NovaBay Pharmaceuticals: Why It's A Good Idea To Act Now

| About: NovaBay Pharmaceuticals, (NBY)

Clinical-stage biotechnology company NovaBay Pharmaceuticals (NYSEMKT:NBY) has been flying under the radar for multiple years as it fosters the development of multiple drugs servicing unmet therapeutic needs of the global anti-infective market. The trick for companies working in the Phase I, and II clinical stages, is to keep the lights on through the 'valley of death', the period when investment markets and big pharma partners are not yet interested (until drugs are tested and valid trial data exists). Maneuvering through the long FDA process with the lights still on, and patents intact is one thing. Looking forward to how to commercialize is another. Partnering, licensing deals, and other deal-making along the way to development needs to be done in a skillful manner.

The next step on the horizon (in successful situations), is commercialization and more licensing. These represent outright catalyst opportunities as they develop. The next 18 months for NovaBay are expected to generate such opportunities.

As it emerges over the next 18 months from various stages of clinical trials, it may be time to start paying attention to NovaBay. The company has a good platform developed that includes Aganocide(R) Compounds. NVC-422 is the leader of these, including patented synthetic molecules active against bacteria, viruses and fungal inflections. It functions by mimicking the mechanism that human white blood cells use against infections. Aganocides possess a very low likelihood that bacteria or viruses will be able to develop resistance to them. This is critical for advanced anti-infectives to work. The company demonstrated clinical efficacy in Phase II proof-of-concept clinical studies. NVC-422 is suited to treat and prevent a broad range of local, non-systemic infections.

Other development activities are in Dermatology, in which the company has partnered with Galderma, itself a leading dermatology company. The focus was to develop a treatment for highly contagious skin infections, impetigo, caused primarily by S. aureus and Group A Beta-hemolytic streptococci. A PhaseIIb clinical study will follow later in 2012.

The company is also active in Ophthalmology by developing an eye drop formulation of NVC-422 for treating adenoviral conjunctivitis. Enrollment into a global Phase IIb clinical study is currently underway. Data results are expected in early 2013.

In the Urology field, the company's urinary catheter irrigation solution (containing NVC-422) is currently enrolling patients in its Phase 2 proof-of-concept clinical studies.

The goal here is to reduce 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 later in 2012.

NeutroPhase, an FDA 510(k)-cleared product for advanced wound care, is also quite promising. NeutroPhase is a company-patented, pure hypochlorous acid solution and has the potential 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. There are potentially multiple upcoming corporate partnerships surrounding NeutroPhase and resulting catalysts. These could materialize in the next 12-month period.

The company's conjunctivitis program, which is now back in the clinic with finely tuned FDA guided end points, is expected to generate data in the first half of 2013. The clinical study now underway is enrolling 400+ patients in the U.S., India, and Brazil, and is designed to have sufficient number of patients such that, if successful, could be counted as one of the two pivotal studies that the FDA requires for the Phase III. If this happens, a partnership deal is immanent.

Viral conjunctivitis is an unmet medical need. At present, if a patient is suffering from adenoviral conjunctivitis, there are no approved products for it, putting the patient at risk of potentially damaged eyesight. Discussions with company officials have indicated a minimal $700 million worldwide market for this drug. As the company owns this patent free and clear, many eyes are on this one.

Patents, Smart licensing and Deal making

NovaBay owns all of the patents of its work, estimated at 25 patents, all under its name. The corporate deals done to date by the company have been licensing deals, which the company has done primarily on an indication-by-indication basis for drugs and platform technology use. In doing its licensing, the company reportedly has been smart with its terms, as such agreements have been extremely favorable to the company, including 10% to 30% royalties and over $60 million in milestone payments. Marketing rights have been guarded carefully and negotiated in a keen manner, again, with all patents intact.

The sum total regarding NovaBay is that it has: 1) passed through the valley of death and aspects of the clinical development stage with a solid platform 2) it possesses promising remedies with good size markets; 3) along the way, its management has kept intact its patents with smart licensing deals.

Now on the tail end of multiple trial data sets, the next 12-18 months are a period to pay attention to this Emeryville, CA development firm. Taking a sizable position in this firm at present at such an inexpensive buy in ($1.18), paying attention to the catalysts and acting along the way, and overall playing the long game with this promising firm could be smart investing. The company has approximately $10 million in cash on hand and management has shown it knows how to foster successful clinical development, deal making with larger firms, and executives have positive track records to go off of.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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