Company History and Business Overview
NovaBay Pharmaceuticals, Inc. (NBY) is a leading developer and seller of scientifically-created and clinically-proven eye care and wound care products. The company's primary focus is on its flagship product, Avenova Antimicrobial Lid and Lash Solution, a versatile and effective solution for managing blepharitis and dry eye disease.
NovaBay was incorporated in 2000 and has steadily built its reputation as an innovator in the eye care industry. The company was originally founded as NovaCal Pharmaceuticals, Inc. and later changed its name to NovaBay Pharmaceuticals, Inc. in 2007. NovaBay had no operations until July 1, 2002, when it acquired all of the operating assets of NovaCal Pharmaceuticals, LLC, a California limited liability company. In June 2010, the company changed the state in which it was incorporated to Delaware.
Over the years, NovaBay has expanded its product portfolio beyond Avenova to include a complementary lineup of eye care solutions, such as the Avenova Lubricating Eye Drops, NovaWipes by Avenova, Avenova Warm Eye Compress, and the i-Chek by Avenova device. These products are designed to provide a comprehensive approach to addressing the multifaceted nature of dry eye disease.
In addition to its eyecare business, NovaBay also developed and sold its proprietary form of hypochlorous acid for the wound care market under the NeutroPhase and PhaseOne branded products. These wound care solutions are used for cleansing and irrigation during surgical procedures, as well as treating wounds, burns, ulcers and other injuries.
In 2021, NovaBay made a strategic acquisition, purchasing DERMAdoctor, a provider of over 30 dermatologist-developed skin care products. However, the company was unable to fully integrate DERMAdoctor and achieve the desired financial results, leading to the divestiture of this business in March 2024.
Financial Performance and Ratios
NovaBay has faced some challenges in recent years, with net losses reported in 2020, 2021, 2022, and 2023. In 2023, the company reported a net loss of $9.64 million. Despite these losses, NovaBay has maintained a relatively strong balance sheet, with total assets of $9.03 million and total liabilities of $5.72 million as of December 31, 2023.
The company's current ratio, a measure of its ability to meet short-term obligations, stood at 1.67 as of the end of 2023. However, its quick ratio, which excludes inventory, was 1.05, indicating a moderate level of liquidity. NovaBay's debt-to-equity ratio was 1.73, suggesting a moderate level of leverage.
In terms of profitability, NovaBay has struggled, with a net profit margin of -65.5% in 2023. The company's return on assets and return on equity were both negative, at -9.6% and -29.1%, respectively. These figures reflect the company's ongoing efforts to navigate the challenges it has faced in recent years.
For the most recent quarter ended September 30, 2024, NovaBay reported revenue of $2.44 million, a decrease of 2% compared to the prior year quarter. The decrease was primarily due to lower sales of the company's wound care products, which declined by $0.1 million. Sales of the company's Avenova eyecare products remained flat year-over-year at $2.40 million.
Net income for the quarter was a loss of $1.21 million, an improvement from a loss of $1.35 million in the prior year quarter. The reduced net loss was primarily due to a decrease in sales and marketing expenses of $0.40 million or 25%, reflecting continued optimization of the company's digital marketing programs. This was partially offset by an increase in general and administrative expenses of $0.60 million or 56%, related to higher legal costs associated with the company's strategic initiatives.
NovaBay's cost of goods sold remained relatively flat at $0.85 million and $2.49 million for the three and nine month periods ended September 30, 2024, respectively.
Product Segments and Performance
NovaBay Pharmaceuticals, Inc. operates in two key product segments: Eyecare and Wound Care.
The Eyecare segment is led by Avenova Antimicrobial Lid and Lash Solution, or Avenova Spray. This product is proven in laboratory testing to have broad antimicrobial properties, removing foreign material including microorganisms and debris from the skin around the eye, including the eyelid. Avenova Spray is formulated with NovaBay's proprietary, stable and pure form of hypochlorous acid and is FDA-cleared for sale in the United States. It is available direct to consumers, primarily through online distribution channels, and is also available by prescription and dispensed by eyecare professionals for blepharitis and dry eye disease.
To complement Avenova Spray, NovaBay offers a range of products for each step of the standard at-home treatment regimen for dry eye, including Avenova Lubricating Eye Drops, NovaWipes by Avenova, Avenova Warm Eye Compress, and the i-Chek by Avenova.
During the three months ended September 30, 2024, revenue from Avenova Spray and other Avenova branded products was $2.42 million, representing the majority of NovaBay's total product revenue of $2.42 million for the quarter. For the nine months ended September 30, 2024, revenue from Avenova Spray and other Avenova branded products was $7.43 million out of total product revenue of $7.43 million.
In the Wound Care segment, NovaBay manufactures and sells its proprietary form of hypochlorous acid through NeutroPhase and PhaseOne branded products. These products are used for cleansing and irrigation as part of surgical procedures, as well as treating wounds, burns, ulcers and other injuries. The company currently sells these products through distributors.
During the three months ended September 30, 2024, revenue from NeutroPhase and PhaseOne branded wound care products was nominal, down from $0.10 million in the prior year period. For the nine months ended September 30, 2024, revenue from the wound care products decreased to $0.30 million, down from $1.60 million in the prior year period.
Overall, NovaBay's product revenue, net, decreased 11% to $7.43 million for the nine months ended September 30, 2024, compared to $8.33 million in the same period of 2023. The decrease was primarily due to lower sales of the company's wound care products, partially offset by growth in Avenova branded eyecare products.
Liquidity and Capital Resources
As of September 30, 2024, NovaBay's cash and cash equivalents stood at $0.78 million. The company's debt-to-equity ratio was 1.18, indicating a moderate level of leverage. The current ratio was 1.15, while the quick ratio was 0.91, suggesting that the company's short-term liquidity position is somewhat strained.
NovaBay did not disclose any available credit lines or credit facilities in the provided information. The company's ability to manage its cash flow and maintain adequate liquidity will be crucial for its ongoing operations and strategic initiatives.
Recent Developments and Strategic Initiatives
In September 2024, NovaBay announced that it had entered into a definitive asset purchase agreement to sell its Avenova brand and related assets to PRN Physician Recommended Nutriceuticals, LLC for $9.5 million. This transaction, which is subject to shareholder approval, would allow NovaBay to unlock the value of its flagship product and focus on its future strategic direction.
Concurrently, NovaBay's board of directors determined that, if the Avenova asset sale is completed, the best opportunity available to optimize value for shareholders is to pursue a liquidation and dissolution of the company. The company has called a special meeting of shareholders to vote on the asset sale and dissolution proposals.
In the meantime, NovaBay has continued to generate revenue from its Avenova-branded products, particularly through online channels. During the second quarter of 2024, the company reported a 9% increase in eyecare product revenue compared to the same period in the prior year, driven by higher sales of Avenova-branded products through online channels. The number of Avenova subscribers on Amazon also increased significantly, by 64% since the beginning of 2023 and 123% since the beginning of 2022.
In March 2024, NovaBay completed the divestiture of its former subsidiary, DERMAdoctor, which offered over 30 dermatologist-developed skincare products. The divestiture of DERMAdoctor streamlined NovaBay's business, allowing the company to focus on its core Eyecare and Wound Care segments.
Risks and Challenges
NovaBay faces several risks and challenges that have contributed to its recent financial performance. The company operates in a highly competitive eye care market, where it must compete with larger, well-established players. Additionally, the COVID-19 pandemic has had a significant impact on the healthcare industry, potentially affecting NovaBay's sales and operations.
The company's reliance on a limited number of large customers for its wound care products also poses a risk, as the loss of one or more of these customers could have a material adverse effect on its financial results. NovaBay's ongoing efforts to navigate these challenges and optimize its strategic position will be crucial to its future success.
Geographic Markets
NovaBay sells its products primarily in the United States. The company has not disclosed any significant international operations or expansion plans in the provided information.
Conclusion
NovaBay Pharmaceuticals is a unique player in the eye care industry, with a strong focus on innovative and clinically-proven products. While the company has faced some financial challenges in recent years, its commitment to developing high-quality solutions for blepharitis and dry eye disease, as well as its recent strategic initiatives, suggest that it may be well-positioned to unlock value for shareholders. The proposed sale of the Avenova brand and potential liquidation of the company represent significant developments that could reshape NovaBay's future. Investors should closely monitor the company's progress as it navigates the next phase of its journey, particularly the outcome of the shareholder vote on the asset sale and dissolution proposals.