NovaBay Pharmaceuticals Provides Second Quarter 2012 Financial Results

By August 9, 2012

NovaBay Pharmaceuticals, Inc. (NYSE Amex:NBY), a clinical-stage biotechnology company developing novel anti-infective products for the treatment and prevention of microbial infections, today reported second quarter financial results for the period ended June 30, 2012.

Dr. Ron Najafi, Chairman and CEO, remarked, “We have made significant progress across our development pipeline. NovaBay now has Phase 2b clinical trials underway for conjunctivitis and urinary catheter blockage and encrustation, UCBE, and we expect our partner, Galderma, to begin their global Phase 2b for impetigo by the end of Q3, 2012. Our phase 2b study for adenoviral conjunctivitis began enrolling patients during the quarter and enrollment will continue to grow through completion in Q2 next year. We’ve also completed our end of Phase 2a meeting with the FDA for our impetigo program with our partner Galderma and we believe we are on track to commence our phase 2b in the third quarter 2012.”

Second Quarter Financial Results

As of June 30, 2012, the Company’s cash, cash equivalents and short-term investments totaled $10.4 million, compared to $14.1 million at the end of 2011. This decrease in cash was anticipated as the Company began its Phase 2b conjunctivitis trial, provided support for Galderma regarding the Phase 2b impetigo trial and continued its clinical trial for NVC-422 in urinary catheter blockage and encrustation (UCBE).

NovaBay’s license and collaboration revenue for the three and six months ended June 30, 2012,were $856,000 and $2.2 million, respectively, compared to $4.5 million and $7.0 million in the corresponding periods in 2011. This decrease was attributed to termination of the Company’s agreement with former partner Alcon, for which NovaBay received semi-annual support payments and a $2.0 million termination payment in 2011.

Research and development (R&D) expenses decreased by 15% to $2.4 million for the three months ended June 30, 2012, and decreased by 19% to $4.6 million for the six months ended June 30, 2012, compared with the same periods in 2011. This decrease was attributed to the termination of the research activities related to Alcon in 2011, partially offset by the increase in clinical activities as the Company began its Phase 2b trial in conjunctivitis, continued its UCBE trial and continued to scale up for the impetigo trial, which is expected to start in the third quarter of 2012.

NovaBay expects to incur increasing R&D expenses in 2012 and in subsequent years as it continues to advance its clinical programs in ophthalmology and urology.

General and administrative expenses remained relatively flat for the three and six months ended June 30, 2012, at $1.4 million and $2.9 million, as expected, compared to the same periods in 2011.

Net loss for the three months ended June 30, 2012 was $2.2 million, compared to a net income of $425,000 for the same period in 2011. Net loss for the six months ended June 30, 2012 was $4.8 million, compared to $1.6 million for the same period in 2011. This change was primarily a result of the license and collaboration revenue decrease noted above, offset to some degree by a noncash gain on warrants issued as part of our July 2011 financing and the reduction in research and development expenses resulting from the termination of the Alcon agreement in 2011.

2012 Highlights

June 2012 – NovaBay Announced Successful End-of-Phase 2a FDA Meeting for Dermatology Program. The U.S. Food and Drug Administration (FDA) provided guidance related to the proposed study protocol and statistical analysis plan, as well as the overall development plan for NVC-422 program for treating impetigo. This valuable direction is being incorporated into the Phase 2b protocol and analysis plan thereby enhancing the design of study. Implementation of the phase 2b program with NovaBay’s partner Galderma S.A. is actively progressing following this successful FDA meeting.

May 2012 – NovaBay Enrolls First Patients in Global BAYnovation™ Phase 2b Study for Adenoviral Conjunctivitis. NovaBay has enrolled the first patients in its global Phase 2b clinical study. The study will evaluate the Company’s lead compound, NVC-422, for treating adenoviral conjunctivitis, a highly contagious form of “pink eye.” After providing certain suggestions and insight into the design of the trial at an End-of-Phase 2A meeting, the FDA confirmed that the trial has all the design elements (controls, sample size, end-points) of a pivotal trial.

May 2012 – NovaBay’s Aganocide® Out-Performed Traditional Antibiotics in Drug Resistance Study
The Company received three new composition of matter patent issuances in Australia, New Zealand and Mexico, and four Notices of Allowance in Canada, Japan, South Africa and Mexico for its proprietary Aganocide compounds, which includes it lead compound, NVC-422.

May 2012 – NovaBay Enrolls First Patients in Global BAYnovation™ Phase 2b Study for Adenoviral Conjunctivitis.NovaBay has enrolled the first patients in its global Phase 2b clinical study. The study will evaluate the Company’s lead compound, NVC-422, for treating adenoviral conjunctivitis, a highly contagious form of “pink eye.” After providing certain suggestions and insight into the design of the trial at an End-of-Phase 2A meeting, the FDA confirmed that the trial has all the design elements (controls, sample size, end-points) of a pivotal trial.

May 2012 – NovaBay’s Aganocide® Out-Performed Traditional Antibiotics in Drug Resistance Study.
Findings published in Antimicrobial Agents and Chemotherapy demonstrated resistance to NVC-422 does not emerge in S. aureus, including MRSA, P. aeruginosa, and E. coli Bacteria.

April 2012 – NovaBay’s NeutroPhase(R) Supports Healing of Chronic Wounds New Patient Case Studies Highlighted at the 2012 Spring Symposium on Advanced Wound Care. NeutroPhase, in combination with commercially available wound dressings, was found to support healing when treating chronic non-healing wounds.

March 2012 – NovaBay Pharmaceuticals Signs Option Agreement with Virbac Animal Health for Aganocide® Compounds.Further validates the use of Aganocides for the treatment of topical infections.

January 2012 – NovaBay Prepares to Launch Global Phase 2b Ophthalmic Study of NVC-422. Selects top contract research organizations to manage clinical trial in the United States, India and Brazil.

January 2012 – NovaBay Enters Strategic Marketing Agreement for NeutroPhase® in China with Pioneer Pharma Co., Ltd.Receives up to $1.3 million in upfront and milestone payments. Commercialization of this product is expected in 2013.

About NovaBay Pharmaceuticals, Inc.

Going Beyond Antibiotics
NovaBay Pharmaceuticals is a clinical-stage biotechnology company focused on addressing the large unmet therapeutic needs of the global anti-infective market with its two distinct categories of products.

Aganocide® Compounds
NovaBay’s first-in-class Aganocide compounds, led by NVC-422, are patented, synthetic molecules with a broad spectrum of activity against bacteria, viruses and fungi. Mimicking the mechanism of action that human white blood cells use against infections, Aganocides possess a very low likelihood that bacteria or viruses will be able to develop resistance, which is critical for advanced anti-infectives. Having demonstrated clinical efficacy in Phase 2 proof-of-concept clinical studies, NVC-422 is suited to treat and prevent a wide range of local, non-systemic infections. NovaBay’s clinical development activities are focused on three disease areas:

Dermatology – Partnered with Galderma, a leading dermatology company, to develop a formulation of NVC-422 for treatment of highly contagious skin infection, impetigo, caused primarily by S. aureus and Group A Beta-hemolytic streptococci. A major global Phase 2b clinical study is planned for 2012.

Ophthalmology – NovaBay is developing an eye drop formulation of NVC-422 for treating adenoviral conjunctivitis. Enrollment into a global Phase 2b clinical study has begun with top-line data expected in the first half of 2013.

Urology – NovaBay’s urinary catheter irrigation solution containing NVC-422 is currently enrolling patients in its Phase 2 proof-of-concept clinical studies, with the goal of reducing the incidence of urinary catheter blockage and encrustation (UCBE) and associated urinary tract infections. The Company reported positive data from Part A of this study and expects to announce top-line results from Part B later in 2012.

NeutroPhase®
NovaBay is also developing NeutroPhase, which is an FDA 510(k)-cleared product for advanced wound care. We believe that NeutroPhase is the only patented pure hypochlorous acid solution available and has the potential to be best suited to treat the six-million-patients in the U.S. who suffer from chronic non-healing wounds, such as pressure, venous stasis and diabetic ulcers. For additional information, visit: www.neutrophase.com

Forward-Looking Statements
This release contains forward-looking statements, which are based upon management’s current expectations, assumptions, estimates, projections and beliefs. These statements include, but are not limited to, statements regarding the expected timing of enrollment and commencement of clinical trials, expected timing of receipt and announcement of results of clinical studies, and expected future financial results. 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, risks and uncertainties relating to difficulties or delays in development, clinical trial, regulatory approval, 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 and unanticipated research and development and other costs. 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 Form 10-K and Form 10-Q filings with the Securities and Exchange Commission, especially under the heading “Risk Factors.” 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.

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

Investors and Media:
The Ruth Group

Stephanie Carrington / Nicole Greenbaum (Investors)
(646) 536-7017/7009
scarrington@theruthgroup.com / ngreenbaum@theruthgroup.com

Victoria Aguiar (Media)
(646) 536-7013
vaguiar@theruthgroup.com

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NOVABAY PHARMACEUTICALS, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS

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NOVABAY PHARMACEUTICALS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)

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