NovaBay Pharmaceuticals, Inc. Reports Fourth Quarter and Full Year 2009 Financial Results

By March 29, 2010

March 29, 2010 – NovaBay Pharmaceuticals, Inc. (NYSE Amex: NBY), a clinical stage specialty pharmaceutical company developing first-in-class, anti-infective compounds for the treatment and prevention of antibiotic-resistant infections, today reported full-year and fourth quarter financial results for 2009. The company also highlighted recent progress of its proprietary and partnered development programs.

As of December 31, 2009, the company’s cash, cash equivalents and short-term investments totaled $11.3 million, compared with $12.1 million at the end of 2008; representing a full-year net cash burn of approximately $800,000.

NovaBay’s license and collaboration revenue for the year ended December 31, 2009 grew significantly to $15.7 million compared with $6.7 million a year ago. License and collaboration revenue for the fourth quarter ended December 31, 2009 increased to $7.5 million from $2.2 million in the fourth quarter of 2008, due primarily to $3.75 million in milestone payments from Galderma S.A. for the successful completion of formulation feasibility studies and an exploratory acne study. The overall increase in annual license and collaboration revenue was due to additional milestone payments and financial support from NovaBay’s partners Galderma and Alcon, Inc.

Net income for 2009 was $2.7 million, compared with a net loss in 2008 of $8.1 million. NovaBay reported net income of $3.4 million or $0.14 cents per diluted share for the fourth quarter, compared with a net loss of $1.54 million or $0.07 a share in the same quarter a year ago.

Total research and development expenses decreased 24 percent to $7.3 million in 2009 from $9.6 million in 2008. For the fourth quarter, NovaBay reported research and development expenses of $2.5 million, compared with $2.9 million in the same quarter a year ago. The overall decrease was primarily due to lower clinical trial costs and cost-cutting measures. NovaBay expects increased research and development expenses in 2010, as the company advances its development programs in dermatology, catheter-associated urinary tract infection (CAUTI) and onychomycosis, or nail fungus.

“In 2009, NovaBay continued to exercise strong fiscal management, while making marked progress in our clinical and preclinical programs. We are pleased with the early positive results in our partnered programs, which resulted in $3.75 million in milestone payments from Galderma and a commitment from Alcon for increased support of $2 million annually to enhance our programs in eye, ear and sinus infections, as well as contact lens solutions,” said Dr. Ron Najafi, chairman and chief executive officer of NovaBay. “We believe 2010 will be a transformational year, as we expect to advance our proprietary programs in onychomycosis and catheter-associated urinary tract infection, and move our partnered programs in impetigo, a skin infection, and conjunctivitis, or pink eye, beyond proof-of-concept.”

2009 and Recent Highlights

Received $3.75 million in milestone payments from Galderma, including $2 million triggered by the completion of formulation feasibility studies of the company’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 contact lens solution.
Initiated a Phase 2a proof-of-concept trial in impetigo with partner Galderma in September 2009
Partner Alcon launched a Phase 2 trial of NVC-422 for the treatment of viral conjunctivitis, or pink eye, in July 2009
Secured Galderma, a global leader in dermatology, as a new development partner in March 2009. Under terms of the deal, Galderma funds the development and commercialization of NovaBay’s Aganocide compounds for the treatment of dermatological conditions including acne and impetigo. NovaBay may receive from Galderma up to $50 million upon achievement of certain development and regulatory milestones related to acne and impetigo, and escalating double-digit royalties on future net sales of products. NovaBay retains co-marketing rights in Japan, all rights in other Asian markets, and rights to promote products developed to hospitals and health care institutions in the U.S.

Presented data at the 47th Annual Meeting of the Infectious Diseases Society of America (IDSA) showing that NovaBay’s Aganocide compounds demonstrated efficacy and penetration in an established pre-clinical infected nail model of onychomycosis, or nail fungus

Presented positive data from two pre-clinical studies of NVC-422 at the 49th Annual Interscience Conference on Antimicrobial Agents and Chemotherapy conference, revealing that NVC-422 had potent activity in killing bacteria that have developed resistance to antiseptics and antibiotics.

Entered into an exclusive agreement with Professors Markus Nagl M.D. and Waldemar Gottardi, Ph.D. of the Medical University of Innsbruck, Austria. The agreement aims to advance the development of NovaBay’s Aganocide compounds by integrating extensive and on-going clinical work at the University with NovaBay’s development program.

About NovaBay Pharmaceuticals, Inc.

NovaBay Pharmaceuticals is a clinical stage specialty pharmaceutical 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 entered into 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 management’s current expectations, assumptions, estimates, projections and beliefs. Statements regarding NovaBay’s expectations that its research and development expenses will increase, that 2010 will be a transformational year for the company, of the potential receipt from Galderma of up to $50 million upon achievement of certain development and regulatory milestones, the development and potential benefits of, and the market opportunities for, NovaBay’s product candidates, as well as other statements that relate to future events or results, are forward-looking. 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 that NovaBay may incur unexpected charges or need to or determined to engage in research and development not previously planned; risks and uncertainties relating to difficulties or delays in discovery, development, testing, production and marketing of the company’s product candidates; unexpected adverse side effects or inadequate therapeutic efficacy of the product candidates; the uncertainty of patent protection for the company’s intellectual property or trade secrets; the company’s ability to obtain additional financing as necessary; results obtained in animal models may not be obtained in humans; 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 results to differ materially from those projected in the forward-looking statements in this press release, are detailed in NovaBay’s Annual Report on Form 10-K for the period ended December 31, 2009, under the caption “Risk Factors” in Item 1A of Part I of that report, filed with the Securities and Exchange Commission on March 29, 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.

Contact

Investors:
NovaBay Pharmaceuticals Contacts
Thomas J. Paulson  
Chief Financial Officer
510-899-8809
Contact Thomas Paulson

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

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