NovaBay Pharmaceuticals Provides Fourth Quarter and Full Year 2011 Financial Results

By March 27, 2012

Progress Continues in Company’s Four Business Units:

Ophthalmology: Enrollment in global adenoviral conjunctivitis study to begin Q2-2012.
Urology: Demonstrated 80% effectiveness in Part A of Phase 2 UCBE trial, top-line results from
Part B study of enhanced formulation expected in Q2-2012.
Dermatology: Partner Galderma, S.A. to begin global Phase 2b impetigo trial in 2012.
NeutroPhase®: FDA cleared, commercial ready product. Recently announced commercialization partnership in China worth $1.3 million in pre-launch milestones. Expecting additional partnerships in the U.S. and the rest of the world.

Resources: $14.1 million in cash, cash equivalents, and short-term investments as of December 31, 2011, increased from $12.8 million at year-end 2010.

EMERYVILLE, Calif. – January 8, 2013 – NovaBay Pharmaceuticals, Inc. (NYSE Amex:NBY), a clinical-stage biotechnology company developing its first-in-class, non-antibiotic, anti-infective Aganocide® compounds for the topical non-systemic treatment and prevention of infections, today reported full-year and fourth quarter financial results for 2011.

“We are very pleased with the progress NovaBay has made in the fourth quarter and over the last year,” said Dr. Ron Najafi, Chairman and CEO. “2011 was an important year for the Company as we further strengthened NovaBay in pursuit of our clinical goals. We announced positive data from a number of Phase 2 studies we undertook in Urology and Ophthalmology, and we partnered with Pioneer Pharma Co., Ltd. to commercialize NeutroPhase in mainland China. In addition, we bolstered our management team with additional expertise in the areas of ophthalmology and advanced wound care.”

Continued Dr. Najafi, “We call our products ‘non-antibiotic, anti-infectives.’ We make this distinction because they are truly differentiated from traditional antibiotics, which allow microorganisms to develop resistance over time. As we continue to advance our programs across our four core business units, we are taking significant steps forward in developing products that go beyond traditional antibiotics.”

Year-end and Fourth Quarter Financial Results

As of December 31, 2011, the Company’s cash, cash equivalents and short-term investments totaled $14.1 million compared to $12.8 million at the end of 2010, which represents a full-year net cash increase of approximately $1.3 million, or 10.2%. This positive annual cash flow was the result of cash receipts, related to our partners R&D funding, reimbursements and milestone payments and our July 2011 registered direct offering.

NovaBay’s license and collaboration revenue for the year ended December 31, 2011, increased to $11.0 million compared to $9.8 million a year ago. License and collaboration revenues for the fourth quarter ended December 31, 2011 decreased to $1.2 million from $3.0 million in the fourth quarter of 2010. The full-year increase and fourth quarter decrease for 2011 compared to the same periods in 2010 can be attributed to termination of the Company’s agreement with former partner Alcon, for which NovaBay received a $2.0 million termination payment, in addition to all outstanding funds, in the third quarter of 2011.

Total research and development expenses increased by 15% to $9.9 million for the year ended December 31, 2011, from $8.6 million for the year ended December 31, 2010. For the fourth quarter 2011, research and development expenses were $2.2 million, compared to $2.0 million in the same quarter a year ago. The year over year increase in research and development expenses was due primarily to increases in the Company’s clinical costs as it conducted clinical trials in 2011.

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

General and administrative expenses decreased 4% to $5.4 million in 2011 compared to $5.7 million in 2010. This decrease reflects a reduction in general and administrative staff and a concerted effort to reduce administrative expenses to allow additional funding of the Company’s clinical trials.

Net loss for 2011 was $5.1 million, compared to $4.3 million for 2010. For the fourth quarter 2011, net loss was $3.6 million, or $0.13 per diluted share, compared with a net income of $161,000, or $0.01 per diluted share, in the same quarter a year ago. This change was primarily a result of the revenue changes noted above, and is also reflective of the updated share count following the Company’s July 2011 registered direct share offering, which increased the number of shares outstanding from 23.4 million shares at December 31, 2010, to 28.2 million shares outstanding at December 31, 2011.

Recent Highlights

March 2012 – NovaBay Pharmaceuticals Signs Option Agreement with Virbac Animal Health for Aganocide® Compounds. Further validates 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 Pharmaceuticals Announces 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.

2011 Highlights

November 2011- Established primary proof of concept in Part A of a Phase 2 clinical study of NVC-422, demonstrating 80% effectiveness in preventing urinary catheter blockage and encrustation. Part B is ongoing with an enhanced formulation of NVC-422. Top-line results are expected in Q2-2012.

October 2011- Appointed David Stroman, Ph.D., as Senior Vice President, Ophthalmic Drug Development, to oversee development of NVC-422 in ophthalmic indications, including adenoviral conjunctivitis, for which the Company is preparing to launch a global Phase 2b study. Dr. Stroman will lead NovaBay’s newly appointed Ophthalmic Advisory Board.

September 2011-Named Russell A. Hoon Vice President of Advanced Wound Care, who will manage partnering efforts for NeutroPhase in the U.S. and abroad.

July 2011- Closed a registered direct share offering resulting in gross proceeds of $5.2 million, which the company plans to use for general operations, including clinical trial expenses.

June, 16, 2011- Regained Worldwide rights to Aganocide compounds following termination of the Company’s prior agreement with Alcon for developing NVC-422 for ophthalmic indications.

May 18, 2011- Reported encouraging results from Phase 2 study of NVC-422 in viral conjunctivitis. Clinical signs, symptoms, and microbiological improvement observed in patients with highly contagious and sight threatening adenoviral conjunctivitis.

April 2011- Awarded 1st place for outstanding scientific presentation at the Simon Foundation for Continence conference. The award-winning poster reported ability of Aganocides to reduce P. mirabilis bacteria, urinary pH, and crystalline encrustation in lab models of catheterized bladders.

February 18, 2011- Ranked number seven in Fast Company Magazine’s list of the Most Innovative Companies in the biotech industry. The list appears in the March 2011 issue of the magazine.

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 reduced likelihood that bacteria or viruses will be able to develop resistance, which is critical for advanced anti-infectives. Having demonstrated therapeutic proof-of-concept in three Phase 2 clinical studies, these compounds are suited to treat and prevent a wide range of local, non-systemic infections. NovaBay is currently concentrated on three large therapeutic markets:

Dermatology – Partnered with Galderma, a leading dermatology company, to develop a formulation of NVC-422 for treatment of highly contagious skin infection, impetigo. Current product offerings give rise to resistance. A major global clinical study is planned for 2012.

Ophthalmology – NovaBay is developing an eye drop formulation of NVC-422 for treating viral conjunctivitis, for which there is currently no FDA-approved treatment. The Company expects to launch a global Phase 2b clinical study in this indication in the second quarter of 2012.

Urology – NovaBay’s irrigation solution containing NVC-422 is currently in Phase 2 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 in the second quarter of 2012.

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.

NovaBay intends to secure commercial partnerships for NeutroPhase around the world. In January 2012, NovaBay announced it had entered into a strategic marketing agreement with Pioneer Pharma Co., Ltd., a Shanghai-based company that markets high-end pharmaceutical products into China. NovaBay expects to announce additional marketing agreements in select geographic markets around the world during 2012 and beyond.

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 of the initiation of the Phase 2b impetigo clinical trial and Phase 2 conjunctivitis trial and expected timing of the results of the Phase 2, Part B UCBE trial; (ii) the potential efficacy of Aganocide & Neutrophase compounds, (iii) NovaBay’s plan to commercialize NeutroPhase in 2013 resulting in its availability to the 6 million patients suffering from diabetic, pressure, and venous stasis ulcers; (iv) the development and potential benefits of, and the market opportunities for, NovaBay’s product candidates (v) 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 negative results from the development programs could preclude Galderma 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; 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, 2011, under the caption “Risk Factors” in Item 1A of Part I of that report, filed with the Securities and Exchange Commission on March 27, 2012. 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
Contact Thomas Paulson
Investors and Media:
The Ruth Group

Joshua Drumm, PhD (Investors)
(646) 536-7006

Victoria Aguiar (Media)
(646) 536-7013