Expert Financial Analysis and Reporting

Investment Overview
I first recommended NovaBay (NBY) as a small company that fit my asymmetric investment strategy in an initiation report on October 30, 2012 at a price of $1.32. The basis of my recommendation was that in 2013 the company would be reporting phase II b data on trials of its lead drug auriclosene in impetigo and adenoviral conjunctivitis and also a phase II proof of concept trial in urinary catheter encrustation and blockage (UCBE). I thought that success in any one of these trials would more than justify owning the stock.

Last Friday, I wrote a report that previewed the trial II trial of auriclosene in UCBE.

I would urge readers to refer to that report and my October 12, 2012 initiation report for perspective on the medical and commercial significance of auriclosene in UCBE. Today, the Company reported topline results from this trial that look very encouraging. If these results are confirmed in phase III trials, this could be a very major product for NovaBay that currently has a market capitalization of $87 million based on fully diluted shares of 55.1 million. The stock remains attractive at the current price of $1.57 regardless of the trial outcomes in impetigo and adenoviral conjunctivitis.

The topline results on the UCBE phase II trial were better than I had hoped for. The stock has responded with a quick move from $1.38 to $1.57 on heavy volume. However, I think that very few investors know or understand NovaBay and as these results are more widely disseminated, I think that there could be further upside in the near term. In any event, I think that the stock is an excellent long term investment and I reiterate my Buy. I bought more stock today.

Topline Results of Phase II Trial of Auriclosene in UCBE
The topline results were very encouraging. The three part study was a well-designed, randomized double-blinded, placebo-controlled crossover design. Each patient used an indwelling catheter that was treated with saline in one segment of the trial and another catheter treated with auriclosene in another segment. Hence, each patient’s results for the saline treated catheter can be compared directly to their results with an auriclosene treated catheter. This was a good trial design that allowed a meaningful analysis of the efficacy of auriclosene as compared to saline which is often standard of care in UCBE.

The study enrolled 67 subjects with chronic indwelling transurethral or suprapubic urinary catheters. There were a total of 125 treated catheters: 62 in the auriclosene arm and 63 in saline arm. In part 3 of the study the catheters were irrigated twice weekly (this is real life medical practice) with a solution of either 0.2% auriclosene or saline for a total of eight treatments over four weeks. This was followed by a washout period and a cross-over of treatment.

The auriclosene irrigation solution reduced the average encrustation at the time of catheter removal from 77% encrusted (saline arm) to 22% encrusted (auriclosene arm). Importantly, a within-subject comparison for the degree of encrustation showed that the auriclosene arm demonstrated a statistically significant reduction (p = 0.005) in the degree of encrustation.

Complete catheter blockage was not observed in any of the auriclosene-treated catheters, but was observed in 64% of the catheters treated with saline (p = 0.0004). This is extremely important as I think that the FDA will probably require this as the endpoint of a phase III trial. Fifty percent of the saline-treated catheters had to be removed early because of laboratory-confirmed blockage, compared to none of the auriclosene-treated catheters. Auriclosene was well tolerated; there were no treatment-related serious adverse events and only transient manageable adverse events in both treatment arms.

Analyst Meeting Tomorrow, September 17, 2013
NovaBay has scheduled an analyst’s meeting tomorrow in New York at the Grand Hyatt Hotel called "Urology Challenges in Spinal Cord Injury and Other Patients with Long-term Indwelling Catheters". I will attend this meeting.

There will be three featured speakers at this meeting:

Dr. Todd A. Linsenmeyer, Director of Urology at Kessler Institute for Rehabilitation, West Orange, NJ
Dr. Spencer Long, J.C. Blair Memorial Hospital, Huntingdon, PA
Mary H. Wilde, PhD, RN, Associate Professor, University of Rochester School of Nursing, Rochester, NY　

Their credentials are as follows:

Dr. Todd Linsenmeyer joined Kessler Institute in 1989 as Director of Urology where he has treated thousands of patients suffering from spinal cord injuries. He specializes in the evaluation and management of voiding dysfunctions, including urinary incontinence and urinary retention which result from a neurogenic bladder, a condition often related to a spinal cord injury (SCI), brain injury, stroke or neurological disorders, such as multiple sclerosis. Dr. Linsenmeyer is also a full Professor in the Departments of Surgery (Division of Urology) and Physical Medicine and Rehabilitation at Rutgers New Jersey Medical School. He is one of two urologists in the country double boarded in Urology and Physical Medicine and Rehabilitation. Dr. Linsenmeyer is the chairman of the PVA Spinal Cord Consortium Guidelines on Bladder Management Following SCI and a guideline on Autonomic Dysreflexia. He is the Past President of the American Paraplegia Society. He has multiple publications and presentations and book chapters on neurogenic bladders. Dr. Linsenmeyer was recognized in the top 1% of Urologists in the USA by US News and World report. He has received numerous awards and honors for both his clinical work and scientific research, including the American College of Surgeons and the American Spinal Cord Injury Association.

Dr. Spencer Long graduated from Whitman College with a Bachelor’s degree in Biology, and received his M.D. degree from the University of Washington in Seattle. Following his internship at Eastern Virginia Medical School, he served for two years as a physician in the United States Coast Guard before returning to the Eastern Virginia Medical School for four years to complete his residency in Urology. Thereafter, he went on to complete two years of additional Urologic training at Karolinska hospital and St. Erik’s hospital in Stockholm, Sweden. Dr. Long is board certified in urology by the American Board of Urology. He is also a member of the American Urological Association, the American Medical Association, the Mid-Atlantic Urological association and the Urological Association of Pennsylvania. He has previously served as Medical Staff Chief, and on the Board of Hospital Directors. In addition to all aspects of general and pediatric urology, Dr. Long has a special interest in treating problems associated with spinal cord injury, including bladder and urinary tract infection, kidney and bladder stones, problems with urinary tract catheterization and biofilm formation; this includes the management of skin wounds and nutrition. The purpose is to restore health and enable the injured person to resume active inclusion in the social and economic life of the community.

Dr. Mary H. Wilde’s research is focused on improving self-management of long-term urinary catheter users to prevent catheter related problems. Dr. Wilde’s research goal is to improve the everyday lives of community dwelling people with long-term urinary catheters -- particularly indwelling catheter users -- and to help provide better evidence for practice. Catheter related-problems include urinary tract infection (UTI), autonomic dysreflexia, blockage or obstruction of the catheter, accidental dislodgement, and urine leakage or bypassing of the catheter. These problems cause considerable disruption in catheter users and their families' daily routines, and they contribute to excess health care expense.