BlacknGold (39.93)

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NovaBay Opportunity Emerging

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May 19, 2011 – Comments (3) | RELATED TICKERS: NBY

My favorite small cap pharma pick is getting slammed after announcing Phase II results for its drug NVC-422 for treating eye infections. The study failed to meet its primary endpoint for adenoviral conjunctivitis and has dropped 20% in the past two days. Adenoviral conjuctivitis currently does not have an FDA approved treatment. The company saw encouraging results in the same study against epidemic keratoconjunctivitis (EKC), which is one of the most serious eye infections. A treatment for this disease is highly desired within the ophthalmic community. Despite the unwelcomed results NVC-422 was well tolerated across throughout the study.

NovaBay's ophthalmology partner, Alcon, is not sweating the results. In fact, the study provided clues to the mechanism of action for their aganocide compounds and provided useful information both companies can use going forward. So, the market is obviously grossly overreacting. It's not as if this was the only drug or novel use in the company's pipeline. Just last week the company announced that three new compounds - NVC-727, NVC-638, and NVC-704 - had confirmed safe activity against ophthalmic pathogens. Each has a unique range of use in both pathogens treated and conditions (pH, use with other drugs, etc). NovaBay will make the biggest splash with its novel anti-infective gels for topical and catheter use. Just think - over 135,000 people in the US died in hospitals last year due to infections, most of which were elderly. As the baby boomer population swells NovaBay's pipeline becomes more attractive. Not to mention the dire need for treatments that combat resistant infectious bacteria.

This dip to $1.68 probably isn't over, but that can be turned into a great buying opportunity. The management team is legit. The need for their products is evident. The reward significantly outweighs the risk. Keep an eye on future studies. If failing to meet their endpoints becomes a trend it will be time to worry. But not after one study.

BlacknGold

3 Comments – Post Your Own

#1) On May 24, 2011 at 1:24 PM, mhy729 (27.28) wrote:

NBY seems to be having a technical bounce after the 1.43 low Monday (which doesn't even show up on many charts). Looking to double-down on my small position at some point. Original buy-in was at 1.95, a week or so before the news broke on the study failure to meet primary endpoint (d'oh!).

Also, have you noticed the action on OGXI? It was trading in a narrow range for quite some time before the pop today. Haven't been able to find any news.

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#2) On May 24, 2011 at 9:50 PM, BlacknGold (39.93) wrote:

Yeah I caught some shares at 1.43 and hoped it wasn't going to get slammed any further. We'll see how that goes. If the company is telling the truth, the results weren't really that bad. They wanted 20% greater than placebo and were oh-so-close, but 20% is 20%. I hope this doesn't become the norm...

As for OGXI they are expected to announce data from their custirsen study (with TEVA) for prostate cancer at the 2011 ASCO Annual Meeting. They're basically releasing data on everything they've been quietly working on for what seems like forever. I wish I had some cash to invest in it before today. I've never seen a chart like theirs, it literally didn't move for months hahaha. Most analysts pin them in the $25-$30 range. If their drug works there's no reason it shouldn't be - they would have the only drug to stop the production of clusterin from cancer cells, which significantly slows treatment.

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#3) On May 24, 2011 at 9:51 PM, BlacknGold (39.93) wrote: