Intriguing stuff – you no doubt know that today Dr. Graham Kelly, CEO of Novogen, resigned from the company. In a reasonably perfunctory statement, it has been announced that Dr. Kelly will “leave the Company to resume his work in non-oncology based early stage research.” Well, clearly, it would have to be non-oncology based research, because according to Dr. Kelly, he’s basically solved cancer anyhow.
So obviously he would have to research something else.
I don’t know Dr. Kelly personally but I do know he is a larger-than-life CEO, a lot of charisma, a lot of adoring shareholders who thinks the sun shines out of his proverbial. I also believe that his “musings” tended to look towards building long-term value, consistently articulating Novogen as a vehicle to take his various drugs all the way to market. This value capture was a big part of his personal cult, and a significant part of Novogen’s fundraising story, a company with one of the strongest balance sheets in the micro-cap Australian biopharma scene. No CEO does fundraising strictly alone, but it is my impression that he is a talented fundraiser, and raising money was certainly a major accomplishment under his tenure. What makes Dr. Kelly’s departure a bit shocking is that this was clearly a man on a mission. I don’t personally believe in his mission, nor do I particularly like the way he articulates it, but you have to admire the drive and resilience of his character. Whether you subscribe to his communication principles or not, the plain fact of the matter is that Novgen was his baby, a fundamental part of his identity. Therefore all of a sudden just leaving is a bit squiffy if you ask me, especially to pursue his “interests and skills in early-stage drug development”.
Er… isn’t that Novogen, nothing really in patients yet? About as early as you can get? Surely an ideal fit for that personal aspiration? Though honestly I could never understand why a company with that much cash was dallying about with some shitty mouse experiments, instead of getting on with the proper business of clinical translation. The beauty of early cancer drug development is that there are plenty of sick patients to be treated and it’s not that hard to get into the clinic if the data supports it. So maybe Dr. Kelly wasn’t the right guy.
Therefore, this leads to the big question is : did he jump or was he pushed?
If he did jump, then shareholders have reasonable cause to be disappointed with their ex-CEO unless there was a significant underpinning reason. I have heard rumours that Dr. Kelly’s aggressive prostate cancer has returned. I would not wish that situation on anyone, even Dr. Kelly, but if that is the case then surely it would have been easier just to explain it? He had previously noted the relationship between stress and his health (entirely understandable), and the company has clearly been going through a major period of change with plenty of public-domain hints of board-level shenanigans. There is even the possibility that Dr. Kelly is anticipating a disastrous personal credibility crisis by virtue of recurrent cancer that was not, in fact, successfully “treated” by his self-experimentation with the Triaxial technology. Frankly, I have always felt that this was going to bite him on the arse at some stage, and maybe it has. But even in that particularly bizarre scenario, I still can’t imagine that if health was the truthful reason for departure that you still wouldn’t just explain it to the market and tell it like it is. Plenty of people (including me) already think Dr. Kelly’s a crackpot for testing out drugs on himself, though I admit that put in his situation I probably would try just about anything to get better too. But nobody with any decency is going to give flack to a guy with advanced cancer. That’s just not kosher.
Even I wouldn’t do that. Probably.
I think the more intriguing part of the situation is the simultaneous announcement of the appointment of Iain Ross as interim CEO. You may recall back in November, Mr. Ross ended a short tenure as a non-executive director (including ~1 week as chairman), stepping down after a reported “unforeseen conflict of interest.” This kind of situation never projects a very high quality picture of corporate governance at the best of times, but I suppose these things do happen. Rarely. Clearly with Dr. Kelly out of the way, a mere six months later, that conflict has somehow magically resolved itself. Hey, here is a thought, maybe Dr Kelly was the conflict? To be honest, I don’t have much of an informed opinion of Mr. Ross, except that his board portfolio reads like a pig’s breakfast of truly mediocre ASX-listed companies (including Anatara, so quite literally a pig’s breakfast). It’s therefore hard to imagine how much value he is going to deliver to Novogen as an acting CEO, with at least six other board seats on the go (including three other publicly listed companies). Hopefully a new CEO can be found quickly, but I frankly don’t think it is going to be that easy a task and I am willing to bet that either Mr. Ross ends up running the company longer-term or one of the usual cronies appears like a white knight.
If you are healthily paranoid like I am, there is a slightly more worrisome interpretation of Mr. Ross’ comments today, specifically the phrase, “My goal in the short term is to bring focus and clarity to the organisation.” The “C”-word, “clarity” is not a confidence inspiring word. I for one, don’t have any confusion about what Novogen’s publicly-stated mission is, or what its pipeline objectives are. I think it is crystal clear. I do feel that Novogen’s balance sheet will be seriously stretched to achieve a value inflection for not one, not two, but three early-stage small molecule development projects (blissfully ignoring “Operation Jacob Hope”), but even then “clarity” is not a word that I really care to read. “Priority” and “focus” are great words, “clarity” not so much because it implies a murky lack of understanding, lack of transparency and obfuscation of the truth. Executives use the word “clarity” when data is poor quality, or incomplete, or doesn’t substantiate further investment – not because the founder CEO has decided to bugger off and play golf (and maybe find a cure for HIV on the side).
Executives also use the word “clarity” when they are about to tell you that their clinical trials are further delayed. I note that even in Dr. Kelly’s resignation note, clinical trials are already being described as “on track to enter Phase I clinical trails in 2016/17“. Whoa… 2017? I don’t think that I have heard that before?!
Another little interesting wrinkle to consider, given Dr. Kelly’s departure, is the treatment of the convertible note back from the original Triaxial acqusition. It’s worth going back to the March 2013 shareholder documentation and taking a sniff… you will have to hold your nose a bit through some enthusiastic but long-winded quasi-science waffle about “super-benzopyrans” (by the way, there is simply no such thing as a “super-benzopyran”, it just doesn’t exist – a benzopyran is a benzopyran). What is interesting is the potential dilution impact of the 60,000,000 shares (or a portion thereof) potentially payable if Triaxial’s scientifically questionable contribution to the Novogen pipeline makes it to the clinic and through early clinical development. If Mr. Ross is smart – and by all accounts he has sufficient scientific and commercial experience to exercise some fairly acute judgement – he will kill the programs that came out of Triaxial. Why? Because they are, to a first approximation, bullshit and don’t warrant further investment based on available information to date, the overall direction of cancer therapeutics, and the specific commercial strategy for that pipeline as currently articulated by the company. With Dr. Kelly out of the picture, the company doesn’t need to continue the charade of championing an early-stage pipeline that isn’t fundamentally going to be successful. Moreover, by killing the super-benzopyran rubbish the company also isn’t going to have to deal with a ridiculous dilution/share valuation event just around the corner (60,000,000 shares for a $1.5m convert + interest).
I think Novogen is one of the very worst ASX healthcare companies, a real armpit of a company. However it is also one of the best capitalised within its market cap range. Thankfully the company hasn’t pissed away too much money yet (only a few relatively inexpensive and meaningless animal studies) and it can still be a development company for quality assets if Novogen’s leadership gets its act together and starts showing some integrity. There are plenty of decent things to clinically develop – Novogen might even consider looking at a few poorer ASX-listed cousins and have a think about whether their financial resources can be put to better use that way. Certainly, if Mr. Ross is short of ideas of good technologies for development I will be happy to make some robust suggestions.
My money is on “pushed”. It is also my view that related party transactions are almost always dodgy and, if you ask me, the Triaxial story was on the Limberger side of stinky. Nonetheless, Dr. Kelly’s vision raised a fair amount of cash for the company and now Mr. Ross has the excellent opportunity to cut the crap and start creating value for shareholders.
To do so will take some balls and a commitment to quality, possibly a “novo” comcept for Novogen’s leadership…
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/.