Earlier this week, highly speculative microcap biotech company NovaBay Pharmaceuticals Inc, (NBY) launched a new, investor-oriented mobile app in order "to more effectively communicate with our investment community" (according to the firm's CEO). The announcement tended to draw some less than flattering conclusions about the company.
Perhaps the company has run out of genuine news to post on its product pipeline? Perhaps NovaBay got bad advice from an advisor on how to spend its very limited cash hoard - and if on this, then who knows what else? Or perhaps the company genuinely believed the 'investor community' needed up-to-the-minute mobile notification of … what? - all the fun things that could be done and gotten with the company's new app?! And yet this writer didn't flinch.
Was it a wise allocation of funds? By no means. But does the company still have something to commend it to potential investors? The answer is absolutely. In fact, developments in the last few weeks (not including the new app) warrant an update.
But first a quick review.
NovaBay has developed and commercialized a topical wound cleanser that treats a wide variety of injuries and potentially infectious conditions. It's called NeutroPhase and the company is marketing it globally with a variety of regional partners. But more exciting for shareholders is the company's innovative NVC-422, commercially known as Aganocide, which is now in phase II trials for the treatment of impetigo, viral conjunctivitis and urinary catheter blockage and encrustation or UCBE. What makes Aganocide compounds so unique is their ability to combat viruses, bacteria and fungi by mimicking bodily processes, while not being subject to the resistance that most antifungal and antibiotic treatments eventually succumb to.
NovaBay has partnered with dermatological drug giant Galderma, a private initiative of two enormous franchises, L'Oreal (LRLCF.PK) and Nestle (NSRGY.PL), on their impetigo and acne applications.
Here's a look at NovaBay stock for the last two years.
(click to enlarge)
Let's put things into context. Over the last five years, NBY stock drifted sideways to lower, from better than $4.00 in late 2007 to its all time closing low of roughly $0.70 last August (red circle on chart). Since then, amid growing investor interest, the stock has trended higher and sits today at $1.15. It had been as high as $1.76 in late November, but dropped steeply from that perch on big volume when its latest offering of shares was priced, and the dilutive effect of the tranche was made clear to investors. Today, the stock is climbing incrementally, safely above its trendline (in blue), but below a slowly closing long-term moving average (in yellow) that acts as resistance and threatens to shut down the advance (black box).
Suffice to say that the next couple of weeks' trade will be instrumental from a technical point of view, in determining which way the stock moves over the medium to long term.
And yet, if that old Wall Street adage that 'volume precedes price' holds true, we could very well see a significant push to the upside, as average daily volumes on NovaBay shares have climbed from 90,000 shares to 300,000 since the summer (red box).
What Sorts of Catalysts are on the Horizon?
As mentioned above, several developments of late are worthy of mention.
First, the company's BAYnovation clinical trial has been expanded to India, a potential boon for the company for a few reasons. The BAYnovation trial is testing NovaBay's treatment for adenoviral conjunctivitis, NVC-422 Ophthalmic Solution, the only product extant addressing the condition, which often reaches epidemic proportions in India, a country whose population now measures over 1 1/4 billion. In densely populated countries like India - and Brazil, where trials will shortly also begin - there is particular reason for concern.
Because the virus, also known as pink eye or madras eye (for its long history on the Indian subcontinent), can remain active for weeks and is highly contagious, there is little that can be done to stop its spread, and outside of offering relief of symptoms (itching, burning and colored discharge) the local medical community is all but handcuffed in its effort to respond effectively against such an outbreak.
The Indian and Brazilian markets alone for such a product would be phenomenally profitable, and if tests prove positive, millions beyond those countries who suffer from the lingering blurred vision associated with the most severe strain, epidemic keratoconjunctivitis, would be spared the trauma that an enduring loss of vision engenders.
Phase 2b trials have also begun in the United States, and results for this step of the approval process should be delivered in the second half of 2013.
Investor Enthusiasm
Another source of investor interest in the company stems from the enthusiasm of NovaBay directors and insiders, who in the last quarter ponied up better than $4 million of their own funds to buy stock in the company. No one can say exactly why these people bought, but perhaps the company's $3.6 million in sales last quarter, its breaking even on an operational basis, its positive cash flow or its successful equity issuance - which gives them cash enough to operate for another three years - had something to do with it. Certainly confidence in the coming year's clinical results also played a part. Outside of the BAYnovation trial, results from phase IIb/III impetigo trials and phase II UCBE tests will also be revealed by the second quarter of 2013.
With those announcements - sure to be broadcast via the company's new app - investors will have enough data to decide if approval and commercialization are just a brief step away.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
