Novan (NOVN) Risk Analysis
Risk Overview Q1, 2023
Source: the company's latest filing for the period ended Mar 31, 2023, filed May 15, 2023
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1Raising additional capital may cause significant dilution to our existing stockholders, reduce the trading price of our common stock, restrict our operations or require us to relinquish rights to our technologies technologies, products or product candidates.
Until such time as we can generate substantial product revenues, if ever, our ability to continue to operate our business, including our ability to advance our development programs, is dependent upon our ability to access additional capital through other sources, including partnerships, collaborations, licensing, grants or other strategic relationships, and/or through the issuance of debt or equity securities. Any issuance of equity or debt that could be convertible into equity would result in significant dilution to our existing stockholders. Debt financing, if available, involves and may involve agreements that include covenants requiring that we place liens on some or all of our assets or limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, effecting a change in control or declaring dividends. There can be no assurance that we will be able to obtain additional capital on terms acceptable to us, on a timely basis or at all. We currently do not have any committed sources of financing other than our accounts receivable factoring agreement, which requires us to meet certain conditions to utilize and there can be no assurance that we will meet those conditions. Additionally, we have outstanding and exercisable warrants and options that if exercised may result in dilution to the interests of other stockholders and may reduce the trading price of our common stock. As of December 31, 2022, we had warrants to purchase approximately 5.5 million shares of common stock outstanding and exercisable with a weighted average exercise price of $2.86 per share. In addition, we had outstanding and exercisable options to purchase approximately 0.4 million shares of common stock as of December 31, 2022 with a weighted average exercise price of $18.70 per share.
- Accounting & Financial Operations - Risk 2The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2021, 2022, contains an explanatory paragraph regarding going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern.
Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources in the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern without additional financing. As a result, our independent registered public accounting firm included explanatory paragraphs in its report on our 2022 consolidated financial statements, with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time obtaining financing.
- Debt & Financing - Risk 3We have incurred net losses since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We will need significant additional funding to continue our business operations and for the advancement of our product development programs. If we are unable to raise capital when needed, we would be forced to delay, reduce, terminate or eliminate our product development programs, programs or our the commercialization efforts. efforts for our products and/or delay, defer, or reduce our cash expenditures, or we may need to dissolve and liquidate our assets or seek protection under bankruptcy laws.
We are a commercial-stage medical dermatology company with a limited operating history. Investment in pharmaceutical and biotechnology product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, obtain regulatory approval or become commercially viable. We have a history of losses and have not generated sufficient revenue to result in a profit from product sales. We have incurred losses in each period since inception, and may never achieve or maintain sustained profitability. For the years ended December 31, 2022, and December 31, 2021, we reported a net loss of $31.3 million and $29.7 million, respectively. As of December 31, 2022, and December 31, 2021, we had an accumulated deficit of $310.3 million, and $279.0 million, respectively, and there is substantial doubt about our ability to continue as a going concern. Even with revenues derived from sales of our marketed products, we expect to continue to incur significant losses for the foreseeable future as we continue to spend substantial amounts on research and development, manufacturing and to commercialize our products and product candidates, if approved. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Although we recognize revenue from product sales and we continue to earn amounts under our license and collaboration agreements, our revenue and profit potential is unproven and our future operating results are difficult to predict. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Additional financing may not be available to us on acceptable terms, or at all. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital. If we are forced to terminate or eliminate our product development programs or pursue other strategic alternatives or corporate transactions, there can be no assurance that such actions would result in any additional stockholder value. If we are forced to wind down our operations, liquidate or seek bankruptcy protection, it is unclear to what extent we would be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources would be available for distributions to our stockholders, whereby, our stockholders may lose some or all of their investment.
- Corporate Activity and Growth - Risk 4We have entered into and rely on, and may enter into, engage in and rely on other, strategic relationships and transactions for the further development and commercialization of our products and product candidates and the expansion of our business, and if we are unable to enter into such relationships or transactions on favorable terms or at all, or if such are unsuccessful or if disputes arise between us and our strategic partners, we may be unable to realize the potential economic benefit of those products and product candidates.
We have entered into and rely on, and may enter into, engage in and rely on other, strategic relationships and transactions for the further development and commercialization of our products and product candidates and the expansion of our business, including out-licenses for commercialization of certain of our products and product candidates. In certain potential scenarios, the counterparty(ies) to such a strategic transaction have assumed and may assume responsibility for the planning, execution, or oversight of the clinical development and regulatory requirements for the associated products or product candidates and/or the commercialization of the products or product candidates. If we decide to engage in such a transaction and, as a result, no longer have significant involvement or responsibility for late-stage clinical development activities or commercialization, we would adjust our business strategy, operating plans, resources and capabilities accordingly. Alternatively, we may pursue a transaction in which the counterparty agrees to finance the continued development of one or more products or product candidates in exchange for future milestone or royalty payments. However, there can be no assurance that we will be able to establish or enter into such arrangements on favorable terms, if at all, or that our current or future arrangements will be successful. If we are unable to establish successful agreements with suitable partners, we would face significant incremental costs, we may be required to limit the scope and number of our products and product candidates we can commercially develop or the territories in which we commercialize them or we might fail to commercialize products or programs for which a suitable collaborator or arrangement cannot be found. Any strategic relationship or transaction may entail numerous risks, including taking on indebtedness or contingent liabilities; the issuance of equity securities which would result in dilution to our stockholders; assimilation of acquired operations, intellectual property, products and product candidates, including difficulties associated with integrating new personnel; risks and uncertainties associated with the other party to such a transaction, and our inability to generate revenue from acquired intellectual property, technology, products or operations sufficient to meet our objectives or even to offset the associated transaction and maintenance costs. Additionally, our current and future collaboration partners may not dedicate sufficient resources to the development and commercialization of our products and product candidates or may otherwise fail in their development and commercialization due to factors beyond our control. If we breach or fail to comply with any provision of a strategic arrangement, a collaborator may have the right to terminate, in whole or in part, such agreement or to seek damages. Some of our strategic arrangements are complex and involve sharing of certain data, know-how and intellectual property rights amongst the parties. Additionally, collaborators may not accept the transfer of critical methods and processes in order for development and commercialization work for our products and product candidates to take place. Our strategic partners could interpret certain provisions differently than we do, which could lead to unexpected or inadvertent disputes with such partners. Any one of our strategic partners could breach obligations, covenants or restrictions in our agreements, leading us into disputes and potential breaches of our agreements with other parties, which could have direct or indirect financial implications. If a strategic relationship terminates or is otherwise unsuccessful, we may need to identify and establish an alternative arrangement. This may not be possible, or we may not be able to do so on terms which are acceptable to us, in which case, it may be necessary for us to cease the development of the applicable product candidate, or conduct the remaining clinical development or commercialization of any product candidate on our own and with our own funds.
Risk Highlights Q1, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 65
- Innovation / R&D - Risk 1We may expend our limited resources to pursue one or more product candidates or indications within our product development strategy, which has and may continue to change over time, and thus fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus the work within our Research & Development segment on developing product candidates for specific indications that we identify as most likely to succeed, in terms of their potential both to gain regulatory approval and to achieve commercialization. As a result, we may forego or delay the pursuit of opportunities with other product candidates or in other indications with greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
- Innovation / R&D - Risk 2If we encounter difficulties or delays enrolling patients in our clinical trials, our clinical development activities would be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends on, among other things, the ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients depends on many factors, including: - the patient eligibility criteria defined in the protocol;- the size of the patient population required for analysis of the trial's primary endpoints;- the proximity of patients to trial sites;- the design of the trial;- our ability to recruit clinical trial investigators with the appropriate competencies and experience;- clinicians' and patients' perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;- our ability to obtain patient consents; and - the risk that patients enrolled in clinical trials will drop out of the trials before completion. In addition, our clinical trials may compete for the recruitment of patients with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition may reduce the number and types of patients available to us, to the extent patients who might have opted to enroll in our trials instead opt to enroll in a trial being conducted by one of our competitors. If we experience delays in enrollment for or the completion, or termination, of our clinical trials for our product candidates, we may experience increased costs, have difficulty raising capital through non-dilutive or dilutive sources, and have to slow down our product candidate development and regulatory approval process timelines. Further, the commercial prospects of our product candidates may be harmed and our ability to generate product revenues from any of these product candidates could be delayed or not realized at all. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
- Innovation / R&D - Risk 3Delay or termination of planned clinical trials for our product candidates would result in unplanned expenses and significantly adversely impact our remaining developmental activities and potential commercial prospects with respect to, and ability to generate revenues from, such product candidates.
We may experience delays in completing ongoing trials and initiating planned trials and we cannot be certain whether these trials or any other future clinical trials for our product candidates will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to: - the FDA disagreeing as to the design or implementation of our clinical trials;- reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical trial sites and prospective strategic partners, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, trial sites and partners;- obtaining institutional review board, or IRB, approval at each site;- adverse events occurring in clinical studies of our product candidates;- recruiting suitable patients to participate in a trial;- having patients complete a trial or return for post-treatment follow-up;- clinical sites deviating from trial protocol;- how we address patient safety concerns that arise during the course of a trial;- adding a sufficient number of clinical trial sites;- manufacturing sufficient quantities of product candidate for use in clinical trials;- utilizing an adequate container and delivery device for the product candidate; or - changes to our financial priorities or insufficient capital available to fund clinical trials. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities for a variety of reasons.
- Innovation / R&D - Risk 4Our product candidates may pose safety issues, cause adverse events, have side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
We, any partner with whom we may collaborate in the future, or the FDA may suspend, delay, require modifications to or terminate our clinical trials at any time, for various reasons, including the discovery of serious or unexpected toxicities or other safety issues experienced by trial participants. In addition, adverse events caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of adverse events or unexpected characteristics. To date, patients treated with our product candidates have experienced instances of drug-related cutaneous intolerability observations, including dryness, scaling, burning, erythema, itching, pain or irritation, and adverse events, including irritation and contact dermatitis. If safety issues or unacceptable adverse events arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in which our trials are conducted, or the DSMB could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related adverse events could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these adverse events may not be appropriately recognized or managed by the treating medical staff. Any of the foregoing events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and may result in the loss of significant revenues to us, which would materially and adversely affect our results of operations and business.
- Innovation / R&D - Risk 5Interim, top-line or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, top-line, or preliminary data from our clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a full analyses of all data related to the particular trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, top-line, or preliminary results that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line and preliminary data should be viewed with caution until the final data are available. We may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between interim, top-line, or preliminary data and final data could significantly harm our business prospects. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our business in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, product candidate or our business. If the interim, top-line, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our product candidates, our business, operating results, prospects or financial condition may be harmed.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
