Novan and its wholly-owned subsidiary, EPI Health, entered into a stalking horse asset purchase agreement with Ligand Pharmaceuticals prior to filing voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The agreement between Novan and Ligand would lead to the sale of substantially all of Novan’s assets to Ligand through Section 363 of the U.S. Bankruptcy Code.

Novan will continue to operate its business as a debtor-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the bankruptcy code and orders of the bankruptcy court. The company also entered into a secured DIP credit facility with Ligand in the principal amount of $15 million. According to Ligand, the $15 million DIP loan will accrue interest at 12% interest annually and will be subject to a 6% increase in interest should Novan default on its loan agreement.

The asset purchase agreement governs the sale of substantially all the assets of Novan for $15 million to be paid in cash by Ligand at closing. The cash payable at closing will be reduced dollar-for-dollar by the outstanding balance of the DIP credit facility, which will be repaid at closing. The transaction will be subject to approval by the bankruptcy court and compliance with agreed upon and bankruptcy court-approved bidding procedures, allowing for the submission of higher or otherwise better offers, as well as other agreed-upon conditions.

In addition, on July 14, Novan entered into a bridge loan with Ligand for the principal amount of $3 million. This pre-petition loan provided working capital to Novan for general corporate purposes and is secured by the assets of the company. The pre-petition bridge loan will be rolled into the DIP credit facility if and when the bankruptcy court approves the DIP credit facility.

As the Chapter 11 case progresses, Novan plans to continue to work with the FDA to progress toward potential approval of berdazimer gel, 10.3% (SB206), with a PDUFA goal date of Jan. 5, 2024. In Q2/23, Novan received its mid-cycle review communication from the FDA in addition to the manufacturing facility’s pre-approval inspection and establishment inspection report.

Novan engaged Raymond James & Associates to advise on its strategic options, including the process to sell its assets in connection with the Chapter 11 case. Meanwhile, Birch Lake is acting as financial advisor and Morgan Lewis is acting as legal advisor to Ligand for this transaction.

As previously disclosed, Novan has been pursuing financing and strategic alternatives as well as taking measures to conserve cash. The board of directors of the company made the decision to commence the Chapter 11 case with Ligand as a stalking horse bidder after reviewing alternatives and considering factors such as the company’s challenging financial circumstances and the challenging market climate.