With a $53.4 million market capitalization, NovaBay Pharmaceuticals (NBY) has given long-term shareholders a volatile year with a 52-week share range of $1.05-$1.76. For much of 2013, the company's common shares have traded around the $1.25 support/resistance range, just below the $1.40 resistance level it currently resides at. If there were no significant catalysts for 2H 2013, the company's shares could be in danger of returning closer to the mid-term $1.0 support range. However, significant events from its developing pipeline as well as potential upcoming updates of its single product offering may present investors with significant volatility in the coming weeks with much upside possible if events unfold favorably.
On June 11, NovaBay presented investors with a mid-year update on its pipeline in development. The company has four units through which it operates, with each having significant catalysts in 2H 2013. The company's Aganocide compound, auriclosene, offer phase II trial updates in this half of 2013 for each of NovaBay's three business units: dermatology, ophthalmology and urology. The compound is very unique as a topical antimicrobial as it mimics the mechanisms of action that human white blood cells use against infections via activity against bacteria, fungi and viruses. As such, the company claims that the compound is not subject to the same type of bacterial or fungal resistance seen against many drugs. With proof of concept already demonstrated in earlier phase II trials, actual efficacy demonstrated in the upcoming clinical data could be huge for the company and the healthcare sector in need of new tools in the war against drug-resistance bacteria in particular.
As pertaining to the auriclosene clinicals, the urology indication will likely be the first significant catalyst in 2H. In this business unit, auriclosene is being evaluated to determine its safety and efficacy in treating urinary catheter blockage and encrustation (UCBE) in patients with long-term indwelling catheters. In this particular trial, auriclosene is being evaluated for its ability to maintain the patency (open for free-flowing drainage) of urinary catheters in patients suffering from spinal cord injury and/or neurogenic bladder. According to the mid-year update, data will be presented in Q3 - an imminent event which should begin garnering investor interest in the coming days. With approximately 4 million Americans annually receiving an indwelling urinary catheter, real or perceived early stage success in this indication could provide for large upside while also helping to partially validate the program and its potential in the two remaining indications still underway.
In November of 2011, NovaBay reported phase IIa proof of concept data for the same indication with very positive data. Proof of concept was reported from the patient set in which "catheter irrigation with NVC-422 was able to prevent catheter blockage in 80% of the paired comparisons in which complete catheter blockage occurred during one of the treatment periods." Comparable results from the upcoming phase IIb results, a step closer to pivotal clinicals in which success would garner regulatory marketing approval, could really begin garnering investor and healthcare sector attention in the coming weeks.
NovaBay's phase II trial evaluating auriclosene for the treatment of impetigo (typically in children) is set to report data in 2H as well. Depending on which press release is reviewed, data appears to be ready for release anywhere from "mid 2013" to simply "2H 2013." An acute, highly contagious gram-positive bacterial infection of the superficial layers of the epidermis, the disease occurs most commonly in children living in hot, humid climates. In the U.S., the condition accounts for approximately 10% of skin infections found in pediatric clinics and is especially prevalent in the southeastern part of the country. Although the disease typically heals itself in 2-3 weeks, hypopigmentation and hyperpigmentation may occur at the lesion locations and the disease may progress in rare cases to ecthyma, a deep dermal infection, after which subsequent scarring can occur. Partnered with Galderma since 2009, the agreement has helped fund NovaBay's clinicals with over $6 million in milestone payments since inception and will likely continue to benefit both companies as clinicals progress and hopeful goals are met.
In October of 2010, NovaBay reported results of its phase IIa trial evaluating auriclosene for the treatment of impetigo and also for the treatment of multi-drug resistant strains (MRSA) infected patients. Data were extremely positive with clinical and bacteriological response rates for the three concentrations of drug applied ranged from 84% to 95% at end of treatment and at follow up as opposed to 30% to 50% in the placebo group. With these data helping to validate the therapy and the treatment regimen likely optimized since this trial, confidence in the phase IIb data coming soon may not be misplaced.
A final but very significant trial evaluating auriclosene for the treatment of adenoviral conjunctivitis, a highly contagious form of "pink eye," is scheduled to present data in late 2H. With no treatment in the U.S. or elsewhere for the condition, success in this trial could likely be the largest share price mover of the three trials, although success in the other two indication's trials could certainly begin the share price run up to these data. An extremely contagious disease, adenoviral conjunctivitis is so common that accurate statistics are not available to ascertain incidence.
NovaBay established proof of concept for auriclosene in the treatment of adenoviral conjunctivitis via a phase IIa trial with results reported out in May of 2011. Although the trial did not meet the predetermined primary endpoint of sustained microbiological success of 20% greater than placebo, positive data were noted in the 38% of patients infected with adenovirus serotypes commonly associated with epidemic keratoconjunctivitis (EKC), the serotype of interest mentioned on the company's website dedicated to the trial and indication.
Termed the BAYnovation trial, the clinical is a multi-center, randomized clinical study that is expected to enroll approximately 450 patients with adenoviral conjunctivitis in the U.S., India and Brazil. According to the NovaBay's pipeline chart, the BAYnovation trial is adequately powered to be considered a pivotal trial for the FDA. This means solid safety and efficacy data could be statistically-powered enough to allow a new drug application (NDA) based on these data and could forego a costly and time-consuming phase 3 trial. Adding to the share price moving potential, success here could help validate the technology for future indications and provide for solid marketing or licensing agreements in 2014 and beyond.
NovaBay received regulatory approval in 2007 to market NeutroPhase as a medical device to cleanse and remove foreign material including microorganisms and debris from wounds and for moistening absorbent wound dressings and cleaning minor cuts, minor burns, superficial abrasions and minor irritations of the skin. The 2007 approval and subsequent additional 510K approval in August of 2012 to increase its approved indications should be garnering the largely development-phase company solid revenue by now. However, the treatment is still little more than a footnote in most press releases, with only marginal revenue being generated. Other than the August 2012 label expansion, the last real news for the product came in January of 2012 when the company announced a "strategic marketing agreement" for NeutroPhase with Pioneer Pharma Co., Ltd., a Shanghai-based company that markets high-end pharmaceutical products into China. NovaBay received $300,000 as an upfront payment with an additional $1 million possible depending on "regulatory milestones pre commercial launch." While regulatory approval in China has yet to be announced, regulatory approval there should be considered a positive, although the seemingly tepid response since the Q1 2012 launch in the U.S. should be taken into consideration for that market as well. Much of this tepid response may be marketing and advertising related, so investors should be watching for significant events such as marketing or sales agreements in the U.S., licensing agreements here or elsewhere, or even outright sales of the rights to the treatment in the U.S. or abroad - providing additional funding for the aforementioned phase II clinicals underway.
NovaBay is largely a development-phase company with hopes of increasing revenue via its only approved product in the coming months. Until this sales growth is fully realized, investors should treat the company largely as a mid to late stage development-phase pharmaceutical for general risk assessment purposes. On May 2nd, NovaBay announced its Q1 2013 financials and business update. As of March 31st, the company had cash and equivalents of $13.2 million relative to $16.9 million as of December 31st 2012. With licensing and collaboration revenue of $0.9 million in Q1, the company did note that it "did not recognize any other significant revenues for the three months ended March 31, 2013," confirming my concerns about the actual marketability of NeutroPhase by the company and indicating a need for some type of collaboration or marketing agreement in order to get the treatment off the ground and generating revenue. Operating at a net loss of $4 million for the quarter, this cash burn has likely increased as all clinicals are now enrolling and awaiting data release in the near future. Assuming cash burn rate remains about the same as trials complete enrollment and potential regulatory filing fees, at least for the adenoviral conjunctivitis indication, take their places, I would anticipate a Q4 2013 or Q1 2014 financing of some type. Surprise NeutroPhase sales in the U.S. or some other type of lucrative arrangement for the FDA-approved treatment could help delay need for financing a bit longer, though not likely by much.
With a host of expected and additional possible catalysts in 2H 2013 upcoming, I anticipate investor interest should be rapidly increasing for NovaBay in the coming days. Thursday's $1.43 closing was above a key resistance level. Solid closes above this level during the remainder of the week should be construed as bullish and evidence of investors willing to take a chance on this fledgling small pharmaceutical with that level becoming support rather than the resistance it has represented. The $53.4 market capitalization as of market close on Thursday is a bit low for a company with one already-approved product with at least three significant catalysts coming in 2H 2013 from its growing pipeline. I believe downside risk is a bit low with upside being fairly substantial if any of the three clinicals report out solid data. Interested investors should especially be vigilant of the adenoviral conjunctivitis indication with a possible regulatory filing for this unmet need if data are statistically powered enough. As noted with each indication above, proof of concept was demonstrated with each phase IIa trial, and phase IIb efficacy/safety confirmations in 2H 2013 should give the company's valuation a serious boost especially if all three clinicals report out positive data. With a diverse group of indications targeted for the three phase II trials, failure in one indication does not necessarily indicate failure in another, with the same being true of positive results. I advise additional research into NovaBay Pharmaceuticals for interested investors and believe that my risk tolerance gives a resounding "buy" at current levels if the chart confirms a breakout via continued closes above the $1.40 resistance level. This is a risky investment, so risk-averse investors should carefully consider the downside before making their investment decisions.
Disclosure: I am long NBY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.