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spk07: 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.
spk01: 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.
spk07: 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.
spk01: Morning, Oren.
spk03: Hey, good morning. Sorry, I was on mute. Not used to being first in the queue. Congrats on what looks like a pretty pivotal move for you guys. It looks like a no-brainer, I guess, as far as bridging to or beyond the SB206 launch that we've been focused on for a long time. So can you just help us understand first this big picture strategy? I guess I kind of hit my hand already there. Do you view this as primarily... you know, a way to build a commercial sales force in the most, I guess, efficient manner, as you mentioned, in terms of, you know, cost and return? Or do you view yourselves as like a diversified commercial operation post-Molluscum launch? You know, I guess what I'm really asking is, you know, if you had to rank your focus – Two or three years down the road, is Molluscum the main driver in your view, or is this business going to be contributing several years out materially on the revenue side? I guess that was a garbled way to ask that. And I guess just folded into that is just what is the trajectory of this existing commercial business? I mean, obviously the multiple you paid on $18 million is quite modest, so I'm wondering what the trajectory of the existing business is.
spk01: Thank you, Oren. Sorry, I haven't had my coffee yet. I don't drink coffee, so this is really tough today. So the trajectory is that we have a commercial engine. We don't have to build a commercial arm, so you mentioned that first, because we have a commercial arm now. And it is out there. It is doing a great job. It's generating revenue. We have a great sales team that I'm looking forward to meeting later this afternoon for the first time. And there is, yes, several years of revenue with the current products and then folding in our own molluscum when that, you know, when, if, And that is approved. So it's just a really beautiful marriage in terms of timing. So, you know, obviously the four products being promoted currently will be in the bag. And then, you know, when and the time that Molluscum SB206 comes out, we'll put that in the bag. You know, our team is dermatology. You know, we still need some access to pediatricians, as we know. But, you know, this is a great, great fit in terms of their own, they, we now, our commercial organization having products in the bag and the ability to then make those decisions when and if Moleskine is approved and fitting that right in the bag with the others and focusing at the time. So hopefully that answers your question.
spk03: Yep, and I guess just more specifically, you know, I can pull prescription data for sure for those problems. It looks like Rofate is doing quite well, but what we don't have visibility on, I guess, is behind the scenes, the actual economics. I think you mentioned $18 million in sales. Is that growing going forward, or is that a stable business declining?
spk01: We do expect it to grow, absolutely. So we expect that to grow.
spk03: All right, thanks. I appreciate it. I'm sure we'll follow up after. Okay.
spk01: All right. Thanks, Oren.
spk07: Thank you. Our next question comes from the line of Jonathan Ascoff with Roth Capital.
spk05: Thank you. Good morning, and congrats on the acquisition. Paula and John, any sense of when this would be accretive?
spk06: Yeah, so I think – and good morning – I think if you look at – if you want to look at appropriating contribution or EBIT as we kind of look at it, I would say I would look at it in two different ways. One is when it will be positively adding to contribution. We think that will be in the relatively short term. But the other way that we can look at it is thinking about the cost synergies that we're going to save from the expenditures that we have forecasted in our previous model with respect to how we were going to commercialize. So I think if you look at operating contribution, I think there's a couple ways to look at it, right? It's just your standard profitability. But if you also layer that on to cost synergies that we get from the activities that our new sales force will be executing against and how that can really facilitate and bolster the 206 activity, you know, it's something that's really advantageous to the company.
spk05: So what was EPI's expenses or at least their bottom line last year?
spk06: Yeah, so I think, so you'll see, Jonathan, that, you know, we did file as part of the AK that we did this morning, you know, the financials and the pro forma on a standalone basis of this entity. So I'll point you to those. I would say that looking back historically is a data point. However, it's probably not indicative of future results yet. Obviously, there are going to be, again, cost synergies with respect to overhead, et cetera, in addition to the, you know, I would say replacement costs with respect to what we had forecasted for other service providers around the commercial route. But all I have to say, Jonathan, I don't know. Certainly, you can take a look at the financials that have been filed with the AK, but I would say that's a data point and not indicative of what we expect going forward.
spk05: Okay, how does this affect the acquisition of products into Salesforce? How does this affect your CINEOS relationship?
spk01: Yeah, so I've already reached out to CINEOS this morning. As you know, we had incremental scopes of work, and so this does not affect their backlog at all because what we have already signed up for with CINEOS for the next few months, we will continue with that and look to continue the partnership just in a different way. They've been a great partner to us, but the bulk of what we have with EPI Health being our sales force, we won't need the actual sales force, but there's a lot of planning and preparation and whatnot that they've been supporting us and will continue some of that work on through this year and perhaps even into next year. But, you know, so we're still working with Cineos. And I've spoken with – or Alistair and I have exchanged emails this morning, the CEO. So, you know, he's happy for us and just wants to, you know, work with us on, you know, the path forward, which will include them and EPI Health.
spk05: Okay. So you're still going to get what you paid for with Cineos. You haven't paid for stuff you're not going to get as a result of the EPI acquisition. Is that accurate? Correct.
spk01: Correct, because we were very careful as we signed up for pieces of work that I wasn't signing up for anything that I didn't feel like we were going to still need as I was even progressing this discussion.
spk05: All right, and it sounds like you're not going to de-emphasize any of your programs, but are you truly not going to de-emphasize any of your development as a result of this acquisition?
spk01: We are currently not planning to, you know, we've most, you know, of our development program, we've said we needed additional funding to move forward. So right now we still are progressing with everything we've had in our previous plans.
spk06: Yeah, Donna, if you, Donna, if I was to add to that, you know, again, Paul used the term marriage, and I do kind of like that term because if you look at the platform that they've built with regards to commercializing dermatological products, without an underlying technology or an R&D platform. And you look at Novant, who's the exact opposite, where we obviously prior to today did not have a commercial presence, but we did have a technology platform that has a lot of potential. And I think that's why it's such a great combination. Paul often jokes, one plus one equals three sometimes, and we think that this is certainly an opportunity for that to present itself because we fit so nicely together. there are no redundancies in this acquisition.
spk05: That looks certain. Thank you very much, guys.
spk01: Thank you, Jonathan.
spk05: Thank you.
spk01: Operator?
spk07: And our next question comes from the line of Jennifer Kim with Cancer Fitzgerald.
spk00: Hey, everyone. Congrats on the news today. So I have two questions for myself. The first is, I think during the call you mentioned you have plans to further expand the sales force this year or next year, and I was wondering how much additional expansion are you thinking is needed, and is that more to do with SPT06 in mind, or is there some additional expansion just for the current products? And then my second question is related to what prior speakers have asked. As you position yourself as a commercial stage specialty derm company, can we see some greater focus on you know, maybe you eyeing additional products to leverage the sales force you now have in the near future ahead of SB206, or how are you thinking about maximizing what you have now? Thanks.
spk01: Thanks, Jennifer. On the first, yes, we do have plans to expand the sales force that was in our modeling, and we'll expand that over the next two quarters, and we will we will move to cover at least 50 territories. And that is because of, you know, obviously our intent to increase and maximize the value of this, as John mentioned. So we're excited about that plan and moving forward. In terms of being a commercial specialty DERM company, you know, we have received interest and companies bringing interest to us in terms of eyeing additional products in the past, over the past couple of years, actually. I think now we have the time, the energy, maybe not the energy today, John, but the time to really look at those more closely and, you know, see if there are opportunities to fit into our bag better than what is there or otherwise. So we will certainly look at things opportunistically. Okay, great. Hopefully answered. Yeah, those are helpful. Thanks, everyone. All right. Thanks, Jennifer. Thank you. Operator.
spk07: And our next question comes from the line of John Vandermosten with Zaxx.
spk02: Hey, good morning, Paula and John. Congratulations on the acquisition. The Salesforce right now and who they are visiting, are they visiting the Moleskine prospects already? Because you talked about regions and geographies that they're going to be targeting. But are they talking to the right people as well in those geographies? Yeah, I'll just leave it there.
spk01: Yeah, I mean, you know, they are calling on dermatologists. And I think, you know, for Moleskine, we'll call on dermatologists, pediatric dermatologists, and eventually the pediatricians. But as we've said on other calls, the pediatricians will hit more with digital. So we weren't, you know, really planning a lot there anyway. So, you know, I haven't looked at every individual, you know, where exactly, but most of the dermatologists are are seeing molluscum patients. There are only a few I've heard of who, you know, don't want molluscum in their waiting room. But mostly, most dermatologists who are going to see acne and rosacea patients, and specifically acne because they're younger. A lot of the acne patients are, you know, 9 to 18. And, you know, that, you know, so there will be practices that are seeing children, and that's the main thing. So I think there's a lot of overlap.
spk02: Okay. And then, you know, on the territories, I'm assuming those are all the United States?
spk01: Yes, they are. But we do have rights with some of these products outside the U.S., so that is something that we will look in the future to seeing if we can seize that opportunity.
spk02: Okay. And then on the products, how were they acquired? I mean, I wasn't quite sure if EPI had any R&D operations or they just acquire products, generics or they just partner with others who developed it and then they commercialize it. What is their strategy in terms of, or I guess your strategy now, in terms of acquiring new assets or the ones that they already acquired?
spk01: So EPI Health was really founded in 2017 and through an acquisition of a product and then through the last three or four years have acquired other products. So they're all asset acquisitions. except Winsora, which is a different licensing-type agreement with MC2 Therapeutics. So they do not have any R&D, and that's why it's such a good fit, because they don't have R&D, so the only way they would be able to fuel growth is through additional funding. you know, acquisition of assets. And so now this puts it together and there's not as much pressure to acquire new assets to fill in when, you know, when patents end, et cetera. So now we can fit that in with the Novan nitrosil products.
spk02: So good question.
spk01: Thank you.
spk02: And then just the last one for me is on, you know, your manufacturing assets that you have. Will you be able to leverage them at all? You know, you talked about some synergies. Is that part of the synergy that you can you can leverage with them?
spk01: We don't think so. We have not figured that in, John, you know, in terms of our, you know, they outsource manufacturing. We outsource part of our manufacturing. What we manufacture here is very specific to nitric oxide. So I don't think in manufacturing we see any current synergies there.
spk02: Got it. All right. Thank you, Paula.
spk07: Thank you. And our next question comes from the line of Kemp Dolliver with Brookline Capital.
spk04: Hi, thank you, and good morning. Good morning. So I did have a chance to go through some of the financials in the filings. They had a soft Q4. I'm assuming that was probably COVID-related. Has the business rebounded noticeably year-to-date?
spk06: Yes. Yeah, you're right, Kemp. I mean, they did have, and just like everyone who's trying to visit doctors and get scripts written, an impact with COVID. And I think you see that if you look at the historicals and kind of where that's trending. But hopefully we're coming out of that now. And to Paula's point, as we continue to add additional heads to the sales force, we think that trajectory is going up.
spk04: Great. And what's the composition of revenue by product? Is there any particular concentration?
spk01: Yeah, I mean, I think we can share that one of, I think it was Jonathan maybe who mentioned it in terms of looking at scripts. Rofate is probably the highest revenue generator currently.
spk04: Currently.
spk01: Okay, great. The most recent launch was when Zora just in last July. So we're picking up steam there. Look forward to picking up more steam.
spk04: Okay, great. And could you talk a little bit more about the synergies? Because you've hired some sales leadership. You're bringing on EPI's leadership. It looks like there will be some changes there. Are the cost savings anything we would notice given what you need to do with regard to adding reps and doing other things to build the business from here?
spk01: Yeah, so the synergies are really an external spend and not internal spend. Actually, our sales team was really an N of 2. And that really complements nicely in terms of the expertise of the individuals and the number of products that we have in the bag. So we'll be working through that integration, but we do not foresee any internal, if you will, cost synergies in the typical sense. Ours is, if you will, the cost that we will be avoiding externally by having our own dedicated sales force.
spk04: Fabulous. Thanks a lot.
spk01: All right. Thanks, Kent.
spk07: Thank you. I'm showing no further questions at this time. So with that, I'll turn the call back over to Chairman, President, and CEO Paula Brown Stafford for any closing remarks.
spk01: Thank you, Operator. Thank you, everyone, for jumping on this call so quickly today. We're thrilled with our news and the future of NoVan. So we look forward to keeping you posted over the next few months as we move through the integration phase. And thank you all, and have a great day.
spk07: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
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