NovaBay Pharmaceuticals Reports Third Quarter 2017 Financial Results

Enters into a $10.3 million financing on favorable terms

Pharmacy channel sales increase 67% over prior year, represent 90%
of total Avenova sales

Revises 2017 financial guidance

Conference call begins today at 4:30 p.m. Eastern time

EMERYVILLE, Calif.–(BUSINESS WIRE)–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.

Conference Call

NovaBay management will host an investment community conference call
today beginning at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to
discuss the Company’s financial and operational results and to answer
questions. Shareholders and other interested parties may participate in
the conference call by dialing 800-608-8202 from within the U.S. or
702-495-1913 from outside the U.S., with the conference identification
number 3187119.

A live webcast of the call will be available at http://novabay.com/investors/events
and will be archived for 90 days.

A replay of the call will be available beginning two hours after call
completion through 11:59 p.m. Eastern time December 14, 2017 by dialing
855-859-2056 from within the U.S. or 404-537-3406 from outside the U.S.
and entering the conference identification number 3187119.

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.

Forward-Looking Statements

This release contains forward-looking statements that are based upon
management’s current expectations, assumptions, estimates, projections
and beliefs. These statements include, but are not limited to,
statements regarding our expected equity financing, estimated annual
revenue, expected operating losses, gross margin, the future sales of
our products, and generally the Company’s expected future financial
results. Forward-looking statements can be identified with words like
(and variations of): “guidance,” and “expect.” These statements involve
known and unknown risks, uncertainties and other factors that may cause
actual results or achievements to be materially different and adverse
from those expressed in or implied by the forward-looking
statements. Factors that might cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to
difficulties or delays in manufacturing, distributing, and selling the
Company’s products, unexpected adverse side effects or inadequate
therapeutic efficacy of our product, the uncertainty of patent
protection for the Company’s intellectual property, and any potential
regulatory problems. Other risks relating to NovaBay’s business,
including risks that could cause results to differ materially from those
projected in the forward-looking statements in this press release, are
detailed in NovaBay’s latest Form 10-K and Form 10-Q filings with the
Securities and Exchange Commission, especially under the heading “Risk
Factors.” The forward-looking statements in this release speak only as
of this date, and NovaBay disclaims any intent or obligation to revise
or update publicly any forward-looking statement except as required by
law.

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NOVABAY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
   
September 30, December 31,
  2017     2016  
ASSETS
Current assets:
Cash and cash equivalents $ 6,076 $ 9,512
 
Accounts receivable, net of allowance for doubtful accounts ($28 and
$10 at September 30, 2017 and December 31, 2016, respectively)
2,230 2,120
 
Inventory, net of allowance for excess and obsolete inventory and
lower of cost or estimate net realizable value adjustments of $139
and $196 at September 30, 2017 and December 31, 2016,
respectively
599 873
Prepaid expenses and other current assets   1,033     1,966  
Total current assets 9,938 14,471
Property and equipment, net 492 371
Other assets   626     539  
TOTAL ASSETS $ 11,056   $ 15,381  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Current liabilities:
Accounts payable $ 356 $ 455
Accrued liabilities 2,419 2,007
Deferred revenue   2,487     1,861  
Total current liabilities 5,262 4,323
Deferred revenues – non-current 1,569 1,986
Deferred rent 286 327
Warrant liability 1,889 1,446
Other liabilities   218     198  
Total liabilities   9,224     8,280  
 
Stockholders’ equity :
Preferred stock: 5,000 shares authorized; none outstanding at
September 30, 2017 and December 31, 2016

Common stock, $0.01 par value; 240,000, shares authorized 15,361
and 15,269 shares issued and outstanding at September 30, 2017 and
December 31, 2016, respectively

154 153
Additional paid-in capital 113,545 110,619
Accumulated deficit   (111,867 )   (103,671 )
Total stockholders’ equity   1,832     7,101  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 11,056   $ 15,381  
 
 

NOVABAY PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

       
 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

  2017       2016     2017       2016  
Sales:
Product revenue, net $ 4,080 $ 3,262 $ 11,868 $ 7,571
Other revenue,net 11   176   46   249  
Total net sales 4,091 3,438 11,914 7,820
 
Product cost of goods sold 521   566   1,807   1,656  
Gross profit 3,570   2,872   10,107   6,164  
 
Research and development 132 4 264 1,215
Sales and marketing 3,296 2,663 10,412 8,660
General and administrative 2,311   2,266   7,134   5,241  
Total operating expenses 5,739   4,933   17,810   15,116  
Operating Loss (2,169 ) (2,061 ) (7,703 ) (8,952 )
 
Non-cash loss on changes in fair value of warrant liability (281 ) (1,671 ) (501 ) (2,480 )
Other income (expense), net 3   (4 ) 9   (69 )
 
Loss before provision for income taxes (2,447 ) (3,736 ) (8,195 ) (11,501 )
Provision for income tax     (1 ) (2 )
Net loss and comprehensive loss $ (2,447 ) $ (3,736 ) $ (8,196 ) $ (11,503 )
 
Net loss per share attributable to common stockholders (basic and
diluted)
$ (0.16 ) $ (0.34 ) $ (0.54 ) $ (1.54 )
 
Weighted-average shares of common stock outstanding used in
computing net loss per share of common stock
15,324 10,913 15,306 7,481
 

Contacts

NovaBay Contacts
For NovaBay
Avenova purchasing information:
Please call us toll free:
1-800-890-0329 or email sales@avenova.com
www.Avenova.com
or
From
the Company

NovaBay Pharmaceuticals, Inc.
Jack
McGovern
Chief Financial Officer
510-899-8800
jmcgovern@novabay.com
or
Investor
Contact

LHA Investor Relations
Jody Cain
310-691-7100
Jcain@lhai.com