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Novan Files for IPO to Finance ‘Nitric Oxide on Demand’ Skin Drugs

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wealthy individuals, many of them introduced to the company by Hunter, who became chairman of Novan’s board of directors. Speaking at UNC’s Kenan Flagler Business School in April 2015, Hunter said that the company’s first $40 million was raised from angel investors in North Carolina’s Research Triangle. “What does that say about the Triangle? [There is] a lot more money around here than we think,” he said.

Novan brought on its first institutional investment in March 2015, when it raised $50 million led by Malin (ISEQ: MLC), an Ireland-based life sciences investment company. Hunter stepped down from the board in February after the closing of Novan’s most recent financing, which topped $32 million. A securities filing shows that 172 investors participated in that December 2015 round, suggesting that the company stuck with its strategy of raising money from individuals rather than institutions. Malin is Novan’s largest shareholder, with a 16.25 percent stake, according to the prospectus. Hunter owns 13.83 percent of the company.

Novan didn’t start out as a dermatology company. It initially aimed to use its technology as an antimicrobial coating for medical devices, which Stasko told me in 2009 would be the fastest way to market. Medical devices featuring Novan’s nitric oxide technology may yet reach the market, but under a different company. In its filing, Novan disclosed that late last year it formed a separate, privately held company called KNOW Bio and gave it Novan’s non-dermatological assets, intellectual property valued at $1.8 million. Novan also provided the new company with $5.2 million in working capital.

Any new investors in Novan won’t have a stake in any non-skin products that emerge from the new company. But Novan does have the right of first negotiation to license from Know Bio any dermatology-related technology the new company develops within three years of the separation agreement.

Novan’s filing comes as biotech IPOs haven’t been quite as easy to pull off as they were during the boom from 2013 through 2015, according to Glen Giovannetti, global biotechnology leader at Ernst & Young. Speaking in Durham Wednesday at an event to launch the firm’s annual Beyond Borders report on the life sciences industry, Giovannetti said the IPO window is not shut, but companies that successfully go public are doing so with significant insider participation in the stock offering. “Deals can still get done but it’s a much more challenging environment,” Giovannetti said.

Examples of recent biotech stock offerings that required inside help include the $70 million IPO of Watertown, MA-based Selecta Biosciences (NASDAQ: SELB) and Syros Pharmaceuticals (NASDAQ: SYRS), a Cambridge, MA-based biotech that raised $50 million in its IPO.

Novan does not yet have any FDA-approved products. The company has previously received revenue from government contracts, including a National Institutes of Health grant to study Nitricil for antimicrobial catheter coatings, as well as a Department of Defense contract to research the technology as a potential topical wound treatment for the military.

As of June 30, Novan had $19.6 million in cash. Even if Novan raises $60 million in its IPO, it will need more money to bring its products to market. Novan spent $22.3 million on R&D in the first half of 2016, more than double its R&D costs for the same period last year. Besides the acne and HPV drugs, Novan is also studying drug candidates for fungal infections of the skin and nails, psoriasis, and eczema.

Photo of downtown Durham sunset courtesy of Flickr user David Mooring under a Creative Commons license.

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