2023-05-15 15:07:06 ET
Novan, Inc. (NOVN)
Q1 2023 Earnings Conference Call
May 15, 2023 08:30 AM ET
Company Participants
Paula Brown Stafford - Chairman, President & Chief Executive Officer
John Donofrio - Executive Vice President & Chief Operating Officer
John Gay - Chief Financial Officer
Conference Call Participants
Oren Livnat - H.C. Wainwright
Jeff Jones - Oppenheimer
Jonathan Aschoff - Roth Capital
Kemp Dolliver - Brookline Capital Markets
John Vandermosten - Zacks
Presentation
Operator
Hello and welcome to the Novan Inc. Quarterly Update Conference Call and Webcast. As a reminder, our participants are currently in a listen-only mode. [Operator Instructions] Following the presentation, there will be a question-and-answer session. Note that this webcast is being recorded at the company’s request and a replay will be 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 expectations 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 those 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 has not independently verified and makes no representation as to the adequacy, fairness, accuracy, or completeness of that or of any independent source that has verified any information obtained from any third-party sources.
Joining us on today’s call from Novan leadership team are Paula Brown Stafford, Chairman, President, and Chief Executive Officer; John A. Donofrio, Executive Vice President and Chief Operating Officer; and John M. Gay, Chief Financial Officer.
I would now like to turn the conference over to Paula Brown Stafford. Please proceed.
Paula Brown Stafford
Thank you, Andrew and thanks to everyone for joining us this morning. Novan is building a premier medical dermatology company that is focused on developing and commercializing innovative therapies for diseases of the skin.
Our priority is our NDA for Berdazimer gel 10.3% for the treatment of molluscum, molluscum contagiosum. It is under review at the FDA with a PDUFA goal date of the 5th of January 2024. We are in the review cycle and we have less than eight months remaining.
Since January, we have had a number of noteworthy accomplishments. Our entire team remains excited about our progress, our momentum, and what lies ahead. Our NDA was submitted in early January. This represents the most significant milestone Novan has achieved to-date and something of which we are extremely proud.
In March, our filing was accepted for review with no known potential issues. And we have provided our PDUFA goal date, as I mentioned, as well as other expected milestone dates for a standard review cycle. We continue our dialogue with the agency while we move forward with preparing toward our commercial supply of drug substance in anticipation of a potential approval.
Berdazimer gel 10.3% is a novel topical nitric oxide releasing medication for viral skin infections. Berdazimer sodium, our active pharmaceutical ingredient is a new chemical entity. Our NDA is based on a Phase 3 program that demonstrated clinical evidence of efficacy with robust clinical data from our B-SIMPLE4 trial and a favorable safety profile for patients with molluscum.
Our clinical trial data from B-SIMPLE4 were published in JAMA Dermatology in July of last year. So if approved, this product would satisfy an important patient care need, largely displacing in-office procedures that are often cumbersome, painful and time-consuming.
Molluscum is highly contagious. It is one of the five most prevalent skin diseases worldwide and the third most common viral skin infection in children, most of them less than 10 years old and if left untreated it could last up to 48 months. Through recent market research, we received caregiver feedback that speaks to the impact of the disease really on the psyche of the patient.
And to give you a sense of the real-world experiences, as you can see in these quotes here at least children feeling depress, hopeless, bullied, a need to build their self-confidence. And last week, we actually received an e-mail from a parent. We get these quite frequently. And this one it was just a striking e-mail and at the end it said, I am looking for a sign of hope. We think we're that sign.
The market is prime for a topical self-administered or caregiver administered therapy. The market potential is large with six million patients in the US today and approximately one million new patients annually. We believe the lack of at-home options results in many undiagnosed cases. The current standard of care is in-office procedures, freezing, cutting, blistering and off-label and OTC offerings that have no proven efficacy.
Per US claims data, over 70% of patients with molluscum go untreated. 19% of molluscum patients seek treatment from a dermatologist. 72% visit their pediatrician, but approximately 90% of these pediatricians have a wait-and-see approach. Whereas 65% of dermatologists will treat molluscum but it's typically with a treatment that's an in-office procedure.
So, this is how we view the future. We believe that berdazimer gel 10.3% has the potential to become a first-line therapy. Dermatologists and communities would likely lead the way and what we expect is that pediatricians would follow. There's no FDA-approved treatment today for molluscum. But a wait-and-see approach is not a standard of care that patients or caregivers seem to benefit from today.
So in the next 7.5 months, the FDA could approve two potential treatment solutions that we believe would complement one another. We believe if approved, Berdazimer gel could be prescribed by pediatrician as a prescription product that would most likely be covered by insurance at the pharmacy, whereby, if approved, a new drug device combo could be used as an in-office procedure by dermatologists across multiple visits, if covered by medical insurance. So there's room for both in the market, if approved; one, a prescription, one, a drug device used in the office.
Our research shows that healthcare providers are ready for a safe and effective treatment and specifically Berdazimer gel, if approved. As you see here, very -- there's a very high potential, very high adoption rates are expected within 12 months of approval across the three primary HCP types who are seeing molluscum patients today.
So we're planning for success. Our NDA is in the review cycle with the FDA, and we're currently expecting the review to be complete by the goal date of January 5th, which is, again, less than eight months away. So as we respond to FDA information requests, we're also planning toward a potential launch. So specifically, we look to build awareness and excitement for our potential product among our customers, as well as employees and potential future employees. We work to educate healthcare providers about the disease and the treatment options. We look to deliver the best possible access program, we want to prepare our existing commercial organization. We continue to protect our proprietary platform technology with patents nationally and globally.
Now the extent of these efforts remains dependent on funding available to the business. So our go-to-market strategy starts with the opportunity in the dermatologist offices. They recognize the value. Their patients recognize the value. They are eager. So we expect pediatricians will look to them and follow. We will mostly market to non-derm HCPs digitally. Once we prove out our marketing playbook with the dermatologists, we would look and expect to have the foundation to expand beyond dermatologists. The opportunity for Berdazimer gel is compelling.
So I'll now hand the call over to our Chief Operating Officer, John Donofrio, to provide an update on our commercial business for the first quarter of 2023.
John Donofrio
Thank you, Paula. Good morning everyone. I'm pleased to report our promoted products delivered strong prescription growth compared to Q1 2022.
This is the fifth consecutive quarter of strong commercial team execution delivering growth across our promoted product portfolio as compared to prior periods. Our team successfully launched new promotional campaigns for RHOFADE and WYNZORA moved to digital platforms and selling tools across our portfolio.
Complementing our strong total prescription growth, compared to Q1 2022, we have also experienced a significant increase in underlying demand in new prescriptions for both RHOFADE and MINOLIRA and increased ACP rider activity for WYNZORA. WYNZORA which was launched in mid-2021 compete in the market that has many treatment options for psoriasis. As such, this is a positive trend in a very competitive market.
For the quarter, we continued to grow our prescribing base and market share for our core promoted products. Q1 RHOFADE total prescription volume of 40,149 was less than 100 prescriptions short of an all-time high set in Q4 2022. This represents an 11% growth over Q1 2022 18% growth in new prescriptions and all-time highs in both new prescribers and total prescribers of 8,000 and 9,000, respectively.
As noted in previous calls, WYNZORA was impacted in the second half of 2022, by new competitive launches that have challenged the use of topical steroids in the U.S. for plaque psoriasis. However our new promotional efforts and execution have returned WYNZORA to growth of 9% in Q1 2023 versus Q1 2022.
MINOLIRA continues to outperform the declining minocycline market for acne, strong growth of 19% in total prescriptions and 18% growth in new prescriptions versus Q1 of 2022. Our strong prescription growth during the quarter was partially offset by two factors impacting our net profitability.
We experienced a supply disruption in March for RHOFADE. This issue was quickly resolved and distribution channels restocked and solid demand and pull-through in mid-April. In addition, as it relates to our gross to net deductions, we experienced an increase in payer rebates as we moved from non-preferred to preferred coverage, higher patient assistant co-pay costs due primarily to a coverage mix shift of higher deductible plans and the result of patients' annual coverage deductible resets.
We continue to work towards the implementation of tactical and strategic actions to reduce the impact of gross to net adjustments on profitability. Overall, we're excited, with the total prescription growth performance including new and total prescribers for our promoted brands.
Thank you and I will now hand it over to John Gay, our Chief Financial Officer.
John Gay
Thanks John, and thank you to everyone for joining our call today. Before we review the activity for the quarter ended March 31st 2023, I will remind you, that when I refer to prior year figures for the quarter ended March 31st 2022, it includes 20 days of activity based upon our March 11 acquisition last year and the related timing of the consolidation of our commercial business within our financial statements.
As such, the comparability of the current year versus prior year first quarter should be noted as it relates to this 20-day stub period in the prior year. I'd also like to let our listeners know, that we are not yet providing guidance as it relates to Q2 and full year 2023 revenues or EBITDA.
For the three months ended March 31st, our net product sales of $2.4 million included in our commercial businesses total revenue was comprised of $1.1 million for RHOFADE, $0.5 million for WYNZORA and $0.3 million for MINOLIRA with other products in our portfolio contributing $0.4 million.
The increase in our net product revenue for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was due to the timing of the EPI Health acquisition, offset by the impact of a manufacturing delay with the supplier for our RHOFADE commercial product. RHOFADE was on backwater beginning in March 2023 until mid-April of this year. This temporary stock-out of RHOFADE impacted the overall net product revenue during the first quarter of 2023, as there was a 28% decrease in the number of units sold in Q1 2023 from Q1 2022.
I will note that this decrease of unit sold is calculated based upon the total units sold in the first year -- prior year first quarter, including units sold by EPI Health prior to the acquisition by Novan. However, I'm pleased to report that the volume of units sold to our customers in mid-April 2023 rebounded when RHOFADE was restocked.
License and collaboration revenue on a consolidated basis was $0.6 million for the three months ended March 31, 2023. This amount relates primarily to the Sato agreement for the out-license of SB206 recorded in the research and development operations business. Total cost of goods sold recorded in the commercial business was $1.3 million for the three months ended March 31, 2023.
Cost of goods sold includes the cost of procuring finished goods from our third-party manufacturers, sales-based royalty and milestone expenses and other third-party IP licensing costs. For the three months ended March 31, 2023, we recognized net product revenue related royalty expense of $0.7 million within cost of goods sold. This amount included our current obligation to third parties in addition to amounts related to the accounting presentation for the MC2 licensing agreement.
Our R&D business incurred research and development expenses of $4.8 million for the three months ended March 31, 2023 and 2022. Included in the fluctuation from the prior year quarter was a $1 million net decrease in the SB206 program related to the SB206 NDA submission in January of 2023, offset by a $1 million increase in expense related to a regulatory milestone payment, which became due to Ligand Pharmaceuticals during the first quarter of 2023.
On a consolidated basis, SG&A expenses were $10 million for the three months ended March 31, 2023 and 2022. Included in the fluctuation from the prior year was a $4 million net decrease and transaction-related expenditures in connection with the EPI Health acquisition, offset by an increase of $3.7 million of selling, general and administrative expenses incurred to support the conduct of our commercial business operations.
Consolidated net loss was $14.1 million for the three months ended March 31, 2023, compared to $13.4 million for the prior year comparable period.
As it relates to our balance sheet, as of the end of the quarter, we had a total cash balance of $12.5 million and accounts receivable totaling $13.8 million. In the first quarter of 2023, we closed a registered direct offering for gross proceeds of $6 million. We received the Sato upfront payment of $5 million related to the RHOFADE out-license agreement in Japan, and we have continued to use our $15 million accounts receivable back factoring facility, which provides working capital in an amount that is up to 70% of our commercial businesses gross eligible receivables.
We will need additional funding to support our planned and future operating activities related to our berdazimer gel 10.3% product candidate and our business in general. We believe that our existing cash and cash equivalents as of March 31, 2023, plus expected receipts associated with product sales from our commercial product portfolio will provide us with liquidity to fund our planned operating needs into the late second quarter of 2023. The variability in our operating forecast, driven primarily by commercial product sales, timing of operating expenditures and unanticipated changes in net working capital may impact our cash runway.
We continue to be laser focused on obtaining the additional funds necessary to get to a potential approval and launch of berdazimer gel 10.3%, if approved, including evaluating strategic opportunities, while at the same time, conserving cash by delaying or deferring certain expenditures. We have been pursuing and will continue to pursue additional capital to a broad range of financing strategies and other strategic alternatives.
With that, I will hand it back to Paula.
Paula Brown Stafford
Thank you, John and John. I truly believe that Novan is in a position to succeed with a potential approval and an infrastructure to support a potential product launch. We are highly focused on driving towards the potential approval of berdazimer gel 10.3% on aligning our commercial infrastructure to support a potential launch on the continued growth of our marketed products and improving the gross to net profitability. And as John mentioned, we continue to aggressively pursue additional potential capital or strategic relationships to provide the funding necessary to progress the development of berdazimer gel. And these activities include the evaluation of options such as debt, equity, in-license, out-license, acquisition or sale of an asset, a business unit or the company. In closing, we at Novan are committed to building a premier medical dermatology company. We remain focused on executing and delivering results, and we're excited for our future.
So thank you. And operator, you may now open the line for questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Oren Livnat with H.C. Wainwright. Please go ahead.
Oren Livnat
Thanks. I appreciate the questions. I have a few. Just on the API business, I understand, it's been a little volatile for different reasons the last few quarters. Aside from the destocking, in particular, this quarter, can you give us an update on the progress with the prior issue you called out with regards to pharmacies, maybe inappropriately pushing patients to co-pay cards rather than through existing insurance coverage? And are you able to quantify the -- I guess dollar hit this quarter from that destocking? Should we expect that to fully reverse in Q2, such that sales will exceed maybe underlying demand by the same amount? Thanks.
John Donofrio
Yeah. Thank you, Oren. Appreciate the question. Yes, we have been able, as we noted working with the pharmacies and seeing the issues that we saw in the second half of 2022. We have seen some improvement, but we do believe that the first quarter seasonality with the higher deductible plans reset and also seen a shift to higher deductible plans has muddied that picture a little bit for Q1. We feel like it's a seasonality. We've seen that across the industry with not only competitors but other companies. And we feel like that will even out if you will over the next couple of quarters. We've also begun implementing working closely with our pharmacy -- network pharmacy partners in order to have better data and metrics as we mentioned in the second half of the year and that's continued into Q1. So yes, and I'll hand it over to John and he can provide a little bit more on the impact of the stock out.
John Gay
So thank you, Oren. Good morning. So related to your question, we did talk a little bit about in the prepared remarks about the decline in units sold. I think to the point of your question, we did see that rebound in mid-April. So a lot of it was a timing issue. And so I think both from a TRx perspective that growth trajectory continues, as it relates to our demand on the sales side that was recouped effectively in April, as it relates to continued profitability I think that will be really twofold. One, it will be addressing some of the gross to net volumes that John just mentioned. But as it relates to total units sold you see that recovering.
Oren Livnat
Okay. And I know you're not giving guidance for 2Q or beyond. Are you able to sort of characterize what you view the I guess you'd call it a normalized size of this franchise, whether it's RHOFADE alone or the whole thing adjusting for seasonal and onetime pushes and pulls? Do you look at this as a $20 million business, the $25 million business in terms of like current run rate, or is that not something you're able to sort of characterize right now? And I have one follow-up after that.
John Gay
Yeah. I think Oren to that question. If you look at kind of where we ended up last year on a consolidated basis, we'll just talk about kind of the total net product revenue right because the ROE is by far the biggest component of that. We do expect to see growth year-over-year. Now part of that will be because of the full year of activity. But we do expect to see continued growth in the sales if you will of our commercial business. As it relates to a run rate, I think as it relates to net product revenues, I think we'll continue to see TRxs grow and sold grow. I think the challenge will be addressing some of these gross to net components. But I think we ended last year roughly $16 million and that product revenue I think we will see that this year. What percentage I think will largely be dependent upon the gross to that matter that we discuss.
Oren Livnat
Okay. And just lastly to move to SB206 which is obviously the most important thing here. I guess -- well firstly, related to API, do you just look at it as a bridging strategy essentially to SB206 now, or should -- are you looking at that as a growing business for the next couple of years beyond this year in your view? And then just on SB206 specifically, did you receive a day 74 letter or I assume you did. And did that -- any changes to your expectations for what you need to do to prepare for approval or activities you need to do after approval to ramp up before launch?
Paula Brown Stafford
I'll start with that one Oren and then John can talk about the bridge. So SB206 we in our -- basically our day 60 letter they gave us all the information that you would typically get in a day 74. So we were thrilled to get all that information in one and get it ahead of time. So we are -- and in that they provided interim dates that are typical on a standard review that get you to the January 5 PDUFA date.
So we have all the information we need from them. We will this summer we'll -- they will have an internal mid-cycle review. And we'll get that input late second early third quarter we'll get that input from the agency. So in terms of what we have to do now we as I mentioned are really focusing our effort on the approval and spending less on the prelaunch activities due to our financial situation. So -- but we are preparing our drug substance supply so that we would be in a position to launch in the first half of next year. So there are things that we need to do this year from a manufacturing standpoint to be ready for that. Yes.
John Gay
And Oren to the first part of your question as it relates to, kind of, the activity of EPI Health and bridging. And at the end of the day when we do the acquisition of EPI Health is really twofold rationale. One was to give us the infrastructure to launch SB206 as it relates to the sales force and the relationships. That was a key value proposition as it relates to that acquisition because as folks know to do that either build internally or to outsource if you will is very expensive.
The other benefit obviously is that we acquired a great sales team, infrastructure, leadership management and the products. Rhofade is a great product and we fully expect to be able to use our life cycle management for that product and others in our current portfolio to provide value to shareholders. Now as Paula noted the long view of Novan is SB206. And at the same time, we do have a current portfolio that we're going to execute against. And we think it does provide value. But again at the end of the day the long-term value of one SB206.
Paula Brown Stafford
Thank you, Oren.
Oren Livnat
I appreciate it. Thank you.
Paula Brown Stafford
Operator?
Operator
The next question comes from Jeff Jones with Oppenheimer. Please go ahead.
Jeff Jones
Good morning, guys and thanks for taking the question. You just gave a lot of detail, but a couple of follow-ups here. On MinoLira it looked like sales took a hit as well looking at 4Q to 1Q. Any comment there? And then on the BD front in terms of discussions with Sato around rights beyond Japan. I know there was a clock on those discussions. Can you give us an update on that? Thank you.
John Gay
Good morning, Jeff. Thanks for the question. In regards to MinoLira, if you know we look at the overall market dropped about 14%. And we declined about 1.5% if you will. So we look at it as just the market overall decline from Q4 to Q1 and we still feel strongly. Also, again on the net side as John mentioned, we saw the same implications of the high deductibles and resets. But from a TRx perspective that's what we're seeing. We still saw a strong prescriber base as compared to Q4 and so it was more driven just by the market itself for the quarter.
Jeff Jones
Got it. So market in gross to net.
John Gay
From a net, yes, net revenue perspective. I'll hand it to John for the second part.
Paula Brown Stafford
Yeah, I'll take it. That's okay. So regarding the out-license or they're in-license of RHOFADE into other countries that clock is not up yet. So we that goes into the end of the second quarter. So we'll provide an update at a later point on that.
Jeff Jones
Great. Thank you, guys.
Paula Brown Stafford
Okay.
Operator
The next question comes from Jonathan Aschoff with Roth. Please go ahead.
Jonathan Aschoff
Thank you very much. Guys might the R&D expense drop over the rest of this year such that year-over-year R&D spend is flat. I believe you mentioned that it would be at least on the fourth quarter call?
John Gay
Good morning, Jonathan. Yes, you're correct. We expect R&D to be flat compared to last year. And again, the rationale there being is a lot of the activity that we're currently in the process of doing as it relates to the NDAs to mission and administering any responses back from the FDA and preparing the facility that we'll run through R&D. So to answer your question yes we expect R&D to be flat year-over-year. And we saw it flat in Q1 although a different reason.
Jonathan Aschoff
And are all console stability batches submitted?
Paula Brown Stafford
Yes. I will take the opportunity to say you may not have -- there's sort of one line in the queue. We did have an issue with the consoles name. It was conditionally approved by the agency. However, we will not be moving forward with that name. So we have sent in and we have other name options with the agency in terms of getting it would be contingently accepted again until we had an approval if we have an approval. But just we won't be using the consoles name anymore.
Jonathan Aschoff
Okay. Back to 206. Thanks for that. So will you have the exact same headcount for sales let's say in eight-ish months or now you're saying it'll be over the first half of '24 before you can effectively really launch given you'll do less until you'll do less prior to approval just given the cash position. So will you have the same head count? And would a greater focus on consoles compromise the legacy EPI product sales at all you think next year?
Paula Brown Stafford
Yeah. I'll start and if John wants to add. But where we are in headcount is that based on our cash position we actually have a freeze on hiring for our sales associates. But we're still covering that 40 to 42 territories with the heads that we have. So we won't be increasing that. It was always our plan with SB206. We believe that going upwards 50% to 60% in that range would be the best thing for a launch, but we aren't launching in 2023. So -- and in terms of the positioning is that what you would end up with is Berdazimer gel and the first position in RHOFADE in the second. So -- and then going on from there.
Q – Jonathan Aschoff
Sorry, go on.
A – John Donofrio
No. Yes, I just think to follow-up just on Paul's point, when you look at the legacy EPI brands, we're going to target the same physicians. So that footprint of representatives will -- will complement as we launch Berdazimer. Also, we have a strong writer base of RHOFADE, WYNZORA and MINOLIRA, and we feel confident that, that writer base will remain strong and then and continue to move forward and grow those products even with the launch. It's a very complementary selling point with all three current products and then with Berdazimer. Obviously, the top three Berdazimer., RHOFADE and WYNZORA will all do very well. And MINOLIRA in the oral antibiotic market will be the fourth position in that particular point.
Q – Jonathan Aschoff
Okay. You guys mentioned something about $700,000 booked into COGS. Does that mean there's another $550,000 that needs to be booked this quarter as it relates to the $1.25 million to a third-party, you have to pay from Sato's $5 million?
A – John Gay
So Jonathan, we've recorded that accrual, if you will, in COGS at the end of Q4. So as it relates to my prepared remarks and COGS of roughly 1.3. $700 million of that is royalty, the rest is what I would say is product COGS as it relates to the acquisition of materials we're selling. But to your point, that prior milestone was reported in Q4.
Q – Jonathan Aschoff
Thank you. And I guess it's safe to say that any sort of view towards in-licensing any new products is deemphasized for the time being, yes
A – John Gay
I think that's probably, a fair assumption.
Q – Jonathan Aschoff
All right. Thank you very much.
Operator
The next question comes from Jeff -- excuse me Kemp Dolliver from Brookline Capital Markets. Please go ahead.
Kemp Dolliver
Great. Thank you A couple of questions. First, there was the comment in the slide deck about streamlining the commercial team, but it looks like the size of the commercial team has remained steady. What changes did you implement in the quarter?
Paula Brown Stafford
I'm not sure, what you're referring to in terms of the size of the commercial team, because the commercial team has decreased in size by -- compared to the fourth quarter.
Kemp Dolliver
In the number of territories.
Paula Brown Stafford
Okay. Yes. So, we've said that, we cover 42 territories and that's generally been with 40 to 42 people. We're currently around 37%.
Kemp Dolliver
Thank you. And then with regard to the marketing initiatives that you've commenced for the promoted products, what are you doing differently versus last year?
A – John Gay
Yes. So we -- in Q1, we launched brand-new campaigns for both RHOFADE and WYNZORA, which you've seen the uptick in performance. We also moved to digital platforms and selling tools for our representatives. That's been a real nice addition into the marketplace.
We definitely executed on our strategy to build WYNZORA awareness and usage hitting all-time highs in total rider for Q1. And we definitely focus on our messaging for fast week one results as a differentiator in a very busy and competitive psoriasis market.
And we've also continued the momentum and strong growth on RHOFADE with all-time highs in new prescriptions. And our goal is still established the medical need of persistent facial erythema and making sure you're treating that with a prescription product. So those initiatives from a marketing perspective, why we tried to ensure we're being fiduciary responsible to the shareholders has been received very well in Q1, and you can see that in the prescription group.
Kemp Dolliver
That's great. Thank you. And the last question relates to the change in formulary position and granted that it's only a couple of months of data. But when you focus on say prescriptions versus rebate from -- and putting aside the seasonal effects are you seeing a net benefit in revenue from agreeing to higher rebates in exchange for the better formulary positions?
John Donofrio
Yes. Yes. Thank you for the question. So we are excited that we did on one of the major plans moved from non-preferred to preferred coverage effective January 1. So, obviously, we're paying higher rebates, but we'll see better coverage and lower co-pay card costs.
We did not see that in Q1 as much as we expected, and we think a lot of that is due just to the shift in high deductibles and also with the reset plans. So it wasn't as clear to see. But on the individual basis, we have seen the benefit. And we believe we'll continue to see that through Q2, Q3 and Q4.
So it will continue to improve as we work through pull-through of downstream accounts as well. I think the dynamic of it being effective January 1 and being pulled through all the thousands of downstream accounts is also a part that will increase over the upcoming months.
So yes, so we're pleased with it. We feel like moving to a preferred position definitely puts RHOFADE to this particular life cycle in a great position, and the pull-through will continue as we go through the year.
Kemp Dolliver
That's great. Thank you.
Operator
The next question comes from John Vandermosten with Zacks. Please go ahead.
John Vandermosten
All right. Thank you and good morning Paula, John and John. I want to ask a question on your marketing efforts that you'll make assuming approval for SB206. Are there any social media or similar approaches that you can use to improve awareness? And I'm wondering what the most effective medium is that you can use to increase awareness of molluscum and even the products that you currently are marketing?
John Donofrio
Yes. So, John, thank you. Great question. So we -- before launch, we'll be using our medical affairs organization to make sure there's awareness of molluscum and some of the points Paula had mentioned in the previous slides. And then when we look to go forward as far as our marketing efforts, we developed a great initial launch strategy and promotional plan that will continue to evolve.
We'll use the same tools that we're currently using in our existing platform, but absolutely, we'll use digital and social media types of avenues to not only promote the product, but promote the awareness of the disease state as we've noted to ensure that this absolutely gets treated as a disease and there's a prescription medication available.
We also believe this will help not only in the dermatology market where we have a strong foothold and good relationships, but it will help us our initial launch into pediatrics and as we grow to evolve further down that road, so absolutely. Thank you for the question.
John Vandermosten
Okay. And when you think about splitting the effort between awareness for providers and awareness for patients, how do you look at the effort there I guess 50/50 or maybe 75/25%? How do you think about that?
John Donofrio
Yes, I think that will primarily be driven off of resources and funding as well. I think primarily the beginning part will be around awareness at the physician level. And as we evolve and grow the opportunity to expand that to patients and also caregivers of patients is a fantastic opportunity.
And again I think cash resources will be a primary driver from that perspective. But our market research does show that that ability to reach the patient and the patient caregiver can absolutely impact this opportunity.
John Vandermosten
Great. Thank you, John. And regarding RHOFADE in Japan with Sato, what is the development time line and process for that going forward?
Paula Brown Stafford
Yes. Thanks John. So, the process is that -- and that is really for them to share for a timetable, but there is some development effort that is necessary in country before they launch. So, they are begetting that process now getting ready to do the small development effort that they need there to then commercialize. So, it won't be immediate.
John Vandermosten
Got it. And I was looking at analyst estimates for the psoriasis category. It looks like they're going to be about up 3% to a little over $30 billion. And I'm wondering there's a few new entries into the category. And I'm wondering is it becoming more competitive, or is there more potentially complementary among the medicines there in these combination approaches, I guess, being used to more effectively treat. What are your thoughts on that?
John Donofrio
Yes. And when you think about the competition, it's not only there's more entrants, which we have noted is great for the market itself, because as we know there's usually numerous prescriptions written to address the disease state. Part of it is just the size and the amount of investment coming in from these new companies. It's both larger pharma companies with biologics and then the non-steroidal companies that have invested a significant amount of investment both from a field size perspective, you've seen DTC kind of campaigns coming out and additional types of promotional. So it's more around the size of the resources and investment in here.
And again, I think it's been great. We believe it's been great for the market itself. It's the awareness and the opportunities. But as we've stated steroid use and especially a combination product with a steroid in the vitamin D analog have an extreme place and benefit to these patients and that awareness only highlights the fast-acting need to address psoriasis. And we feel like with WYNZORA that meets all patient needs from that spectrum and the increased competition and awareness is good for the marketplace.
John Vandermosten
Okay. Great. Thanks very much for details, John. Appreciate it.
John Donofrio
Yes. You’re welcome.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Paula Brown Stafford for any closing remarks.
Paula Brown Stafford
Thank you all. Thank you analysts for your very good questions. I appreciate those. In conclusion, we believe the opportunity for berdazimer gel is compelling. And Novan remains focused on executing and delivering results, and we're excited for our future. Thank you for being with us.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Novan, Inc. (NOVN) Q1 2023 Earnings Call Transcript