NovaBay Pharmaceuticals Reports 2016 Full Year and Fourth Quarter Financial Results and Provides 2017 Financial Guidance
Company Continues Successful Turnaround with Record Year and Quarter Results
• 2016 total sales reach $11.9 million, up 172% over 2015
• 4Q16 total sales reach a record $4.1 million, up 149% over 4Q15
• Achieved positive adjusted cash flow from operations in December 2016
• Cash and cash equivalents at yearend of $9.5 million
Conference call begins today at 4:30 p.m. Eastern time
EMERYVILLE, Calif. (March 23, 2017) – NovaBay® Pharmaceuticals, Inc. (NYSE MKT: NBY), a pharmaceutical company focusing on commercializing its prescription Avenova® lid and lash hygiene product for the domestic eye care market, reports financial results for the three and 12 months ended December 31, 2016 and provides 2017 financial guidance.
“We made major strides in a dramatic turnaround at NovaBay in 2016 with Avenova sales increasing 175% while we narrowed our operating loss by nearly half versus the prior year, allowing us to reach our goal of positive adjusted cash flow from operations in the month of December,” said Mark M. Sieczkarek, NovaBay’s President and CEO. “We realized across-the-board improvements in key operating metrics including prescribing physicians and reorder rates, and successfully implemented our marketing strategy to increase sales through the higher-margin prescription ophthalmology channel. By the fourth quarter more than 77% of our sales came from this channel, up from 68% in the prior quarter and up from 30% in fourth quarter of 2015. We executed on every promise made in 2016 to our stakeholders.
“We finished the year on a strong note with Avenova sales for the fourth quarter reaching a record $3.9 million, up 26% from the third quarter, and gross margin on Avenova sales reaching 87%,” he said. “But most importantly, we ended 2016 with $9.5 million of cash and equivalents and no debt, providing us with what we believe to be sufficient financial resources to fund our operations throughout 2017, even while expanding our sales force and investing in targeted Avenova clinical studies.
“We expect another year of exceptional performance in 2017,” Sieczkarek added. “Our expected outlook is for revenues to reach $19 million, up 60% over 2016, and gross margin from Avenova product sales in the high 80% range. We have ample room for continued growth for years to come as we’ve barely tapped into a market we estimate at 41 million Americans with product that is producing compelling results. We plan to capitalize on this substantial commercial opportunity by continuing to invest in our sales organization to grow the top line while managing expenses throughout the organization.”
NovaBay defines adjusted cash flow from operations as GAAP cash flow from operations less changes in operating assets and liabilities.
Key Fourth Quarter Avenova Metrics
• Avenova sales of $3.9 million increased 146% year-over-year and 26% over 3Q16;
• Prescription sales into the pharmacy channel were $3.0 million, up 550% year-over-year and up 45% over 3Q16;
• New prescribers increased by over 1,000;
• Total number of medical professionals who have prescribed Avenova increased by 17% from the third quarter of 2016 to more than 8,700.
Fourth Quarter 2016 Financial Results
Net sales for the fourth quarter of 2016 were $4.1 million, up 149% from $1.6 million for the fourth quarter of 2015 and up 19% from $3.4 million for the third quarter of 2016. Product revenue was $4.0 million for the fourth quarter of 2016, up 155% from $1.6 million for the fourth quarter of 2015 and up 24% from $3.3 million for the third quarter of 2016. Total gross profit margin was 80% for the fourth quarter of 2016, up from 64% for the prior-year period with the increase due to higher sales of Avenova and the impact of an accrual for rebates in the fourth quarter of 2015. The gross profit margin on Avenova sales for the fourth quarter of 2016 was 87%.
Operating loss for the fourth quarter of 2016 of $2.0 million improved by 67% from $6.2 million for the fourth quarter of 2015 and by 2% from $2.1 million for the third quarter of 2016. R&D expenses were $0.2 million for the fourth quarter of 2016 versus $1.2 million for the fourth quarter of 2015, primarily due to lower spending on clinical trials that were completed and the focus of resources on Avenova commercialization, and increased from $4,000 for the third quarter of 2016, due to a third quarter of 2016 gain on the exchange of laboratory equipment for R&D services that were valued in excess of the net book value of the equipment. Sales and marketing expenses for the fourth quarter of 2016 decreased slightly to $3.1 million from $3.3 million for the fourth quarter of 2015 and increased 18% from $2.7 million for the third quarter of 2016 due to higher outsourced sales force expenses. G&A expenses for the fourth quarter of 2016 of $2.0 million compared with $2.7 million for the prior-year period, primarily due to reorganizational changes in the fourth quarter of 2015, and with $2.3 million for the third quarter of 2016, primarily due to modification of the exercise price for warrants issued in May 2015 in the third quarter of 2016.
Non-cash gain on the change of fair value of warrant liability for the three months ended December 31, 2016 was $0.4 million, compared with a gain of $2.0 million for the three months ended December 31, 2015.
The net loss for the fourth quarter of 2016 was $1.6 million, or $0.11 per share on a basic basis, compared with a net loss for the fourth quarter of 2015 of $4.2 million, or $1.26 per share on a basic basis.
Full Year 2016 Financial Results
Net sales for 2016 were $11.9 million, up 172% from $4.4 million for 2015 with the increase due to the higher sales of Avenova. Product revenue for 2016 increased 180% to $11.6 million. Gross profit margin was 79% for 2016, compared with 71% for 2015. Gross profit margin on Avenova sales was 86% for 2016.
Operating loss for 2016 narrowed by 48% to $11.0 million from $21.1 million for 2015. R&D expenses for 2016 declined 76% to $1.4 million, sales and marketing expenses increased 12% to $11.8 million and G&A expenses declined 10% to $7.2 million, all compared with 2015.
Non-cash loss on the change of fair value of warrant liability for 2016 was $2.1 million, compared with a gain of $2.1 million for 2015. The non-cash loss on changes in fair value of warrant liability was primarily due to the increase in the price of the Company’s common stock since December 31, 2015.
The net loss for 2016 was $13.2 million, or $1.40 per share, compared with a net loss for 2015 of $19.0 million, or $6.82 per share. The operating cash burn attributable to this loss for 2016 was $12.1 million.
NovaBay reported cash and cash equivalents of $9.5 million as of December 31, 2016, compared with $2.4 million as of December 31, 2015. On May 5, 2016, the Company closed the first tranche of a financing for gross proceeds of $7.8 million and on July 31, 2016, the Company closed the second and final tranche for gross proceeds of $4.0 million. Warrants were exercised for net proceeds to the Company of $6.6 million and $0.9 million during the third and fourth quarters of 2016, respectively.
The Company used approximately $0.7 million in cash to fund operations during the fourth quarter of 2016 compared with $4.5 million used during the fourth quarter of 2015 and $3.8 million used during the third quarter of 2016. The decrease in cash to fund operations in the fourth quarter of 2016 from the prior year was primarily due to higher gross profit from Avenova sales and lower operating expenses achieved through companywide cost-reduction programs.
2017 Financial Outlook
NovaBay is introducing financial guidance for 2017. The Company’s expectations are as follows:
• Total sales of $19 million, up 60% over 2016;
• Gross profit margin on Avenova sales in the high 80% range;
• Net loss of $6.2 million, excluding the effect of non-cash gain (loss) on change in fair value of warrant liability;
• Cash burn of $3 million.
NovaBay management will host an investment community conference call today beginning at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss the Company’s financial and operational results and to answer questions. Shareholders and other interested parties may participate in the conference call by dialing 800-608-8202 from within the U.S. or 702-495-1913 from outside the U.S., with the conference identification number 68570527.
A live webcast of the call will be available at http://novabay.com/investors/events and will be archived for 90 days.
A replay of the call will be available beginning two hours after call completion through 11:59 p.m. Eastern time April 23, by dialing 855-859-2056 from within the U.S. or 404-537-3406 from outside the U.S. and entering the conference identification number 68570527.
About NovaBay Pharmaceuticals, Inc.: Going Beyond Antibiotics®
Avenova is formulated with Neutrox®, which is cleared by the U.S. Food and Drug Administration (FDA) as a 510(k) medical device. Neutrox is NovaBay’s commercial name for its proprietary pure hypochlorous acid. Data from a multicenter clinical study show that Avenova reduced bacterial load, the underlying cause of blepharitis, on ocular skin surface by more than 90%. Laboratory tests show that hypochlorous acid has potent antimicrobial activity in solution yet is non-toxic to mammalian cells and also neutralizes bacterial toxins. Avenova is marketed to optometrists and ophthalmologists throughout the U.S. by NovaBay’s direct salesforce. It is accessible from more than 90% of retail pharmacies in the U.S. through agreements with McKesson Corporation, Cardinal Health and AmerisourceBergen.
This release contains forward-looking statements that are based upon management’s current expectations, assumptions, estimates, projections and beliefs. These statements include, but are not limited to, statements regarding the size of our potential market, the future sales of our products, what we believe to be sufficient future financial resources, our expected gross margin, and generally the Company’s expected future financial results. Forward-looking statements can be identified with words like (and variations of): “plan,” “estimate,” “believe,” and “expect.” These 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 manufacturing, distributing, and selling the Company’s products, unexpected adverse side effects or inadequate therapeutic efficacy of our product, the uncertainty of patent protection for the Company’s intellectual property, and any potential regulatory problems. Other risks relating to NovaBay’s business, 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 latest 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.
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From the Company
Thomas J. Paulson
Chief Financial Officer