Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
 
 
 CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 29, 2019
 _____________________
Novan, Inc.
(Exact name of registrant as specified in its charter) 
 _____________________
 
 
 
 
 
 
 
 
Delaware
 
001-37880
 
20-4427682
 
 
(State or other jurisdiction of
incorporation or organization)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
 
4105 Hopson Road, Morrisville, North Carolina 27560
(Address of principal executive offices) (Zip Code)
(919) 485-8080
(Registrant’s telephone number, include area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
 _____________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered 
Common Stock, $0.0001 par value
NOVN
Nasdaq Global Market





Item 1.01. Entry into a Material Definitive Agreement.

Royalty and Milestone Payments Purchase Agreement with Reedy Creek Investments LLC
On April 29, 2019, Novan, Inc. (the “Company”) entered into a royalty and milestone payments purchase agreement (the “Purchase Agreement”) with Reedy Creek Investments LLC (“Reedy Creek”), pursuant to which Reedy Creek provided funding to the Company in an initial amount of $25.0 million, which the Company will use primarily to pursue the development, regulatory approval and commercialization (including through out-license agreements and other third party arrangements) activities for SB206, a topical anti-viral gel being developed for the treatment of molluscum contagiosum (“molluscum”), a contagious skin infection caused by the molluscipoxvirus (“SB206”), and advancing programmatically such activities with respect to SB204, a once-daily, topical monotherapy being developed for the treatment of acne vulgaris (“SB204”), and SB414, a topical cream-based product candidate being developed for the treatment of atopic dermatitis (a type of eczema) (“SB414”, and with SB206 and SB204, the “Products”). Reedy Creek will also provide additional funding to the Company of $10.0 million contingent upon the achievement by the Company of SB206 clinical trial success, as defined in the Purchase Agreement.
Pursuant to the Purchase Agreement, the Company will pay Reedy Creek ongoing quarterly payments, calculated based on an applicable percentage per Product of any upfront fees, milestone payments, royalty payments or equivalent payments received by the Company pursuant to any out-license agreement for the Products in the United States, Mexico or Canada, net of any upfront fees, milestone payments, royalty payments or equivalent payments paid by the Company to third parties pursuant to any agreements under which the Company has in-licensed intellectual property with respect to the Products in the United States, Mexico or Canada. The applicable percentage used for determining the ongoing quarterly payments for each Product ranges from 10% for SB206 to 20% for SB204 and SB414, provided that the applicable percentage for each Product will be 25% for fees or milestone payments received by the Company (but not royalty payments received by the Company) until Reedy Creek has received payments under the Purchase Agreement equal to the total funding amount provided by Reedy Creek under the Purchase Agreement. If the Company decides to commercialize any Product on its own following regulatory approval, as opposed to commercializing through an out-license agreement or other third-party arrangement, the Company will be obligated to pay Reedy Creek a low single digits royalty on net sales of the Products.
Unless earlier terminated, the Purchase Agreement will continue for so long as payments are due or payable under the Purchase Agreement. Reedy Creek may terminate the Purchase Agreement in the event of an uncured material breach by the Company, which, in certain circumstances, could cause the Company to be required to repay the amount paid by Reedy Creek under the Purchase Agreement, less any payments made to Reedy Creek by the Company under the Purchase Agreement as of the effective date of the termination.
The Purchase Agreement constitutes a “related person transaction” as defined by Item 404 of Regulation S-K (§229.404). Reedy Creek is a beneficial owner of more than 5% of the Company’s capital stock, reporting beneficial ownership of 3,947,368 shares of common stock and 3,947,368 shares subject to warrants to purchase common stock on a Schedule 13D filed with the Securities and Exchange Commission (the “Commission”) on January 22, 2018. The Company’s Audit Committee approved this related person transaction in accordance with the Company’s related person transaction policy.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the copy of the Purchase Agreement, which will be filed as an exhibit to a subsequent filing with the Commission, as permitted by the rules of the Commission.
Item 7.01. Regulation FD Disclosure.
On April 29, 2019, the Company issued a press release announcing entry into the Purchase Agreement. The full text of this press release is furnished herewith as Exhibit 99.1 to this Current Report and incorporated herein by reference. 
The information in this Item 7.01, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Furthermore, the information in Item 7.01 of this report shall not be deemed incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended.

Item 9.01.
Financial Statements and Exhibits.
 
(d)
Exhibits
 
EXHIBIT INDEX 
Exhibit No.
 
Description
 
 
99.1
 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
Novan, Inc.
 
 
 
 
Date: May 3, 2019
 
 
 
By:
 
/s/ G. Kelly Martin
 
 
 
 
 
 
 
 
 
 
 
 
 
G. Kelly Martin
 
 
 
 
 
 
Chief Executive Officer
 



Exhibit


Exhibit 99.1

Novan Secures Up to $35 Million in Non-Dilutive Funding
$25 million provided immediately in exchange for participation in future potential cash flows
Additional $10 million available upon achieving success in molluscum Phase 3 top line results
Pipeline Priority: initiation of Phase 3 molluscum program in May 2019 with top line readout targeted for first quarter 2020
Additional near-term clinical development focus: advancement of Phase 2 program for atopic dermatitis
Accelerate progress on re-engineering operating infrastructure and reduction of fixed costs
Continued expansion of external and global network of partners and collaborators
MORRISVILLE, N.C. - April 29, 2019 - Novan, Inc. (“the Company” or “Novan”) (Nasdaq:NOVN) today announced that the Company has secured up to $35 million in non-dilutive capital to advance Novan’s late-stage dermatology assets. Of this, $25 million is available immediately and $10 million is contingent upon achieving positive Phase 3 clinical trial results for molluscum contagiosum. This funding will allow Novan to immediately initiate the pivotal Phase 3 molluscum program. The Company plans to begin recruiting patients in May, 2019.
Novan has entered into a structured $35 million product-based financing agreement with Reedy Creek Investments LLC (“Reedy Creek”). Reedy Creek is currently Novan’s largest shareholder, holding approximately 15% of the Company’s shares outstanding. Under the terms of the agreement, Reedy Creek will immediately provide funding of $25 million, with an additional payment of $10 million contingent upon positive Phase 3 clinical trial results for molluscum.
In return, Reedy Creek will receive 10%, 20% and 20% of any North American economics, including upfront payments, milestones and royalties, received by Novan associated with SB206, for the treatment of molluscum contagiosum, SB414 for the treatment of atopic dermatitis and SB204 for the treatment of acne vulgaris, respectively. Within this deal construct, Reedy Creek will receive 25% of upfront payments or milestone payments received by Novan until such time as Reedy Creek has received payments equal to the total funding amount provided by Reedy Creek ($25 or $35 million).
This arrangement will enable Novan to immediately commence the molluscum Phase 3 program and, soon thereafter, initiate the necessary preparation for a robust Phase 2 trial in atopic dermatitis. In completing the picture for the late stage dermatology assets, Novan continues to have discussions with third parties regarding SB204 and its possible advancement for the acne vulgaris indication. The Company is also in additional non-dilutive capital sourcing discussions with a goal to finalize these in the near future.
Novan has launched the two molluscum pivotal studies in clinicaltrials.gov and key characteristics include:
Randomized, double-blind, vehicle-controlled pivotal trials with SB206 12% once-daily as the active treatment arm
Each pivotal trial is planned to enroll approximately 340 subjects aged 6 months and above at a 2:1 ratio
The primary endpoint for the trials is proportion of patients with complete clearance of all treatable molluscum lesions at Week 12.
“There is a huge unmet need for an effective, safe, easy to apply and well tolerated intervention for treating molluscum,” stated Dr. Amy Paller, MD, Chair, Department of Dermatology, Feinberg School of Medicine, Northwestern University. Dr. Paller, a member of Novan’s Phase 2 molluscum independent safety monitoring board and the principal investigator for the NI-MC301 Phase 3 pivotal trial, commented further, “I am excited to be involved in Novan’s Phase 3 program and to see this promising new product candidate move forward into the next phase of clinical testing.”





An additional and critically important area of focus for Novan has been to initiate a re-engineering of the operating infrastructure and overall business model of the Company. Goals of this process include overall reduction of fixed costs thus shifting the cost characteristics from fixed to variable, eliminating ongoing capital-expenditure items where possible and leveraging external expertise and capabilities more aggressively. Results to date include the selection of partners and initiation of the transfer of manufacturing for both drug substance and drug product. Additionally, the Company is engaged in partnering discussions for nitric oxide formulation science and discussions to more drastically reduce our existing real estate footprint and associated cash costs.
As a result of aggressive and proactive reconstruction of the business, Novan has been able to reduce headcount by approximately 30% since the equity financing transaction in January 2018. Further advancements to a more partnered operating model will provide additional opportunity to match skill sets, expertise and capabilities in a cost-effective manner designed to increase the Company’s ability to create value by advancing the underlying nitric oxide science and technology.
Novan will host a webcast on Thursday, May 2, 2019 at 8:15 am Eastern Time. The phone number to join the conference call is +1 (844) 707-0661 (toll-free in the United States) or +1 (703) 318-2240 (international). The conference ID for the live call is 3862689. A live webcast will be accessible from the Events page of the Company’s website at http://Events.Novan.com.
About Novan

Novan, Inc. is a clinical development-stage biotechnology company focused on leveraging nitric oxide’s naturally occurring anti-microbial and immunomodulatory mechanisms of action to treat a range of diseases with significant unmet needs. 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 dermatology, women’s health and gastrointestinal diseases.

Forward-Looking Statements

This press release contains forward-looking statements including, but not limited to, statements related to pharmaceutical development of nitric oxide-releasing product candidates, our intention to advance development of certain product candidates, including SB206 for the treatment of molluscum and SB414 for atopic dermatitis, the expected financial and other benefits of the existing and potential future financing arrangements, expansion of our network of business partners and collaborators and the future prospects of our business and our product candidates. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from our expectations, including, but not limited to, risks and uncertainties in the clinical development process, including, among others, length, expense, ability to enroll patients, reliance on third parties, potential for delays and that results of earlier research and preclinical or clinical trials may not be predictive of results, conclusions or interpretations of later research activities or additional trials; the risk that our Phase 3 trials for molluscum may not achieve results sufficient to trigger payment of the additional $10 million from Reedy Creek; risks related to the regulatory approval process, which is lengthy, time-consuming and inherently unpredictable, including the risk that the products covered by the financing arrangement may not be approved or that additional studies may be required for approval or other delays may occur and that we may not obtain funding sufficient to complete the regulatory or development process; our ability to identify and enter into strategic relationships or other business development opportunities for the potential commercialization of our product candidates and support thereof; risks relating to our ability to complete an agreement for the manufacture of our active pharmaceutical ingredient (API); risks related to the manufacture of clinical trial materials and commercial supplies of any potentially approved product candidates, including the manufacture of our API and our ability to transfer technology and processes to a third party effectively; risks associated with relying on third parties for the manufacture of drug product for clinical trials; our ability to reduce costs; risks relating to commercialization of products, if approved; our ability to obtain additional funding or enter into strategic relationships or other business development necessary for the further advancement and development of our product candidates; and other risks and uncertainties described in our annual report filed with the SEC on Form 10-K for the twelve months ended December 31, 2018, and in our subsequent filings with the SEC. These forward-looking statements speak only as of the date of this press release, and Novan disclaims any intent or obligation to





update these forward-looking statements to reflect events or circumstances after the date of such statements, except as may be required by law.

CONTACT:

(Investors & Media)
Cole Ikkala
Director, Investor Relations, Communications & Business Development
cikkala@novan.com


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