Data from the study, based on 90 lesions, showed the following efficacy results:

All tumours treated had a reduction in size. We think this is a clear-cut proof-of-concept, showing that LTX-315 has meaningful clinical benefit. Furthermore, the safety profile was excellent, with no serious adverse events. Immunological data will be presented in Q1 2025 and an FDA meeting to discuss the next steps (likely a pivotal phase III study) is planned for H1 2025. Since basal cell carcinoma has a high rate of recurrence, inducing an immunological memory could prevent this, so positive data here could strengthen the case further. We have assumed a potential market launch would be in 2028.

The results suggest the potential for a wide use of LTX-315 in basal cell carcinoma with two applications: front line treatment and neoadjuvant treatment to shrink the lesion before surgery. We have assumed an annual treatment population of 200 000 for TLX-315 patients with a market share of 20% in our valuation. We maintain this for now. However, assuming the safety profile is confirmed for first line use, this is likely an underestimate. Verrica has stated that it sees a multi-billion USD opportunity with LTX-315. We think the efficacy profile has been demonstrated through the phase II study. What is needed before an approval is, in particular, a larger safety data set from a phase III study.

Although the readout was positive, the share price in Verrica had a negative -40% reaction the same day. This is not related to this study but probably because the sales launch of another product was not up to expectations. Q2 did not reach a revenue target which would have allowed Verrica to borrow another USD25m. The loss increased year/year due to an increase in SG&A costs. The net loss was USD-17m with a cash position of USD32m (down from USD70m in Q4 2023). Verrica has guided it has a runway into Q1 2025. It needs additional funding for its sales roll out, and even more cash for the phase III study of LTX-315 in basal cell carcinoma. The company has net debt of USD43m. This creates some uncertainty as to the future of LTX-315 in basal cell carcinoma in the short term. For this reason, we raise the phase II probability less than we had anticipated, to 70% (from 38%), resulting in a likelihood of approval of 37% (20%). We will set the phase II probability to 100% once the study is reported and funding for phase III obtained. Note that lack of funding is a potential reason for failure in drug development. However, with such strong results, we think someone is bound to advance the project in the end. The increased LOA results in a new base case of NOK16.