NovaBay Pharmaceuticals' New Strategic Parnter Extends Cash Runway

NovaBay’s (NBY) cash runway should now extend into 2014 (previously H213), with recent and imminent injections of cash totalling $5.6m. Galderma’s initiation of a Phase IIb trial with NovaBay’s NVC-422 for impetigo prompted a $2.6m milestone payment, while $1.5m was received from the expansion of a marketing agreement with Naqu Area Pioneer Pharma in South-East Asia for NeutroPhase (a further $1.5m is due by 31 October 2012). NVC-422, a topical anti-infective, is now being studied in three Phase IIb trials for significant unmet needs and results through 2013 offer re-rating potential and further financing/partnering opportunities.


Impetigo trial underway
Galderma has started patient enrolment into a Phase IIb study of NVC-422 for mildto- moderate impetigo, triggering a $2.6m milestone payment to Novabay. The trial is expected to enroll 300 patients and should report top-line data by Q313. Positive results would trigger a further single-digit, million-dollar milestone (we estimate $3.5m) and, subject to a confirmatory Phase III, FDA approval/launch is possible by H116.

New strategic partner
NovaBay has expanded its existing relationship with China-based Pioneer Pharma to market NeutroPhase (skin/wound cleanser product) throughout South-East Asia, delivering $3m upfront in cash/equity investment. Pioneer now holds a 5.3% stake in NovaBay, which could increase to 13.5% if all options and warrants are exercised (based on current 28.9m shares outstanding). Cash runway extension The $5.6m funds from Galderma and Pioneer now extend NovaBay’s cash runway into 2014, while a potential extra $3m from Pioneer in 2013 would stretch it further. This is significant as it ensures NovaBay reaches a number of potential catalysts in 2013 with results from three Phase IIb trials of NVC-422.

Valuation: Increased to $60m
We have increased our valuation of NovaBay to $60m (previously $53m), or $1.96 per share, based on a sum-of-the-parts DCF valuation. The increase is due to a stronger
net cash position (estimated at $13.1m) and an upgrade in the probability of success for NVC-422 in impetigo to 50% (previously 45%). This represents clear upside to
NovaBay’s current market capitalisation of $37m and $1.27 share price.