NovaBay Pharmaceuticals Reports Third Quarter Financial Results

By November 7, 2011

(GLOBE NEWSWIRE) – 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, has reported its second quarter 2011 financial results and recent progress in its in-house and partnered programs.

Current cash reserves are approximately $17 million after considering additional cash received and accounts receivable pending subsequent to June 30, 2011. This number reflects $3.0 million from Alcon and $0.6 million from Galderma as well as net proceeds from the recent financing of $4.7 million. As of June 30, 2011, the company’s cash, cash equivalents and short term investments totaled $9.3 million.

NovaBay reported a second quarter net income of $425,000, or $0.02 per share, compared with a net loss of $1.2 million or $0.07 per share for the quarter ended June 30, 2010. The net income was due to additional revenue received from its corporate partners, primarily from a $2 million one-time termination payment from Alcon.

The company’s research and development and clinical expenses were $2.8 million in the second quarter of 2011, compared with $2.1 million in the second quarter of 2010, reflecting continued investments in impetigo and UCBE clinical trials. Cost incurred related to impetigo will be reimbursed by Galderma, per contract.

During the second quarter, NovaBay continued to advance three Phase 2 clinical trial programs: 1) NovaBay’s partner, Galderma, S.A., is preparing to launch a Phase 2b clinical study for the treatment of impetigo, with data expected in the second half of 2012; 2) the urinary catheter blockage and encrustation (UCBE), Phase 2 trial is now 50% enrolled, and preliminary results are expected in the fourth quarter of 2011; and 3) with the ending of the Alcon collaboration and the return of worldwide commercial rights, NovaBay is now free to continue the development of Aganocides for conjunctivitis (pink eye) on its own or in collaboration with new partners. The announced results of the Phase 2 adenoviral conjunctivitis study conducted by Alcon in the United States indicated encouraging findings in patients suffering from epidemic keratoconjunctivitis (EKC). NovaBay is moving forward and planning a modified Phase 2 trial that will evaluate new clinical endpoints with a focus on patients with EKC.

NovaBay also reported that its FDA 510(k)-cleared NeutroPhase® product for wound care is in manufacturing scale-up and is expected to be available for commercial launch during the first half of 2012 to the approximately six million patients in the U.S. suffering from chronic, non-healing wounds such as diabetic, pressure, and venous stasis ulcers. NovaBay does not expect to directly market NeutroPhase, but is seeking an appropriate commercial partner in the U.S.

Second Quarter and Recent Highlights:

July 5, 2011 – NovaBay Pharmaceuticals Announces the Closing of its $5.2 Million Registered Direct Offering of Common Stock and Warrants: NovaBay has combined its current cash and investments ($9.3 million at 6/30/11) with the net proceeds of the financing and money received from Alcon and Galderma to support a number of clinical programs. These trials include a Phase 2b clinical trial for adenoviral conjunctivitis, a Phase 2 clinical trial of an irrigating solution of NVC-422 for the treatment of UCBE, manufacturing scale-up of NVC-422 to support Phase 3 and commercial needs for impetigo and UCBE programs, to support the pilot study for the treatment of onychomycosis and to support the 2011 manufacturing scale-up and 2012 commercial launch of its “NeutroPhase® wound healing” solution through a corporate partner.

June 16, 2011 – NovaBay Regains Worldwide Rights to Its Aganocide Compounds from Alcon: An agreement to terminate the collaboration between NovaBay and Alcon was entered into by the companies, terms of which include a payment of approximately $3.0 million to NovaBay. The payment includes a termination fee as well as final reimbursement for R&D and personnel costs related to the collaboration. In keeping with the terms of their agreement, Alcon will return the worldwide technology license for the lead Aganocide compound NVC-422 as well as other backup compounds to NovaBay. NovaBay is free to continue the development of Aganocides for conjunctivitis and is planning a Phase 2b trial to be conducted in 2012. NovaBay expects to seek a partner for this program.

May 18, 2011 – NovaBay Pharmaceuticals Reports Results from Phase 2 Clinical Trial of NVC-422 for Adenoviral Conjunctivitis: While the predetermined primary endpoint of sustained microbiological success of 20% greater than placebo was not met, encouraging results were found in the 38% of patients infected with adenovirus serotypes commonly associated with epidemic keratoconjunctivitis (EKC). NovaBay is planning to use proceeds from its recent financing to initiate a modified Phase 2 trial in 2012 for this indication.

May 6, 2011 – NovaBay Pharmaceuticals Spotlights Three New Aganocide Compounds with Confirmed Activity against Ophthalmic Pathogens: NovaBay presented a poster at the 2011 Conference of the Association for Research in Vision and Ophthalmology (ARVO), introducing a number of new Aganocides (NVC-727, NVC-638 and NVC-704) with similar broad-spectrum, fast-acting antimicrobial activity to NVC-422 while demonstrating unique physicochemical properties. In this poster, NVC-727 was effective against adenovirus and HSV-1 with good activity against S. aureus and E. coli. NVC-727 showed fast time-kill in 10% synthetic tears and human donor tears at pH 7 against S. aureus and herpes simplex virus (HSV).

Management Comment:
Dr. Ron Najafi, Chairman and CEO, commented, “Our clinical portfolio is advancing on multiple fronts and we expect to achieve major milestones ahead. We are expecting preliminary results from our UCBE trial before the end of the year. Galderma is planning to start a Phase 2b impetigo trial. We are targeting our re-designed Phase 2 viral conjunctivitis study to return to the clinic during the first half of 2012. Lastly, our FDA 510(k)-cleared “NeutroPhase for wound healing” is in the manufacturing scale-up stage and we expect it to be commercially available in 2012. We are aware of how current stock market valuations, NBY included, are being impacted by current economic conditions. Our management team and board remain committed that the best course of action is to remain focused on accomplishing our clinical goals. We have recently increased our financial reserves which enable us to continue to advance our programs.”

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. NovaBay has the 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. In urology, NovaBay aims to reduce the incidence of urinary catheter blockage and encrustation (UCBE) and the potential for urinary tract infections with an irrigation solution containing NVC-422. In hospital infection, NovaBay is targeting the six-million-patient market in the U.S. of chronic non-healing wounds, such as pressure, venous stasis and diabetic ulcers, with its proprietary anti-infective solution, NeutroPhase®, which has received two 510(k) clearances from the Food and Drug Administration. For additional information, 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 following statements in this press release are forward-looking statements: (i) NovaBay’s expectations that NovaBay partner Galderma S.A. is preparing to launch the Phase 2b trial in impetigo with data expected in the second half of 2012; (ii) that the results of the Phase 2 clinical trial for UCBE will be available in the fourth quarter of 2011; (iii) NovaBay’s plan to commercialize NeutroPhase resulting in the availability of the product in the market in the first half of 2012 and that NovaBay will not market the product itself, but expects to seek a partner; (iv) NovaBay’s plan to initiate a Phase 2b trial for conjunctivitis in the first half of 2012 and NovaBay’s expectation to seek a partner for this program; (v) NovaBay’s expectation of several significant milestones in its clinical programs; (vi) regarding safety and efficacy of NovaBay’s NVC 422; (vii) NovaBay’s expectations as to the use of its current cash and investments, including the financing of clinical trials; (viii) NovaBay’s expectation that it will achieve major milestones ahead; and (ix) other statements that relate to future events or results. 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 determine to engage in research and development or preclinical trials 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, which could delay or prevent it from conducting the clinical trials it expects; results of clinical trials are uncertain, and results in previous preclinical trials may not be replicated in clinical trials, which may cause the outcome of clinical trials to be different than NovaBay expects; the inherent uncertainty of patent protection for the company’s intellectual property or trade secrets, which could result in NovaBay not being able to protect its intellectual property to the extent that it expects; 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, under the caption “Risk Factors” in Item 1A of Part II of that report, which was filed with the Securities and Exchange Commission on May 16, 2011, and in NovaBay’s Current Report on Form 8-K, under Item 8.01 of that report, which was filed with the Securities and Exchange Commission on June 17, 2011. The forward-looking statements in this press 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.

Investors:

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

Investors and Media:
The Investor Relations Group

Investor Relations:
Adam Holdsworth
212-825-3210
adam@investorrelationsgroup.com

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

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