MARKETS SPECTATOR: Novogen's risk and reward

Risk appetite is alive and well for Novogen investors if the drug maker's successful share sale is anything to go by.

Who says Australians aren’t risk takers? Venture capitalists and the entrepreneurs often bemoan the risk appetite local banks and investors have for innovative ideas. Anti-cancer drug developer Novogen is bucking that perception. It is seeking to raise as much as $6.12 million after earlier this month successfully selling $2.5 million of shares to fund managers.

In its latest share sale, Novogen is not using an investment bank or brokerage. The company reckons it can sell its story to its 11,000 shareholders by itself, thank you very much. The new shares will be sold at 17 cents, a 20 per cent discount to the average share price the stock was trading at over the last five days.

The risk for investors is obvious. There is no guarantee that Novogen’s pre-clinical trials of its drug, dubbed CS-6, will be as success. Novogen’s vision is bold. It wants to conduct pre-clinical trials for a drug to attack cancers such as late stage ovarian and brain cancer. The company’s scientists are somewhat unique in their approach. They are trying to develop anti-cancer drugs that affect all cancers by attacking cancer stem cells.  

Novogen chief executive Graham Kelly acknowledges the capital raising environment is hardly buoyant for anyone, let alone a tiny drug developer. “It’s difficult in any market in the world to raise capital as markets have tightened up in the last few months,” Kelly told Business Spectator.

Moreover, confusion in the past about Novogen’s strategic direction, previous management transferred all intellectual property to its unit Marshall Edwards Inc., has bloodied Novogen in the eyes of many investors. The stock once traded as high as $9. Kelly is part of a new management team that has split completely with Marshall Edwards. Last year, Novogen acquired Triaxial Pharmaceuticals, a company started by scientists who had helped develop Novogen’s original oncology drugs.

Like all risky ventures, the rewards for an investor are potentially huge. If Novogen’s pre-clinical trials show success then Kelly and his loyal investors will be reminding sceptics what they missed out on.