Q3 2021 Novan Inc Earnings Call

Thank you for standing by the conference will begin momentarily until such time, you will hear music.

Please continue to standby.

[music].

Good morning, and welcome to the <unk>, Inc, quarterly update conference call and webcast.

As a brief reminder, all participants are currently in a listen only mode. If anyone requires operator assistance during the event. Please press star zero on your telephone keypads.

Following the presentation, there will be a question and answer session. Note that this webcast 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 managements 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 <unk> 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 this contemplated by such forward looking statements are discussed in the periodic reports <unk> files with the Securities and Exchange Commission.

These documents are available in the investors section of the company's website and on the Securities and exchange Commission's website. We encourage you to review these documents carefully.

Joining us on today's call from the <unk> leadership team are Paula Brown, Stafford, Chairman, President and Chief Executive Officer, and John <unk>, Chief Financial Officer.

I would now like to turn the call over to Paula Brown, Stafford, Chairman, President and Chief Executive Officer Ma'am. Please proceed.

Thank you Jessie good morning, and welcome all to know Vance quarterly update.

To start and reiterate.

<unk> is a world leader.

And nitric oxide based science.

And we're bringing a technology platform to the clinic to support delivering safe and efficacious therapy looking to be the world leader.

The company has really never been in a stronger position.

It's been a transformed transformational year for us and it's a testament to our team and to our commitment.

We have made significant progress across our three lead programs.

In June for <unk>.

Speed to fix our lead product candidate, we reported positive efficacy data for our.

Pivotal phase III study.

And in September we reported our final favorable safety data as expected.

Now, we're advancing toward an NDA submission and we're targeting quarter three of 2022.

Lenny airway.

And we are planning for success.

With SB 204 for acne Vulgaris. The most common form of acne, we are advancing towards a pivotal phase III study in 2023.

And with SB, one nine for Sars Cov, two we announced yesterday additional positive preclinical data and our intent to advance towards in India and <unk> in the second quarter of 2022, and the initiation of a phase one trial in humans.

In short we are targeting three NDA submission over the next three years.

Each represents a significant market opportunity in the U S and beyond.

Since June we've had the chance to report out and recap our positive top line results from the Phase III study.

So while some of you are aware of the robust nature of our data and study results.

We think it's important.

So now I'll touch on it again as we believe its indicative of the potential of our entire platform and other pipeline assets.

And I will share some updates regarding our pre commercial activities that are now underway.

As I mentioned in June we reported top line efficacy and safety results at week 12.

Our pivotal phase III study with SB two six.

The primary efficacy endpoint was complete clearance at week 12 of all treatable lesions and that means trees lesions that were reported at baseline and any that erupted during the trial.

You can see here that we saw a 12 seven percentage point difference at week 12.

And even a three six percentage point difference as early as the week four visit.

With statistical significant.

At week, four eight and 12.

And we believe this is also a clinically meaningful treatment difference.

At week, 12, and perhaps before.

We also achieved statistical significance for all four of our secondary endpoints when comparing our <unk> gel two vehicle the <unk>.

Receiver.

Based on previous guidance from the FDA, we believe that we have met all criteria necessary to use be simple for our pivotal phase III study and our new drug application planned for 2022.

Based on the strength of these results.

We're focusing most.

Really nearly all of <unk> resources on the NDA submission on all of that supports a submission for November.

Last quarter, we finalized the be simple for safety readout.

<unk> were consistent with earlier studies and demonstrated a favorable safety profile.

We also initiated pre commercial activities.

We're now focused over the next three quarters on our manufacturing.

Readiness, NDA, enabling stability testing and pre NDA meeting preparation and conduct all before submitting our NDA in the third quarter.

Of next year as we are targeting.

With that said no van is planning for success.

Which includes planning for commercialization of <unk>.

And last week, we announced our conditionally accepted brand name for SPD to Asics.

Part of that planning includes reviewing the market potential and planning accordingly.

There remains a need for an at home solution for molluscum.

Eiley contagious skin infection, mostly in children.

The addressable market in the U S alone is approximately 6 million cases.

Today, molluscum is either not treated or treated with an in office procedure.

There is currently no therapeutic alternative to know vans SB 206 product candidates.

For in home use.

So therefore, we expect there will be.

Good reimbursement due to the lack of competitors and favorable efficacy and are favorable and efficacy.

And safety profile.

In September we initiated our commercial planning activities.

This started with the selection of <unk> health as our end to end commercial solution provider.

And last week, we rehired Bryan Johnson, our Chief commercial officer.

Brian brings tremendous commercial experience from a number of companies, including UCB and Gal Derma in fact, while he was account derma. He served as the role of Chief Digital Officer. So I think is very important in today's world, especially any help launch seven dermatological products.

Also last week, we announced that the FDA provided a response as I mentioned and conditionally accepted consoles as the brand name for SB 206.

As is customary.

We will request final acceptance of the brand name upon submission of the NDA.

Great. We're excited with the potential for consoles I really liked this name as we believe our product can be a kind solution for patients suffering from molluscum.

Finally work is underway with many of his health and our internal team of experts Bryan and others, So strategically position <unk> in the market.

Head of a potential launch.

I would now like to spend a couple of minutes on an area of high interest with additional and encouraging preclinical results that we shared publicly yesterday.

We are advancing towards submission of an IMD.

Or <unk> for the treatment of Sars Cov two.

Yes.

Over the past 18 months.

We've all been impacted by COVID-19, and during this time no van we continued to expand the utility of our nitrosyl platform we.

We took the opportunity to evaluate the potential of our technology.

The intranasal treatment option for COVID-19.

After positive preclinical efficacy results.

Served in deterring transmission of the disease in vivo.

We evaluated also in vivo the safety and toxicity of <unk> sodium when intranasal <unk> administered.

SP <unk> formulation.

We demonstrated in this 14 day repeat dosing GOP study that spo, one nine was well tolerated at the highest dose tested which was 14 milligrams per day.

The intranasal administration of <unk> sodium marks a notable extension to our previous previously assessed rep routes of administration.

Date, all clinical administration.

Has been via gel or cream with our <unk> sodium API.

We now unlocked.

Not just to say it again unlock real opportunity with a new possible route of administration for <unk> sodium.

What nobody wants to focus on is an intranasal formulation that works against respiratory infectious diseases.

So as no van continues to progress this product, we strive to be prepared for COVID-19, or possibly other infectious diseases.

Thus far we continue to provide encouraging and positive preclinical data and continue to advance forward with a program with real differentiation and real opportunity.

This is obviously a broader indication and our two lead assets, which are both dermatological products.

Suggesting though that our platform and API can apply in more ways than dermatological needs only.

So enough of that let's transition to a discussion on our financial position at the end of the third quarter.

John will you cover our finances and broader opportunities for potential value creation.

Thank you Paula good morning, and thank you all for joining our update call today.

Morning, We bought our 10-Q for September in addition to our corporate update press release.

Pointing to those reports for additional detail. However, I'll touch briefly on a few key points regarding our current positioning.

As of the end of the quarter, we ended with $60 million in cash and cash equivalents.

We expect that this balance plus expected contractual payments to be received.

<unk> with the da Vinci capital to get US past, our targeted Q3 2022 NDA submission for SB 206.

Our current expected runway gets us into Q4 2022 with our capital being focused on the continued progression of our platform as Paul noted primarily on the regulatory and supporting efforts to submit an NDA for SB 206, and initial efforts to support commercialization for that asset.

We believe getting a product candidates submitted to the FDA TBA transformative event for the company. This is indeed, an exciting time.

In addition to the molluscum Acme and Covid programs Paul discussed.

We also have other opportunities with additional product candidates currently in our pipeline that represent potential value in the future both in the U S and potentially an ex U S geographies.

This includes our <unk> candidate for atopic dermatitis.

<unk> hundred seven for General Awards, and Nbn 4100 for companion animal health.

While these assets are currently planned for progression internally, we do continue to look for potential avenues to move these assets forward, including with potential partners or other strategic arrangements.

With that I'll turn it back to Paul.

Thanks, John.

So I'm frequently asked why no van and why now well 2021 was truly transformational for narrowband.

We're a different company today than we were just a year ago, we've proven our platform technology across three programs.

We're planning to submit three NDA in three years.

We have robust phase III clinical data for <unk> hundred six.

Confidence to advance two O four SB two of four in acne.

And important preclinical data related to <unk>.

I'll give us and me tremendous confidence to proceed as we shared today.

Nevada has ambitious goals yet reasonable goals.

There is significant opportunity with our three lead programs alone and John shared our expansion opportunity that exists with the additional pipeline indications.

And we believe there is significant potential upside across the entire platform.

I am proud of our team and their tremendous achievements in 2021 and their commitment to meeting our goals in 2022.

As I conclude our prepared comments today I'll end, where I started fundamentally the company has never been stronger we've got a lot left to do for the remainder of 2021.

And we're excited for all ahead of us in 2022.

We appreciate your support and interest in the van and <unk>.

I'll now.

Ask our operator Jesse to facilitate questions.

Participants we will now begin the question and answer session to ask a question over the phone you May press the star key followed by the number one.

To withdraw your request you May press the pound key again Thats star one to ask a question or <unk> to withdraw your request.

Speakers. Our first question is from Jonathan Ash cough of Roth Capital. Your line is now open.

Thank you good morning, and congrats on the progress guys. I was wondering I had a first question for John with your guidance at 60 male last through 2022 almost through that could you. Please tell us roughly how much of that flows through the income statement for modeling purposes, and therefore, how much is capex.

<unk>.

Certainly Jonathan good morning, and thanks for your question. So if you look at our most recent results.

In our 10-Q that we filed this morning with the continued build out of our headquarter facility in small scale manufacturing capabilities. You are correct. We do have some significant capex youll notice in our disclosures, we have roughly $4 million accrued for at the end of the quarter.

However.

As we continue to move forward, we will have additional costs, but I think the majority has already been either capitalize doors on the balance sheet. So I would expect maybe no more than a couple of more million dollars to come through.

But that is part of that expected cash runway given this through the end of the quarter or end of Q4 of 2022.

Okay. Thank you Paul.

Despite the 109 progress through the Merck and Pfizer Covid pills.

Those positive results incline, you to rethink at all how you will prioritize that program.

Yes, it's a good question, thanks, Jonathan and really.

<unk>.

Obviously, we're not going to repeat the first treatment to the market.

As we have seen with other.

Products elsewhere that it's often good to be the second third or fourth.

Treatment.

The option.

And we're going to take it one step at a time, but right now because we believe as I mentioned the.

Advancing this product forward maybe.

Maybe it's not COVID-19, even in the end, but it's another infectious respiratory disease. So we will continue to advance it one step.

At a time.

But we're very confident in the data that we're seeing that we should do that.

Okay. Thank you that was that's an interesting strategy that makes sense.

How long are you actually doing the consoles stability testing for and is it all real time or is any of it like heat accelerated.

Well it's both.

Accelerated and then there is the real time and Theres the drug substance that we have and the drug product and both have to be on stability for a certain number of months and all of that is.

A discussion with the agency.

And so thats in terms of our tech transfer and manufacturing and getting that on stability and its that testing that will happen in the first half of next year.

Uh huh.

You guys question, Brad for you guys.

Alright, Thank you Jonathan.

Great question is from Jennifer Kim of Cantor Fitzgerald. Your line is now open.

Hey, Thanks for taking my questions and congrats on the quarter I have a few questions here maybe.

Maybe to start off with similar from landscape and this might be for the whole team as well as Brian.

How do you think about the CR all received by your competitor in Alaska and does that change the way you think about the market you could be entering upon approval.

Right now it doesn't change anything for us.

I really can't comment on.

Any.

Anything with our competitor I don't know where that stands.

We wish them success and as we've said before whether they are in the market or not.

We have a place in the market because we have an at home solution and they they would bring more awareness to molluscum. If they go ahead of us and we.

Wish them well in that but we think that there as we've always said, there's there's room for both and the market because there is administered and office over several visits typically and our product is at home use by the patients were administered.

Administered by the caregiver.

Thanks, Dan that's helpful.

And Opex I'm just wondering do you have any color on how we should think about this going forward I know I saw.

Saw R&D went down partially from lower personnel costs and reduced costs related to the 401 four programs. So I was just wondering how to think about that as well with the pivotal trial planned after 2022.

Certainly from an Opex perspective, the 23 that would be the expected timing of the insurance and the cost for the trial.

Roughly $20 million to $30 million for the clinical work.

With regards to our Opex.

We will continue.

Basis pretty consistent with where we added presence, including as we can.

Continue to ramp up our cost associated with our stimulus work and commercialization work.

So, yes, R&D will tick down with regard to our clinical work on SB two afore, but.

SG&A will tick up a bit as we look forward to doing additional work with city yes.

Okay and my last question is more generally the opportunity for <unk>, given the known phase III data could you maybe lay out the topical Rx market and.

How you think about the positioning of that product.

In the market.

Are you talking about 200, <unk>, you said 201, I just want to make sure that a producer.

Two therefore for acne.

Yes.

Yes, I was getting confused in terms of and so I think in terms of do you want to speak to that I've got Brian Johnson actually here with me in terms of acne and the market sure yes happy to.

Good morning, everybody.

So the great thing about the AG market on the professional side and that it's a huge market theres a tremendous number of patients that are being seen in the medical profession, and there are a lot of prescriptions that are being written for the for the condition.

What we typically see is that.

Physicians will choose more than one modality, so they will put together a regimen and.

In market research the joke is <unk>.

You've talked to one dermatologist, you've talked to one dermatologists and they have a regimen that they that they believe it but they kind of come back to.

The different activities of the different drugs have so.

Retinoid difference with antibiotics and some accruals and then you'll have systemic antibiotics.

And then most recently you have a product like <unk>.

Which is a different mode of action.

That is going to contribute to some different activities for applications.

We believe that SP to a floor based on our understanding of how it works in acne and the impact of that.

Nitric oxide can have on the Acme pathogenesis that we don't have a different mode of action than any of the other products that are out there will be anti microbial will also be anti inflammatory.

That.

Len the opportunity to be used very early in <unk>.

And the treatment regimen.

When combined with the safety profile that we saw in the previous 204 trials and then across all of our.

All of our clinical programs thus far.

So I would expect there will be some patients that get it.

By itself, but I think the majority of the patients like other products in the in the market would be receiving <unk>, along with another or potentially other.

Multiple products as well.

Thanks, Brian.

Thank you Jennifer.

Thanks, and congrats Brian.

Thank you.

Next question is from John vendor most know Zacks. Your line is now open.

Hey, good morning, John and welcome aboard Brian.

As an update on the new manufacturing facility build and how it's coming along.

Yes.

Sure.

We're looking at each other so yes. It is it is progressing as planned.

Is here on our Durham headquarter facility.

And we are progressing and currently on track.

Not to say that the supply chain issues arent always a challenge for US here as they are for each of you individually. So we're managing through those and right now there is nothing taken us off track, but.

We'll have that up and running.

Early part of next year.

Okay.

I wasn't sure what would capex be in 2022, just approximately I know you said theres going to be more in the fourth quarter and I assume it'll be all the capex will be complete in 2022 is that right how much will that be.

It will be completed in 2022, I mean, there'll be some cash outlays, obviously through 'twenty one.

Morning, John by the way.

There'll be some capex throughout the year and into the first part of next year, even after we finish the build out.

Look at the total magnitude we can expect probably.

And it's dependent.

With our lease agreement, we do have a TR.

Allowance that helps offset defray the costs that we're incurring for the Capex.

But from a cash outlay perspective from basically here too.

The completion of the call it of the cash flow in Q1, roughly another $5 million or so.

Okay great.

And then will be completed on a modular basis I mean, I guess youre almost you are probably less than six months away from getting that done but will it be module only completed or will be just all done at once.

So John we actually.

Modular we've been in the building.

I have to note and as we describe it.

Since may.

This year as we continue the back half of the building, which is manufacturing suite, we expect that to be done by the end of the year.

Okay. So two different parts of it okay, great. Thank you to everyone but.

Can you just remind us of the capabilities of the facility.

Yes.

Certainly so.

As a small scale has a small scale capability for API manufacturing and limited drug product manufacturing, that's really thought about for future use for potential CGM.

For continued development, so really the purpose of the plant ear.

Is to continue our development from an R&D perspective, but also to support our supply chain.

With our CMO counterparties that we're utilizing now.

The facility here will be used.

Initially to support the API manufacturer for registration campaigns.

For <unk> six and then it'll be part of the greater supply chain.

For our potential commercial quantities.

Okay, great great.

Last question is just on SP to afford to follow on what some of the other analysts have asked I think it's still expected to be 1000 patient trial.

What is your estimated costs on a per patient basis for that and should we just assume it's going to be simpler I'm sorry, similar to be simple for.

The design is obviously different yes, we will we are taking our learnings from two O six the design, obviously different because of acne, but the execution would be very similar again from what we've learned from our successful to us.

Fix.

In terms of costs, we haven't given a per patient cost, but you can do the math, we've said that the trial is probably between $15 million and $20 million to run that trial.

Okay, great. Thank you Paul.

Yeah. Thank you John.

Operator, any other questions Oliver of Brookline capital. Your line is now open.

Great. Thank you and good morning.

Thank you.

And not to split hairs, given the prior discussion, but with regard to be true for an SP 019.

How far do you assume you would advance each.

Given your current guidance.

Good morning.

So our current guidance and runway if you will and Capsulate is not only the regulatory fees were two six but as it relates to spo and non investigate it through a phase one trial in the first half of next year. So that phase. One work is included in that forecast.

With regards to SB two of four for acne.

That does not include the anticipated phase III trial in 2023, but it does include activities related to preparing for that trial.

Okay.

Thanks, Kim any other questions. Thank you.

Alright.

Operator any other.

No further questions Ma'am I'll now turn the call back over to Paula Brown Stafford for closing remarks.

Alright, Thank you Jessie.

Thank you all we are excited for what's ahead. So we're looking forward to 2022 and we thank you for joining us today.

Thank you. This concludes today's conference call. Thank you all for joining you may now disconnect.

[music].

Okay.

Yeah.

[music].

<unk>.

Yes.

[music].

Yes.

Yes.

[music].

Yes.

[music].

[music].

[music].

[music].