When I first read that HC Wainwright had initiated coverage on Novogen (ASX : NRT) today, I was pretty much prepared to go in guns blazing on yet another paid-for and underwhelming analyst report. I was even going to ask the basic question that every self-styled ASX biotech pundit should ask, and that is “what cereal box did the analyst get his Ph.D from?” Unfortunately, Dr. Ramakanth seems like a pretty bright guy on paper, even if his firm isn’t exactly top of the heap.
Then again, Novogen isn’t exactly top of the heap either, if we are all honest with each other.
The report itself is pretty average, though always interesting to read the style differences between an analyst report from the US and an Australian one. I think the valuation projection is utterly ridiculous and overall the report reflects a lack historical understanding of what this truly underwhelming company has and has not accomplished. I also think it lacks context around existing financing risk to the buyer of this equity (for example the effect of the option pool from the last financing is not captured in the short-term price forecast). The report ignores the prior track record of the company in terms of failed pipeline development and demonstrates – intentionally or otherwise – a true lack of understanding of the historical weak execution capabilities of the management team. Given the amount of cash that Novogen has (relative to other ASX-listed companies) I also don’t consider the oft-noted fiscal conservatism as a selling point. Frankly, as a shareholder (which I am thankfully not), I would rather that a comparatively well-capitalised company like Novogen just go gang-busters and push their programs ahead as fast and as hard as possible, not the kind of drip-feeding and meaningless twaddle with a press release after each pontification, that we have seen so far.
To be clear – and I am on the record with this – I believe that Novogen will do nothing significant until it has recovered all outstanding options and possibly even raised the next chunk of cash, because the possibility (probability?) of poor quality data will simply jolt the gravy train. I am also willing to bet Graham Kelly an extremely good bottle that they miss their clinical trial initiation deadline in Q1 next year as well, just as they have always missed their deadlines.
By the way, when they do miss their next major deadline, I bloody well hope that a slightly more assertive American shareholder base punishes this company accordingly, because the Aussies that own a piece of Novogen seem to be remarkably lackadaisical about the extraordinarily negligible level of output from the company. Anyhow, notwithstanding all the shareholder high-fives on trading platforms, this is evidently just another firm looking for some business, and that’s fine. Also, just in case you missed it above, this is a paid report. In truth, however, I don’t personally much care whether or not a bunch of risk-tolerant Americans looking for “alpha” lose money investing in a goofy Australian biotech company’s ADRs – though it still doesn’t help the international perception of the quality of our companies.
I suppose ideologically, I just wish that the US Customs and Border Protection (CBP) had done a more effective job of preventing Novogen’s diseased spore from flitting across the Pacific and infecting the “Land of the Free”. Just as Australia’s bioterrorism and immigration laws do their bit to keep those implausibly tanned and annoyingly charming (and of course syphilitic) American studmuffins from just spontaneously arriving in the country and seducing our womenfolk, so too should the CBP try to do a better job of keeping our pustulant biotech companies away from the US. Having said that, those bastards did export us the Kardashians, Real Housewives of Atlanta and Lip Sync Wars, so maybe it’s just fair in the end that we send them back Graham Kelly and his company as a little thank you.
… but I digress.
The big thing that I take exception about with HC Wainwright’s report (aside from the fact that Novogen paid for it), is the excessive promotion of the “cancer stem cell” (CSC) angle. Although I did admire Dr. Ramakanth’s little educational addendum (nice graphics, though I think I recognised many of the diagrams from publications that didn’t seem to be referenced in the report, so perhaps a bit too much unfettered regurgitation of Dr. Kelly’s PowerPoint?), I am getting a bit tired of reading about Novogen’s aggressive spin on the CSC hypothesis. To be absolutely clear, Novogen has shown precisely ZERO compelling evidence that their drugs have a convincing therapeutic selectivity for CSCs in the tumour environment. It is nothing more than marketing spin that has turned into part of the folklore of the company, intended to convince punters that they have put a few bucks into another sexy “stem cell” company.
Firstly, although there is a growing body of evidence that the “cancer stem cell hypothesis” has merit, it is still just a hypothesis. Although cancer stem cells are now generally believed to exist, they are – in of themselves – extremely heterogeneous and we are only just starting to understand that there is huge biological diversity just within this notional “class” of cells. There is also no doubt that there remains significant controversy about whether this endogenous “stem cell-like” behavior is really even the dominant biological mechanism by which tumours achieve their amazing plasticity against treatment. Indeed, in aggressive cancers like glioblastoma (a cancer that Novogen often spouts on about), it has been reasonably well demonstrated that there are other effective resistance/proliferation mechanisms that are able to propagate tumour development, even when all the stem cells have been apparently wiped out. Some scientists think that even if we do probably understand CSCs, that relevant drugs might only be effective against blood cancers rather than solid tumours, precisely because of the incredible complexity of the solid tumour microenvironment.
As such it is very important as a “layman” investor in the CSC hypothesis that Novogen is flogging, to understand that effective delivery of a drug into tumour is an insanely difficult thing to accomplish. A tumour is not a uniform bundle of cancer cells and blood vessels, where a therapeutic molecule can just sort of whiz around and zap everything nasty. Tumour microenvironments actually evolve almost as small “organs” that are the result of an amazing evolutionary biology process, and are intrinsically structured to make it hard for antigens, antibodies and immune cells to permeate them and “defend”. Therefore even if the CSC hypthothesis is valid, creating a drug that actually works consistently across different cancer types is still non-trivial. Also part of the nefarious subterfuge of those nasty little CSCs, is the fact that they may look “normal” stem-like to the immune system relative to surrounding tissues. Or, put differently, a CSC near tumour vasculature will look very different that a CSC next to some stromal (“matrix”) tissue. Also a drug that kills CSCs may also kill normal stem cells as well, and this has the potential to actually make a cancer more – and not less – aggressive.
The problem as always, is that Novogen hasn’t done their homework. In fact, as far as I can tell, it hasn’t done ANY work. The in vitro stuff is basically irrelevant. Lab-based cancer stem cell models outside of the complexity of the real-world tumour microenvironment are pretty much known to not be predictive of drug performance whatsoever. Moreover, plenty of drugs have looked good in models but when applied to patients, failed to tackle the diversity of gene expression that results when a tumour-progenitor cell (which may or may not be a CSC) starts talking to all the other cells around it, like a little champagne-charged social butterfly flitting around a cocktail reception. Not only that, but there are serious doubts as to whether we really even understand what cancer biomarkers are going to enable us to identify and determine whether CSCs are responding to a drug or not! These are comparatively rare cells, have very diverse expression patterns and are difficult to detect and monitor in experimental systems.
I mean, it’s not like they pick up the phone and go “Graham, we don’t know what that shit was that you injected into Shirley this morning, but it is making us feel crappy.”
… Or do they…?
In short, when Novogen claims that they have measured an effect of their drug on CSCs, they probably don’t actually have the tools or the data to substantiate that assertion. So when you read the HC Wainwright report, or listen to Graham Kelly wax lyrical about the relevance of the CSC hypothesis to Novogen’s drugs, just remember that 1) Graham actually has no really robust scientific evidence for all his yarns, and certainly none that I am aware of that have been published in a peer-reviewed fashion (investor presentations with Yale logos plastered all over them don’t count) and 2) the various models of CSC and tumour proliferation are not yet actually sufficiently understood, even by good drug companies.
This is fundamentally why the HC Wainwright report, as pretty as it is, should also be taken with an extremely large grain of salt. Or, if I have not managed to convince you otherwise, an extremely small pinch of Anisina.
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/