NovaBay Pharmaceuticals Provides Fourth Quarter and Full Year 2010 Financial Results and Business Unit Updates

By March 10, 2011

NovaBay Pharmaceuticals, Inc. (NYSE Amex: NBY), a clinical stage biotechnology company developing its first-in-class, anti-infective Aganocide® compounds for the local non-systemic treatment and prevention of antibiotic-resistant infections, today reported full-year and fourth quarter financial results for 2010. The company also highlighted recent progress of its proprietary and partnered development programs within its four business units.

As of December 31, 2010, the Company’s cash, cash equivalents and short-term investments totaled $12.8 million, compared to $11.3 million at the end of 2009, which represents a full-year net cash increase of approximately $1.5 million. This positive annual cash flow was the net result of cash expenditures of $13.4 million, primarily related to advances in clinical trial programs and R&D, being more than offset by $14.9 million of cash receipts, principally related to R&D funding, reimbursements and milestone payments received from partners, Alcon and Galderma.

NovaBay’s license and collaboration revenue for the year ended December 31, 2010 decreased to $9.8 million compared to $15.7 million a year ago. License and collaboration revenues for the fourth quarter ended December 31, 2010 decreased to $3.0 million from $7.5 million in the fourth quarter of 2009. This decrease was due to milestone payments of $3.75 million from Galderma S.A. received in the fourth quarter of 2009 and $1.0 million from Alcon received the in first quarter of 2009, which were not repeated in 2010 and the amortization of our upfront payments from Galderma and Alcon ending during 2010.

Net loss for 2010 was $4.3 million, compared with a net income in 2009 of $2.7 million. NovaBay reported net income of $161,000 or $.01 cents per diluted share for the fourth quarter, compared with a net income of $3.4 million or $.14 cents per share in the same quarter a year ago. This change was primarily a result of the revenues changes noted above.

Total research and development expenses increased 17% to $8.6 million in 2010 from $7.3 million in 2009. For the fourth quarter, NovaBay reported research and development expenses of $2.0 million, compared to $2.5 million in the same quarter a year ago. The overall increases were due to further progress of the Company’s multiple clinical trials As the Company moves forward in its strategy to develop programs in the four business segments it is targeting, NovaBay expects to continue to see increasing R&D and clinical trial costs.

Management Comment:

Recent Highlights
March 2011 – NovaBay Pharmaceuticals Initiates Phase 2 Clinical Trial for the Treatment of Urinary Catheter Blockage and Encrustation
February 2011 – NovaBay Pharmaceuticals Ranked No. 7 in Biotech Industry in Fast Company’s Annual List of World’s Most Innovative Companies
January 2011 – NovaBay Pharmaceuticals Reports Activity of Aganocide NVC-422 Against Deadly “Superbug” producing NDM-1 (New Delhi Metallo-beta-lactamase-1)

2010 Highlights

December 2010 – Received $3.25 million from Galderma for the expansion of the multi-year collaboration agreement to include impetigo. The agreement increases potential milestones to $62 million plus double-digit royalties on future sales.

November 2010 – Held successful meeting with the FDA on the Company’s clinical development plans for Aganocide compound NVC-422 for the treatment of impetigo. NovaBay management and representatives from the FDA discussed timing for additional studies, trial design, and NDA plan for Impetigo.

October 2010 – Demonstrated up to 92% efficacy in 129 patient Impetigo Phase 2 clinical trial, including 100% efficacy in MRSA infected patients. The results were highlighted at the 48th Annual Infectious Disease Society of America Meeting in Vancouver, B.C., which also provided the Company with a platform to announce additional confirmatory studies of NVC-422’s nail penetration and anti-fungal capabilities in onychomycosis.

October 2010 – Appointed Gail Maderis, BayBio President and CEO, former CEO of Five Prime Therapeutics and Genzyme Senior Executive, to its Board of Directors. Over 20 years of senior-level healthcare experience adds significant depth to NovaBay’s Board.

July 2010 – Received notice of allowance on Anti-Infective NVC-612 and related compounds. The patent will cover compositions of matter and methods of use for NVC-612 and related compounds, all of which have a unique mechanism of action toward microorganisms. The new patent complements NovaBay’s existing collection of more than 20 patents and pending patent applications on its proprietary technology platforms.

May 2010 – Completed enrollment in Phase 2a proof of concept clinical trial for the treatment of impetigo. The double-blind, randomized, sequential group study evaluated the safety and efficacy of NVC-422, in 129 patients ages 2 to 12 at clinical centers in the Dominican Republic. NovaBay’s partner in the trial is Galderma S.A., one of the world’s leading dermatology companies.

April 2010 – Presented positive data on NVC-422 at the Association for Research in Vision and Ophthalmology (ARVO) annual meeting in Ft. Lauderdale, Florida. Alcon, NovaBay’s partner for Ophthalmology, and NovaBay scientists presented 3 scientific posters that confirm stability and antiviral activity of NovaBay’s Aganocide Compounds.

March 2010 – Reported positive data from exploratory Phase 2 clinical trial for Urinary Catheter Blockage and Encrustation (UCBE). In-house, un-partnered study showed that NovaBay’s lead Aganocide compound, NVC-422 was well tolerated and reduced or eliminated certain pathogens in the urine.

January 2010 – Received $3.75 million from Galderma S.A. in connection with achieving clinical and formulations milestones.

About NovaBay Pharmaceuticals, Inc.

NovaBay Pharmaceuticals is a clinical-stage biotechnology company focused on developing its proprietary and patented Aganocide compounds. These are novel, synthetic anti-infectives with activity against bacteria, fungi and viruses, and are being developed to treat and prevent a wide range of local, non-systemic infections with a low likelihood of developing bacterial resistance.

NovaBay is focusing its technology on four distinct therapeutic areas: dermatology, ophthalmology, urology and hospital infections. In dermatology, the focus is on developing NVC-422 gel for impetigo and acne. NovaBay has the distinct advantage of being partnered with Galderma, the leading dermatology company in the world. In ophthalmology, the goal is to develop an eye drop for conjunctivitis with Alcon, the world’s leading ophthalmology company. In urology, NovaBay aims to reduce the incidence of urinary catheter blockage and encrustation (UCBE) and the associated urinary tract infections with an irrigation solution containing NVC-422. In hospital infection, NovaBay is targeting the six-million-patient market of chronic non-healing wounds, such as pressure, venous stasis and diabetic ulcers with its proprietary antimicrobial solution, NeutroPhase®, which has received two 510K clearances from the Food and Drug Administration. 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 including, but not limited to, (i) any potential plans for future clinical development of its Aganocide compounds and of bringing products to market including the expected timing or the results of the Phase 2b impetigo clinical trial and Phase 2 conjunctivitis trial; (ii) that Alcon and NovaBay will announce the results of the viral conjunctivitis clinical trial during the first half of 2011; (iii) the potential that the full data will differ from the interim data,(iv) the potential efficacy of Aganocide & Neutrophase compounds, (v) NovaBay’s plan to commercialize Neutrophase in 2011 resulting in its availability to the 6 million patients suffering from diabetic, pressure, and venous stasis ulcers in early 2012 and potential revenue from its sales in 2012.; (vi) that the strategy of multiple product opportunities has the potential to increase NovaBay’s probability of success and decrease risk of shareholder investment; (vii) its cash burn (viii) the development and potential benefits of, and the market opportunities for, NovaBay’s product candidates (ix) the potential to deliver the same or better efficacy than antibiotics and to address the growing problem of antibiotic resistance 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, which will cause NovaBay’s cash burn to be greater than it expects; the risk that negative results from the development programs could preclude Galderma and Alcon from providing additional funding to NovaBay; 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, 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 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, 2010, under the caption “Risk Factors” in Item 1A of Part I of that report, filed with the Securities and Exchange Commission on March 10, 2011. 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

Investors and Media:
The Investor Relations Group
11 Stone St. 3rd Floor
New York, NY
212-825-3210
IR: Adam Holdsworth
or
PR: Laura Colontrelle/Janet Vasquez

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