NovaBay Pharmaceuticals, Inc. Reports First Quarter Financial Results

By May 12, 2010

NovaBay Pharmaceuticals, Inc. (NYSE Amex: NBY), a clinical stage biotechnology company developing first-in-class, anti-infective compounds for the treatment and prevention of antibiotic-resistant infections, today reported financial results for the first quarter of 2010.

As of March 31, 2010, the company’s cash, cash equivalents and short-term investments totaled $13.7 million, compared with $11.3 million at the end of 2009. The increase in cash was due to the receipt of $3.75 million in milestone payments from Galderma S.A. for the completion of both a formulation feasibility study and of an exploratory clinical study in adult acne. This revenue was reported in the fourth quarter of 2009 and received in the first quarter of 2010.

NovaBay’s license and collaboration revenue for the three months ended March 31, 2010 was $2.1 million, compared with $2.6 million for the same period a year ago. The company earns license and collaboration revenue from two significant corporate partnerships. Under a collaboration agreement with Alcon, Inc., the two companies are developing NovaBay’s Aganocide® compounds for the treatment of eye, ear and sinus infections, as well as for the care of contact lenses. NovaBay and partner Galderma are developing NovaBay’s Aganocide compounds for the treatment of impetigo – a common skin infection – acne and other major dermatologic conditions.

During the first quarter, NovaBay increased its investment in research and development, as it accelerated its proprietary and partnered development programs. NovaBay’s research and development expenses rose by 64 percent to $2.2 million in the first quarter, compared with $1.4 million in the same period a year ago.

NovaBay reported a first quarter net loss of $1.6 million, or 7 cents per share, compared with a net loss of $318,000, or 1 cent per share in the first quarter of 2009. The larger net loss was primarily due to increases in research and development expenses, particularly as NovaBay advanced its program in catheter-associated urinary tract infection(CAUTI). During the first quarter, NovaBay reported encouraging results from a Phase 2a trial in the area of CAUTI, setting the stage for the company’s next study in urinary catheter blockage and encrustation. CAUTI is the most common hospital-acquired infection today, comprising approximately 40 percent of the more than 1 million infections in hospitals and long-term care institutions nationwide. These infections can lead to serious complications, and are sometimes fatal.

“As a result of increased investments in research and development, NovaBay now has three programs that are rapidly advancing through Phase 2 clinical trials,” said Chairman and CEO Ron Najafi, Ph.D. “In addition to the progress we are making in the areas of conjunctivitis and CAUTI, NovaBay is nearing completion of a Phase 2 trial for the treatment of impetigo, a common and highly contagious skin infection that afflicts approximately 1 million people in the U.S. annually – mostly infants and children.”

Recent Highlights

Reported positive results from an open label exploratory Phase 2a trial of the company’s lead Aganocide compound, NVC-422, for the treatment of bacteriuria, or bacteria in the urine, in chronically catheterized patients. The study showed that NVC-422 was well tolerated and that it reduced or eliminated certain pathogens in the urine.
Received $3.75 million in milestone payments from Galderma, including $2 million triggered by the completion of formulation feasibility studies of NovaBay’s Aganocide compounds for topical use, and $1.75 million for the successful completion of an exploratory study in acne.
Received a commitment from Alcon for an increase in on-going financial support of more than $2 million annually, beginning in December 2009. The additional funds are expected to enhance NovaBay’s pre-clinical and clinical development programs in eye, ear and sinus infections, as well as in the care of contact lenses.

About NovaBay Pharmaceuticals, Inc.

NovaBay Pharmaceuticals is a clinical stage biotechnology company focused on developing its proprietary and patented Aganocide® compounds, which are novel, synthetic anti-infective product candidates with equivalent activity to the active antimicrobial molecules generated within white blood cells. NovaBay’s Aganocide compounds are being developed to treat and prevent a wide range of infections without causing bacterial resistance. NovaBay has internal development programs aimed at addressing hospital and respiratory infections. The company has a license and research collaboration agreement with Alcon, Inc. for use of NovaBay’s Aganocide compounds to treat eye, ear and sinus infections as well as for contact lens care. NovaBay has also an agreement with Galderma S.A. to develop and commercialize NovaBay’s Aganocide compounds in acne, impetigo and other dermatological indications. For more information visit:www.novabaypharma.com

Forward-Looking Statements

This release contains forward-looking statements, which are based upon NovaBay’s current expectations, assumptions, estimates, projections and beliefs. Statements regarding NovaBay’s expectations for the next stage of its CAUTI trials and for the use of its Alcon funding, as well as other statements that relate to future events or results, are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or achievements to be materially different and adverse from those expressed in or implied by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to: the risk of unexpected adverse side effects or inadequate therapeutic efficacy of product candidates; and the risk of unexpected delays in the regulatory process which may delay the commencement or completion of clinical trials. Other risks relating to NovaBay and Aganocide compounds, including risks that could cause actual results to differ materially from those projected in the forward-looking statements in this press release, are detailed in NovaBay’s Quarterly Report on Form 10-Q for the period ended March 31, 2010, under the caption “Risk Factors” in Item 1A of Part I of that report, filed with the Securities and Exchange Commission on May 12, 2010. The forward-looking statements in this release speak only as of this date, and NovaBay disclaims any intent or obligation to revise or update publicly any forward-looking statement except as required by law.

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Contact:

Investors:
NovaBay Pharmaceuticals, Inc.
Thomas J. Paulson
Chief Financial Officer
510-899-8809
e-mail Tom

Media:
NovaBay Pharmaceuticals, Inc.
Susan Thomas
Director of Corporate Communications
510-899-8841
e-mail Susan

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