these trials, we submitted an NDA to the FDA for VP-102 for the treatment of molluscum in September 2019.In November 2019, we received notice that the FDA accepted the NDA for filing, with a PDUFA goal date of July 13, 2020.

In July 2020, we received a CRL, from the FDA for our NDA. The CRL indicated the need for additional information regarding certain aspects of the CMC processes for the drug/device combination as well as human factors validation. The FDA did not identify any clinical deficiencies. A Type A meeting was held with the FDA in October 2020 to discuss the issues that were identified in the CRL and the resubmission of the NDA for VP-102. We resubmitted our NDA for VP-102 for the treatment of molluscum in December 2020. In February 2021, we received notice that the FDA accepted the resubmitted NDA for filing, with a PDUFA goal date of June 23, 2021.

Below isa summaryof our clinicaldevelopmentfortheindicationof molluscum.

Phase 3 ClinicalTrials—CAMP-1and CAMP-2

In January 2019, we announced positive topline results from our Phase 3 CAMP-1 and CAMP-2 pivotal trials with VP-102 for the treatment of molluscum. The two trials, identical in design, were randomized, double-blind, multicenter, placebo-controlled trials of VP-102 for the treatment of molluscum. CAMP-1 was conducted under a SPA with the FDA. The primary objective of the trials was to evaluate the efficacy of dermal application of VP-102 relative to placebo in subjects 2 years of age and older with molluscum, when treated once every 21 days for up to four applications, by assessing the proportion of subjects achieving complete clearance of all treatable molluscum lesions at Day 84 (Week 12/End of Study visit). Secondary endpoints included the proportion of subjects with complete clearance at study visits on Days 21 (Week 3), 42 (Week 6) and 63 (Week 9).

CAMP-1 and CAMP-2 enrolled 528 subjects in total and were conducted at 31 centers in the United States. Results from CAMP-1 and CAMP-2 showed 46% and 54% of subjects treated with VP-102, respectively, achieved complete clearance of all treatable molluscum lesions at Day 84 versus 18% and 13% of subjects in the placebo groups (p<0.0001). By Day 84, VP-102 treated subjects had a 69% and 83% mean reduction in the number of molluscum lesions, a pre-specified endpoint, in CAMP-1 and CAMP-2, respectively, compared to a 20% increase and a 19% reduction for subjects on placebo.

Consistent with the results from the Phase 2 clinical trials, VP-102 was also well-tolerated in the Phase 3 trials, with side effects that were primarily mild to moderate. The most frequently reported adverse events were application site reactions that are well-known, reversible side effects related to the mechanism of action of cantharidin, a blistering agent, which is the active ingredient in VP-102. There were no treatment-related serious adverse events reported in CAMP-1 or CAMP-2.

Based on the results of these trials, we submitted an NDA to the FDA for VP-102 for the treatment of molluscum. In November 2019, we received notice that the FDA accepted the NDA for filing, with a PDUFA goal date of July 13, 2020.In July 2020, we received a CRL, from the FDA for our NDA. The CRL indicated the need for additional information regarding certain aspects of the CMC processes for the drug/device combination as well as human factors validation. The FDA did not identify any clinical deficiencies. A Type A meeting was held with the FDA in October 2020 to discuss the issues that were identified in the CRL and the resubmission of the NDA for VP-102. We resubmitted our NDA for VP-102 for the treatment of molluscum in December 2020. In February 2021, we received notice that the FDA accepted the resubmitted NDA for filing, with a PDUFA goal date of June 23, 2021.

Phase 2 ClinicalTrial—InnovateTrial

In September 2018, we announced results from an open-labelPhase 2 clinicaltrial,which we referto as theInnovatetrial. The primary objective of the Innovate trial was to determine any potential systemic exposure from a single 24-hour dermal application of VP-102 when applied to molluscum lesions on pediatric subjects 2 years of age and older. The trial enrolled 33 subjects at a single center into either an exposure group (n=17) or a standard group (n=16) with 32 subjects completing the trial. Following an initial treatment of all subjects with VP-102 and a 21-day evaluation period, treatment continued once every 21 days for three additional applications allowing further evaluation of safety, efficacy and impact on quality of life.

Systemic exposure was negligible, as indicated by plasma drug levels that were below the limits of quantification in 65 of 66 samples which were taken either pre-dose or post-dose at timepoints of 2, 6 and 24 hours after treatment with VP-102. One sample was above the limit of quantification at 2 hours after VP-102 treatment, but systemic exposure was not detectable at the 6-hour and 24-hour timepoints in this subject. At the end of trial visit (Week 12), there was a mean reduction in molluscum lesions of 90% compared to baseline across all subjects enrolled in the Innovate trial and 50% of subjects who completed the trial experienced complete clearance of their treatable molluscum lesions. VP-102 was well-tolerated and no serious adverse events were reported.

Phase 2 ClinicalTrial—PilotTrial

In 2016, we conductedan open-label,Phase 2 clinicaltrial,which we referto as thePilotTrial,to evaluatethesafetyand efficacyof our proprietarycantharidinformulationand to determinetheoptimaltreatment regimenand

estimatepower forthepivotaltrials.The trialenrolled30 subjectsata singlecenterand was completedin September2017. The trialutilizeda single-usescrew-topvialof our proprietary0.7% cantharidin formulation,with applicationviathewooden partof a cotton-tippedswab, which isthemethodof application historicallyused with compoundedcantharidin.The subjectswere dividedintotwo cohorts,with thefirstcohort instructedto wash offthetreatmentaftera six-hourexposureand thesecondcohortwashing offtheproductafter24-hourexposure.Subjectswere treatedeverythreeweeks forup to fourtreatments.Safetyand efficacy measureswere evaluatedeverythreeweeks. Primaryefficacymeasureswere thepercentageof subjectswho achievedcompleteclearanceby Day 42 (visit3) and Day 84 (visit5). Secondaryefficacymeasuresincludeda qualityof lifeassessment,as measuredby theChildren’s Dermatology Life Quality Index, or CDLQI,score,and thepercentageof subjectswho achievedclearanceof atleast90% of theirlesionswith comparisonto theefficacydataobtainedwith compounded cantharidin.The CDLQIscaleisa validatedtoolformeasuring theimpactof skindiseaseon qualityof lifeforsubjectsfiveto sixteenyearsof age and rangesfroma scoreof 0 to 30. Lower CDLQIscoresindicatelowerimpairmentof a patient’squalityof life.

In thePilotTrial,our proprietarycantharidinformulationwas appliedto over1,700 molluscumlesions in 30 subjects,and was observedto be welltolerated,with no seriousadverseeventsor unexpectedtreatment relatedadverseeventsrecorded.The trial’sfirstcohortinvestigateda six-hourtreatmentduration.Fourteensubjects were enrolledin this cohortand 13 subjectscompletedthetrial.Of these13 subjects,sixshowed completeclearanceon or before Day 84 (visit5) (46%completeclearancerate). The secondcohortinvestigateda 24-hourtreatmentduration.Sixteensubjectswere enrolledin this cohortand 12 completedthetrial.Of these12 subjects,fiveshowed completeclearanceon or beforeDay 84 (visit5) (42%completeclearancerate).

VP-102 forthe Treatmentof Common Warts

We arealsodevelopingVP-102 forthetreatmentof commonwarts.Publishedstudiesand clinicaluse providesupportforcantharidinas a safeand effectivetreatmentforcommonwarts.We believethatVP-102 has thepotentialto addressmanyof theshortcomingsassociatedwith currenttherapies,includingpainand discomfort,scarring,and lackof effectiveness.In addition,we believeVP-102’s convenienteaseof administrationwilldifferentiateitfromexistingalternativeunapprovedtherapies.

We conducted an open-label COVE-1 Phase 2 clinical trial to evaluate the efficacy, safety and tolerability of VP-102 in subjects with up to six common warts. In this study, there were two cohorts. Cohort 1 was conducted at a single site with 21 subjects age 2 years and older receiving up to 4 treatments with VP-102 at least 14 days between treatments with longer treatment intervals allowed at the discretion of the investigator depending on a specific subject’s clinical response. Cohort 2 was conducted at four sites with 35 subjects age 12 years and older receiving up to 4 treatments with VP-102 every 21 days. Paring of warts, a technique commonly used by dermatologists to prepare the wart for treatment, was allowed in Cohort 2 to remove any adherent thick scale from a wart prior to application of study drug. The primary objective of both cohorts was to evaluate the efficacy of up to 4 dermal applications of VP-102 when applied to common warts by assessing the proportion of subjects achieving complete clearance of all treatable warts at Day 84. Complete clearance of warts at Day 84 for Cohort 1 was observed in 19.0% of subjects, and for Cohort 2 complete clearance was observed in 51.4% of subjects. By Day 84, there was a mean decrease from baseline in the number of warts of 31.2% for Cohort 1 subjects and 53.8% for Cohort 2 subjects. In both cohorts, the most frequently reported adverse events were anticipated application site skin reactions that were primarily mild or moderate in intensity, including vesicles, pain, erythema, pruritus, scabbing, dryness, edema, and post-inflammatory pigmentation changes. There were no deaths or serious adverse events reported, and there were no adverse events leading to trial drug discontinuation.

Trial and Status Formulation Trial Design Trial Objectives

Based on feedback from the FDA regarding a potential Phase 3 trial protocol, we are currently evaluating conducting an additional Phase 2 clinical trial of VP-102 for the treatment of common warts.

VP-102 forthe Treatmentof External Genital Warts

We arealsodevelopingVP-102 forthetreatmentof external genitalwarts. External genital warts are a viral skin disease caused by HPV which forms lesions on the surface of the skin. An estimated 17% of the approximately 4.1 million patient visits for all types of warts are for the treatment of external genital warts. We believe VP-102 may have the potential to offer a safe and effective treatment for external genital warts because of the shared characteristics with molluscum. We initiated a Phase 2 clinical trial evaluating the optimal dose regimen, efficacy, safety and tolerability of VP-102 in patients with external genital warts in June 2019, as summarized in the table below. In November 2020, we announced positive topline results from our Phase 2 clinical trial of VP-102 for the treatment of external genital warts. Based on the results of the Phase 2 trial, we requested an end of Phase 2 meeting with the FDA in the first quarter of 2021.

Trial and Status Formulation Trial Design Trial Objectives

VP-103 forthe Treatmentof PlantarWarts

We alsointendto developour secondcantharidin-basedproductcandidate,VP-103, forthetreatmentof plantarwarts, which arewartslocatedon thebottomof thefoot. An estimatedone-thirdof theapproximately 4.1

millionpatientvisitsforalltypesof wartsareforthetreatmentof plantarwarts. To date,plantarwartshave been difficultto treat,as theyarerefractoryand availabletreatmentsoftenleadto both painand scarring.We are conducting necessary drug developmentactivitiesforVP-103 and are evaluating when to initiate a Phase 2 clinical trial for the treatment of plantar warts.

LTX-315 for the Treatment of Dermatological Oncology Indications

We also intend to develop our third product candidate, LTX-315, for the treatment of dermatological oncology indications. We intend to submit an IND for LTX-315 in the first half of 2021.

Manufacturing

We do not have any manufacturingfacilities.We have been relyingon thirdpartiesforthemanufacture of ourproduct candidatesforpreclinicalstudiesand clinicaltrials and willcontinueto relyon thesethirdpartiesin theneartermforthecommercialmanufactureof ourdrug productsiftheyareapprovedduringtheinitial commercialphase.Manufacturingof theAPI forour productcandidates requiresa raw materialthatisderived froma naturalsource.

To date, we have obtained naturally-sourced cantharidin directly or indirectly from suppliers based in the People’s Republic of China. On July 16, 2018, we entered into a Supply Agreement, or the Supply Agreement, with Funing County Development Brucea Javanica Professional Cooperatives, or the Supplier, pursuant to which the Supplier has agreed to supply naturally-sourced cantharidin to us for a specified fixed price. Pursuant to the Supply Agreement, the Supplier has agreed that it will not supply cantharidin, any beetles or other raw material from which cantharidin is derived to any other customer in North America, subject to specified minimum annual purchase orders and forecasts.

Pursuant to the Supply Agreement, we have provided the Supplier with purchase orders in 2018, 2019 and 2020 and may submit additional purchase orders from time to time, so long as the purchase orders are at least six months prior to the proposed delivery date. As of January 31, 2021, we possessed total inventories in a combination of raw cantharidin and converted API adequate to produce over 14 million finished drug product applicators in the United States, with additional raw cantharidin already manufactured awaiting shipment.

The term of the Supply Agreement is five years and thereafter will be renewed automatically for 12-month periods, unless terminated by either party at least 12 months prior to the end of the applicable term. In addition, either party has the right to terminate the Supply Agreement under certain circumstances, including (i) upon a material breach of the Supply Agreement if the breaching party has failed to remedy the breach within 45 days or if the breach is not capable of remedy within 45 days or (ii) the other party becomes insolvent or goes into liquidation.

Our contractmanufacturersand primarypackagingvendorareFDA-registeredestablishmentsand have a historyof supplyingproductsto thepharmaceuticalindustry.

We have demonstrated capability to successfully manufacture theAPI the bulk drug intermediate, filled ampules and assembled applicatorsat our proposed commercial batchsizes.Validation activities for the commercial manufacturing and assembly processes were completed in 2020. Given thenatureof both theAPI as wellas severalof theexcipients,specialhandlingwillbe requiredto minimizerisksto personnelduringprocessing.Analyticaltestingmethodsforboth theAPI as wellas thefinisheddrug producthave been developedand qualified. Itisexpectedthatthesemethodswillproveappropriateforreleaseof commercialproductwith minimaladditionaleffort.

Our proprietaryindividualapplicatorand itspartsarefabricatedusingcommonmethodsand materials and we currentlyplanto have our applicatorsbuiltusingsemi-customequipmentperformingwellestablished automatedassemblytechniques. As part of the proposed resolution to FDA comments in the CRL regarding the human factors validation, we have designed and developed an accessory to facilitate the preparation of the applicator assembly by the healthcare professional. The proposed commercial applicator assembly and this accessory have successfully undergone both engineering testing as well as evaluation in a simulated clinical setting.

Commercialization

WeintendtocommercializeVP-102,oranyotherproductcandidatesthatwemaysuccessfullydevelop,in theUnitedStatesbybuildingaspecializedsalesorganizationfocusedonpediatricdermatologists,dermatologists andselectpediatricians.Webelieveascientificallyoriented,customer-focusedteamofapproximately50to60sales representativeswouldallowustoreachtheapproximately400pediatricdermatologistsand5,000 to 6,000dermatologistsin theUnitedStateswiththehighestpotentialforusingVP-102.Inthefuture,wemaydevelopandcommercialize VP-102foradditionalgeographicregions,independentlyorwithastrategicpartner.For instance, on March 17, 2021, we entered into 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, including VP-102. Additionally, we 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.

Weintendtoseekdrugproduct reimbursementforVP-102.Basedonasurveyof40physiciansthatwecommissioned,87%ofphysiciansreported theywoulduseVP-102ifthecostofthedrugwerecovered.Furthermore,inApril2018,wecommissioneda marketresearchstudy,whichsurveyed15payororganizationsrepresentingover105millionlives.Thesurveyed payorsrecognizedthatthereisasignificantunmetneedformolluscumandacurrentlackofaneffectivetreatment. GiventheunmetneedandtheresultsofclinicaltrialsofVP-102todate,thesurveyedpayorsanticipatethemajority ofpatientswouldhaveaccesstoVP-102,ifapproved,withminimaltonorestrictions.Webelievedermatologists tendtobeparticularlyfocusedonthesafetyofpharmaceuticalproductsbecause,whileskindiseasescanhave profoundeffectsonpatients’qualityoflife,fewarelife-threatening.Asaresult,webelievethatdermatologists,as wellastheirpatients,oftenprefertousetopicaltreatmentswhenpossibletolimittheriskofsystemicsideeffects. Dermatologistsalsotendtoplaceahighlevelofemphasisonproductsthatareeasytousebecausetheyoften managehighvolumesofpatients.Webelievethisalsocontributestoageneralpreferencefortopicaltreatments. Finally,inourexperience,dermatologiststendtoengagewithsalesandmedicalaffairspersonnelfromthe pharmaceuticalindustryregardingthescientificevidencesupportingdermatologyproductsandthechallenges experiencedbyphysiciansandpatientsintheuseoftheseproducts.Dermatologistsoftenrelyontrusted relationshipswithscientificallyoriented,customer-focusedsalesrepresentativeswhocanprovidethemwiththe necessaryinformationtosupporttheiruseofappropriatetreatments.

Competition

The pharmaceuticalindustryissubjectto rapidlyadvancingtechnologies,intensecompetitionand a strongemphasison proprietaryproducts.We facepotentialcompetitionfrommanydifferentsources,including majorpharmaceutical,specialtypharmaceuticaland biotechnologycompanies,compoundingfacilities,academic institutions,governmentalagenciesand publicand privateresearchinstitutions.Any productcandidatesthatwe successfullydevelopand commercializewillcompetewith existingtreatmentsand new treatmentsthatmay becomeavailablein thefuture.

The key competitivefactorsaffectingthesuccessof VP-102, ifapproved,arelikelyto be itsefficacy, safety,convenience,pricingand stability.Withrespectto VP-102 forthetreatmentof molluscum,we willbe primarilycompetingwith therapiessuch as othertopicalproducts,curettage,cryotherapy,lasersurgery,natural oils,off-labeldrugs,naturalremediesand compoundedunstandardizedcantharidin.Under Section503A of the FDCA, ifVP-102 isapproved,compoundedtopicalcantharidinproductswith thesame,similaror an easily substitutabledosagestrengthwould be consideredessentiallycopiesof VP-102 and maynot be compounded regularlyor in inordinateamounts, subjectto certainlimitedindividualexceptions.These exceptionsincludeif thereisa differencebetweenthecompoundedproductand VP-102 thatismadeforan individualpatient,and a prescribingpractitionerdeterminesproducesa significantdifferenceforthatpatient.In addition,pursuantto Section503B of theFDCA,once VP-102 isapproved,compoundingfacilitiesregisteredas outsourcingfacilities would not be ableto compoundcantharidinproducts,unlessthereisa differencefromVP-102 thatproducesa clinicaldifferenceforan individualpatient,as determinedby a prescribingpractitioner.Withrespectto VP-102 forcommonwarts and VP-103 for plantar warts,we willprimarilybe competingwith over-the-counterproducts,cryotherapy,curettage,laser surgery,or otheroff-labeltherapies.Therearecurrentlyno FDA-approvedprescriptionpharmaceuticaltherapies forthetreatmentof molluscum,commonwarts, or plantar warts. With respect to VP-102 for external genital warts, we will be competing with cryosurgery, laser surgery, and topical destructive therapies such as trichloroacetic acid. There are also several FDA-approved prescription pharmaceutical therapies for external genital warts including

imiquimod, podofilox, and sinecatechins. In addition, external genital warts are caused by HPV and may be prevented or treated by HPV vaccines that are FDA-approved.

We areawareof severalotherproductcandidatesin earlierstagesof developmentas potential treatmentsfortheindicationswe intendto target.VeloceBiopharma,Leo Pharmaand Novan have initiated clinicaltrialswith differentprogramsin molluscum.Therearea numberof other companies developing products for common wart, including Aclaris Therapeutics. Aclaris has conductedlate-stage clinicaltrials and is pursuing FDA approval for their common wart product candidate. In addition,other drugshave been used offlabelas treatmentsformolluscumand commonwarts.

IntellectualProperty

Our commercialsuccessdependsin parton our abilityto obtainand maintainproprietaryprotectionfor VP-102 and our proprietaryapplicatorand any of our futureproductcandidates,medicaldevices,synthetic methodologies,noveldiscoveries,drug developmenttechnologiesand know-how; to operatewithoutinfringing on or otherwiseviolatingtheproprietaryrightsof others;and to preventothersfrominfringingor otherwise violatingour proprietaryrights.Our policyisto seekto protectour proprietarypositionby, amongother methods,filingU.S.and foreignpatentapplicationsrelatedto our productcandidateand otherproprietary technologies,inventions,and improvementsthatareimportantto thedevelopmentand implementationof our business.We alsorelyon trademarks,tradesecrets,know-how, continuingtechnologicalinnovation,and potentialin-licensingopportunitiesto developand maintainour proprietaryposition.

Whilewe seekbroadcoverageunderour pendingpatentapplications,our granted patent and pending patentapplicationsdo not includeany claimsdrawn to theactivepharmaceuticalagentcantharidinper se or forthebroaduse of our API aloneforthetreatmentof wartsor molluscum. However, our granted patent and pending patent applications do claim our cantharidin preparations,cantharidinformulations, applicator devices, dosingregimens,methodsof preparationincludingmethodsof synthesis, and methodsof use. Despitethesepatentfilings,thereisalwaysa riskthatmodificationof thespecific formulation,manufacturingprocess,methodof application,and/orspecificmethodof use mayallowa competitor to avoidinfringementclaims.In addition,patents,ifgranted,willexpire,and we cannotprovideany assurance thatany additional patentswill issuefromour pendingor any future patentapplications.

We currently have one granted Japanese patent covering cantharidin formulations, as well as one granted Australian patent covering cantharidin formulations, applicator devices and systems comprising the formulation and methods of using the same. Additionally, we have one allowed Israeli patent application covering our cantharidin formulation, applicator devices and systems comprising the formulation, and methods of using the same. We also have one issued United States patent, as well as patent applications allowed in Israel and Japan, each covering methods for preparing cantharidin. We also have one issued United States design patent covering the design of our VP-102 applicator. Additionally, as of February 4, 2021, we have nationalizedfive international patentapplicationsforutilitypatents,four of which have been nationalizedin theUnitedStates,Australia,Brazil,Canada, China, Europe, Israel,India,Japan,South Korea, and Mexico,and one of which has been nationalizedin theUnitedStates,Europe, and Japan. Four of these European patent applications have been registered in Hong Kong.In addition, we have onepending United States provisional patent application and two pending United States design patent applications.These patents and patent applicationsrelateto VP-102, our proprietaryapplicator,and otherinventionsrelatedto VP-102. Our patents and patent applicationsrelatedto VP-102 and our proprietaryapplicatorincludeproposedclaimsrelatingto (i)methodsfor thesynthesisof cantharidin,(ii)our specificformulationsand preparationsof VP-102, (iii)methodsforpurifying cantharidin,(iv)methodsfordetectingimpuritiesin cantharidin,(v)thedesignof our proprietaryapplicator, includingboth thegeneraldesignand specificdesignelements,(vi)claimsrelatedto safetyfeaturesincludedin theVP-102 formulation,includingcolorantsand bitteringagents,and (vii)themethodof administrationof VP-102 forthetreatmentof skinlesions.Excludingany patenttermadjustmentand patenttermextension, anyutility patentsto issuefromthesepatentapplicationsareprojectedto expirebetween2034 and 2041. The issued United States designpatent will expire on October 27, 2035, and any additional design patents to issuefromour pendingdesignpatentapplicationswill each expirefifteenyearsfromthedateof issuance.We cannotprovide any assuranceas to whetherany additional patentswill issuefromthesepatentapplicationsor, ifany patentsdo issue, thescopeof theclaimsthatwillbe allowed.

Individualpatentsextendforvaryingperiodsdependingonthedateoffilingofthepatentapplicationor thedateofpatentissuanceandthelegaltermofpatentsinthecountries,inwhichtheyareobtained.Generally, utility patentsissuedfromregularlyfiledapplicationsintheUnitedStatesaregrantedfor atermof20yearsfromtheearliest effectivenon-provisional filingdate.Inaddition,incertaininstances,apatent’stermcanbeadjustedtorecaptureaportionofthe UnitedStatesPatentandTrademarkOffice,ortheUSPTO,delayinexamining and issuingthepatent,andextendedtorecapturea portionofthepatenttermeffectivelylostasaresultoftheFDAregulatoryreviewperiodofthedrugcoveredbythe patent.However,astotheFDAcomponent,therestorationperiodcannotbelongerthanfiveyears,thetotalpatent termincludingtherestorationperiodmustnotexceed14yearsfollowingFDAapprovalofthedrug,andthe extensionmayonlyapplytoonepatentthatcoverstheapproveddrug(andtoonlythosepatentclaimscoveringthe approveddrugoramethodforusingit).Therecanbenoassurancethatanysuchpatenttermadjustmentor extensionwillbeobtained.Thedurationofforeignpatentsvariesinaccordancewithprovisionsofapplicablelocal law,buttypicallyisalso20yearsfromtheearliesteffectivenon-provisional filingdate.However,theactualprotectionaffordedbya patentvariesonaproduct-by-productbasis,fromcountrytocountryanddependsuponmanyfactors,includingthe typeofpatent,thescopeofitscoverage,theavailabilityofregulatory-relatedextensions,theavailabilityoflegal remediesinaparticularcountry,andthevalidityandenforceabilityofthepatent.

Furthermore,we relyupon tradesecrets,know-how, and continuingtechnologicalinnovationto develop and maintainour competitiveposition.We seekto protectour proprietaryinformation,in part,using confidentialityagreementswith our commercialpartners,collaborators,employees,and consultantsand inventionassignmentagreementswith our employees.We alsohave confidentialityagreements and/or invention assignmentagreementswith our commercialpartnersand selectedconsultants.These agreementsaredesignedto protectour proprietaryinformationand, in thecaseof theinventionassignmentagreements,to grantus ownershipof technologiesthataredevelopedthrougha relationshipwith a thirdparty.These agreementsmaybe breached,and we maynot have adequateremediesforany such breach.In addition,our tradesecretsmay otherwisebecomeknown or be independentlydiscoveredby competitors.To theextentthatour commercial partners,collaborators,employees,and consultantsuse intellectualpropertyowned by othersin theirwork forus, disputesmayariseas to therightsin relatedor resultingknow-how and inventions.

Lytix License Agreement

On August 7, 2020, we entered into the Lytix Agreement, pursuant to which we obtained a worldwide, exclusive, royalty-bearing license, with the right to sublicense, for certain technology of Lytix to research, develop, manufacture, have manufactured, use, sell, have sold, offer for sale, import and otherwise commercialize LTX-315 for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic merkel cell carcinoma. Our right to manufacture the active pharmaceutical ingredient is limited to certain instances, and Lytix is obligated to manufacture and supply our clinical and commercial needs for such active pharmaceutical ingredient. We are obligated to use commercially reasonable efforts to develop and to commercialize the product, which development and commercialization will be overseen by a joint steering committee. Lytix has agreed not to pursue any products in the field of dermatology other than LTX-315 for use in metastatic melanoma and metastatic merkel cell carcinoma. Lytix has granted us an exclusive option to negotiate for an exclusive license for use of LTX-315 in additional dermatological indications.

In connection with entering the Lytix Agreement, we made initial payment of $250,000. We made an additional payment of $2.25 million upon the achievement by Lytix of a regulatory milestone. Additionally, we are obligated to pay up to $111.0 million contingent on achievement of specified development, regulatory, and sales milestones, and tiered royalties based on worldwide annual net sales ranging in the low double digits to the mid-teens, subject to certain customary reductions. Our 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 LTX-315 anywhere in the world and expiration of regulatory exclusivity for LTX-315 in such country. Additionally, all upfront fees and milestone-based payments received by us 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 us from a sublicensee shall be shared with Lytix at a rate that is initially 50% but decreases based on the stage of development of LTX-315 at the time such sublicense is granted.

The Lytix Agreement expires on a product-by-product and a country-by-country basis upon expiration of the royalty term for such product in such country. At any time after the first anniversary of the execution of the Lytix

Agreement, we have the right to terminate the agreement, either on a region-by-region basis or in its entirety, upon specified written notice to Lytix. Lytix may terminate the agreement, either on a region-by-region basis or in its entirety, if we develop or commercialize a competing product in the licensed field, or in its entirety if we challenge the validity, enforceability or scope of any licensed patent, subject in each case to certain cure rights. Either party may terminate the Lytix Agreement in the event of an uncured material breach or insolvency of the other party.

Torii Collaboration and License Agreement

On March 17, 2021, we entered into 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, including VP-102. Additionally, we 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.

Under the Torii Agreement, Torii is responsible for all development activities and costs in support of obtaining regulatory approval of the licensed products in Japan, provided, that Torii’s activities will be overseen by a joint steering committee. Torii is required to use commercially reasonable efforts to conduct all development necessary to obtain regulatory approval for licensed products in Japan, to obtain and maintain such approvals, and to commercialize licensed products upon receipt of such approvals.

Pursuant to the Torii Agreement, we are entitled to receive an up-front payment from Torii of $11.5 million. Additionally, we are entitled to receive from Torii an additional $58.0 million in aggregate payments contingent on achievement of specified development, regulatory, and sales milestones, in addition to tiered transfer price payments for supply of product in the percentage range of the mid-30s to the mid-40s of net sales. The transfer 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. We may terminate the agreement in the event that Torii commences a legal action challenging the validity, enforceability or scope of any licensed patents.

GovernmentRegulationand Product Approval

Governmentauthoritiesin theUnitedStates,atthefederal,stateand locallevels,and in othercountries, extensivelyregulate,amongotherthings,theresearch,development,testing,manufacture,packaging,storage, recordkeeping,labeling,advertising,promotion,distribution,marketing,importand exportof pharmaceutical products,such as thosewe aredeveloping.We, alongwith third-partycontractors,willbe requiredto navigate thevarious chemistry, manufacturing and controls, preclinical,clinicaland commercialapprovalrequirementsof thegoverningregulatoryagenciesof thecountriesin which we wish to conductstudiesor seekapprovalof our productcandidates.The processesfor obtainingregulatoryapprovalsin theUnitedStatesand in foreigncountries,alongwith subsequentcompliance with applicablestatutesand regulations,requiretheexpenditureof substantialtimeand financialresources.

United StatesGovernmentRegulation

In theUnitedStates,theFDAregulatesdrugsundertheFDCAand itsimplementingregulations.The processof obtainingregulatoryapprovalsand thesubsequentcompliancewith appropriatefederal,state,local and foreignstatutesand regulationsrequirestheexpenditureof substantialtimeand financialresources.Failure to complywith theapplicableUnitedStatesrequirementsatany timeduringthedrug developmentprocess, approvalprocessor afterapproval,maysubjectan applicantto a varietyof administrativeor judicialsanctions, such as theFDA’s refusalto approvependingnew drug applications,or NDAs,withdrawalof an approval, impositionof a clinicalhold, issuanceof warningor untitledletters,productrecalls,productseizures,totalor partialsuspensionof productionor distribution,injunctions,fines,refusalsof governmentcontracts,restitution, disgorgementor civilor criminalpenalties.

The processrequiredby theFDAbeforea drug maybe marketedin theUnitedStatesgenerally involves:

• submission to the FDA of an NDA;

• satisfactory completion of an FDA advisory committee review, if applicable;

• payment of user fees; and

• FDA review and approval of the NDA.

VP-102 isdesignedto be administeredto patientsviaa proprietaryapplicator by a healthcare professional.In theUnitedStates,products composedof componentsthatwould normallybe regulatedby differentcentersattheFDAareknown as combinationproducts.Typically,theFDA’s Officeof CombinationProductsassignsa combinationproductto a specificAgency centeras theleadreviewer.The FDAdetermineswhich centerwillleada product’sreview basedupon theproduct’sprimarymodeof action.Depending on thetypeof combinationproduct,itsapproval, clearanceor licensuremayusuallybe obtainedthroughthesubmissionof a singlemarketingapplication.We anticipatethatVP-102 willbe regulatedas a drug, and thattheFDAwillpermita singleregulatorysubmission seekingapprovalof VP-102 with theapplicator in each indication for which we seek approval.Even when a singlemarketingapplicationisrequiredfora combinationproduct,such as an NDAfora combinationpharmaceuticaland deviceproduct,both theFDA’s CenterforDrug Evaluation and Researchand theFDA’s CenterforDevicesand RadiologicalHealthmayparticipatein thereview.An applicantwillalsoneed to discusswith theAgency how to applycertainpremarketrequirementsand post-marketingregulatoryrequirements,includingconductof clinicaltrials,adverseeventreportingand good manufacturingpractices,to theircombinationproduct.

PreclinicalStudies

Preclinicalstudiesincludelaboratoryevaluationof productchemistry,toxicityand formulation,as well as animalstudiesto assesspotentialsafetyand efficacy.An IND sponsormustsubmittheresultsof the nonclinicaltests,togetherwith manufacturinginformation,analyticaldataand any availableclinicaldataor literature,amongotherthings,to theFDAas partof an IND. Some nonclinicaltestingmaycontinueeven after theIND issubmitted.

An IND automaticallybecomeseffectiveand a clinicaltrialproposedin theIND may begin30 days afterreceiptby theFDA,unlessbeforethattimetheFDAraisesconcernsor questionsrelatedto one or moreproposedclinicaltrialsand placestheclinicaltrialon a clinicalhold. In such a case,theIND sponsorand theFDAmustresolveany outstandingconcernsbeforetheclinicaltrialcan begin.As a result, submissionof an IND maynot resultin theFDAallowingclinicaltrialsto commence.

Clinical Trials

Clinicaltrialsinvolvetheadministrationof theinvestigationalnew drug to humansubjectsunderthe supervisionof qualifiedinvestigatorsin accordancewith GCPrequirements,which includetherequirementthat allresearchsubjectsprovidetheirinformedconsentin writingfortheirparticipationin any clinicaltrial.Clinical trialsareconductedunderprotocolsdetailing,amongotherthings,theobjectivesof thetrial,theparametersto be used in monitoringsafetyand theeffectivenesscriteriato be evaluated.A protocolforeachclinicaltrialand any subsequentprotocolamendmentsmustbe submittedto theFDAas partof theIND. In addition,an IRB ateach institutionparticipatingin theclinicaltrialmustreviewand approvetheplanforany clinicaltrialbeforeit commencesatthatinstitution,and theIRB mustcontinueto overseetheclinicaltrialwhileitisbeingconducted. Informationaboutcertainclinicaltrialsmustbe submittedwithinspecifictimeframesto theNationalInstitutesof Health,or NIH, forpublicdisseminationon theirClinicalTrials.govwebsite.

Human clinicaltrialsaretypicallyconductedin threesequentialphases,which mayoverlapor be combined.In Phase 1, thedrug isinitiallyintroducedintohealthyhumansubjectsor patientswith thetarget diseaseor conditionand testedforsafety,dosagetolerance,absorption,metabolism,distribution,excretionand, ifpossible,to gainan initialindicationof itseffectiveness.In Phase 2, thedrug typicallyisadministeredto a limitedpatientpopulationto identifypossibleadverseeffectsand safetyrisks,to preliminarilyevaluatethe efficacyof theproductforspecifictargeteddiseasesand to determinedosagetoleranceand optimaldosage.In Phase 3, thedrug isadministeredto an expandedpatientpopulation,generallyatgeographicallydispersed clinicaltrialsites,in well-controlledclinicaltrialsto generateenough datato statisticallyevaluatethesafetyand efficacyof theproductforapproval,to establishtheoverallrisk-benefitprofileof theproductand to provide adequateinformationforthelabelingof theproduct.

In somecases,theFDAmayconditionapprovalof an NDAfora productcandidateon thesponsor’s agreementto conductadditionalclinicaltrialsafterNDAapproval.In othercases,a sponsormayvoluntarily conductadditionalclinicaltrialspostapprovalto gainmoreinformationaboutthedrug. Such postapprovaltrials aretypicallyreferredto as Phase 4 clinicaltrials.

Progressreportsdetailingtheresultsof theclinicaltrialsmustbe submitted,atleastannually,to the FDA,and morefrequentlyifseriousadverseeventsoccur.Phase 1, Phase 2 and Phase 3 clinicaltrialsmaynot be completedsuccessfullywithinany specifiedperiod,or atall.Furthermore,theFDAor thesponsormaysuspend or terminatea clinicaltrialatany timeon variousgrounds,includinga findingthattheresearchsubjectsare beingexposedto an unacceptablehealthrisk.Similarly,an IRB can suspendor terminateapprovalof a clinical trialatitsinstitutioniftheclinicaltrialisnot beingconductedin accordancewith theIRB’s requirements,or if thedrug has been associatedwith unexpectedseriousharmto patients.

Concurrentwith clinicaltrials,companiesusuallycompleteadditionalanimalstudiesand mustalso developadditionalinformationaboutthechemistryand physicalcharacteristicsof theproductand finalizea processformanufacturingtheproductin commercialquantitiesin accordancewith cGMP requirements.The manufacturingprocessmustbe capableof consistentlyproducingqualitybatchesof theproductcandidateand, amongotherthings,themanufacturermustdevelopmethodsfortestingtheidentity,strength,qualityand purity of thefinalproduct.Additionally,appropriatepackagingmustbe selectedand tested,and stabilitystudiesmustbe conductedto demonstratethattheproductcandidatedoes not undergounacceptabledeteriorationoveritsshelf life.

MarketingApproval

Assumingsuccessfulcompletionof therequiredclinicaltesting,theresultsof thepreclinicalstudiesand clinicaltrials,togetherwith detailedinformationrelatingto theproduct’schemistry,manufacture,controls dataand proposedlabeling,amongotherthings,aresubmittedto theFDAas partof an NDArequestingapprovalto markettheproductforone or moreindications.In mostcases,thesubmissionof an NDAissubjectto asubstantialapplicationuserfee.Under thePrescriptionDrug User Fee Act, or PDUFA,guidelinesthatare currentlyin effect,theFDAhas a goalof tenmonthsfromthedateof “filing”of a standardNDAfora new molecularentityto reviewand acton thesubmission.This reviewtypicallytakestwelvemonthsfromthedate theNDAissubmittedto theFDAbecausetheFDAhas sixtydays fromreceiptto makea decisionas to whether theapplicationhas been acceptedforfiling.

In addition,underthePediatricResearchEquityAct of 2003 as amendedand reauthored, certainNDAs or supplementsto an NDAmustcontaindatathatareadequateto assessthesafetyand effectivenessof thedrug fortheclaimedindicationsin allrelevantpediatricsubpopulations,and to supportdosingand administrationfor eachpediatricsubpopulationforwhich theproductissafeand effective.The FDAmay,on itsown initiativeor at therequestof theapplicant,grantdeferralsforsubmissionof someor allpediatricdatauntilafterapprovalof the productforuse in adults,or fullor partialwaiversfromthepediatricdatarequirements.

The FDAalsomayrequiresubmissionof a riskevaluationand mitigationstrategy,or REMS,planto ensurethatthebenefitsof thedrug outweighitsrisks.The REMSplancouldincludemedicationguides, physiciancommunicationplans,assessmentplans,and/orelementsto assuresafeuse, such as restricted distributionmethods,patientregistriesor otherriskminimizationtools.

The FDAconductsa preliminaryreviewof allNDAswithinthefirst60 days aftersubmission,before acceptingthemforfiling,to determinewhethertheyaresufficientlycompleteto permitsubstantivereview.The FDAmayrequestadditionalinformationratherthanacceptan NDAforfiling.In thisevent,theapplicationmust be resubmittedwith theadditionalinformation.The resubmittedapplicationisalsosubjectto reviewbeforethe FDAacceptsitforfiling.Once thesubmissionisacceptedforfiling,theFDAbeginsan in-depthsubstantive review.The FDAreviewsan NDAto determine,amongotherthings,whetherthedrug issafeand effectiveand whetherthefacilityin which itismanufactured,processed,packagedor heldmeetsstandardsdesignedto assure theproduct’scontinuedsafety,qualityand purity.

The FDAmayreferan applicationfora noveldrug to an advisorycommittee.An advisorycommitteeis a panelof independentexperts,includingcliniciansand otherscientificexperts,thatreviews,evaluatesand providesa recommendationas to whethertheapplicationshouldbe approvedand underwhat conditions.The FDAisnot bound by therecommendationsof an advisorycommittee,but itconsiderssuch recommendations carefullywhen makingdecisions.

Beforeapprovingan NDA,theFDAtypicallywillinspectthefacilityor facilitieswhere theproductis manufactured.The FDAwillnot approvean applicationunlessitdeterminesthatthemanufacturingprocesses and facilitiesarein compliancewith cGMP requirementsand adequateto assureconsistentproductionof the productwithinrequiredspecifications.Additionally,beforeapprovingan NDA,theFDAwilltypicallyinspect one or moreclinicaltrialsitesto assurecompliancewith GCPrequirements.

The testingand approvalprocessforan NDArequiressubstantialtime,effortand financialresources, and eachmaytakeseveralyearsto complete.Data obtainedfrompreclinicaland clinicaltestingarenot always conclusiveand maybe susceptibleto varyinginterpretations,which coulddelay,limitor preventregulatory approval.The FDAmaynot grantapprovalof an NDAon a timelybasis,or atall.

AfterevaluatingtheNDAand allrelatedinformation,includingtheadvisorycommittee recommendation,ifany, and inspectionreportsregardingthemanufacturingfacilitiesand clinicaltrialsites,the FDAmayissuean approvalletter,or, in somecases,a completeresponseletter.A completeresponseletter generallycontainsa statementof specificconditionsthatmustbe metin orderto securefinalapprovalof the NDAand mayrequireadditional chemistry, manufacturing and controls documentation, clinicalor preclinicaltestingin orderfortheFDAto reconsidertheapplication. Even with submissionof thisadditionalinformation,theFDAultimatelymaydecidethattheapplicationdoes not satisfytheregulatorycriteriaforapproval.Ifand when thoseconditionshave been metto theFDA’s satisfaction, theFDAwilltypicallyissuean approvalletter.An approvalletterauthorizescommercialmarketingof thedrug with specificprescribinginformationforspecificindications.

Even iftheFDAapprovesa product,itmaylimittheapprovedindicationsforuse of theproduct, requirethatcontraindications,warningsor precautionsbe includedin theproductlabeling,requirethatpost-approvalstudies,includingPhase 4 clinicaltrials,be conductedto furtherassessa drug’ssafetyafterapproval, requiretestingand surveillanceprogramsto monitortheproductaftercommercialization,or imposeother conditions,includingdistributionand use restrictionsor otherriskmanagementmechanismsundera REMS, which can materiallyaffectthepotentialmarketand profitabilityof theproduct.The FDAmaypreventor limit furthermarketingof a productbasedon theresultsof post-marketingstudiesor surveillanceprograms.After approval,sometypesof changesto theapprovedproduct,such as addingnew indications,manufacturing changes,and additionallabelingclaims,aresubjectto furthertestingrequirementsand FDAreviewand approval.

SpecialProtocolAssessment

A sponsor may request a Special Protocol Assessment, or (SPA), the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins for a SPA to be approved. If a written agreement is reached, it will be documented in a SPA letter or the minutes of a meeting between the sponsor and the FDA and made part of the administrative record.

Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances:

• a sponsor fails to follow a protocol that was agreed upon with the FDA; or

A documented SPA may be modified, and such modification will be deemed binding by the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. A SPA, however, does not guarantee that a trial will be successful.

Orange Book Listing

In seeking approval for a drug through an NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, known as the Orange Book. Any applicant who files an Abbreviated New Drug Application, or ANDA, seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify, for each patent listed in the Orange Book for the referenced drug, to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA, (2) such patent has expired, (3) the date on which such patent expires or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. The fourth certification described above is known as a paragraph IV certification. A notice of the paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA refers. The applicant may also elect to submit a “section viii” statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. This section viii statement does not require notice to the patent holder or NDA owner. There might also be no relevant patent certification.

If the reference NDA holder and patent owners assert a patent challenge directed to one of the Orange Book listed patents within 45 days of the receipt of the paragraph IV certification notice, the FDA is prohibited from approving the application until the earlier of 30 months from the receipt of the paragraph IV certification expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant. Even if the 45 days expire, a patent infringement lawsuit can be brought and could delay market entry, but it would not extend the FDA-related 30-month stay of approval.

TheANDAor505(b)(2)applicationalsowillnotbeapproveduntilanyapplicablenon-patentexclusivity listedintheOrangeBookforthebrandedreferencedrughasexpired.Specifically,theholderoftheNDAforthe listeddrugmaybeentitledtoaperiodofnon-patentexclusivity,duringwhichtheFDAcannotapproveanANDA or505(b)(2)applicationthatreliesonthelisteddrug.Forexample,apharmaceuticalmanufacturermayobtainfive yearsofnon-patentexclusivityuponNDAapprovalofa New Chemical Entity, or(NCE),whichisadrugthatcontainsanactivemoietythat hasnotbeenapprovedbyFDAinanyotherNDA.An“activemoiety”isdefinedasthemoleculeorion responsibleforthedrugsubstance’sphysiologicalorpharmacologicaction.Duringthefive-yearexclusivity period,theFDAcannotacceptforfilinganyANDAseekingapprovalofagenericversionofthatdrugorany 505(b)(2)NDAforthesameactivemoietyandthatreliesontheFDA’sfindingsregardingthatdrug,exceptthat FDAmayacceptanapplicationforfilingafterfouryearsifthefollow-onapplicantmakesaparagraphIV certification.Thisexclusivityperiodmaybeextendedbyanadditionalsixmonthsifcertainrequirementsaremet toqualifytheproductforpediatricexclusivity,includingthereceiptofawrittenrequestfromtheFDAthatwe conductcertainpediatricstudies,thesubmissionofstudyreportsfromsuchstudiestotheFDAafterreceiptofthe writtenrequestandsatisfactionoftheconditionsspecifiedinthewrittenrequest.

Post-ApprovalRequirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications, manufacturing changes or other labeling claims, are subject to further testing requirements and prior FDA review and approval. There also are continuing annual program fee requirements for any marketed products.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market or if requested by the Sponsor. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program.OtherpotentialFDA enforcement actionsinclude,amongotherthings:

• fines, warning letters or holds on post-approval clinical trials;

• injunctions or the imposition of civil or criminal penalties.

The FDAstrictlyregulatesmarketing,labeling,advertisingand promotionof products.Drugs maybe promotedonly fortheapprovedindicationsand in accordancewith theprovisionsoftheapprovedlabel,althoughphysicians,in thepracticeof medicine,mayprescribeapproveddrugsfor unapprovedindications.Companies may also share truthful and not misleading information that is otherwise consistent with the labeling. The FDAand otheragenciesactivelyenforcethelaws and regulationsprohibitingthe promotionof off-labeluses,and a companythatisfound to have improperlypromotedoff-labelusesmaybe subjectto significantliability. However, physicians may, in their independent medical judgement, prescribe legally available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatmentsbut the FDA does restrict manufacturer’s communications on the subject of off-label use of their products.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Regulationof Compounding Pharmacies

Compounding is a practice in which a licensed pharmacist, a licensed physician, or in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist, combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient. Although we are not engaged in compounding, the active pharmaceutical ingredient in our product candidate VP-102 has historically been used in the compounding of topical pharmaceutical products, and we could be subject to competition by compounders upon approval of VP-102, subject to the requirements set forth in Sections 503A and 503B of the FDCA.

Section 503A of the FDCA exempts licensed pharmacists or licensed physicians who compound products for identified, individual patients, based on the receipt of a valid prescription order, from the FDCA’s new drug approval requirements, cGMP requirements, and the requirement to label products with adequate directions for use, provided certain conditions are met. These conditions include that the pharmacist or physician does not compound regularly or in inordinate amounts any drug product that is essentially a copy of a commercially available drug product, unless there is a difference between the compounded product and the commercially available product that is made for an individual patient, and which the prescribing practitioner determines produces a significant difference for that patient. The FDA has interpreted this prohibition to mean that the compounding of a product with the same active pharmaceutical ingredient as a commercially available drug, that has the same, similar, or an easily substitutable dosage strength as the commercially available drug, and that can be used by the same route of administration as the commercially available drug, cannot be conductedunderSection503A usually,veryoften,or atregulartimesor intervals,or morefrequentlyor in larger quantitiesthanneededto addressunanticipatedemergencycircumstance,unlessthelimitedexceptiondescribed above applies.

In addition, compounding under Section 503A may only use bulk drug substances that appear on a list issued by FDA through regulations, and/or that comply with certain other conditions specified in the statute.

Unlike Section 503A, Section 503B of the FDCA allows certain entities to compound drugs that are not necessarily prepared in response to prescriptions for identified, individual patients. Such facilities must register with the FDA as outsourcing facilities, and once registered (including payment of a fee), the outsourcing facility must meet certain conditions in order to be exempt from the FDCA’s approval requirements and the requirement to label products with adequate directions for use. Under Section 503B, a drug must be compounded in compliance with cGMP, by or under the direct supervision of a licensed pharmacist in order to be so exempt. The outsourcing facility must also report specific information about the products that it compounds, including a list of all of the products it compounded during the previous six months, and information about the compounded products, such as the source of the active ingredients used to compound pursuant to Section 503B(b)(2). If the outsourcing facility compounds using bulk drug substances, the bulk drug substances must either appear on a list established by the FDA of bulk drug substances for which there is a clinical need or be used to compound drugs that appear on a list established by the FDA of drugs for which there is a shortage. Although the FDA has not yet established a list of bulk drug substances for which there is a clinical need, the FDA has announced an interim policy pursuant to which bulk drug substances may be nominated for inclusion on such list and, provided certain conditions are met, outsourcing

facilitiesmaycompoundwith such bulk drug substancespendingevaluationof thesubstancesforinclusionon theFDA’s listof bulk drug substancesforwhich thereisa clinicalneed. Cantharidiniscurrentlylistedamongthosenominatedsubstancesforwhich bulk drug substancemaybe used in compoundingby outsourcingfacilitiespendingFDA’s evaluation.In March2019, theFDAissued GuidanceforIndustryaddressingthecriteriaby which theFDAintendsto evaluatewhetherthereexistsa clinical need forcompoundingwith a bulk drug substance,including,in thecaseof a bulk drug substancethatisa componentof an FDA-approved drug, an evaluationof whetherthereexistsan attributeof theapproveddrug that makesitmedicallyunsuitableto treatcertainpatients;whetherthedrug productproposedto be compoundedis intendedto addressthatattribute;and whetherthedrug productproposedto be compoundedmustbecompoundedfroma bulk drug substanceratherthanfromthefinished,FDA-approved drug product.IfFDA implementsthesecriteriaas in theGuidanceforIndustry,and ifVP-102 isapproved,an outsourcingfacilitywould need to satisfythesecriteriabeforebeingpermittedto compounda cantharidin productusingbulk cantharidin.

In addition, an outsourcing facility must meet other conditions described in Section 503B, including reporting adverse events and labeling compounded products with certain information. Registered outsourcing facilities are prohibited from selling compounded drugs through a wholesale distributor, or from compounding drugs that are essentially copies of FDA-approved drugs. A drug is “essentially a copy of an approved drug” if it is identical or nearly identical to an approved drug, which the FDA has interpreted to mean that it has the same active ingredient(s), route of administration, dosage form, dosage strength and excipients as the approved drug, or if it has the same active ingredient as an approved drug and there is not a change from the approved drug that produces a clinical difference for an individual patient, as determined by the prescribing practitioner. Registered outsourcing facilities are subject to FDA inspection, and FDA conducts inspections on a risk-based frequency under Section 503B(b)(4) of the FDCA.

Federaland StateFraud and Abuse, Data Privacyand Security,and TransparencyLaws and Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers and other parties through which we market, sell and distribute our products for which we obtain marketing approval. These laws include anti-kickback and false claims laws and regulations, data privacy and security, and transparency laws and regulations, including, without limitation, those laws described below.

The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcareprograms.The term“remuneration”has been broadlyinterpretedto includeanythingof value.The federalAnti-KickbackStatutehas been interpretedto applyto arrangementsbetweenpharmaceutical manufacturerson one hand and prescribers,purchasers,formularymanagers, and other individuals and entitieson theotherhand. Although therearea numberof statutoryexceptionsand regulatorysafeharborsprotectingsomecommonactivitiesfrom prosecution,theexceptionsand safeharborsaredrawn narrowly and require strict compliance to offer protection.Practicesthatinvolveremunerationthatmaybe allegedto be intendedto induceprescribing,purchasesor recommendationsmaybe subjectto scrutinyiftheydo not qualifyforan exceptionor safeharbor.

In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. Further, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act and the civil monetary penalties statute.

The federal civil and criminal false claims laws, including the False Claims Act, which prohibit, among other things, any individual or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have

been prosecutedundertheselaws forallegedlyprovidingfreeproductto customerswith the expectationthatthecustomerswould billfederalprogramsfortheproduct.Othercompanieshave been prosecutedforcausingfalseclaimsto be submittedbecauseof thecompanies’marketingof productsfor unapproved,and thusnon-reimbursable,uses.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, impose certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization on certain health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates, independent contractors that perform certain services involving the use or disclosure of individually identifiable health information and their subcontractors that use, disclose, access, or otherwise process individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions.

The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals,and applicablemanufacturersand applicablegroup purchasingorganizationsto reportannuallyto CMS ownershipand investmentinterestsheldby physiciansand theirimmediatefamilymembers. Beginning in 2022, applicable manufacturers will also be required to report information regarding payments and other transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants, and certified nurse-midwives.

We may also be subject to state and foreign law equivalents of each of the above federal laws; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and otherhealthcareprovidersor marketingexpenditures;statelaws thatrequirepharmaceuticalcompaniesto complywith thepharmaceuticalindustry’svoluntarycomplianceguidelinesand therelevantcompliance guidancepromulgatedby thefederalgovernment,or thatotherwiserestrictpaymentsthatmaybe madeto healthcareproviders; state laws that require reporting of information related to drug pricing; stateand locallaws thatrequiretheregistrationof pharmaceuticalsalesrepresentatives;as wellas stateand foreignlaws thatgoverntheprivacyand securityof healthinformationin somecircumstances, manyof which differfromeachotherin significantways and oftenarenot preemptedby HIPAA,thus complicatingcomplianceefforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violationof any of theselaws or any othergovernmentalregulationsthatmayapplyto us, we may be subjectto significantcivil,criminaland administrativepenalties,damages,fines,disgorgement, imprisonment,exclusionfromparticipatingin governmentfundedhealthcareprograms,such as Medicareand Medicaid,additionalreportingrequirementsand oversightifwe becomesubjectto a corporateintegrity agreementor similaragreementto resolveallegationsof non-compliancewith theselaws, contractualdamages, reputationalharmand thecurtailmentor restructuringof our

operations.To theextentthatany of our products aresoldin a foreigncountry,we maybe subjectto similarforeignlaws and regulations,which mayinclude,for instance,applicablepost-marketingrequirements,includingsafetysurveillance,anti-fraudand abuselaws and implementationof corporatecomplianceprogramsand reportingof paymentsor transfersof valueto healthcare professionals.

Coverage and Reimbursement

Market acceptance and sales of any drug products depend in part on coverage and the extent to which adequate reimbursement for drug products will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Coverage and reimbursement for our product also depends on coverage and adequate reimbursement for the procedures using VP-102 for the treatment of molluscum and/or common warts. Obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Separate reimbursement for the product itself or the treatment or procedure in which our product is used may not be available. Even if the procedure using our product is covered, third-party payors may package the cost of the drug into the procedure payment and not separately reimburse the physician for the costs associated with our product. A decision by a third-party payor not to cover or separately reimburse for our products could reduce physician utilization of our products once approved. Additionally, in the United States, there is no uniform policy of coverage and reimbursement among third-party payors. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursementto be providedismadeon a payor-by-payorbasis.One payor’sdeterminationto providecoverage fora drug productdoes not assurethatotherpayorswillalsoprovidecoverage,and adequatereimbursement.

Third-party payors determine which medical procedures they will cover and establish reimbursement levels. Even if a third-party payor covers a particular procedure, the resulting reimbursement payment rates may not be adequate. Patients who are treated in-office for a medical condition generally rely on third-party payors to reimburse all or part of the costs associated with the procedure and may be unwilling to undergo such procedures for the treatment of molluscum and/or common warts in the absence of such coverage and adequate reimbursement.

Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that a procedure is safe, effective, and medically necessary; appropriate for the specific patient; cost-effective; supported by peer-reviewed medical journals; included in clinical practice guidelines; and neither cosmetic, experimental, nor investigational.

Further, from time to time, typically on an annual basis, payment rates are updated and revised by third-party payors. Such updates could impact the demand for our product candidates, to the extent that customers who are prescribed our product candidates, if approved, are not separately reimbursed for the cost of the product candidates. An example of payment updates is the Medicare program updates to physician payments, which is done on an annual basis. In the past, when the application of the formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions. The Medicare Access and CHIP Reauthorization Act of 2015, or MACRA,ended theuse of thestatutoryformula also referred to as the Sustainable Growth Rate, for certain payment and established a quality payment incentive program, also referred to as the Quality Payment Program. This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models, or APMs, and the Merit-based Incentive Payment System, or MIPS. In November 2019, CMS issued a final rule finalizing the changes to the Quality Payment Program. At thistime,itisunclearhow theintroductionof the Quality Payment Program willimpactoverallphysician reimbursementundertheMedicareprogram. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.

Impactof HealthcareReformon our Business

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug product candidates, restrict or regulate post-approval activities, and affect the profitable sale of drug product candidates.

Among policymakersand payorsin theUnitedStatesand elsewhere,thereissignificantinterestin promotingchangesin healthcaresystemswith thestatedgoalsof containinghealthcarecosts,improvingquality and/orexpandingaccess.In theUnitedStates,thepharmaceuticalindustryhas been a particularfocusof these effortsand has been significantlyaffectedby majorlegislativeinitiatives.In March2010, thePatient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA,was passed, which substantiallychangedtheway healthcareisfinancedby both thegovernmentand privateinsurers,and significantlyimpactstheU.S.pharmaceuticalindustry.The ACA,amongotherthings:(i)increasedtheminimum Medicaidrebatesowed by manufacturersundertheMedicaidDrug RebateProgramand extendstherebateprogramtoindividualsenrolledinMedicaidmanagedcareorganizations;(ii)establishedan annual, nondeductiblefeeonanyentitythatmanufacturesorimportscertainspecifiedbrandedprescriptiondrugs and biologicagentsapportionedamongtheseentitiesaccordingtotheirmarketshareinsome government healthcareprograms;(iii)expandedtheavailabilityoflowerpricingunderthe340Bdrugpricingprogram by addingnewentitiestotheprogram;(iv)increasedthestatutoryminimumrebatesamanufacturermust pay undertheMedicaidDrugRebateProgram,to23.1%and13%oftheaveragemanufacturerpricefor most brandedandgenericdrugs,respectivelyandcappedthetotalrebateamountforinnovatordrugsat100%of the AverageManufacturerPrice,orAMP;(v)expandedtheeligibilitycriteriaforMedicaidprogramsby, among otherthings,allowingstatestoofferMedicaidcoveragetoadditionalindividuals,thereby potentially increasing manufacturers’Medicaidrebateliability;(vi)createdanewPatient-CenteredOutcomes Research Institutetooversee,identifyprioritiesin,andconductcomparativeclinicaleffectivenessresearch,along with fundingforsuchresearch;and(vii)establishedaCenterforMedicareand Medicaid InnovationatCMStotest innovative paymentandservicedeliverymodelstolowerMedicareandMedicaidspending,potentially including prescription drug spending.

There remain judicial and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminates, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In December 2018, CMS published a new final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unknown when a decision will be made. Further, although the U.S. Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.

Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030 with the exception of a temporary suspension from May 1, 2020 through March 31, 2021 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to

fiveyears.These new laws mayresultinadditionalreductionsin Medicareand otherhealthcarefunding,which couldhave an adverseeffecton customers forour productcandidates,ifapproved,and, accordingly,our financialoperations.

Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. Further, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed pending review by the Biden administration until March 22, 2021. On November 20, 2020, CMS issued an interim final rule implementing the Trump administration’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. The likelihood of implementation of these, or any of the other Trump administration reform initiatives is uncertain, particularly in light of the new Biden administration. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. It is also possible that additional governmental action will be taken in response to the COVID-19 pandemic.

Employees and Human Capital Resources

As of December 31, 2020, we had 29 full-timeemployees.All of our employeesarelocatedin theUnited States.None of our employeesisrepresentedby a laborunion or coveredby a collectivebargainingagreement. We considerour relationshipwith our employeesto be good.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of stock-based compensation awards in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Insurance

We currently maintain product liability insurance coverage for our products and clinical trials in amounts consistent with industry standards. However, insurance coverage is becoming increasingly expensive, and we may not be able to obtain or maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability.

Corporate Information

We were incorporatedunderthelaws of theStateof Delawareon July3, 2013. Our principalexecutive officesarelocatedat10 North High Street,Suite200, WestChester,PA19380 and our telephonenumberis (484)453-3300.

Available Information

Our internet website address is www.verrica.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC. Additionally the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC's website is www.sec.gov.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below, as well as general economic and business risks and the other information in this Annual Report on Form 10-K. The occurrence of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results of operations and financial condition and could cause the trading price of our common stock to decline. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Factors Summary

Our business is subject to a number of risks and uncertainties, including those risks discussed below. These risks include, among others, the following:

• Risks Related to Our Financial Position and Capital Needs

• Risks Related to the Development of Our Product Candidates

• Risks Related to the Commercialization of Our Product Candidates

• Risks Related to Our Dependence on Third Parties

• Risks Related to Our Intellectual Property

• Risks Related to Legal and Regulatory Compliance Matters

• Risks Related to Employee Matters and Managing Our Growth

Risks Related to Our Financial Position and Capital Needs

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

We are a clinical-stage dermatology therapeutics company with limited operating history. Since inception, we have incurred significant net losses. We incurred net losses of $42.7 million and $28.2 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $103.9 million. Since inception, we have financed our operations with $123.2 million in gross proceeds raised in our initial public offering and private placements of convertible debt and convertible preferred stock. We have no products approved for commercialization and have never generated any revenue.

We have devoted substantially all of our financial resources and efforts to the development of our novel topical solution of cantharidin and our lead product candidate, VP-102, for the treatment of molluscum, including preclinical studies and clinical trials. We have completed two pivotal Phase 3 clinical trials and submitted an NDA for VP-102 for the treatment of molluscum. In addition to developing VP-102 for the treatment of molluscum, we are also developing VP-102 as a treatment for common warts and external genital warts. We also intend to develop our second cantharidin-based product candidate, VP-103, for the treatment of plantar warts and our third product candidate, LTX-315, for the treatment of dermatological oncology indications.

Therefore, we expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

• seek to discover and develop additional product candidates;

• maintain, expand and protect our intellectual property portfolio;

• hire additional clinical, manufacturing and scientific personnel;

To become and remain profitable, we must succeed in developing and eventually commercializing product candidates that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval, and manufacturing, marketing and selling any product candidates for which we may obtain regulatory approval, as well as discovering and developing additional product candidates. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability.

In cases where we are successful in obtaining regulatory approval to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition to those expected, or if there are any delays in the initiation and completion of our clinical trials or the development of any of our product candidates, our expenses could increase.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain product approvals, diversify our offerings or continue our operations.

We may need substantial additional funding to meet our financial obligations and to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to curtail our planned operations and the pursuit of our growth strategy.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We expect to continue to incur significant expenses and operating losses over the next several years as we seek marketing approval for VP-102 for the treatment of molluscum, pursue clinical trials and marketing approval for VP-102 for the treatment of common warts, external genital warts and other indications, pursue clinical trials and marketing approval for VP-103 for the treatment of plantar warts, LTX-315 for the treatment of dermatological oncology indications, and advance any of our other product candidates we may develop or otherwise acquire. In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products that are not

currently commercially available. If we obtain marketing approval for VP-102 for the treatment of molluscum or common warts or any other product candidates that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $65.5 million. On March 10, 2020, we entered into (i) a mezzanine loan and security agreement, or the Mezzanine Loan Agreement, with Silicon Valley Bank, as administrative agent and collateral agent, or the Agent, and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders, or the Mezzanine Lenders, pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $50.0 million in a series of term loans, and (ii) a loan and security agreement, or the Senior Loan Agreement, and together with the Mezzanine Loan Agreement, the Loan Agreements, with Silicon Valley Bank, as lender, or the Senior Lender, and together with the Mezzanine Lenders, the Lenders, pursuant to which the Senior Lender has agreed to provide the Company a revolving line of credit of up to $5.0 million. Upon entering into the Loan Agreements, the Company borrowed $35.0 million in term loans from the Mezzanine Lenders. We entered into amendments to the Loan Agreements in October 2020, under which we borrowed an additional $5.0 million in term loans on March 1, 2021.

We believe that our existing cash, cash equivalents, and marketable securities as of December 31, 2020 combined with the $11.5 million up-front payment we are entitled to receive pursuant to the Torii Agreement, will be sufficient to support our planned operations at least through the first quarter of 2022. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume our available capital before that time, including changes in and progress of our development activities, acquisitions of additional product candidates, and changes in regulation. Our future capital requirements will depend on many factors, including:

• the costs, timing and outcome of regulatory review of our product candidates;

We may require additional capital to commercialize VP-102 for the treatment of molluscum, common warts and/or external genital warts, and/or VP-103 for the treatment of plantar warts and/or LTX-315 for the treatment of dermatological oncology indications. If we receive regulatory approval for VP-102, VP-103 or LTX-315 for these indications, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. If we are unable to raise sufficient additional capital, we could be forced to curtail our planned operations and the pursuit of our growth strategy.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial revenue, we may finance our cash needs through a combination of equity offerings, debt financings and license and collaboration agreements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity 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. For instance, under the Loan Agreements as described below, we are restricted from paying dividends or making other distributions or payments on our capital stock, subject to limited exceptions.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or product candidates or 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.

We have a limited operating history and no history of commercializing products, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We commenced operations in 2013, and our operations to date have been largely focused on raising capital and developing our novel topical solution of cantharidin and our lead product candidate, VP-102, for the treatment of molluscum and common warts, including undertaking preclinical studies and conducting clinical trials. VP-102 is our only product candidate for which we have conducted clinical trials. We have not yet demonstrated our ability to successfully obtain regulatory approvals, manufacture a product on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to transition at some point from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We may not be able to generate sufficient cash to service our indebtedness.

We have entered into a Mezzanine Loan Agreement and a Senior Loan Agreement with our Lenders, pursuant to which we have borrowed an aggregate of $40.0 million. Our obligations under the Senior Loan Agreement and the Mezzanine Loan Agreement are secured by, respectively, a first priority perfected security interest and second priority perfected security interest in substantially all of our current and future assets, other than our intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property). We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreements.

We are subject to a number of affirmative and restrictive covenants pursuant to the Loan Agreements, including covenants regarding maintaining minimum liquidity requirements, achieving minimum product revenues, delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates, among other customary covenants. Our obligations under the Loan Agreements are subject to acceleration upon the occurrence of specified events of default, including our failure to satisfy our payment obligations under the Loan Agreements, the breach of certain of our other covenants under the Loan Agreements, or the occurrence of a material adverse change, cross defaults to other indebtedness or material agreements, judgment defaults and defaults related to failure to maintain governmental approvals failure of which to maintain could result in a material adverse effect. We are currently in

compliance with these covenants. We may also enter into other debt agreements in the future which may contain similar or more restrictive terms.

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 Loan Agreements could result in an event of default, which could result in an acceleration of amounts due under the Loan Agreements. 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 Lenders could seek to enforce security interests in the collateral securing such indebtedness, which would harm our business.

Risks Related to the Development of Our Product Candidates

Our lead product candidate, VP-102, is being developed for the treatment of molluscum, common warts and external genital warts, for which we are currently conducting clinical trials. If we are unable to successfully develop, receive regulatory approval for and commercialize VP-102 for the treatment of molluscum, common warts, external genital warts or any other indications, or successfully develop any other product candidates, or experience significant delays in doing so, our business will be harmed.

We currently have no products that are approved for commercial sale. We have only one product candidate, VP-102 for which we have conducted clinical trials. We have completed two pivotal Phase 3 clinical trials and submitted a New Drug Application, or (NDA) for VP-102 for the treatment of molluscum in the U.S. Our NDA is presently under review by FDA and there can be no assurance that we will receive approval. In addition to developing VP-102 for the treatment of molluscum, we are also developing VP-102 as a treatment for common warts and external genital warts. In addition, we plan to develop our second cantharidin-based product candidate, VP-103, for the treatment of plantar warts. We also plan to develop our third product candidate, LTX-315, for the treatment of dermatological oncology indications. We have not completed the development and regulatory approval process of any product candidates and we may never be able to develop marketable products. We have invested substantially all of our efforts and financial resources in the development of our cantharidin formula and VP-102 for the treatment of molluscum, common warts and genital warts. Our ability to generate revenue from our product candidates, will depend heavily on their successful development, regulatory approval and eventual commercialization of these product candidates. The success of VP-102, VP-103, LTX-315 or any other product candidates that we develop or otherwise may acquire will depend on several factors, including: timely and successful completion of preclinical studies and our clinical trials;

• receipt of timely marketing approvals from applicable regulatory authorities;

• launching commercial sales of products, if approved;

• competing effectively with other procedures; and

Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Our product candidates’ success in clinical trials is not guaranteed, and even if clinical trials are successful, it will not guarantee regulatory approval. Following submission of an NDA, it may not be accepted for substantive review, or even if it is accepted for substantive review, the FDA or other comparable foreign regulatory authorities may require that we conduct additional studies or clinical trials, provide additional data, take additional manufacturing steps, or require other conditions before they will reconsider or approve our application. If the FDA or other comparable foreign regulatory authorities require additional studies, clinical trials or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the FDA or other comparable foreign regulatory authorities may not consider sufficient any additional required studies, clinical trials, data or information that we perform and complete or generate, or we may decide to abandon the program.

It is possible that VP-102, VP-103, LTX-315 or any of our other product candidates we may develop or otherwise acquire will never obtain regulatory approval, even if we expend substantial time and resources seeking such approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would harm our business.

Clinical product development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

The risk of failure for product candidates is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing or at any time during the trial process. The outcome of preclinical testing and early clinical trials may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We cannot assure you that any clinical trial that we have conducted, are currently conducting, or may conduct in the future, will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

We may experience delays in ongoing clinical trials for our product candidates, and we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. For example, following the initiation of our Phase 2 trial of VP-102 for the treatment of common warts, we discovered the need to amend the treatment regimen of the protocol in order to introduce greater flexibility of the treatment interval. We amended the trial protocol in order to add a second cohort to the trial with the desired treatment frequency. We may experience numerous unforeseen events during or as a

result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

We could also encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards of the institutions in which such trials are being conducted, by the data safety monitoring board for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not favorable or if there are safety concerns, we may:

• be delayed in obtaining marketing approval for our product candidates;

• not obtain marketing approval at all;

• be subject to additional post-marketing testing requirements; or

• have the product removed from the market after obtaining marketing approval.

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize, or receive approval for, our product candidates. For example, if a competitor obtained FDA approval for a product containing cantharidin before we are able to obtain approval for our product, this could result in the approval of our product being delayed until the expiration of any NCE exclusivity or other regulatory exclusivity received by such competitor.

If we experience delays or difficulties in the enrollment and/or maintenance of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. We cannot predict how successful we will be at enrolling subjects in future clinical trials. Subject enrollment is affected by other factors including:

• the eligibility criteria for the trial in question;

• the perceived risks and benefits of the product candidate in the trial;

• the willingness of patients to be enrolled in our clinical trials;

• the efforts to facilitate timely enrollment in clinical trials;

• the patient referral practices of physicians;

• the ability to monitor patients adequately during and after treatment; and

Our inability to enroll a sufficient number of patients for clinical trials would result in significant delays and could require us or them to abandon one or more clinical trials altogether. For example, parents may be reluctant to enroll their children in our clinical trials that have a relatively high risk of their child being assigned to placebo when in the alternative, they could decline participation, and receive compounded cantharidin outside of the clinical trial, if available, or pursue other alternative therapies. Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. Furthermore, we rely on and expect to continue to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we will have limited influence over their performance.

Furthermore, even if we are able to enroll a sufficient number of patients for our clinical trials, we may have difficulty maintaining patients in our clinical trials.

Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials.

Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Preclinical tests and Phase 1 and Phase 2 clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product candidates at various doses and schedules. Success in preclinical or animal studies and early clinical trials does not ensure that later large-scale

efficacy trials will be successful, nor does it predict final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials.

In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. As an organization, we have limited experience designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

Interim “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim top-line or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.

Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified during the development of our product candidates, which could prevent or delay regulatory approval and commercialization, increase our costs or necessitate the abandonment or limitation of the development of some of our product candidates.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials often fail to demonstrate safety and efficacy of the product candidate studied for the target indication.

If our product candidates are associated with side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses in which the side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The FDA or an institutional review board may also require that we suspend, discontinue, or limit our clinical trials based on safety information, or that we conduct additional animal or human studies regarding the safety and efficacy of our product candidates which we have not planned or anticipated. Such findings could further result in regulatory authorities failing to provide marketing authorization for our product candidates or limiting the scope of the approved indication, if approved. Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented further development of the product candidate.

Additionally, if one or more of our product candidates receives marketing approval, and we or others identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

• regulatory authorities may withdraw approvals of such product;

• regulatory authorities may require additional warnings on the labels;

• we could be sued and held liable for harm caused to patients; and

• our reputation and physician or patient acceptance of our products may suffer.

There can be no assurance that we will resolve any issues related to any product-related adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or at all. Moreover, any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

While we have negotiated a SPA agreement with the FDA relating to one of our Phase 3 clinical trials for VP-102, this agreement does not guarantee approval of VP-102 or any other particular outcome with respect to regulatory review of the study or the product candidate.

We have completed two Phase 3 clinical trials of VP-102 for the treatment of molluscum, one of which was conducted under a SPA with the FDA. The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory submission for the product candidate with respect to the indication studied. All agreements and disagreements between the FDA and the sponsor regarding a SPA must be clearly documented in a SPA letter or the minutes of a meeting between the sponsor and the FDA.

However, a SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, a SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts. After a SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.

We cannot assure you that our Phase 3 clinical trial conducted under the SPA will be deemed acceptable to the FDA under our SPA agreement or will result in any FDA approval for VP-102. If the FDA revokes or alters its agreement under the SPA, believes that the manner in which the study was conducted was not consistent with the terms of our SPA, or interprets the data collected from the clinical trial differently than we do, the FDA may not deem the data sufficient to support an application for marketing approval, which could materially adversely affect our business, financial condition and results of operations.

VP-102 is a drug-device combination involving a proprietary applicator, which may result in additional regulatory and other risks.

VP-102 is a drug-device combination product for administration of our cantharidin formulation through our proprietary applicator. We may experience delays in obtaining regulatory approval of VP-102 given the increased complexity of the review process when approval of a drug and a delivery device is sought under a single marketing application. VP-102 will be regulated as a drug-device combination product, which requires coordination within the FDA and similar foreign regulatory agencies for review of the product candidate’s device and drug components. We have filed a single marketing application for the approval of a drug-device combination product, with guidance by the FDA. Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development, approval, and commercialization of our product candidate due to regulatory timing constraints and uncertainties in the product development and approval process, the inherent complexities of combination products, as well as coordination between two different centers within FDA responsible for review of the different components of the combination product.

Failure to successfully develop or supply the device, delays in or failure of the studies conducted by us, our collaborators, or third-party providers, or failure of our company, our collaborators, or third-party providers to obtain or maintain regulatory approval or clearance of the device component of VP-102 could result in increased development costs, delays in or failure to obtain regulatory approval, and associated delays in VP-102 reaching the market. Further, failure to successfully develop or supply the device, or to gain or maintain its approval, could adversely affect sales of VP-102.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, FDA notification or FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence sales and generate revenue.

VRCA US Equity

VRCA · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

ITEM 1A. RISK FACTORS

VRCA US Equity☆

VRCA · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

ITEM 1A. RISK FACTORS

VRCA US Equity