NovaBay Pharmaceuticals, Inc. Reports First Quarter 2009 Financial Results

Milestone Payment from Alcon and Initial Payments from New Galderma
Collaboration Resulted in Positive Cash-Flow for the Quarter

EMERYVILLE, Calif., May 18 /PRNewswire-FirstCall/ -- NovaBay Pharmaceuticals,
Inc. (NYSE Amex: NBY), a mid-stage biopharmaceutical company developing
first-in-class anti-infective products for the treatment and prevention of a
wide range of infections without causing resistance, reported today its
financial results and operational highlights for the first quarter of 2009
ended March 31, 2009.

License and collaboration revenue for the first quarter of 2009 increased 75%
to $2.6 million from $1.5 million for the first quarter of 2008. This revenue
consisted almost exclusively of amounts earned under license and collaboration
agreements with Alcon, Inc. (NYSE: ACL), a leader in the discovery,
development, and commercialization of pharmaceutical products, in particular
for the treatment of eye and ear infections and for contact lens care,
commencing in August of 2006, and most recently, Galderma S.A, the leading
dermatology company in the world. Payments from Alcon were related to
on-going research and development support and a milestone payment triggered by
the clearance of an Investigational New Drug (IND) application by the U.S.
Food and Drug Administration (FDA). During this quarter, a license agreement
and collaboration was entered into with Galderma S.A., a leader in the
discovery, development, and commercialization of pharmaceutical products and
medical devices for the prevention and treatment of skin diseases, for the
development of the Aganocide(R) compounds for certain dermatological
indications. Under the terms of the agreement, NovaBay received an initial
payment and also the first of committed monthly payments in support of
development of compounds for acne and eventually for impetigo.

The net loss for the first quarter of 2009 was $(0.3) million, or $(0.01) per
share, compared to a net loss of $(2.7) million, or $(0.13) per share,
reported for the first quarter of 2008. As of March 31, 2009, the company's
cash, cash equivalents and short-term investments totaled $12.9 million, up
from $12.1 million at December 31, 2008. The increase was largely due to
receipt of milestone payments from Alcon and upfront payments from Galderma,
as well as reduced spending on overhead and delayed research and development
costs.

"We believe the first quarter of 2009 was one of continued accomplishment for
NovaBay as we achieved business development and clinical progress in advancing
our first-in-class Aganocide(R) compounds that are designed to mimic the human
body's natural defense against infection without developing resistance," said
Dr. Ron Najafi, chairman and chief executive officer of NovaBay. "Our
collaboration with Galderma for the Aganocides in major dermatological
conditions further validates the potential for our novel, potent
anti-infectives. At the same time, our pipeline continued to advance during
the quarter, and we recently announced an agreement with Professors Nagl and
Gottardi of Medical University of Innsbruck - Austria, pioneers in the
clinical evaluation of the endogenous, unstable molecule upon which NovaBay's
proprietary Aganocides are based, to broaden our intellectual property
portfolio and expand the clinical opportunities for the Aganocides."

First Quarter 2009 and Recent Key Achievements

-- NovaBay's alliance with Alcon, Inc. in the ophthalmic, otic and
sinusitis fields continues to advance. Alcon initiated a Phase I
clinical trial of NVC-422 (N,N-dichloro-2,2-dimethyltaurine),
NovaBay's lead Aganocide compound, after receiving clearance of an
IND application from the FDA in January. The IND clearance triggered
a
milestone payment of $1 million from Alcon to NovaBay.

-- In March 2009, NovaBay announced a global agreement with Galderma,
S.A.
to develop and commercialize Aganocide compounds for all major
dermatological conditions, excluding onychomycosis (nail fungus).
Under
the terms of the agreement, NovaBay expects to receive up to $50
million
from Galderma upon achievement of certain development and regulatory
milestones related to the acne and impetigo indications and escalating
double digit royalties on future net sales of products. Galderma will
be responsible for the development costs of the acne and other
indications, except in Japan, and for the ongoing development program
for impetigo, upon the achievement of a specified milestone.

-- NovaBay also announced in March new data presented at the American
Academy of Dermatology 67th Annual Meeting that showed NVC-422
achieved
significant anti-mycological efficacy in-vivo in treating subcutaneous
dermatophyte infections based on an established pre-clinical model.
Importantly, these data combined with the past preclinical work that
showed NVC-422 kills P. acne in the follicle which strongly suggests
that NVC-422 may be a potent and well-tolerated treatment for acne and
numerous other serious skin infections.

-- In April 2009, NovaBay announced an exclusive agreement with
Professors
Markus Nagl M.D. and Waldemar Gottardi, Ph.D. of the Medical
University
of Innsbruck, Austria that broadens NovaBay's intellectual property
portfolio and could expand clinical opportunities and accelerate
clinical timelines for the Aganocide compounds. Under the terms of
the
agreement, NovaBay has an exclusive license to a broad portfolio of
patent applications, as well as exclusive pre-clinical and clinical
research data on N-chlorotaurine (NCT), a natural antimicrobial
produced
by the body's white blood cells which is the biological basis for
NovaBay's Aganocides, in multiple disease indications. In
addition, NovaBay also owns the rights to successful human proof of
concept trials of NCT in otitis externa (ear infection) and viral
conjunctivitis (pink eye) that is expected to provide guidance for
NovaBay's and its partners' future clinical programs.

First Quarter 2009 Financial Results

License and collaboration revenue for the first quarter of 2009 increased 75%
to $2.6 million from $1.5 million for the first quarter of 2008. License and
collaboration revenue consists of the amortization of the upfront technology
access fees previously paid, and reimbursements for the funding of research
and development activities, and payments for milestones from Alcon and
Galderma.

The net loss for the first quarter of 2009 was $(0.3) million, or $(0.01) per
share, compared to a net loss of $(2.7) million, or $(0.13) per share,
reported for the first quarter of 2008.

Research and development expenses for the quarter ended March 31, 2009 totaled
$1.4 million, compared to $2.6 million for the quarter ended March 31, 2008.
The decrease was due to budget reductions at year end 2008 resulting in
decreased headcount, and delayed research, development, and clinical expenses.
However, the company expects to incur increasing research, development and
clinical expenses in the remainder of 2009 as programs to develop product
candidates move forward, both independently and in collaboration with Alcon
and now Galderma.

General and administrative expenses for the quarter ended March 31, 2009 were
$1.6 million, compared to $1.7 million in the comparable 2008 period.
Employee costs related to general and administrative expenses decreased as a
result of staff reductions at year end 2008. Professional services costs
increased primarily as a result of increased Sarbanes-Oxley implementation and
year end audit costs.

About NovaBay Pharmaceuticals, Inc.

NovaBay Pharmaceuticals is a mid-stage biopharmaceutical company focused on
developing its proprietary and patented Aganocide compounds, first-in-class,
novel, synthetic anti-infective product candidates that are bioequivalent to
the active antimicrobial molecules generated within white blood cells to treat
and prevent a wide range of infections without causing resistance. NovaBay
has internal development programs aimed at addressing hospital and respiratory
infections. The company has a licensing and research collaboration agreement
with Alcon, Inc. for use of its Aganocide compounds in the eye, ear and sinus,
and in contact lens care solutions. NovaBay has entered into an agreement
with Galderma S.A. to develop and commercialize Aganocides in acne, impetigo
and other dermatological indications. NovaBay(R) and Aganocide(R) are
trademarks of NovaBay Pharmaceuticals, Inc. For more information on NovaBay,
visit www. novabaypharma.com.

Forward-Looking Statements

This release contains forward-looking statements, which are based upon
management's current expectations, assumptions, estimates, projections and
beliefs. Statements regarding NovaBay's expectations that it will receive
from Galderma up to $50 million upon achievement of certain development and
regulatory milestones, NovaBay's expectations regarding its future research
and development expenses in 2009, and NovaBay's expectations that its owning
rights to successful human proof of concept trials of NCT in otitis externa
(ear infection) and viral conjunctivitis (pink eye) will provide guidance for
NovaBay's and its partners' future clinical programs, as well as other
statements that relate to future events or results, are forward-looking
statements. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or achievements
to be materially different and adverse from those expressed in or implied by
the forward-looking statements. Factors that might cause or contribute to
such differences include, but are not limited to: the risk that milestones
and net sales may not be achieved under the Galderma agreement; the risk that
NovaBay may incur unexpected charges or need to or determine to engage in
research and development not previously planned, which will cause NovaBay's
research and development expenses to be greater than it expects; risks and
uncertainties relating to difficulties or delays in discovery, development,
testing, production and marketing of the company's product candidates;
unexpected adverse side effects or inadequate therapeutic efficacy of the
product candidates; the uncertainty of patent protection for the company's
intellectual property or trade secrets; the company's ability to obtain
additional financing as necessary; results obtained in animal models may not
be obtained in humans; and the risk of unexpected delays in the regulatory
process which may delay the commencement or completion of clinical trials.
Other risks relating to NovaBay and Aganocide(R) compounds, including risks
that could cause actual results to differ materially from those projected in
the forward-looking statements in this press release, are detailed in
NovaBay's Annual Report on Form 10-K for the period ended December 31, 2008,
under the caption "Risk Factors" in Item 1A of Part I of that report, filed
with the Securities and Exchange Commission on March 31, 2009. The
forward-looking statements in this release speak only as of this date, and
NovaBay disclaims any intent or obligation to revise or update publicly any
forward-looking statement except as required by law.

Contact:

NovaBay Pharmaceuticals, Inc.
Thomas J. Paulson, 510-899-8809
Chief Financial Officer
tpaulson@novabaypharma.com

Invigorate Communications
Investor Relations:
Gregory Gin, 908-376-7737
ggin@invigoratepr.com

Media Relations:
Mariesa Kemble, 608-850-4745
mkemble@invigoratepr.com

NOVABAY PHARMACEUTICALS, INC
(formerly NovaCal Pharmaceuticals Inc.)
(a developmental stage company)

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

December 31, March 31,
2008 2009
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $12,099 $10,243
Short-term investments - 2,631
Prepaid expenses and other current assets 414 684
Total current assets 12,513 13,558
Property and equipment, net 1,456 1,400
TOTAL ASSETS $13,969 $14,958

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable $406 $367
Accrued liabilities 1,166 1,075
Capital lease obligation 42 39
Equipment loan 366 376
Deferred revenue 2,500 3,836
Total current liabilities 4,480 5,693
Capital lease obligation - non-current 7 -
Equipment loan - non-current 470 372
Deferred revenue - non-current 1,667 1,392
Total liabilities 6,624 7,457
Commitments and Contingencies
Stockholders' Equity:

Common stock, $0.01 par value; 65,000 and
65,000 shares authorized at December 31,
2008 and March 31, 2009, respectively;
21,471 and 21,662 shares issued and
outstanding at December 31, 2008 and March
31, 2009, respectively 215 217

Additional paid-in capital 33,718 34,199
Accumulated other comprehensive income (loss) - (8)
Accumulated deficit during development stage (26,588) (26,907)
Total stockholders' equity 7,345 7,501
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,969 $14,958

NOVABAY PHARMACEUTICALS, INC
(formerly NovaCal Pharmaceuticals Inc.)
(a developmental stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Cumulative
Period
from
July 1,
2002
(date of
development
Three Months stage
Ended inception)
March 31, to March 31,
2008 2009 2009
(unaudited) (unaudited) (unaudited)

REVENUE
License and collaboration revenue $1,492 $2,611 $16,779
Total revenue 1,492 2,611 16,779

EXPENSES
Operating Expenses:
Research and development 2,647 1,361 26,368
General and administrative 1,684 1,579 18,544
Total operating expenses 4,331 2,940 44,912

Other income, net 163 11 1,240

Net loss before income taxes (2,676) (318) (26,893)
Provision for income taxes (2) - (14)
Net loss $(2,678) $(318) $(26,907)

Net loss per share:
Basic and diluted $(0.13) $(0.01)
Shares used in per share calculations:
Basic and diluted 21,288 21,620

SOURCE NovaBay Pharmaceuticals, Inc.

Thomas J. Paulson, Chief Financial Officer, NovaBay Pharmaceuticals, Inc.,
+1-510-899-8809, tpaulson@novabaypharma.com; Investors: Gregory Gin,
+1-908-376-7737, ggin@invigoratepr.com, or Media: Mariesa Kemble,
+1-608-850-4745, mkemble@invigoratepr.com, both of Invigorate Communications
for NovaBay Pharmaceuticals, Inc.