Novan, Inc.

Hello everyone and welcome to the Novant Incorporated 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 and 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 could cause actual results to differ materially from these contemplated by such forward-looking statements are discussed in the periodic reports Novant 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. 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 as of the date of this presentation, it is not independently verified or makes no representation as to the adequacy, fairness, accuracy, or completeness of or that any independent source has verified any information obtained from the third-party sources. Joining us on today's call from the Novant leadership team are Paula Brown-Stafford, Chairman President and Chief Executive Officer, John M. Gay, Chief Financial Officer, and John A. D'Onofrio, Chief Operating Officer of Novant and President of EPI Health. I'd now like to turn the floor over to Paula Brown-Stafford, Chairman, President, and Chief Executive Officer. Please proceed.

Thank you, Jamie. Appreciate that. Good morning, and thank you for joining our corporate update. including Novan's financial results for the second quarter of 2022. I want to start off by stating that we remain steadfast in our belief that Novan remains a compelling investment opportunity, and I look forward to sharing with you during this discussion exactly why. As a reminder, on March 11th, we announced exciting news for Novan. We closed on the acquisition of EPI Health, truly a foundational leap forward for Novan. We've created a medical dermatology company that has the capabilities to discover, research, develop, and commercialize innovative therapies, bringing medications to patients with diseases of the skin. We've made solid progress and have great momentum going into the second half of 2022. We've delivered strong volume growth for our promoted products. We're very proud that in July, the results from our pivotal phase three study, Be Simple 4, were published in the JAMA Dermatology Journal, authored by Dr. John Browning and others. And it was preceded by an editorial titled, Molluscum Contagiosum Therapeutics, New Options May Be Around the Corner, written by Dr. Vikash Oza. Also in July, we paid off our promissory note for EPG with EPG for our $16.5 million, saving the company nearly $11 million of future expense with no securitization of the company's marketed assets. We're pleased to share that we're tracking toward our target submission date of no later than the end of 2022, for our NDA for Berdazim or Gel 10.3% as a treatment option and potentially the first FDA approved treatment for molluscum contagiosum. And finally, we're actively exploring partnership opportunities for Rofaid, our product for rosacea in ex-US territories. Our commercial platform is focused on execution, field readiness, engagement among our customers and employees with strong performance management across our organization to ensure we deliver value to the patients we serve and to our shareholders. We've demonstrated a commitment to the medical dermatology community with our diverse promoted product portfolio and with our strong development pipeline. Our commercial platform is built to expand disease states within the medical dermatology area, such as molluscum, and into other specialty areas, such as pediatrics. Our commercial organization is focused on expanding our promoted products in three of the top four dermatology markets through seven key mandates that you see here. We continued to execute on these commercial initiatives in the second quarter of 2022 toward helping to grow our commercial business. We hired our national sales lead, Carolyn Duracimo, in May, and I couldn't be more thrilled. And we completed the integration of our Novan Legacy and EPI Health leadership team at the beginning of July. We've also made good progress in nearly all of the remaining mandates. We are holding off on hiring into new territories at this time based on our current momentum that we have as is. In the second half of 2022, we'll remain focused on driving awareness of our brands, continuing to invest in our people, and as I mentioned, exploring ex-U.S. opportunities. Speaking of brand awareness, we've been busy promoting our product brands via sales and marketing and our product candidate, SB206, via medical education. Our commercial team and our medical affairs team have been supporting medical meetings and or contributing to scientific publications, sharing our data and our approved messages. Now, let's discuss at a high level how we performed in the second quarter of 2022. I'm pleased to report continued growth in total prescriptions for three of our four promoted products. Overall, double-digit growth from quarter one to quarter two. For Rofade, we're excited to have closed quarter two with, again, the strongest quarter in the history of the brand, now with over 40,000 prescriptions. which is a 33% increase above the prior year for the same period and 10% over the previous all-time high quarter of quarter one. When Zora, which was launched in mid-2021, has shown consistent growth month over month and quarter over quarter since launch, 26% growth in the second quarter compared to the first quarter. Menelira also had strong growth. nearly 50% growth compared to the same quarter in the prior year, with 38% above the previous quarter. Cloderm prescriptions remain down over the last quarter and the last year, but this is to be expected as Cloderm is not our focus. And as we ready our infrastructure for the potential addition of SB206 into the mix, if it's approved for molluscum. So overall, You see 50% growth in total scripts comparing quarter two of 2022 to quarter two of 2021. So in summary, we're really pleased with our performance and a quarter that met our internal expectations in terms of total prescriptions. Looking at Rofate specifically, the market in the U.S. is around 16 million people. Our Rofade product is the number one prescribed product for the treatment of persistent facial erythema, or facial redness. Rofade is fast-acting, and improvement persists with regular daily use over 52 weeks. We have driven growth in total scripts since early 2020, as you'll see here to the right, after acquiring the product in late 2019. Now on to Winsora. We have a strong partnership and a collaboration with MC2 Therapeutics for the commercialization of Wenzora in the U.S. for plaque psoriasis. This is the first and only water-based combination product of calciptriene and betamethasone dupropionate cream, ideal for knees, elbows, and scalps. We launched just over a year ago and have seen the number of prescriptions and prescribers grow quarter over quarter since launch. On to Minalera. Minalera is a minocycline for the treatment of acne, and it's the first ever biphasic delivery system for acne, offering functional scoring, weight-based flexible dosing. Here on the right, you can see that we've also seen solid growth in prescriptions over the prior quarters and years. Now, transitioning to our development focus. Our lead product candidate is Bradeisomer Gel 10.3% or SB206, a potential topical prescription treatment and likely the first FDA-approved treatment for molluscum contagiosum. In 2021, we reported robustly positive efficacy results from our pivotal phase three study known as B-simple-4. And recently, these results were published in JAMA Dermatology, as I mentioned. Molluscum is a highly contagious condition prevalent primarily in children aged 1 to 14, for which there is no FDA-approved prescription treatment. Dermatologists and pediatricians remain concerned with the tolerability of the currently sought office-based procedures. Our pivotal phase three study, B-simple four, demonstrated clinical and statistical evidence of efficacy with our primary and secondary endpoints and a favorable safety profile. So what now? We are now preparing for our potential NDA submission. As normal course of business, we are completing customary stability testing of our GMP batches of drugs substance and drug product. Importantly, we remain on track to meet our targeted submission date before the end of the year. We've been planning toward the potential launch of Berdasmagel 10.3%, or if approved, Consolis. We identified a path, the best and the most compelling path that delivers value. and that was to acquire an established business, EPI Health. This season's commercial team will launch and promote Berdasmagel 10.3% if approved. In the meantime, we've developed a launch plan with key activities ongoing in preparation for a potential launch. These include our commercial scale manufacturing capability, a pricing and reimbursement strategy, and continued outreach to our key opinion leaders through our medical affairs team and medical education. At Novant, as we've said many times before, we plan for success, and a product launch is no different. I'll now turn to John Gay, Novant's CFO, for our financial highlights. John.

Thank you, Paula. Good morning, everyone. We appreciate you joining our call today. This quarter represents the initial quarter in which we have fully consolidated results from our commercial business. As such, my comments will focus primarily on this quarter's activity as it represents the first data set regarding the performance of our commercial business on a full quarter basis. Before I touch on some of the key data points for this quarter, I would like to remind our participants that we are not yet in a position to provide guidance as it relates to 2022 revenues or EBITDA. However, as Paula noted, we certainly see opportunities for growth in our promoted product portfolio. For the second quarter ended June 30, our commercial business reported total revenue of 5.5 million. As you can see, year-to-date total revenue for our commercial business was 6.8 million. I will remind our call participants that the first quarter included only 20 days of activity for our commercial business based upon the March 11 acquisition date of EPI Health. Net product sales of Rofate included in the commercial business's total revenue was 4.3 million and 5.1 million for the three and six months ended June 30, respectively. Rofate prescriptions have continued to grow with a year-over-year increase of 39% for the six months ended Q2. and a year-over-year increase of 33% for the three months ended Q2. In addition, we continue to see opportunity for improvement in WSORA, which launched in Q3 of last year. I will now provide a bit more detail on our Q2 financial results, which expands to provide context for the information presented and complements the financial data presented in this morning's press release. Commercial product cost of goods sold was $2.6 million for the three months ended June 30. Cost of goods sold includes the cost of procuring finished goods from our third-party manufacturers, in addition to sales-based royalty and milestone expenses and third-party IP licensing costs. Our R&D business incurred research and development expenses of $3.1 million for the three months ended June 30, compared to $5.3 million in the prior year period. The decrease of $2.2 million was primarily related to the SB206 clinical program based on timing of the B-simple IV trial. On a consolidated basis, SG&A expenses were $8.6 million for the three months ending June 30 compared to $2.4 million for the prior year period. The increase of $6.2 million was primarily due to $3.3 million of selling general and administrative expenses related to EPI Health's commercial operations, 0.6 million of transaction-related expenditures related to the acquisition, and a 1.2 million increase in investment costs related to the SB 206 prelaunch strategy and commercial preparation. On a consolidated basis, total net loss was 8.9 million for the second quarter as compared to 6 million for the prior year period. Net loss for our commercial business was 0.5 million for the second quarter compared to 0.7 million for the first quarter of this year. However, as I mentioned, the first quarter only included 20 days of activity. As you can see, a 28% year-over-year growth in our marketed portfolio prescriptions, excluding Windsor, which launched last year, coupled with a comparative improvement on the bottom line for the commercial business from Q1 gives us the opportunity to continue to drive optimization of our commercial business while at the same time investing in and looking forward to the potential launch of SB206. As it relates to our balance sheet, as of June 30, we had a total cash balance of $37.3 million and an accounts receivable balance of $18.2 million. We expect that we will need additional funding to support our planned and future operating activities and make further advancements in our product development programs. We do not currently have sufficient funds to complete commercialization of any of our product candidates under development. Therefore, we are pursuing a broad range of financing strategy and other strategic alternatives that could be used to extend our ability to continue investment in our SP206 product candidate. With that, I'll turn it back to Paula.