Veradermics Inc.

03/30/2026 | Press release | Distributed by Public on 03/30/2026 15:41

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See "Special Note Regarding Forward-Looking Statements."
Overview
We are a dermatologist-founded, late clinical-stage biopharmaceutical company focused on developing innovative therapeutics to address pervasive treatment challenges in highly prevalent aesthetic and dermatological conditions. Our initial focus is developing better treatments for PHL, a condition affecting approximately 50 million men and 30 million women in the United States. Current PHL treatment options are limited and therefore are consistently plagued with high rates of treatment failure, patient dissatisfaction and treatment discontinuation. Patients and healthcare providers routinely identify the following shortcomings with currently available treatment options:
nSlow onset of hair growth
nInconsistent results
nInsufficient density of hair growth for patient satisfaction
nTolerability issues related to hormonal, mood and cardiac side effects
nInconvenient administration
nLimited FDA-approved treatment options, and no FDA-approved oral options for women
We are developing VDPHL01 as an oral, non-hormonal treatment for men and women with PHL to reduce the barriers to wide adoption of chronic hair loss therapy and potentially transform PHL treatment. We believe that a marketing application could initially seek approval in male patients, followed by an sNDA for female patients, or could alternatively pursue approval in both male and female patients simultaneously depending on the timing of the completion of our clinical trials.
VDPHL01 is an oral, ER formulation of minoxidil, a proven hair growth agent, designed to maximize minoxidil's impact on hair restoration while minimizing the risk of cardiac activity. Though IR oral minoxidil was originally designed to treat resistant hypertension, it has been used off label as a treatment for PHL after hair growth was observed as a side effect. However, IR oral minoxidil's release profile was not designed for hair growth as its short duration of circulation allows less time for follicular saturation and must be used at lower doses to reduce the likelihood of reaching off target cardiac stimulative levels. VDPHL01 builds on minoxidil's validated hair growth biology via a novel and proprietary ER formulation designed to maximize the total plasma concentrations of minoxidil known to grow hair without inducing changes in cardiac activity. We believe that our efforts mark the first attempt to bring an ER formulation of minoxidil to patients with these optimized PK and PD qualities that raise the ceiling of hair growth.
The following milestones have been achieved to date through 2025:
nthe initiation of a confirmatory registration-directed Phase 3 trial in male patients with mild-to-moderate PHL and the initiation of a registration-directed Phase 2/3 trial in female patients with mild-to-moderate PHL;
ncompletion of enrollment in our lead Phase 2/3 trial in male patients with mild-to-moderate PHL initiated in the fourth quarter of 2024;
nannouncement of preliminary data from our Phase 2 trial in male patients with PHL who had completed four months of treatment, in which VDPHL01 drove favorable outcomes, which we believe underscores its potential to deliver a convenient, oral treatment that provides visible hair regrowth to the majority of users as early as two months, while maintaining a favorable tolerability profile; and
ncompletion of the second funding of Series B Preferred Stock of $8.4 million in the first quarter of 2025, followed by a Series C Preferred Stock financing in the fourth quarter of 2025, from which we received gross proceeds of $151.0 million.
Subsequently, in the first quarter of 2026 the following milestones have been achieved:
ncompletion of enrollment in our confirmatory registration-directed Phase 3 trial in male patients with mild-to-moderate PHL;
ncompletion of our IPO, pursuant to which we issued and sold an aggregate of 17,339,294 shares of common stock at a price to the public of $17.00 per share, including 2,261,647 shares issued upon the exercise in full of the underwriters' over-allotment option to purchase additional shares. We received aggregate net proceeds of $269.7 million after deducting underwriting discounts, commissions and offering expenses.
Since our inception we have devoted substantially all of our time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support our operations. We have never obtained regulatory approval for, or commercialized, a pharmaceutical product. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a marketable product. To date, we have financed our operations primarily with proceeds from the sales of our redeemable convertible preferred stock and proceeds from our IPO.
We have incurred recurring net losses since inception, including net losses of $70.0 million and $26.5 million for the years ended December 31, 2025 and 2024, respectively. We have incurred negative cash flows from operations of $71.6 million and $23.7 million for the years ended December 31, 2025 and 2024, respectively. In addition, as of December 31, 2025, the Company had an accumulated deficit of $123.4 million. Substantially all of our operating losses have resulted from expenses incurred in connection with development of VDPHL01 and our other product candidates and from general and administrative costs associated with our operations. We expect to incur significant losses for the foreseeable future, as we advance VDPHL01 or any of our other current and future product candidates through clinical development, seek regulatory approval for such product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, conduct pre-commercial launch activities and infrastructure building, and operate as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities initially in the United States.
We anticipate that our expenses will increase substantially if, and as, we:
ncontinue development of VDPHL01 and our other current product candidates, including preclinical development and conducting clinical trials;
nseek marketing regulatory approvals for VDPHL01 and for any of our other current or any future product candidates that successfully complete clinical trials;
ntake steps toward supporting commercial activities, including establishing sales, marketing and distribution infrastructure;
nincrease marketing in connection with the potential commercialization of VDPHL01, if approved;
nadvance additional product candidates through preclinical development and clinical trials;
nidentify additional product candidates and acquire rights from third parties to those product candidates through licenses or acquisitions and conduct development activities, including preclinical studies and clinical trials;
nmake royalty, milestone or other payments under any current or future license or collaboration agreements;
nprocure the manufacturing of preclinical, clinical and commercial supply of our current or any future product candidates;
nestablish agreements with contract research organizations and CMOs;
nattract, hire and retain additional qualified clinical, scientific, operations and management personnel;
nseek to continue to develop, maintain and defend our intellectual property portfolio, including against third-party interference, infringement and other intellectual property claims, if any;
nadd and maintain operational, financial and information management systems;
nattempt to address any competing therapies and market developments;
nexperience delays in our preclinical studies, clinical trials or regulatory approval for our current or any future product candidates, including with respect to failed studies, inconclusive results, safety issues or other regulatory challenges; and
nincur additional costs associated with being a public company, including audit, legal, regulatory and tax-related services associated with maintaining compliance with an exchange listing and the SEC requirements, director and officer insurance premiums and investor relations costs.
We may never succeed in these activities and, even if we do, may never generate any revenue or revenue that is significant enough to achieve profitability. Even if we succeed in commercializing VDPHL01 or one or more of our other product candidates, we will incur substantial expenditures to develop and market additional product candidates. We also may encounter unforeseen expenses, difficulties, complications, delays and other events that adversely affect our business. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
At this time, due to the inherently unpredictable nature of clinical development we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all. For the same reasons, we are also unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or sustain profitability on a continuing basis, then we may be unable to raise additional capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with our research and development activities, these can include drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
nexternal research and development expenses incurred under agreements with third parties, such as CROs, as well as investigative sites and consultants that conduct our clinical trials and other scientific development services;
ncosts related to manufacturing material for our clinical trials, including fees paid to CMOs;
nmanufacturing scale-up expenses and the cost of acquiring and manufacturing clinical trial materials;
nemployee-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development efforts;
ncosts of outside consultants supporting research and development;
nthe costs of acquiring and developing clinical trial materials;
nclinical trial recruitment costs;
nexpenses to acquire technologies, such as intellectual property, to be used in research and development including in-process research and development, that has no alternative future use at the time of asset acquisitions;
ncosts related to compliance with regulatory requirements; and
nother indirect costs.
Costs for certain activities are recognized based on an evaluation of the progress to completion of each specific contract using information and data provided to us by our vendors and analyzing the progress of our research studies or other services performed. Significant judgments and estimates are made in determining the expenses incurred balances at the end of any reporting period.
Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We track these external research and development costs on a program-by-program basis.
We do not allocate employee costs, costs associated with our development efforts and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources and third-party consultants primarily to conduct our research and development activities as well as for managing our process development, manufacturing and clinical development activities.
The successful development of our product candidates is highly uncertain. We plan to substantially increase our research and development expenses in the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our clinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly with our ongoing clinical trials. We anticipate that our expenses will increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
nthe scope, rate of progress and expenses of our ongoing research activities and clinical trials and other research and development activities;
nsuccessful enrollment in and completion of clinical trials;
nwhether our product candidates show safety and efficacy in our clinical trials;
nreceipt of marketing approvals from applicable regulatory authorities;
nestablishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
nobtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
ncommercializing product candidates, if and when approved, whether alone or in collaboration with others; and
ncontinued acceptable safety profile of the products following any regulatory approval.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical development could mean a significant change in the costs and timing associated with the development of these product candidates.
In addition, clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessment as to each product candidate's commercial potential. However, we may never succeed in achieving regulatory approval for any of our product candidates and may obtain unexpected results from our clinical trials. As a result, we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
We anticipate that our research and development expenses will continue to increase as we continue our current research programs, initiate new research programs, continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and stock-based compensation for our personnel in executive, legal, finance and accounting, and other administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting services, insurance costs, travel expenses and direct facility costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase as we increase headcount to provide additional administrative support to our research and development activities. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs, as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.
Total Other Income, Net
Total other income, net, includes interest income earned on cash and cash equivalents, interest expense incurred on convertible and promissory notes payable, tax credits and other income and expense items.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations:
Year Ended December 31,
(in thousands) 2025 2024 CHANGE
Operating Expenses:
Research and development $ 62,065 $ 23,283 $ 38,782
General and administrative 10,282 3,495 6,787
Total operating expenses 72,347 26,778 45,569
Loss from operations (72,347) (26,778) (45,569)
Total other income, net 2,352 290 2,062
Income tax benefit - - -
Net loss $ (69,995) $ (26,488) $ (43,507)
Operating Expenses
Research and Development Expenses
The following table summarizes our research and development costs for each of the periods presented:
Year Ended December 31,
(in thousands)
2025 2024 CHANGE
VDPHL01 $ 55,831 $ 14,641 $ 41,190
VDMN 1,101 3,747 (2,646)
VDMC 36 1,329 (1,293)
VDAA 9 402 (393)
Other program candidates and expenses 48 1,370 (1,322)
Other unallocated research and development costs
Personnel expenses (including stock-based compensation) 4,633 1,499 3,134
Other expenses
407 295 112
Total research and development expenses
$ 62,065 $ 23,283 $ 38,782
Research and development expenses were $62.1 million for the year ended December 31, 2025, compared to $23.3 million for the year ended December 31, 2024. The increase of $38.8 million was primarily due to:
na $41.2 million increase in costs related to VDPHL01 primarily due to a $30.9 million increase in clinical trial expenses, including investigator fees, pass-through costs, and program management fees which resulted from expanded registration-directed and confirmatory clinical trial activity in 2025 compared to the prior period, as well as an additional $7.4 million increase in clinical trial recruitment costs. The remaining increase is related to chemistry, manufacturing and controls activities, including costs associated with GMP manufacturing and clinical materials to support ongoing and planned clinical studies as compared to the prior year; and;
na $3.1 million increase in personnel-related costs, including stock-based compensation expense, primarily due to an increase in research and development related headcount as compared to the same period in the prior year;
These increases were partially offset by:
na decrease in costs related to VDMN, VDMC, VDAA and other program candidates and expenses of $2.6 million, $1.3 million, $0.4 million and $1.3 million respectively. These decreases were primarily attributable to the Company's decision to pause activities related to these programs to focus efforts on VDPHL01, which resulted in decreases in chemistry, manufacturing and controls activities for VDMN, VDMC and other program candidates, a decrease in clinical trial expenses for VDMN, and decreases in other research and development costs related across these programs.
General and Administrative Expenses
General and administrative expenses were $10.3 million for the year ended December 31, 2025, compared to $3.5 million for the year ended December 31, 2024. The increase of $6.8 million was primarily due to an increase in payroll and personnel-related costs, including stock-based compensation, primarily as a result of an increase in general and administrative related headcount and other professional fees associated with operating activities and the preparations for becoming a public company.
Total Other Income, Net
Total other income, net, was $2.4 million for the year ended December 31, 2025, compared to $0.3 million for the year ended December 31, 2024. The increase of $2.1 million is primarily attributable to $1.1 million increase in interest income on greater average cash and investment balances during the period and a $0.6 million decrease in interest expense which resulted from the repayment of convertible notes and promissory notes in 2024. These increases were partially offset by a $0.4 million decrease in other income resulting from the recognition of certain tax credits that we elected to exchange for cash.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations primarily through equity financings, and through December 31, 2025, had received proceeds of approximately $263.2 million, net of issuance costs of $1.1 million, from the sale of our Series A, Series B and Series C redeemable convertible preferred stock. As of December 31, 2025, we had $141.9 million of cash, cash equivalents and marketable securities.
Uses of Liquidity
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our manufacturing, licensing and lease obligations described further below.
Future Funding Requirements
Subsequent to December 31, 2025, we completed our IPO in the first quarter of 2026, from which we received gross proceeds of $294.8 million. We expect the net proceeds from our IPO, together with our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into 2029, based on our current operating plans. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.
We expect to incur significant expenses and operating losses in the foreseeable future as we advance VDPHL01 or any of our other current or any future product candidates through clinical development, seek regulatory approval and pursue commercialization of any approved product candidates.
Because of the numerous risks and uncertainties, length of time and scope of activities associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements, both near and long-term, will depend on, and could increase significantly as a result of, many factors, including, but not limited to:
nthe initiation, progress, timing, costs and results of our clinical trials through all phases of development, including our ongoing clinical trials for VDPHL01 and the development of our other current and any future product candidates;
nthe number and scope of preclinical and clinical programs we decide to pursue;
nthe identification, assessment, acquisition and/or development of additional research programs and additional product candidates;
nthe timing of and successful patient enrollment in, and the initiation and completion of, clinical trials;
nthe outcome, timing and costs of meeting regulatory requirements established by the FDA or any comparable foreign regulatory authority, including any additional clinical trials required by the FDA or any comparable foreign regulatory authority;
nthe willingness of the FDA or any comparable foreign regulatory authorities to accept our clinical trial designs, as well as data from our completed and planned preclinical studies and clinical trials, as the basis for review and approval of VDPHL01 and any other product candidates;
nthe progress, timing and costs of the development by us or third parties of companion diagnostics, if required, for VDPHL01 or any other product candidates, including design, manufacturing and regulatory approval;
nthe timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
nour ability to establish new licensing or collaboration arrangements;
nthe performance of our future collaborators, if any;
ndevelopment and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercialization;
nthe cost of filing, prosecuting and enforcing our patent claims and other intellectual property rights;
nthe cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us;
nthe costs associated with potential clinical trial liability or product liability claims, including the costs associated with obtaining insurance against such claims and with defending against such claims;
nthe effect of competing technological and market developments;
nour ability to hire additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, chemistry, manufacturing and controls, quality and commercial personnel;
nour ability to develop and commercialize products that are considered by physicians, patients and payors as medically and/or financially differentiated as compared to competitive products;
nour ability to establish arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
nthe cost of making royalty, milestone or other payments under any future in-license agreements;
nthe extent to which we in-license or acquire additional product candidates or technologies;
nthe cost of establishing sales, marketing and distribution capabilities for our product candidates, if approved;
nthe initiation, progress and timing of our commercialization of VDPHL01, if approved, or any other product candidates;
nour ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors, if applicable, and adequate market share and revenue;
nmaintaining a continued acceptable safety profile of the product candidates following approval; and
nthe costs of operating as a public company.
A change in the outcome of any of these, or other variables with respect to the development of any of our product candidates, could significantly change the costs and timing associated with the development of that product candidate. We will need to continue to rely on additional financing to achieve our business objectives.
In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.
Until such time, if ever, as we generate significant revenue from product sales, we expect to finance our operations through the sale of equity, debt financings, marketing and distribution arrangements and collaborations, strategic alliances and licensing arrangements or other sources. We currently have no credit facility or committed sources of capital. If we raise additional funds through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and we may need to dedicate a substantial additional portion of any operating cash flows to the payment of principal and interest on such indebtedness. 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, intellectual property, 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 when needed, we may be required to delay, limit, reduce or terminate product candidate development or future commercialization efforts.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Year Ended December 31,
(in thousands) 2025 2024
Net cash used in operating activities $ (71,602) $ (23,688)
Net cash used in investing activities
(118,858) -
Net cash provided by financing activities 159,142 60,476
Net increase (decrease) in cash and cash equivalents $ (31,318) $ 36,788
Operating Activities
Net cash used in operating activities was $71.6 million for the year ended December 31, 2025 as compared to $23.7 million for the year ended December 31, 2024. The increase in cash used in operations was primarily due to the increase of $41.2 million in research and development expense for the advancement of our lead asset VDPHL01 and $6.8 million in general and administrative expenses as compared to the same period the prior year. The increase in research and development spending reflects greater clinical trial activity, manufacturing scale-up, and personnel-related costs to support the advancement of VDPHL01. The increase in general and administrative expenses was driven by higher external professional fees, including legal, accounting, and consulting costs to support our corporate activities.
Investing Activities
Net cash used in investing activities was $118.9 million for the year ended December 31, 2025. The increase was primarily driven by the purchase of investment securities partially offset by maturities of short-term investments during the period.
Financing Activities
Net cash provided by financing activities was $159.1 million for the year ended December 31, 2025 as compared to $60.5 million for the year ended December 31, 2024. The increase was primarily attributable to higher proceeds from financing transactions, reflecting a net increase of $98.5 million from the issuance of preferred stock in connection with the Series B and Series C financings in 2025, compared to the proceeds from the issuance of convertible notes and Series B financing in the prior year.
Contractual Obligations
In February 2025, we entered into an office lease agreement in New Haven, Connecticut. We currently lease a total of 1,202 square feet, and the term of the lease extends to February 2027. We have the option to extend the lease for an additional two years after initial expiration. We believe our existing facilities are sufficient for our current needs. To meet the future needs of our business, we expect to lease additional or alternate office space, and we believe suitable additional or alternative space will be available in the future on commercially reasonable terms. Remaining lease paymentsfrom December 31, 2025 through the end of the lease term are less than $0.1 million.
Purchase and Other Obligations
We enter contracts in the normal course of business with CROs and other third-party vendors for clinical trials and testing and manufacturing services. Most contracts do not contain minimum purchase commitments and are cancellable by us upon written notice. Payments that may be due upon cancellation consist of payments for services provided or expenses incurred. As of December 31, 2025 and 2024 there were no amounts accrued related to termination charges.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: valuation of prepaid and accrued expenses related to certain research and development contracts, and stock-based compensation expense which includes estimating the fair value of its common stock.
Estimates related to research and development contract accruals and prepayments are reasonably likely to change in future periods as project scopes, timelines, and vendor billing patterns evolve. Similarly, estimates of stock-based compensation expense are sensitive to changes in assumptions such as the fair value of common stock, expected volatility, and the estimated term of awards. Management will continue to evaluate these estimates each reporting period and adjust them as additional information becomes available.
While our significant accounting policies are described in more detail in Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
We estimate and expense research and development costs as incurred, which involves determining the expenses for personnel, stock-based compensation, external services, clinical trials, and other contracted activities. This estimation process requires reviewing open contracts, purchase orders, and communicating with personnel and vendors to assess the level of services performed, particularly when an invoice has not been received. We base our estimates on the progress to completion of each contract, using data from vendors and clinical sites. Depending on the timing of payments, we recognize either prepaid or accrued expenses, which are management's estimates based on work performed, milestones achieved, and experience with similar contracts. We monitor these factors and adjust the prepaid or accrual balances if the actual timing or effort differs from our initial estimate, including for non-refundable advance payments. While we expect our estimates to be materially accurate, any difference between the estimated and actual status and timing of services performed could cause research and development expenses to be overstated or understated in a given reporting period.
Stock-Based Compensation Expense
We measure stock-based compensation using the grant date fair value of the awards and recognize the expense on a straight-line basis over the requisite service period, which is typically the vesting period, classifying the expense according to the function to which the services relate. Forfeitures are recognized as they occur. Given the absence of a public market for our common stock, the fair value was determined by our board of directors, considering independent third-party valuation reports. These reports primarily used an Option Pricing Method (OPM), which treats common and preferred stock as call options on the company's total equity value and applies a discount for lack of marketability to value the common stock. Key inputs for this valuation, particularly the Black-Scholes model, involved significant estimates: expected volatility was based on historical volatility of publicly-traded peer companies; the expected term was estimated at 10 years (the full grant term) due to a lack of sufficient company history; and the risk-free interest rate was based on the U.S. Treasury yield curve. Because we don't expect to pay dividends, the expected dividend yield is zero.
We estimate the fair value of awards subject to both a market condition and a performance condition on the grant date using a Monte Carlo simulation model. For awards with vesting subject to the fulfillment of both market and performance conditions, stock-based compensation expense is recognized using the accelerated attribution method beginning when the achievement of the performance condition becomes probable over the applicable service period. The amount of stock-based compensation expense is dependent on our periodic assessment of the probability of the performance condition being satisfied and our estimate, which may vary over time, of the number of shares that will ultimately be issued. If the performance condition is not met, no compensation expense is recognized, and any previously recognized compensation cost is reversed. The Monte Carlo simulation model requires various subjective assumptions that represent management's best estimates of the fair value of common stock, expected equity volatility, risk-free interest rate, discount period, expected dividend yield, and expected time to achievement of a performance condition. Expected volatility was based on historical volatility of publicly-traded peer companies; the risk-free interest rate was based on the U.S. Treasury yield curve. Because we don't expect to pay dividends, the expected dividend yield is zero. Expected time to achieve performance condition is based on our best estimate of the period of time it will take to achieve the specified performance condition.
These valuations incorporate management's best estimates and significant judgments regarding future operating performance, product development, and the timing of a potential liquidity event; consequently, if different assumptions were used, the resulting expense could be materially different. Following our IPO, the fair value of our common stock will be determined by its quoted market price. Additional information regarding stock-based compensation expense is provided in Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements.
Common Stock Valuations
Prior to our IPO there was no public market for our common stock, and therefore, prior to our IPO, the estimated fair value of our common stock had been determined by our Board of Directors after considering valuation reports provided by an independent third-party valuation firm and exercising reasonable judgment and considering numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each stock option grant date. In accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, a third-party valuation firm prepared valuations of our common stock using an OPM. The total equity value can be implied from the OPM, using the preferred stock financing price if transacted around each valuation date.
Given the absence of a public trading market, our Board of Directors, with input from management considered numerous objective and subjective factors to determine the fair value of our common stock. The factors included, but were not limited to:
nthe prices at which we sold preferred stock and preferences of the preferred stock relative to our common stock at the time of each grant;
nthe progress of our research and development efforts, including the status of clinical development for our product candidates;
nthe lack of liquidity of our equity as a private company;
nour stage of development and business strategy and the material risks related to our business and industry;
nthe achievement of enterprise milestones; and
nthe likelihood of achieving a liquidity event for the holders of our preferred stock and holders of our common stock, such as an IPO, or a sale of our company, given prevailing market conditions.
The assumptions underlying these valuations were highly complex and subjective and represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
A public trading market for our common stock was established in connection with our IPO subsequent to the date of these financial statements; therefore, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We qualify as an "emerging growth company" as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold nonbinding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may remain classified as an emerging growth company until December 31, 2031, although if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have annual gross revenues of $1.235 billion or more in any fiscal year, we will cease to be an emerging growth company as of December 31 of the applicable year. We also will cease to be an emerging growth company if we issue more than $1.0 billion of non-convertible debt over a three-year period. We intend to rely on certain of the other exemptions and reduced reporting requirements provided by the JOBS Act.
In addition, the JOBS Act provides that, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies
We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates following our IPO is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. We may continue to be a smaller reporting company until the fiscal year following the determination that we no longer meet the requirements necessary to be considered a smaller reporting company.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements.
Veradermics Inc. published this content on March 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 30, 2026 at 21:43 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]