Novan, Inc. (NASDAQ:NOVN) Q2 2022 Earnings Conference Call August 11, 2022 8:30 AM ET
Company Participants
Paula Stafford – President, CEO & Chairwoman
John Gay – CFO & Corporate Secretary
John Donofrio – EVP, COO & President, EPI Health
Conference Call Participants
Jeff Jones – Oppenheimer
Brian Dolliver – Brookline Capital Markets
Jonathan Aschoff – ROTH Capital Partners
Oren Livnat – H.C. Wainwright & Co.
John Vandermosten – Zacks Small-Cap Research
Jennifer Kim – Cantor Fitzgerald & Co.
Operator
Hello, and welcome to the Novan, Inc. Quarterly Update Conference Call and Webcast. [Operator Instructions]. Note that this webcast is being recorded at the company’s request, and a replay will be made available on the company’s website following the end of the event.
At this time, I’d like to remind our listeners that remarks made during this webcast may state management’s intentions, beliefs, expectations or future projections. These are forward-looking statements and involve risks and uncertainties. Forward looking statements on this call are made pursuant to the safe harbor provisions of The Federal Securities Laws and are based on Novan’s current expectation and actual results could differ materially. As a result, you should not place undue reliance on any forward-looking statements.
Some of the factors that could cause actual results to differ materially from these contemplated by such forward-looking statements are discussed in the periodic reports, Novan files with The Securities and Exchange Commission. These documents are available in the Investors section of the company’s website and on The Securities and Exchange Commission’s website. We encourage you to review these documents carefully. Additionally, certain information contained in this webcast relates to or is based on studies, publications, surveys and other data obtained from third-party sources and the company’s own estimates and research. While the company believes these third-party sources to be reliable as of the date of this presentation, it is not independently verified or makes no representation as to the adequacy, fairness, accuracy or completeness of or that any independent source has verified any information obtained from the third-party sources.
Joining us on today’s call from the Novan leadership team are Paula Stafford, Chairman, President and Chief Executive Officer; John Gay, Chief Financial Officer; and John Donofrio, Chief Operating Officer of Novan and President of EPI Health.
I would now like to turn the floor over to Paula Stafford, Chairman, President and Chief Executive Officer. Please proceed.
Paula Stafford
Thank you, Jamie. Appreciate that. Good morning, and thank you for joining our corporate update, including Novan’s financial results for the second quarter of 2022.
I want to start off by stating that we remain steadfast in our belief that Novan remains a compelling investment opportunity, and I look forward to sharing with you during this discussion exactly why.
As a reminder, on March 11, we announced exciting news for Novan. We closed on the acquisition of EPI Health, truly a foundational leap forward for Novan. We’ve created a medical dermatology company that has the capabilities to discover, research, develop and commercialize innovative therapies, bringing medications to patients with diseases of the skin.
We’ve made solid progress and have great momentum going into the second half of 2022. We’ve delivered strong volume growth for our promoted products. We’re very proud that in July, the results from our pivotal Phase III study, B-SIMPLE4, were published in the JAMA Dermatology Journal authored by Dr. John Browning and others. And it was preceded by an editorial titled, “Molluscum Contagiosum Therapeutics-New Options May Be Around the Corner” written by Dr. Vikash Oza.
Also in July, we paid off our promissory note for EPG — with EPG for $16.5 million, saving the company nearly $11 million of future expense with no securitization of the company’s marketed assets.
We’re pleased to share that we’re tracking toward our target submission date of no later than the end of 2022 for our NDA for berdazimer gel, 10.3% as a treatment option and potentially the first FDA-approved treatment for molluscum contagiosum. And finally, we’re actively exploring partnership opportunities for Rhofade, our product for rosacea in ex U.S. territories.
Our commercial platform is focused on execution, field readiness, high engagement among our customers and employees. With strong performance management across our organization to ensure we deliver value to the patients we serve and to our shareholders. We’ve demonstrated a commitment to the medical dermatology community with our diverse promoted product portfolio and with our strong development pipeline.
Our commercial platform is built to expand disease states within the medical dermatology area such as molluscum and into other specialty areas such as pediatrics.
Our commercial organization is focused on expanding our promoted products in 3 of the top 4 dermatology markets through 7 key mandates that you see here. We continued to execute on these commercial initiatives in the second quarter of 2022.
Toward helping to grow our commercial business, we hired our national sales lead, Carolyn D’Erasmo in May, and I couldn’t be more thrilled. And we completed the integration of our Novan legacy and EPI Health leadership team at the beginning of July.
We’ve also made good progress in nearly all of the remaining mandates. We are holding off on hiring into new territories at this time based on our current momentum that we have as is.
In the second half of 2022, we’ll remain focused on driving awareness of our brands, continuing to invest in our people, and as I mentioned, exploring ex-U.S. opportunities. Speaking of brand awareness, we’ve been busy promoting our product brands via sales and marketing and our product candidate, SB206 via medical education. Our commercial team and our medical affairs team have been supporting medical meetings and or contributing to scientific publications, sharing our data and our approved messages.
Now let’s discuss at a high level how we performed in the second quarter of 2022. I’m pleased to report continued growth in total prescriptions for 3 of our 4 promoted products. Overall, double-digit growth from quarter 1 to quarter 2.
For Rhofade, we’re excited to have closed quarter 2 with again the strongest quarter in the history of the brand, now with over 40,000 prescriptions, which is a 33% increase above the prior year for the same period and 10% over the previous all-time high quarter of quarter 1.
Wynzora, which was launched in mid-2021, has shown consistent growth month-over-month and quarter-over-quarter since launch, 26% growth in the second quarter compared to the first quarter. MINOLIRA also had strong growth, nearly 50% growth compared to the same quarter in the prior year, with 38% above the previous quarter.
Cloderm prescriptions remained down over the last quarter and the last year, but this is to be expected as Cloderm is not our focus. And as we ready our infrastructure for the potential addition of SB206 into the mix, if it’s approved for molluscum.
So overall, you see 50% growth in total scripts comparing quarter 2 of 2022 to quarter 2 of 2021. So in summary, we’re really pleased with our performance in a quarter that met our internal expectations in terms of total prescriptions.
Looking at Rhofade specifically. The market in the U.S. is around 16 million people. Our Rhofade product is the #1 prescribed product for the treatment of persistent facial erythema or facial redness. Rhofade is fast acting and improvement persists with regular daily use over 52 weeks. We have driven growth in total scripts since early 2020, as you’ll see here to the right after acquiring the product in late 2019.
Now on to Wynzora. We have a strong partnership and a collaboration with MC2 Therapeutics for the commercialization of Wynzora in the U.S. for plaque psoriasis. This is the first and only water-based combination product of calcipotriene and betamethasone dipropionate cream, ideal for knees, elbows and scalps. We launched just over a year ago and have seen the number of prescriptions and prescribers grow quarter-over-quarter since launch.
On to MINOLIRA. MINOLIRA is a minocycline for the treatment of acne, and it’s the first ever biphasic delivery system for acne, offering functional scoring, weight-based flexible dosing. Here on the right, you can see that we’ve also seen solid growth in prescriptions over the prior quarters and years.
Now transitioning to our development focus. Our lead product candidate is berdazimer gel, 10.3% or SB206, a potential topical prescription treatment and likely the first FDA-approved treatment for molluscum contagiosum.
In 2021, we reported robustly positive efficacy results from our pivotal Phase III study known as B-SIMPLE4. And recently, these results were published in JAMA Dermatology as I mentioned. Molluscum is a highly contagious condition prevalent primarily in children aged 1-14, for which there is no FDA-approved prescription treatment. Dermatologists and pediatricians remain concerned with the tolerability of the currently sought office-based procedures.
Our pivotal Phase III study, B-SIMPLE4, demonstrated clinical and statistical evidence of efficacy with our primary and secondary endpoints and a favorable safety profile. So what now? We are now preparing for our potential NDA submission. As normal course of business, we are completing customary stability testing of our GMP batches of drug substance and drug product. Importantly, we remain on track to meet our targeted submission date before the end of the year.
We’ve been planning towards the potential launch of berdazimer gel, 10.3% or if approved, KINSOLUS. We identified a path the best and the most compelling path that delivers value, and that was to acquire an established business, EPI Health. This seasoned commercial team will launch and promote berdazimer gel, 10.3%, if approved.
In the meantime, we’ve developed a launch plan with key activities ongoing in preparation for a potential launch. These include our commercial scale manufacturing capability, a pricing and reimbursement strategy and continued outreach to our key opinion leaders through our medical affairs team and medical education. At Novan, as we’ve said many times before, we plan for success and a product launch is no different.
I’ll now turn to John Gay, Novan’s CFO, for our financial highlights. John?
John Gay
Thank you, Paula. Good morning, everyone. We appreciate you joining our call today. This quarter represents the initial quarter in which we have fully consolidated results from our commercial business. As such, my comments will focus primarily on this quarter’s activity as it represents the first data set regarding the performance of our commercial business on a full quarter basis.
Before I touch on some of the key data points for this quarter, I would like to remind our participants that we are not yet in a position to provide guidance as it relates to 2022 revenues or EBITDA. However, as Paula noted, we certainly see opportunities for growth in our promoted product portfolio.
For the second quarter ended June 30, our commercial business reported total revenue of $5.5 million. As you can see, year-to-date total revenue for our commercial business was $6.8 million. I will remind our call participants that the first quarter included only 20 days of activity for our commercial business based upon the March 11 acquisition date of EPI Health.
Net product sales of Rhofade included in the commercial businesses total revenue was $4.3 million and $5.1 million for the 3 and 6 months ended June 30, respectively. Rhofade prescriptions have continued to grow with a year-over-year increase of 39% for the 6 months ended Q2 and a year-over-year increase of 33% for the 3 months ended Q2. In addition, we continue to see opportunity for improvement in Wynzora which launched in Q3 of last year.
I’ll now provide a bit more detail on our Q2 financial results, which expands and provide context for the information presented and complements the financial data presented in this morning’s press release. Commercial product cost of goods sold was $2.6 million for the 3 months ended June 30. Cost of goods sold includes the cost of procuring finished goods from our third-party manufacturers in addition to sales-based royalty and milestone expenses and third-party IP licensing costs.
Our R&D business incurred research and development expenses of $3.1 million for the 3 months ended June 30 compared to $5.3 million in the prior year period. The decrease of $2.2 million was primarily related to the SB206 clinical program based on timing of the B-SIMPLE4 trial.
On a consolidated basis, SG&A expenses were $8.6 million for the 3 months ended June 30 compared to $2.4 million for the prior year period. The increase of $6.2 million was primarily due to $3.3 million of selling, general and administrative expenses related to EPI Health’s commercial operations; $0.6 million of transaction-related expenditures related to the acquisition and a $1.2 million increase in investment costs related to the SB206 prelaunch strategy and commercial preparation.
On a consolidated basis, total net loss was $8.9 million for the second quarter as compared to $6 million for the prior year period. Net loss for our commercial business was $0.5 million for the second quarter compared to $0.7 million for the first quarter of this year. However, as I mentioned, the first quarter only included 20 days of activity.
As you can see, a 28% year-over-year growth in our marketed portfolio prescriptions, excluding Wynzora, which launched last year, coupled with the comparative improvement on the bottom line for the commercial business from Q1 gives us the opportunity to continue to drive optimization of our commercial business while at the same time investing in and looking forward to the potential launch of SB206.
As it relates to our balance sheet, as of June 30, we had a total cash balance of $37.3 million and an accounts receivable balance of $18.2 million. We expect that we will need additional funding to support our planned and future operating activities and make further advancements in our product development programs.
We do not currently have sufficient funds to complete commercialization of any of our product under development. Therefore, we are pursuing a broad range of financing strategy and other strategic alternatives that could be used to extend our ability to continue investment in our SB206 product candidate.
With that, I’ll turn it back to Paula.
Paula Stafford
Thank you, John, for providing the detail behind the highlights. We are pleased with Novan’s progress in the second quarter on the heels of good progress in the first quarter. We have commercial momentum here at the front end of the second half of 2022. We continue to advance our efforts toward an NDA submission in 2022, having our drug substance and drug product now up on stability, we are planning for success and preparing ourselves for a potential product launch of berdazimer gel, 10.3%, if approved.
We continue to pursue, evaluate and consider collaborations that could expand our existing commercial products beyond the U.S., and we continue to explore our proprietary development pipeline for future growth opportunities.
In closing, the full Novan team remains energetic, focused and we’ve never been more excited for our future than we are today. Thank you.
And operator, I’d now like to turn it to you to facilitate our Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question today comes from Jeff Jones from Oppenheimer.
Jeff Jones
Congratulation on a great quarter on the consolidation of the businesses. Questions, I guess, as we look forward on the commercial programs, should we be looking at or considering any seasonality? We know looking at those prior quarters, Rhofade has been a little tough in the third quarter, and MINOLIRA is trended relatively except for this quarter. And on the FDA submission of SB206, are there any items we should be looking for as we head into the end of the year target?
Paula Stafford
Thank you, Jeff. I’m going to take the SB206 NDA question, and I’m going to ask John Donofrio here to take the Rhofade question. So maybe I’ll just start with the NDA. Just in terms of any other items, really the — there are a number of activities, there are different modules being, obviously, prepared for the NDA, and we feel like we have everything in progress.
There are ongoing interactions with the FDA in terms of how to present and share different information, but all of that is, as I say, customary and in progress. So we feel confident that we’re going to have all that needs to be in order to submit before the end of the year. We are working, as noted on one of the slides with third-party vendors with our analytical testing. So we’re working with them to ensure that we get everything when we need it. And so we don’t feel like there are any other items that are gating our submission.
John Donofrio
And Jeff, this is John. Hope for doing well. Yes, we definitely will see seasonality in Q3 on [indiscernible] typically, July, August time frame, due to vacations, summer vacations, July 4 and back-to-school. You see some leveling off in rosacea, but we still continue to expect momentum and growth of just the overall Rhofade brand, but you will see some seasonality.
And then in regards to seasonality around our acne in MINOLIRA, even though it was flat last year, I think you’ll expect just with the back-to-school season and schools kind of back in full force kind of post COVID environment, you see normal access in the back-to-school seasonality in the acne market, and we’ll expect MINOLIRA to follow that trend. So slightly impacted on Rhofade just due to the summer months. But with acne season in school, you should see a little bit of an uplift from that perspective seasonality.
Operator
Our next question comes from Kemp Dolliver from Brookline Capital Markets.
Brian Dolliver
As we head into the second half of the year, there will be managed care formulary changes. Are your contracts multiyear? And the reason I ask is that there are several competing products that have popped up on the market in the last 12 months that do not have formulary coverage and presumably are knocking on managed care doors to get physicians. So how do you protect yourselves from their efforts?
John Donofrio
Yes. No, great question. And yes. Our care contracts are multiyear. Some are reviewed annually even though they’re multiyear contracts. It’s an ongoing annual process and as products leave and enter the market. You continue to see ongoing negotiations. We’ve been fortunate with Rhofade to maintain the coverage across all our plans, and we’ll continue to see that as we head into 2023. And we’ve still seen very similar trends for MINOLIRA and prices were actively negotiating going through category reviews with the payers as we speak.
And I think the entrance of some new players, I think, has generated some excitement and positives around topical treatments in psoriasis. And we feel like this only helps enhance our position to show the benefit of topicals and not just systemic and biologics in the topical psoriasis space.
So it’s an ever-ongoing discussion and opportunities and challenges. But right now, we solidify coverage that built up over the years, and we’re continuing to look to add more as we negotiate and further opportunities come forward.
Brian Dolliver
That’s helpful. Second question relates to the Rhofade out-licensing. Are there — I mean, you obviously have a Japanese partner who is an obvious target for discussions. But how do you view opportunities beyond Japan? There’s obviously Europe where you haven’t out-licensed anything yet, I believe, even with the legacy portfolio. So broadly, how are you thinking about the non-U.S. markets?
Paula Stafford
Yes. Thanks, Kemp. We’re really focused on Japan, Europe, Canada, primarily. We’ve had — we’re having good discussions. As you know, it’s a process. It’s a selling cycle with multiple discussions and multiple parties and multiple regions and territories. So we’re encouraged with our conversations, but we’ll share more details along the way. If and when a or deals are agreed.
Operator
And our next question comes from Jonathan Aschoff from ROTH.
Jonathan Aschoff
I was wondering, is the developmental pace of 204 slowing down because I no longer see it associated with the time line to start Phase III, at least just for the press release?
Paula Stafford
Yes. Thank you. Thanks, Jonathan. As we’ve previously shared, we prioritized our pipeline and SB204 is our second priority product candidate for acne. And as we focused on our commercial activities in the NDA for SB206, that’s our current focus.
But SB204 remains a compelling opportunity for us. We really are excited to hopefully get back there. We’re poised to initiate a final pivotal Phase III potentially in 2023 given adequate funding. So SB204 is a new mechanism of action compared to anything on the market today for acne.
We are excited to potentially advance SB204 and potentially submit a second NDA with our Nitricil technology. We — it’s really a funding and timing issue for us. Other than that, we remain excited about the product.
Jonathan Aschoff
Okay. Is SB019 being retargeted to other viruses more so because you see less of an opportunity in COVID, would that be more accurate or not?
Paula Stafford
Yes. You’re exactly right. We’re evaluating SB019 for just general respiratory diseases. All the Nitricil technology products that have been in the clinic today are all a topical formulation, either gel or cream. So we’ve been focused on a non-topical formulation for respiratory diseases. So the COVID market is pretty crowded at this point. It behooves us to look at the broader respiratory market.
So again, until future funding or partnering presents itself, we’ll evaluate it in a preclinical setting for that broader range of respiratory diseases, increasing that optionality for SB019 as a potential product candidate.
Jonathan Aschoff
Okay. And lastly, just 2 parts to this. R&D, is that to stay down here? Or is 2Q an anomaly? And for SG&A, especially since you didn’t terminate anybody from EPI, why is that down 14% sequentially? And what should we expect of that going forward, those 2 main expense lines?
John Gay
Thanks, Jonathan. So as it relates to R&D, the 2 expense line items, R&D really has ratcheted down. And as it relates to the continued progression of getting 206 and through — from a regulatory perspective, that is kind of more of a normalized level once you take out the clinical trials. So really, R&D is down and as we continue to progress to a 6, we’ll stay more in that range if there’s an opportunity for 204,like Paul just mentioned, that could change in the future.
As it relates to SG&A, there’s a lot of variables now in SG&A. Historically, Novan had general and administrative expenses. And now with the EPI acquisition, the lion’s share is now selling. So as it relates to period-over-period, if you take out the activity from the SG&A or the selling expenses from EPI Health, really, there are other activities that are going through there from a legacy Novan business related to the acquisition, which are onetime type of expenses.
So as we look forward to SG&A in the future, obviously, we’ll look to optimization of certain cost areas, but there are some anomalies, if you will, from a period-over-period perspective, primarily generated from the EPI Health acquisition.
Jonathan Aschoff
Okay. And I thank you guys for being one of the only people who actually put your press release out, a useful lead time before a conference call. I really wish you would spread that philosophy.
Paula Stafford
John was up early.
John Gay
You’re welcome, Jonathan.
Operator
Our next question comes from Oren Livnat from H.C. Wainwright.
Oren Livnat
If I could just piggyback on John’s question about SG&A. I think he was remarking on how low it was, which I think surprised us and the street with regards to the incremental addition of EPI selling expenses, I think you said it was only about $3.3 million and profitable in the quarter, and that’s, I think, significantly better than I had modeled.
So just going forward, is that the expectation that, that business is profitable and staying profitable on an operating basis, the stand-alone business? And I have a follow-up.
John Gay
Yes, certainly. Thanks for the question. As it relates to that, as we said publicly before, we’re really looking toward improving the contribution margin of the commercial business. We saw that in this quarter.
On a go-forward basis, that line item of expenditures is really going to be part of a continuation, but also as it relates to some of the mandates that Paula touched on in the prepared remarks, continue to driving script volume. So at the end of the day, that will vary based upon either some of the mandates that we are rolling out and continuing to pursue or it could be managed from an optimization standpoint.
So again, from a kind of a quarter-over-quarter rate, which is the first quarter that we have a full quarter of EPI Health. So on a go-forward basis, we’ll see. But I think that this is a baseline that we can certainly measure against in the future.
Oren Livnat
Okay. And just one more question on EPI before I asked to 206. Was there a change to revenue recognition with regards to Wynzora, I think the time move out of collaboration and into product revenue? And does that hit margins, I think gross margins were about 55%, which is down quarter-over-quarter. And I’m just wondering what we should think about going forward on the profit margin side.
John Gay
Yes. That’s a good question, Oren. Yes, there was a — again, with only 20 days of activity, there wasn’t really a whole lot of activity from a revenue perspective related to the MC2 agreement. But yes, there has been a slight change in presentation with regards to the LNC or the license and collaboration revenue. That adjustment was roughly $0.4 million for this quarter, 3 months ended on a go-forward basis, this is a onetime adjustment, if you will.
So going forward, as it relates to kind of the — regardless of the impact to net income is regardless of how the presentation has shown for NMC 2 revenue recognition. But now, yes, we are showing the gross sales of Wynzora and top line revenue and in product revenue rather than as part of a licensing fee in LMC revenue.
Oren Livnat
Okay. And the gross margin profile on that business in general now and going forward?
John Gay
Yes. So gross margins get interesting as it relates to the MC2 agreement because effectively, we are commercializing and distributing that asset on behalf of MC2. So I think if you look at the core business of the assets that we own, you would have to kind of calculate or back calculate the margin with respect to that.
So I think looking primarily at Rhofade, Cloderm, MINOLIRA, seeing that net product revenue and looking at that is probably more indicative of true impact in the future as it relates to cash flow. So the gross margins are a bit skewed for this quarter. But on a go-forward basis, we expect it to be — this to be the baseline and this to be expected going forward.
Oren Livnat
Okay. And then on SB206, there is material year-over-year spend pre-commercial, I think you called that. And I do appreciate all the detail you guys have provided in general, across the business. You’re potentially a month away from a filing and then you have another year review between now and potential launch of this product, how much pre-commercial activity do you think you’ll be engaged in? And how much investment ahead of building a sales force and launching this product should we be thinking about?
John Gay
Great question, Oren. As we said, currently, we don’t have the funds to get us to full commercialization of any of our product portfolio. So a lot of that will be determined upon our access to capital and different financing strategies. But preparing for a new product launch, as you know, is a multivariable equation. So part of it will be the ability to access capital. But really — we’ve already solved a part of the equation with the infrastructure and sales force that we have with EPI Health. That’s kind of already in the bag, if you will.
So but as we continue to prepare the market, educate the market and launch that robust plan to really try to benefit the MAX upside for the launch of Consulate approve, that can be a variable amount again, based upon the availability of capital. There’s what we would like to do, and that’s what we’re pursuing to do. But again, there’s a lot of variability based upon our ongoing operations and our ability to access capital.
Operator
Our next question comes from Jennifer Kim from Cantor Fitzgerald.
Jennifer Kim
So I have a couple here. The first is on Rhofade. How much more opportunity do you see in terms of uptake for that product? And this relates to what you said about SG&A this quarter being a good basis going forward. Is the expectation that you can continue that growth without adding promotional or selling investments?
And then my second question is, I know you talked about active engagement with potential partners for Rhofade. Can you just outline how you view the rosacea opportunity in the EU and how that — the size of that is relative to the U.S.
John Donofrio
Okay. Jennifer, this is John Donofrio. I’ll take the U.S. opportunity for Rhofade, and then I’ll pass it on to Paula on the rest of the world. But from a Rhofade perspective in the U.S., we expect growth in the brand throughout the patent life cycle. There’s a tremendous opportunity for us to expand the treatment of neurovascular dysregulation in every rosacea patience. We’re a category leader in persistent erythema redness — when you look at the component of — when we look at the 2 components of rosacea, you’ve got the inflammation and then you got the treatment of persistent facial erythema.
So and our goal here is to continue to have each and every patient be treated for persistent facial erythema and underlying treatment of neurovascular dysregulation. So as we look at that opportunity and look at the market size, we had about 95% of the PFD market, but we just have a small portion of the inflammatory market. So if we look at it being multifactorial and actually getting every rosacea patient on Rhofade for the treatment of PFP. We see still an opportunity. So we’ll see that — we expect that to continue to grow as we continue to evolve that message throughout the life cycle and do not see or expect a dip from that perspective.
Paula Stafford
And Jennifer on the partnerships. I think you’re specifically asking about Europe. Certainly, there is rosacea in Europe. The size of the market depends on the country and the PSE, as John mentioned, being what we are primarily targeting there is uncertainly in specific countries, there’s more PSE than in others. So we’re not those are ongoing conversations with different partners in terms of that potential market. So I don’t want to project what we believe the market to be at this time, but we do believe there’s an opportunity.
John Gay
And then just add to that — sorry, Jennifer, with respect to SG&A, again, clarity, $3.3 million this quarter, it’s a baseline that will basically vary with the execution of some of the other mandates, as Paula talked about. So I think it’s, again, a baseline. But as we continue to make some investments, that can vary in the future based upon the level of that investment related to those mandates.
John Donofrio
Returning to the SG&A. Yes.
Operator
Our next question comes from John Vandermosten from Zacks.
John Vandermosten
I wanted to ask about just the post-pandemic demand perhaps for dermatology products. You’ve seen pretty strong growth. And I’m wondering if you sense that it might be coming from that source.
Paula Stafford
Definitely.
John Vandermosten
And also the summer, perhaps people are outside, more outside of the house.
Paula Stafford
Yes. Well, maybe I’ll start and then John Donofrio, maybe can add again about the seasonality with the different products. But in terms of post-pandemic, I mean I think everybody saw a little bit of a dip in 2020 and things were coming back in 2021 as doctors’ offices were really opening back up in 2021. So I think from certainly 2020, we’ve seen a post-pandemic demand. But 2021 and 2022 are more comparative. But I think starting in 2022 is when we’ve seen things get pretty normal for all of us.
And I think that the growth you’re seeing from quarter 1 to quarter 2, has everything to do with our efforts and our growth mandates that we put in place to drive the increase in sales. Anything you want to add, John?
John Donofrio
Yes, I would agree, Paula. Obviously, there are some small dynamics just things opening up a little bit more. But John, what we’ll look at, too, to support that is we’ve seen an increase in volume, but we’re also seeing a significant increase in riders. So if we saw the same amount of riders year-over-year and just increased volumes, you’re going to attribute that to patient access and more patients coming in. And I think what we’re seeing is both volume in scripts and then new riders as well and across each one of the categories in psoriasis, acne and rosacea.
So we are seeing better access now, so we can continue to and get more education to our health care practitioners. So that’s also a piece that’s driven by COVID opening up, if you will. But I think as Paula mentioned, volume based on the metrics we’re looking based on the new writers and the productivity of the new writers is as much as on execution as it is just a COVID dynamic.
John Vandermosten
Okay. And on DTC advertising, is that something you consider, and then do you think that will be effective here since it’s a lot of times consumer-driven?
Paula Stafford
When you look at DTC, obviously —
John Donofrio
Yes, when you look at the big brands and the big biologics, the big pharma companies, we won’t look at it from a direct-to-consumer advertising, commercials and TVs and so forth. But there is absolute awareness we can do from a perspective that we have programs for that will educate patients on rosacea persistent facial erythema and our other disease states. So we’ll look at more to digital perspective and definitely we’ll reach out to our consumers and patients. But our primary focus is on education and promotion to our health care practitioners around the benefits of our medications.
And just the economic from that perspective as a smaller company, trying to make sure we ensure we get the right value shareholders. We’ll look at more cost-effective way that will get the message across for our particular products.
John Vandermosten
Yes. It seems like a digital campaign may be a really effective use of your spending for that. I guess it sounds like that’s the direction you’re going.
John Donofrio
Yes.
John Vandermosten
Okay. And last question, just on inflationary pressures, product inputs and perhaps other things. Any comments on that? And if you see them tapering off, slowing down? Or what direction do you sense in terms of inflationary pressures on the income statement items.
John Gay
John, thanks for the question. Yes, we really haven’t noticed any inflationary pressures one way or the other. As we’ve talked about in the previous quarters, kind of the general economic environment, supply chain stuff has been more of an issue in the past. But as it relates to the inflation in the current market, we’re not really seeing anything that’s driving one way or the other.
Operator
And our next question is a follow-up question from Kemp Dolliver from Brookline Capital Markets.
Brian Dolliver
How are you thinking about the competitive situation when you launch if you can tell us, I think if we were going back a year ago, it was a fair assumption that you were going to be second to market.
And now given the changes and the dynamics you could effectively be going head-to-head at the time of launch. How is that influencing your thinking with regard to your launch tactics and strategy and how you might be working with plans to get formulary coverage?
Paula Stafford
Yes. Thanks, Kemp. We’ve always contended that the market has room for both the Verrica product and the Novan product. our treatment is a prescription treatment that would be used at home. And Verrica product is an in-office medical treatment, and we think that they are complementary. So we’ve always had that in our assumptions that there would likely be the 2 in the market. And so we’ll still plan for that, I think whether they go first or we go first, hopefully, we’re both going forward and both get approvals.
For us, it really doesn’t change because we will be in the doctor’s offices already. We’re already there with our sales force, and we’ll just put this in the bag and begin having those conversations very quickly. So we think that we have a very accelerated launch with our commercial platform ready to go and regardless of whether we’re first or they’re first. Good question. Thank you. Operator, anything else?
Operator
[Operator Instructions]. At this time in showing no additional questions, I’d like to turn the floor back over to you, Ms. Paula Stafford for any closing remarks.
Paula Stafford
Okay. Thank you, Operator. Quarter 2, as you saw, was another positive step forward for Novan and we believe, for our shareholders. So we’ve got a first-class commercial team and supporting infrastructure to propel us further forward.
And so in summary, Novan has still 5 product candidates in our development pipeline. We’ve got 4 products promoted by our commercial team. We’ve got 3 near-term value creators, 2 priority products and one lead product candidate. We’ve got 2 business units, and we’ve got 1 NDA submission targeted before the end of 2022.
So we’re excited for the remainder of the second half of 2022 and going forward. So thanks, everyone, for attending the call, and thanks to our analysts for some great questions. Have a great rest of your week.
Operator
And ladies and gentlemen, with that, we’ll conclude today’s presentation and conference call. We do thank you for joining. You may now disconnect your lines.
Be the first to comment