Several weeks ago I wrote an article on Novogen Limited (NVGN) (NRT.AX) and its pre-clinical family of drugs for various forms of cancer. My thesis on the stock has worked out so far as spikes in the stock price from headline-grabbing news were offset by a much needed financing. While the financing hurts the stock price in the short term, this money will allow the company to go through early stage trials in order to prove that its drugs are effective in live patients.
The wave of news releases that resulted in a sharp rise in the stock and an ability to finance at favorable prices was at a pace that was beyond even my expectations:
- On March 29, the company and Yale University released pre-clinical data on Cantrixil, confirming the drug's ability to kill ovarian cancer stem cells. The stock rose from $3.77 to $4.55 that day.
- On April 9, the company announced that studies at The University of Queensland Diamantina Institute [UQDI] revealed that Novogen's drug Anisina killed melanoma cells regardless of their mutational status. The stock rose from $4.51 to $5.52 that day, and set the tone for bullish trading in the following several days.
- On April 16, Novogen announced a partnership with the Feinstein Institute for Medical Research with purpose of developing effective treatments for brain cancers using the company's TRXE-009 drug.
- On April 20, the company disclosed further data along with Yale that shows Cantrixil is highly successful in preventing the growth of chemo-resistant ovarian cancer. That bit of news caused the stock to close at its 52-week high of $9.23 before the financing was announced.
- Since the first stage of financing has been completed, the company remained in the news with a release on May 7 confirming that TRXE-009 kills resistant paediatric brain cancer cells in vitro.
With a full subscription to its offering and rights placement, Novogen hopes to have $44 million in cash by mid-year. The offering comes in three different stages which includes:
- A placement of 51.75 million NRT.AX shares at $0.30 AUD for total gross proceeds of AUD $15.5 million. This offering has already been fully subscribed.
- A rights offering to existing shareholders at the same terms that will raise up to $15 million and is expected to be completed in June.
- Both the placement and the rights offering come with 6-month options to purchase more shares at $0.30 and 5-year options to purchase one-half of a share at $0.40 per share. A total of 98 million 6-month options and 49 million 5-year options are expected to be released between the two offerings.
- The offerings are pending shareholder approval
$0.30 AUD per NRT.AX share translates to around USD $6.00 per NVGN share considering the 25-to-1 ratio of the ADR and AUD/USD exchange rate. The financing and rights offering would represent about 4 million NVGN shares with an additional 4 million potentially added to the float in six months if those options are in-the-money. Prior to the financing NVGN had 10 million shares. While the dilution is painful, adding this much cash to the till allows for NVGN to bring Cantrixil, Trilexium and Anisina to clinic in order to test their ability to provide a meaningful clinical benefit for patients suffering from various forms of cancer. The CEO anticipates a continued strong news flow for the rest of 2015 as Novogen is ramping up its R&D programs thanks to this cash injection. It is likely because of this that trading in NVGN remains relatively strong despite the high dilution that took place around $6. Usually companies trade at or below the price level of their financing at least until its been fully absorbed into the float.
Despite my bullishness on the company's prospects, I am no longer currently in NVGN as I have learned that after a news release it is usually a good idea to sell into strength as the looming financing acts as an anchor for the stock. The trading on May 8 immediately following the latest news release as mentioned above illustrates this point perfectly as the stock opened at $7.32, 90 cents higher than the previous day's close, but ended at $6.55, up only 7 cents. I suggest that investors and traders take advantage of this very clear pattern and sell into spikes immediately following news while buying on dips when it has been quiet for a few weeks. NVGN appears to be like an active volcano. If it's been off for a few weeks, you can expect another groundbreaking news release at some point in the near future. Should NVGN slip under $6 after several weeks of a quiet period, I would suggest that to be an opportune time to purchase shares.