Novabay Upswing Opportunity

Sep.20.12 | About: NovaBay Pharmaceuticals, (NBY)

Many analysts optimistically anticipate a fall market upswing. Even with the pending election in November, many believe that regardless of who is elected president, the market will be in a positive uptrend. With such momentum at hand, even some risk-heavy market sectors may make sense. The biopharmaceuticals sector is one that could play out well for a few firms in particular. Investor positive and negative experiences from results of clinical trials are well documented. Whatever the outcome that is presented, one thing remains consistent - they represent opportunity. When opportunity is combined with a general market upswing, risk may be mitigated and positive returns may be had. Surveying the landscape of a few biopharmas reveals an interesting opportunity in Novabay.

NovaBay Pharmaceuticals (NYSEMKT:NBY) is an interesting company, active in the infection disease sector. They concentrate their technology on four therapeutic areas: dermatology, ophthalmology, urology and wound care.

They are developing anti-infective product lines consisting of Aganocide compounds, with NVC-422 as its lead, and NVC-101. The approach of these treatments is to mimic the body's natural defense against infection. For staph infections, for instance, the company has engineered its NVC-422 and hopes to capitalize on the seemingly growing incidences of this infection in the U.S. The disease remains elusive to some treatments and is hard to rid a site of, especially in hospital environments. The disease is so prevalent that in many instances it rivals HIV as a cause of death. MRSA is the most deadly form of staph infection. NovaBay's Aganocides have been confirmed to be effective against MRSA in multiple laboratory and human clinical studies to date.

Looking at entering a market with a lead drug when there are no known remedies presents one type of risk. Looking at a market that is already pioneered by others that have since established market share is another. Staph infectious diseases have been around for years, and therefore the market is occupied by some significant players in the pharmaceutical industry. But there is room, as there is evidence that some of the remedies of the past are failing to work as infectious diseases are becoming resistant.

Pfizer (NYSE:PFE), for one, does relatively well with its two remedies Zyvox and Tygacil. Some analysts estimate that these represent $1.5 billion in worldwide sales. Forest Labs is another somewhat new player in the sector with an injectable called Teflaro.

So how does Novabay fit in?

Their approach seems to be somewhat different as they are trying to address and remove the toxins in the bacteria, rather than outright kill them as is the current approach of companies in this space. But the market potential is big as patients originate from hospitals, assisted living and nursing home environments, post-surgical situations and the like, where immune systems of patients have shown to be weak and infection has set in. Despite growing awareness and prevention methods, infectious diseases continue to proliferate.

Novabay's Aganocide compounds are patented and well documented, multiple Phase II clinical studies, and should serve a broad spectrum of bacterial diseases. Also on the burner with Novabay, in their dermatology portfolio, is a potential cure (NVC-422) for Impetigo (a highly contagious skin infection rooted in streptococcus (strep) or staphylococcus (staph) bacteria). In this situation, NBY is has a partnering arrangement with a large pharma firm, Galderma, and they are developing a gel formula for treating this worldwide problem, while fully funding the program. A Phase III multicenter, randomized, vehicle controlled, parallel, group, double-blind study is upcoming.

Also on NBY's plate is NeutroPhase, which functions as a wound cleanser. It did well in a small study of 54 patients in San Francisco. The company believes a market exists of 6.5 million patients in the U.S. who suffer from chronic non-healing wounds such as pressure wounds, venous stasis, and diabetic ulcers. The company has shown initiative in partnering on NeutroPhase with the likes of Chinese firm Pioneer Pharma Co., Ltd.

In the ophthalmology spectrum, NovaBay is currently conducting a Phase II-b clinical trial for the treatment of adenoviral conjunctivitis (pink eye contagious form). No FDA approved remedy exists for this disease, which may represent a $700 million market for its Aganocide, NVC-422 eye drops.

NovaBay's efforts in urology consist of a Phase II-b clinical trial to study the efficacy of an irrigation solution in maintaining catheter patency. The company believes that a potential base of 300,000 patients exists in the U.S. who are chronically catheterized as a result of spinal cord injury, stroke or other neurological problems. Of those, approximately 100,000 of these patients suffer from urinary catheter blockage and encrustation (UCBE), representing a market opportunity of over $100 million.

Novabay has quite a bit of activity coming in the near future with potentially three phase 3 trials ongoing in 2013, each representing catalyst opportunities. The company looks to have sufficient cash on hand for the next 12 month period (over $10 million ending last June 2012 quarter) with expected license and collaboration revenue from Galderma and Pioneer Pharma adding to it. Trading at $1.35, a low cost entry into the firm is possible, as the prospects look good for a positive return. Some analysts are projecting a $3.50-$4.00 share price in the upcoming year pending catalyst results.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.