NovaBay Pharmaceuticals, Inc. Reports Second Quarter Financial Results

By August 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 second quarter financial results and highlighted the clinical progress of its in-house programs.

As of June 30, 2010, the company’s cash, cash equivalents and short-term investments totaled $11.2 million, compared with $13.7 million at the end of the previous quarter, and $11.3 million on Dec. 31, 2009. NovaBay’s cash burn grew slightly due to increased development costs associated with key in-house programs in impetigo and urinary catheter blockage and encrustation, a condition that can lead to catheter-associated urinary tract infection (CAUTI). Both of those programs are advancing through Phase 2 trials.

NovaBay’s license and collaboration revenue for the three months ended June 30, 2010 was $2.6 million, compared with $2.4 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 Manufacturing Ltd., 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 S.A. are developing NovaBay’s Aganocide compounds for major dermatologic conditions.

During the second quarter, NovaBay continued to make extensive investments in its mid-stage clinical programs. The company completed a Phase 2a trial in impetigo and further advanced plans for a trial to prevent catheter blockage and encrustation. NovaBay plans to launch a multi-center Phase 2 trial for the prevention of catheter blockage and encrustation and a Phase 2b trial for the treatment of impetigo in the fourth quarter. The company’s research and development expenses were $2.1 million in the second quarter, compared with $1.4 million in the same quarter a year ago.

NovaBay reported a second quarter net loss of $1.2 million, or 5 cents per share, compared with a net loss of $289,000, or 1 cent per share in the same quarter a year ago. The larger net loss was primarily due to increasing research and development expenses.
During the second quarter, NovaBay reported positive results from a Phase 2a trial in impetigo, a highly contagious skin infection that afflicts about 1 million people – primarily infants and children – in the United States annually. In this trial, NVC-422 was shown to be safe and efficacious in treating impetigo, including cases caused by the drug-resistant bacteria referred to as methicillin-resistant Staph. aureus, or MRSA. NovaBay is evaluating impetigo as a gateway indication to other uncomplicated skin and skin structure infections.

“This was an extremely exciting quarter for NovaBay, as our lead product candidate was shown to be successful in treating impetigo in a clinical trial of more than 120 patients,” said Chairman and CEO Ron Najafi. “This continued momentum comes on the heels of our successful Phase 2 trial in the previous quarter of a treatment for bacteriuria, or bacteria the urine, in chronically catheterized patients. We are gratified that our hard work is paying off, as we prepare these two important proprietary programs for additional trials later this year.

“We were also pleased to receive a Notice of Allowance from the U.S. Patent and Trade Office on a new patent for our first-in-class anti-infectives, including NVC-612. Once again, this gives us additional intellectual property protection for our Aganocide compounds.”

Recent Highlights

Reported positive results of a Phase 2a trial of NVC-422 for the treatment of impetigo, which demonstrated that our lead drug candidate was safe and efficacious against impetigo, including cases caused by methicillin-resistant Staph. aureus.
Received a Notice of Allowance from the United States Patent and Trademark Office on a patent application for a broad portfolio of anti-infective compounds, including NVC-612. The patent is expected to broaden protection for NovaBay’s first-in-class Aganocide family of compounds, and will cover compositions of matter and methods of use for NVC-612 and related compounds.
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.

About NovaBay Pharmaceuticals, Inc.

NovaBay Pharmaceuticals is a clinical stage biotechnology company focused on developing its proprietary 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 internally and with partners to treat and prevent a wide range of infections without causing bacterial resistance. The company has a license and research collaboration agreement with Alcon Laboratories Ltd. 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 major dermatological indications. For more information visitwww.novabaypharma.com

Forward-Looking Statements
This release contains forward-looking statements, which are based upon management’s current expectations, assumptions, estimates, projections and beliefs. The statements in this press release of NovaBay’s expectations (i) that NovaBay plans to launch the Phase 2 trial in catheter blockage and encrustation in the fourth quarter of 2010, (ii) that NovaBay plans to launch a Phase 2b trial in impetigo in the fourth quarter, and (iii) the benefits that NovaBay expects from the pending patent of NVC-612, as well as other statements that relate to future events or results, are forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially 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, which could delay or prevent it from conducting the clinical trials it expects; inherent risks and uncertainties relating to difficulties or delays in conducting clinical trials; the inherent uncertainty of patent protection for the company’s intellectual property or trade secrets; 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 its 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 Quarterly Report on Form 10-Q for the period ended March 31, 2010, under the caption “Risk Factors” in Item 1A of Part II 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 Contacts
Thomas J. Paulson  
Chief Financial Officer
510-899-8809
Contact Thomas Paulson

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

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