Novan Inc (NOVN) 2021 Q4 法說會逐字稿

Hello, and welcome to the Novan, Inc. quarterly update conference call and webcast. (Operator Instructions) Note that this broadcast is being recorded at the company's request, and a replay will be made available on the company's website following the end of the event.

At this time, I'd like to remind our listeners that remarks made during this webcast may state management's intentions, beliefs, expectations or future projections. These are forward-looking statements and involve risks and uncertainties. Forward-looking statements on this call are made pursuant to the safe harbor provisions of the federal securities laws and are based on Novan's current expectations, and actual results could differ materially. As a result, you should not place undue reliance on any forward-looking statements. Some of the factors that could cause actual results to differ materially from these contemplated by such forward-looking statements are discussed in the periodic reports Novan filed with the Securities and Exchange Commission. These documents are available on the Investor section of the company's website and on the Securities and Exchange Commission's website. We encourage you to review these documents carefully.

Additionally, certain information contained in this webcast relates to or is based on studies, publications, surveys and other data obtained from third-party sources and the company's own estimates and research. While the company believes these third-party sources to be reliable, it has not independently verified such information.

Joining us on the call today from the Novan leadership team are Paula Brown Stafford, Chairman, President and Chief Executive Officer; and John M. Gay, Chief Financial Officer. I would now like to turn the call over to Paula Brown Stafford, Chairman, President and Chief Executive Officer. Please proceed.

Thank you, Liz. Good morning all, and welcome to Novan's quarterly business update and year-end review. Many are familiar with the Novan story and our vision. But for those who might be new to our story, we are a world leader in nitric oxide-based science and technology, and we're striving to deliver safe and efficacious therapies.

Much has transpired over the course of 2021, really over the course of the past 12 months, we've worked to put a lot of pieces into place, and we believe we have validated our core technology based on positive Phase III clinical data reported in June of 2021. We demonstrated operational excellence and regulatory rigor to advance and prioritize our pipeline to fuel potential advancement of our clinical programs across several other priority programs and to ultimately be able to address what could be a collective multibillion-dollar market. So we're very proud of 2021, what we achieved, but we have a lot more to achieve in 2022.

So let's go to the next slide. To fulfill our vision, which I just shared, we've created a roadmap, as you see here, to execute on our vision. So we are targeting to submit 3 NDAs in a 3-year period. So we rolled this plan out, this roadmap, this past September, and we are still on this path, I am happy to say.

Next, our lead product candidate is SB206 or berdazimer gel 10.3%. So you're going to see that more often now. On Friday, we filed our 10-K, and John will give a bit of more detail, a little bit further on. But for now, I'd like to provide a brief summary of our progress to date and what needs to happen and will happen next? So with SB206 or berdazimer gel 10.3%, we have a potential topical prescription treatment for molluscum contagiosum. Molluscum is prevalent primarily in children ages 1 to 14 for which there is no FDA-approved treatment. And from research, we know that dermatologists and pediatricians remain concerned with the tolerability of current office-based procedures.

Our Phase III trial, known as B-SIMPLE4 was really the catalyst that created the first step in our 2021 being a transformational year for Novan. And as you see here, we have one primary efficacy endpoint, which is complete clearance of all lesions at week 12. And you can see in the kind of brownish color here that at each visit from week 2 forward, we saw a progressive treatment difference between our active SB206 product and the vehicle or placebo. So we remain very excited about these data, and it's what is, as I said, the catalyst for pushing us forward and what we believe has really proven out the technology that we call NITRICIL.

So in the second half of 2021, we not only commenced pre-commercial activities, but we also finalized the B-SIMPLE4 study and our clinical study report. So all of that completed in the second half of last year as planned. We don't know anyone who hasn't been impacted by supply chain issues, we are no different, but we're pleased with how we have managed through and the course that we've taken to date. We've had just a slight shift, and we are confident in our targeted time line. So we are on track to submit an NDA for SB206 no later than the fourth quarter of 2022.

So specifically in terms of the supply chain that I mentioned, we did experience some headwind there. We addressed the challenges. We've made up a considerable amount of that time, and we believe we have successfully navigated through. We -- and you'll see here, I just -- this is more detailed than probably typically provided, but I wanted to share our confidence and our commitment to a 2022 submission because we identified rate-limiting factors and then we address them appropriately. And as I've mentioned before, we have our drug substance and we have our drug product and our drug substance is being produced here at Novan and in terms of the facility readiness and then we're on to preparing ourselves for the stability testing and then our drug product, which is being manufactured at a third-party facility in Finland, and that we've been working through our technology transfer and then, again, moving on to stability testing. Again we're targeting no later than 4Q 2022 for our submission.

Another exciting piece of progress that added to our transformational year has to do with the potential commercialization of SB206. So we initiated pre-commercial activities. Part of that was adding a number of leading sales and marketing experts. We have a conditionally approved brand name, which we're thrilled about, KINSOLUS. And we continue to plan for success. You've heard me say that many times before, and we continue to plan and, I believe, execute on what we plan for. So we are putting the pieces in place to be ready for a product launch if SB206 is approved.

Specifically, I want to acknowledge our new team members in both marketing and manufacturing. So these are 2 key components to any successful launch. And collectively, we've added experience from sort of household names, Galderma, Medicis, J&J, Cassiopea, Fujifilm, [Diabasens] and Catalent. So you'll see here, we announced in November, Brian Johnson joining us as our Chief Commercial Officer. But joining us in December and January were Melvin Whitehead as our Senior VP of Manufacturing and Operations, Sheetal Sahel, our VP of Marketing and Commercial Operations; and Martina Cartwright, Vice President of Medical Affairs. So we've really built a team that will help us in delivering on that success that we're planning toward.

Moving on to one of our other priority product candidates, SB204 for the treatment of acne vulgaris. SB204 has been formulated with the same active pharmaceutical ingredient that is in the SB206 formulation. And it has been formulated specifically for acne. We have completed 2 Phase III studies and even an open-label long-term safety study, all with SB204. We are poised to complete one more Phase III study and potentially have all we need to pursue another NDA submission. And as you saw previously, and see here, we are targeting 2024 for that submission. But to get there, 2022 is the year for planning. So planning for another successful Phase III trial and optimizing by -- really optimizing the study design and the right operational plan for that one pivotal Phase III study.

Now we know that nearly 50 million Americans suffer with acne, and we believe we have a potential treatment that could have advantages over other current topical solutions. We could have a non-bleach, non-staining treatment that is not an antibiotic, among other wonderful clinically demonstrated attributes of SB204. So looking forward to the planning process and moving this forward.

Switching gears again, but building on our technology story and potential future, we are planning to advance SB019 as a potential treatment for COVID. Our preclinical data were promising, encouraging and consistent across multiple studies and assessments. We now have the confidence to submit a pre-IND in the next month or 2 and advance towards an IND. So we have been in contact with the agency. We want to submit this pre-IND here shortly and then move toward a formal IND submission. And after that, we'll follow a Phase I study.

Now I'm going to turn it to Novan's CFO, John M. Gay for a summary of our financials per our 10-K just filed.

Thank you, Paula. Good morning, and thank you for joining the call today. This morning, we filed our corporate press release. And as Paula noted, last Friday we filed our annual report on Form 10-K. I will refer you to that annual report in our release for additional detail regarding our year-over-year performance. However, I will discuss a few key points related to our year ended 2021.

We ended December with $47.1 million in cash and positive working capital of $43 million. We expect this balance plus expected contractual payments to be received to provide us with sufficient capital to get us past our NDA submission for SB206, which as Paula noted, is targeted for no later than Q4 this year. Our current expected runway gets us into Q1 2023 with our capital being focused on the continued progression of regulatory efforts to submit the NDA for SB206, commissioning and validating our small-scale API manufacturing facility, technical transfer activities with our drug product manufacturer, GMP batch manufacturing and initial prelaunch strategy and U.S. commercial preparation efforts to support commercialization of SB206. Again, I'll point you to the SEC filings for a more detailed description regarding our 2022 expenditures. However, we are excited to have the opportunity to progress our NITRICIL technology for the potential benefit of patients.

2022 is primed to be a pivotal year for Novan and shareholders. We are preparing our lead asset, SB206 or berdazimer gel 10.3% for Q2 pre-NDA meeting with the FDA, we are targeting completion of the registration-enabling stability testing during Q3. And finally, we are gearing up to submit the 206 NDA no later than Q4 this year. While SB206 is our lead asset, we are also excited to be progressing our SB019 program with a potential IND application and starting a Phase I study in healthy volunteers during 2022. We also expect to file a pre-IND submission for SB019 by the end of the second quarter of this year.

With that, I'll turn it back to Paula.

Thank you, John. So in addition to our priority platform that you've just heard about and that we've been really talking about for a good 6 months now. We have several other product candidates, again, those close to the story know, remain in the wings. We have a full technology platform that's poised to fuel future growth for Novan and these remain opportunities for us and excited about not only the opportunity in the U.S., but for global expansion of these potential assets as well as the priority platform that we've just talked about.

So in summary, we delivered positive Phase III results in June of 2021, and we are advancing 2 product candidates based on the -- 2 other product candidates based on the same API. We believe we have potential upside across our full platform. So the reason why Novan, why now is that we are a leader in nitric oxide-based science and technology, and we have the ability to advance from discovery to delivery and move from pre-commercial to being commercial with the first topical prescription therapy. We anticipate 2022 will be another transformational year for Novan as we anticipate filing our first NDA at Novan.

So thank you for being here. I'm going to turn it back to the operator, Liz, and we are now ready for any questions.

(Operator Instructions) Our first question comes from Jonathan Aschoff with ROTH Capital Partners.

And I was curious, just in case the pandemic trails off more significantly than it has already. Are you studying 019 in parallel for other viruses now? Or are you waiting for some other COVID inflection point down?

Yes. Thank you, Jonathan. It's a really good question. And we believe that a Phase I study would be a proof-of-concept study for other respiratory diseases as well. So we would like to proceed through at least Phase I and really get the results of that and then decide next steps.

You know something, what other drugs would [KINSOLUS] rep have in their bag, I guess, to sort of grease the wheels as they buy for the attention of dermatologists and pediatricians?

That too is a good question, Jonathan. Because we are right now a one product company. And I'd say right now because obviously, SB204, we would hope would come behind that, and we would still call on dermatologists and pediatric dermatologists and potentially pediatricians as well, which we would be targeting with molluscum. It is something that we continue to evaluate and look at ways to add anything else to the bag or how to handle that because it is infrastructure and costs that, as you know, that we have small infrastructure here in terms of our sales team, which I really just provided the extent of our sales team here, but partnering with Syneos and partnering through ways to potentially have something else in the bag with ours or not. So that's something that we'll continue to pursue. Good question.

Just 2 more, if I may. The first is, are there any acne drug candidates that will give clinical results before you need to finalize your Phase III plans with 204? And could that result have any influence upon your trial design? Or is this confirmatory Phase III essentially, it's design essentially set by 204s past successful Phase III?

Yes, it's going to have to be so because we're running one study, we need to have it very similar to the previous 2 studies and specifically the AC302 study that was our positive Phase III. So we do need to keep those designs relatively similar. There is one new product on the market in acne. We have a novel treatment. It is different than theirs, but they are doing well in the market. And we have members of our teams who were part of that designing that launch. So we think that we've brought in some expertise that can build off of that. Yes, thanks for that.

I haven't looked at the 10-K yet, but what was the extra $5 million spend beyond the P&L, roughly $8 million loss over the quarter to make the $13 million difference over the quarter in cash?

Jonathan, this is John. Are you taking into account the CapEx with respect to our continuing to build out of the facility?

That's a simple answer.

Thank you, Jonathan. Liz, next question.

Our next question comes from Jennifer Kim with Cantor Fitzgerald.

I have 2 here. First, on the expected NDA submission in the fourth quarter of this year. In terms of the rate limiting factors, how conservative is that timing now? And could you go into more detail on what you've done to address those factors? And if there's any possibility for either getting the submission faster, possibility of it getting delayed further? Just how we should think about that? And then my second question is, for your assets outside of the priority platform, could you remind us of what your strategy is there? Could we see opportunities for partnerships or licensing opportunities for some additional capital?

Thank you, Jennifer. In terms of the delay, we are saying no later than the fourth quarter because it's -- right now we think we're early in the quarter, but we're trying to leave room for, as you say, any additional issues, if you will. We think that we were able to -- the supply chain really has affected everyone and it impacted us as well. And so we have made up for a considerable amount of that time. But we're kind of to the point now as we really begin the manufacturing of the GMP batches or registration batches that we don't really see any other potential delays there. I mean you can never be sure in manufacturing. So -- but we feel very confident. And that's why I said, we're confident and committed to no later than the fourth quarter, and we think that there's room there to make sure that we hit that. So thank you for that.

And in terms of the other assets, we continue to have discussions. We get phone calls, we have discussions, U.S., ex-U.S. and out-licensing, in-licensing are all potential avenues for us. And we continue to pursue and have conversations and try to make the right decisions for our shareholders and how to advance our priority platform as well as the expansion of our technology and platform. So we do look at all different types of partnerships and abilities to advance the platform. Thank you for the question, Jennifer.

Liz, over to you.

Our next question comes from Oren Livnat with H.C. Wainwright.

Since you were so helpful in providing, I guess, as you say, a little more detail than most companies have provided along the way with regards to the final steps and gating factors. I hope it's okay if I try to dig into that a little more. Obviously a quarter delay is not material in my book, but I do just want to understand what's left to do in terms of -- help us understand, is this ramp-up in your in-house facility? Is that a gating factor for what's going to go on in Finland? Or are you running, I guess, simultaneous stability processes for the in-house API versus the Finland drug product? And can you remind us when do you think you'll have, I guess, whatever constitutes the finished presentation that you might need to do or presumably you need to do your final human factors, summative work so that we could just get comfortable around the steps between here and NDA filing.

Okay. Thanks, Oren. Yes, back on that Slide 10 that I shared where I showed drug substance and drug products. Basically that was showing and I didn't say it necessarily, but they are in parallel. So it's not one is waiting on the other, Oren. So they are in parallel. And we're confident in the timing now of the stability testing and not being able to hit in order for us to submit the NDA in the fourth quarter and no later than, like I said, unless something turns up, if you will. So we're on a good path. One is not waiting on the other. So they are in parallel.

And are we talking 6 months stability? Or is this only accelerated or both?

A little bit of both. So we've not stated the exact amount because we had a discussion and agreement, if you will, with the FDA in terms of what they're looking for. And so it's in terms of what we're delivering based on their requirements. So we will hit those in the third quarter and therefore be in a position to submit in the fourth quarter.

And assuming success and everything goes as planned for, I guess, late fourth quarter 2023 approval. Can you just talk about what you think the molluscum landscape will look like at that time? Clearly there's an in-office procedure that's still pending, under review with the FDA with the cantharidin product. I'm just curious if you think by the time you get to market, are we going to be in a market building phase? Or are you hopeful that there are already going to be somebody out there on the -- with boots on the ground, spending some money, raising awareness that you walk into an already sort of rejuvenated space?

Well, you said it quite eloquently, and that is where we support Verrica and we hope Verrica comes to the market because we do think that they certainly bring that awareness, but we're ready to bring it ourselves. I think you saw that we were at the Winter Clinical Dermatology Conference in Hawaii. We had representation there and also with the Maui Derm. So there were 2 conferences. We attended another conference in February. We'll be at the Academy of Dermatologists later in March. So we are establishing our own presence now, and we're working on publications, et cetera. So we are going to not count on them being in the market, but we're happy for them to be in the market because we don't consider ourselves competitors, but complementary to one another. And we believe that being a prescription therapy, I know we've used at home before, but just really thinking of it as we're a prescription and they're procedure. So they're really 2 different tools in the solution for molluscum. And we know a lot of parents who are using one of those tools and are very interested in a second tool. And to date I have not seen any data in clinicaltrials.gov that anyone else is looking for a prescription for molluscum. We think we would be the first and have a good story to tell if approved.

Thank you, Oren. Liz?

Our next question comes from John Vandermosten with Zacks.

Regarding the pre-NDA meeting, what do you anticipate the FDA is going to be looking for when you meet with them? Is there anything specific that you would be looking for from them and that they might be looking for from you?

Yes, good question. And you remind me one more thing that Oren asked about, which was human factor trial. So I can throw that in this answer as well. So in terms of the pre-NDA meeting, we're -- we've been sending them requests on a number of different items over the last really 2 years, ongoing, in terms of feedback, input, et cetera. And what you look for in a pre-NDA meeting is you go with your final questions to the agency to make sure and what I'm looking for is when we file this thing, are we giving them everything that they want to see. And we have time on our side, if you will, that if they add something or ask a question that we would have time and that it should -- we would hope that it would not impact any time line. So we're looking forward to the meeting with the agency and just finalizing their standardization. You talk about how you're going to present the table, how the tables of data and how it's going to look and you get input on all of that so that you're meeting their expectations. And so we're looking forward to that. And we do have a meeting set now with the agency. So we're working toward that.

And then back to maybe if I could just answer Oren's question on the human factor trial. There is a summative trial and where we have all of that planned out, and it is not a rate-limiting factor for us. So that should be just fine, and we're excited about -- I'm excited to share at some point our packaging and et cetera, and our colors and so I'm very excited about how it looks.

John, I'll get back to you. Did you have another question?

No. Thanks for the additional color. And then on the inspection side, what is going to be required there? I know that manufacturing inspections and something like that have been a hiccup in some situations. I guess you'll be expecting 2 of them. Maybe you can just provide some clarity in terms of Finland and your own facilities, kind of what might be happening there on the FDA inspection side?

Yes. It's we're -- we have -- it's complex, yet it's simple because our supply chain is 2 places. It's Novan and it's Finland. And we think that that is -- we're confident that we will be ready. We are preparing our staff, if you will, now in terms of you train up on PAI readiness, so preauthorization inspection. And so we will -- we're -- we feel good about being ready for that. And again, it's just the 2 places, and we do know some places have a longer supply chain and more involved, and we have checked with our Finland group in terms of their previous inspections, et cetera. So we, again, feel confident in the quality that is being produced there.

And I assume they're producing other FDA-approved products at that facility in Finland?

Yes. They have in the past, and I think they are currently, but I don't want to say that for sure because -- but I think they are, I mean, they are manufacturing other things, but I think they are for FDA currently or for U.S. currently.

And then on the sales side for SB206, I know you've added some senior executives there. And we still have a little ways to go until we'll need some sales reps. But how do you see that ramping up as we go over the next year?

Yes. Our current plan is to put in the field some MSLs and then be prepared around launch, prior -- just prior to launch to put sales, bringing the sales staff and to train them, et cetera. So we don't need them yet, but we would do that. Our current plan is to do that, as you know, via Syneos. So we will not be ourselves hiring into Novan. But when you use a contract sales organization like that, they do present themselves as representing Novan and, if you will, carry a Novan card. So -- but they would not be Novan employees as we've stated previously.

And I guess would you own a fractional interest, I guess, on each one of the sales reps as they sell like the other caller asked about offering other drugs in their portfolio. Is that kind of how that goes, I mean, like a portion of an FTE or something like that?

If that's something that we move to. We have not made that decision currently. It's always a discussion because I come from the area of outsourcing, as you know. So there's a lot of different ways it can look. And so we have not committed to that fully yet. And so that decision will come later on because we don't need it now.

And just last one for me on the sales side. How many FTEs do you think you'll need when this is ramped up totally?

Yes. I think we've said 40 to 60, it's in that range that we would be in terms of the sales force.

Okay. Thanks, John. Operator, any other questions? Good questions today. Thanks guys.

We do have a question from Kemp Dolliver with Brookline Capital Markets.

The 10-K has new language that is, say, broader with regard to the context of what you touched on earlier regarding partnering and potential strategic transactions. And so my question relates to that additional language. And in the context of a pickup in M&A activity and partnering activity in dermatology in the last few months. Is this your reflection of more inbound activity that you're getting? Or is this you and the Board taking a broader view proactively, the potential best options for the company?

Yes. And I think that's exactly the term I was going to use, Kemp, and it's just being broad in terms of the potential. We just wanted to make sure that we weren't being too narrow in our own focus and discussion and leaving the opportunity for kind of anything that could come our way. And as I said, we get a lot of calls and e-mails. And so we just wanted to be inclusive of all of those potential opportunities out there. So we expanded the language a bit. So good catch, good call, so intentional, just to be more broad.

But it's not in response to a specific proposal, I would take it.

No.

Okay. Operator, any other questions?

There are no further questions at this time.

Okay. Well, again, thank you all for joining the call. We anticipate 2022, again, to be another transformational year for Novan. Thank you for being here and supporting us, and we look forward to hopefully filing Novan's first NDA in 2022. Have a great rest of your week.

This concludes today's conference call. Thank you for participating. You may now disconnect.