Novogen — Update 11 May 2016

Novogen expects to enroll the first patients in Q416 in a Phase I trial of intra-abdominal Cantrixil in ovarian cancer. It has appointed Quintiles as CRO to support execution of the study at centers in Australia and the US, and plans to submit an IND to the US FDA in August. A poster presenting the recently completed Cantrixil preclinical toxicology studies at AACR in mid-April concluded that “a dose should be tolerated in humans which is slightly higher than the efficacious dose for the three times weekly regimen in a mouse disseminated ovarian cancer model”.

Additional preclinical evidence presented to the Lorne Cancer Conference in February 2016 demonstrated the broad-based anti-tumor effect of pipeline drugs Anisina and Trilexium. We note that in a mouse model of prostate cancer Anisina enhanced the effect of docetaxel, a standard therapy for prostate cancer. This is further evidence that Anisina, which targets the tropomyosin component of the cell cytoskeleton, has the capacity to enhance the effect of microtubule-targeting cytotoxic drugs, including the taxanes (such as docetaxel) and vinca alkaloids.

Novogen is well funded, with $28.6m cash at 31 December, which should be sufficient to fund operations through FY18. Moving its promising drugs into the clinic will be an important milestone and a potential re-rating catalyst.

Our risked DCF valuation is falls slightly to $86m or $4.97/ADR (undiluted, previously $87m and $5.13/ADR) and $4.35/ADR after diluting for options and convertible notes. The benefit of resuming 100% ownership of Cantrixil is offset by increased G&A expenses in response to the higher run rate in H116 (FY16 increased by $1.3m to $4.2m, with the increase flowing on to subsequent years).

Dr James Garner commenced as CEO and MD of Novogen in February, replacing acting CEO Iain Ross. Dr Garner has extensive experience in drug development and commercialization with big pharma as well as smaller biotech companies. He was most recently head of the Unit Development Office, AP R&D with Sanofi, based in Singapore. He qualified in medicine at Imperial College, London and has worked with Biogen and Progen Pharmaceuticals in Australia, and for Quintiles and Takeda in Singapore.

Cantrixil is on track to commence first-in-man Phase I studies in Q4 CY16. Quintiles has been appointed as CRO to support execution of the trial, manufacture of the active ingredient has been completed, and formulation and stability testing of sterile GMP product for the Phase I clinical trial is expected to be completed in May.

Novogen presented the results of the recently completed preclinical GLP toxicology program on Cantrixil at the annual meeting of the American Association for Cancer Research (AACR) in April. The safety studies supported the proposed clinical used of Cantrixil using the intraperitoneal route of administration, concluding that “a dose should be tolerated in humans which is slightly higher than the efficacious dose for the three times weekly regimen in a mouse disseminated ovarian cancer model”. The major target organs for toxicity in rats and dogs were the gastrointestinal tract and male reproductive tract, which is not surprising in a drug that targets rapidly dividing cells.

Importantly, despite some preliminary signals in in vitro studies, ECG readings in a GLP-compliant electrophysiology study in dogs showed no effect of Cantrixil on QTc interval, indicating that the drug is not cardiotoxic in vivo.

The design of the Phase I study of Cantrixil to begin in Q416 has been amended to focus more specifically on patients with ovarian cancer, versus the previous plan for an all-comers trial in late-stage abdominal cancers patients with malignant ascites. The company plans to submit an Investigational New Drug (IND) application to the US FDA in August, and to recruit patients at sites in Australia and the US the IND is granted. The US FDA has granted Cantrixil Orphan Drug status for ovarian cancer.

Researchers at Yale University have shown that Cantrixil is active in a stringent, clinically relevant rodent model of human ovarian cancer. Cantrixil is the first drug to show uniformly high potency against the Yale library of ovarian cancer stem cells collected from tumors that had stopped responding to chemotherapy. Patients with ovarian cancer face a very poor prognosis, with a five-year survival rate of only 35%, so an urgent unmet clinical need remains for better treatment for ovarian cancer patients.

Cantrixil is designed to be used as an intra-peritoneal (IP) therapy delivered directly into the abdominal cavity. IP administration delivers higher concentration of the drug to the site of the tumor for longer periods, and studies of advanced ovarian cancer patients have shown a survival benefit for IP delivery compared to intravenous administration of chemotherapy drugs.

Up until now Cantrixil was developed by CanTx, which was established in November 2013 as a joint venture (JV) between Novogen (85%) and Yale University (15%). Novogen has disclosed that it has concluded funding to the JV and that the CanTx entity will be wound up, with all of the intellectual property licensed from Novogen to CanTx returned to Novogen. The JV has facilitated the investigation of Cantrixil in the laboratories of Professor Gil Mor, which has provided useful data to guide the development of the drug in ovarian cancer, as outlined above. Now that the decision has been made to move Cantrixil into clinical trials, Novogen has concluded that returning the licensed intellectual property to Novogen is the most effective way to move Cantrixil forward.

No details of the terms of the winding up of CanTx have been disclosed. In our valuation we assume Yale will receive compensation equivalent to 5% of the milestone and royalty revenue that Novogen receives for Cantrixil. This compares to Yale receiving a 15% share under the JV arrangement. This assumption may be revised if details of the unwinding are disclosed.

In addition, Novogen has cautioned that the unwinding of the CanTx JV may lead to the impairment of certain intercompany loans between Novogen and CanTx. We do not know the amount of the existing intercompany loans, but we note that the 2015 annual report refers to a maximum $1.5m funding commitment to CanTx. We assume that any impairment will be a non-cash item that does not affect our risk-adjusted DCF valuation.

Anisina is a novel ATM therapy targeting the Tpm3.1 isoform of tropomyosin, which has a prominent role in cancer cells but a lesser role in normal cells. Previous preclinical studies have shown that Anisina synergistically enhances the killing effect of the widely used anti-microtubules class of chemotherapy drugs, which includes the taxanes (eg docetaxel and paclitaxel) and vinca alkaloids (eg vincristine). In some cases Novogen has shown a 20-30 fold increase in killing of cancer cells when Anisina was used in combination with microtubule targeting agents compared to either drug alone in preclinical studies.

Novogen presented additional preclinical evidence of the synergistic activity of Anisina in combination with an anti-microtubule drug at the Lorne Cancer Conference in Australia in February.

Exhibit 1 shows that Anisina at 100mg/kg and docetaxel at 3mg/kg were equally effective at inhibiting tumor growth when used as single agents. When the drugs were studied in combination they were used at half the dose used in the monotherapy arms of the study. Despite using a lower dose of each drug, the combination of Anisina and docetaxel more effectively inhibited tumor growth than either drug on its own, providing good evidence that the combination is synergistic in this model of prostate cancer.

Importantly, Anisina was well tolerated with no significant toxicity seen in any of the mice treated with Anisina. The low toxicity of Anisina is illustrated in Exhibit 2, which shows that mice treated with Anisina at 100mg/kg put on much more weight than those treated with docetaxel at 3mg/kg, although these two treatments were equally effective at inhibiting tumor growth. Mice treated with the lower dose of docetaxel in combination with Anisina put on significantly more weight than those treated with the higher dose of docetaxel alone, even though the combination treatment was more efficacious at reducing tumor growth. That is, the synergistic combination of Anisina plus docetaxel was both less toxic and more effective than a higher dose of docetaxel on its own. Anisina is a first-in-class drug with a novel method of action. If the synergy with the taxanes and/or vinca alkaloids seen to date in preclinical studies is confirmed in clinical trials, Anisina could potentially come to be used in a wide range of cancer types in combination with these drugs.

Anisina has already shown efficacy in animal models of prostate cancer, melanoma and neuroblastoma. We have included prostate cancer and melanoma as adult indications for Anisina and neuroblastoma as a pediatric indication in our valuation model.

Novogen anticipates taking Anisina through the clinic as an IV-delivered drug in combination with taxanes or vinca alkaloids. The Phase I trial is expected to be an all-comers trial in patients with late-stage, solid tumor cancers, which would likely include prostate cancer and melanoma. The choice of adult indication for subsequent trials will be influenced by the ongoing preclinical efficacy studies, as well as by which cancer types respond to therapy in Phase I trials. The company has confirmed that it intends to pursue a pediatric indication for Anisina in neuroblastoma.

Trilexium is at an earlier stage of development compared with Cantrixil and Anisina. The drug could potentially enter clinical trial in 2017 on completion of an ongoing program of drug formulation, preclinical efficacy and toxicology studies.

Trilexium has shown efficacy against cells from a wide range of cancers, including melanoma, colorectal, liver, lung, breast, prostate and brain cancers, in in vitro studies. Notably, the drug is highly cytotoxic against patient-derived explants of the childhood brain cancer known as Diffuse Intrinsic Pontine Glioma (DIPG) in in vitro studies. Trilexium also inhibits tumor growth in flank models where glioblastoma multiforme (GBM) tumors are growing under the skin of rodents.

Novogen presented additional data on Trilexium at the Lorne Cancer Conference. Trilexium inhibited tumor growth and extended survival as a monotherapy in mouse flank models of human prostate cancer and melanoma. In addition, combination therapy with Trilexium and the BRAF inhibitor dabrafenib (Tafinlar, GlaxoSmithKline) inhibited melanoma tumor growth and improved survival in mice to a significantly greater extent than dabrafenib alone (Exhibits 3, 4 and 5).