NOVN: B-SIMPLE4: First Patient Dosed

By John Vandermosten, CFA

NASDAQ:NOVN

On September 3, 2020, Novan (NASDAQ:NOVN) announced that the first patient in the company’s pivotal Phase III trial, BSIMPLE-4, for lead candidate, SB206, in molluscum contagiosum (MC) had been enrolled and dosed. We expect the trial to quickly accumulate subjects despite the difficulties related to coronavirus and management has guided for a 2Q:21 dissemination of topline results. The enrollment and dosing of the first patient is an important milestone for Novan as they pursue their pivotal trial in the MC indication. If approved, SB206 will be a prescription product that can be applied at home which avoids the discomfort and pain of mechanical removal or cryotherapy.

MC in many cases clears by itself, but may last for years if the immune system does not clear it. The associated lesions can be unsightly, itchy, painful and highly contagious, providing an incentive for treatment. MC is a common skin infection caused by molluscipoxvirus with about six million cases in the US and over 120 million around the globe every year. It constitutes a large population that has no FDA approved therapies.

What do we think about Novan?

We think that the data generated to date shows that the SB206 safely improves molluscum. With sufficient financing to complete the trial and submit an NDA, Novan is an attractive investment. SB206 is based on the Nitricil platform which suspends nitric oxide (NO) in a gel that allows for controlled release. Nitricil can be used to deliver a variable dose of NO to the epithelium to address a broad variety of skin lesions including molluscum contagiosum. NO presents a unique mechanism of action and a favorable safety and scarring profile. As a component of Nitricil, the agent has been tested in approximately 3,400 patients in clinical work, with a 24 week safety assessment for the B-SIMPLE trials. Of the 700+ patients in the Phase III trials, there was only one serious treatment emergent adverse event (TEAE) in each of the SB206 and vehicle arms.

There is no standard of care for MC and for most healthy individuals, the virus clears on its own. In the population where treatment is desired, the lesions can be physically removed or oral and topical therapies can be administered. Some of the more common topical approaches include the use of cantharidin, ZymaDerm and imiquimod; however, none have been approved for treatment for MC and demonstrated consistent effectiveness in trials. These approaches also have side effects, including pain and severe skin reactions, highlighting the need for a tolerable and effective treatment. We see a fair estimate of an MC population of around six million in the United States and from 2 to 3 million in Japan. We anticipate that the availability of an approved, effective and safe treatment may increase the number of diagnoses and the addressable population could be larger. While a portion of the addressable market will prefer to wait it out, there will be a significant number of patients that will seek treatment given the availability of an approved medicine. For detail on our valuation methodology and target price, please refer to our initiation on Novan.

B-SIMPLE4

After a near miss of the primary endpoint in a previous Phase III attempt, the FDA has given its nod for a second go. After announcing sufficient capital to fund the pivotal trial, Novan launched B-SIMPLE4 at the end of August, its pivotal and ultimate clinical test of SB206 in MC. B-SIMPLE4, a multi-center, double-blind, randomized, vehicle-controlled study expects to enroll 750 patients with 1:1 randomization across 45 clinical sites. Participants will be treated for 12 weeks with a follow up visit at week 24. Primary endpoint is proportion of patients with complete clearance of all treatable lesions at week 12. Patient enrollment is expected to complete by 1Q:21, and topline results are anticipated in 2Q:21. Commencement of Novan’s B-SIMPLE4 comes as Novan’s competitor Verrica had just received a Complete Response Letter (CRL) from the FDA for VP-102, requiring further changes to their candidate before resubmitting for approval. In some cases, a CRL can set a sponsor back by up to a year which could put commercialization of the rivals’ therapies within months of one another.

Summary

Launching B-SIMPLE4 is a milestone for Novan, which has a firm footing with a strong cash position, a regulatory green light and promising data from previous clinical trials.

Key reasons to own Novan shares:

‣ Phase III asset to address an unmet need in MC

‣ MC presents a large addressable market with no approved therapies

‣ SB206 statistically significant (p=0.038) on primary endpoint using integrated trial data

‣ Nitricil presents multiple mechanisms for therapeutic effect

◦ Anti-viral

◦ Anti-bacterial

◦ Anti-inflammatory

◦ Anti-fungal

‣ Broad portfolio of dermatology indications in clinical development

◦ Acne Vulgaris

◦ Tinea Pedis

◦ Genital Warts

◦ Others

‣ Favorable drug safety profile with no reported drug-related serious adverse events

‣ Intellectual property protection until 2035 for SB206

‣ North American rights to intellectual property

‣ Partner pursuing commercialization in Japan

‣ Rights to milestones and royalties

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