Novan is gearing up for another bid to advance its proposed acne treatment toward approval by the FDA by negotiating a possible deal with a “third party” to help fund a clinical trial.

The partner was not identified in an announcement made by Novan on Tuesday. The news did give a boost to Novan (Nasdaq: NOVN) shares.

Novan is banking heavily on the proposed drug called SB204 and announced in March that it would keep its development alive after the FDA required more testing. The Morrisville-based firm went public last year but its stock plummeted when the FDA said more testing was needed for SB204.

In June, Novan laid off 20 percent of its workforce and reassigned its CEO while at the same time warning it needed more cash.

Given the cost of a Phase 3 trial (up to $40 million, according to founder and former CEO – now chief science officer Nate Stasko told The Triangle Business Journal earlier this year), Novan is turning to an outside partner.

Novan “has agreed in principle to a business structure that would enable further development and advancement of SB204 for the treatment of acne vulgaris via third party financing and third party execution of one additional Phase 3 pivotal trial that is required before the filing of a New Drug Application (NDA),” the company said Tuesday.

“The proposed Phase 3 trial would be executed by the third party’s dermatology drug development team which plans to utilize a clinical research organization with extensive dermatology clinical trial experience.”

Novan says a “new entity” would be created if the deal goes through that would provide both capital and “clinical expertise” to conduct the trial. If the trial proves successful, the “third party” would receive a “pre-determined multiple” of costs involved as well as milestone payments based on sales.

“If Novan does not make the election to retain the asset (SB204), the new entity would be granted an exclusive license to SB204 in all geographies apart from Japan, with proceeds from any monetization of the licensed technology being split between the new entity and Novan after returning a multiple of the execution costs to the new entity,” Novan added.

The new entity also would have an option to acquire 500,000 shares of Novan stock.

Novan said that a deal “in principal” has been agreed to and negotiations continue.

“The advancement of SB204 for the treatment of acne vulgaris is of critical importance to Novan and its shareholders,” said G. Kelly Martin, Novan’s Chief Executive Officer. “Reaching an agreement in principle to progress SB204 is a ‘win/win’ for Novan and our third party partner. The deal structure enables Novan to be the beneficiary of the potential successful completion of SB204’s development without any direct (to Novan) financial or execution risk relating to the trial.

“Additionally, we believe this creative structure will enable Novan to retain, with the completion of a successful trial and accepted NDA, a significant share of the net present value of SB204, when the value is calculated over the life of the molecule in the marketplace.

“Lastly, the combination of the optionality on SB204 with the expansion of the nitric oxide technology into the areas of inflammatory skin diseases and virology allows Novan and its shareholders to have exposure to multiple therapeutic opportunities while distributing inherent drug development risk across a broader platform.”

Read the full announcement at:

http://investors.novan.com/phoenix.zhtml?c=254342&p=irol-newsArticle&ID=2314930