This Stock is Cliffdiving
Since NovaBay released results of their Phase II Proof of Concept study with partner Alcon for adenoviral conjunctivitis their shares have fallen 53% ($1.05 from $2.22). Their lead drug candidate NVC-422 failed to meet the primary endpoint of 20% better than placebo, coming in at only 9%. However, the drug performed 15% better than the placebo for epidemic keratoconjunctivitis (EKC), which is considered just as difficult if not more difficult to treat. At Day 11 and 18 blurred vision, a primary concern of patients and the FDA, was successfully treated in 85% and 92% of patients respectively (47% and 42% better than placebo). During the last conference call to discuss results the company stated that NVC-422 acheived "microbiological success", but didn't go into much detail.
The study was carried out by Alcon and didn't exactly get off on the right foot. They initially aimed for 220 patients to take part in the study, but ended the study after 81 patients were enrolled due to lack of patients. It is not very common in the US, but it is widely dispersed across other parts of the world such as India and southeast Asia. NovaBay stated that they would look in those regions for further studies and expect them to take much less time than the nearly 11 months it took Alcon to perfom this study.
NBY's CEO made an unprompted comment along the lines that if Alcon walked away from proceeding with the trials NovaBay would pick up where they left off. He also stated, unless I heard him incorrectly, that NVC-422 for use in adenoviral conjunctivitis has a market potential of $7 million. That certainly doesn't seem like much to me. Definately not enough to halve a company's market cap. Besides, they have released several promising trials lately about other compounds in their pipeline or other uses of NVC-422. The most promising being its use in catheters, for which they won 1st place at a recent conference.
NovaBay will start commercially producing and marketing NeutroPhase later this year and still has several ongoing trials. Sure, NBY would take a hit if Alcon walked away now. The biggest hit would come in the form of milestone payments. I think they are too far into the trials to stop now. Its not as if NVC-422 failed completely. I wouldn't be surprised if they redesigned the trial after reviewing results and went back at it.
I really cannot justify this dip in share price. It should have taken a hit, what company wouldn't after a failed trial, but not 53% (and dropping!). They haven't proven much yet, but I'll still bet they aren't going away any time soon.
I am long NBY.