Avoid This Drug Stock

Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case: zzlangerhans.

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Company NovaBay Pharmaceuticals (AMEX: NBY  )
Submitted By zzlangerhans
Member Rating 99.11
Submitted On Jan. 17, 2012
Stock Price at Underperform Recommendation $1.42

NovaBay Pharmaceuticals Profile

Headquarters Emeryville, California
Industry Pharmaceuticals
Market Cap $46.4 million

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS

This week's pitch:

Over the last six months, NovaBay has been reanimated from the low of 0.7 that followed the abject failure of aganocide NVC-422 in a phase II trial for viral conjunctivitis. The decline was exacerbated by dilutive financing and the general distaste for speculative stocks in the late summer of 2011, and now the company is benefiting from the counterintuitive rush back into the sector. The stock has also felt the bellows effect of Seeking Alpha pumps, an effect which in recent years has proven to be very short-lived (see Zalicus, Cleveland Biolabs, Radient, and Ampion).

These are the reasons others see to be optimistic about NovaBay:

1. A partnership and commercial launch of NeutroPhase in China.

First of all, NeutroPhase is diluted bleach. We've seen how this is working out for Oculus. Second, attempts by Western companies to sell pharmaceuticals in emerging markets in Asia and South America have never amounted to anything in my experience.

2. The company has a partnership with Galderma for NVC-422, who are planning to initiate a phase IIb trial in impetigo in the near future.

A year ago, NovaBay had two large pharmaceutical partners for phase II programs of NVC-422. After the conjunctivitis trial failed, Alcon dropped them like a sack of potatoes. Now they're halfway to having no partners for NVC-422. Furthermore, I've been hearing about the impending initiation of this phase IIb trial for more than a year. If Galderma hasn't kicked it off yet, I have to wonder about their degree of interest in the program.

3. NVC-422 showed a better effect against the adenoviral conjunctivitis subset in the previously mentioned phase II trial and the company is now planning on performing a new phase IIb trial for that indication.

Post-hoc analysis. No statistical significance. Futile.

Foolish bottom line
While this CAPS All-Star thinks you should avoid NovaBay, for a stock you don't have to avoid, check out our brand-new free report on a medical device company Motley Fool analysts believe will be "The Next Rule-Breaking Multibagger."

The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 19, 2012, at 3:13 PM, my2cents4u wrote:

    Avoid this author!

    This screed is a classic case of bashing by a short or an investor in one of NBY's competitors.

    Why?

    1. Not one word on the stock until now when it is being quietly accumulated and rising in price.

    2. Obssession with Alcon trial failure; hyping old news.

    3. Rumoe mongering about Gladerma relationship.

    Don't be (Motley) Fooled by this shill.

  • Report this Comment On January 19, 2012, at 3:19 PM, my2cents4u wrote:

    P.S.

    zzlangerhans was pumping Oculus, now down 30% since December. Sour grapes, ZZ?

  • Report this Comment On January 19, 2012, at 7:35 PM, Sum111 wrote:

    And Penicillin is but refined bread mold. Bactrim a rarefied Sulfur compound. Don't be so quick to write it off as "diluted bleach" as it is a bit more complicated than that. As for its failed conjunctivitis trial, I suggest this article in Cataract and Refractive Surgery Today to help explain why there is a need for further study.

    http://bmctoday.net/crstoday/2011/08/article.asp?f=phase-2-c...

    You also failed to mention the success they have had in their first clinical trial regarding Impatigo and the one they had with treating bacterial infections with those with long term urinary catheters. I have been a Registered Nurse for some 20 years and have witnessed first hand the unmet concequences of treating the conditions that angaocides have the potential to treat. The outcomes are often not good.

    While further trials may prove that treatment with aganocides may be ineffective, I see no real evidence of that in the trials already conducted. If they continue to prove sucessful, I see great good coming from their product not only in the things it is being tested for but in a myrid of other medical problems not yet explored.

    In conclusion I believe that the success or failure of aganocide compounds will be determined by their clinical trials and nothing more. Until more is revealed, I will stay long in NBY.

  • Report this Comment On January 20, 2012, at 10:46 AM, cfiechter1 wrote:

    Ha! Well this article goes to prove that anyone with a computer can be an "author" together with the Internet.

    There is a ton of science behind NBY - they have created a stable form drug that uses a chlorine mechanism that kills bacteria without killing cells. It does this in a complete and very fast action that prevents the build-up of immunity by the foreign body (ie: same mechanism as white blood cells). This is not bleach, however - bleach kills human tissue, which is why wounds haven't been cleaned with saline rather than bleach. The science behind NBY products is non-trivial, however opportunity with the drug is quite large and important.

    No question that the PhIIb results were disappointing, because they didn't show statistical indications. They certainly didn't meet the results of the test. What it does not say is that the drug mechanism doesn't work - that has been validated again and again and is why Galderma/Alcon have pumped tens of millions into the company. Basically, they messed up and need to take another run at it.

    The stock has been pumped and bashed for years because the promise of the technology and the fact that a product hasn't yet been put to market. That should change in 2012.

    Many company's with great science never get to market. Hopefully this one does, because the opportunity to really improve the world is large.

    Seeking Alpha may be pumping the stock, but it probably makes sense to know something about what the company does before your publish your 'expert' opinion zz. Fool.

  • Report this Comment On January 20, 2012, at 11:13 AM, my2cents4u wrote:

    What Motley Fools delivers is like Rockefeller's shoe shine boy giving him stock market tips right before the crash of '29. Stick to Barron's, Forbes, or Investor's Business Daily for somewhat more pertinent or credible info. I visit the Fool for laughs and to see what the "experts" are getting wrong.

    The science is solid; R&D takes time with any new methodology, usually more than the attention span of most traders. This company and it's products are well positioned for success.

  • Report this Comment On May 16, 2012, at 12:13 PM, TMFBlacknGold wrote:

    When I started investing I was mesmerized by speculative biotech and the possibility of huge gains. But after suffering loss after loss and growing as an investor I have learned to stay away from these companies and put my money into companies that are creating value and actually making money.

    I am currently holding NBY, but only in hopes of having the chance to unload this horrible investment closer to my breakeven price of $2.04. I am absolutely expecting to take a loss, but hopefully not at this price.

    A little nugget for the company's conjunctivitis trial: The CEO's sister is an ophthalmologist in northern California and had a big part in the failed trials. Go listen to the conference calls from that failed study. Nepotism at its finest. In reality, they should drop the entire ophthalmology division and focus resources on the catheter study, which has at least some chance of generating minimal revenue.

    I love how people bash insightful investors like ZZ when they have incredible track records. Have fun losing money.

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