Company: VRCA
Filing Date: 2025-03-11
Form Type: 10-K
Source: 0000950170-25-037172
Chunk: 175

Company: Verrica Pharmaceuticals Inc.
Filing Date: 2025-03-11
Form: 10-K
Item: Item 1B
Chunk 175
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 for the year ended December 31, 2023. 

          As of December 31, 2024

          (Level 1)

          (Level 2)

          (Level 3)

          Recurring fair value measurements

          Derivative liability
           
          $
          —

          $
          —

          $
          2,648

        The following is a rollforward of the derivative liability: 

          Balance at December 31, 2023
           
          $
          -

          Change in fair value

          2,648

          Balance at December 31, 2024
           
          $
          2,648

        The Company estimated the fair value of the derivative liability using a lattice model with an interest rate lattice consistent with the Hull-White model. The derivative liability was classified within Level 3 of the fair value hierarchy due to the use of unobservable inputs. The key inputs into the lattice model for the derivative liability were as follows:

          December 31, 2024

          Expected term (years)

          3.57

          Credit spread

          12.3
          %
         
        Stock-Based CompensationThe Company accounts for stock-based compensation awards in accordance with ASC Topic 718, Compensation –Stock Compensation. The Company uses the Black-Scholes option-pricing model to value its stock option awards. For stock-based awards granted to employees, non-employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option award and recognizes compensation expense on a straight-line basis over the vesting period of the award. The use of the Black‑Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk‑free interest rates. The expected term of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The Company historically has been a private-company and lacked company-specific historical and implied volatility information. Therefore, prior to the year ended December 31, 2023, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies in addition to the volatility of the Company's stock.