Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NBY > SEC Filings for NBY > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for NOVABAY PHARMACEUTICALS, INC.

Form 10-Q for NOVABAY PHARMACEUTICALS, INC.


1-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this report, and with our consolidated financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 27, 2012. This discussion contains forward-looking statements that involve risks and uncertainties. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of these words, and similar expressions are intended to identify these forward-looking statements.As a result of many factors, such as those set forth under the section entitled "Risk Factors" in Part II, Item 1A and elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time, and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements.

Overview

NovaBay Pharmaceuticals is a clinical-stage biotechnology company focused on addressing the large unmet therapeutic needs of the global anti-infective market with its two distinct categories of products.

AganocideŽ Compounds
NovaBay's first-in-class AganocideŽ compounds, led by NVC-422, are patented, synthetic molecules with a broad spectrum of activity against bacteria, viruses and fungi. Mimicking the mechanism of action that human white blood cells use against infections, Aganocides possess a reduced likelihood that bacteria or viruses will be able to develop resistance, which is critical for advanced anti-infectives. Having demonstrated therapeutic proof-of-concept in Phase 2 clinical studies, these compounds are well suited to treat and prevent a wide range of local, non-systemic infections. NovaBay is currently focused in three large therapeutic markets:

ˇ Dermatology - Partnered with Galderma, a leading dermatology company, the companies are developing a gel formulation of NVC-422 for treating the highly contagious skin infection, impetigo. Enrollment into a global Phase 2b clinical study has begun, and clinical data results are expected in mid-2013.

ˇ Ophthalmology - NovaBay is developing an eye drop formulation of NVC-422 for treating viral conjunctivitis, for which there is currently no FDA-approved treatment. The company launched a global Phase 2b clinical study in this indication during the second quarter of 2012 and clinical data results are expected in the second half of 2013.

ˇ Urology - NovaBay's irrigation solution containing NVC-422 is currently in Phase 2 clinical studies, with the goal of reducing the incidence of urinary catheter blockage and encrustation (UCBE) and the associated urinary tract infections. Company reported positive data from the Phase 2a study and is evaluating the effect of an alternate more potent formulation of NVC-422 in Phase 2b. Results are expected in the first half of 2013.

NeutroPhaseŽ
NovaBay is also developing NeutroPhaseŽ, which is an FDA 510(k)-cleared product for wound care. NeutroPhase is a patented pure hypochlorous acid solution and has the potential to be well suited 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.

NovaBay has begun securing commercial partnerships for NeutroPhase. In January 2012, NovaBay announced it had entered into a distribution agreement with Pioneer Pharma Co., Ltd., a Shanghai-based company that markets high-end pharmaceutical products into China. In September 2012, NovaBay announced that it had entered into an additional distribution agreement with Pioneer Pharma Co., Ltd which expanded the commercial relationship to include select Asian markets in addition to China. NovaBay expects to announce additional marketing agreements in select geographic markets around the world during the remainder of 2012 and into 2013.


On March 25, 2009, we entered into a collaboration and license agreement with Galderma S.A. to develop and commercialize our Aganocide compounds, which covers acne and impetigo and potentially other major dermatological conditions, excluding onychomycosis (nail fungus), orphan drug indications and most post surgical use and use in wound care. We amended this agreement in December 2009 and again in December 2010. Based on the Impetigo Phase 2a clinical trial results, in December 2010, we and Galderma S.A., agreed to expand our partnership to focus on the development of our Aganocide compound NVC-422 for the topical treatment of impetigo. This expansion is intended to provide us with the additional funding and resources required for the clinical development of its NVC-422 topical gel formulation for impetigo and other topical infections.

This agreement is exclusive and worldwide in scope, with the exception of Asian markets and North America, as described in the next paragraph.

Galderma is responsible for the development costs of product candidate compounds, except for costs incurred in Japan. In Japan, Galderma has the option to request that we share such development costs. Under the original agreement, we were supporting the ongoing development program for impetigo; however under the second amendment, entered into on December 2, 2010, Galderma has exercised its option and increased its support to cover the cost of development for this indication. Upon the achievement of a specified milestone, Galderma will reimburse us for specified, previously incurred expenses related to the development of the impetigo program. We retain the right to co-market products resulting from the agreement in Japan. In addition, we have retained all rights to co-promote the products developed under the agreement in hospitals and other healthcare institutions in North America.

In January 2012, we entered into a distribution agreement with Pioneer Pharma Co., Ltd., a Shanghai-based company that markets high-end pharmaceutical products into China, for the commercialization of NeutroPhase in this territory. Under the terms of the agreement, we received an upfront payment of $312,500. In addition, we are entitled to receive $312,500 within 30 days of the submission of the first marketing approval for the product to the SFDA and $625,000 upon receipt of an MAA approval of the product from SFDA.

In September 2012, we entered into a second distribution agreement and a unit purchase agreement with Pioneer Pharma Co., Ltd., for the commercialization of NeutroPhase in select Asian markets in addition to China. Under the terms of the agreements, we received an upfront payment of $250,000 and an equity investment of $1.0 million. In addition, we are entitled to receive $250,000 by December 15, 2012, an additional $100,000 within 30 days of the submission of the first marketing approval for the product, $100,000 upon receipt of an MAA approval and an additional equity investment of $1.5 million.

In April 2012, we entered into a feasibility and option agreement with Virbac Animal Health for the development and potential commercialization of Aganocides for a number of veterinary uses. Under the terms of the agreement, we received an upfront payment of $150,000 and are entitled to additional support for research and development. Virbac will conduct veterinary studies using our Aganocide compounds in order to assess feasibility for treating several veterinary indications.

In August 2006, we entered into a collaboration and license agreement with Alcon Manufacturing, Ltd. (Alcon) to license to Alcon the exclusive rights to develop, manufacture and commercialize products incorporating the Aganocide compounds for application in connection with the eye, ear and sinus and for use in contact lens solution. This agreement was terminated in 2011. Under the terms of the agreement, we received semi-annual payments to support on-going research and development activities over the term of the agreement. The research and development support payments included amounts to fund a specified number of personnel engaged in collaboration activities and to reimburse for qualified equipment, materials and contract study costs.

To date, we have generated no revenue from product sales, and we have financed our operations and internal growth primarily through the sale of our capital stock, and the fees received from Galderma and, prior to termination of our collaboration with Alcon Manufacturing Ltd. (Alcon), an affiliate of Alcon, Inc., in June 2011. As we are a development stage company, we have incurred significant losses since commencement of our operations in July 2002, since we have devoted substantially all of our resources to research and development. As of September 30, 2012, we had an accumulated deficit of $38.0 million. This deficit resulted from research and development expenses as well as general and administrative expenses. We expect to incur net losses over the next several years as we continue our clinical and research and development activities and as we apply for patents and regulatory approvals.


Recent Events

In September 2012, we announced we have received $2.6 million from our partner Galderma S.A., a global leading pharmaceutical company exclusively focused on dermatology. The payment is associated with the clinical advancement of NovaBay's "non-antibiotic, anti-infective" AganocideŽ compound NVC-422 as a topical formulation moving to replace traditional antibiotics for the impetigo treatment, a highly contagious skin infection caused by common bacteria such as methicillin-resistant Staphylococcus aureus (MRSA).

In September 2012, we announced that the first patients have been enrolled in the companies' Phase 2b clinical study of a proprietary topical formulation of NVC-422 for the treatment of impetigo. The study is expected to enroll over 300 patients at 24 clinical sites in four countries worldwide and aims to confirm efficacy and evaluate 2 different dosage regimens.

In September 2012, we announced that we have expanded our distribution agreement with Naqu Area Pioneer Pharma Co., Ltd., a Shanghai-based company that markets high-end pharmaceutical products into China, for the commercialization of NeutroPhase Skin and Wound Cleanser in select Asian markets in addition to China.

In September 2012, we announced NeutroPhase Skin and Wound Cleanser in combination with negative pressure wound therapy (NPWT) is featured in a case study as a new therapeutic technique for the management of necrotizing fasciitis. The case study titled, "Treatment of Acute Necrotizing Fasciitis Using Adjunctive Pure Hypochlorous Acid," was presented at the 2012 Fall Symposium on Advanced Wound Care (SAWC), in Baltimore, Md.

In August 2012, we announced that we received 510(k) clearance from the Food and Drug Administration (FDA) to market NeutroPhaseŽ Skin and Wound Cleanser under widened indications including the moistening and debriding of graft and donor sites. Concurrently, the FDA cleared NeutroPhase to be administered through a new convenient spray pump.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim reporting. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements giving due consideration to materiality. On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition, research and development costs, patent costs, stock-based compensation, income taxes and other contingencies. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.


Our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements (unaudited), included in Part I, Item 1 of this report, and are also described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011. We have not materially changed these policies from those reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

Recent Accounting Pronouncements

See Note 2 to the accompanying unaudited consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q for information on recent accounting pronouncements.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2012, and September 30, 2011

License and Collaboration Revenue

License and collaboration revenue consisted almost exclusively of amounts earned under the license and collaboration agreements with Galderma, Virbac, Pioneer Pharma and Alcon, including amortization of up-front licensing fees and reimbursements for the funding of research and development activities performed during the period.

Total license and collaboration revenue was $3.6 million for the three months ended September 30, 2012, compared to $2.8 million for the three months ended September 30, 2011. Total license and collaboration revenue was $5.8 million for the nine months ended September 30, 2012, compared to $9.8 million for the nine months ended September 30, 2011. The increase over the three month time frame results from the receipt of $2.6 million in reimbursements from Galderma in 2012 and the addition of the Virbac and Pioneer collaborations. The majority of the decrease in the nine month period resulted from the termination of the Alcon agreement in 2011, which included FTE payments and a $2.0 million termination fee, offset to some degree by the addition of revenues from the collaborations with Virbac and Pioneer Pharma and the Galderma reimbursements.

To the extent we earn milestone payments in the future under our collaboration with Galderma and our new collaborations with Pioneer Pharma and Virbac, we would expect revenues to increase. However, we cannot predict if and when we will receive any milestone or royalty payments from this collaboration.

Research and Development

Total research and development expenses increased by 24% to $2.5 million for the three months ended September 30, 2012, from $2.0 million for the three months ended September 30, 2011. Total research and development expenses decreased by 7% to $7.2 million for the nine months ended September 30, 2012 from $7.7 million for the nine months ended September 30, 2011. The three month increase relates to the increased clinical activities related to Conjunctivitis and UCBE during the quarter. The decrease over the nine month period relates to the termination of the research activities related to Alcon in 2011 and cost cutting efforts, partially offset by the increase in clinical activities as we scale up our Impetigo, Conjunctivitis and UCBE trials.

We expect to incur increasing research and development and clinical expenses through the remainder of 2012 and in subsequent years as we continue to increase our focus on clinical trials and developing product candidates, both independently and in collaboration with Galderma. In particular, we expect to incur ongoing clinical and manufacturing expenses during the remainder of 2012 in connection with our dermatology, ophthalmic and urology programs.


General and Administrative

General and administrative expenses were $1.2 million for the three months ended September 30, 2012 compared to $1.1 million for the three months ended September 30, 2011. General and administrative expenses were $4.1 million for the nine months ended September 30, 2012 compared to $3.9 million for the nine months ended September 30, 2011. These increases are primarily related to increased investor relation expenses, including the warrants issued to JSDC for services related to investor relations, and increased travel, partially offset by reduced facilities expense following the renegotiation of our lease in 2012 contributed to the increase. We do not expect significant increases in our general and administrative expenses, but may incur some increases as we gear up to market Neutrophase late in 2012.

Non-Cash Gain (Loss) on Change in Fair Value of Warrants

The non-cash gain on decrease in fair value of warrants relates to the fair value adjustment to the warrants issued with our July 2011 registered direct offering of common stock and warrants. This balance will fluctuate with market conditions and the price of our stock.

Other Income (Expense), Net

Other income (expense), net was an expense of $17,000 for the three months ended September 30, 2012 compared to income of $6,000 for the three months ended September 30, 2011. Other income (expense), net was an income of $5,000 for the nine months ended September 30, 2012 compared to an expense of $36,000 for the nine months ended September 30, 2011. These changes were primarily attributable to fluctuating returns from our investments in 2012.

We expect that other income (expense), net will fluctuate based on our cash balances and the fluctuation in interest rates.

Liquidity and Capital Resources

As of September 30, 2012, we had cash, cash equivalents, and short-term investments of $11.9 million, compared to $14.1 million at December 31, 2011. We have incurred cumulative net losses of $38.0 million since inception through September 30, 2012. We do not expect to generate significant revenue from product candidates for several years. Since inception, we have funded our operations primarily through the sales of our stock and warrants and funds received under our collaboration agreements. We raised total net proceeds of $11.2 million from sales of our preferred stock in 2002 through 2006. In October 2007, we completed our IPO in which we raised a total of $20.0 million, or approximately $17.1 million in net cash proceeds after deducting underwriting discounts and commissions of $1.4 million and other offering costs of $1.5 million. In August 2009, we completed a registered direct offering, of stock and warrants, and had net proceeds of $1.9 million. In July 2011 we completed a second registered direct offering with gross proceeds of $5.2 million, or approximately $4.6 million in net proceeds after deducting underwriting commissions of $288,000 and other offering costs of $244,000. Additionally, cash received from our collaboration partners have totaled $59.0 million through September 30, 2012.

Under the terms of our collaboration and license agreement with Galderma, Galderma will pay to NovaBay reimbursements, and milestone payments related to achieving development and commercialization of its Aganocide compounds. We believe that our cash equivalents and short-term investments are sufficient to fund our planned operations for at least the next twelve months. Our capital requirements going forward will depend on numerous factors including:

ˇ the number and characteristics of product development programs we pursue and the pace of each program;

ˇ the scope, rate of progress, results and costs of clinical trials;

ˇ the time, cost and outcome involved in seeking regulatory approvals;

ˇ our ability to establish and maintain strategic collaborations or partnerships for clinical trials, manufacturing and marketing of our product candidates; and

ˇ the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop.

Cash Used in Operating Activities

For the nine months ended September 30, 2012, cash used in operating activities of $3.4 million was primarily attributable to our research and development and general administrative expenses of operating the company.


Cash Provided by Investing Activities

For the nine months ended September 30, 2012, cash provided by investing activities of $937,000 was attributable to proceeds from the maturity of short-term investments, partially offset by purchases of short-term investments.

Cash Used in Financing Activities

Net cash provided by financing activities of $1.3 million for the nine months ended September 30, 2012, was primarily attributable cash received from the sale of unregistered shares and warrants to purchase shares of our common stock to Pioneer and stock option exercises, partially offset by the repayment of a short term borrowing.

Net Operating Losses and Tax Credit Carryforwards

As of December 31, 2011, we had net operating loss carryforwards for federal and state income tax purposes of $26.1 million and $27.2 million, respectively. If not utilized, the federal and state net operating loss carryforwards will begin expiring at various dates between 2018 and 2031. As of December 31, 2011, we also had tax credit carryforwards for federal income tax purposes of $356,000.

Current federal and California tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize net operating loss carryforwards may be limited as a result of past and future ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

Inflation

We do not believe that inflation has had a material impact on our business and operating results during the periods presented, and we do not expect it to have a material impact in the near future. There can be no assurances, however, that our business will not be affected by inflation.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations

Our commitments at September 30, 2012, consist of an operating lease. The operating lease consists of payments relating to the lease for various laboratory and office space in one office building in Emeryville, California. This lease expires on October 31, 2020, and the total commitment as of September 30, 2012, is $4.9 million due over the lease term, compared to $2.6 million as of December 31, 2011, due to renegotiation of the lease and extension of the expiration date.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk consists principally of interest rate risk on our cash, cash equivalents, and short-term investments. Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in interest rates, particularly because the majority of our investments are in short-term debt securities.

Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our investment policy are as follows: preservation of capital; assurance of liquidity needs; best available return on invested capital; and minimization of capital taxation. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including money market mutual funds, Treasury bills, Treasury notes, commercial paper, and corporate and municipal bonds. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our investments. As of September 30, 2012, and December 31, 2011, a 10% change in interest rates would have had an immaterial effect on the value of our short-term marketable securities. We do not use derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.


To date, we have operated exclusively in the United States and have not had any material exposure to foreign currency rate fluctuations. We have a wholly-owned subsidiary, which is incorporated under the laws of British Columbia (Canada), which may conduct research and development activities in Canada. To the extent we conduct operations in Canada, fluctuations in the exchange rates of the U.S. and Canadian currencies may affect our operating results.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended September 30, 2012, that has materially affected, or is reasonably . . .

  Add NBY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NBY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.