Analysts Call Verrica A Buy For Vast Molluscum Opportunity

Investors who bought into Verrica Pharmaceuticals Inc VRCA 6.22%at its June 15 IPO are celebrating 13.1-percent returns.

The gains should continue, in the view of two new sell-side bulls.

The Ratings

Bank of America Merrill Lynch analyst Jason Gerberry initiated coverage of Verrica with a Buy rating and $26 price target.

Cowen analyst Ken Cacciatore initiated coverage with an Outperform rating and $35 target.

The Theses

The analysts are bullish on Verrica for its lead candidate, VP-102, which is in Phase 3 trials for the treatment of molluscum.

The therapy — a non-invasive alternative to cryotherapy and surgery — is poised to become the first approved molluscum drug for a potentially underdiagnosed population growing by an estimated 1 million U.S. patents per year.

Bank of America expects dermatologists to be receptive to VP-102 considering the drug’s familiar active ingredient.

“Supportive Phase 2 data suggests VP-102 can achieve high clearance rates, which have made the API popular with dermatologists,” Gerberry said in a Tuesday note. (See the analyst’s track record here.)

BofA forecast a 60-percent possibility of success and anticipates favorable Phase 3 data will boost the likelihood to 85 percent. Cowen’s Cacciatore expressed similar optimism.

“With what we believe will be a very reasonable pricing strategy that should secure broad coverage, combined with FDA guidelines that mandate the discontinuation of compounded versions of approved products — as well as what appears to be limited raw material supplies — we believe that Verrica’s formulation will quickly capture, penetrate, and expand the current treatment market,” the analyst said in a Tuesday note. (See Cacciatore’s track record here.)

Indication expansion into common warts could drive additional upside for Verrica.

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