form10k20080912.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended June 30, 2008
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the transition period from ________ to ________.
Commission
File Number: 000-50484
Marshall
Edwards, Inc.
(Exact
name of registrant as specified in its charter)
DELAWARE
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51-0407811
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or organization)
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140
Wicks Road, North Ryde, NSW, 2113 Australia
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code:
(011)
61 2 8877- 6196
Securities
registered pursuant to Section 12(b) of the Act:
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|
|
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Name
of Each Exchange on which
Registered
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Common
Stock, $0.00000002 par value
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Nasdaq
Global Market
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Securities
registered pursuant to Section 12(g) of the Act:
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None
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(Title
of Class)
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Indicate
by a check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by a check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer o
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Accelerated
filer
o
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Non-accelerated
filer
x
(Do
not check if a smaller reporting company)
|
Smaller reporting
company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
The
aggregate market value of the voting common equity held by non-affiliates of the
registrant was approximately $40.1 million based on the closing price of the
registrant’s Common Stock as reported on the Nasdaq Global Market on December
31, 2007.
As of
September 10, 2008, the number of shares outstanding of the issuer’s common
stock, $0.00000002 par value, was 73,463,233
Documents
Incorporated by Reference
Portions
of this registrant’s definitive proxy statement for its 2008 annual meeting to
be filed with the U.S. Securities and Exchange Commission no later than 120 days
after the end of the fiscal year ended June 30, 2008 are incorporated by
reference in Part III of this Annual Report on Form 10-K.
MARSHALL
EDWARDS, INC.
TABLE OF
CONTENTS
PART
I
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Page
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Item
1:Business
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6
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Item
1A:Risk Factors
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23
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Item
1B:Unresolved Staff Comments
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35
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Item
2:Properties
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35
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Item
3:Legal Proceedings
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35
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Item
4:Submissions of Matters to a Vote of Security Holders
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35
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PART
II
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Item
5:Market for the Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Securities
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36
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Item
6:Selected Financial Data
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39
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Item
7:Management’s Discussion and Analysis of Financial Condition and results
of Operations.
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39
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Item
7a:Quantitative and Qualitative Disclosures about Market
Risk
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46
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Item
8:Financial Statements and Supplementary Data
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47
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Item
9:Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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67
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Item
9A(T):Controls and Procedures
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67
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Item
9B:Other Information
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68
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PART
III
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Item
10:Directors, Executive Officers and Corporate Governance
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69
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Item
11:Executive Compensation
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69
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Item
12:Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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69
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Item
13:Certain Relationships and Related Transactions, and Director
Independence
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69
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Item
14:Principle Accountant Fees and Services
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69
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PART
IV
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Item
15:Exhibits, Financial Statement Schedules
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70
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Cautionary
Statement about Forward-Looking Statements
This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts contained in this Annual Report, including
statements regarding the future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking
statements. The words “believe,” “may,” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “should,” “plan,” “expect,” and similar expressions, as
they relate to us, are intended to identify forward-looking statements. We have
based these forward-looking statements largely on current expectations and
projections about future events and financial trends that we believe may affect
financial condition, results of operations, business strategy and financial
needs. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including, without limitation, those described in
“Risk Factors” and elsewhere in this Form 10-K, including, among other
things:
· our
inability to obtain required additional financing or financing available
to us on acceptable terms;
|
· our
inability to maintain or enter into, and our dependence upon,
collaboration or contractual arrangements necessary for the clinical
development of phenoxodiol and other drug candidates;
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· our
limited operating history;
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· our
failure to successfully commercialize our product candidates;
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· costs
and delays in the clinical development program and/or receipt of U.S. Food
and Drug Administration (the “FDA”) or other required governmental
approvals, or the failure to obtain such approvals, for our product
candidates;
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· uncertainties
in clinical trial results;
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· our
inability to maintain or enter into, and the risks resulting from our
dependence upon, collaboration or contractual arrangements necessary for
the development, manufacture, commercialization, marketing, sales and
distribution of any products;
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· our
inability to control the costs of manufacturing our products;
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· continued
cooperation and support of Novogen Limited, our parent
company;
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· competition
and competitive factors;
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· our
inability to protect our patents or proprietary rights and obtain
necessary rights to third party patents and intellectual property to
operate our business;
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· our
inability to operate our business without infringing the patents and
proprietary rights of others;
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· costs
stemming from our defence against third party intellectual property
infringement claims;
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· difficulties
in enforcement of civil liabilities against our officers and directors who
are residents of jurisdictions outside the U.S.;
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· general
economic conditions;
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· the
failure of any products to gain market acceptance;
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· technological
changes;
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· government
regulation generally and the receipt of the regulatory
approvals;
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· changes
in industry practice; and
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· one-time
events.
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These
risks are not exhaustive. Other sections of this Annual Report on Form 10-K
include additional factors which could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all risk factors, nor can we assess the impact of all
factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
You
should not rely upon forward looking statements as predictions of future events.
We cannot assure you that the events and circumstances reflected in the forward
looking statements will be achieved or occur. Although we believe that the
expectations reflected in the forward looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
PART
I
Item
1. Business
Overview
of Our Business
We are a
developmental stage pharmaceutical company listed on the Nasdaq Global Market
under the symbol “MSHL”. We were incorporated on December 1, 2000 as a
wholly-owned subsidiary of Novogen Limited, an Australian company. Novogen
Limited’s ordinary shares trade on the Australian Stock Exchange under the
symbol “NRT,” and American Depositary Receipts trade in the U.S. under the
symbol “NVGN” on the Nasdaq Global Market. As at the date of this report Novogen
owns approximately 71.3% of our outstanding common stock.
Our
business purpose is the development and commercialization of drugs for the
treatment of cancer. We are presently engaged in the clinical development and
commercialization of a drug candidate called phenoxodiol which we have licensed
from a subsidiary of Novogen Limited (Novogen Limited and/or its subsidiaries
are referred to herein as “Novogen”). We believe that phenoxodiol may have broad
application against a wide range of cancers. Phenoxodiol appears to target a
number of key components involved in cancer cell survival and proliferation
based on the emerging field of signal transduction regulation, with little
effect on normal cells detected in pre-clinical testing, a feature which has
been reflected in a good safety profile in human clinical studies. We have also
licensed two other investigational anti-cancer compounds, triphendiol (formerly
NV-196) and NV-143, from Novogen.
Our
strategy is to undertake clinical development and testing of phenoxodiol,
focusing on those therapeutic indications that will expedite drug marketing
approval by regulatory bodies, leading to phenoxodiol’s commercialization and
wide scale distribution. We also plan to develop triphendiol and NV-143 for
therapeutic indications not currently targeted by phenoxodiol.
Pre-clinical
testing has shown phenoxodiol to have broad anti-cancer activity against a range
of human cancer cell lines, including prostate, ovarian and squamous cell
carcinoma. Phenoxodiol commenced Phase I clinical studies in Australia in 2000,
and the FDA granted phenoxodiol Fast Track status in 2004 for treatment of
patients with recurrent late stage ovarian cancer that is resistant or
refractory to platinums and taxanes. In 2005, the FDA granted phenoxodiol Fast
Track status for treatment of patients with hormone refractory prostate cancer,
which is prostate cancer that grows and is not inhibited by hormone
therapy.
The
immediate clinical development priority for phenoxodiol is to focus on three
forms of cancer — ovarian cancer, prostate cancer and squamous cell
carcinoma of the cervix and vagina.
In
ovarian cancer, we are testing the ability of phenoxodiol to overcome
chemotherapy drug resistance mechanisms, reversing resistance to platinums and
taxanes in particular. This is an international Phase III pivotal study
(known as OVATURE) in patients who have become resistant or refractory to at
least two lines of platinum therapy, where phenoxodiol is being tested in
combination with weekly carboplatin to delay tumor progression as measured by
progression-free survival.
We are
also developing phenoxodiol for use in squamous cell carcinoma of the cervix,
vagina and vulva. A Phase I study is ongoing with a view to providing evidence
of both a biological and clinical effect following administration of phenoxodiol
as a single agent in this aggressive form of cancer.
A
positive outcome in the current study could lead to two potential therapeutic
indications: (i) the use of phenoxodiol as a monotherapy in early-stage
disease including pre-malignant disease; and (ii) the use of phenoxodiol in
combination with standard drugs such as cisplatin for the treatment of
non-resectable disease.
Prostate
cancer is the third tumor type of a number of tumors which we believe are likely
to be responsive to phenoxodiol single agent therapy. We have completed a
Phase II study in advanced hormone refractory disease in Australia and we
are currently conducting a Phase II study using phenoxodiol as first line
treatment in early stage disease at Yale Cancer Center and the West Haven
Veterans Administration Hospital Connecticut in the U.S. Both of these studies
address areas of unmet medical need in this common cancer.
In May
2006, we entered into a license agreement with Novogen which granted to us,
through our wholly-owned subsidiary, Marshall Edwards Pty Limited (“MEPL”), an
exclusive, worldwide non-transferable license under its patent and patent
applications and in its know how to conduct clinical trials, commercialize and
distribute the anti-cancer drug candidates, triphendiol and NV-143.
Triphendiol
is a synthetic investigational anti-cancer compound developed by Novogen, based
on an isoflavan ring structure. Similar to phenoxodiol, triphendiol is a signal
transduction inhibitor. Preliminary screening studies conducted by Novogen have
identified triphendiol as a candidate for product development showing a
favorable in vitro toxicity profile against normal cells and broad activity
against cancer cells. Two Phase I human clinical studies of triphendiol have
been completed in Australia. Triphendiol is being developed initially in oral
form for the treatment of pancreatic and bile duct cancers, we expect to file an
IND in 2008 to enable Phase Ib/IIa studies in pancreatic cancer patients to
proceed in the U.S.
NV-143 is
currently in pre-clinical testing. Preliminary screening studies have identified
broad anti-cancer activity against cancer cells representative of melanoma,
glioma, prostate, ovarian, breast and lung cancer. NV-143 also exhibits broadly
acting chemo-sensitizing activity or the ability to increase the sensitivity of
cells to chemotherapeutic drugs that are used to control the growth of cancer
cells. The mechanisms by which NV-143 elicits its anti-cancer/chemo-sensitizing
effect remain unresolved. NV-143 may initially be developed to target the
treatment of melanoma.
Recent
Developments
Financing
On July
28, 2008 we entered into a securities subscription agreement with
OppenheimerFunds Inc and Novogen Limited pursuant to which we sold 1,700,000 and
2,908,295 shares of common stock to Oppenheimer and Novogen respectively, at a
purchase price of $2.17 per share. The aggregate proceeds from the sale of
shares was $10,000,000. The shares are registered under the Securities Act of
1933, as amended, pursuant to an effective shelf registration statement. On July
30, 2008 we filed a Prospectus Supplement to the registration Statement covering
the sale of shares to Oppenheimer and Novogen.
Phenoxodiol
OVATURE
Phase III Clinical Trial
The
OVATURE trial is a major multi-centre international Phase III clinical trial of
orally-administered phenoxodiol in combination with carboplatin in women with
advanced ovarian cancer resistant or refractory to platinum-based drugs to
determine its safety and effectiveness when used in combination with
carboplatin. The OVATURE trial has been approved by the FDA under a Special
Protocol Assessment (“SPA”) program indicating that the study design, clinical
endpoints and statistical analysis are acceptable to the FDA. The protocol
provides for an interim analysis of the data, which, if statistically
significant, can be used to support a request for accelerated marketing
approval. An analysis of the interim results will be possible after the targeted
patient recruitment is completed and 95 patients have disease
progression.
The
OVATURE trial is recruiting ovarian cancer patients whose cancer initially
responded to chemotherapy but has since become resistant or refractory to
traditional platinum treatment. Patients are being recruited at clinical sites
across the U.S., U.K., Europe and Australia.
In May
2008, we announced that the FDA agreed that the accrual time for the OVATURE
study may be extended to facilitate complete patient enrollment. Increasing the
accrual period allowed for a reduction in the total number of patients in the
study, without changing the required statistical analyses. As a result, the
OVATURE study will enroll 340 patients at 60 - 80 clinical sites throughout the
U.S., U.K., Europe, and Australia. Initially, this study was announced to enroll
470 patients.
In June
2008, a review by the Independent Data Monitoring Committee (IDMC) recommended
that the OVATURE trial continue. The IDMC is responsible to ensure that patients
recruited to the study are not exposed to unnecessary safety risks, that the
study continues to meet its clinical objectives, and that it is run according to
the required standards of Good Clinical Practice. Following a scheduled review
of safety and efficacy data, the IDMC recommended that the study remain open and
continue as planned towards its target of 340 patients.
Prostate
Cancer
In
October 2007 we announced that we are currently conducting a Phase II clinical
trial using phenoxodiol as first line treatment in men with early stage disease
(35 patients with androgen dependent disease but rising prostate specific
antigen, or PSA) compared to patients with late stage hormone refractory disease
(25 patients with chemotherapy naïve androgen independent disease). The study is
being conducted at Yale Cancer Center and the West Haven Veterans Administration
Hospital Connecticut in the U.S. Both of these patient groups represent areas of
unmet medical need in this common cancer.
Triphendiol
Triphendiol
is a synthetic investigational anti-cancer compound based on an isoflavan ring
structure which we are developing. Similar to phenoxodiol, triphendiol is a
signal transduction inhibitor. Preliminary screening studies have identified
triphendiol as a candidate for product development showing a favorable in vitro
toxicity profile against normal cells and broad activity against cancer cells.
In March 2008, we announced that data to be presented at the annual meeting of
the American Association for Cancer Research (AACR) suggested that triphendiol
may aid in the treatment of pancreatic cancer. These data indicated that in
laboratory testing in vitro and in animals bearing human pancreatic and bile
duct tumors, the activity of triphendiol against these cancers was demonstrated.
Triphendiol
is being developed initially in oral form for the treatment of pancreatic and
bile duct cancers.
Triphendiol
has completed two Phase I human trials in Australia which have demonstrated a
good safety profile and acceptable pharmacokinetic profile, i.e. the
characteristics of a drug that determine its absorption, distribution and
elimination in the body, when administered orally.
In
January 2008, we announced that triphendiol has been granted Orphan Drug status
by the FDA for the treatment of pancreatic cancer and for the treatment of
cholangiocarcinoma, or bile duct cancer. In February 2008, we announced that
triphendiol had been granted Orphan Drug status by the FDA for the treatment of
Stage IIB through Stage IV malignant melanoma.
An Orphan
Drug refers to a product that is intended for use in a disease or condition that
affects fewer than 200,000 individuals in the U.S. A grant of Orphan Drug status
provides seven years of market exclusivity for the orphan indication after
approval by the FDA, as well as study design assistance and eligibility for
grant funding from the FDA during its development. Triphendiol is in the early
stages of clinical development and significant clinical testing will be required
to prove safety and efficacy before marketing applications may be filed with the
FDA.
Scientific
Overview
Phenoxodiol,
triphendiol and NV-143 belong to a class of drugs that we refer to as Multiple
Signal Transduction Regulators (“MSTRs”).
Signal
transduction refers to the means by which cells respond to chemical signals that
come from within the cell itself, from neighboring cells, and from elsewhere in
the body. These signals regulate such vital functions as the growth and survival
of the cell. We believe that malfunctions in key components of the signal
transduction process (whereby a series of chemical signals within a cell leads
to the expression of a particular function) are fundamental to neoplastic
diseases such as cancer, where cells respond abnormally to normal levels of
signals, typically by over-responding to them with increased cell growth and
prolonged survival.
We
believe that identifying malfunctions in the signal transduction process and
then designing drugs to block or correct them has become a basis for the
development of the next generation of anti-cancer drugs. These drugs have become
known as signal transduction inhibitors. These drugs are being designed to
target a specific signaling pathway, which typically is over-active in a tumor
cell, and by blocking progression of the signal, prevent or reduce the ability
of the tumor cell to divide or to survive. We believe that single signal
transduction inhibitors, while displaying anti-tumor activity against a small
number of different types of cancer, generally have failed to provide more than
modest prolongation of survival of cancer patients. We believe this is because
most human cancers involve errors in multiple signaling pathways, and inhibition
of a single pathway by any one drug alone cannot reasonably be expected to
provide more than a temporary halt to cancer progression.
We
believe that our three drug candidates increase the potency of signal
transduction inhibitors by targeting multiple signaling pathways, and in
particular, those pathways vital to the survival of most, if not all, human
cancer cells. In the term MSTR, “multiple” refers to the fact that more than one
signaling pathway is targeted by the drug, and “regulator” refers to the fact
that while the drug predominantly inhibits errant ‘pro-survival’ signaling
pathways, it conversely can also activate ‘pro-death’ signaling pathways to
facilitate cancer cell death.
We
believe that our three drug candidates are able to exert a multiplicity of
effects, including both ‘pro-survival’ and ‘pro-death’ signaling systems,
because their primary target on the tumor cell is a protein whose function in
the tumor cell is so fundamental to cell biochemistry that to shut it down
produces a broad range of adverse biochemical consequences.
The
potential explanation for this effect on the fundamental biochemistry of tumor
cells was provided by a discovery of a research team at Purdue University in
Indiana. This team has a long-standing research interest in a family of proteins
at the cell surface that are involved in electron transport across the cell
membrane enabling hydrogen ion (proton) export at a controlled rate. This
function is so fundamental to normal cell function and viability, that any loss
of function of this proton pump will disrupt a wide range of biochemical
processes. One of the key components of this proton pump mechanism is a cell
surface protein known as NADH oxidase. These proteins are situated on the
outside of the cell membrane of all living matter and regulate the flow of waste
hydrogen across the cell membrane. The laboratory studies at Purdue University
have shown that a variant form of the surface oxidase which promotes more rapid
hydrogen export, is preferentially expressed on cancer cells, although similar
oxidase activity has been identified on small numbers of non-cancer cells
undergoing extremely rapid cell division. Phenoxodiol is able to bind to and
inhibit the activity of these oxidase variants, with the resulting inhibition of
hydrogen ion removal (H+ efflux) from these cells. This leads to extensive
disruption to signaling pathways and to eventual inhibition of cell
proliferation and activation of apoptosis, the process of programmed cell death
by which a cell dies naturally. Phenoxodiol appears to have little or no effect
on the form of oxidase present on normal healthy cells, providing an explanation
for how phenoxodiol selectively targets cancer cells for its cytotoxic effects.
Independent research at the Malaghan Institute of Medical Research at Victoria
University, Wellington, New Zealand, has confirmed that phenoxodiol inhibits the
protein pump in cancer cells, as well as in some other abnormally dividing
cells, but not in normal cells.
Other
laboratory studies at The Hanson Institute Centre for Cancer Research at Royal
Adelaide Hospital in Australia have demonstrated potent anti-tumour and
anti-angiogenic (i.e., preventing formation of blood vessels) properties of
phenoxodiol. These properties of phenoxodiol are associated with down regulation
of a key signal transduction molecule, sphingosine kinase. Sphingosine kinase is
a terminal component of the plasma membrane sphingomyelin pathway leading to the
formation of sphingosine-1-phosphate a bioactive lipid and a key pro-survival
secondary messenger acting via the signal transduction kinase, Akt. Two
important biological outcomes of this are (i) cytostasis, (i.e. the prevention
of the growth and multiplication of cells) through p53-independent induction of
the cell cycle regulatory protein, p21WAF1/CIP1, and (ii) apoptosis (i.e.,
programmed cell death), through inhibition of phosphorylation of the
anti-apoptotic factors, XIAP (inhibitor of apoptosis protein) and FLIPshort
(caspase-8 inhibitory
protein).
These processes facilitate activation of executioner caspases via the tumour
necrosis factor (TNF) family of death receptors. Researchers at Purdue
University have shown this effect is a consequence of the interaction between
phenoxodiol and the surface oxidase on cancer cells.
These
findings are relevant because of results from laboratory studies at Yale
University that have revealed that the killing effect of phenoxodiol on cancer
cells occurs through the loss of the ability of the tumor cell to manufacture
anti-apoptotic proteins such as XIAP and c-FLIP. Collectively, these third party
studies provide a rational mechanism of action of phenoxodiol starting with the
inhibition of surface oxidase, leading in turn to the loss of intracellular sphingosine-1-phosphate
(S-1-P), and eventually to the loss of anti-apoptotic proteins.
Recent
laboratory studies conducted by Novogen and Yale University have confirmed that
this chain of biochemical events following exposure of tumor cells to
phenoxodiol also explains how phenoxodiol is able to reverse resistance to
standard anti-cancer drugs such as platinums, gemcitabine and taxanes, on the
basis that FLIPshort protein is responsible for inhibiting the sensitivity of
the Fas-ligand protein (death receptor) to the toxic signaling mediated via
these drugs.
Phenoxodiol
appears to restore sensitivity to these drugs in cells such as ovarian cancer
cells that have acquired resistance to these drugs. In addition, pretreatment of
tumor cells with phenoxodiol considerably increases the sensitivity of
non-resistant tumor cells to the cytotoxic (i.e., toxic to cells, preventing
their production or growth or causing cell death) effects of standard
chemotherapy drugs. These effects are achieved without increasing the cellular
toxicity of the standard chemotherapy drugs to non tumor-cells.
Triphendiol
and NV-143 are analogues of phenoxodiol, but exhibit significantly different
biologies to phenoxodiol. In parallel with phenoxodiol, both drug candidates
display pre-clinical anti-cancer activity across a broad range of tumor types,
high selectivity for cancer cells, and the ability to chemosensitize tumor cells
to the cytotoxic effects of most standard chemotoxic drugs. However, both drugs
differ from phenoxodiol in showing a substantially greater ability to induce
apoptosis in pancreatic cancer, bile duct cancer, and melanoma cells; they also
show an ability to increase the sensitivity of cancer cells to radiotherapy
(radiosensitizers).
Competition
The
development of phenoxodiol and other drug candidates is highly competitive. A
number of other companies have products or drug candidates in various stages of
pre-clinical or clinical development that are intended for the same therapeutic
indications for which phenoxodiol is being developed. Some of these potential
competing drugs are further advanced in development than phenoxodiol and may be
commercialized sooner. Even if we are successful in developing effective drugs,
phenoxodiol may not compete successfully with products produced by our
competitors.
Our
competitors include pharmaceutical companies and biotechnology companies, as
well as universities and public and private research institutions. In addition,
companies active in different but related fields represent substantial
competition for us. Many of our competitors developing oncology drugs have
significantly greater capital resources, larger research and development staffs
and facilities and greater experience in drug development, regulation,
manufacturing and marketing than we do. These organizations also compete with
Novogen, our services provider, in recruiting qualified personnel. They compete
with us in recruiting eligible patients to participate in clinical studies and
in attracting partners for joint ventures. They also licence technologies that
are competitive with our technologies. As a result, our competitors may be able
to more easily develop technologies and products that would render our
technologies or our drug candidates obsolete or non-competitive.
Intellectual
Property
Novogen
has been granted patents and has additional patent applications pending in a
number of countries which cover a family of chemically related compounds with
potentially broad ranging and complementary anticancer effects. Novogen has
granted to us an exclusive licence, with respect to its patent rights and
intellectual property know-how to develop, market and distribute phenoxodiol,
triphendiol and NV-143 as anti-cancer agents, except in topical
form.
Phenoxodiol
We have
licensed from Novogen the rights to the Novogen patents and applications as they
relate to phenoxodiol as an anti-cancer agent. Excluded from these rights is
phenoxodiol in a topical formulation. The patent rights we have licensed from
Novogen can be largely classified into two broad
groups:
patent rights relating to phenoxodiol used as an anti-cancer agent, which we
refer to as “therapeutic patent rights,” and patent rights relating to the
manufacture of phenoxodiol for anti-cancer purposes, which we refer to as
“manufacturing patent rights.” The pending and issued Novogen patent rights can
be further broken down into four families, three families belonging to the
therapeutic patent rights and one family belonging to the manufacturing patent
rights. The three families in the therapeutic patent rights relate
to:
·
|
phenoxodiol
in the treatment of cancer (eighteen patent applications pending, sixteen
patents issued, and one patent application allowed which is anticipated to
proceed to grant in the coming
months);
|
·
|
compositions
and methods for protecting skin from ultraviolet induced immunosuppression
and skin damage, including phenoxodiol (five patent applications pending
and eight patents issued); and
|
·
|
therapeutic
methods and compositions involving isoflav-3-ene and isoflavan structures,
including phenoxodiol (eleven patent applications pending and one patent
granted).
|
The
family relating to the manufacturing patent rights relate to the production of
isoflavone derivatives, including phenoxodiol (twelve patent applications
pending and five patents issued).
Regarding
the treatment of cancer, Novogen has been granted a U.S. Patent (No. 6,649,648)
by the U.S. Patent and Trademark Office (USPTO) relating to the treatment of
cancerous disease with isoflavone derivatives including phenoxodiol. U.S. Patent
No. 6,649,648 also includes claims specifically directed to the treatment of
ovarian cancer, breast cancer, prostate cancer, uterine cancer, bowel cancer,
testicular cancer, endometrial cancer, leukemia and metastatic cancer with
isoflavone derivatives including phenoxodiol.
More
recently, Novogen has been granted U.S. Patent No. 7,202,273 with broad claims
to pharmaceutical compositions comprising phenoxodiol.
Triphendiol
and NV-143
These
compounds are isoflavan derivatives of phenoxodiol. The licensed patent rights
relate to the novel compounds themselves ("composition of matter" rights) and to
uses of these compounds as anti-cancer agents and sensitizers of cancer cells
and tumors to chemotherapy and radiotherapy. The patent rights fall into two
families of patent applications:
·
|
composition
of matter rights in respect of triphendiol and NV-143 and uses of these
compounds as anti-cancer agents (twelve pending patent applications);
and
|
·
|
uses
of triphendiol and NV-143 as chemo-sensitizers and radiosensitizers of
tumors and cancer cells (eleven patent applications
pending).
|
As patent
applications in the U.S. are maintained in secrecy until published by the USPTO
at 18 months from filing for all cases filed after November 29, 2000, or at
issue, for cases filed prior to November 29, 2000 we cannot be certain that
Novogen was the first to make the inventions covered by the Novogen patents and
applications referred to above. Additionally, publication of discoveries in the
scientific or patent literature often lag behind the actual discoveries.
Moreover, pursuant to the terms of the Uruguay Round Agreements Act, patents
filed on or after June 8, 1995 have a term of twenty years from the date of such
filing, irrespective of the period of time it may take for such patent to
ultimately issue. This may shorten the period of patent protection afforded to
therapeutic uses of
phenoxodiol,
triphendiol or NV-143 , as patent applications in the biopharmaceutical sector
often take considerable time to issue. However, in some countries the patent
term may be extended.
In order
to protect the confidentiality of our technology, including trade secrets and
know-how and other proprietary technical and business information, we require
all of our consultants, advisors and collaborators to enter into confidentiality
agreements that prohibit the use or disclosure of information that is deemed
confidential. The agreements also oblige our consultants, advisors and
collaborators to assign to us developments, discoveries and inventions made by
such persons in connection with their work with us relating to our products. We
cannot be sure that confidentiality will be maintained or disclosure prevented
by these agreements. We also cannot be sure that our proprietary information or
intellectual property will be protected by these agreements or that others will
not independently develop substantially equivalent proprietary information or
intellectual property.
The
pharmaceutical industry is highly competitive and patents may have been applied
for by, and issued to, other parties relating to products competitive with
phenoxodiol, triphendiol or NV-143 . Use of these compounds and any other drug
candidates may give rise to claims that they infringe the patents or proprietary
rights of other parties, existing now and in the future. An adverse claim could
subject us to significant liabilities to such other parties and/or require
disputed rights to be licensed from such other parties. We cannot be sure that
any licence required under any such patents or proprietary rights would be made
available on terms acceptable to us, if at all. If we do not obtain such
licences, we may encounter delays in product market introductions, or may find
that the development, manufacture or sale of products requiring such licences
may be precluded. We have not conducted any searches or made any independent
investigations of the existence of any patents or proprietary rights of other
parties.
Relationship
with Novogen
Novogen
is active in the discovery and development of new drugs based on the emerging
field of signal transduction regulation. Signal transduction regulators offer
the potential for effective, well-tolerated treatment of common diseases,
including cancer. Novogen has developed a family of chemically related compounds
with potentially broad ranging and complementary anti-cancer
effects.
We have
entered into certain key agreements with Novogen which are discussed
below.
Phenoxodiol
Under the
licence agreement, Novogen granted us an exclusive world-wide, non-transferable
licence, under the Novogen patent rights, to conduct clinical trials and
commercialize and distribute all forms of administering phenoxodiol except
topical applications. The agreement covers uses of phenoxodiol in the field of
prevention, treatment or cure of cancer in humans. Our business is currently
focused on advancing the clinical program underway for the development of
phenoxodiol.
Triphendiol
and NV-143
Under a
second licence agreement, Novogen granted us an exclusive world-wide,
non-transferable licence, under the Novogen patent rights, to conduct clinical
trials and commercialize and distribute all forms of administering triphendiol
and NV-143, except topical applications. The agreement covers uses of
triphendiol and NV-143 in the field of prevention, treatment or cure of cancer
in humans. Our business is also currently focused on advancing the clinical
program underway for the development of triphendiol and NV-143.
Licence
Option deed
Under a
licence option deed, Novogen granted us an exclusive first right to accept and
an exclusive last right to match any proposed dealing by Novogen with its
intellectual property rights in other synthetic compounds developed by Novogen
that have known or potential anti-cancer applications in all forms, other than
topical applications.
Services
Pursuant
to a services agreement, Novogen provides services reasonably required by us
relating to the development and commercialization of phenoxodiol, triphendiol,
NV-143, or other option compounds in relation to which we have exercised our
rights under the licence option deed. We do not currently intend to directly
employ any staff and are reliant upon Novogen for the provision of resources to
conduct our business.
Manufacturing
Under a
manufacturing licence and supply agreement, we have granted Novogen a sublicence
to manufacture and supply phenoxodiol to us in its primary manufactured form for
both the OVATURE clinical program and phenoxodiol’s ultimate commercial
use. Novogen has
taken the strategic decision not to manufacture large scale Active
Pharmaceutical Ingredients (“API”) for cancer drugs, including phenoxodiol, as
these can be more economically supplied by third parties with particular
expertise in this area. We have entered into contracts with third parties to
ensure that sufficient quantities of phenoxodiol can be manufactured in
compliance with cGMP (Current Good Manufacturing Practices), to supply the
necessary quantities of API for the OVATURE trial. We will need to arrange
similar contracts in the future to secure the supply of triphendiol and
NV-143.
Research
and Development
The
objective of our research and development program is the generation of data
sufficient to achieve regulatory approval of phenoxodiol, triphendiol and NV-143
in one or more dosage forms in major markets such as the U.S., and/or to allow
us to enter into a commercial relationship with another party. The data are
generated by our clinical trial programs.
The key
aspects of this program are to provide more complete characterization of the
following:
·
|
the
relevant molecular targets of action of phenoxodiol, triphendiol and
NV-143;
|
·
|
the
relative therapeutic benefits and indications of phenoxodiol, triphendiol
and NV-143 as a monotherapy or as part of combinational therapy with other
chemotoxics;
|
·
|
the
most appropriate cancer targets for phenoxodiol, triphendiol and NV-143;
and
|
·
|
the
relative therapeutic indications of different dosage forms of phenoxodiol,
triphendiol and NV-143.
|
Research
expenses were $9.325 million for the year ended June 30, 2008, $5.761 million
for the year ended June 30, 2007 and $3.427 million for the year ended June 30,
2006.
Research
and development costs incurred since inception through June 30, 2008 amount to
$25,266,000.
Regulation
U.S.
Regulatory Requirements
The FDA,
and comparable regulatory agencies in other countries, regulate and impose
substantial requirements upon the research, development, pre-clinical and
clinical testing, labeling, manufacture, quality control, storage, approval,
advertising, promotion, marketing, distribution and export of pharmaceutical
products including biologics, as well as significant reporting and
record-keeping obligations. State governments may also impose obligations in
these areas.
In the
U.S., pharmaceutical products are regulated by the FDA under the Federal Food,
Drug, and Cosmetic Act or FDCA and other laws including in the case of
biologics, the Public Health Service Act. We believe, but cannot be certain,
that our products will be regulated as drugs by the FDA. The process required by
the FDA before drugs may be marketed in the U.S. generally involves the
following:
·
|
pre-clinical
laboratory evaluations, including formulation and stability testing, and
animal tests performed under the FDA’s Good Laboratory Practices
regulations to assess potential safety and
effectiveness;
|
·
|
submission
and approval of an Investigational New Drug Application, or IND,
application, including results of pre-clinical tests and protocols for
clinical tests, which must become effective before clinical trials may
begin in the U.S.;
|
·
|
obtaining
approval of Institutional Review Boards or IRB’s to administer the
products to human subjects in clinical
trials;
|
·
|
adequate
and well-controlled human clinical trials to establish the safety and
efficacy of the product for the product’s intended
use;
|
·
|
development
of manufacturing processes which conform to FDA current Good Manufacturing
Practices, or cGMPs, as confirmed by FDA
inspection;
|
·
|
submission
of pre-clinical and clinical studies results, and chemistry, manufacture
and control information on the product to the FDA in a New Drug Approval
Application, or NDA; and
|
·
|
FDA review and
approval of an NDA, prior to any commercial sale or shipment of a
product.
|
The
testing and approval process requires substantial time, effort, and financial
resources, and we cannot be certain that any approval will be granted on a
timely basis, if at all.
The
results of the pre-clinical studies, together with initial specified
manufacturing information, the proposed clinical trial protocol, and information
about the participating investigators are submitted to the FDA as part of an IND, which
must become effective before we may begin human clinical trials in the U.S.
Additionally, an independent IRB must review and approve each study protocol and
oversee conduct of the trial. An IND becomes effective 30 days after receipt by
the FDA, unless the FDA, within the 30-day period, raises concerns or questions
about the conduct of the trials as outlined in the IND and imposes a clinical
hold. If the FDA imposes a clinical hold, the IND sponsor must resolve the FDA’s
concerns before clinical trials can begin. Pre-clinical tests and studies can
take several years to complete, and there is no guarantee that an IND we submit
based on such tests and studies will become effective within any specific time
period, if at
all.
Human
clinical trials are typically conducted in three sequential phases that may
overlap.
• Phase I: The
drug is initially introduced into healthy human subjects or patients and tested
for safety and dosage tolerance. Absorption, metabolism, distribution, and
excretion testing is generally performed at this stage.
• Phase
II: The
drug is studied in controlled, exploratory therapeutic trials in a limited
number of subjects with the disease or medical condition for which the new drug
is intended to be used in order to identify possible adverse effects and safety
risks, to determine the preliminary or potential efficacy of the product for
specific targeted diseases or medical conditions, and to determine dosage
tolerance and the optimal effective dose.
• Phase III: When
Phase II studies demonstrate that a specific dosage range of the drug is likely
to be effective and the drug has an acceptable safety profile, controlled,
large-scale therapeutic Phase III trials are undertaken at multiple study sites
to demonstrate clinical efficacy and to further test for safety in an expanded
patient population.
We cannot
be certain that we will successfully complete Phase I, Phase II, or Phase III
testing of our products within any specific time period, if at all. Furthermore, the
FDA, the IRB or we may suspend or terminate clinical trials at any time on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
Results
of pre-clinical studies and clinical trials, as well as detailed information
about the manufacturing process, quality control methods, and product
composition, among other things, are submitted to the FDA as part of an NDA
seeking approval to market and commercially distribute the product on the basis
of a determination that the product is safe and effective for its intended use.
Before approving an NDA, the FDA will inspect the facilities at which the
product is manufactured and will not approve the product unless cGMP compliance
is satisfactory. If applicable regulatory criteria are not satisfied, the FDA
may deny the NDA or require additional testing or information. As a condition of
approval, the FDA also may require post-marketing testing or surveillance to
monitor the product’s safety or efficacy. Even after an NDA is approved, the FDA
may impose additional obligations or restrictions (such as labeling changes), or
even suspend or withdraw a product approval on the basis of data that arise
after the product reaches the market, or if compliance with regulatory standards
is not maintained. We cannot be certain that any NDA we submit will be approved
by the FDA on a timely basis, if at all. Also, any such approval may limit the
indicated uses for which the product may be marketed. Any refusal to approve,
delay in approval, suspension or withdrawal of approval, or restrictions on
indicated uses could have a material adverse impact on our business
prospects.
Each NDA
must be accompanied by a user fee, pursuant to the requirements of the
Prescription Drug User Fee Act, or PDUFA, and its amendments. According to the
FDA’s fee schedule, effective on October 1, 2007 for the fiscal year 2008,
the user fee for an application requiring clinical data, such as an NDA, is
$1,178,200. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also
imposes an annual product fee for prescription drugs and biologics ($65,030),
and an annual establishment fee ($392,700) on facilities used to manufacture
prescription drugs and biologics. A written request can be submitted for a
waiver for the application fee for the first human drug application that is
filed by a small business, but there are no waivers for product or establishment
fees. We are not at the stage of development with our products where we are
subject to these fees, but they are significant expenditures that may be
incurred in the future and must be paid at the time of application submissions
to FDA.
Satisfaction
of FDA requirements typically takes several years. The actual time required
varies substantially, based upon the type, complexity, and novelty of the
pharmaceutical product, among other things. Government regulation imposes costly
and time-consuming requirements and restrictions throughout the product life
cycle and may delay product marketing for a considerable period of time, limit
product marketing, or prevent marketing altogether. Success in pre-clinical or
early stage clinical trials does not ensure success in later stage clinical
trials. Data obtained from pre-clinical and clinical activities are not always
conclusive and may be susceptible to varying interpretations that could delay,
limit, or prevent marketing approval. Even if a product receives marketing
approval, the approval is limited to specific clinical indications. Further,
even after marketing approval is obtained, the discovery of previously unknown
problems with a product may result in restrictions on the product or even
complete withdrawal of the product from the market.
After
product approval, there are continuing significant regulatory requirements
imposed by the FDA, including record-keeping requirements, obligations to report
adverse side effects in patients using the products, and restrictions on
advertising and promotional activities. Quality control and manufacturing
procedures must continue to conform to cGMPs, and the FDA periodically inspects
facilities to assess cGMP compliance. Additionally, post-approval changes in
ingredient composition, manufacturing processes or facilities, product labeling,
or other areas may require submission of an NDA Supplement to the FDA for review
and approval. New indications will require additional clinical tests and
submission of an NDA Supplement. Failure to comply with FDA regulatory
requirements may result in an enforcement action by the FDA, including Warning
Letters, product recalls, suspension or revocation of product approval, seizure
of product to prevent distribution, impositions of injunctions prohibiting
product manufacture or distribution, and civil and criminal penalties.
Maintaining compliance is costly and time-consuming. We cannot be certain that
we, or our present or future suppliers or third-party manufacturers, will be
able to comply with all FDA regulatory requirements, and potential consequences
of noncompliance could have a material adverse impact on our business
prospects.
The FDA’s
policies may change, and additional governmental regulations may be enacted that
could delay, limit, or prevent regulatory approval of our products or affect our
ability to manufacture, market, or distribute our products after approval.
Moreover, increased attention to the containment of healthcare costs in the U.S.
and in foreign markets could result in new government regulations that could
have a material adverse effect on our business. Our failure to obtain coverage,
an adequate level of reimbursement, or acceptable prices for our future products
could diminish any revenues we may be able to generate. Our ability to
commercialize future products will depend in part on the extent to which
coverage and reimbursement for the products will be available from government
and health administration authorities, private health insurers, and other
third-party payers. European Union member states and U.S. government and other
third-party payers increasingly are attempting to contain healthcare costs by
consideration of new laws and regulations limiting both coverage and the level
of reimbursement for new drugs. We cannot predict the likelihood, nature or
extent of adverse governmental regulation that might arise from future
legislative or administrative action, either in the U.S. or abroad.
Our
activities also may be subject to state laws and regulations that affect our
ability to develop and sell our products. We are also subject to numerous
federal, state, and local laws relating to such matters as safe working
conditions, clinical, laboratory, and manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such laws
and regulations now or in the future, and the failure to comply may have a
material adverse impact on our business prospects.
The FDCA
includes provisions designed to facilitate and expedite the development and
review of drugs and biological products intended for treatment of serious or
life-threatening conditions that demonstrate the potential to address unmet
medical needs for such conditions. These provisions set forth a procedure for
designation of a drug as a “fast track product.” The fast track designation
applies to the combination of the product and specific indication for which it
is being studied. A product designated as fast track is ordinarily eligible for
additional programs for expediting development and review, but products that are
not in fast track drug development programs may also be able to take advantage
of these programs. These programs include priority review of NDAs and
accelerated approval. Drug approval under the accelerated approval regulations
may be based on evidence of clinical effect on a surrogate endpoint that is
reasonably likely to predict clinical benefit. A postmarketing clinical study
will be required to verify clinical benefit, and other restrictions to assure
safe use may be imposed.
Under the
Drug Price Competition and Patent Term Restoration Act of 1984 a sponsor may
obtain marketing exclusivity for a period of time following FDA approval of
certain drug applications, regardless of patent status, if the drug is a new
chemical entity or if new clinical studies were required to support the
marketing application for the drug. This marketing exclusivity prevents a third
party from obtaining FDA approval for an identical or nearly identical drug
under an Abbreviated New Drug Application or a “505(b)(2) New Drug Application.”
The statute also allows a patent owner to obtain an extension of applicable
patent terms for a period equal to one-half the period of time elapsed between
the filing of an IND and the filing of the corresponding NDA plus the period of
time between the filing of the NDA and FDA approval, with a five year maximum
patent extension. We cannot be certain that Novogen will be able to take
advantage of either the patent term extension or marketing exclusivity
provisions of these laws.
The Best
Pharmaceuticals for Children Act, or BPCA, signed into law on January 4, 2002,
was reauthorized and amended by the FDA Amendments Act of 2007 or
FDAAA. The reauthorization of BPCA provides an additional six months
of patent protection to NDA applicants that conduct acceptable pediatric studies
of new and currently-marketed drug products for which pediatric information
would be beneficial, as identified by FDA in a Pediatric Written Request. The
Pediatric Research Equity Act, or PREA, signed into law on December 3, 2003,
also was reauthorized and amended by FDAAA. The reauthorization of
PREA requires that most applications for drugs and biologics include a pediatric
assessment (unless waived or deferred) to ensure the drugs' and biologics'
safety and effectiveness in children. Such pediatric assessment must
contain data, gathered using appropriate formulations for each age group for
which the assessment is required, that are adequate to assess the safety and
effectiveness of the drug or the biological product for the claimed indications
in all relevant pediatric subpopulations, and to support dosing and
administration for each pediatric subpopulation for which the drug or the
biological product is safe and effective. The pediatric assessments
can only be deferred provided there is a timeline for the completion of such
studies. The FDA may waive (partially or fully) the pediatric
assessment requirement for several reasons, including if the applicant can
demonstrate that reasonable attempts to produce a pediatric formulation
necessary for that age group have failed.
Australian
Regulatory Requirements
The Therapeutic Goods Act 1989, or 1989 Act, sets
out the legal requirements for the import, export, manufacture and supply of
pharmaceutical products in Australia. The 1989 Act requires that all
pharmaceutical products to be imported into, supplied in, manufactured in or
exported from Australia be included in the Australian Register of Therapeutic
Goods, or ARTG, unless specifically exempted under the Act.
Medicines
with a higher level of risk (prescription medicines, some non-prescription
medicines) are evaluated for quality, safety and efficacy and are registered on
the ARTG. Medicines with a lower risk (over the counter medicines including
vitamins) are assessed only for quality and safety. Medicines included in
the ARTG can be identified by the AUST R number (for registered medicines) or an
AUST L number (listed medicines) that appears on the packaging of the
medicine.
In order
to ensure that a product can be included in the ARTG, a sponsoring company must
make an application to the Therapeutic Goods Administration, or TGA. The
application usually consists of a form accompanied by data (based on the
European Union requirements) to support the quality, safety and efficacy of the
drug for its intended use and payment of a fee. Application details are
available on the TGA website http://www.tga.gov.au.
The TGA
requires a 26B certificate from Applicants who are required to submit safety and
efficacy data when making their application, and who, when making their
application, rely on data previously submitted to the TGA by another person in
relation to an approved product. This certificate states that the applicants
will not enter the market with a product that would infringe a patent on
the product; or, that they have notified the patent owner of their intention
enter the market before the expiry of any applicable patent. All other
applicants may provide notice that such a certificate is not
required.
The first
phase of evaluation, known as the Application Entry Process, is usually a short
period during which an application is assessed on an administrative level to
ensure that it complies with the basic guidelines. The TGA may request further
details from the applicant, and may agree with sponsors that additional data
(which while not actually required by the application, could enhance the
assessment outcome) may be submitted later at an agreed time. The TGA must
decide within at least 40 working days whether it will accept the application
for evaluation.
Once an
application is accepted for evaluation, aspects of the data provided are
allocated to evaluators within the different relevant sections, who prepare
clinical evaluation reports. Following evaluation, the chemistry and quality
control aspects of a product may be referred to a Pharmaceutical Sub-Committee
(PSC), which is a sub-committee of the TGA prescription medicine expert advisory
committee, the Australian Drug and Evaluation Committee (ADEC) to review the
relevant clinical evaluation reports.
The
clinical evaluation reports (along with any resolutions of the ADEC
sub-committee) are then sent to the sponsoring company who then has the
opportunity to comment on the views expressed within the evaluation report,
provide corrections and to submit supplementary data to address any issues
raised in the evaluation reports.
Once the
evaluations are complete, the TGA prepares a summary document on the key issues
on which advice will be sought from the either the ADEC (for new medicines) or
from the Peer Review Committee (PRC) for existing or generic products. This
summary is sent to the sponsoring company which is able to submit a response to
the ADEC or PRC dealing with issues raised in the summary and those not
previously addressed in the evaluation report. The ADEC/PRC provide independent
advice on the quality, risk-benefit, effectiveness and access of the drug and
conduct medical and scientific evaluations of the application. The ADEC meets
every 2 months to examine the applications referred by the TGA and its
resolutions are provided to the sponsoring company after 5 working days after
the ADEC meeting.
The TGA
takes into account the advice of the ADEC or PRC in reaching a decision to
approve or reject a product. Any approval for registration on the ARTG may have
conditions associated with it.
From the
time that the TGA accepts the initial application for evaluation, the TGA must
complete the evaluation and make a decision on the registration of the product
within at least 255 working days. If not completed within 255 working days, the
TGA forfeits 25% of the evaluation fee otherwise payable by the sponsor, but any
time spent waiting for a response from the sponsor is not included in the 255
working days. The TGA also has a system of priority evaluation for products that
meet certain criteria, including where the product is a new chemical entity that
it is not otherwise available on the market as an approved product, and is for
the treatment of a serious, life-threatening illness for which other therapies
are either ineffective or not available.
European
Union Regulatory Requirements
Outside
the U.S., our ability to market our products will also be contingent upon
receiving marketing authorizations from the appropriate regulatory authorities
and compliance with applicable post-approval regulatory requirements. Although
the specific requirements and restrictions vary from country to country, as a
general matter, foreign regulatory systems include risks similar to those
associated with FDA regulation, described above. Under EU regulatory systems,
marketing authorizations may be submitted either under a centralized or a
national procedure. Under the centralized procedure, a single application to the
European Medicines Agency (EMEA) leads to an approval granted by the European
Commission which permits the marketing of the product throughout the EU. The
centralized procedure is mandatory for certain classes of medicinal products,
but optional for others. For example, all medicinal products developed by
certain biotechnological means, and those developed for cancer and other
specified diseases and disorders, must be authorized via the centralized
procedure. We assume that the centralized procedure will apply to our products
that are developed by means of a biotechnology process. The national procedure
is used for products that are not required to be authorized by the centralized
procedure. Under the national procedure, an application for a marketing
authorization is submitted to the competent authority of one member state of the
EU. The holders of a national marketing authorization may submit further
applications to the competent authorities of the remaining member states via
either the decentralized or mutual recognition procedure. The decentralized
procedure enables applicants to submit an identical application to the competent
authorities of all member states where approval is sought at the same time as
the first application, while under the mutual recognition procedure, products
are authorized initially in one member state, and other member states where
approval is sought are then requested to recognize the original authorization
based upon an assessment report prepared by the original authorizing competent
authority. Both the decentralized and mutual recognition procedures should take
no longer than 90 days, but if one member state makes an objection, which under
the legislation can only be based on a possible risk to human health, the
application will be automatically referred to the Committee for Medicinal
Products for Human Use (CHMP) of the EMEA.
If a
referral for arbitration is made, the procedure is suspended. However, member
states that have already approved the application may, at the request of the
applicant, authorize the product in question without waiting for the result of
the arbitration. Such authorizations will be without prejudice to the outcome of
the arbitration. For all other concerned member states, the opinion of the CHMP,
which is binding, could support or reject the objection or alternatively could
reach a compromise position acceptable to all EU countries concerned. The
arbitration procedure may take an additional year before a final decision is
reached and may require the delivery of additional data.
As with
FDA approval we may not be able to secure regulatory approvals in Europe in a
timely manner, if at all. Additionally, as in the U.S., post-approval regulatory
requirements, such as those regarding product manufacture, marketing, or
distribution, would apply to any product that is approved in Europe, and failure
to comply with such obligations could have a material adverse effect on our
ability to successfully commercialize any product.
The
conduct of clinical trials in the European Union is governed by the European
Clinical Trials Directive (2001/20/EC), which was implemented in May 2004. This
Directive governs how regulatory bodies in member states control clinical
trials. No clinical trial may be started without a clinical trial authorization
granted by the national competent authority and favorable ethics
approval.
Accordingly,
there is a marked degree of change and uncertainty both in the regulation of
clinical trials and in respect of marketing authorizations which face us for our
products in Europe.
Government
Funding
Novogen
received financial support for the phenoxodiol drug program from the Australian
government under what is known as the START Program. The START Program is a
merit-based program designed to encourage and assist Australian companies to
undertake research and development and commercialization through a range of
grants and loans. The START Program is administered by the Industry Research and
Development, or IR&D Board. The IR&D Board is made up of private sector
and academic members with expertise and experience in research and development
and commercialization. In 1998, the Australian government agreed to provide
A$2.7 million (approximately U.S. $1.8 million) to Novogen, enabling it to
expedite phenoxodiol into clinical trials, provided that the grant money was
matched by an equal expenditure by Novogen. The START grant was awarded after
the government’s review of the pertinent research results, the intellectual
property driving the program, and the likelihood and potential for commercial
success of the drug.
The terms
of the grant require Novogen to obtain the consent of the Australian government
to deal with the intellectual property rights which have arisen through the
program conducted to date. Novogen has obtained the consent of the Australian
government to the grant of the licence to us and to the other arrangements
between us and Novogen concerning the development and commercialization of
phenoxodiol.
Under the
START Program, Novogen must meet certain project development and
commercialization obligations. Novogen has met the project development
obligations and has received final payment thereon. Novogen believes that it is
currently in compliance with its commercialization schedule and that it has
fulfilled all of its obligations under the terms of the START Program and
expects to continue to do so in the future. For additional information on the
consequences to us in the event Novogen fails to comply with its obligations
under the START Program, see the “Intellectual Property” and “Risk Factors”
sections of this Annual Report on Form 10-K.
Employees
We do not
have any employees. Novogen and other contract service providers, provide us
with staff and other financial and administrative services under our services
agreement with Novogen.
Item 1A. Risk Factors
In
addition to the other information in this Annual Report on Form 10-K the
following risk factors should be considered carefully in evaluating us and our
business.
Risks Related to Our
Business
We
will need additional funds to complete the OVATURE Phase III clinical trial
for phenoxodiol and to progress the clinical trial program for triphendiol and
NV-143. The actual amount of funds we will need will be determined by a number
of factors, some of which are beyond our control.
The
factors which will determine the actual amount of funds that we will need to
complete the OVATURE Phase III clinical trial for phenoxodiol and to
progress the clinical trial programs for triphendiol and NV-143 may include the
following:
·
|
the
number of sites included in the
trials;
|
·
|
the
length of time required to enroll suitable
patients;
|
·
|
the
number of patients that participate in the trials and the rate that they
are recruited;
|
·
|
the
number of treatment cycles patients complete while they are enrolled in
the trials; and
|
·
|
the
efficacy and safety profile of the
product.
|
If we are
unable to obtain additional funds on favorable terms we may be required to cease
or reduce our operations. Also, if we raise more funds by selling additional
securities, the ownership interests of holders of our securities will be
diluted.
We
may not complete our OVATURE Phase clinical III trial on schedule, or at
all, or it may be conducted improperly, which will delay or preclude FDA
marketing approval and increase costs.
The
completion of our OVATURE Phase III clinical trial may be delayed or
terminated for many reasons, including, but not limited to, if:
·
|
we
are unable to identify and contract clinical trial sites and clinical
investigators at the rate we expect or those sites are delayed from
commencing patient recruitment due to regulatory hospital ethics committee
approvals or those investigators do not perform to our anticipated patient
recruitment schedule or comply with the clinical trial
protocol;
|
·
|
patients
are not available to enroll at the rate we currently expect, or trial
sites are unable to recruit their target patient numbers due to the strict
inclusion criteria of the OVATURE protocol which may reduce the patient
pool available to participate in the
trial;
|
·
|
subjects
experience an unacceptable rate or severity of adverse side
effects;
|
·
|
third
party clinical investigators do not conduct the trial in compliance with
Good Clinical Practice and regulatory requirements, or other third parties
do not perform data collection and analysis in a timely or accurate
manner;
|
·
|
our
contracted Clinical Research Organization responsible for managing the
OVATURE trial fails to provide the contracted services in a timely manner
as stipulated in the contract.
|
·
|
one
or more Institutional Review Boards suspends or terminates the trial at an
investigational site, precludes enrollment of additional subjects, or
withdraws its approval of the
trial; or
|
·
|
one
or more of our clinical investigators withdraws from our trials or
deviates from our approved
protocol.
|
Our costs
will increase if we have material delays in our OVATURE pivotal trial, or if we
are required to modify, suspend, terminate or repeat it.
If
the data from our OVATURE Phase III clinical trial do not demonstrate the
safety and effectiveness of phenoxodiol to the FDA’s satisfaction, we will not
receive FDA approval to market phenoxodiol in the U.S.
In 2004,
the FDA granted phenoxodiol Fast Track status for patients with recurrent late
stage ovarian cancer that is resistant or refractory to platinums and taxanes.
More recently we completed an SPA where the FDA reviewed and agreed with the
design of a Phase III study of phenoxodiol in combination with carboplatin
in women with platinum-resistant ovarian cancer (ovarian cancer that does not
respond to platinum based anti-cancer agents such as cisplatin). If the FDA
concludes, using agreed upon clinical endpoints, that the data from our pivotal
clinical trial have failed to demonstrate the safety and effectiveness of
phenoxodiol to the satisfaction of the FDA, we will not receive FDA approval to
market phenoxodiol in the U.S. We cannot assure you that the results of our
Phase III trial will be successful.
The
third-party manufacturers that we rely upon for the production of phenoxodiol
for our clinical trials and for future commercial quantities, may not be in
compliance with FDA regulatory requirements.
The
conduct of our clinical trials and approval of our marketing application for
phenoxodiol may be delayed or adversely affected if the third-party
manufacturers that we rely upon for the production of phenoxodiol fail to comply
with FDA’s regulatory requirements for current Good Manufacturing Practices, or
cGMP. The FDA requires drug manufacturers to establish and maintain quality
control procedures for manufacturing, processing and holding drugs and
investigational products, and products must be manufactured in accordance with
defined specifications. The failure of contract manufacturers to supply
investigational product in compliance with the defined specifications for
phenoxodiol may delay the completion of our clinical trials. As part of the
pre-market approval process, the manufacturer will be inspected by the FDA to
ensure compliance with cGMP. The failure of contract manufacturers to comply
with applicable regulations may result in a delay or prevent approval of our
marketing application.
If we do not receive marketing
approval, our commercial prospects for phenoxodiol will be
impaired.
Clinical
trials have a high risk of failure. A number of companies in the pharmaceutical
industry, including biotechnology companies, have suffered significant setbacks
in advanced clinical trials, even after achieving promising results in earlier
trials.
If our
clinical trials are unsuccessful, our prospects for commercializing phenoxodiol
will be impaired and we may be required to cease or reduce our operations. This
will have a significant impact on the trading price of our
securities.
Final
approval by regulatory authorities of our drug candidates for commercial use may
be delayed, limited or prevented, any of which would adversely affect our
ability to generate operating revenues.
Any of
the following factors may serve to delay, limit or prevent the final approval by
regulatory authorities of our drug candidates for commercial use:
·
|
triphendiol
and NV-143 are in the early stages of clinical development and we will
need to conduct significant clinical testing to prove safety and efficacy
before applications for marketing can be filed with the FDA, or with the
regulatory authorities of other
countries;
|
·
|
data
obtained from pre-clinical and clinical tests can be interpreted in
different ways, which could delay, limit or prevent regulatory
approval;
|
·
|
development
and testing of product formulation, including identification of suitable
excipients, or chemical additives intended to facilitate delivery of our
drug candidates;
|
·
|
it
may take us many years to complete the testing of other drug candidates,
and failure can occur at any stage of this
process; and
|
·
|
negative
or inconclusive results or adverse medical events during a clinical trial
could cause us to delay or terminate our development
efforts.
|
While we
have not encountered any material delays or adverse events from the factors
described above to date, we cannot assure you that such delays or adverse events
will not be encountered in the future.
We
have a limited operating history, and we are likely to incur operating losses
for the foreseeable future.
You
should consider our prospects in light of the risks and difficulties frequently
encountered by early stage and developmental companies. Although we were
incorporated in December 2000, we have only been in operation since May 2002. We
have incurred net losses of $51,731,000 since our inception through
June 30, 2008, including net losses of $12,410,000, $13,820,000 and
$7,386,000 for the years ended June 30, 2008, 2007 and 2006, respectively.
We anticipate that we will incur operating losses and negative operating cash
flow for the foreseeable future. We have not yet commercialized any drug
candidates and cannot be sure that we will ever be able to do so, or that we may
ever become profitable. We have expanded our clinical trials significantly with
the commencement of the OVATURE Phase III clinical trial, which will result
in increasing losses and we may continue to incur substantial losses in the
future even if we begin to generate revenues from the distribution and sale of
phenoxodiol.
We
may not be able to establish the strategic partnerships necessary to develop,
market and distribute phenoxodiol.
A key
part of our business plan is to establish relationships with strategic partners.
We must successfully contract with third parties to package, market and
distribute phenoxodiol. We have not yet established any strategic partnerships.
Potential
partners may not wish to enter into agreements with us due to Novogen’s current
equity position as our majority stockholder or our contractual relationships
with Novogen. Similarly, potential partners may be discouraged by our limited
operating history. Additionally, our relative attractiveness to potential
partners and consequently, our ability to negotiate acceptable terms in any
partnership agreement, will be affected by the results of our clinical program.
For example, if phenoxodiol is shown to have high efficacy against a broad range
of cancers, we may generate greater interest from potential partners than if
phenoxodiol is demonstrated to be less effective or applicable to a narrower
range of cancers. There is no assurance that we will be able to negotiate
commercially acceptable licensing or other agreements for the future
exploitation of phenoxodiol, including the continued clinical development,
manufacture or marketing of phenoxodiol. If we are unable to successfully
contract for these services, or if arrangements for these services are
terminated, we may have to delay our commercialization program for phenoxodiol
which will adversely affect our ability to generate operating
revenues.
We
have not yet submitted an Investigational New Drug Application, or IND, for
triphendiol or NV-143 product candidates with the FDA and until an IND becomes
effective, we will not be able to perform human clinical trials in the
U.S.
Although
we have conducted two Phase I clinical trials of triphendiol in Australia, we
have not yet submitted an IND to the FDA. NV-143 has not yet commenced clinical
trials in humans. Until an IND becomes effective, we will not be able to perform
human clinical trials of our triphendiol or NV-143 product candidates in the
U.S. Approval to begin clinical testing in the U.S. requires submission of:
(i) adequate information on the safety and manufacturing of triphendiol or
NV-143 to assure the proper identification quality, purity and strength of the
investigational product, (ii) summary of pharmacological and toxicological
effects, pharmacokinetics (how the drug is absorbed and metabolized) and
biological disposition in animals, (iii) the proposed protocol for any
planned clinical study, and (iv) a brief description of the overall plan
for investigating the product. Although we are preparing an IND for triphendiol
for submission to the FDA, we do not know whether or when the IND will become
effective.
Our
commercial opportunity will be reduced or eliminated if competitors develop and
market products that are more effective, have fewer side effects or are less
expensive than phenoxodiol.
The
development of phenoxodiol and other drug candidates is highly competitive. A
number of other companies have products or drug candidates in various stages of
pre-clinical or clinical development that are intended for the same therapeutic
indications for which phenoxodiol is being developed. Some of these potential
competing drugs are further advanced in development than phenoxodiol and may be
commercialized sooner. Even if we are successful in developing effective drugs,
phenoxodiol may not compete successfully with products produced by our
competitors.
Our
competitors include pharmaceutical companies and biotechnology companies, as
well as universities and public and private research institutions. In addition,
companies active in different but related fields represent substantial
competition for us. Many of our competitors developing oncology drugs have
significantly greater capital resources, larger research and development staffs
and facilities and greater experience in drug development, regulation,
manufacturing and marketing than us. These organizations also compete with
Novogen, our services provider, to recruit qualified personnel, and with us to
attract partners for joint ventures and to license technologies that are
competitive with ours. As a result, our competitors may be able to more easily
develop technologies and products that would render our technologies or our drug
candidates obsolete or non-competitive.
We
have no direct control over the costs of manufacturing phenoxodiol, triphendiol
or NV-143 and increases in these costs would increase the costs of conducting
clinical trials and could adversely affect future profitability if these costs
increase significantly.
We do not
intend to manufacture phenoxodiol, triphendiol or NV-143 ourselves and we will
be relying on third parties for our supplies of phenoxodiol both for clinical
trials and for commercial quantities in the future. Novogen has taken the
strategic decision not to manufacture on a large scale Active Pharmaceutical
Ingredients, or API, for cancer drugs, including phenoxodiol, as these can be
more economically supplied by third parties with particular expertise in this
area. The contract facilities that have been identified are registered with the
FDA, have a track record of large scale API manufacture and have already
invested in capital and equipment. We have completed the novation to MEPL of
contracts that Novogen had entered into with third parties to validate the
developed scalable manufacturing method to ensure that sufficient quantities of
phenoxodiol can be manufactured in compliance with the FDA’s current cGMP and to
complete the analytical and stability work necessary for a New Drug Application,
or NDA, submission for marketing approval. An NDA will be submitted if the
planned Phase III study is successful, and approval of the NDA is required
to market phenoxodiol. We will need to arrange similar contracts in the future
to secure the supply of triphendiol and NV-143. We have no direct control over
the costs of manufacturing our product candidates. If the costs of manufacturing
increase or if the cost of the materials used increases, these costs will be
passed on to us making the cost of conducting clinical trials more expensive.
Increases in manufacturing costs could adversely affect our future profitability
if we are unable to pass all of the increased costs along to our
customers.
We
may not be able to secure and maintain suitable research institutions to conduct
our clinical trials.
We rely
on suitable research institutions, of which there are many, to conduct our
clinical trials. Our reliance upon research institutions, including hospitals
and cancer clinics, provides us with less control over the timing and cost of
clinical trials and the ability to recruit patients than if we had conducted the
trials on our own. Further, there is a greater likelihood that disputes may
arise with these research institutions over the ownership of intellectual
property discovered during the clinical trials. If we are unable to reach
agreement with suitable research institutions on acceptable terms, or if any
resulting agreement is terminated and we are unable to quickly replace the
applicable research institution with another qualified institution on acceptable
terms, the research could be delayed and we may be unable to complete
development, or commercialize phenoxodiol, triphendiol or NV-143, which will
adversely affect our ability to generate operating revenues.
We
face a risk of product liability claims and may not be able to obtain adequate
insurance.
Our
business exposes us to the risk of product liability claims. This risk is
inherent in the manufacturing, testing and marketing of human therapeutic
products. We have product liability insurance coverage of up to approximately
$17.4 million. Although we believe that this amount of insurance coverage
is appropriate for our business at this time, it is subject to deductibles and
coverage limitations, and the market for such insurance is becoming more
restrictive. We may not be able to obtain or maintain adequate protection
against potential liabilities. If we are unable to sufficiently insure against
potential product liability claims, we will be exposed to significant
liabilities, which may materially and adversely affect our business development
and commercialization efforts.
Our
rights to develop and exploit phenoxodiol and the anti-cancer compounds
triphendiol and NV-143 are subject to the terms and conditions of agreements we
have entered into with Novogen. Under these agreements our rights may
be terminated under certain circumstances, some of which may be beyond our
control.
We have
licensed the intellectual property in the phenoxodiol technology and the
anti-cancer compounds triphendiol and NV-143 from Novogen. Under the terms of
the license agreement for phenoxodiol, all forms of administering phenoxodiol
for the treatment of cancer, excluding topical applications, are licensed to us
through our wholly-owned subsidiary, MEPL. Under the terms of the license
agreement for triphendiol and NV-143, all forms of administering drugs
containing the anti-cancer compounds triphendiol and NV-143, excluding topical
applications, are licensed to us through MEPL. If we fail to meet our
obligations under our license agreements, the manufacturing license and supply
agreement or the services agreement with Novogen, any or all of these agreements
may be terminated by Novogen and we could lose our rights to develop phenoxodiol
or anti-cancer drugs containing triphendiol and NV-143. To date, we have no
reason to believe that we will be unable to satisfy our obligations under these
agreements. In addition, each of these agreements may be terminated immediately
by Novogen in the event that MEPL undergoes a change of control without the
consent of Novogen. Under the terms of the license agreement for phenoxodiol,
the manufacturing license and supply agreement and the services agreement, a
“change of control” means a change in control of more than half the voting
rights attaching to the shares of MEPL, a change in control of more than half of
the issued shares of MEPL (not counting any share which carries no right to
participate beyond a specified amount in the distribution of either profit or
capital) or a change in control of the composition of the board of directors of
MEPL. Under the terms of the license agreement for triphendiol and NV-143, a
“change in control” means the acquisition by any person or group of more than
half of the combined voting power of MEPL’s then outstanding securities entitled
to vote generally in the election of directors of MEPL or any merger,
consolidation, recapitalization, exchange or tender offer as a result of which a
person or a group other than the shareholders of MEPL immediately before the
transaction owns after the transaction more than half of the combined voting
power of the then outstanding securities entitled to vote generally in the
election of directors MEPL. Each of these agreements may also be terminated if
we cease for any reason to be able to lawfully carry out all the transactions
required by each respective agreement.
Our
license rights are fundamental to our business and therefore a loss of these
rights will likely cause us to cease operations.
The
rights granted to us under the license agreements, the manufacturing license and
supply agreement and the license option deed with Novogen are fundamental to our
business. The license agreement for phenoxodiol grants us the right to make,
have made, market, distribute, sell, hire or otherwise dispose of phenoxodiol
products in the field of prevention, treatment or cure of cancer in humans by
pharmaceuticals delivered in all forms except topical applications. The license
agreement for triphendiol and NV-143 grants us the right to make, have made,
market, distribute, sell, hire or otherwise dispose of anti-cancer drugs
containing the compounds triphendiol and NV-143 in the field of prevention,
treatment or cure of cancer in humans by pharmaceuticals delivered in all forms
except topical applications. Our business purpose is to develop and
commercialize cancer drugs including phenoxodiol and drugs containing the
compounds triphendiol and NV-143, which we would be unable to pursue without the
rights granted to us under the license agreements. The license option deed
grants us an exclusive first right to accept and exclusive last right to match
any proposed dealing by Novogen with its intellectual property rights with a
third party relating to certain compounds (other than phenoxodiol) developed by
Novogen and its affiliates which have applications in the field of prevention,
treatment or cure of cancer in humans. The license option deed is important to
our business because it allows us to maintain control over the sale by Novogen
of complementary as well as potentially competitive intellectual property rights
to third party competitors. Any loss of the rights under any of these agreements
will likely cause us to cease operations.
The
success of our product candidates is largely dependent on Novogen’s ability to
obtain and maintain patent protection and preserve trade secrets, which cannot
be guaranteed.
Patent
protection and trade secret protection are important to our business and our
future will depend, in part on our ability and the ability of Novogen to
maintain trade secret protection, obtain patents and operate without infringing
the proprietary rights of others both in the U.S. and abroad. Litigation or
other legal proceedings may be necessary to defend against claims of
infringement, to enforce our patents, or to protect our trade secrets or the
trade secrets of Novogen. Such litigation could result in substantial costs and
diversion of our management’s attention. Novogen has not been involved in any
opposition, re-examination, trade secret dispute, infringement litigation or any
other litigation or legal proceedings pertaining to the licensed patent
rights.
The
patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Novogen has applied
for patents in a number of countries with respect to the use of phenoxodiol for
the treatment, prevention or cure of cancer and methods of production of
phenoxodiol. We have licensed both issued patents and pending patent
applications from Novogen in relation to these technologies. Novogen has
recently been issued a U.S. patent for pharmaceutical compositions comprising
phenoxodiol. Novogen has issued patents in the U.S., the United Kingdom,
Australia, China, Hong Kong, New Zealand, Singapore, Mexico and the Czech
Republic related to phenoxodiol for the treatment of a variety of cancers and
has issued patents in the U.S., Australia, New Zealand, Singapore and Sweden
covering the use of phenoxodiol to prevent or treat skin cancer resulting from
ultraviolet damage. Issued Novogen patents in the U.S., Europe, Australia, New
Zealand, Singapore, Mexico and Sweden cover the use of phenoxodiol to treat or
prevent UV-induced immunosuppression. In addition, Novogen has issued patents in
Australia, New Zealand, Singapore, South Africa and Turkey relating to methods
of production of phenoxodiol. For each of the patent families discussed above,
there remain pending patent applications in various other
jurisdictions.
Novogen’s
patent applications may not proceed to grant or may be amended to reduce the
scope of protection of any patent granted. The applications and patents may also
be opposed or challenged by third parties. Our commercial success will depend,
in part, on the ability of Novogen and our ability to obtain and maintain
effective patent protection for the technologies underlying phenoxodiol and
other compounds, and to successfully defend patent rights in those technologies
against third-party challenges. As patent applications in the U.S. are
maintained in secrecy until published or issued and as publication of
discoveries in the scientific or patent literature often lag behind the actual
discoveries, we cannot be certain that Novogen was the first to make the
inventions covered by its pending patent applications or issued patents or that
it was the first to file patent applications for such inventions. Additionally,
the breadth of claims allowed in biotechnology and pharmaceutical patents or
their enforceability cannot be predicted. We cannot be sure that, should any
patents issue, we will be provided with adequate protection against potentially
competitive products. Furthermore, we cannot be sure that should patents issue,
they will be of commercial value to us, or that private parties, including
competitors, will not successfully challenge our patents or circumvent our
patent position in the U.S. or abroad.
Claims
by other companies that we infringe their proprietary technology may result in
liability for damages or stop our development and commercialization
efforts.
The
pharmaceutical industry is highly competitive and patents have been applied for
by, and issued to, other parties relating to products competitive with
phenoxodiol.
Therefore,
phenoxodiol and any other drug candidates may give rise to claims that they
infringe the patents or proprietary rights of other parties existing now and in
the future. Furthermore, to the extent that we or Novogen or our respective
consultants or research collaborators use intellectual property owned by others
in work performed for us or Novogen, disputes may also arise as to the rights in
such intellectual property or in resulting know-how and inventions. An adverse
claim could subject us to significant liabilities to such other parties and/or
require disputed rights to be licensed from such other parties.
We have
currently contracted formulation development and manufacturing process
development work for phenoxodiol. This work is being conducted to ensure that
there is a robust production process which meets the expected commercial
quantities of phenoxodiol and that dose formulations are manufactured on a cost
effective basis.
This
process has identified a number of excipients, or additives to improve drug
delivery, which may be used in the formulations of phenoxodiol. Excipients,
among other things, perform the function of a carrier of the active drug
ingredient. Some of these identified excipients or carriers may be included in
third party patents in some countries. We intend to seek a license if we decide
to use a patented excipient in the marketed product or we may choose one of
those excipients that do not have a license requirement.
We cannot
be sure that any license required under any such patents or proprietary rights
would be made available on terms acceptable to us, if at all. If we do not
obtain such licenses, we may encounter delays in product market introductions,
or may find that the development, manufacture or sale of products requiring such
licenses may be precluded. We have not conducted any searches or made any
independent investigations of the existence of any patents or proprietary rights
of other parties.
We
may be subject to substantial costs stemming from our defence against
third-party intellectual property infringement claims.
Third
parties may assert that we or Novogen are using their proprietary information
without authorization. Third parties may also have or obtain patents and may
claim that technologies licensed to or used by us infringe their patents. If we
are required to defend patent infringement actions brought by third parties, or
if we sue to protect our own patent rights, we may be required to pay
substantial litigation costs and managerial attention may be diverted from
business operations even if the outcome is not adverse to us. In addition, any
legal action that seeks damages or an injunction to stop us from carrying on our
commercial activities relating to the affected technologies could subject us to
monetary liability and require us or Novogen or any third party licensors to
obtain a license to continue to use the affected technologies. We cannot predict
whether we or Novogen would prevail in any of these types of actions or that any
required license would be made available on commercially acceptable terms or at
all.
In
the event that Novogen does not comply with its obligations under a grant from
the Australian Government under which phenoxodiol was, in part, developed, our
rights to use the intellectual property relating to phenoxodiol and developed by
Novogen may revert back to the Australian Government.
Novogen
developed phenoxodiol in part by using funds from the Australian Government
under what is known as the START Program. Under the START Program, Novogen must
meet certain project development and commercialization obligations. Novogen has
met the project development obligations and has received final payment thereon.
Novogen believes it is currently in compliance with its commercialization
schedule.
Although
Novogen believes that it has complied with its obligations under the START
Program, if the Australian Government disagrees or if Novogen undergoes a change
of control without the prior consent of the Australian Government, the
Australian Government has a right to demand that intellectual property created
during the course of the project funded by the grant be vested back in the
Australian Government or demand repayment of the funds paid to Novogen under the
program. The Australian Government may then license the intellectual property
rights related to phenoxodiol to other parties and may demand other intellectual
property rights from Novogen. Any such reclamation by the Australian Government
could preclude our use of Novogen’s intellectual property in the development and
commercialization of phenoxodiol and we may have to compete with other companies
to whom the Australian Government may license the intellectual
property.
The
enforcement of civil liabilities against our officers and directors may be
difficult.
Most of
our officers and directors are residents of jurisdictions outside the U.S. As a
result it may be difficult for you to effect service of process within the U.S.
upon all our officers and directors or to enforce judgments obtained against all
our officers and directors or us in U.S. courts.
Our
results are affected by fluctuations in currency exchange rates.
Much of
our expenditures and potential revenue will be spent or derived outside of the
U.S. As a result, fluctuations between the U.S. dollar and the currencies of the
countries in which we operate may increase our costs or reduce our potential
revenue. At present, we do not engage in hedging transactions to protect against
uncertainty in future exchange rates between particular foreign currencies and
the U.S. dollar.
We
are authorized to issue a class of blank check preferred stock, which could
adversely affect the holders of our common stock.
Our
restated certificate of incorporation allows us to issue a class of blank check
preferred stock with rights potentially senior to those of our common stock
without any further vote or action by the holders of our common stock. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of our common stock or could adversely
affect the rights and powers including voting rights, of such holders. In
certain circumstances such issuance could have the effect of decreasing the
market price of our shares, or making a change in control of us more
difficult.
Risks Related to Our Relationship
with Novogen
As
our majority stockholder, Novogen has the ability to determine the outcome of
all matters submitted to our stockholders for approval and Novogen’s interests
may conflict with ours or our other stockholders’ interests.
Novogen
beneficially owns approximately 71.3% of our outstanding shares of common stock.
As a result, Novogen will have the ability to effectively determine the outcome
of all matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets.
Novogen
will have the ability to effectively control our management and affairs.
Novogen’s interests may not always be the same as that of our other
stockholders. In addition this concentration of ownership may harm the market
price of our securities by:
·
|
delaying,
deferring or preventing a change in
control;
|
·
|
impeding
a merger, consolidation, takeover or other business combination involving
us;
|
·
|
discouraging
a potential acquirer from making a tender, offer or otherwise attempting
to obtain control of us; or
|
·
|
selling
us to a third party.
|
Three
of our directors and our secretary and chief financial officer are officers
and/or directors of Novogen Limited and other Novogen subsidiaries, which may
create a conflict of interest as well as prevent them from devoting their full
attention to us.
Three of
our board members currently serve as board members of Novogen Limited.
Simultaneous service as a Novogen Limited director or officer could create, or
appear to create, a conflict of interest when such directors are presented with
decisions that could have different implications for us and Novogen
Limited.
Mr. Philip
Johnston is the chairman of Novogen Limited, Mr. Christopher Naughton is
the managing director of Novogen Limited and Professor Paul John Nestel is a
director of Novogen Limited. Mr. David Seaton is the chief financial
officer of Novogen Limited. The responsibilities of Messrs. Johnston,
Naughton and Seaton and Professor Nestel to Novogen Limited could prevent them
from devoting their full attention to us, which could be harmful to the
development of our business.
We
depend on a number of key personnel whose services are provided by Novogen under
our services agreement. If we are not able to procure these services in the
future, the strategic direction of the clinical development program would be
disrupted, causing a delay in our commercialization program.
We
currently rely on Professor Alan Husband, Novogen Research Director, and
Mr. Christopher Naughton, our President and Chief Executive Officer, to
provide the strategic direction for the clinical development of phenoxodiol. If
we are unable to secure the ongoing services of these key personnel, the
commercialization program for phenoxodiol will be disrupted and will cause
delays in obtaining marketing approval. Novogen has entered into employment
agreements with Professor Husband and Mr. Naughton.
Novogen
can compete with us.
We have
no contract, arrangement or understanding with Novogen to preclude it from
developing a product which may be competitive with phenoxodiol, triphendiol or
NV-143 or to use these compounds for any uses other than anti-cancer
applications. Novogen has reserved the intellectual property rights and know-how
rights relating to topical applications of these compounds even in the field of
cancer. There can be no assurance that Novogen or its subsidiaries will not
pursue alternative technologies or product candidates as a means of developing
treatments for the conditions targeted by phenoxodiol or any other product
candidate which we seek to exploit.
We
are dependent on Novogen for our personnel.
We have
no employees. We rely on Novogen and other service companies to provide or
procure the provision of staff and other financial and administrative services
under our services agreement with Novogen.
We
believe Novogen has fully complied with the terms of our services agreement. To
successfully develop our drug candidates, we will require ongoing access to the
personnel who have, to date, been responsible for the development of our drug
candidates. The services agreement does not specify a minimum amount of time
that Novogen employees must devote to our operations. If we are unable to secure
or if we lose the services of these personnel, the ability to develop our drug
candidates could be materially impaired. Moreover, if our business experiences
substantial and rapid growth, we may not be able to secure the services and
resources we require from Novogen or from other persons to support that
growth.
In
the event that Novogen undergoes a change in control while remaining our
controlling stockholder, we will become subject to the control and influence of
Novogen’s new controlling stockholder who may have views regarding the
development of our business that differ from the development strategies we are
currently pursuing.
In the
event that Novogen undergoes a change in control while remaining our controlling
stockholder, we will become subject to the control and influence of Novogen’s
new controlling stockholder who will have the ability to indirectly determine
the outcome of all matters submitted to our stockholders for approval through
its control of Novogen. This entity may have views regarding the development of
our business that differ from the development strategies we are currently
pursuing. Such controlling stockholder may cause Novogen to use its influence
and voting power to change the direction in which we are developing our
business. Such changes may include, but are not limited to, a decreased focus on
the development of any of our current drug candidates and an increased focus on
the development of alternative drug candidates, which may or may not be targeted
to treat cancers. Additionally, this entity may seek to renegotiate the terms of
our existing license agreements, manufacturing and supply agreement and services
agreement with Novogen.
Risks
Related to Our Common Stock
The
trading price of the shares of our common stock could be highly volatile and
could decline in value and we may incur significant costs from class action
litigation.
The
trading price of our common stock could be highly volatile in response to
various factors, many of which are beyond our control, including:
·
|
developments
concerning phenoxodiol and our other drug candidates triphendiol and
NV-143;
|
·
|
announcements
of technological innovations by us or our
competitors;
|
·
|
new
products introduced or announced by us or our
competitors;
|
·
|
changes
in financial estimates by securities
analysts;
|
·
|
actual
or anticipated variations in operating
results;
|
·
|
expiration
or termination of licenses, research contracts or other collaboration
agreements;
|
·
|
conditions
or trends in the regulatory climate and the biotechnology, pharmaceutical
and genomics industries;
|
·
|
changes
in the market valuations of similar
companies;
|
·
|
the
liquidity of any market for our
securities; and
|
·
|
additional
sales by us or Novogen of shares of our common
stock.
|
In
addition, equity markets in general, and the market for biotechnology and life
sciences companies in particular, have experienced substantial price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of companies traded in those markets. In addition, changes in
economic conditions in the U.S., Europe or globally, could impact upon our
ability to grow profitably. Adverse economic changes are outside our control and
may result in material adverse impacts on our business or our results of
operations. These broad market and industry factors may materially affect the
market price of our shares of common stock, regardless of our development and
operating performance. In the past, following periods of volatility in the
market price of a company’s securities, securities class-action litigation has
often been instituted against that company. Such litigation, if instituted
against us, could cause us to incur substantial costs and divert management’s
attention and resources.
Future
sales of our common stock may depress the market price of our common stock and
cause stockholders to experience dilution.
The
market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur.
We
will have broad discretion over the use of the net proceeds to us from any
exercise of outstanding warrants.
We will
have broad discretion to use the net proceeds to us upon any exercise of
outstanding warrants, and you will be relying on the judgment of our board of
directors and management regarding the application of these proceeds. Although
we expect to use a substantial portion of the net proceeds from any exercise of
the warrants for general corporate purposes, including potential payments to
Novogen under the terms of the license agreements, potential licensing of other
cancer compounds developed by Novogen under the license option deed and
potential expansion of the clinical trial program for phenoxodiol to include
other forms of cancer, we have not allocated these net proceeds for specific
purposes.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
We do not
own or lease any property.
Item
3. Legal Proceedings
None.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this Annual Report on Form 10-K.
PART
II
Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Securities
The
following tables set forth for the period indicated the high and low sale prices
of our common stock and warrants as reported by the Nasdaq Global
Market.
Common
Stock
|
Nasdaq
Global Market
|
|
|
|
High
|
|
|
|
|
|
Low
|
|
|
|
$ |
|
|
|
|
|
$ |
Year
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
3.75 |
|
|
|
|
|
|
|
2.58 |
|
Second
Quarter
|
|
|
3.68 |
|
|
|
|
|
|
|
2.82 |
|
Third
Quarter
|
|
|
4.90 |
|
|
|
|
|
|
|
3.08 |
|
Fourth
Quarter
|
|
|
4.28 |
|
|
|
|
|
|
|
2.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
3.36 |
|
|
|
|
|
|
|
2.21 |
|
Second
Quarter
|
|
|
3.98 |
|
|
|
|
|
|
|
2.15 |
|
Third
Quarter
|
|
|
2.91 |
|
|
|
|
|
|
|
1.49 |
|
Fourth
Quarter
|
|
|
4.10 |
|
|
|
|
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
(with December 2006 expiry)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.30 |
|
|
|
|
|
|
|
0.02 |
|
Second
Quarter
|
|
|
0.29 |
|
|
|
|
|
|
|
0.01 |
|
Third
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Fourth
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Second
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Third
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Fourth
Quarter
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
As of
August 15, 2008, there were 73,463,233 shares of our common stock outstanding
and approximately 1,445 stockholders on record of our common stock. This number
was derived from our shareholder records and does not include beneficial owners
of our common stock whose shares are held in the name of various dealers,
clearing agencies, banks, brokers and other fiduciaries.
Dividends
We have
never declared or paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the expansion and growth of
our business. Payments of any future cash dividends will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs,
plans for expansion and other factors that our board of directors deem
relevant.
Stock
Repurchases
We have
not repurchased any shares of common stock during the fourth quarter of the
fiscal year ended June 30, 2008.
Equity
Compensation
The
following table sets forth, as of June 30, 2008 outstanding awards and shares
remaining available for future issuance under our compensation plans under which
equity securities are authorized for issuance.
Plan
Category
|
(a)
Number
of securities to
be
issued upon exercise of
outstanding
options,
warrants
and rights
|
(b)
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
(c)
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected
in column (a)
|
Equity
compensation plans approved by security holders
|
Not
Applicable
|
Not
Applicable
|
Not
Applicable
|
Equity
compensation plans not approved by security holders
|
None
|
Not
Applicable
|
Indeterminable
|
Total
|
None
|
Not
Applicable
|
Indeterminable
|
Our
Employee Share Option Plan (the “Plan”) provides our directors, employees,
employees of our affiliates and certain of our contractors and consultants with
the opportunity to participate in our ownership. To date, no options have been
issued under the Plan. The Compensation Committee, appointed by the Board of
Directors, addresses participation, the number of options offered and any
conditions of exercise. In making these determinations the Compensation
Committee will generally consider the participant’s position and record of
service to us and our affiliates and potential contribution to the growth of us
and our affiliates. Any other matters tending to indicate the participant’s
merit may also be considered.
Options
will be exercisable between two years and five years after grant, unless
otherwise determined by the Compensation Committee. Options granted will be
exercisable at a price determined by the Compensation Committee at the time of
issue (and will be subject to adjustment in accordance with the terms of the
plan). Other key terms of the Plan include:
·
|
Options
will lapse if the participants cease to be engaged by us or our
affiliates. The committee will have the discretion to waive this
provision.
|
·
|
The
terms of the Plan also provide for adjustments to the rights of an option
holder as a result of a reorganisation of our capital or other corporate
event. The holder of an option is not permitted to participate in any
distribution by us or in any rights or other entitlements issued by us to
stockholders in respect of our shares unless the options are exercised
prior to the relevant record; and
|
·
|
All
options vest on the occurrence of certain events such as a change of
control, as defined in the Plan.
|
The Plan
also contains standard provisions dealing with matters such as administration of
the Plan, amendment of the Plan and termination or suspension of the
Plan.
Stock
Performance Graph
The graph
set forth below compares the change in our cumulative total stockholder return
on our common stock between December 18, 2003 (the date our common stock
commenced public trading) and June 29, 2008 with the cumulative total
return of the NASDAQ Composite Index and the NASDAQ Biotechnology Index during
the same period. This graph assumes the investment of $100 on December 18,
2003 in our common stock and each of the comparison groups and assumes
reinvestment of dividends, if any. We have not paid any dividends on our common
stock, and no dividends are included in the report of our
performance.
|
12/18/03
|
6/30/04
|
6/30/05
|
6/30/06
|
6/29/07
|
6/30/08
|
Marshall
Edwards, Inc. Common Stock
|
$100.00
|
$ 99.07
|
$ 95.07
|
$ 45.20
|
$ 40.93
|
$34.27
|
NASDAQ
Composite Index
|
$100.00
|
$104.68
|
$105.15
|
$111.04
|
$133.08
|
$117.22
|
NASDAQ
Biotechnology Index
|
$100.00
|
$107.78
|
$ 98.00
|
$105.44
|
$113.95
|
$112.62
|
Item
6. Selected Financial Data
The
following selected financial data should be read in conjunction with Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Item 8. “Financial Statements” included elsewhere in this Annual
Report on Form 10-K.
Statement
of Operations
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$ |
674 |
|
|
$ |
645 |
|
|
$ |
446 |
|
|
$ |
308 |
|
|
$ |
193 |
|
Total
revenues
|
|
|
674 |
|
|
|
645 |
|
|
|
446 |
|
|
|
308 |
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(12,407 |
) |
|
|
(13,819 |
) |
|
|
(7,385 |
) |
|
|
(6,421 |
) |
|
|
(8,538 |
) |
Income
tax expense
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
Net
loss arising during development stage
|
|
$ |
(12,410 |
) |
|
$ |
(13,820 |
) |
|
$ |
(7,386 |
) |
|
$ |
(6,421 |
) |
|
$ |
(8,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(0.18 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
68,302,566 |
|
|
|
63,179,366 |
|
|
|
56,938,000 |
|
|
|
56,938,000 |
|
|
|
54,954,578 |
|
Balance
Sheet Data
|
|
As
of June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
19,743 |
|
|
$ |
16,158 |
|
|
$ |
10,054 |
|
|
$ |
9,238 |
|
|
$ |
24,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
19,978 |
|
|
$ |
16,290 |
|
|
$ |
10,395 |
|
|
$ |
19,364 |
|
|
$ |
24,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
$ |
16,535 |
|
|
$ |
13,777 |
|
|
$ |
9,135 |
|
|
$ |
16,521 |
|
|
$ |
22,942 |
|
Item
7. Management’s Discussion and Analysis of Financial Condition and results of
Operations.
The
following discussion and analysis should be read in conjunction with “Item 8.
Financial Statements and Supplementary Data” included below. Operating results
are not necessarily indicative of results that may occur in future periods. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual results may differ materially from
those anticipated in the forward-looking statements as a result of many factors
including, but not limited to, those set forth under “Cautionary Statement About
Forward-Looking Statements” and “Risk Factors” in Item 1A. included above in
this Annual Report on Form 10-K. All forward-looking statements included in this
document are based on the information available to us on the date of this
document and we assume no obligation to update any forward-looking statements
contained in this Annual Report on Form 10-K.
Overview
During
fiscal year 2008, we continued to establish clinical trial sites and to recruit
patients for the OVATURE Phase III clinical trial and continued to recruit
patients into the existing clinical trial programs for the treatment of prostate
cancer and cervical cancer for phenoxodiol and progressed the pre clinical and
clinical program for triphendiol.
We do not
employ any staff directly but obtain services from Novogen under a services
agreement and other third party service providers under various contract
arrangements. We have incurred losses since inception and expect to incur
operating losses and generate negative cash flows from operations for the
foreseeable future as we expand our research and development
activities.
As of
June 30, 2008, we had accumulated losses of $51,731,000.
We have
not generated any revenues from operations since inception other than interest
on cash assets.
Expenses
have consisted primarily of costs associated with conducting the clinical trials
of our drug candidates and costs incurred under the licence agreements, the
services agreement and the manufacturing licence and supply agreements with
Novogen, including the costs of the clinical trial drug supplies as well as
costs associated with phenoxodiol production scale-up activities, drug supply
from third party contractors and general corporate expenses.
Ongoing
operations through the conduct of the clinical trial program will continue to
consume cash resources without generating revenues.
To date,
operations have been funded primarily through the sale of equity
securities.
We
believe that the proceeds of $10,000,000 from the registered direct offering
closed in July 2008 provides us with sufficient cash resources to fund our
planned operations over the next twelve months which includes progressing the
Phase III OVATURE trial and the planned pre clinical development of triphendiol
and NV-143.
We will
however need additional funds to complete the OVATURE trial and to progress the
clinical development program for triphendiol and NV-143 beyond the current
objectives.
In
connection with our preparation to raise additional funds, we filed a shelf
registration statement with the SEC in March 2008. The shelf registration
statement was declared effective by the SEC on April 3, 2008. The shelf
registration statement permits us to sell, from time to time, up to $75,000,000
of common stock, preferred stock and warrants or any combination of the
foregoing. Pursuant to SEC regulations however we cannot sell securities from
the shelf registration statement which represent more than one third of the
market value of our public float in any 12 month period.
We expect
to incur quarterly and annual operating losses for the foreseeable future due to
several factors including the timing and extent of research and development
efforts, particularly with expected increases in expenses relating to the
OVATURE trial and the planned clinical trials of triphendiol. The extent and
possible outcomes of current and future clinical trial activities makes accurate
prediction of future operating results difficult or impossible.
As at the
date of the report Novogen owns approximately 71.3% of the outstanding shares of
our common stock.
Liquidity
and Capital Resources
At June
30, 2008, we had cash resources of $19,743,000 compared to $16,158,000 at June
30, 2007. The increase was due to the net proceeds of the capital raising in
August 2007 of $15,193,000, which were partially offset by the payment of the
$1,000,000 milestone licence fee in March 2008 and expenditures in the clinical
trial program and other corporate expenses incurred during the year. In
addition, in July, 2008 we raised proceeds of $10,000,000 in a registered direct
share offering.
Funds
which are not required for payment of current expenditures are invested in short
term money accounts, pending use.
Source
and Uses of Cash
Cash
Used in Operating Activities
Cash used
in operating activities for the year ended June 30, 2008 was $11,498,000
compared to $10,786,000 for the same period in 2007. The increase in cash
outflow of $712,000 for the year ended June 30, 2008 was due primarily to
additional cash outflow incurred in connection with the increased costs
associated with the Phase III OVATURE trial and other corporate
purposes.
Cash
Requirements
We are
currently conducting the OVATURE Phase III clinical study to support marketing
approval of phenoxodiol for ovarian cancer and progressing the pre clinical
development of triphendiol and NV-143.
Ongoing
operations through the conduct of the clinical trial program will continue to
consume cash resources without generating revenues.
We do not
intend to incur any significant capital expenditures in the foreseeable
future.
Payments
to Novogen
Future
payments to Novogen under the terms of the Phenoxodiol License Agreement, the
License Amendment Deed for Phenoxodiol, the Further Amended and Restated License
Agreement and the License Agreement for Triphendiol and NV-143 are detailed in
Note 6 of the financial statements “Related Party Transactions” on page 60 of
this Annual Report on Form 10-K.
We will
also be required to make payments to Novogen under the Services Agreement and
Manufacturing License and Supply Agreement.
Results
of Operations
Summary
of Revenue and Expenses
The
following table provides a summary of revenues and expenses to supplement the
more detailed discussions below:
Revenues
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Interest
and other income
|
|
$ |
674 |
|
|
$ |
645 |
|
|
$ |
446 |
|
Total
revenues
|
|
|
674 |
|
|
|
645 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Clinical
trial study costs
|
|
$ |
(5,928 |
) |
|
$ |
(2,255 |
) |
|
$ |
(840 |
) |
Drug/manufacturing
scale-up costs
|
|
|
(1,310 |
) |
|
|
(1,860 |
) |
|
|
(1,856 |
) |
Research
and development service charge
|
|
|
(2,065 |
) |
|
|
(1,145 |
) |
|
|
(588 |
) |
Other
|
|
|
(22 |
) |
|
|
(501 |
) |
|
|
(143 |
) |
Total
Research and Development Costs
|
|
|
(9,325 |
) |
|
|
(5,761 |
) |
|
|
(3,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
Fees
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
License
Fees
|
|
|
(1,000 |
) |
|
|
(5,000 |
) |
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Legal
and professional fees
|
|
$ |
(527 |
) |
|
$ |
(488 |
) |
|
$ |
(394 |
) |
Administrative
service charge
|
|
|
(989 |
) |
|
|
(818 |
) |
|
|
(707 |
) |
Share
based payment
|
|
|
- |
|
|
|
(1,642 |
) |
|
|
- |
|
Other
|
|
|
(1,240 |
) |
|
|
(755 |
) |
|
|
(303 |
) |
Total
operating expenses
|
|
|
(2,756 |
) |
|
|
(3,703 |
) |
|
|
(1,404 |
) |
Year
Ended June 30, 2008 Compared to the Year Ended June 30, 2007
We
recorded a consolidated loss of $12,410,000 and $13,820,000 for the years ended
June 30, 2008 and 2007, respectively.
Revenues: We received interest on cash
assets and cash equivalents of $674,000 for the year ended June 30, 2008 versus
$645,000 for the year ended June 30, 2007. This increase was due to higher cash
balances combined with an increase in interest rates.
Research and
Development: Research and development expenses increased $3,564,000 to
$9,325,000 for the year ended June 30, 2008 compared to $5,761,000 for the year
ended June 30, 2007. This increase was primarily due to increased clinical trial
costs incurred associated with the OVATURE trial reflecting the increasing
number of patients on study and the commissioning of new trial
sites.
Licence
Fees: Milestone license fees of $1,000,000 have been expensed in the
twelve months ended June 30, 2008 under the terms of the License Agreement for
Triphendiol and NV-143. The second lump sum license fee of $5,000,000 due under
the terms of the Amended and Restated License Agreement was expensed in the
twelve months ended June 30, 2007. This licence fee was due on the later of
November 1, 2003 or such later date when the cumulative total of all funds
received from debt or equity issuances and revenue received from
commercialization (income other than sales) and sales of phenoxodiol products
exceeded $50,000,000. Following the private
placement or PIPE which closed in July 2006, the funds received from equity
issuances exceeded $50,000,000 which triggered this licence fee
payment.
Selling, General
and Administrative: Selling, general and
administrative expenses decreased by $947,000 to $2,756,000 for the year ended
June 30, 2008 compared to $3,703,000 for the year ended June 30, 2007. The
decrease was due primarily to the cost of the share-based payment valued at
$1,642,000 in fiscal 2007 for a commitment fee paid to YA Global Investments, LP
(YA Global Investments formerly Cornell Capital Partners, LP) in connection with
a Standby Equity Distribution Agreement (”SEDA”) entered into by us and YA
Global Investments as of July 11, 2006. These savings were partially off set by
increased costs for general corporate expenses including an increase in legal
compliance costs, travel expenses, public relations and service fees paid to
Novogen reflecting an increase in corporate and accounting services and
insurance.
Foreign
exchange gains/(losses) are included in selling, general and administrative
expenses and occur when revaluing cash denominated in foreign currencies and
upon consolidation of our wholly owned subsidiary MEPL. MEPL uses U.S. dollars
as its functional currency and also engages in transactions in foreign
currencies. Further, MEPL’s accounts and financial statements are denominated in
Australian dollars. Translation of MEPL’s financial statements into U.S. dollars
did not have a material impact on our financial position. At June 30, 2008, we
had not established a foreign currency hedging program. Net foreign exchange
losses during the twelve months ended June 30, 2008 were $255,000 compared with
net exchange losses of $98,000 during the twelve months ended June 30,
2007.
Year
Ended June 30, 2007 Compared to the Year Ended June 30, 2006
We
recorded a consolidated loss of $13,820,000 and $7,386,000 for the years ended
June 30, 2007 and 2006, respectively.
Revenues: We received interest on cash
assets and cash equivalents of $645,000 for the year ended June 30, 2007 versus
$446,000 for the year ended June 30, 2006. This increase was due to higher cash
balances combined with an increase in interest rates.
Research and
Development: Research and
development expenses increased $2,334,000 to $5,761,000 for the year ended June
30, 2007 compared to $3,427,000 for the year ended June 30, 2006. This increase
was primarily due to increased clinical trial costs incurred associated with the
OVATURE trial and the additional costs incurred under the Services Agreement
reflecting the increased time spent by Novogen research staff on the development
of phenoxodiol, triphendiol and NV-143.
Licence
Fees: Milestone licence fees of $5,000,000 were expensed for the year
ended June 30, 2007 compared to $3,000,000 for the year ended June 30, 2006. The
$5,000,000 expensed in the year ended June 30, 2007 represents the second lump
sum licence fee due under the terms of the licence agreement. This second lump
sum licence fee was due on the later of November 1, 2003 or such later date when
the cumulative total of all funds received from debt or equity issuances and
revenues
received
from commercialization (income other than sales) and sales of phenoxodiol
products exceeds $50,000,000. Following the private placement or PIPE capital
raising closed on July 11, 2006, the funds received from equity issuances
exceeded $50,000,000 which triggered this licence fee payment. The $3,000,000
expensed in the year ended June 30, 2006 represents 50 percent ($2,000,000) of
the December 31, 2005 annual milestone licence fee of $4,000,000 (the other 50
percent was incurred and accrued in the year ended June 30, 2005) and $1,000,000
that was payable on execution of the new licence agreement with Novogen in
relation to the drug candidates triphendiol and NV-143 licenced in May
2006.
Selling, General
and Administrative: Selling, general and
administrative expenses increased by $2,299,000 to $3,703,000 for the year ended
June 30, 2007 compared to $1,404,000 for the year ended June 30, 2006. The
increase was due primarily to the cost of the share-based payment of the SEDA
commitment fee paid to YA Global Investments in the form of shares and warrants
which were valued at $1,642,000 and general corporate expenses including an
increase in legal compliance costs, travel and service fees paid to Novogen
reflecting an increase in corporate and accounting services and
insurance.
Foreign
exchange gains/(losses) are included in selling, general and administrative
expenses and occur when revaluing cash denominated in foreign currencies and
upon consolidation of our wholly owned subsidiary MEPL. MEPL uses U.S. dollars
as its functional currency and also engages in transactions in foreign
currencies. Further, MEPL’s accounts and financial statements are denominated in
Australian dollars. Translation of MEPL’s financial statements into U.S. dollars
did not have a material impact on our financial position. At June 30, 2008, we
had not established a foreign currency hedging program. Net foreign exchange
losses during the twelve months ended June 30, 2007 were $98,000 compared with
net exchange losses of $2,000 during the twelve months ended June 30,
2006.
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements.
Contractual
Obligations
For
details of our contractual obligations at June 30, 2008 see Note 4 to the
financial statements “Expenditure Commitments on page 58 of this
report.
Critical
Accounting Estimates
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
Clinical
Trials Expenses
Estimates
have been used in determining the expense liability under certain clinical trial
contracts where services have been performed but not yet invoiced. The actual
costs of those services could differ in amount and timing from the estimates
used in completing the financial results.
Clinical
trial expenses of $5,928,000 have been included in the financial statements for
the year ended June 30, 2008, of which $1,648,000 has been accrued at June 30,
2008. These estimates are based on the number of patients in each trial and the
drug administration cycle.
Clinical
research contracts may vary depending on the clinical trial design and protocol.
Generally the costs, and therefore estimates, associated with clinical trial
contracts are based on the number of patients, drug administration cycles, the
type of treatment and the outcome being measured. The length of time before
actual amounts can be determined will vary depending on length of the patient
cycles and the timing of the invoices by the clinical trial
partners.
Manufacturing
Scale-up Expenses
Estimates
have been used in determining the expense liability under certain manufacturing
scale-up and drug supply contracts where services have been performed but not
yet invoiced. The actual costs of those services could differ in amount and
timing from the estimates used in completing the financial results.
Drug
supply/manufacturing scale-up expenses of $1,310,000 have been included in the
financial statements for the year ended June 30, 2008, of which $72,000 has been
accrued at June 30, 2008. These estimates are based on the milestones completed
for each of the service contracts.
Stock
Based Compensation
We
account for stock based payments in accordance with SFAS No. 123R “Share-Based
Payments”. The costs of these equity-settled transactions are determined using a
binomial model to calculate the fair value at the date on which they are
granted. With respect to the fair value of 600,000 warrants issued July 11,
2006, in connection with the commitment fee under the SEDA and the 62,091
warrants representing 248,364 warrant shares issued August 6, 2007 to Blue
Trading, LLC as part of a placement fee, the following assumptions were
used:
|
July
11, 2006
|
August
6, 2007
|
Dividend
yield
|
0%
|
0%
|
Expected
volatility
|
76%
|
71%
|
Historical
volatility
|
76%
|
71%
|
Risk-free
interest rate
|
5.45%
|
4.13%
|
Expected
life of warrant
|
4
years
|
5
years
|
Warrant
fair value
|
$1.998
|
$1.777
|
The
dividend yield reflects the assumption that the current dividend payout, which
is zero, will continue with no anticipated increases. The expected life of the
warrant is based on historical data and is not necessarily indicative of
exercise patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome.
Item
7a. Quantitative and Qualitative Disclosures about Market Risk
Interest
Rate Risk
Our
exposure to market interest rates relates primarily to the investments of cash
balances.
We have
cash reserves held primarily in US$ and A$ and we place funds on deposit with
financial institutions and are generally at call.
We do not
use derivative financial instruments. We place our cash deposits with high
credit quality financial institutions, and, by policy, limit the amount of
credit exposure to any single counter-party. We are adverse to principal loss
and we ensure the safety and preservation of our invested funds by limiting
default risk, market risk, and reinvestment risk.
The
Company mitigates default risk by depositing funds with high credit quality
financial institutions and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any financial
institution.
The
Company has no interest rate exposure due to rate changes for long-term
debt
We do not
consider the effects of interest rate movements to be a material risk to our
financial condition.
Foreign
Currency Risk
We
conduct a portion of our business in various currencies, primarily in U.S.
dollars and Australian dollars, Euros and British pounds. At June 30, 2008,
we had not established a foreign currency hedging program. Net foreign exchange
losses during the twelve months ended June 30, 2008 were $255,000 compared with
net exchange losses of $98,000 during the twelve months ended June 30, 2007.
Foreign exchange gains and losses occur upon consolidation of MEPL, which uses
U.S. dollars as its functional currency and also engages in transactions in
foreign currencies. MEPL’s accounts are denominated in Australian dollars.
Translation of MEPL’s financial statements into U.S. dollars did not have a
material impact on our financial position.
We do not
consider the effects of foreign currency movements to be a material risk to our
financial condition.
Item
8. Financial Statements and Supplementary Data
Marshall
Edwards, Inc
Index
to Financial Statements
Report of
BDO Kendalls (NSW) Independent Registered Public Accounting Firm
Consolidated
Balance Sheets
Consolidated
Statements of Operations
Consolidated
Statements of Stockholders’ Equity
Consolidated
Statements of Cash Flows
Notes to
Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
Board of
Directors
Marshall
Edwards, Inc.
We have
audited the accompanying consolidated balance sheet of Marshall Edwards, Inc. (a
development
stage company) as of June 30, 2008 and 2007, and the related statements of
operations,
stockholders’ equity, and cash flows for each of the years in the three year
period ended
June 30, 2008, and for the period from December 1, 2000 (inception) through June
30, 2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight
Board (U.S.). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
The Company is not required to have, nor were we engaged to perform, an audit
of its
internal control over financial reporting. Our audits included consideration of
internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material
respects, the consolidated financial position of Marshall Edwards, Inc. at June
30, 2008 and 2007,
and the consolidated results of its operations and its cash flows for each of
the years in the three
year period ended June 30, 2008 and the period from December 1, 2000 (inception)
through June 30, 2008,
in conformity with accounting principles generally accepted in the United
States of America.
BDO
Kendalls (NSW)
Sydney,
NSW, Australia
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share data)
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
19,743 |
|
|
$ |
16,158 |
|
Deferred
Offering Costs
|
|
|
110 |
|
|
|
25 |
|
Prepaid
expenses and other current assets
|
|
|
125 |
|
|
|
107 |
|
Total
current assets
|
|
|
19,978 |
|
|
|
16,290 |
|
Total
assets
|
|
$ |
19,978 |
|
|
$ |
16,290 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,130 |
|
|
$ |
1,197 |
|
Accrued
expenses
|
|
|
1,884 |
|
|
|
984 |
|
Amount
due to related company
|
|
|
429 |
|
|
|
332 |
|
Total
current liabilities
|
|
|
3,443 |
|
|
|
2,513 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, authorized 100,000 shares,
|
|
none
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $ 0.00000002 par value, 113,000,000 authorized
|
|
shares;
shares issued and outstanding: 68,854,938 at
|
|
|
|
|
|
June
30, 2008 and 63,390,937 at June 30, 2007
|
|
|
- |
|
|
|
- |
|
Additional
paid-in capital
|
|
|
68,266 |
|
|
|
53,098 |
|
Deficit
accumulated during development stage
|
|
|
(51,731 |
) |
|
|
(39,321 |
) |
Total
stockholders' equity
|
|
|
16,535 |
|
|
|
13,777 |
|
Total
liabilities and stockholders' equity
|
|
$ |
19,978 |
|
|
$ |
16,290 |
|
See
accompanying notes.
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except share and per share data)
|
Years
Ended June 30, |
|
Period
from December 1, 2000 (Inception) through
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and
other income
|
|
$ |
674 |
|
|
$ |
645 |
|
|
$ |
446 |
|
|
$ |
2,418 |
|
Total
revenues
|
|
|
674 |
|
|
|
645 |
|
|
|
446 |
|
|
|
2,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
(9,325 |
) |
|
|
(5,761 |
) |
|
|
(3,427 |
) |
|
|
(25,266 |
) |
License
fees
|
|
|
(1,000 |
) |
|
|
(5,000 |
) |
|
|
(3,000 |
) |
|
|
(18,000 |
) |
Selling,
general and administrative
|
|
|
(2,756 |
) |
|
|
(3,703 |
) |
|
|
(1,404 |
) |
|
|
(10,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
(13,081 |
) |
|
|
(14,464 |
) |
|
|
(7,831 |
) |
|
|
(54,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(12,407 |
) |
|
|
(13,819 |
) |
|
|
(7,385 |
) |
|
|
(51,725 |
) |
Income
tax expense
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
Net
loss arising during development stage
|
|
$ |
(12,410 |
) |
|
$ |
(13,820 |
) |
|
$ |
(7,386 |
) |
|
$ |
(51,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(0.18 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
68,302,566 |
|
|
|
63,179,366 |
|
|
|
56,938,000 |
|
|
|
|
|
See
accompanying notes.
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Years
Ended June 30,
|
|
Period
from December 1, 2000 (Inception)
through
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss arising during development stage
|
|
|
(12,410 |
) |
|
|
(13,820 |
) |
|
|
(7,386 |
) |
|
|
(51,731 |
) |
Adjustments to
reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based payments
|
|
|
- |
|
|
|
1,642 |
|
|
|
- |
|
|
|
1,642 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(18 |
) |
|
|
139 |
|
|
|
(120 |
) |
|
|
(125 |
) |
Accounts
payable
|
|
|
(67 |
) |
|
|
777 |
|
|
|
166 |
|
|
|
1,130 |
|
Accrued
expenses
|
|
|
900 |
|
|
|
346 |
|
|
|
235 |
|
|
|
1,884 |
|
Amounts
due to related company
|
|
|
97 |
|
|
|
130 |
|
|
|
(1,984 |
) |
|
|
429 |
|
Net
cash used in operating activities
|
|
|
(11,498 |
) |
|
|
(10,786 |
) |
|
|
(9,089 |
) |
|
|
(46,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of Common Stock
|
|
|
15,193 |
|
|
|
16,915 |
|
|
|
- |
|
|
|
66,744 |
|
Deferred
Offering Costs
|
|
|
(110 |
) |
|
|
(25 |
) |
|
|
(95 |
) |
|
|
(230 |
) |
Withdrawal
from/(investment in) short-term deposits
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
- |
|
Net
cash provided by/(used in) financing activities
|
|
|
15,083 |
|
|
|
16,890 |
|
|
|
9,905 |
|
|
|
66,514 |
|
Net
increase/(decrease) in cash and cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalents
|
|
|
3,585 |
|
|
|
6,104 |
|
|
|
816 |
|
|
|
19,743 |
|
Cash
and cash equivalents at beginning of period
|
|
|
16,158 |
|
|
|
10,054 |
|
|
|
9,238 |
|
|
|
- |
|
Cash
and cash equivalents at end of period
|
|
|
19,743 |
|
|
|
16,158 |
|
|
|
10,054 |
|
|
|
19,743 |
|
Income
taxes paid
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
See
accompanying notes.
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(In
thousands, except share data)
|
|
Common
Stock
|
|
|
Additional
paid
in capital
|
|
|
Deficit
accumulated during development
stage
|
|
|
Accumulated
other
comprehensive income/(loss)
|
|
|
Total
|
|
|
|
(shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2001
|
|
|
49,500,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
(123 |
) |
Common
Stock issued May 22, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
2,523,000 warrants)
|
|
|
2,523,000 |
|
|
|
9,022 |
|
|
|
|
|
|
|
|
|
|
|
9,022 |
|
Balance
at June 30, 2002
|
|
|
52,023,000 |
|
|
|
9,022 |
|
|
|
(123 |
) |
|
|
- |
|
|
|
8,899 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(3,033 |
) |
|
|
|
|
|
|
(3,033 |
) |
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
31 |
|
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,002 |
) |
Common
Stock issued June 26, 2003
|
|
|
9,000 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
36 |
|
Balance
at June 30, 2003
|
|
|
52,032,000 |
|
|
|
9,058 |
|
|
|
(3,156 |
) |
|
|
31 |
|
|
|
5,933 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(8,538 |
) |
|
|
|
|
|
|
(8,538 |
) |
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
(31 |
) |
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,569 |
) |
Common
Stock issued November 30, 2003
|
|
|
2,514,000 |
|
|
|
10,056 |
|
|
|
|
|
|
|
|
|
|
|
10,056 |
|
Common
Stock issued December 18, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(including
2,392,000 warrants)
|
|
|
2,392,000 |
|
|
|
15,522 |
|
|
|
|
|
|
|
|
|
|
|
15,522 |
|
Balance
at June 30, 2004
|
|
|
56,938,000 |
|
|
$ |
34,636 |
|
|
$ |
(11,694 |
) |
|
$ |
- |
|
|
$ |
22,942 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(6,421 |
) |
|
|
|
|
|
|
(6,421 |
) |
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,421 |
) |
Balance
at June 30, 2005
|
|
|
56,938,000 |
|
|
$ |
34,636 |
|
|
$ |
(18,115 |
) |
|
$ |
- |
|
|
$ |
16,521 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(7,386 |
) |
|
|
|
|
|
|
(7,386 |
) |
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,386 |
) |
Balance
at June 30, 2006
|
|
|
56,938,000 |
|
|
|
34,636 |
|
|
|
(25,501 |
) |
|
|
- |
|
|
$ |
9,135 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(13,820 |
) |
|
|
|
|
|
|
(13,820 |
) |
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,820 |
) |
Common
Stock issued July 11, 2006
|
|
|
6,329,311 |
|
|
|
16,820 |
|
|
|
|
|
|
|
|
|
|
|
16,820 |
|
Shares
issued as share-based payment (refer Note 7)
|
|
|
123,626 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
443 |
|
Warrants
issued as share-based payment (refer Note 7)
|
|
|
|
|
|
|
1,199 |
|
|
|
|
|
|
|
|
|
|
|
1,199 |
|
Balance
at June 30, 2007
|
|
|
63,390,937 |
|
|
|
53,098 |
|
|
|
(39,321 |
) |
|
|
- |
|
|
$ |
13,777 |
|
Net
loss arising during development stage
|
|
|
|
|
|
|
|
|
|
|
(12,410 |
) |
|
|
|
|
|
|
(12,410 |
) |
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,410 |
) |
Common
Stock issued August 6, 2007
|
|
|
5,464,001 |
|
|
|
14,727 |
|
|
|
|
|
|
|
|
|
|
|
14,727 |
|
Warrants
issued as share-based payment (refer Note 7)
|
|
|
|
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
441 |
|
Balance
at June 30, 2008
|
|
|
68,854,938 |
|
|
|
68,266 |
|
|
|
(51,731 |
) |
|
|
- |
|
|
$ |
16,535 |
|
See
accompanying notes.
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2008
1. Summary
of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Marshall Edwards Pty Limited (“MEPL”). Significant
intercompany accounts and transactions have been eliminated on
consolidation.
Estimates
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
Revenue
Recognition
Interest
The only
revenue earned by the Company to date is interest on cash balances, which is
recognized on an accruals basis.
Cash
and Cash Equivalents and Short Term Investments
Cash on
hand and in banks and short-term deposits are stated at their nominal value. The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Highly liquid investments with
stated maturities of greater than three months are classified as short-term
investments. The Company’s cash, held in the U.S., is deposited in financial
institutions that are FDIC insured. These deposits are in excess of the FDIC
insurance limits. The Company also holds cash with Australian financial
institutions.
Income
Taxes
Income
taxes have been provided for using the liability method in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” Under this method, deferred
tax assets and liabilities are recognized and measured using enacted tax rates
in effect for the year in which the differences are expected to be recognized.
Valuation allowances are established against the recorded deferred income tax
assets to the extent that management believes that it is more likely than not
that a portion of the deferred income tax assets are not realizable. There is a
full valuation allowance against net operating losses.
Effective
July 1, 2007, the Company adopted Financial Accounting Standards Interpretation
48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of
FASB No 109”.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of uncertain tax positions taken or
expected to be taken in a company’s income tax return, and also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 utilizes a two step
approach for evaluating uncertain tax positions accounted for in accordance with
SFAS No. 109, “Accounting for Income Taxes” (SFAS 109). Step one, recognition,
requires a company to determine if the weight of available evidence indicates
that a tax position is more likely than not to be sustained upon audit,
including resolution of related appeals or litigation processes, if any. Step
two, measurement, is based on the largest amount of benefit, which is more
likely than not to be realized upon ultimate settlement. The cumulative effect
of adopting FIN 48 on July 1, 2007 is recognized as a change in accounting
principle, recorded as an adjustment to the opening balance of accumulated
deficit on the adoption date. As a result of the implementation of FIN 48, the
Company did not recognise any increase or decrease in the liability for
unrecognized tax benefits related to tax positions taken in prior periods,
therefore, there was no corresponding adjustment in accumulated deficit.
Additionally, FIN 48 specifies that tax positions for which the timing of the
ultimate resolution is uncertain should be recognized as long term liabilities.
The Company’s total amount of net tax losses carried forward as of July 1, 2008
adoption date was $64 million.
The
Company’s major tax jurisdictions are the U.S. and Australia and its tax years
since inception remain subject to examination by the appropriate governmental
agencies in those jurisdictions due to its tax loss position.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, short-term investments and accounts payable approximate fair
value.
Foreign
Currency Translation
The
financial statements of MEPL have been translated into U.S. dollars (being the
functional currency of MEPL) in accordance with FASB Statement No. 52, “Foreign
Currency Translation.” Assets and liabilities are translated into U.S. dollars
using the exchange rates in effect at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the periods.
Realized gains and losses from foreign currency transactions are reflected in
the consolidated statements of operations.
Translation
of MEPL’s financial statements into U.S. dollars does not have a material impact
on the Company’s financial position.
Research
and Development Expenses
Research
and development expenses relate primarily to the cost of conducting human
clinical and pre-clinical trials of phenoxodiol, triphendiol and NV-143.
Research and development costs are charged to earnings in the period
incurred.
Licence
Fees
Costs
incurred related to the acquisition or licensing of products that have not yet
received regulatory approval to be marketed, or that are not commercially viable
and ready for use or have no alternative future use, are charged to earnings in
the period incurred.
Stock-Based
Compensation
The
Company’s stock option plan provides for the grant of options to the Company’s
directors, employees, employees of the Company’s affiliates and certain of the
Company’s contractors and consultants. To date no options have been issued under
the plan.
Other
stock-based payments have been accounted for in accordance with SFAS No. 123R
“Share-Based Payments”. The Company therefore recognizes the cost of goods
acquired or the expense for services received in a share-based payment
transaction when it obtains the goods or as services are received. The Company
recognizes a corresponding increase in equity or a liability depending on the
classification of the share-based instrument granted.
Basic
and Diluted Loss Per Share
Basic and
diluted earnings or loss per share is calculated in accordance with FASB
Statement No. 128, “Earnings Per Share.” In computing basic earnings or loss per
share, the dilutive effect of stock options and warrants are excluded, whereas
for diluted earnings per share they are included unless the effect is
anti-dilutive.
Stockholders’
Equity
Ordinary
share capital is recognised at the fair value of the consideration received by
the Company. Any transaction costs arising on the issue of shares are recognized
directly in equity as a reduction in the share proceeds received.
Deferred
Offering Costs
Where
costs associated with a capital raising have been incurred at balance date and
it is probable that the capital raising will be successfully completed after
balance date, such costs are deferred and offset against the proceeds
subsequently received from the capital raising.
Recent
Accounting Standards
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities - An Amendment of FASB Statement No. 133" (or SFAS 161).
This statement revises the requirements for the disclosure of derivative
instruments and hedging activities that include the reasons a company uses
derivative instruments, how derivative instruments and related hedged items are
accounted under SFAS 133 and how derivative instruments and related hedged items
affect a company’s financial position, financial performance and cash flows.
SFAS 161 will be effective in the fourth quarter of fiscal 2009. The Company is
currently evaluating the impact of adopting SFAS 161 and does not anticipate a
material effect.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" (or SFAS 141(R)) which is a revision of SFAS 141. SFAS 141(R)
requires an acquirer in a business combination to measure all assets acquired,
the liabilities assumed and any non-controlling interest in the acquiree at
their fair values on the date of acquisition with limited exceptions. This
Statement also requires the acquirer in a business combination achieved in
stages to recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values.
SFAS
141(R) will further require that acquired in-process research and development as
of the acquisition date is to be capitalized at fair value. Assets acquired and
liabilities assumed arising from contingencies at the acquisition date are to be
measured at their fair value and acquisition costs generally will be expensed as
incurred. This statement is effective for business combinations for which the
acquisition date is on or after April 1, 2009. The Company is currently
evaluating the impact of adopting SFAS 141(R) and does not anticipate a material
effect.
In
December 2007, and in conjunction with SFAS 141(R), the FASB issued SFAS No.
160, "Non-controlling Interests in Consolidated Financial Statements - An
Amendment of ARB No. 51" (or SFAS 160). This Statement requires companies to
report a non-controlling interest in a subsidiary as equity in its consolidated
financial statements and to disclose the amount of consolidated net income
attributable to the parent and to the non-controlling interest in the
consolidated statement of income. SFAS 160 also clarifies that a transaction
resulting in a change to the parent’s ownership in a subsidiary that does not
result in deconsolidation will be deemed as an equity transaction, while a gain
or loss will be recognized by the parent when a subsidiary is deconsolidated.
This statement is effective as of the beginning of fiscal 2010. The Company is
currently evaluating the impact of adopting SFAS 141(R) and does not anticipate
a material effect.
In
December 2007, the FASB ratified the consensus reached by the Emerging Issues
Task Force (EITF) on Issue No. 07-1, "Accounting for Collaborative Arrangements"
(EITF 07-1). This Issue defines a collaborative arrangement, establishes
reporting requirements and clarifies the manner in which revenues, costs and
sharing payments between parties and with third parties be presented in the
consolidated statement of income. This Issue is effective as of the beginning of
fiscal 2010. The Company is currently evaluating the impact of adopting
EITF 07-1.
In June
2007, the FASB ratified the consensus reached by EITF on Issue No. 07-3,
"Accounting for Non-refundable Advance Payments for Goods or Services Received
for Use in Future Research and Development Activities" (EITF 07-3).
Non-refundable advance payments for goods or services that will be used or
rendered for future research and development activities should be deferred and
capitalized. Such amounts should be recognized as an expense when the
related goods are delivered or services are performed, or when the goods or
services are no longer expected to be provided. This Issue is effective as
of the beginning of fiscal 2009. EITF 07-3 is not expected to have a
material effect on the Company’s consolidated financial statements.
2. Income
Taxes
Loss from
operations consists of the following jurisdictions:
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands $)
|
|
Domestic
|
|
|
(448 |
) |
|
|
(1,928 |
) |
|
|
(196 |
) |
Foreign
|
|
|
(11,959 |
) |
|
|
(11,891 |
) |
|
|
(7,189 |
) |
|
|
|
(12,407 |
) |
|
|
(13,819 |
) |
|
|
(7,385 |
) |
The
reconciliation of income tax computed at the U.S. federal statutory tax rates to
income tax expense attributable to loss arising during development stage
is:
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands $)
|
|
%
|
|
|
(in
thousands $)
|
|
%
|
|
|
(in
thousands $)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
at US statutory rates
|
|
|
4,342 |
|
|
|
35 |
|
|
|
4,837 |
|
|
|
35 |
|
|
|
2,585 |
|
|
|
35 |
|
Australian
tax
|
|
|
(598 |
) |
|
|
(5 |
) |
|
|
(595 |
) |
|
|
(5 |
) |
|
|
(359 |
) |
|
|
(5 |
) |
R&D
Tax concession
|
|
|
666 |
|
|
|
5 |
|
|
|
121 |
|
|
|
1 |
|
|
|
91 |
|
|
|
1 |
|
Change
in valuation allowance
|
|
|
(4,413 |
) |
|
|
(35 |
) |
|
|
(4,364 |
) |
|
|
(31 |
) |
|
|
(2,317 |
) |
|
|
(31 |
) |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
Deferred
tax liabilities and assets are comprised of the following:
|
|
Year
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands $)
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
Unrealised
Foreign Exchange Gain
|
|
|
(13 |
) |
|
|
(13 |
) |
Total
deferred tax liabilities
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
Tax
carried forward losses
|
|
|
19,160 |
|
|
|
12,993 |
|
Share
based payments
|
|
|
574 |
|
|
|
574 |
|
Unrealised
Foreign Exchange Loss
|
|
|
89 |
|
|
|
39 |
|
Consultant
and other accruals
|
|
|
510 |
|
|
|
277 |
|
Total
deferred tax assets
|
|
|
20,333 |
|
|
|
13,883 |
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for deferred tax assets
|
|
|
(20,320 |
) |
|
|
(13,870 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets and liabilities
|
|
|
- |
|
|
|
- |
|
Management
evaluates the recoverability of the deferred tax asset and the amount of the
required valuation allowance. Due to the uncertainty surrounding the realization
of the tax deductions in future tax returns, the Company has recorded a
valuation allowance against its net deferred tax asset at June 30, 2008 and
2007. At such time as it is determined that it is more likely than not that the
deferred tax assets will be realized, the valuation allowance will be
reduced.
There was
no benefit from income taxes recorded for the period from December 1, 2000
(inception) to June 30, 2008 due to the Company’s inability to recognize the
benefit of net operating losses. The Company had federal net operating loss
carry forwards of approximately $1,787,000 at June 30, 2008. The federal net
operating losses will begin to expire in 2022.
Foreign
tax losses of approximately $61,783,000 at June 30, 2008, may be carried forward
indefinitely.
3. Loss
Per Share
The
following table sets forth the computation of basic and diluted net loss per
common share:
|
|
Years
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
Thousands, except share data)
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net
loss arising during development stage
|
|
|
(12,410 |
) |
|
|
(13,820 |
) |
|
|
(7,386 |
) |
Numerator
for diluted earnings per share
|
|
$ |
(12,410 |
) |
|
$ |
(13,820 |
) |
|
$ |
(7,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing net loss per share, basic and
diluted.
|
|
|
68,302,566 |
|
|
|
63,179,366 |
|
|
|
56,938,000 |
|
Effect
of dilutive securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Dilutive
potential common shares
|
|
|
68,302,566 |
|
|
|
63,179,366 |
|
|
|
56,938,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted net loss per share
|
|
$ |
(0.18 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
During
the period presented the Company had warrants outstanding that could potentially
dilute basic earnings per share in the future, but were excluded from the
computation of diluted net loss per share as the effect would have been
anti-dilutive. Since the Company has a loss for all periods presented, diluted
and basic earnings per share are the same. The outstanding warrants consist of
the following potential common shares:
|
|
As
at June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Number
of warrant shares) |
|
Warrants
exercisable prior to July 11, 2010 at an exercise price of
$4.35
|
|
|
2,815,258 |
|
|
|
2,815,258 |
|
|
|
2,392,000 |
|
Warrants
exercisable prior to August 6, 2012 at an exercise price of
$3.60
|
|
|
2,185,598 |
|
|
|
-
|
|
|
|
-
|
|
Warrants
exercisable prior to August 6, 2012 at an exercise price of
$3.00
|
|
|
248,364 |
|
|
|
- |
|
|
|
- |
|
Common
shares issuable upon exercise of outstanding warrants
|
|
|
5,249,220 |
|
|
|
2,815,258 |
|
|
|
2,392,000 |
|
During
August 2007, the Company issued 5,464,001 shares of common stock and warrants
exercisable for 2,433,962 shares of common stock in connection with a PIPE
capital raising. For further details see Note 7 “Equity”.
4. Expenditure Commitments and
Contingencies
At June,
30, 2008, the Company had contractual obligations for the conduct of clinical
trials, pre- clinical research and development and manufacturing process
development of approximately $17,712,000. Of the expenditure commitments,
clinical trial amounts are based on the assumption that all patients enrolled in
clinical trials will complete the maximum number of allowed treatment cycles.
The amounts, assuming all treatment cycles are completed, are expected to be
incurred as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
Payment
due by period
|
|
Contractual
Obligations
|
|
Total
|
|
|
less
than 1 Year
|
|
|
1 -
3 Years
|
|
|
3 -
5 Years
|
|
|
More
than 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Obligations
|
|
$ |
17,712 |
|
|
$ |
9,496 |
|
|
$ |
6,074 |
|
|
$ |
2,142 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
17,712 |
|
|
$ |
9,496 |
|
|
$ |
6,074 |
|
|
$ |
2,142 |
|
|
$ |
- |
|
No
amounts have been included for future payments to Novogen which may arise in
connection with the Phenoxodiol License Agreement, the License Agreement for
Triphendiol and NV-143, the Services Agreement or the Manufacturing License and
Supply Agreement as future payments under the terms of the agreements are
subject to termination provisions. The terms of the agreements, including future
payments, are detailed in Note 6 “Related Party Transactions.”
The
Company is not currently a party to any material legal proceedings.
The
Company’s certificate of incorporation provides that it will indemnify Novogen
in connection with certain actions brought against Novogen by any of the
Company’s stockholders or any other person.
Pursuant
to the terms of a Guarantee and Indemnity Agreement, the Company has guaranteed
the payment and performance of the obligations of MEPL to Novogen and its
subsidiaries, Novogen Laboratories Pty Limited and Novogen Research Pty Limited,
under the Phenoxodiol License Agreement, the Manufacturing License and Supply
Agreement and the Services Agreement. Novogen has guaranteed the performance of
the obligations of Novogen Research Pty Limited under the Phenoxodiol License
Agreement and the obligations of Novogen Laboratories Pty Limited under the
Manufacturing License and Supply Agreement to MEPL. Each of the Company and
Novogen’s obligations in the Guarantee and Indemnity Agreement are absolute,
unconditional and irrevocable.
5. Segment
Information
The
Company’s focus is the clinical development and commercialization of
phenoxodiol, triphendiol and NV-143. The business contains two major segments
based on geographic location.
|
|
Year
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
USA
|
|
|
Australia
|
|
|
Total
|
|
|
USA
|
|
|
Australia
|
|
|
Total
|
|
|
USA
|
|
|
Australia
|
|
|
Total
|
|
Statement
of Operations
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Revenue
|
|
|
606 |
|
|
|
68 |
|
|
|
674 |
|
|
|
505 |
|
|
|
140 |
|
|
|
645 |
|
|
|
348 |
|
|
|
98 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(448 |
) |
|
|
(11,959 |
) |
|
|
(12,407 |
) |
|
|
(1,928 |
) |
|
|
(11,891 |
) |
|
|
(13,819 |
) |
|
|
(196 |
) |
|
|
(7,189 |
) |
|
|
(7,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss arising during development stage
|
|
|
(451 |
) |
|
|
(11,959 |
) |
|
|
(12,410 |
) |
|
|
(1,929 |
) |
|
|
(11,891 |
) |
|
|
(13,820 |
) |
|
|
(197 |
) |
|
|
(7,189 |
) |
|
|
(7,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
65,149 |
|
|
|
3,131 |
|
|
|
68,280 |
|
|
|
50,231 |
|
|
|
1,399 |
|
|
|
51,630 |
|
|
|
33,767 |
|
|
|
2,895 |
|
|
|
36,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination
of investment in subsidiary Consolidated
|
|
|
(48,302 |
) |
|
|
- |
|
|
|
(48,302 |
) |
|
|
(35,340 |
) |
|
|
- |
|
|
|
(35,340 |
) |
|
|
(26,267 |
) |
|
|
- |
|
|
|
(26,267 |
) |
Assets
|
|
$ |
16,847 |
|
|
$ |
3,131 |
|
|
$ |
19,978 |
|
|
$ |
14,891 |
|
|
$ |
1,399 |
|
|
$ |
16,290 |
|
|
$ |
7,500 |
|
|
$ |
2,895 |
|
|
$ |
10,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
|
$ |
312 |
|
|
$ |
3,131 |
|
|
$ |
3,443 |
|
|
$ |
110 |
|
|
$ |
2,403 |
|
|
$ |
2,513 |
|
|
$ |
180 |
|
|
$ |
1,080 |
|
|
$ |
1,260 |
|
6. Related
Party Transactions
Licence
Agreement for Phenoxodiol
In
September 2003, the Company entered into a licence agreement pursuant to which
Novogen granted to MEPL a worldwide non-transferable licence under its patents
and patent applications and in its know-how to conduct clinical trials and
commercialize and distribute phenoxodiol products. The licence agreement covers
uses of phenoxodiol in the field of prevention, treatment or cure of cancer in
humans delivered in all forms except topical applications. The licence is
exclusive until the expiration or lapsing of the last relevant Novogen patents
or patent applications in the world and thereafter is non-exclusive. MEPL may
terminate the agreement by giving three months’ notice to Novogen. MEPL paid
$5,000,000 to Novogen in February 2004 which was the first lump sum licence fee
payment due under the terms of the licence agreement. Also, MEPL paid $2,000,000
to Novogen in January 2005 and $4,000,000 in January 2006 which was the annual
milestone licence fee payments due under the licence agreement. The Company paid
a second lump sum licence fee of $5,000,000 to Novogen in July 2006 following
the raising of funds in a private placement. This licence fee was due on the
later of November 1, 2003 or such later date when the cumulative total of all
funds received from debt or equity issuances and revenue received from
commercialization (income other than sales) and sales of phenoxodiol products
exceeded $50,000,000. Following the private placement or PIPE which closed on
July 11, 2006 the funds received from equity issuances exceeded $50,000,000
which triggered this licence fee payment. Future amounts payable to Novogen
under terms of the licence agreement are as follows:
1. Until
the expiration of the exclusivity period of the licence, MEPL must pay Novogen
2.5% of all net sales and 25% of commercialization income. After the exclusivity
period of the licence, 1.5% of net sales must be paid to Novogen. The
preconditions to such payments have not yet occurred.
The
“Exclusivity Period” ends on the later of:
(a)
|
the
date of expiration or lapsing of the last patent right in the patents and
patent applications set out in the licence agreement with Novogen;
or
|
(b)
|
the
date of expiration or lapsing of the last licenced patent right which MEPL
would, but for the licence granted in the licence agreement, infringe in
any country in the geographical territory covered by the licence agreement
by doing in that country any of the things set out in the licence
agreement.
|
2. In
addition to the amounts above, beginning in 2006, an $8 million annual milestone
licence fee is payable under the amended terms of the licence agreement at the
end of each calendar year during the exclusivity period of the licence. The 2006
licence fee has been deferred under the licence amendment deed which is
discussed below.
Licence
Amendment Deed for Phenoxodiol
In June 2006, the Company entered into
an amendment deed to the licence agreement for phenoxodiol. Pursuant to the
original term of the licence agreement for phenoxodiol the Company was required
to pay an $8,000,000 licence milestone fee to Novogen in December 2006. The
amendment deed extends the date that the $8,000,000 licence milestone fee is
payable until the earliest receipt by MEPL of the first:
(i)
|
approval
by the FDA of a New Drug Application (NDA) for
phenoxodiol;
|
(ii)
|
approval
or authorization of any kind to market phenoxodiol in the U.S.;
or
|
(iii)
|
approval
or authorization of any kind by a government agency in any other country
to market phenoxodiol.
|
Upon
receipt of any of the above (the “Approval Date”), the Company must pay to
Novogen, $8,000,000, together with interest on that amount from (and including)
December 31, 2006, calculated at the bank bill rate. This milestone licence fee
replaces the $8,000,000 December 31, 2006 milestone fee.
Further
Amended and Restated License Agreement
Following
agreement in March 2007, MEPL and Novogen entered into another amendment deed to
the licence agreement for phenoxodiol for the purpose of further amending and
restating the license agreement (the “Further Amended and Restated License
Amendment”).
The
combined result of the Licence Amendment Deed for Phenoxodiol and the Further
Amended and Restated License Agreement will be that upon the Approval Date, MEPL
will be required to pay Novogen $8,000,000, together with interest on such
amount from (and including) December 31, 2006 to (but excluding) the
Approval Date. Thereafter, MEPL will be required to make license milestone fee
payments of $8,000,000 to Novogen on December 31 of the year of the
Approval Date and on December 31 of each year thereafter during the
exclusivity period under the License Agreement.
No
licence fees have been accrued at June 30, 2008.
Licence
Agreement Triphendiol and NV-143
In May
2006, the Company entered into a second license agreement with Novogen for two
oncology compounds, triphendiol and NV-143 (the “License Agreement for
Triphendiol and NV-143”). Triphendiol is being developed initially in oral form
for the treatment of pancreatic and bile duct cancer and is currently in Phase I
human testing. NV-143 is targeted for the treatment of melanoma, also in oral
dose form, and is in the pre-clinical testing stage. The License Agreement for
Triphendiol and NV-143 is an agreement under which Novogen grants to MEPL a
worldwide non-transferable license under its patents and patent applications and
in its know-how to conduct clinical trials and commercialize and distribute
triphendiol and NV-143 products. The License Agreement for Triphendiol and
NV-143 covers uses of triphendiol and NV-143 in the field of prevention,
treatment or cure of cancer in humans delivered in all forms except topical
applications. The license is exclusive until the expiration or lapsing of the
last relevant Novogen patents or patent applications in the world and thereafter
is non-exclusive. MEPL may terminate the agreement by giving three months notice
to Novogen. The Company is required to make payments under the terms of the
License Agreement for Triphendiol and NV-143 with Novogen as
follows:
1. A
lump sum license fee of $1,000,000 was payable to Novogen on the commencement
date of the license in consideration of the license granted. This initial lump
sum license fee was paid to Novogen in May 2006.
2. In
further consideration of the license granted, MEPL must pay to Novogen the
following milestone license fees upon the occurrence of the corresponding
milestone as set forth below;
a) the
first license product containing triphendiol to reach a milestone as set forth
below; and
b) the
first licensed product containing NV-143 to reach a milestone as set forth
below.
The
milestone license fees are:
|
i)
|
$1,000,000
on the date an investigational new drug application (“IND”) for the
licensed product goes into effect or the equivalent approval of a
government agency is obtained in another country. If this event does not
occur before March 31, 2008 then this amount will be due on this date. The
amount of $1,000,000 was paid to Novogen on March 31, 2008 under the terms
of this agreement;
|
|
ii)
|
$2,000,000
on the date of enrollment of the first clinical trial subject in a Phase
II clinical trial of the licensed product. If this event does not occur
before June 30, 2009, then this amount will be due on this
date;
|
|
iii)
|
$3,000,000
on the date of enrollment of the first clinical trial subject in a Phase
III clinical trial of the licensed product. If this event does not occur
before December 31, 2011, then this amount will be due on this date;
and
|
|
iv)
|
$8,000,000
on the date of first receipt of a NDA for the licensed product from the
FDA or equivalent approval from a government agency in another country. If
this event does not occur before December 31, 2013, then this amount will
be due on this date.
|
3. MEPL
must pay Novogen royalties of 5.0% of all net sales and 25% of commercialization
income for the term of the license. The royalty rate is reduced by 50% if the
licensed patent rights in any country or territory expire, lapse, are revoked,
do not exist or are assigned to MEPL and the product is entirely manufactured
and supplied in such country.
4. Minimum
royalties of $3,000,000 per year are payable following the date of first receipt
of an NDA for a licensed product from the FDA (or equivalent approval from a
government agency in any other country) until the expiration of the
term.
The
licence agreement is able to be cancelled without penalty by MEPL by giving
three months notice. Therefore licence fees due under the licence agreement are
recognised as an expense when the milestone event occurs.
Amended
and Restated Licence Option Deed
On
September 24, 2003, MEPL and Novogen entered into an Amended and Restated
Licence Option Deed (the “Licence Option Deed”). The licence option deed grants
MEPL an exclusive right to accept and an exclusive right to match any proposed
dealing by Novogen of its intellectual property rights with a third party
relating to synthetic compounds (other than phenoxodiol) that have known or
potential applications in the field of prevention, treatment or cure of cancer
in humans in all forms other than topical applications.
Amended
and Restated Services Agreement
On
September 24, 2003, the Company, Novogen and MEPL entered into an Amended and
Restated Services Agreement (the “Services Agreement”). The Company does not
currently intend to directly employ any staff. Under the terms of the Services
Agreement, Novogen Limited or its subsidiaries have agreed to provide services
reasonably required by the Company relating to the development and
commercialization of phenoxodiol and other licenced products, including
triphendiol and NV-143. Novogen has agreed to provide these services at cost
plus a 10% mark-up. The Company may terminate the agreement on three months
written notice to Novogen.
Transactions
giving rise to expenditures amounting to $3,054,000, $1,963,000 and $1,294,000,
were made under the Services Agreement with Novogen during the twelve months
ended June 30, 2008, 2007 and 2006 respectively. Of these amounts, $2,065,000,
$1,145,000 and $588,000 related to service fees paid to Novogen for research and
development services provided in the twelve months ended June 30, 2008, 2007 and
2006 respectively, reflecting the time spent by Novogen research staff on the
development of phenoxodiol, triphendiol and NV-143. Additionally, $989,000,
$818,000 and $707,000 of the total expenditures during the twelve months ended
June 30, 2008, 2007 and 2006, respectively, related to costs incurred for
administration and accounting services provided by Novogen.
At June
30, 2008 and 2007, $429,000 and $177,000, respectively, was due and owing to
Novogen under the services agreement and is included in amounts due to related
company.
Amended
and Restated Manufacturing Licence and Supply Agreement
On
September 24, 2003, MEPL and Novogen entered into an Amended and Restated
Manufacturing Licence and Supply Agreement (the “Manufacturing Licence and
Supply Agreement”). Under the terms of the Manufacturing Licence and Supply
Agreement, MEPL has granted to Novogen an exclusive, non-transferable sub
licence to manufacture and supply phenoxodiol in its primary manufactured form.
Novogen has agreed to supply phenoxodiol to MEPL for the clinical trial
development program and phenoxodiol’s ultimate commercial use. Phenoxodiol
supplied by Novogen under the terms of this agreement will by charged at cost
plus a 50% markup.
Transactions
giving rise to expenditures amounting to $38,000, $153,000 and $527,000 were
made under the manufacturing licence and supply agreement with Novogen during
the twelve months ended June 30, 2008, 2007 and 2006, respectively.
At June
30, 2008 and June 30, 2007 no amount was due and owing to Novogen under the
Manufacturing Licence and Supply Agreement.
Novogen
has taken the strategic decision not to manufacture large scale Active
Pharmaceutical Ingredients for cancer drugs, including phenoxodiol, as these can
be more economically supplied by third parties with particular expertise in this
area.
7. Equity
MEI is a
development stage company incorporated in December 2000 that commenced
operations in May 2002 coinciding with its listing on the London Stock
Exchange’s Alternative Investment Market (AIM).
In May
2002, the Company sold 2,523,000 shares of its common stock and 2,523,000
warrants, raising proceeds of $9,022,000, net of $1,070,000 of transaction
costs. The warrants were exercisable prior to November 30, 2003 at an exercise
price of $4.00 per share. The common stock was listed for trading on the AIM.
Following the listing, Novogen retained 95.1% of the Company’s common
stock.
In June
2003, 9,000 warrants were exercised, resulting in proceeds to the Company of
$36,000. In November 2003 the remaining 2,514,000 warrants were exercised at an
exercise price of $4.00 per share with proceeds to the Company of
$10,056,000.
In
December 2003, the Company sold 2,392,000 common stock units at a public
offering price of $7.50 per unit. Each common stock unit consisted
of:
·
|
one
share of common stock; and
|
·
|
one
warrant to purchase a share of common stock, exercisable prior to December
18, 2006 at an exercise price equal to
$9.00.
|
In
connection with the December 2003 offering, the Company’s common stock and
warrants commenced trading separately on the Nasdaq Global Market. The Company
received proceeds of $15,522,000, net of $2,431,000 transaction costs in the
December 2003 offering.
On
December 18, 2006, 2,392,000 warrants which were issued in connection with the
December 2003 public offering expired and no shares of common stock were issued
relating to those warrants.
In
January 2006, the Company voluntarily cancelled the trading of its common stock
on the AIM.
On July
11, 2006, the Company entered into a securities subscription agreement with
certain accredited investors providing for the placement of 6,329,311 shares of
the Company’s common stock and warrants exercisable for 2,215,258 shares of the
Company’s common stock at a purchase price of $2.90 per unit. Each unit
consisted of one share of common stock and 0.35 of a warrant to purchase one
share of common stock. The warrants have an exercise price of $4.35 per share,
subject to certain adjustments. The exercise price and number of shares issuable
upon exercise of such warrants are subject to adjustment in the event of stock
dividends, stock splits and other similar events. The warrants may be exercised
no less than six months from the closing date and will expire four years from
the date of issuance, or July 11, 2010. The Company closed the private placement
on July 11, 2006. In connection with the private placement or PIPE, the Company
received proceeds of $16.8 million net of $1.5 million commissions and other
costs.
In
connection with the securities subscription agreement described above the
Company entered into a registration rights agreement pursuant to which the
Company is obligated to file a resale registration statement with the SEC
covering the shares of common stock issued in connection with the securities
subscription agreement, in addition to the shares of common stock underlying the
warrants issued in connection with the securities subscription agreement. The
Company filed the registration statement on August 9, 2006. The resale
registration statement was declared effective September 5, 2006.
On July
11, 2006, the Company entered into a standby equity distribution agreement (the
“SEDA”), with YA Global Investments, LP (YA Global Investments formerly Cornell
Capital Partners, LP). Under the SEDA, the Company may have issued and sold to
YA Global Investments shares of its common stock for a total purchase price of
up to $15 million, once a resale registration statement was in
effect.
In
connection with the SEDA, the Company paid YA Global Investments a commitment
fee of 123,626 shares of its common stock and warrants to purchase 600,000
shares of its common stock which expire on July 11, 2010. The warrants have an
exercise price of $4.35 per share, subject to certain adjustments. The exercise
price and number of shares issuable upon exercise of such warrants are subject
to adjustment in the event of stock dividends, stock splits and other similar
events. The commitment fee, comprising shares and warrants, is a share-based
payment and has been accounted for in accordance with FAS123R "Share-based
Payment". The fair values of shares and warrants issued have been recognized
directly as equity in the balance sheet and as selling, general and
administration expenses in the income statement in the year ended June 30,
2007.
The
Company did not issue any shares of common stock under the terms of the SEDA and
in August 2007 the Company cancelled the SEDA.
On August
1, 2007, the Company entered into a securities subscription agreement with
certain accredited investors providing for the placement of 5,464,001 shares of
its common stock at a purchase price of $3.00 per share. The investors in the
transaction also received a warrant to purchase an additional 4 shares of common
stock for every block of 10 shares of common stock purchased. All of the
warrants have an exercise price of $3.60 per share. The warrants may be
exercised beginning February 6, 2008 and will expire five years from the date of
issuance, or August 6, 2012. The Company also issued 62,091 warrants to Blue
Trading, LLC, which acted as the placement agent in the private placement, as
part of the placement fee. The warrants issued to Blue Trading, LLC have an
exercise price of $3.00 per share and each warrant is convertible for 4 shares
of common stock. These warrants may be exercised immediately and will expire
five years from the date of issuance, on August 6, 2012. The fair value of
warrants issued as part of the placement fee, valued at $441,000, have been
recognized directly as equity in the balance sheet and offset against issued
share capital as a cost of the raising in the year ended June 30, 2008. The
Company closed the private placement, or PIPE, on August 6, 2007. In connection
with the PIPE, the Company received proceeds of $15.2 million net of $1.2
million in commissions and other costs.
The
Company entered into a registration rights agreement with the investors party to
the securities subscription agreement and Blue Trading, LLC, and agreed to file
a resale registration statement with the SEC registering the common stock and
the common stock issuable upon exercise of the warrants sold pursuant to the
securities subscription agreement for resale thereunder. The Company filed the
registration statement on October 2, 2007. The resale registration statement was
declared effective October 19, 2007.
Under the
terms of the July 11, 2006 and the August 1, 2007 PIPEs, the Company is required
to maintain effective registration statements covering the resale shares of
common stock issued in the PIPEs and the shares of common stock issuable upon
exercise of the warrants issued in the PIPEs. In relation to the July 11, 2006
PIPE, at the date of issuance, the Company assessed the terms of the
registration rights agreement, and as the penalty for not maintaining the
registration of common stock is less than the difference between the value of
registered shares and unregistered shares, the equity has been classified as
permanent equity. The August 1, 2007 PIPE has been assessed as permanent equity
under FASB Staff Position No. EITF 00-19-2, described below.
On
January 1, 2007 the Company adopted FASB Staff Position No. EITF 00-19-2 (FSP
00-19-2). FSP 00-19-2 requires the contingent obligation to make future payments
under the registration rights agreements be recognized separately in accordance
with FASB Statement No. 5, Accounting for Contingencies and the underlying
warrants be recognized without regard to the contingent obligation. The adoption
of FSP 00-19-2 had no effect on the Company’s financial statements as the
warrants issued in connection with the PIPEs will remain classified as permanent
equity and management does not currently believe that it is probable a payment
will be made under either of the registration rights agreements.
The
Company filed a shelf registration statement with the SEC in March 2008. The
shelf registration statement was declared effective by the SEC on April 3, 2008.
The shelf registration statement permits the Company to sell, from time to time,
up to $75,000,000 of common stock, preferred stock and warrants or any
combination of the foregoing. Pursuant to SEC regulations, however, the Company
cannot sell securities from the shelf registration statement which represent
more than one third of the market value of the Company’s public float during any
12-month period.
8. Significant
Events After Balance Date
The
Company entered into a Securities Subscription Agreement dated as of July 28,
2008 with Novogen and OppenheimerFunds, Inc. (“Oppenheimer”) pursuant to which
the Company has sold 2,908,295 and 1,700,000 shares of common stock to Novogen
and Oppenheimer, respectively, with Oppenheimer acting as adviser to each of the
following parties severally and not jointly: (i) Oppenheimer International
Growth Fund; (ii) Mass Mutual International Equity Fund; (iii) Oppenheimer
International Growth Fund/VA; (iv) AZL Oppenheimer International Growth Fund;
(v) OFITC International Growth Fund; and (vi) OFI International Equity Fund, at
a purchase price of $2.17 per share, the consolidated closing bid price of the
Company’s Common Stock as quoted by the Nasdaq Market Intelligence Desk at 4:00
PM EST on July 28, 2008. The shares were registered under the
Securities Act of 1933, as amended, pursuant to a shelf registration statement
on Form S-3 (File No. 333-149807), which was declared effective by the SEC on
April 3, 2008. The Company received gross proceeds of $10 million from the sale
of the shares.
Following
the registered direct offering closed in July 2008, Novogen retained
approximately 71.3% of the Company’s common stock.
In July
2008 the Company also issued 46,083 warrants to Mr John O’Connor to purchase
46,083 shares of common stock, as consideration for investor services rendered
by him to the Company. The warrants have an exercise price of $2.17 per share
and may be exercised immediately and expire five years from the date of
issuance, on July 30, 2013.
9. Quarterly
Financial Data (Unaudited)
2008 for the quarter ended
|
|
Jun-30
|
|
Mar-31
|
|
|
Dec-31
|
|
|
Sep-30
|
|
|
Year
|
|
|
|
(in
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
92 |
|
|
|
149 |
|
|
|
215 |
|
|
|
218 |
|
|
|
674 |
|
Loss
from operations
|
|
|
(3,401 |
) |
|
|
(3,331 |
) |
|
|
(2,310 |
) |
|
|
(3,365 |
) |
|
|
(12,407 |
) |
Net
Loss arising during development stage
|
|
|
(3,401 |
) |
|
|
(3,332 |
) |
|
|
(2,311 |
) |
|
|
(3,366 |
) |
|
|
(12,410 |
) |
Basic
and diluted loss per share
|
|
|
(0.05 |
) |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 for the quarter ended
|
|
Jun-30
|
|
|
Mar-31
|
|
|
Dec-31
|
|
|
Sep-30
|
|
|
Year
|
|
|
|
(in
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
156 |
|
|
|
171 |
|
|
|
183 |
|
|
|
135 |
|
|
|
645 |
|
Loss
from operations
|
|
|
(2,042 |
) |
|
|
(1,722 |
) |
|
|
(2,175 |
) |
|
|
(7,880 |
) |
|
|
(13,819 |
) |
Net
Loss arising during development stage
|
|
|
(2,042 |
) |
|
|
(1,723 |
) |
|
|
(2,175 |
) |
|
|
(7,880 |
) |
|
|
(13,820 |
) |
Basic
and diluted loss per share
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
(0.13 |
) |
|
|
(0.22 |
) |
10. Contingent
Liabilities
Under the
terms of the license agreements with Novogen, milestone license fee payments are
payable upon achieving certain milestones. Details of the payments due under
these agreements are detailed in Note 6 “Related Party Transactions.” The
license agreements are subject to termination provisions.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A(T). Controls
and Procedures
(a)
Disclosure Controls and Procedures
At the
end of the period covered by this report, the Company’s management, with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (“the Exchange Act”)). Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
have concluded that the Company’s disclosure controls and procedures are
effective to ensure that the information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.
A control
system no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, if any, within
the company are detected. Accordingly, our disclosure controls and procedures
are designed to provide reasonable, not absolute, assurance that the objectives
of our disclosure control system are met and, as set forth above, our Chief
Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this Annual Report, that our
disclosure controls and procedures were sufficiently effective to provide
reasonable assurance that the objectives of our disclosure control system were
met.
(b)
Managment’s Annual Report on Internal Controls Over Financial
Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a - 15(f) under
the Exchange Act. The Company’s internal control was designed to provide
reasonable assurance to the Company’s management and Board of Directors
regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management
maintains a comprehensive system of controls intended to ensure that
transactions are executed in accordance with management’s authorization, assets
are safeguarded, and financial records are reliable. Management also takes steps
to ensure that information and communication flows are effective, and to monitor
performance, including performance of internal control procedures.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of June 30, 2008 based on the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Based on this assessment, management believes that
the Company’s internal control over financial reporting is effective as of June
30, 2008.
This
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only Management’s Report in
this Annual Report.
(c)
Changes in Internal Controls
There
were no changes in internal control over financial reporting during the most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Item
9b. Other Information
Not applicable
PART
III
Item
10. Directors and Executive Officers of the Registrant
Code
of Ethics
We have adopted a Code
of Business and Ethics policy that applies to our directors and employees
(including our principal executive officer and our principal financial officer),
and have posted the text of our policy on our website (www.marshalledwardsinc.com).
In addition, we intend to promptly disclose (i) the nature of any amendment to
the policy that applies to our principal executive officer and principal
financial officer and (ii) the nature of any waiver, including an implicit
waiver, from a provision of the policy that is granted to one of these specified
individuals, the name of such person who is granted the waiver and the date of
the waiver on our website in the future.
The other
information required by this item is incorporated herein by reference to our
proxy statement for the fiscal year ended June 30, 2008 (the “Proxy
Statement”).
Item 11. Executive
Compensation
The
information required by this item is incorporated herein by reference to the
Proxy Statement.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain
of the information required by this item is included in Part II Item 5 of this
Annual Report and certain information is incorporated herein by reference to the
Proxy Statement.
Item 13. Certain Relationships and
Related Transactions
The
information required by this item is incorporated herein by reference to the
Proxy Statement.
Item
14. Principal Accountant Fees and Services.
The
information required by this item is incorporated by reference to the Proxy
Statement.
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a) 1.
Financial Statements
Reference is made to the Index to
Financial Statements under Item 8, Part II hereof.
2. Financial Statement
Schedules
The
Financial Statement Schedules have been omitted either because they are not
required or because the information has been included in the financial
statements or the notes thereto included in this Annual Report on Form
10-K.
3. Exhibits
Exhibit
Index
Exhibits
3.1
|
Restated
Certificate of Incorporation (1)
|
3.2
|
Amended
and Restated Bylaws (18)
|
4.1
|
Specimen
Stock Certificate (3)
|
4.2
|
Specimen
Warrant Certificate (4)
|
4.3
|
Specimen
Warrant Certificate (5)
|
4.4
|
Specimen
Warrant Certificate (26)
|
4.5
|
Warrant
Agreement (6)
|
4.6
|
Form
of Warrant Agreement (7)
|
4.7
|
Warrant
Agreement (19)
|
4.8
|
Amended
and Restated Warrant Agreement (23)
|
4.9
|
Form
of Warrant (8)
|
4.10
|
Form
of Warrant (20)
|
4.11
|
Form
of Warrant (25)
|
4.12
|
Warrant
dated July 30, 2008 issued to Mr John O’Connor (27)
|
10.1
|
Amended
and Restated Licence Agreement between Novogen Research Pty Limited and
Marshall Edwards Pty Limited (9)
|
10.2
|
Amended
and Restated Manufacturing Licence and Supply Agreement between Novogen
Laboratories Pty Limited and Marshall Edwards Pty Limited
(10)
|
10.3
|
Amended
and Restated Licence Option Deed between Novogen Research Pty Limited and
Marshall Edwards Pty Limited (11)
|
10.4
|
Amended
and Restated Services Agreement among Novogen Limited, Marshall Edwards,
Inc. and Marshall Edwards Pty Limited (12)
|
10.5
|
Guarantee
and Indemnity among Marshall Edwards, Inc., Novogen Laboratories Pty
Limited, Novogen Research Pty Limited and Novogen Limited
(13)
|
10.6
|
Marshall
Edwards, Inc. Share Option Plan (14)
|
10.7
|
Licence
Agreement between Novogen Research Pty Limited and Marshall Edwards Pty
Limited (15)
|
10.8
|
Amendment
Deed between Novogen Research Pty Limited and Marshall Edwards Pty Limited
(16)
|
10.9
|
Registration
Rights Agreement by and among Marshall Edwards, Inc. and the investors as
signatories thereto
(17)
|
10.10
|
Securities
Subscription Agreement, dated as of August 1, 2007 by and among Marshall
Edwards, Inc. and the investors listed on schedule 2.1 thereto
(21)
|
10.11
|
Registration
Rights Agreement, dated as of August 6, 2007 by and among Marshall
Edwards, Inc. and the purchases signatory thereto (22)
|
10.12
|
Registration
Rights Agreement, dated as of September 26, 2007 by and among Marshall
Edwards, Inc. and Blue Trading, LLC (24)
|
10.13
|
Securities
Subscription Agreement dated as of July 28, 2008 by and among Marshall
Edwards, Inc., Novogen Limited and OppenheimerFunds, Inc.
(28)
|
21.1
|
Subsidiaries
of Marshall Edwards, Inc. (2)
|
23.1
|
Consent
of BDO Kendalls (NSW)*
|
31.1
|
Certification
required by Rule 13a-14(a) or Rule 15d-14(a)*
|
31.2
|
Certification
required by Rule 13a-14(a) or Rule 15d-14(a)*
|
32.1
|
Certification
required by Rule 13a-14(b) or Rule 15d-14(b) and section 1350 of Chapter
63 of Title 18 of the U.S. Code (18 U.S.C.
1350)*
|
* Filed
herewith.
(1)
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form
S-1 filed on September 25, 2003 (Reg. No. 333-109129).
|
(2)
|
Incorporated
by reference to Exhibit 21 to Registrant’s Registration Statement on Form
S-1 filed on September 25, 2003 (Reg. No. 333-109129).
|
(3)
|
Incorporated
by reference to Exhibit 4.1 to Amendment No. 1 to Registrant’s
Registration Statement on Form S-1 filed on October 31, 2003 (Reg. No.
333-109129).
|
(4)
|
Incorporated
by reference to Exhibit 4.3 Amendment No. 1 to Registrant’s Registration
Statement on Form S-1 filed on October 31, 2003 (Reg. No. 333-109129
).
|
(5)
|
Incorporated
by reference to Exhibit 4.2 to Registrant’s Registration Statement on Form
S-3 filed on August 9, 2006 (Reg. No. 333-136440 ).
|
(6)
|
Incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to Registrant’s
Registration Statement on Form S-1 filed on October 31, 2003 (Reg. No.
333-109129 ).
|
(7)
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
filed on July 12, 2006.
|
(8)
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K
filed on July 12, 2006.
|
(9)
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(10)
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(11)
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(12)
|
Incorporated
by reference to Exhibit 10.4 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(13)
|
Incorporated
by reference to Exhibit 10.5 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(14)
|
Incorporated
by reference to Exhibit 10.6 to Registrant’s Registration Statement on
Form S-1 filed on September 25, 2003 (Reg. No.
333-109129).
|
(15)
|
Incorporated
by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K
filed on May 16, 2006.
|
(16)
|
Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
filed on June 9, 2006
|
(17)
|
Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K
filed on July 12, 2006.
|
(18)
|
Incorporated
by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K
filed on July 30, 2007.
|
(19)
|
Incorporated
by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K
filed on August 6, 2007.
|
(20)
|
Incorporated
by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
8-K filed on August 6,
2007.
|
(21)
|
Incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on August 6, 2007.
|
(22)
|
Incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed on August 6, 2007.
|
(23)
|
Incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K/A filed on September 27, 2007.
|
(24)
|
Incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K/A filed on September 27, 2007.
|
(25)
|
Incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
8-K/A filed on September 27, 2007.
|
(26)
|
Incorporated
by reference to Exhibit 4.4 to Registrant’s Annual Report on Form 10-K
filed on September 27, 2007.
|
(27)
|
Incorporated
by reference to Exhibit 4.1 to Registrant’s current report on Form 8-K
filed on July 30, 2008.
|
(28)
|
Incorporated
by reference to Exhibit 10.13 to the Registrant’s current report on Form
8-K filed on July 30, 2008.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on September 12, 2008.
MARSHALL
EDWARDS, INC.
A
Delaware Corporation
By:
/s/
Christopher Naughton
Christopher
Naughton
Chief
Executive Offer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on September 12, 2008.
Signatures Title
By: /s/
Christopher
Naughton President,
Chief Executive Officer and Director
Christopher
Naughton
By: /s/
David
Seaton Secretary,
Chief Financial Officer
David Seaton
By: /s/
Stephen
Breckenridge
Director
Stephen Breckenridge
By: /s/
Bryan
Williams Director
Bryan Williams
By: /s/
Paul
Nestel Director
Paul Nestel
By: /s/
Philip
Johnston Director
Philip Johnston
By: /s/
William
Rueckert Director
William Ruechert
Exhibit
23.1
Marshall
Edwards, Inc.
140 Wicks
Road
NORTH
RYDE NSW 2113
AUSTRALIA
Consent
of Independent Registered Public Accounting Firm
We hereby
consent to the incorporation by reference in the Registration Statement on Form
S-3 (No. 333-136440), Registration Statement on Form S-3 (No 333-146453) and
Registration Statement on Form S-3 (No 333 149807), of Marshall Edwards,
Inc. of our report dated September 12, 2008, relating to the consolidated
financial statements which appear in this Form 10-K.
BDO
Kendalls (NSW)
Sydney,
NSW, Australia
September
12, 2008
Exhibit
31.1
CERTIFICATION
I,
Christopher Naughton, certify that:
1.
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I
have reviewed this Annual Report on Form 10-K for the year ended June 30,
2008 of Marshall Edwards, Inc.;
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2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
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The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant
and have:
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(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within the
entities, particularly during the period in which this report is being
prepared;
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(b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in the report our conclusions about the effectiveness of
this disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
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(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrants fourth fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
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5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors:
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(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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Date:
September 12,
2008
/s/ CHRISTOPHER NAUGHTON
Christopher
Naughton
Exhibit
31.2
CERTIFICATION
I, David
Ross Seaton, certify that:
1.
|
I
have reviewed this Annual Report on Form 10-K for the year ended June 30,
2008 of Marshall Edwards, Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant
and have;
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within the
entities, particularly during the period in which this report is being
prepared:
|
(b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in the report our conclusions about the effectiveness of
this disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrants fourth fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
Company’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: September12,
2008
DAVID SEATON
David R.
Seaton
Chief
Financial Officer
Exhibit
32.1
CERTIFICATION
Each of
the undersigned hereby certifies, for the purposes of Section 1350 of Chapter 63
of Title 18 of the U.S. Code, as adopted pursuant o Section 906 of the
Sarbanes-Oxley Act of 2002, in his capacity as an officer of Marshall Edwards,
Inc. (“Marshall Edwards”) that, to his knowledge, this Annual Report of Marshall
Edwards on Form 10-K for the period ended June 30, 2008, fully complies with the
requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended, and that the information contained in such a report fairly
presents, in all material respects, the financial condition and results of
operation of Marshall Edwards.
/s/
CHRISTOPHER
NAUGHTON
Christopher
Naughton
Chief
Executive Officer
/s/ DAVID
SEATON
David R.
Seaton
Chief Financial
Officer
A signed
original of this written statement required by Section 906 has been provided to
Marshall Edwards and will be retained by Marshall Edwards and furnished to the
Securities and Exchange Commission or its staff upon request.