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Novogen Limited Shares Take a Wild Ride

Novogen CEO Graham Kelly

Only a day after shares of Melanoma drug researcher and pharmaceutical company Novogen Limited blasted from $1.71 to a high of almost $6, the company announced a secondary offering of about 32.85 million ordinary shares at a price of A$0.125, or about 10 cents each in US Dollars. Each US share trading on the NASDAQ is equal to 25 Australian shares for an equivalent of about $2.50. It's not uncommon for up and coming pharmaceutical companies to raise capital after a major breakthrough. Some secondaries are better than others, and this appears one that will won't hamper shares for a long period.

As part of the terms of the offering, the company also agreed to grant about 32.85 million options with a strike price of A$0.15 per share, or about 12 cents in US Dollars, for an equivalent of about $3 per share. In light of the catalyst that sent  shares higher, namely the progress in Melanoma treatment (originally designed for brain cancer treatment) , as well as the ability to raise a relatively large amount of cash to continue research at favorable terms, I believe the stock is on a path to continue well above $5-$6 per share, and over sold during pre-market trading near $3.25 a share. One has to believe the private placement was made by competent parties and proper due diligence was made. Furthermore, secondaries are typically sold at a significant discount to entice and effect the sale in one transaction to lower placement and other transaction costs.

Clearly, the company is on a solid footing to continue its research. Interestingly, it was pointed out to me that on Twitter (TWTR) I posted I was short (NVGN) at $6.27 a little over a year ago. Now I believe the shares are worth buying with a near-term target price of $4.50, and $6-$6.50 is realistic if the company announces further progress in TRXE-009, and considerably higher based on the level of clinical success. 

From the company's press release yesterday:

Novogen Limited, today announces that it has confirmed that its lead candidate product, TRXE-009, originally developed for the treatment of brain cancers, has been shown in pre-clinical studies also to be highly active against melanoma.

The Company believes this is an important breakthrough discovery for two reasons. The first is that it confirms that TRXE-009 is an important new potential treatment for melanoma, including for the treatment of secondary brain cancers due to melanoma, for which there currently are no effective therapies. The second is that it offers evidence for the first time of an hypothesized link between brain cancer and melanoma.

The link has long been considered a possibility because nerve cells and melanocytes (the melanin pigment-bearing cells in skin that lead to melanoma) have a common origin in the embryo known as the neural crest. This primitive tissue gives rise to the neural cells that go on to form the brain, spinal cord, and peripheral nerves, as well as cells that form the structures of the skull; melanocytes also come from this embryonic tissue. Up till now, no functional link has been found between brain cells and melanocytes, or between brain cancer and melanoma. TRXE-009 is the first compound to demonstrate the possibility of a common link, suggesting that is the first drug with the ability to identify cancers arising in cells that have the neural crest as their common origin.

TRXE-009 has been confirmed as a potential new treatment for both adult and paediatric neural cancers. TRXE-009 previously has been announced as a world-first in having exceptionally high killing activity against adult brain cancer (glioblastoma multiforme) stem cells, and against the paediatric brain cancers - medulloblastoma and DIPG (diffuse interstitial pontine glioma) - all tumors that are highly resistant to known chemotherapies. That same high potency is now confirmed against melanoma cells, with activity unaffected by the tumor’s BRAF gene status.

Dr Graham Kelly, Novogen Group CEO, said, “This latest finding brings the value of TRXE-009 into true perspective for us. We initially developed the compound for brain cancer. We saw it as the first chemotherapy with the potential to make a meaningful difference to the survival prospects of patients, both adult and children, with primary brain cancer.”

“From there we looked at its ability to kill other cancers of neural origin, and discovered that the same potency against brain cancer cells extended to neuroblastoma cells, a potential deadly cancer in children that arises in peripheral nerve tissue outside of the brain.”

I bought shares in (NVGN) in early pre-market and expect to trade them as well as to hold some beyond today.

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Stock Tickers: TWTR NVGN Author Disclosure: Long Novogen