NovaBay^® Pharmaceuticals, Inc. (NYSE American: NBY), a biopharmaceutical company focusing on commercializing prescription Avenova^® for lid and lash hygiene in the domestic eye care market, reports financial results for the three and ninth months ended September 30, 2017 and provides a business update.

 “First off, we are significantly better positioned to support continued Avenova growth having entered into a $10.3 million financing with accredited investors under favorable pricing terms and no warrant coverage,” said Mark M. Sieczkarek, NovaBay’s President and CEO. “This agreement, which was struck with investors who have NovaBay’s long-term interest in mind, removes the financing overhang and NYSE compliance issues, and is expected to close in the first quarter of 2018.

 “We enjoyed continued success with our focus on increasing Avenova sales through the high-margin retail pharmacy channel during the third quarter, with prescription sales increasing 67% over the prior year and representing more than 90% of total Avenova sales. Gross margin on Avenova sales reached a record 92% for the quarter, exceeding our 2017 guidance,” he said.

 “As anticipated, we benefitted from a higher net price per unit in the third quarter as more insurance deductibles were satisfied. However, the improvement did not fully offset the higher-than-anticipated impact of rebates in the first half of 2017,” added Sieczkarek. “As a result, we are revising our 2017 net sales guidance to be between $17.5 million and $18.5 million, representing a 47% to 55% increase over 2016.

 “Two years ago, we focused NovaBay on commercializing Avenova – a new paradigm in treating the underlying cause rather than the symptoms of blepharitis and dry eye. Since then we established a base of more than 11,300 medical professionals who have prescribed Avenova and collected data showing reimbursement trends. We are using this information to more precisely target high prescribers with the goal of increasing the number of prescriptions written per prescriber,” he added. “This strategy is aimed at optimizing sales by effectively allocating our resources.”

$10.3 Million Financing

On November 13, 2017, the Company entered into a share purchase agreement for the sale of an aggregate of 2,400,000 shares of the Company’s common stock, to a single accredited investor for an aggregate purchase price of $10,320,000. The Private Placement is expected to close in January 2018.

Key Third Quarter Metrics

·         Sales of $4.1 million increased 19% year-over-year;

·         Prescription sales into the pharmacy channel were $3.5 million, up 67% year-over-year;

·         Prescription sales represented 90% of total Avenova sales;

·         Gross margin on Avenova sales was 92%;

·         New prescribers were more than 730; and

·         Total number of medical professionals who have prescribed Avenova exceeded 11,300, up 47% year-over-year and up 7% from the second quarter of 2017.

Third Quarter 2017 Financial Results

Net sales for the third quarter of 2017 increased 19% to $4.1 million from $3.4 million for the third quarter of 2016. Gross margin on net sales improved to 87% for the third quarter of 2017 from 84% for the third quarter of 2016. Gross margin on Avenova sales was 92% for the third quarter of 2017 compared with 88% for the prior-year period.

Sales and marketing expenses for the third quarter of 2017 were $3.3 million compared with $2.7 million for the prior-year period, with the increase primarily due to an increase in the number of sales representatives and increased sampling and marketing programs. G&A expenses for the third quarters of 2017 and 2016 were unchanged at $2.3 million. R&D expenses for the third quarter of 2017 were $132,000 compared with $4,000 for the third quarter of 2016, with the increase primarily due to a gain recognized from the sales of laboratory equipment in the third quarter of 2016. Operating loss for the third quarter of 2017 was $2.2 million, up slightly from $2.1 million for the third quarter of 2016.

Non-cash loss on the change of fair value of warrant liability for the third quarter of 2017 was $281,000 compared with a non-cash loss of $1.7 million for the third quarter of 2016.

The net loss for the third quarter of 2017 was $2.4 million, or $0.16 per share, compared with a net loss for the third quarter of 2016 of $3.7 million, or $0.34 per share.

Nine-Month 2017 Financial Results

Net sales for the nine months ended September 30, 2017 were $11.9 million, up 52% from $7.8 million for the nine months ended September 30, 2016. Gross margin on net sales improved to 85% for the nine-month period of 2017 from 79% for the nine-month period in 2016. Gross margin on Avenova sales improved to 90% for the first nine months of 2017 from 85% for the first nine months of 2016.

Sales and marketing expenses for the nine months ended September 30, 2017 were $10.4 million and G&A expenses were $7.1 million, a 20% and 36% increase, respectively, compared with the nine months ended September 30, 2016. R&D expenses for the first nine months of 2017 were $264,000, a 78% decrease from the first nine months of 2016. Operating loss for the first nine months of 2017 was $7.7 million, a 14% improvement from $9.0 million for the comparable period in 2016.

Non-cash loss on the change of fair value of warrant liability for the first nine months of 2017 was $501,000 compared with a non-cash loss of $2.5 million for the first nine months of 2016.

The net loss for the nine months ended September 30, 2017 was $8.2 million, or $0.54 per share, compared with a net loss for the nine months ended September 30, 2016 of $11.5 million, or $1.54 per share.

NovaBay had cash and cash equivalents of $6.1 million as of September 30, 2017, compared with $9.5 million as of December 31, 2016. In November 2017, the Company entered into a private placement agreement expected to raise gross proceeds of $10.3 million in the first quarter of 2018.

The Company used $3.3 million in cash to fund operations during the nine months ended September 30, 2017, a significant improvement from $11.4 million used during the nine months ended September 30, 2016. The decrease in cash usage was primarily due to higher sales of Avenova, increased accounts receivable collections, lower prepaid expenses resulting from bringing the sales team in-house during the first quarter of 2017, and increased payment of payables during the nine months ended September 30, 2016 resulting from increased financing activities.

2017 Financial Outlook

·         NovaBay is revising guidance for 2017 net sales to be between $17.5 million and $18.5 million, a 47% to 55% increase over 2016. This compares with previous guidance for 2017 net sales to be $19 million.

·         The Company is affirming its guidance for 2017 gross profit margin on Avenova sales to be in the high 80% range.

About Avenova^®

Avenova is NovaBay Pharmaceuticals’ main commercial focus. Data from a multicenter clinical study show that Avenova reduced bacterial load, the underlying cause of blepharitis, on ocular skin surface by more than 90%. Laboratory tests show that hypochlorous acid has potent antimicrobial activity in solution yet is non-toxic to mammalian cells and also neutralizes bacterial toxins. Avenova is marketed to optometrists and ophthalmologists throughout the U.S. by NovaBay’s direct salesforce. It is accessible from more than 90% of retail pharmacies in the U.S. through agreements with McKesson Corporation, Cardinal Health and AmerisourceBergen.

About NovaBay Pharmaceuticals, Inc.: Going Beyond Antibiotics^®

NovaBay Pharmaceuticals, Inc. is a biopharmaceutical company focusing on commercializing and developing its non-antibiotic anti-infective products to address the unmet therapeutic needs of the global, topical anti-infective market with its two distinct product categories: the NEUTROX^® family of products and the AGANOCIDE^®compounds. The Neutrox family of products includes AVENOVA^® for the eye care market, NEUTROPHASE^® for wound care market, and CELLERX^® for the aesthetic dermatology market. The Aganocide compounds, still under development, have target applications in the dermatology and urology markets.