KZIA Kazia Therapeutics Ltd

NOVOGEN LIMITED

ABN 37-063-259-754

www.novogen.com

Level 1, 1-7 Waterloo Road, NORTH RYDE, NSW, 2113

Telephone: 02 9878 0088

APPENDIX 4E

incorporating

ANNUAL REPORT

FOR THE YEAR ENDED

30 JUNE, 2012

RESULTS FOR ANNOUNCEMENT TO THE MARKET

 

The amounts included in this report are for the financial year ended 30 June, 2012. Comparative figures are for the previous corresponding period being the financial year ended 30 June, 2011 unless otherwise stated.

The Directors of Novogen Limited do not recommend the payment of a dividend at year end.

During the year Novogen Limited distributed to its shareholders, by way of a dividend, 90% of the rights it received from its majority owned subsidiary, MEI Pharma, Inc. (“MEI”), under MEI’s rights offering which concluded in May, 2012.

Refer to Operating and Financial Review shown in the attached Directors’ Report for an explanation of the above disclosures.

 
 

CONTENTS

	Page No.
Directors' Report	4 – 27
Auditor’s Independence Declaration	28
Corporate Governance Statement	29 – 34
Statement of Comprehensive Income	35
Statement of Financial Position	36
Statement of Changes in Equity	37
Statement of Cash Flows	38
Notes to the Financial Statements	39 – 83
Directors' Declaration	84
Independent Audit Report to the Members	85 – 86
ASX additional information	87 – 88

 

Your Directors submit their report for the year ended 30 June, 2012.

This annual report has been based on financial statements which have been audited.

DIRECTORS

The names and details of the Company’s Directors at the date of this report are as follows:

 

Mr WD Rueckert – Chairman

Mr JT Austin

Mr JP O’Connor – appointed 25 May, 2012

Mr PR White

Mr RC Youngman

Former directors who served during the twelve months ended 30 June, 2012:

Mr PDA Scutt – resigned 25 May, 2012

Directors were in office for the entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

William D Rueckert Non-executive Chairman

Mr Rueckert has been director of the Company since March 2009 and was elected Chairman of Novogen Limited effective 18 October, 2010. Mr Rueckert was a Director of MEI Pharma (“MEI”) (formerly Marshall Edwards, Inc.) between March 2007 and March 2009 and was reappointed as a Director in March 2011. Mr Rueckert is the Managing Member of Oyster Management Group LLC an investment fund specialising in community banks. From 1991 to 2006 he was President and Director of Rosow & Company, a private investment firm based in Connecticut with interests in the petroleum and resort development industries. From 1981 until 1988 he was President of United States Oil Company, a publicly traded oil exploration business. Among his many civic associations, Mr Rueckert is Director and President of the Cleveland H. Dodge Foundation, a private philanthropic organisation in New York City and Chairman of the Board of the Trustees of Teachers College, Columbia University.

Other current and former directorships held in the last three years

Mr Rueckert is currently a Director of Chelsea Therapeutics, Inc. a Nasdaq listed drug development company and Fairfield County Bank, a community bank in Ridgefield, Connecticut. Mr Rueckert is currently a Director of NASDAQ listed, Novogen subsidiary, MEI.

During the last three years Mr Rueckert has served as a Director for the Emergency Filtration Products, Inc. and Rapid Pathogen Screening, Inc.

Special responsibilities

Chairman of the Board

Chairman of the Remuneration Committee

Member of the Audit Committee

 

 

 

Josiah T Austin Non-executive Director

Mr Austin is a United States resident and the largest shareholder in Novogen.  He is managing member of El Coronado Holdings, LLC, a privately owned investment holding company, which invests in public and private companies. He and his family own and operate agricultural properties in the states of Arizona, Montana, and Northern Sonora, Mexico through El Coronado Ranch & Cattle Company, LLC and other entities. Mr Austin previously served on the Board of Directors of Monterey Bay Bancorp of Watsonville, California, and was a prior board member of New York Bancorp, Inc., and North Fork Bancorporation. 

Other current and former directorships held in the last three years

During the last three years Mr Austin has served as Director of Goodrich Petroleum, Inc., a position he has held since 2002.

Special responsibilities

Member of the Audit Committee

Member of the Remuneration Committee

John P O’Connor Non-executive Director

BEc., MAICD

 

Mr O’Connor has spent his working life in the financial industry.  In this time he has worked both in funds management and as a stockbroker.  He has worked in the UK, US and in Australia.  He has held management roles and been a Partner in securities businesses.  He served on the Board of Lonsec Securities, a Zurich Insurance owned business, for several years.  

 

He has been a consultant to several biotech businesses, including Novogen Limited and MEI , assisting with fundraising. 

 

Other current and former directorships held in the last three years

Mr O’Connor is currently on the Board of the Fragile X Association of Australia, a not for profit organisation.

Peter DA Scutt Non-executive Director

B Com

Mr Scutt is an Australian based corporate advisor who is currently a consultant to specialist corporate advisory house, Spark Capital. Mr Scutt has broad investment and corporate finance experience through his past positions as co-founder and CEO of Texel Capital and managing partner of BT Venture Partners. His early career was highlighted by senior positions, over a 12 year period, at Bankers Trust Company both in Australia and New York where he was a partner and senior managing director. Mr Scutt has a Bachelor of Commerce from the University of NSW.

Other current and former directorships held in the last three years

During the last three years Mr Scutt has served as an alternate Director of Print and Digital Publishing Pty Ltd.

 

Ross C Youngman Non-executive Director

B Com, MBA

Based in Australia, Mr Youngman is co-founder and Chief Executive Officer of Five Oceans Asset Management and has over 25 years' international experience in the finance industry covering stockbroking, financial planning and asset management.  He spent 12 years with Bankers Trust and Deutsche Bank in both Sydney and New York and was most recently Chief Executive Officer of Deutsche Asset Management in Australia. Prior positions included Head of Deutsche Asset Management's US mutual fund business and Head of BT Funds Management's US asset management business. Mr Youngman has a Bachelor of Commerce from the University of Tasmania and an MBA from Columbia Business School, New York.

Peter R White Non-executive Director

AB, MBA 

Mr White is a United States resident and is a corporate finance professional with over 30 years’ experience in financing and advising companies in the US.  He has broad industry experience including technology, media and communications, business services and energy distribution.  Among current responsibilities, Mr White is building a leveraged finance business servicing private equity firms in the US for RBS Citizens Bank.  Mr White has previously worked in senior positions for several large North American financial services leaders, including BankBoston, Fleet Securities, GE Capital, CIT Group and TD Bank. Mr White was educated at Dartmouth College, AB Cum Laude 1977 and has an MBA from The Wharton School - University of Pennsylvania. 

Special responsibilities

Chairman of the Audit Committee

Member of the Remuneration Committee

COMPANY SECRETARY

Ronald L Erratt

FINA

Mr Erratt has been the Company Secretary of Novogen Limited since it floated on the Australian Stock Exchange in 1994. He is also the Company Secretary for all the wholly-owned subsidiaries of Novogen. Mr Erratt has over 30 years experience in accounting and commercial roles. Prior to joining Novogen he was the Director of Superannuation Fund Administration at Towers Perrin, an international firm of Actuaries and Management Consultants.

Mr Erratt’s employment was terminated on 31 December, 2010. However he continues to provide consulting services to the Company and has remained as the Company Secretary following the termination of his employment.

 

Directors' interests in the shares and options of the Company

At the date of this report the interests of the Directors, and their related parties, in the shares and options of Novogen Limited were:

KEY FINANCIAL DATA

Earnings per share

 

Dividends paid or recommended

 

The Directors of Novogen Limited do not recommend the payment of a dividend at year end.

During the year Novogen Limited distributed to its shareholders, by way of a dividend, 90% of the rights it received from its majority owned subsidiary, MEI, under MEI’s rights offering which concluded in May, 2012. More information on the rights offering is included below under “corporate developments”.

 

Corporate Information

Novogen Limited is a company limited by shares and is incorporated and domiciled in Australia. Novogen Limited shares are publicly traded on the Australian Stock Exchange (ASX). The trading symbol on the ASX is “NRT”.

Novogen Limited’s ordinary shares trade in the US in the form of ADRs on the NASDAQ Capital Market. Each ADR represents twenty-five ordinary Novogen shares. The trading symbol on NASDAQ is “NVGN”.

Nature of operations and principal activities

 

The principal activities of the entities within the Group during the year were:

·	pharmaceutical research and development; and

·	marketing of consumer healthcare products (until August 2011).

Employees

The Group employed 13 people as at 30 June, 2012 (2011: 21 people).

 

 

OPERATING AND FINANCIAL REVIEW

 

Operating results for the year

 

Cash resources

 

At 30 June, 2012, the Group had total funds of $8.3 million compared to $6.0 million at 30 June, 2011. The Company received cash of $10.1 from the sale of its consumer products business in August, 2011. Cash was used to fund the Group’s operations including the drug development program undertaken by Novogen’s US subsidiaries MEI Pharma, Inc. (“MEI”), Glycotex, Inc. (“Glycotex”) and in connection with the restructuring undertaken following the sale of the consumer products business.

Revenue

The Group earned revenues from continuing operations for the year ended 30 June, 2012 of $1.5 million versus $2.0 million in the previous corresponding period. The decrease relates to additional royalty revenue recognised in the prior period as a result of a renegotiation of the terms of the licence agreement, not repeated this period. The Company also experienced a decrease in the dividend income received from a small investment the Company held in Nox Technology, which was partially offset by an increase in interest earned due to higher cash balances held following the sale of the consumer products business.

The Company had been looking at strategic alternatives for its consumer products business. The consumer products business was not part of the Company’s longer term focus of therapeutic drug development, which the Company is undertaking through its majority owned subsidiaries MEI and Glycotex. The Company commenced a planned process to dispose of this business and in April 2011 appointed a financial advisor to actively search for a buyer. This process concluded with the sale of the consumer products business in August 2011. This business has been classified as a discontinuing operation for the purposes of this report.

The group earned revenue from discontinuing operations for the year ended 30 June, 2012 of $1.0 million versus $11.4 million for the year ended 30 June, 2011.

Consumer product sales

Sales of consumer health care products for the year ended 30 June, 2012 were $1.0 million, a decrease of $9.8 million from $10.8 million for the twelve months ended 30 June, 2011. The decrease was as a result of the consumer products business only operating for one month of the year before it was sold in August 2011.

Other revenue from discontinuing operations for the year ended 30 June, 2012 was nil compared to $0.5 million for the twelve months ended 30 June, 2011. The decrease was due to up-front licence fees received in the prior period, not repeated in the current year, as a result of the sale of the consumer products business in August 2011.

Net profit

 

The operating profit attributable to Novogen shareholders for the financial year, after allowing for losses attributable to non-controlling interests of $2.6 million, increased by $7.8 million or 121% to $1.3 million from a loss of $6.5 million for the previous year.

The net loss from continuing operations after income tax for the consolidated Group for the year ended 30 June, 2012 reduced by $2.2 million to $8.7 million from $10.9 million for the previous year. The reduction in the Group’s net loss for the year ended 30 June, 2012 was primarily due to reduced general and administrative expenses partly offset by increased research and development costs.

 

Research and development expenses have increased by $1.5 million to $5.4 million for the year ended 30 June, 2012, as a result of MEI conducting new Phase I clinical trials for ME-143 and ME-344 combined with the cost for drug manufacture and development for these two drug compounds. These additional costs were partly offset by savings in onerous lease costs incurred in the prior period, not repeated this period.

General and administrative costs have decreased by $3.8 million due to a number of factors including a net gain of $1.2 million from the movement of the derivative liability recognised by MEI in the prior period. Additional savings of $0.8 million for salary, wages and associated costs were achieved following the company restructuring of the Australian business that occurred in December 2010 and further changes that were implemented following the sale of the consumer business in August 2011. Additional savings of $0.6 million relate to termination payments incurred during the year of $0.1 million compared to $0.7 million in the prior year. Further savings of $1.0 million have been experienced with currency gains of $0.2 for the period ended 30 June, 2012 compared to currency losses of $0.8 million for the prior period.

The net profit after tax from discontinuing operations was $7.4 million for the year ended 30 June, 2012 compared to $1.5 million for the previous year ended 30 June, 2011. The discontinued operations represents the Company’s consumer products business which was sold in August 2011 for $10.1 million. As a result, sales revenue represents only one months operations during the year ended 30 June, 2012. Costs associated with the sale of this business include commission and legal fees of $0.5, termination payments of $1.0 million and cost of goods sold of $0.7 million.

Corporate developments

Novogen

Board of Directors

On 25 May, 2012, Mr John O’Connor was appointed to the Board following the resignation of Mr Peter Scutt. Mr O’Connor brings broad financial experience and expertise to the Board. More information on each of the Directors is contained under the item “Directors” commencing on page 4.

Investment in MEI Pharma, Inc.

During the year Novogen has continued its support of its majority owned subsidiary MEI Pharma, Inc. (“MEI”), formerly Marshall Edwards, Inc., through a number of cash investments to support the continued development of MEI’s drug development programs.

In September, 2011, Novogen Limited purchased common stock of MEI in a private placement for a total investment of US$2 million through the purchase of 1,333,333 common shares.

In December 2011 Novogen Limited made an additional investment of US$2 million in MEI with the purchase 1,941,747 common shares.

Following approval by its shareholders at an Extraordinary General Meeting held on 7 May, 2012, Novogen Limited invested a further US$4 million in MEI under the MEI rights offering (described in more detail below) with the purchase of 8,988,674 units, amounting to 4,494,337 common shares and warrants to purchase 2,247,168 common shares at a unit price of US$1.19 per share. These warrants will expire in May 2017. Novogen owned 63.5% of MEI at 30 June, 2012.

 

Sale of OTC business

On 1 August, 2011 Novogen completed the sale of its consumer products business to Pharm-a-Care Laboratories Pty Limited for a total sale price of $10.1 million. The sale of the consumer business follows the review by the Board of the Company of the strategic alternatives for its consumer products business. While this business has grown over the past 12 months and is profitable, it did not fit with the Company’s longer term focus on therapeutic drug development programs primarily, through the Company’s majority owned subsidiaries MEI and Glycotex.

Building Lease Assignment

Following the transition of the research and development function of MEI to the US and the sale of the consumer business, the Company sought alternative arrangements to utilise the excess space in the building it had leased in North Ryde. In June 2012 the Company assigned its lease obligations for the North Ryde premises and relocated to a smaller office in North Ryde.

Nox Technology Investment Disposal

During the year the Company disposed of its investment in Nox Technology, Inc for total profit of $0.2 million.

Glycotex, Inc.

On 25 January, 2012, Novogen offered to purchase the shares held by the minority shareholders in Glycotex, Inc. (“Glycotex”) in exchange for issuing Novogen Limited shares. The offer was based on issuing three Novogen shares for every share held in Glycotex. Novogen issued 1,429,782 shares as a result of this offer and currently owns 99.7% of Glycotex following this transaction.

Nasdaq

On 21 July, 2011 the Company received a notice from Nasdaq notifying it that for the last 30 consecutive business days the bid price of the Company’s American Depository Receipts (“ADR’s”) closed below the minimum US$1.00 per share requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq Rule 5450(a)(1). The Company was afforded a grace period of 180 calendar days, or until 17 January, 2012, to regain compliance in accordance with Nasdaq Rule 5810(c)(3)(A).  

The Company announced on 30 December, 2011, that it had modified the provisions of its ADR program.  The previous conversion ratio of 5 Novogen Limited ordinary shares for each ADR share has become 25 Novogen Limited ordinary shares for each ADR share.  The change was effective from 3 January, 2012. The change in the ADR ratio had no effect on the number of outstanding common shares the Company has on issue or the listing of its common shares on the ASX.

Following the ADR ratio change the Company received confirmation from Nasdaq on 18 January, 2012  confirming that for the ten consecutive business days, from 3 January, 2012 to 17 January, 2012, the closing bid price of the Company’s American Depository Receipts (“ADR’s”) had been at US$1.00 per ADR or greater. Accordingly, the Company has regained compliance with Listing Rule 5550(a)(2) and this matter is now closed. 

Notification from the Nasdaq Stock Market has no bearing on the ASX listing. 

 

MEI Pharma, Inc.

Capital Raising

May 2011 Private Placement

On 16 May, 2011, MEI entered into an Amended and Restated Securities Purchase Agreement (the “Amended Securities Purchase Agreement”) with certain accredited investors pursuant to which MEI agreed to issue and sell to the investors certain shares of MEI’s common stock, and warrants to purchase additional shares of common stock. Pursuant to the Amended Securities Purchase Agreement, in May 2011 MEI issued to the investors: (i) 835,217 shares (the “Initial Shares”) of common stock, at a purchase price of US$1.333 per share; (ii) series A warrants (the “Series A warrants”) which initially represented the right to purchase up to 626,413 shares of common stock, up to a maximum of 2,250,564 shares; and (iii) series B warrants (the “Series B warrants”) which initially represented the right to purchase up to 2,165,534 shares of common stock in MEI. In addition, MEI agreed to issue certain additional shares of common stock (the “Adjustment Shares”) to the extent the price of the common stock was below US$1.333 per share, but greater than or equal to US$0.75 per share, on certain dates (“Adjustment Dates”) during the period ending 26 June, 2012, including as a result of a subsequent offering by MEI of its securities at a price below the purchase price of the Initial Shares. The number of Adjustment Shares issuable was initially limited to 649,242, subject to proportionate increases to the extent the Series B warrants have been exercised prior to the applicable Adjustment Date, up to a maximum of 2,332,583 shares. If the trading price of MEI’s common stock was below US$0.75 per share on any Adjustment Date, MEI would, in addition to issuing the applicable number of Adjustment Shares, refund to the investors an amount per share of its common stock received by the investors in the transaction equal to the difference between US$0.75 and the price of the common stock on such Adjustment Date. The transactions contemplated by the Amended Securities Purchase Agreement are referred to as the May 2011 private placement. Upon the closing of the May 2011 private placement, MEI also issued warrants to the placement agent for the purchase of up to 210,053 shares of MEI common stock, which warrants were exercisable on the same terms as the Series A warrants.

On 29 December, 2011, MEI issued an aggregate of 667,272 Adjustment Shares to the investors in accordance with the calculation of the applicable price, based on the trading price of MEI’s common stock, with respect to the first Adjustment Date. Additionally, on 29 December, 2011, MEI issued an aggregate of 245,700 Adjustment Shares to the investors in connection with the private placement of common stock to Novogen that closed on 29 December, 2011.

 
 

Terms of Series A and Series B Warrants

The Series A warrants became exercisable on the six month anniversary of the 18 May, 2011 closing of the May 2011 private placement. The Series A warrants will expire on the fifth anniversary of the date on which the Series A warrants first became exercisable. Prior to the amendment of the warrant terms in September 2011 in conjunction with the Supplemental Agreement, as defined and described below, the Series A warrants were initially exercisable at an exercise price of US$1.57 per share, subject to adjustment as provided in the Series A warrant agreements. Under the terms of the warrant agreements, the number of shares of common stock issuable upon exercise of the Series A warrants would be increased by an amount equal to 75% of the number of shares of common stock issued upon each exercise of the Series B warrants.

Prior to the amendment of the warrant terms in September 2011 in conjunction with the Supplemental Agreement, as described below, the initial exercise price per share of the Series B warrants was equal to the lower of (i) US$1.333, and (ii) 85% of the arithmetic average of the lowest eight weighted average prices of MEI’s common stock during the 20 consecutive trading day period in the case of a voluntary exercise by the holders, ending on the trading day immediately preceding the date of delivery of a notice of exercise.

 
 

 

In July and August 2011, the investors exercised an aggregate of 1,294,000 Series B warrants for 1,294,000 shares of MEI’s common stock. MEI received net proceeds of US$1,094,000 in conjunction with the exercise of the Series B warrants. Pursuant to the terms of the Amended Securities Purchase Agreement, an additional 970,500 Series A warrants became exercisable as a result of these Series B warrant exercises.

Supplemental Agreement

On 28 September, 2011, MEI entered into a Supplemental Agreement (the “Supplemental Agreement”) with each of the investors party to the Amended Securities Purchase Agreement.

Pursuant to the Supplemental Agreement, each of the Series A warrants and the Series B warrants issued pursuant to the Amended Securities Purchase Agreement were amended and restated (the “Amended Series A Warrants” and “Amended Series B Warrants”, respectively). The exercise price of each of the Series A warrants and Series B warrants was reduced to US$1.00 per share. As amended, the exercise price of the Amended Series A Warrants is no longer subject to further adjustment upon the occurrence of certain events, including the subsequent sale or deemed sale by MEI of shares of its common stock at a price per share below the exercise price of the Amended Series A Warrants; however, the Amended Series A Warrants continue to provide for certain customary anti-dilution adjustments.

 

The Series B warrants were amended to permit the exercise of such warrants on a cashless basis. Pursuant to the terms of the Supplemental Agreement, on 28 September, 2011, the investors exercised, on a cashless basis, the Amended Series B Warrants for all of the remaining shares of common stock for which such Amended Series B Warrants were exercisable, resulting in the issuance by MEI of an aggregate of 305,603 shares of its common stock. As of 28 September, 2011, there were no remaining outstanding Series B warrants.

The Supplemental Agreement also effected certain amendments to the Amended Securities Purchase Agreement, including the extension, through 28 September, 2013, of the period during which the investors have the right to participate in subsequent equity offerings of MEI. In connection with the amendments described above, MEI made cash payments to the investors in an aggregate amount of US$365,000.

 
 

Derivative Liabilities

The Company accounted for the Series A and B warrants and the Adjustment Shares feature pursuant to the Amended Securities Purchase Agreement in accordance with accounting guidance for derivatives. Additionally, the Company determined that the Adjustment Shares feature, as specified in the Amended Securities Purchase Agreement, resulted in an embedded derivative. As a result of amending the Series A and Series B warrant terms pursuant to the Supplemental Agreement, and the exercise of the Amended Series B Warrants, as described above, the Series A and Series B warrants are no longer considered to be derivatives as of 30 September, 2011. As a result of MEI’s completion of its contractual obligations under the Amended Securities Purchase Agreement related to the issuance of Adjustment Shares, the Company had no remaining derivative liabilities as of 30 June, 2012.

 
 

Rights Offering

On 26 March, 2012, MEI’s registration statement on Form S-1, filed with the Securities and Exchange Commission, became effective. The Form S-1 was filed in connection with MEI’s rights offering (“Rights Offering”) to its existing stockholders and to holders of MEI’s Series A warrants issued in connection with the May 2011 private placement. Pursuant to the Rights Offering, MEI distributed one subscription right for each share of its common stock and each Series A warrant exercisable for a share of its common stock to holders of record as of 30 March, 2012. Each subscription right entitled the holder to purchase one Unit, which consisted of 0.5 shares of MEI’s common stock and a warrant to purchase 0.25 shares of MEI’s common stock. 

 
 

 

For every two Units purchased in the Rights Offering, stockholders received one share of common stock in MEI for a purchase price of US$0.89 per share, which represented a 10 percent discount to the volume-weighted average price of MEI’s common stock for the 30 consecutive trading days ending on, and inclusive of, 13 March, 2012, and warrants to purchase one-half of one share of MEI’s common stock with an exercise price of US$1.19 per share, which represented a 20 percent premium to the volume-weighted average price of MEI’s common stock during the same period. The warrants are exercisable for a five-year period beginning on 11 May, 2012.

The Rights Offering also included an over-subscription privilege, which entitled stockholders to purchase additional Units that remained unsubscribed at the expiration of the Rights Offering.

The subscription period expired on 11 May, 2012. Eligible participants exercised subscription rights to purchase 11,660,606 Units under the offering, including 8,988,675 Units purchased by Novogen Limited (described above). Based on the irrevocable exercise of the subscription rights, MEI issued 5,830,202 shares of its common stock and warrants to purchase 2,915,152 shares upon exercise of the warrants (subject to adjustment for fractional shares). Gross proceeds of US$5.2 million were received in connection with the Rights Offering.

Nasdaq

During fiscal year 2011, MEI received deficiency notices from The Nasdaq Stock Market (“Nasdaq”) regarding non-compliance with the minimum stockholders’ equity and the minimum Market Value of Publicly Held Shares in accordance with Nasdaq Listing Standards for the Nasdaq Global Market. In March 2011 MEI received a positive response from the Nasdaq Listing Qualifications Staff indicating that its request for a transfer and continued listing on the Nasdaq Capital Market had been granted. MEI’s common stock began trading on the Nasdaq Capital Market effective with the open of business on 16 March, 2011.

Under Nasdaq rules, failure to maintain minimum stockholders’ equity of US$2.5 million may result in the delisting of MEI’s common stock from the Nasdaq Capital Market, in which case MEI would have 45 calendar days from the date of notification by Nasdaq to submit a plan to regain compliance. If the plan is accepted, Nasdaq can grant an extension of up to 180 calendar days from the date of the original notification for MEI to evidence compliance with this requirement. As a result of continuing losses from operations, MEI’s stockholders’ equity fell below US$2.5 million as of 31 March, 2012. The gross proceeds of US$5.2 million received in connection with the Rights Offering increased MEI’s stockholders’ equity above US$2.5 million as of 15 May, 2012.

On March 27, 2012, MEI received notice from Nasdaq stating that, based on the closing bid price for MEI’s common stock for the last 30 consecutive business days, MEI no longer met the US$1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq Rule 5550(a)(2). The notification letter states that MEI will be afforded a grace period of 180 calendar days, or until 24 September, 2012, to regain compliance with the minimum bid price requirement in accordance with Nasdaq Rule 5810(c)(3)(A). In order to regain compliance, shares of MEI’s common stock must maintain a minimum closing bid price of at least US$1.00 per share for a minimum of ten consecutive business days during the grace period. In the event MEI does not regain compliance during the initial 180 calendar day grace period, MEI may be eligible for additional time to demonstrate compliance with the minimum bid price requirement if it continues to meet certain other Nasdaq listing requirements.

 

Clinical development

The Company’s clinical development program is now run through Novogen’s subsidiaries MEI and Glycotex. MEI runs the Company’s oncology drug development program and Glycotex has been developing the Glucan based wound healing technology.

MEI Clinical Product Development Programs

MEI’s pipeline of drug candidates is derived from an isoflavone technology platform that has generated a number of compounds with anti-tumour activity. These compounds have been shown to interact with specific targets resulting in the inhibition of tumour metabolism, a function critical for cancer cell survival. MEI’s lead programs focus on two families of compounds with related but distinct mechanisms of action: NADH oxidase inhibitors and mitochondrial inhibitors.

NADH Oxidase Inhibitors

MEI’s most advanced program is a family of isoflavone compounds that includes Phenoxodiol, a first-generation compound that has been investigated in multiple human clinical studies, and a next-generation compound and lead drug candidate ME-143. ME-143 in particular has demonstrated robust anti-tumour activity in pre-clinical laboratory studies and is currently under evaluation in human clinical studies.

First Generation: Phenoxodiol

Phenoxodiol has been administered to more than 400 patients in clinical studies via oral or intravenous routes and appears to be well tolerated with an acceptable toxicity profile. In a Phase II clinical trial of intravenously administered Phenoxodiol in combination with platinum-based chemotherapy in women with recurrent ovarian cancer, a clinical response was observed in 19% of patients (three out of 16). These results were published in the May 2011 issue of International Journal of Gynecological Cancer . However, in a Phase III clinical trial of orally administered Phenoxodiol in combination with platinum-based chemotherapy in women with advanced ovarian cancer resistant or refractory to platinum-based drugs, a clinical response was observed in less than 1% of patients (one out of 142).

Pharmacokinetic studies suggest that significantly higher blood plasma levels of active drug are measured when isoflavone compounds are administered intravenously versus orally. As a result of these findings and the clinical experience to date, MEI is actively pursuing the clinical development of its next-generation compounds using an intravenous formulation.

Lead Drug Candidate: ME-143

ME-143 is a next-generation analogue of Phenoxodiol. Pre-clinical laboratory studies show that ME-143 demonstrates enhanced anti-tumour activity against a broad range of tumour cell lines when used alone or in combination with platinum-based chemotherapy when compared to Phenoxodiol. As a result, ME-143 was selected as MEI’s lead drug candidate for the NADH oxidase inhibitor program.

 

In September 2011, MEI initiated a Phase I open label, multi-centre, dose escalation trial of ME-143 in patients with refractory solid tumours following the approval of an Investigational New Drug (“IND”) application by the US Food and Drug Administration (“FDA”). This clinical trial, conducted in collaboration with the Sarah Cannon Research Institute, was designed to evaluate the safety and tolerability of intravenous ME-143 and characterise its pharmacokinetic profile.

 

 

 

Results from a Phase I clinical trial of intravenous ME-143 were presented at the American Society of Clinical Oncology Annual Meeting in June 2012. A total of 15 patients were enrolled in escalating dose cohorts of 2.5 mg/kg, 5 mg/kg, 10 mg/kg and 20 mg/kg. With the exception of a serious infusion reaction in one patient at the highest dose level, ME-143 was generally well tolerated with minimal toxicity in heavily treated patients. The maximum tolerated dose was defined as 20 mg/kg. In addition, the pharmacokinetic profile of intravenous ME-143 resulted in drug levels that were approximately 30 times higher than the expected exposure achieved in a Phase II trial of intravenous Phenoxodiol in combination with platinum-based chemotherapy in women with platinum-resistant ovarian cancer.

 

MEI is now preparing for a randomized, placebo-controlled Phase II clinical trial of intravenous ME-143 in combination with gemcitabine and carboplatin, a platinum-base chemotherapy, in women with triple-negative breast cancer. Triple-negative accounts for 10-20% of all breast cancers and refers to a subgroup of breast cancers that do not express estrogen receptors, progesterone receptors or human epidermal growth factor receptor 2 (HER2). Therefore, women with triple-negative breast cancer generally do not respond to targeted therapies, leaving chemotherapy as a standard treatment option. MEI expects to begin enrolling patients in this trial during the first quarter of calendar year 2013.

Program 2: Mitochondrial Inhibitors

MEI’s mitochondrial inhibitor program consists of a family of compounds that includes NV-128, a first-generation compound that has shown activity against a broad range of cancers in laboratory research studies, including chemotherapy-resistant ovarian cancer cell lines, and a next-generation compound and lead drug candidate ME-344. ME-344 appears to be significantly more active than NV-128 in pre-clinical studies and is currently being investigated in human clinical studies.

First Generation: NV-128

NV-128 is a novel mitochondrial inhibitor which has been shown in pre-clinical laboratory studies to disrupt mitochondrial function and induce cancer cell death by two distinct mechanisms; 1) through the induction of DNA fragmentation, and 2) through the process of destructive autophagy, wherein a cell consumes itself. Structurally, NV-128 is an analogue of Phenoxodiol, but, in contrast, uses different molecular mechanisms to promote the death of cancer cells.

NV-128 has shown activity in pre-clinical models against a broad range of cancers. Treatment of cancer cells with NV-128 induces a rapid loss of cellular energy resulting in the inhibition of both mammalian target of rapamycin (mTOR1 and mTOR2) pathways, which are suggested to be central to the aberrant proliferative capacity of both mature cancer cells and cancer stem cells. Results from an ongoing collaboration with Dr Gil Mor at the Yale University School of Medicine’s Department of Obstetrics, Gynecology and Reproductive Sciences, have demonstrated that NV-128 is active against chemotherapy-resistant ovarian tumour cells. In April 2011, his colleague Dr. Ayesha Alvero presented data at the American Association for Cancer Research Annual Meeting from a pre-clinical study of NV-128 demonstrating its ability to induce mitochondrial instability, ultimately leading to cell death in otherwise chemotherapy-resistant ovarian cancer stem cells. These results were later published in the August 2011 issue of Molecular Cancer Therapeutics .

Lead Drug Candidate: ME-344

ME-344 is a next-generation analogue and active metabolite of NV-128. In pre-clinical laboratory studies, ME-344 has demonstrated superior anti-tumour activity against a broad panel of human cancer cell lines compared to NV-128. MEI received FDA approval of an IND application for ME-344 in April 2012 and initiated a Phase I clinical trial of intravenous ME-344 in patients with solid refractory tumours shortly thereafter.

 

The Phase I clinical trial is evaluating the safety and tolerability of intravenous ME-344 in escalating dose cohorts of 1.2 mg/kg, 2.5 mg/kg, 5 mg/kg, 10 mg/kg and 20 mg/kg. In addition, the trial is designed to characterise the pharmacokinetic profile of ME-344 and describe any preliminary clinical anti-tumour activity observed. Patients in the trial are administered intravenous infusions of ME-344 once weekly for three weeks and, after safety assessment, may continue weekly dosing if a clinical benefit is determined. The trial is expected to enroll up to 24 patients with final safety and pharmacokinetic data expected in the second quarter of calendar year 2013.

Glycotex Clinical Product Development Programs

The investigational product candidate GLYC-101 Gel, being developed by the Company’s US subsidiary Glycotex, Inc. (“Glycotex”), is intended to stimulate and modulate the natural cascade of wound healing activities in several cell populations. The product candidate is a topical glucan gel formulation to be applied directly on the wound surface. The strategic priorities for GLYC-101 include wound healing following laser ablation, burn wounds, surgical wounds, venous ulcers and diabetic ulcers.

The Company has made the strategic decision this year to focus its resources on the oncology drug development program conducted by its subsidiary MEI. Therefore there have not been any advancements in the glucan development during the last 12 months. The Company reached an agreement to terminate Glycotex’s Chief Executive Officer’s employment effective 31 May, 2012 and has been evaluating a number of strategic options to best utilise the glucan technology. The Company signed an agreement to dispose of the glucan assets on 27 July, 2012 for total cash proceeds of $0.15 million.

Significant changes in the state of affairs

During the financial year there were no significant changes in the state of affairs of the Group other than referred to in the Directors’ Report, the financial statements or the notes thereto.

Significant events after the end of the reporting period

On 27 July, 2012, Novogen announced that it had entered into a merger agreement with Kai Medical, a United States based company, incorporated in Delaware, whose business is focused on sleep apnea therapy devices and wireless respiration monitoring technology. The agreement is subject to a number of conditions including completion of due diligence and shareholder approval. A summary of the key terms of the merger agreement including the conditions precedent is set out in the attachment to this announcement.

In addition to the merger agreement with Kai, Novogen announced that in advance of the merger with Kai Medical and subject to shareholder approval, it will undertake a capital reduction and in specie distribution to the Novogen shareholders of the shares of MEI Pharma, Inc. (“MEI”) that it owns. This distribution will allow Novogen shareholders to own their proportionate share of the MEI’s shares now held by Novogen, and also allow them to continue to hold Novogen shares after the merger with Kai Medical. 

The glucan technology assets which Novogen currently holds, previously being developed by Glycotex, Inc., will not be acquired by Kai Medical in the merger and Novogen completed a sale of those assets to TR Therapeutics, Inc., a privately held US corporation, on 16 August, 2012. 

Novogen Limited will be renamed to Kai Medical Holdings Limited when the merger becomes effective.

 

On 9 August, 2012, MEI announced that it had entered into a definitive asset purchase agreement with S*BIO Pte Ltd, pursuant to which MEI will acquire S*BIO’s exclusive worldwide rights to Pracinostat, an investigational, potential best-in-class, oral histone deacetylase (HDAC) inhibitor. Pracinostat is an orally available, selective HDAC inhibitor that has demonstrated clinical evidence of single-agent activity, including studies in patients with advanced hematologic disorders such as acute myeloid leukemia and myelofibrosis. In addition, Pracinostat has demonstrated pharmacokinetic properties in the clinic that compare favorably to other compounds of this class. Pursuant to the terms of the agreement, MEI will issue US$500,000 of common stock to S*BIO. The agreement also includes potential success-based clinical, regulatory and sales milestone payments of up to US$75.2 million, as well as low single-digit contingent earn-out payments based on net sales. The transaction is expected to close on or about 28 August, 2012, subject to S*BIO shareholder approval and certain customary closing conditions.

There have been no other significant events occurring after the end of the reporting period which have had a material impact on the business.

Likely developments and expected results of operations

The Directors foresee that during the 2012/2013 year, following the successful planned merger with Kai Medical, the Company will continue the business currently undertaken by Kai Medical including the developing and marketing of medical devices for sleep apnea therapy and devices to measure and monitor respiration wirelessly, with no contact, and from a distance.

Share options

As at the date of this report there were 1,606,240 unissued Novogen ordinary shares under options (1,606,240 at the end of the reporting period), 6,487,332 unissued MEI ordinary shares under options or warrants (6,487,332 at the end of the reporting period) and 132,586 unissued Glycotex ordinary shares under options (132,586 at the end of the reporting period). Refer to Note 13 of the Financial Statements for further details of the options outstanding.

The terms and conditions of each grant of options that were in existence during the financial year are as follows:

Novogen Limited