ceo response

In my frustration with the performance and response of the market to what we all thought was exciting news I sent a message on Novogens website basically venting my frustration at the convertible issue and the effect it is having on the share price and that shareholders deserve better.

To my amazement I opened my emails this morning to find this detailed response from Dr Graham Kelly.
He didn't need to waste his time in responding but felt the need to which I highly commend.

With his approval I share his response.

David

I accept and agree with your comment.

Unfortunately I have to grin and bear it the situation.

We hit the ground in Dec 2012 running hard. I was left with virtually a bare cupboard, some ongoing expensive remnants that I had to tidy up, and an ambitious R&D program to fund.

We tried a placement through Patersons and a Special Share Placement Scheme with our shareholders. That yielded about $3m, survival money for 18 months. But I needed more than survival money – survival money just kept the lights on. It didn't allow a ramping up of R&D spend, and certainly would not have seen us through into the clinic.

I have one abiding force in my life….I need money to drive an R&D program to generate the data to be able to raise more money to go to the next level when hopefully the company is re-rated so that I can raise more money….. And so on.

I juggle three balls at once:
• The need to fund research
• The need to have 2 year's survival money (exclusive of R&D spend) at any one time
• The need to seek the least dilutive capital.
In the middle of last year, we were sitting on 2 drug technologies with very considerable commercial potential. We could have sat on one until we got the other up and running, but that wouldn't have been very smart. Intellectual property ages very quickly. We had to get on and develop both technologies with all speed.

The cost? In rough terms, $0.5M to pick a lead candidate drug, $2M to get it ready for a Phase 1 trial, and $2.0m to take it through Phase 1.

To my mind it would be financial suicide to just have enough money to get to the end of each step. We need to be able to at least enter the next step because in this game money becomes less expensive the further you are in the development pipeline.

So, if I regarded the $3m that I had in my hand mid-last year as survival money, then I needed to raise roughly $4.5m for each of the two drug candidates, with another $4m to allow more than 1 clinical indication for each technology. $13M in total, at a time when the company had a market cap of $20m. It was clear, therefore, that I had to raise the money in at least two tranches. Probably $5m to see us through well into 2014, and then the rest in 2H14.

We received 5 offers of funding from US sources. All were of the type that came with the usual dire warnings of 'toxic deals'. I rejected these and went with the Hudson Bay convertible securities offer because I was able to insist on terms that carried the least likely risk of toxicity.

There is no argument that that money was expensive, and it came at a cost that I have no intention of ever repeating again. However, we had little choice and the money has proven to be an extraordinary valuable investment for us in terms of the IP that it has generated.

It hasn't, as various pundits suggested crunched the share price. But it almost certainly has capped the price. If that is the price that we have had to pay to bring our IP to the stage it now is where it is beginning to attract the attention of the major players, then so be it.

We have now entered a different ballgame. The invitation to the Cavendish Forum in May being an example of that where we get to present our case to about 120 of the wealthiest families in the world.

The perspective I keep on all of this is that when the share price is in the 3 digit range, this will be but a fading memory.

Hang in there.

Regards

Graham

Dr Graham Kelly
Executive Chairman and Chief Executive Officer
Novogen Ltd

e [email protected]
t (02) 9476 0344
f (02) 9476 0388
m 0429 854 390
address 16-20 Edgeworth David Ave Hornsby NSW 2077 Australia
postal address PO Box 2333 Hornsby Westfield NSW 1635 Australia

www.novogen.com