NovaBay Pharmaceuticals, Inc. Reports Third Quarter Financial Results

By November 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, has reported third quarter financial results and highlighted the clinical progress of its in-house programs.

As of September 30, 2010, the company’s cash, cash equivalents and short-term investments totaled $10.8 million, compared with $11.3 million at the end of the previous year, reflecting a $500,000 net cash burn through the first nine months of the year. NovaBay’s minimal cash burn over the nine-month period reflects prudent cash management and receipt of milestone and support payments from Alcon Manufacturing Ltd. and Galderma S.A.

NovaBay’s license and collaboration revenue for the three months ended September 30, 2010 was $2.1 million, compared with $3.2 million for the third quarter 2009. The company earns license and collaboration revenue from two significant corporate partnerships. Under a collaboration agreement with Alcon, 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 major dermatological conditions.

During the third quarter, NovaBay continued with its multiple clinical trial programs. The company currently is engaged in three Phase 2 clinical trials, consisting of: impetigo, a highly contagious skin infection; urinary catheter blockage and encrustation (UCBE), leading to urinary tract infection; and viral conjunctivitis, or pink eye. NovaBay has plans to launch a multi-center Phase 2b trial for the prevention of UCBE and a Phase 2b trial for the treatment of impetigo by the end of the first quarter of 2011. The company’s R&D and clinical expenses were $2.2 million in the third quarter 2010, compared with $2.0 million in the third quarter 2009, reflecting increased clinical activity in the impetigo and UCBE programs.

NovaBay reported a third quarter net loss of $1.6 million, or seven cents per share, compared with a net loss of $111,000 for the quarter ended September 30, 2009. The larger net loss was primarily due to increased research and development expense as the company prepares for additional clinical trials, the completion in 2010 of the recognition as revenue of the $10 million technology access fee received from Alcon in 2006, as required under revenue accounting standards and reduced reimbursements from the company’s partners as its previous clinical trials are completed.

Management Comment
“The third quarter of 2010 was very productive for NovaBay, as our Aganocide compounds continued to make progress in clinical trials,” said Chairman and CEO Dr. Ron Najafi. We stayed the course with our development programs in the quarter and have a robust pipeline of clinical milestones ahead. We have been carefully managing our cash and utilizing the milestone payments from our large corporate partners, Alcon and Galderma, to continue our clinical initiatives while managing a low burn rate.”

Dr. Najafi continued: “We are especially proud of the fact that our lead product candidate, NVC-422, was proven safe and efficacious, as we announced in the third quarter, against impetigo infections, a highly contagious skin disease, in a Phase 2a proof of concept clinical trial. Impetigo afflicts approximately 1 million people, primarily infants and children, in the United States annually. NVC-422 offers an entirely new way to attack these infections, which are often resistant to established treatments. In addition, our development partner, Alcon, has concluded its proof of concept clinical trial of NVC-422 for the treatment of viral conjunctivitis, a highly contagious eye infection, for which there are currently no marketed products. We are also moving forward with our in-house, non-partnered urinary catheter blockage and encrustation program, and intend to launch a Phase 2b trial early 2011. There are many upcoming catalytic events associated with our programs, and we look forward to updating our shareholders as we move ahead.”

Recent Highlights
* Development partner, Alcon, has concluded its “proof of concept” clinical trial of NovaBay’s patented lead Aganocide® compound, NVC-422 for the treatment of viral conjunctivitis; a highly contagious eye infection for which there are currently no marketed products. Results are expected to be announced during the first quarter of 2011.

* NovaBay announced a new study into onychomycosis (nail fungus infection) using a novel in vitro infected human nail model to evaluate and confirm the ability of novel NVC-422 gel formulations and nanoemulsion lacquers to penetrate and kill fungi grown on the subungal side of the infected nail. Most recent data showed that NVC-422 was able to penetrate the nail and effectively eradicate T. mentagrophytes and T. rubrum, fungi that are most commonly implicated as the cause of onychomycosis. The study also confirmed NovaBay’s earlier pre-clinical studies using a completely different pre-clinical model. Further evaluation of NVC-422 for the treatment of onychomycosis is on-going.

* NovaBay reported positive clinical results in the use of NVC-422 topical gel in the treatment of impetigo. Clinical and bacteriological response rates for three concentrations of the drug applied ranged from 84% to 95% at end of treatment and at follow up. These response rates were substantially higher than the response rate anticipated for placebo (30-50%). Notably, response rates for Methicillin-resistant S. aureus (MRSA) infections were 100% (10/10) across all treatment groups. This proof of concept study provided compelling evidence of the activity of NVC-422 topical gel in the treatment of impetigo.

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 infections, chronic non-healing wounds, UCBE and onychomycosis. The company has a license and research collaboration agreement with Alcon, Inc. for use of its 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 Aganocide compounds in acne, impetigo and other dermatological indications. For more information on NovaBay, visit: www.novabaypharma.com.

Cautionary Information Regarding Forward-Looking Statements
This release contains forward-looking statements, which are based upon NovaBay’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 2b trial in catheter blockage and encrustation by the end of the first quarter in 2011; (ii) that NovaBay plans to launch Phase 2b trial in impetigo by the end of in the first quarter of 2011; (iii) that NovaBay expects to announce the results of the clinical trial for viral conjunctivitis in the first quarter of 2011; (iv) regarding safety and efficacy of NovaBay’s NVC 422; and (v) NovaBay’s expectations regarding the potential of its NVC-422 compounds 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 June 30, 2010, under the caption “Risk Factors” in Item 1A of Part II of that report, filed with the Securities and Exchange Commission on August 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.

Contact:

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

The Investor Relations Group
Investor Relations:
Adam Holdsworth
adam@investorrelationsgroup.com

Public Relations:
Laura Colontrelle
laura@investorrelationsgroup.com
212-825-3210

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