Novan Inc.

4222 Emperor Boulevard

Suite 470

Durham, NC 27703

Phone: (919) 485-8080

Web Site: www.novantherapeutics.com

Contact: Nathan Stasko, PhD, CEO

Industry Segment: Biotechnology

Business: Nitric oxide therapeutics

Founded: January 2008

Founders: Mark Schoenfisch, PhD; Nathan Stasko

Employees: 28

Financing To Date: $20 million

Investors: Private individuals

Board Of Directors: Neal Hunter (formerly Cree Inc.); Robert A. Ingram (formerly GlaxoWellcome); John Palmour, PhD (Cree Inc.); Mark Schoenfisch; Nathan Stasko

Nitric oxide (NO) became a sudden celebrity in the early 1990s, as scientists recognized that the gas long known as a component of cigarette smoke and smog is also a vital chemical messenger within the body. It relays messages from cell to cell, and so contributes to the normal functioning of the brain, the immune system, the cardiovascular system, the liver, pancreas, uterus, and other tissues and organs. After scientists proved that NO’s ability to dilate blood vessels is a key factor in controlling blood pressure and vascular tone, it was hailed by the journal Science as “Molecule of the Year” in 1992.

Excitement over the insights into NO sparked a surge of commercially oriented research a decade ago, at emerging companies like France’s Nicox SA and Big Pharmas including Pfizer Inc., Merck & Co. Inc., and Johnson & Johnson. Many drug-industry observers anticipated the science would yield a wave of valuable new NO-based drugs. As it has turned out, no one has yet been able to channel the academic understanding of NO into successful new medicines. By the time the anti-inflammatory compound once expected to be a blockbuster for NicOx, naproxinod, was rejected by the FDA in 2010 and the following year by European regulators, almost everyone else working in the field had given up.

Novan Inc. believes it can succeed where others have failed at commercializing therapeutics based on nitric oxide. The start-up based in Durham, NC aims first to create a topical treatment for acne, and then to pursue other first-in-class treatments in the field of dermatology. Novan expects to begin enrolling subjects in a Phase II study for the treatment of acne in the second quarter of this year. This clinical study will evaluate the safety and efficacy of its lead compound, SB204, and also assess its ability to decrease sebum in the skin of subjects.

Co-founder and CEO Nathan Stasko says private individuals have been willing to invest $20 million in Novan to date, because of its core technology platform, in-licensed from the University of North Carolina at Chapel Hill. He believes it solves major problems drug developers encountered previously: namely, stably storing the gas for use as a pharmaceutical, and delivering it where needed in sufficient quantities. Stasko worked to develop the platform at UNC along with chemistry professor Mark Schoenfisch, a co-founder of the company who now sits on its board of directors. Working at a time when NO therapeutics were still widely considered promising, Stasko says the Schoenfisch laboratory was motivated to figure out ways to store quantities of NO on pharmaceutical delivery vehicles, and to control its release.

Stasko says the Schoenfisch laboratory figured out how to convert the gas to a solid, by covalently binding it to macromolecular structures. Whereas NicOx’s drug candidate naproxinod pinned just one molecule of NO to each molecule of the anti-inflammatory drug naproxen, Stasko says Novan’s Nitricil technology can pack “hundreds and even thousands of molecules of NO” onto a novel type of polymer. He believes that the series of “co-condensed polysiloxane macromolecules” the company is developing can lead to an entire pipeline of new chemical entities. The polymer can be “tuned to regulate penetration” into the skin, and is less expensive to manufacture than other deliberately large drug-delivery vehicles like dendrimers, Stasko claims. He says Novan can utilize other technologies in its intellectual property portfolio to attach 60 or so molecules of NO onto nanoparticle carriers, and notes that these might be more suitable for systemic administration than the macromolecules geared to topical use.

By shifting the raw materials used to construct a polymer, Stasko says the firm can change the rate at which the NO particles are released. He explains that drug candidates currently made via the Nitricil platform “are triggered upon hydration,” and that this attribute allows Novan to decide whether the NO cargo carried by the polymer delivery vehicle will be delivered slowly over time, or in a relatively short burst. “We have the ability to modulate water uptake, and how hydrophilic or hydrophobic our compounds are,” Stasko declares. The firm has developed “real expertise” at controlling this, he says, even when producing candidate molecules in kilogram quantities.

Acne is an appealing lead indication for Novan to pursue, Stasko asserts, in part because it is the most common skin disease in the United States, affecting over 50 million people. “The literature shows that NO is able to heal and remodel wounds, kill drug-resistant bacteria, and modulate inflammation,” he says, noting that, “the skin is where all these things manifest.” Because acne lesions are subject to bacterial colonization and inflammation, SB204 will theoretically help heal them, if the compound can deliver NO as envisioned. But what really propelled Novan to make acne treatment its goal, Stasko says, was the company’s discovery that nitric oxide-releasing compounds could biochemically shut down sebum production in cultured cells. The overproduction of sebum is clearly a key factor contributing to acne, he points out.

Stasko says recent animal tests suggest that Novan’s drug candidate SB204 may, like the previously tested compounds, also shut down sebum production by locally interfering with androgenic pathways in the skin. To date, he notes, only Roche’s systemic drug Acutane (isotretinoin) has ever been proven to reduce sebum production. Despite that drug’s well-documented side effects, Acutane remains one of the most prescribed treatments for acne. Stasko asserts that none of the currently available topical treatments for acne have ever been demonstrated to reduce the oily secretions of the skin, but he thinks Novan could buck the trend.

“We believe we can develop the first topical treatment able to reduce sebum production, with minimal side effects,” Stasko says, emphasizing, “We didn’t go into this to create a me-too drug. Our goal is to create a market-changing product.” Although the clinical endpoints for treating acne are straightforward, Stasko acknowledges that competition for treatment-naïve patients is fierce in the US. Recognizing the reality of the marketplace, Novan is planning a global Phase II development strategy for SB204, so it can better access a range of skin types. The company expects to both begin and conclude Phase II testing of SB204 against acne in 2013.

Looking beyond acne, Novan anticipates leveraging its technology to create nitric oxide-based therapies for other skin conditions such as chronic wounds and burns, and for decolonization of bacteria in the nose. Stasko says his firm’s early development work in these areas has advanced with federal support, including grants and contracts with agencies including the National Science Foundation, the Department of Defense, and the National Institutes of Health. Novan also has received more than $7.5 million in SBIR funding, and Stasko says the firm appreciates all of these non-dilutive revenue sources.

For now Novan remains focused on developing SB204 for acne, but Stasko says he expects clinical results will help stimulate business development arrangements in therapeutic areas beyond dermatology. “Our goal has been to generate data that people cannot resist,” he declares, “and to do that we have built a team the likes of which have never before been rallied around nitric oxide therapeutics.”

Novan Inc.

Betting nitric oxide therapeutics can succeed in skin

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