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Company
NovaBay Pharmaceuticals, Inc.
5980 Horton Street, Suite 550
Emeryville, CA 94608
Phone: (510) 899-8800
Fax: (415) 329-2032
Contact
NovaBay Pharmaceuticals, Inc.
Phone: (510) 899-8800
Fax: (415) 329-2032
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Share Data
Symbol: (TSX:NBY)
Recent Price $2.68
52-Week Price Range: $2.65 - 4.25
Shares Outstanding: 21 million
Market Cap: $59.5 million
Balance Sheet Data
(as of September 30, 2007)
Total Assets: $8.1 million
Total Liabilities: $11 million
Shareholders’ Equity: $2.6 million
Book Value per Share: $0.12
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Going to a hospital and contracting an infection—in some cases a potentially fatal infection—has become an increasingly common occurrence for many in the United States. Methicillin-resistant Staphylococcus aureus (MRSA) is the most common example of what is known as a “superbug”—strains of bacteria resistant to most antibiotics. According to the Centers for Disease Control and Prevention, MRSA was responsible for an estimated 94,000 life-threatening infections and almost 19,000 deaths in 2005—a mortality rate that surpassed the 16,000 people who died from AIDS that same year.
What’s even more alarming is that this superbug has evolved beyond the hospital setting; it is rapidly spreading worldwide and is expected to become an even bigger problem in the near future, according to the World Health Organization. Since MRSA is spread by contact with infected people or contaminated objects, the organism appears to be particularly common among people in institutionalized settings everywhere, such as the military, prisons, day-care facilities, nursing homes, community centers, gyms and schools.
Unfortunately, antibiotics—the wonder drugs of the 20th century—are losing their luster due to overuse. “The evidence is there—microbial resistance is eroding antibiotic effectiveness,” says Ron Najafi, Ph.D., CEO of NovaBay Pharmaceuticals (Amex and TSX: NBY). “We need to take a different approach to treating the rapidly increasing infectious microbes that have become resistant to our current slate of drugs. In regards to MRSA and other superbugs, we believe the new buzz-word is “non-antibiotic anti-infectives” instead of antibiotics.
To advance the fight against growing antibiotic resistance, NovaBay is developing two primary non-antibiotic anti-infective compounds: NVC-422, which represents a new class of antimicrobial compounds in its Aganocide portfolio of products; and NeutroPhase, or NVC-101, for wound care. Both of these compounds are based on small molecules that are generated by white blood cells that defend the body against invading pathogens. NovaBay believes that Aganocide compounds could form a platform on which to create a variety of products to address differing needs in the treatment and prevention of bacterial and viral infections, including MRSA.
“Our white blood cells are killing bacteria and microbes very effectively by producing a number of very potent anti-infectives,” explains Najafi. “I consider these compounds that our body uses the holy grail of anti-infectives. Surprisingly, these compounds have not been commercialized until now.”
Historically, anti-infective drugs have shown to have a greater chance of getting to market sooner than non-anti-infective drugs. “Anti-infectives have a much lower cost to market and much lower time to market in terms of development,” Najafi says. “They also have a much greater chance of success once they are in the clinic. Historically, 33% of anti-infectives that made it into phase I ended up becoming a commercial product versus 1% to 5% of cancer or cardiovascular drugs.”
With the odds in favor of reaching commercialization, NovaBay has continued to put a great deal of emphasis on developing its intellectual property, which is critical to its strategy of partnering with world-class companies. Currently, the company has one issued patent and nine pending provisional and non-provisional applications in the U.S. It also has many patents either allowed or pending in Europe, Asia, South America, and the Middle East.
Since 2006, NovaBay has teamed up with Alcon, the world’s leading eye-care company, for use of the Aganocide compounds in the eye, ear and sinus, and in contact-lens solutions. “We have a very thriving partnership with Alcon which involves financial support for R&D and milestone payments for NovaBay,” Najafi says.
Results from a phase II trial to test the efficacy of AgaNase, NovaBay’s formulation of NVC-422 for nasal MRSA preparation applications, are expected during the second quarter of 2008. One of the biggest factors that has spurred the development of this product is the company’s belief that the colonization of the nose by S. aureus or MRSA is a major risk factor for surgical site infections (SSI). Topically applied to the lower nasal, AgaNase is expected to rapidly destroy S. aureus & MRSA and other potentially harmful bacteria. The company believes that the use of AgaNase together with whole body disinfection in a pre-surgical setting will represent an alternative to topical antibiotics currently used to reduce the threat of SSI, particularly high-risk surgeries such as cardiothoracic surgery. Furthermore, the company believes that AgaNase will play an important role in the eradication of MRSA in non-surgical patients during their hospital stay—a serious concern for many hospitals.
“Because AgaNase is a chlorine-based analog of molecules produced by white blood cells, we believe that bacteria and viruses are unlikely to develop resistance to this treatment,” says Najafi, “and have some evidence to substantiate it”.
The FDA recently gave the company clearance to begin human clinical trials of NVC-422 for the prevention of catheter-associated urinary tract infections. These infections, which account for more than 40% of all hospital infections, result in prolonged hospitalization, urosepsis, septicemia and, in some cases, death. The cost of treating these types of infections can range anywhere from $2,000 to $30,000 depending on the severity.
About a year ago, NovaBay formed a partnership with Kinetic Concepts Inc., the largest wound-care company, to develop and commercialize NeutroPhase, a stable, fast-acting solution containing hypochlorous acid, which is known to kill a broad range of bacteria in seconds. Najafi anticipates the commercial launch of NeutroPhase by KCI within the next 12 months.
The wound-care sector provides a significant market opportunity for the company. “We are talking about 6 million patients suffering from chronic non-healing wounds,” he says. “Our preparation of hypochlorous-acid solution has been shown to be safe and to kill rapidly all bacteria it comes into contact with. We have done several trials with patients suffering from chronic infected cutaneous ulcers.”
What’s more, NovaBay believes that the characteristics and mechanisms of its wound-care technology make it highly unlikely that resistant strains of bacteria could develop over time.
In September, the FDA cleared NeutroPhase as a prescription product for moistening absorbent wound dressings, irrigating and cleaning minor cuts, minor burns, superficial abrasions and minor irritations of the skin, and moistening, debriding and irrigating acute and chronic dermal lesions.
After raising nearly $17.5 million in an IPO in September 2007, NovaBay’s bank account swelled to well over $21 million. With a burn rate of about $1 million a month, the company should be able to continue financing product development ($2.6 million)
RISKS: NovaBay Pharmaceuticals has not generated any profits. To date, the company’s revenues have been derived solely from two R&D collaboration and license agreements. In 2009, the company will have to go back to the capital markets in order to continue financing its development efforts. There is no guarantee that it will be able to raise sufficient funds.
In addition, NovaBay may still encounter some pitfalls along the way, such as failure to obtain the required regulatory approvals and the possibility that its products may not be commercially viable.
— By Arnaldo Arroyo
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