Novan, Inc.

Hello, and welcome to the Novant, Inc. 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 keypad. 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 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 Novant'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 cause actual results to differ materially from these contemplated by such forward-looking statements are discussed in the periodic reports NOVAN files with the Securities and Exchange Commission. These documents are available in 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 in the company's own estimates and research. While the company believes these third-party resources to be reliable, it has not independently verified such information. Joining us on today's call from the NoVein 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, Andrew. Good morning, everyone, and welcome. Thank you for joining our call this morning. We have invited you all to join us as just a couple of hours ago, Novan announced what we believe is tremendously exciting news. In short, we have closed on the acquisition of EPI Health, and Effective today have emerged as a fully integrated specialty dermatology company. We now have marketed products and a proprietary R&D platform technology, which will fuel organic growth for Novan. We are well positioned to detail our SB206 or Consolis, if approved, product, and we We're in the position to tout an experienced dermatology commercial platform. We now have established healthcare relationships as well as product launch experience. Importantly, I am proud to say that this transaction has created a pharmaceutical engine that has the capabilities to discover, research, develop innovative therapies, and bring medications to patients with dermatological needs. Without a doubt, we have established an accelerated path for Novan, putting the two core pieces of a pharmaceutical company together. We now have an established commercial infrastructure with an existing revenue stream. I want to take just a few minutes to review the Novan R&D organization. For those of you new to the Novan story, our nitrosil technology enables us to store large amounts of nitric oxide gas in a stable, solid form by chemically loading it on a macromolecule or polymer. The advantages of our technology include tunability, stability, high storage capacity, and targeted delivery. We believe that our ability to deploy nitric oxide in a solid form, on demand, and in localized formulations allows us the potential to improve patient outcomes in a variety of different diseases. We're currently planning for three potential NDAs before the end of 2024 with three different product candidates for the treatments of molluscum contagiosum, acne, and SARS-CoV-2. I mentioned the pharmaceutical engine. This is truly representative of our near-term opportunities as well as our ability to leverage our platform technology to continue in the mid and long term to fuel our pipeline and ultimately additional commercial opportunities. Each product candidate has its own compelling addressable market, globally and domestically, with Novant's pending solutions, you'll see there at the bottom of the slides, meeting different current medical needs and potentially millions of patients in need. Our lead product candidate, is SB206 or Berdazimer gel 10.3% and hopefully Consolis. It's a potential topical prescription treatment for molluscum contagiosum. And in 2021, we reported what I have referred to as robustly positive top line results from our pivotal phase three study. Molluscum is prevalent primarily in children ages one to 14, and they're currently is no FDA-approved treatment. It's highly contagious and, again, no prescription solution. And dermatologists and pediatricians remain concerned with the tolerability of today's office-based procedures. There are approximately 1.3 million new cases a year in the U.S. alone, and the standard practice of care is within office procedures that are often painful Quickly, our phase three trial, known as B-simple-4, was the catalyst for a transformational year for Novant in 2021. We demonstrated clinical and statistical evidence of efficacy with our primary and secondary endpoints. So, we're now preparing the NDA and are targeting submission in the fourth quarter of 2022, so this year. Course of business next quarter, we'll be conducting our pre-NDA meeting with the agency and completing customary stability testing of GMP batches of our drug substance and drug product. So now, let's switch gears and discuss our newly wholly owned commercial subsidiary, EPI Health. Many times before on these calls, I've shared our theme of planning for success And as we've been planning toward the potential launch of SB 206, I've also shared with you that we will be carefully and strategically evaluating scenarios to build or partner or acquire a commercial solution. Well, with confidence I can say that we have identified a path, and the best and most compelling path that delivers value, and that was to acquire an established business model. EPI checked all of our boxes. They have invested, most importantly, in their people, in their products, and in their processes. They have expertise across the board, market access from payers to patients. They've had success in sales targeting across dermatology indications. And finally, they've demonstrated that they know how to launch new and even older products. As I mentioned, EPI Health has an established presence in the dermatology community with a strong specialty pharmacy network and strong relationships and engagement with KOLs and key customers. As a combined entity, we now have a portfolio of six products with our most recent launch in 2021 with Winsora. And we're actively promoting four of those products across four indications that include psoriasis, rosacea, acne, and dermatosis, really four top dermatology indications. And we're currently covering 42 territories in the U.S. with plans already to expand later in 2022. And we have a team that will be ready for SB206 if and when approved. A lot of time, strategic planning and modeling has gone into this decision, and it all reaffirms our collective teams and our board's high enthusiasm for this transaction. EPI Health has a strong leadership team, which complements our NoVAN team. John D'Onofrio, with his GSK, MERS, and trial card experience, has been appointed to be NoVAN's EVP and chief operating officer, while continuing in his role as the president of EPI Health. Jointly, this new team brings just this leadership team brings over 100 years of pharma experience, and most of that is dermatology. So together, Novan plus EPI Health, a Novan company, have created a specialty dermatology company. We're focused on developing and marketing innovative therapeutic products for skin diseases. We have an experienced leadership team across both groups. We have integrated capabilities now from bench to bedside. We've established a commercial platform in the top four DERM markets. We have a proprietary platform to fuel future growth. Now, the terms of the acquisition are that we have a total upfront purchase price of $27.5 million. and that's $11 million in cash from NoVan and a seller's note from the evening post group of $16.5 million, which is a 24-month term. The agreement then includes earnouts up to an additional maximum of $23.5, and those are if certain milestones are achieved by the EPI Health subsidiary of NoVan. And these milestones may be paid in cash or stock, but it's really primarily at the discretion of NoVAN. There's only one that's a cash only. So it's really our discretion as those milestones are hit. So there's tremendous value in EPI health. And really, it's both tangible and intangible. So here I've just focused on the tangible. They delivered operating revenue in 2021 of approximately 18 million. There's current and future value, in our opinion, in EPI health assets and infrastructure. And we have a Novan subsidiary that will deliver positive operating contribution. Now let's not forget that in addition, We have our priority dermatology, but in addition, sorry, to our priority dermatology platform, we have several other product candidates in the wings. We have this full technology platform based on nitrosil that's poised to fuel future growth for Novan beyond the 2024 submissions that I mentioned earlier. So in summary, today Novan completed its acquisitions of EPI Health. The two together are a potential force multiplier in the dermatology industry. We have a ready-made, established, and successful sales team for the launch of SB206 or Consolis, if approved. We have an experienced dermatology commercial platform with cost synergies between our existing portfolio of products and potential new products. We are NoVan and EPI Health, a NoVan company. We are a specialty dermatology company focused on developing and marketing innovative therapeutic products for skin diseases. I am personally thrilled with today's news and the future of NoVan. So with that, operator, we are now ready for questions.

Thank you. Ladies and gentlemen, if you have a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. And our first question comes from the line of Oren Liznatt with H.C. Wainwright.