By John Vandermosten, CFA
NASDAQ:NOVN
READ THE FULL NOVN RESEARCH REPORT
1Q:23 Financial and Operational Results
On May 15th, 2023, Novan Inc. (NASDAQ:NOVN) reported 1Q:23 financial and operational results in a press release and in the filing of Form 10-Q. A conference call and webcast were subsequently held to update investors on recent developments. The call highlighted the performance of the EPI Health assets and efforts related to SB206’s New Drug Application (NDA) which has been assigned a target action date of January 25th, 2024. Novan is increasingly focused on potential funding or strategic arrangements and alternatives to address short-term cash needs and access to capital is necessary to progress development of SB206. Since the report of 2022 results in late March, Novan held an analyst and investor day and announced a publication supportive of patient use of Wynzora.
Highlights for 2023 include:
➢ SB206 NDA submitted for molluscum contagiosum – January 2023
➢ NDA accepted for SB206 assigning 5JAN24 PDUFA date – March 2023
➢ $6 million registered direct offering – March 2023
➢ Investor KOL event with Dr. Sugarman on molluscum unmet need – April 2023
➢ Publication of survey on patient needs for psoriasis medication – April 2023
With respect to financial performance, Novan generated $3.2 million in 1Q:23 revenues versus $1.9 million in 1Q:22, and posted a net loss of ($14.1) million or ($0.54) per share compared to a loss of ($13.4) million or ($0.71) per share in the prior year period.
For the quarter ending March 31, 2023 and versus the same prior year period:
➢ Revenues were $3.2 million, up 64% from $1.9 million. The increase is predominantly due to revenue contribution from sales of dermatology products Wynzora, Rhofade, Minolira and Cloderm and recognition of a full quarter of sales in 1Q:23 compared with 20 days of sales in 1Q:22. Year over year increases were tempered by Rhofade suffering a manufacturing delay which led to a to lack of inventory and loss of sales in 1Q:23; however, management noted that a rebound in orders was experienced in the second quarter as units were restocked. Furthermore, deductible resets for 2023 contributed to the sequential slowdown in scripts and revenues for Novan’s three leading products.
➢ License and collaboration revenues of $585,000 were down 50% due to the absence of revenues from the distribution and supply agreement for Cloderm. Research and grant revenues were up 370% to $170,000 from $36,000 on recognition of multiple federal grants;
➢ Cost of goods sold was $1.3 million vs. $0.2 million;
➢ Research & development expenses totaled $4.8 million, essentially flat with prior year levels. Declines in spending on the SB206 program were offset by increases in other research and development expenses related to a $1 million milestone payment to Ligand;
➢ Selling, general & administrative expenses were $10.0 million, also flat with prior year amounts. 1Q:22 expenses related to the EPI acquisition were replaced by greater commercialization spending for the product portfolio in 1Q:23;
➢ Net loss was ($14.1) million, or ($0.54) per basic and diluted share, compared to ($13.4) million, or ($0.71) per share.
As of March 31, 2023, cash and equivalents on the balance sheet totaled $12.5 million. This compares to cash holdings of $12.3 million at the end of 2022. Cash burn was ($4.3) million which was partially offset by $4.1 million of net contributions from financing. $6.0 million of this amount was from the direct offering which was executed in mid-March. $5.0 million was also received from Sato related to the license agreement for Rhofade. $1.25 million of the Sato/Rhofade upfront is owed to a third party tempering the impact from this cash flow. Novan anticipates that there is sufficient liquidity to support operations until late second quarter 2023.
Corporate Updates
Psoriasis Publication
Findings from a National Psoriasis Foundation study were published in the Journal of Drugs in Dermatology which surveyed more than 400 US patients on patient adherence to topical psoriasis medications. The title of the April 2023 publication is Patient Preferences in Topical Psoriasis Treatment by Curcio, et al.1 The 17-question survey was administered in March 2022 and queried participants on psoriasis severity, bothersome signs and symptoms, current treatment modalities, frequency of topical therapy use, and vehicle preferences.
84% of the participants reported moderate psoriasis with 72.5% of participants using oral medication and 8% topical treatment alone. 76% used topical therapy at least once weekly and 80% reported that they would wait two weeks after starting a new topical treatment before considering discontinuation. Participants preferred water-based creams (75.7%), followed by oil-based foam (70.8%), gel (48.7%), solution (42.8%), lotion (21.2%), non-oil-based foam (17.5%), ointment (16.5%), and spray (6.3%). Other desirable features were formulas that did not stain, were absorbed quickly, were not sticky and were easy to apply. 75% said they would continue to use a psoriasis medication for a week before stopping if they didn’t like its topical formulation.
Novan’s press release continued with a summary of Wynzora’s features. Novan’s product, which is commercialized jointly with MC2 Therapeutics, offers a rapid onset of action with results seen in efficacy, scale and itch as early as one week after application and continued improvement at 8 weeks. Additional detail on Wynzora’s profile are included in an analysis by Han, et al.2 and in the product’s label.
A Discussion of Molluscum’s Unmet Need
Novan held a stakeholder event on April 25th, 2023 featuring pediatric dermatologist Jeffrey Sugarman, MD, PhD to discuss molluscum’s unmet need with investors and analysts. The presentation began with an introduction by CEO Paula Brown Stafford who summarized the company’s pipeline and the status of lead candidate SB-206, which is now being considered for approval by the FDA. She was followed by Chief Commercial Officer Brian Johnson who quantified the unmet need for molluscum patients. Existing options for patients include potentially painful in-office procedures and non-approved approaches that have limited efficacy. Health care providers (HCPs) want to see solutions for MC and are willing to prescribe an effective medicine if available.
To provide the HCP perspective, pediatric dermatologist Dr. Jeffrey Sugarman was featured who also served as the safety monitor for the Phase III clinical trials for SB-206. MC is commonly seen in children from 3 to 8 years of age, but does move outside of this range. Children with MC frequently also experience eczema, which can make the disease uncomfortable in addition to unsightly and contagious. Dr. Sugarman identified some of the features that physicians would like to see in an MC treatment. These include a safe, effective and well-tolerated product that is convenient to use. SB-206 achieves these objectives for patients, including convenience as it is a prescribed product that can be used at home.
Further discussion detailed the manufacturing and commercialization activities that have been taking place and that will take place over the next quarters. Pediatric dermatologists and primary care pediatricians will be the target audience for the anticipated marketing effort. The panel participants brought up the pending target action date for Verrica’s cantharidin treatment for MC which is in late July. Having two companies commercializing simultaneously could be beneficial for educating providers on the available options.
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1. Curcio, A., et al. Patient Preferences in Topical Psoriasis Treatment. Journal of Drugs in Dermatology, April 2023.
2. Han, G., Feldman, S., Bhatia, N., & Præstegaard, M. (2022). Dipropionate (Bdp) Cream (Cal 0.005%/Bdp 0.064% W/W) Improves Plaque Psoriasis At Week One In A Phase 3 Trial. SKIN The Journal of Cutaneous Medicine, 6(4), s42. https://doi.org/10.25251/skin.6.supp.42