Microcap biotech player Novan Inc (NASDAQ:NOVN) is flying mid week, on some fresh news hitting press concerning the company’s lead development asset. On Wednesday, as the news dropped, the company started to run, and ended up closing out the session at a more than 20% premium to its daily open. Early morning on Thursday, the company has added a further percentage point or two to the run, and it’s now pricing in at $6.29 – still down considerably on the start of the year price, but some temporary reprieve for shareholders who suffered at the beginning of 2017.

With this in mind, here’s a look at what’s happening, what the news tells us about the company and its prospects, and where we expect things to go next.

So, the news relates to a drug called SB208, and the data derives from a phase II study investigating the safety and the efficacy of the asset in an indication of the treatment of fungal infections. Specifically, in the study just completed, the drug was looking at superficial cutaneous fungal infections of the skin and nails, including tinea pedis, or athlete’s foot, and onychomycosis. That’s a pretty broad spectrum, but that’s one advantage of these sorts of antifungal therapies – if they work, they have the potential to cover a range of fungal root conditions.

And, to the delight of Novan and its shareholders, it’s looking as though this one does.

SB208, which is a silicone gel administration antifungal that targets what are called dermatophytes (one of the more common examples of which is Trichophyton rubrum, or T. rubrum) was investigated against a primary endpoint based on the proportion of patients in each treatment group achieving negative fungal culture at day 14 (post administration). The trial was double-blind, randomized, vehicle-controlled and dose-ranging, and enrolled a total of 222 patients with clinical signs and symptoms of tinea pedis. The randomization spread across four arms evenly – one control arm, and three active arms (each of which we’re given a different dose – 2%, 4% or 16%).

At day 14, 80.6% (with a p=0.002) of patients treated with the middle dose of SB208, 4%, and 74.2% (with a p=0.016) of patients treated with the highest dose of SB208, 16%, achieved negative fungal culture.

This compared to a placebo arm number of 45.5% at day 14. A per protocol analysis was performed, and this yielded similar results to the above described analysis.

A couple of secondary endpoints, rooted in what’s called mycological cure (a negative fungal culture and a negative skin scraping for the presence of fungus), also hit for the study.

So, what’s next?

Well, the path forward isn’t entirely clear right now, but that isn’t necessarily a bad thing. The phase II was dose ranging, so in other words, it was designed to figure out what the best dose (or two doses) are for the company to carry forward into late stage development and – beyond that – into commercialization. The next step, then, in light of the positive news from the dose ranging study, is to take the best performing dose and conduct (what will likely be) another phase II study. There’s a chance the company can pick up SPA and use this phase II as a pivotal in combination with the just collected data. That’s optimistic, though. There’s a chance that even with follow up phase II data in hand, Novan would need to conduct a phase III (a traditional pivotal, in other words) before it can file for approval with the FDA.

So, this means that the next step is to decide what doses to carry forward, and we’re looking at the high two doses (the ones that beat out on placebo, the 4% or the 16%) as likely candidates. There’s every chance that the company will take both through, as this will allow physicians to prescribe (and in turn, the company to commercialize and market) a couple of different strengths, variable dependent upon the personal circumstances of the individual patient.

Bottom line, this is great news for Novan and its shareholders. Both these latter two aforementioned have had a tough year, and the upside bump will be a welcome reprieve going forward.