20-F 1 form20f20111130.htm FORM 20F 2011 11 30 form20f20111130.htm


UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 20-F
 
 
[  ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
OR
 
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2011
 
 
OR
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
OR
 
[  ]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report…………….
 
For the transition period from................... to...................
 
Commission file number 0-29962
 
Novogen Limited
 
ACN 063 259 754
(Exact name of Registrant as specified in its charter)
 
Not Applicable
(Translation of Registrant’s name into English)
 
New South Wales, Australia
(Jurisdiction of incorporation or organization)
 
140 Wicks Road, North Ryde, New South Wales 2113, Australia
(Address of principal executive offices)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Ordinary Shares*
American Depositary Shares, each representing five Ordinary Shares
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
_____________________

*
  Not for trading, but only in connection with the registration of American Depositary Shares.
________________________________
 
 
 
 
 
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable

The number of outstanding Ordinary Shares of the issuer as at June 30, 2011 was 102,125,894.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes         [   ]                                                                No        [X ]
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes         [   ]                                                                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        [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes         [  ]                                                          No        [  ]
 
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer or non-accelerated filer.
 
Large accelerated filer [  ]          Accelerated filer [  ]          Non-accelerated filer [X]
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing
 
 
U.S. GAAP [  ]     International Financial Reporting Standards as issued        Other [  ]
 
                             by the International Accounting Standards Board [X]                                                                                                                                
 
If ‘Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17   [  ]                                                      Item 18 [  ]
 
If this is an annual report, indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes         [  ]                                                      No        [X]
 



 
 
 
 
TABLE OF CONTENTS


Forward Looking Statements
1
   
PART I
 
   
ITEM 1.                 Identity of Directors, Senior Management and Advisors
3
ITEM 2.                 Offer Statistics and Expected Timetable
3
ITEM 3.                 Key Information
3
ITEM 4.                 Information on the Company
15
ITEM 4A.              Unresolved Staff Comments
34
ITEM 5.                 Operating and Financial Review and Prospects
34
ITEM 6.                 Directors, Senior Management and Employees
43
ITEM 7.                 Major Shareholders and Related Party Transactions
61
ITEM 8.                 Financial Information
63
ITEM 9.                 The Offer and Listing
65
ITEM 10.               Additional Information
67
ITEM 11.               Quantitative and Qualitative Disclosures about Market Risk
73
ITEM 12.               Description of Securities other than Equity Securities
75
   
PART II
 
ITEM 13.               Defaults, Dividend Arrearages and Delinquencies
77
ITEM 14.               Material Modifications to the Rights of Security Holders and Use of Proceeds
 
77
ITEM 15.                Controls and Procedures
77
ITEM 16.                Reserved
78
ITEM 16A.             Audit Committee Financial Expert
78
ITEM 16B.             Code of Ethics
78
ITEM 16C.             Principal Accountant Fees and Services
79
ITEM 16D.             Exemptions from the Listing Standards for Audit Committees
80
ITEM 16E.             Purchases of Equity Securities by the Issuer and Affiliated Purchasers
80
ITEM 16F.             Change in Registrant’s Certifying Accountant
80
ITEM 16G.            Corporate Governance
80
   
PART III
 
ITEM 17.                 Financial Statements – Not Applicable
82
ITEM 18.                 Financial Statements
82
ITEM 19.                 Exhibits
82

 
 
 
 
 
FORWARD-LOOKING STATEMENTS
 

This Annual Report on Form 20-F includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 Novogen Limited and its majority owned subsidiaries (“Novogen”, the “Company” or the “Group”), are intended to identify forward-looking statements. The Company has based these forward-looking statements largely on current expectations and projections about future events and financial trends that it believes may affect its 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 Annual Report on Form 20-F (the “Annual Report”), including, among other things:
 

· the ability of the Company to obtain required additional financing or financing available to it on acceptable terms;
 
· the ability of the Company to continue its development of ME-143 and ME-344, through its majority owned subsidiary
    Marshall Edwards, Inc. (“MEI”);
 
· the ability of the Company to continue its clinical development of GLYC-101 through its majority owned subsidiary Glycotex, Inc. (“Glycotex”);
 
· the failure to locate, hire, assimilate and retain qualified personnel;
 
· the failure of the Company to successfully commercialize its product candidates;
 
· costs and delays in the development and/or receipt of U.S. Food and Drug Administration (“FDA”) or other required
    governmental approvals, or the failure to obtain such approvals, for the Company’s product candidates;
 
· uncertainties in clinical trial results;
 
· the ability to maintain or enter into, and the risks resulting from dependence upon, collaboration or contractual arrangements necessary
    for the development, manufacture, commercialization, marketing, sales and distribution of any products;
 
· competition and competitive factors;
 
· the ability to enforce the Company’s patents or proprietary rights and obtain necessary rights to third party patents and intellectual property
    to operate the business;
 
· the ability to operate the business without infringing upon the patents and proprietary rights of others;
 
 
 
 
1
 
 
 
· the failure of any product candidate to gain market acceptance;
 
· general economic conditions;
 
· technological changes;
 
· government regulation generally and the receipt of regulatory approvals;
 
· changes in industry practice; and
 
· one-time events.
 
 
These risks are not exhaustive. Other sections of the Annual Report may include additional factors which could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for the Company to predict all risk factors, nor can the Company assess the impact of all factors on the 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. The Company cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur. Although the Company believes that the expectations reflected in the forward looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements.
 
 
2
 
 
PART I

Item 1.                 Identity of Directors, Senior Management and Advisors

Item 1 details are not required to be disclosed as part of the Annual Report.

Item 2.                 Offer Statistics and Expected Timetable

Item 2 details are not required to be disclosed as part of the Annual Report.

Item 3.                 Key Information

Selected Financial Data

The selected financial data at June 30, 2011 and 2010 and for the years ended June 30, 2011, 2010 and 2009 have been derived from the Consolidated Financial Statements of the Company included in this Annual Report and should be read in conjunction with, and are qualified in their entirety by, reference to those statements and the notes thereto.

This financial report complies with International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standards Board (IASB).
 
The Consolidated Financial Statements have been audited in accordance with the PCAOB auditing standards in the United States by the Company’s independent registered public accounting firm.
 
The Company’s fiscal year ends on June 30. As used throughout this Annual Report, the word “fiscal” followed by a year refers to the 12-month period ending on June 30 of that year. For example, the term “fiscal 2011” refers to the 12 months ended June 30, 2011. Except as otherwise indicated, all dollar amounts referred to in this Annual Report are at the consolidated level and exclude inter-company amounts.
 
 
 
3
 
 
                                     
Summary of Consolidated Statements of Comprehensive Income
 
(IFRS)
 
                                     
   
2007
   
2008
   
2009
   
2010
   
2011
   
2011
 
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(US$'000)
 
                                     
Revenue from continuing operations
    - *     - *     2,504       1,784       2,025       2,173  
                                                 
Loss after tax from continuing operations
    - *     - *     (21,932 )     (15,814 )     (10,946 )     (11,748 )
                                                 
Profit/(loss) after tax from discontinuing operations
    - *     - *     (1,855 )     568       1,467       1,574  
                                                 
Net loss
    (24,296 )     (24,777 )     (23,787 )     (15,246 )     (9,479 )     (10,174 )
                                                 
Net loss attributable to members of Novogen Limited
    (19,981 )     (20,264 )     (18,928 )     (12,345 )     (6,498 )     (6,975 )
                                                 
                                                 
Basic and diluted earnings/(loss) per share from continuing operations (cents per share)
    - *     - *     (16.8 )     (12.6 )     (7.8 )     (8.4 )
Basic and diluted earnings/(loss) per share from discontinuing operations (cents per share)
    - *     - *     (1.8 )     0.6       1.4       1.5  
Basic and diluted earnings/(loss) per share (cents per share)
    (20.5 )     (20.8 )     (18.6 )     (12.1 )     (6.4 )     (6.8 )
                                                 
                                                 
Weighted average number of Ordinary Shares used to calculate earnings per share
    97,567,399       97,594,261       101,741,016       102,125,894       102,125,894       102,125,894  
                                                 
Number of outstanding Ordinary Shares at year end
    97,594,261       97,594,261       102,125,894       102,125,894       102,125,894       102,125,894  
                                                 
* Comparative information for these periods cannot be provided without unreasonable effort or expense.
 
 
                                     
Summary of Consolidated Statements of Financial Position
 
(IFRS)
 
                                     
   
2007
   
2008
   
2009
   
2010
   
2011
   
2011
 
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(A$'000)
   
(US$'000)
 
                                     
Cash and Cash
                                   
Equivalents
    39,511       35,386       33,338       15,131       6,016       6,457  
                                                 
Total Assets
    51,357       43,401       37,842       19,290       12,727       13,660  
                                                 
Net Assets
    44,626       35,637       28,773       13,176       4,420       4,744  
                                                 
Capital Stock
    191,876       200,432       206,419       206,419       194,295       208,517  


No dividends have been declared by the Company in the fiscal years included in this Annual Report.

The Company publishes its Consolidated Financial Statements expressed in Australian dollars. In this Annual Report, references to “U.S. dollars” or “US$” are to the currency of the United States of America (“U.S.”) and references to “Australian dollars” or “A$” are to the currency of Australia. For the convenience of the reader, this Annual Report contains translations of certain Australian dollar amounts into U.S. dollars at specified rates. These translations should not be construed as representations that the Australian dollar amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise stated, the translations of Australian dollars into U.S. dollars have been made at the rate of US$1.0732  = A$1.00, the noon market buying rate in New York City for cable transfers in Australian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (the noon buying rate) on June 30, 2011.
 
 
4
 
 
The noon buying rate on November 30, 2011 was US$1.0244 = A$1.00
 
Exchange Rates for the six months to November 2011
 
A$ versus US$
       
           
Month
   
High
Low
 
June
   
$1.0737
$1.0439
 
July
   
$1.1026
$1.0565
 
August
   
$1.0930
$1.0192
 
September
   
$1.0750
$0.9744
 
October
   
$1.0707
$0.9453
 
November
   
$1.0366
$0.9686
 

Exchange Rates for the Last Five Years A$ versus US$
 
           
Fiscal Year
   
Average
 
Ended June 30
   
Rate
 
2007
     
$0.7862
 
2008
     
$0.8968
 
2009
     
$0.7455
 
2010
     
$0.8820
 
2011
     
$0.9904
 




 
5
 
 
Risk Factors

The following risk factors, in addition to the other information and financial data contained in this Annual Report, should be considered carefully in evaluating the Company and its business. The risks described below and elsewhere in this Annual Report are not intended to be an exhaustive list of the general or specific risks involved, but merely identify certain risks that are now foreseen by the Company. It must be recognized that other risks, not now foreseen, might become significant in the future and that the risks which are now foreseen might affect the Company to a greater extent than is now foreseen or in a manner not now contemplated.

The Company is exploring various strategic alternatives involving assets comprising substantially all of its business.

The Company continually explores opportunities to maximize value to its stakeholders, including, among other things, through reorganizations, recapitalizations, private placements, strategic alliances, joint ventures, acquisitions and dispositions potentially involving all types and combinations of equity, debt and other alternatives. In this regard, the Company is currently contemplating possible transactions which may involve the spin-off or sale of one or more businesses, transfers of various assets, possible distributions of MEI securities held by the Company, or other features. The assets involved in these transactions may include the Company’s equity interests in its majority–owned subsidiary Glycotex and substantially all of the Company’s other assets.

On August 1, 2011, the Company completed the sale of its consumer products business, which has historically produced the majority of the Company’s revenue and which was the Company’s principal asset other than the ownership interest in its subsidiaries, MEI and Glycotex.

There are risks and uncertainties associated with any such potential transaction, including the risk that, due to business considerations, regulatory constraints or other reasons, the Company may be unable or unwilling to pursue or consummate any such transaction and that as a result of the consummation, or failure to consummate, such transactions the trading price of the Company’s shares may decline.

 The Company will need additional funds in order to finance its future operations and its pre-clinical and clinical development programs. The actual amount of funds that the Company will need will be determined by a number of factors, some of which are beyond its control.

The Company’s funding requirements, including the requirements of its subsidiaries, have been, and will continue to be, significant. The Company anticipates that its existing cash resources will be adequate to fund the Company's operating requirements through the next 12 months based upon the Company's current business plan.

 
6
 
 
The Company’s 68.5% (if the preference shares held were converted) owned U.S. subsidiary company MEI will need substantial additional funds to progress the clinical trial program for the drug candidates ME-143 (formerly known as NV-143) or ME-344 beyond their early development stages and to develop new compounds.

The factors which will determine the actual amount of funds that MEI will need to progress the clinical trial programs for ME-143 or ME-344 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 who 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 MEI is unable to obtain additional funds on favorable terms it may be required to cease or reduce operations. Also, if MEI raises more funds by selling additional securities, the ownership interests of the Company will be diluted, potentially significantly, which may result in the Company no longer consolidating MEI for financial reporting purposes.

The Company’s 80.7% owned U.S. subsidiary company Glycotex will also need additional funds to further the clinical development of its investigational wound healing compound GLYC-101.

There can be no assurance that additional financing will be available when needed on terms acceptable to the Company, or at all. If additional funds are raised by issuing equity securities, further dilution to existing shareholders will result and future investors may be granted rights superior to those of existing shareholders. Insufficient funds may prevent the Company from implementing its business strategy or may require the Company to limit its operations significantly.

The uncertain financial markets may negatively impact the Company’s liquidity, as well as the liquidity and clinical trials of the Company’s subsidiaries, by precluding the Company and its subsidiaries from raising funds through equity and/or debt investments or third party loans on favorable terms or at all.

The Company and its subsidiaries have traditionally raised capital through the sale of equity securities to investors and intend to seek additional capital through an equity transaction in fiscal 2012. Since September 2008, the financial services industry and credit market have experienced a period of unprecedented turmoil and volatility. Accordingly, the Company may have difficulty raising capital necessary to finance business operations through the sale of equity securities on terms favorable to it or at all or through other types of financing. In order to obtain the additional funding necessary to conduct the business, the Company and its subsidiaries may need to rely on collaboration and /or licensing opportunities. The Company cannot assure you that it or its subsidiaries will be able to raise the funds necessary or find appropriate collaboration or licensing opportunities to fund the future business plan.

 
7
 
 
The Company has incurred operating losses since its inception, and is likely to incur operating losses for the foreseeable future.

The Company has incurred net losses of A$227,874,000 since its inception, including net losses of A$9,479,000, A$15,246,000 and A$23,787,000 for the years ended June 30, 2011, 2010, and 2009, respectively. The Company anticipates that it will incur operating losses and negative cash flow for the foreseeable future.

The results of pre-clinical studies and completed clinical trials are not necessarily predictive of future results, and the Company’s subsidiaries’ current drug candidates may not have favorable results in later studies or trials.

Pre-clinical studies and Phase I and Phase II clinical trials are not primarily designed to test the efficacy of a drug candidate, but rather to test safety, to study pharmacokinetics and pharmacodynamics, and to understand the drug candidate’s side effects at various doses and schedules. Favorable results in early studies or trials may not be repeated in later studies or trials, including continuing pre-clinical studies and large-scale Phase III clinical trials, and the Company’s drug candidates in later-stage trials may fail to show desired safety and efficacy despite having progressed through earlier-stage trials. Unfavourable results from ongoing pre-clinical studies or clinical trials could result in delays, modifications or abandonment of ongoing or future clinical trials, or abandonment of a clinical program. Pre-clinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be delayed, repeated or terminated, or a clinical program to be abandoned.

The research and development program for ME-344 is in an early stage of development, and may not result in the commencement of clinical trials.

The research and development program for ME-344 is in the discovery or pre-clinical stage of development. The process of conducting pre-clinical studies requires the commitment of a substantial amount of resources. MEI’s pre-clinical compounds may not result in the commencement of clinical trials. The Company cannot be certain that results sufficiently favourable to justify commencement of Phase I clinical trials will be obtained in these pre-clinical investigations. Even if such favorable pre-clinical results are obtained, MEI’s financial resources may not allow it to file an IND application with the FDA and commence Phase I clinical trials, or the FDA may not allow Phase I clinical trials to proceed.
 
 
8
 
 
Final approval by regulatory authorities of the Company’s or its subsidiaries’ drug candidates for commercial use may be delayed, limited or prevented, any of which would adversely affect its ability to generate operating revenues.

The Company will not generate any operating revenue until it, or its subsidiaries, successfully commercializes one of its drug candidates. Currently, the Company’s subsidiaries drug candidates are at different stages of development, and each will need to successfully complete a number of studies and obtain regulatory approval before potential commercialization.

In particular, any of the following factors may serve to delay, limit or prevent the final approval by regulatory authorities of the Company’s drug candidates for commercial use:
 
 
 
ME-143 and ME-344 are in the early stages of development, and the Company will need to conduct significant pre-clinical and clinical testing to demonstrate safety and efficacy of these drug candidates 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 studies 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 the Company’s drug candidates;
 
 
 
it may take the Company many years to complete the testing of its 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 the Company to delay or terminate its development efforts.
 
The successful development of any of these drug candidates is uncertain and, accordingly, the Company may never commercialise any of these drug candidates or generate revenue.

The Company may not be able to establish the strategic partnerships necessary to develop, market and distribute the product candidates.

A key part of the Company’s business plan is to establish relationships with strategic partners. The Company must successfully contract with third parties to package, market and distribute its product candidates. The Company has not yet established any strategic partnerships.
 
Potential partners may be discouraged by the Company’s limited operating history.

 
9
 
 
Additionally, the Company’s relative attractiveness to potential partners and consequently, its ability to negotiate acceptable terms in any partnership agreement, will be affected by the results of the clinical programs. There is no assurance that the Company will be able to negotiate commercially acceptable licensing or other agreements for the future exploitation of its drug product candidates including continued clinical development, manufacture or marketing. If the Company is unable to successfully contract for these services, or if arrangements for these services are terminated, it may have to delay the commercialization program which will adversely affect its ability to generate operating revenues.

The Company relies on third parties to conduct its clinical trials and many of its pre-clinical studies. If those parties do not successfully carry out their contractual duties or meet expected deadlines, the Company’s drug candidates may not advance in a timely manner or at all.

In the course of discovery, pre-clinical testing and clinical trials, the Company relies on third parties, including laboratories, investigators, clinical contract research organizations, or CROs, and manufacturers, to perform critical services. For example, the Company relies on third parties to conduct its clinical trials and many of its pre-clinical studies. CROs are responsible for many aspects of the trials, including finding and enrolling subjects for testing and administering the trials. Although the Company relies on these third parties to conduct its clinical trials, it is responsible for ensuring that each of the clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require the Company to comply with regulations and standards, commonly referred to as good clinical practices, or GCPs, for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. The Company’s reliance on third parties does not relieve it of these responsibilities and requirements. These third parties may not be available when the Company needs them or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner, and the Company may need to enter into new arrangements with alternative third parties and the clinical trials may be extended, delayed or terminated. These independent third parties may also have relationships with other commercial entities, some of which may compete with the Company. In addition, if such third parties fail to perform their obligations in compliance with the Company’s clinical trial protocols or GCPs, the clinical trials may not meet regulatory requirements or may need to be repeated. As a result of the Company’s dependence on third parties, it may face delays or failures outside of its direct control. These risks also apply to the development activities of collaborators, and the Company does not control their research and development, clinical trial or regulatory activities.

 
10
 
 
The Company’s 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 its drug candidates.

The development of 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 the Company’s drug candidates are being developed. Some of these potential competing drugs are further advanced in development than the Company’s drug candidates and may be commercialised sooner. Even if the Company is successful in developing effective drugs, its compounds may not compete successfully with products produced by its competitors.

The Company’s 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. Many of the Company’s 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. These organizations also compete with the Company and its service providers, to recruit qualified personnel, and to attract partners for joint ventures and to license technologies. As a result, the Company’s competitors may be able to more easily develop technologies and products that would render the Company’s technologies or its drug candidates obsolete or non-competitive.
 
The Company has no direct control over the cost of manufacturing its drug candidates. Increases in the cost of manufacturing the Company’s drug candidates would increase the costs of conducting clinical trials and could adversely affect future profitability.

The Company does not intend to manufacture the drug product candidates in-house, and it will rely on third parties for drug supplies both for clinical trials and for commercial quantities in the future. The Company has taken the strategic decision not to manufacture active pharmaceutical ingredients (“API”) for the drug candidates, as these can be more economically supplied by third parties with particular expertise in this area. The Company has identified contract facilities that are registered with the FDA, have a track record of large scale API manufacture, and have already invested in capital and equipment. The Company has no direct control over the cost of manufacturing its product candidates. If the cost of manufacturing increases, or if the cost of the materials used increases, these costs will be passed on, making the cost of conducting clinical trials more expensive. Increases in manufacturing costs could adversely affect the Company’s future profitability if it was unable to pass all of the increased costs along to its customers.

 
11
 
 
Even if the Company receives regulatory approval to commercialize its drug candidates, the ability to generate revenues from any resulting products will be subject to a variety of risks, many of which are out of the Company’s control.

Even if the drug candidates obtain regulatory approval, resulting products may not gain market acceptance among physicians, patients, healthcare payers or the medical community. The Company believes that the degree of market acceptance and its ability to generate revenues from such products will depend on a number of factors, including:
 
 
 
timing of market introduction of the Company’s drugs and competitive drugs;
 
 
 
actual and perceived efficacy and safety of the Company’s drug candidates;
 
 
 
prevalence and severity of any side effects;
 
 
 
potential or perceived advantages or disadvantages over alternative treatments;
 
 
 
strength of sales, marketing and distribution support;
 
 
 
price of future products, both in absolute terms and relative to alternative treatments;
 
 
 
the effect of current and future healthcare laws on the Company’s drug candidates; and
 
 
 
availability of coverage and reimbursement from government and other third-party payers.
 
If any of the Company’s drugs are approved and fail to achieve market acceptance, the Company may not be able to generate significant revenue to achieve or sustain profitability.

The Company may face a risk of product liability claims and may not be able to obtain adequate insurance.

The Company’s business exposes it to the risk of product liability claims. This risk is inherent in the manufacturing, testing and marketing of human therapeutic products. The Company has product liability insurance. The coverage is subject to deductibles and coverage limitations. The Company may not be able to obtain or maintain adequate protection against potential liabilities, or claims may exceed the insurance limits. If the Company cannot or does not sufficiently insure against potential product liability claims, it may be exposed to significant liabilities, which may materially and adversely affect the business development and commercialization efforts.


 
12
 
 
Enforceability of civil liabilities under the federal securities laws against the Company or the Company’s officers and directors may be difficult.

The Company is a public company limited by shares and is registered and operates under the Australian Corporations Act 2001. Two out of the Company's five directors and many of the officers named in this Annual Report reside outside the U.S. Substantially all of the assets of those persons are located outside the U.S. As a result, it may not be possible to affect service on the Company or such persons in the U.S. or to enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated on the civil liability provisions of the federal securities laws of the U.S. There is doubt as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon federal or state securities laws of the U.S., especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served in Australia.

The trading price of the Company’s ordinary shares and American Depository Receipts (“ADRs”) could decline in value if the trading price of the shares of common stock of its listed subsidiary company, Marshall Edwards, declines.

Novogen currently owns 68.5% (if the preference shares held were converted) of its subsidiary Marshall Edwards, whose shares are currently traded on the Nasdaq Capital Market. If the trading price of MEI’s shares declines or its business does not achieve its objectives or its product development program is delayed, it could have an adverse affect on Novogen’s share price.

The trading price of the Companys ordinary shares and ADRs is highly volatile. Your investment could decline in value and the Company may incur significant costs from class action litigation and its securities may be delisted from Nasdaq.

The trading price of the Company’s ordinary shares and ADRs is highly volatile in response to various factors, many of which are beyond the Company’s control, including:

·  
announcements of technological innovations by the Company and its competitors;
·  
new products introduced or announced by the Company or its 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 in the biotechnology, pharmaceutical and genomics industries;
·  
changes in the market values of similar companies;
·  
the liquidity of any market for the Company’s securities; and
·  
additional sales by the Company of its shares.

 
13
 
 
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 the companies traded in those markets. Further changes in economic conditions in Australia, the United States, Europe, or globally, could impact the Company’s ability to grow profitably. Adverse economic changes are outside the Company’s control and may result in material adverse effects on the Company’s business or results of operations. These broad market and industry factors may materially affect the market price of the Company’s ordinary shares and ADRs regardless of its 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 the Company, could cause it to incur substantial costs and divert management’s attention and resources.

If the market price of the Company’s ADRs remains below US$5.00 per share, under stock exchange rules, the Company’s stockholders will not be able to use such ADRs as collateral for borrowing in margin accounts. This inability to use ADRs as collateral may depress demand as certain institutional investors are restricted from investing in securities priced below US$5.00 and may lead to sales of such ADRs creating downward pressure on and increased volatility in the market price of the Company’s ordinary shares and ADRs.

On July 21, 2011, the Company received a notice of delisting from Nasdaq stating that the Company was not in compliance with the minimum share price requirement of US$1.00 for continued listing on the Nasdaq Capital Market. According to this notice, the Company will be afforded a grace period of 180 calendar days, or until January 17, 2012, to regain compliance with this continued listing requirement, which may require the Company to take actions such as a reverse stock split, or be delisted from Nasdaq.  Any such delisting would significantly decrease the liquidity in the market for the Company’s shares. This notification from The Nasdaq Stock Market has no bearing on the Australian Stock Exchange listing of the Company’s common shares.

 
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Item 4.                 Information on the Company

History and development of the Company

Novogen Limited, a public company limited by shares, was incorporated in March 1994 under the jurisdiction of the laws of New South Wales, Australia. Novogen is registered and operates under the Australian Corporations Act. Novogen has its registered office at 140 Wicks Rd, North Ryde, New South Wales 2113. Its telephone number and other contact details are: Phone 61-2-9878-0088; Fax 61-2-9878-0055; and website, www.novogen.com (the information contained in the website does not form part of the Annual Report). The Company’s Ordinary Shares are listed on the Australian Stock Exchange (“ASX”) under the symbol “NRT” and its ADRs, each representing five ordinary shares, trade on the Nasdaq Capital Market under the symbol “NVGN”. The Company’s agent in the U.S. for ADR’s is the Bank of New York, 101 Barclay Street 22W New York, N.Y. 10286.

Capital expenditures
The Company made no major investments of a capital nature during fiscal 2011, 2010 or 2009.

Business overview

Nature of the Business

The Company is a pharmaceutical company which has been involved in the discovery, development, manufacture and marketing of products based on the emerging field of isoflavonoid technology. The Company’s product development program, which it conducts through its subsidiaries MEI and Glycotex, embraces a novel range of pharmaceuticals based on the field of isoflavonoid technology and on compounds known as isoflavones, in addition to its development of glucan based products. A key element of the Company’s strategy is to continue to advance its research and development, through its subsidiaries, in more advanced pharmaceuticals in the area of human phenolic compound technology with a focus on progressing the development of drug candidates in the field of oncology and the glucan products in the area of wound care.

The Company continually explores opportunities to maximize value to its stakeholders. In this regard, the Company is currently contemplating possible transactions which may involve the spin-off or sale of one or more businesses, transfers of various assets, possible distributions of MEI securities held by the Company, or other features.

On May 10, 2011 the transactions contemplated by the asset purchase agreement entered into between Novogen Limited, Novogen Research Pty Limited and MEI on December 21, 2010 were completed. Under the agreement, MEI acquired Novogen’s isoflavone-based intellectual property portfolio in exchange for issuing Novogen 1,000 shares of Class A Preferred Stock.

 
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On August 1, 2011 Novogen completed the sale of its consumer products business to Pharm-a-Care Laboratories Pty Limited for a total sale price of A$10.1 million in cash. The sale of the consumer business followed a review by the directors of the Company of the strategic alternatives for all of its businesses. While the consumer products business has grown over the past 12 months and is profitable, it did not fit with the Company’s longer term focus on therapeutic drug development programs primarily, through the Company’s majority owned subsidiaries MEI and Glycotex.

Clinical development or product candidates

The Company’s clinical development program is now run through Novogen’s subsidiaries MEI and Glycotex. MEI runs the Company’s oncology drug development program and Glycotex is developing the Glucan based wound healing technology.

MEI Clinical Product Development Programs

Program 1: NADH Oxidase Inhibitors

MEI’s first and most advanced program is a family of compounds that includes Phenoxodiol, a first-generation compound that has been well tolerated in more than 400 patients, and a next-generation compound called ME-143 (previously known as NV-143).

First Generation: Phenoxodiol
Phenoxodiol has been administered to more than 400 patients via oral or intravenous routes and appears to be well tolerated with low toxicity. In June 2010, MEI unblinded the results of its randomized OVATURE trial of orally administered Phenoxodiol in combination with platinum-based chemotherapy in women with recurrent ovarian cancer. The trial was closed in April 2009 with 142 out of a planned 340 patients enrolled. The final analysis determined that the trial did not show a statistically significant improvement in either its primary (progression-free survival) or secondary (overall survival) endpoints. In this trial, less than 1% of patients (one out of 142) achieved a clinical response in either arm, suggesting that in this patient population, Phenoxodiol does not overcome platinum-resistance when administered orally.

In a comparable Phase II clinical trial of intravenously administered Phenoxodiol in combination with platinum-based chemotherapy in a patient population comparable to that enrolled in the OVATURE study, a clinical response was observed in 30% of patients (six out of 20).

Pharmacokinetic studies suggest that significantly higher levels of active drug are measured when isoflavone compounds are administered intravenously versus the oral route. As a result of these findings, MEI intends to pursue the clinical development of its next-generation compounds using an intravenous formulation.

 
16
 
 
Next Generation: ME-143
ME-143 is the primary metabolite of Triphendiol, a second-generation derivative of Phenoxodiol. Pre-clinical studies show that ME-143 demonstrates enhanced anti-tumour activity against a broad range of tumour cell lines when used alone or in combination with platinum-based chemotherapy when compared to both Phenoxodiol and Triphendiol.

As a result, ME-143 has been selected as the lead product candidate for this program. MEI is completing drug manufacturing and non-clinical safety studies of ME-143. On August 17, 2011, MEI’s Investigational New Drug (IND) application for ME-143 was approved by the U.S. Food and Drug Administration (FDA).  MEI planned to initiate a Phase I clinical trial of intravenous ME-143 by September 2011, which has now commenced. MEI will then follow this safety study with randomized Phase II studies in combination with chemotherapy.

Program 2: Mitochondrial Inhibitors

MEI’s second program is a family of compounds that includes NV-128, a first-generation compound that has shown activity against a broad range of cancer cell lines, and a next-generation compound called ME-344 that appears to be more active than NV-128 in pre-clinical studies.

First Generation: NV-128
NV-128 is an investigational cancer compound which has been shown in pre-clinical laboratory studies to promote cancer cell death by targeting the specific protein regulatory pathway (i.e., AKT-mTOR pathway) in cancer cells that have become resistant to many drugs used to kill cancer cells. Structurally, NV-128 is an analogue of Phenoxodiol, but in contrast uses different molecular mechanisms to promote the death of cancer cells.

In September 2009, MEI released data demonstrating that the anti-tumor activity of NV-128 in animal xenograft models is achieved without apparent toxicity. NV-128 is a novel mitochondrial inhibitor, capable of inhibiting both mTORC1 and mTORC2 protein regulatory pathways which are suggested to be central to the aberrant proliferative capacity of both mature cancer cells and cancer stem cells. Laboratory data in mice bearing human ovarian cancer xenografts demonstrated that NV-128 may have a better safety profile than some other mTOR inhibitors. Additional data released reported that NV-128 was judged to be without cardiac toxicity in laboratory studies.

NV-128 has shown activity in pre-clinical models against a broad range of cancers, including KRAS-mutant, Tarceva-resistant non-small cell lung cancer cell lines. Results from an ongoing study conducted in collaboration with Dr. Gil Mor, an oncologist at the Yale School of Medicine, demonstrate that NV-128 is active against all chemotherapy-resistant ovarian tumour cells tested in the laboratory to date.

 
17
 
 
In November 2010, Dr. Ayesha Alvero from the Department of Obstetrics, Gynecology, and Reproductive Sciences at the Yale School of Medicine presented data from a pre-clinical study of NV-128 demonstrating its ability to induce mitochondrial instability, ultimately leading to cell death in chemotherapy-resistant ovarian cancer stem cells. The data were reported at the 1st World Congress on Targeting Mitochondria in Berlin.

Next Generation: ME-344
MEI has identified a possible natural metabolite of NV-128 in a compound it calls ME-344 (previously known as NV-344). In preliminary studies, ME-344 has demonstrated more activity against a panel of human tumour cell lines as compared to NV-128. MEI is in the process of finalising its lead identification studies for this program, after which it plans to conduct the necessary animal toxicity studies to initiate a Phase I trial during the second half of 2011.

Glycotex programs for clinical development of product canditates
 
GLYC-101

The investigational product candidate GLYC-101 Gel, currently being developed by the Company’s U.S. subsidiary Glycotex, Inc. (“Glycotex”), is intended to stimulate and modulate the natural cascade of wound healing activities in several cell populations. The product candidate is a topical gel formulation to be applied directly on the wound surface. The strategic priorities for GLYC-101 include wound healing following laser ablation, burn wounds, surgical wounds, venous ulcers and diabetic ulcers.

Clinical and pre-clinical results
On, June 27, 2011 Glycotex announced that it had submitted the final results of the two completed Phase II clinical studies of its drug product candidate, GLYC-101 gel, to the clinicaltrials.gov database.  These clinical studies have evaluated the effect of investigational GLYC-101 on wound closure in patients undergoing carbon dioxide laser skin resurfacing.

The pilot randomized, double-blind, placebo-controlled clinical study in Beverly Hills, California has enrolled 12 healthy subjects undergoing laser skin ablation.  In addition to assessing safety endpoints, the study has investigated efficacy endpoints, including the promotion of wound healing and cosmetic outcomes, over a 1-month period following laser skin ablation. Although this study was not statistically powered to determine efficacy of GLYC-101 gel, all wound sites, regardless of treatment, displayed complete wound closure without signs of delayed healing, and the median time to complete wound closure was 15 days for all ablated sites, regardless of treatment.  No serious adverse events have occurred in this study.  Based on the results of this study, GLYC-101 gel, 1.0% was well tolerated in healthy subjects undergoing laser skin ablation and recommended for further clinical testing.

 
18
 
 
A second randomized, double-blind, placebo-controlled Phase II clinical study has evaluated the effect of investigational GLYC-101 gel on complete wound closure and cosmetic outcomes in 26 subjects undergoing carbon dioxide laser skin resurfacing on the lower eyelid area at one clinical trial site in Beverly Hills, California. Subjects were randomized to receive either GLYC-101 0.1%, GLYC-101 1.0%, or placebo gel on one lower eyelid, and a different test article on the other lower eyelid applied topically to the laser-ablated area immediately following the laser procedure and for four consecutive days thereafter for a total of five applications. The primary efficacy endpoint of the study was time to complete wound healing, and the secondary efficacy point was cosmetic outcomes, including scarring, observed over the course of one month following the initial application of GLYC-101 gel or placebo. In the overall analysis, time to complete wound closure was shorter for all GLYC-101 applications combined at each concentration compared to placebo (p values are 0.0062 and 0.0331 for GLYC-101, 0.1% and GLYC-101, 1.0%, respectively). By Day 12, approximately 94% and 82% of subjects receiving GLYC-101, 0.1% and GLYC-101, 1.0 %, respectively, exhibited complete wound closure compared to approximately 64% of subjects receiving placebo. All subjects had complete wound closure by Day 35.  No serious adverse events considered to be related to GLYC-101 have been reported.

Preliminary clinical activity of GLYC-101 is consistent with the results of the mechanism of action studies. As described in a recent publication (S. Roy et al., Wound Repair Regen. 2011 May; 19(3):411-419), GLYC-101 was shown to regulate wound macrophage function by inducing production of tumour necrosis factor alpha (TNFα) in murine and human cells. Activation of wound macrophages by GLYC-101 represents one of the potential mechanisms by which this β-glucan may benefit chronic wounds where inefficient inflammatory response is one of the underlying causes of impaired healing.

Intellectual property
In the past 12 months the Company has filed four U.S. patent applications in relation to applications of the GLYC-101 technology. The applications are directed to methods of predicting the response of a patient to the administration of glucan; methods of producing endotoxin-free glucan; methods of evaluating the biological activity of a glucan; and methods for treating skin wounds or lesions, or connective tissue damage or injury using a particular amount of GLYC-101. The Company now has a total of 17 patents and pending patent applications covering GLYC-101, including 11 granted patents and 6 pending patent applications.

Funding
Glycotex has been awarded a cash grant totaling US$244,479 under the U.S. Government's Qualifying Therapeutic Discovery Project (QTDP) program. The QTDP program was created by U.S. Congress as part of the Patient Protection and Affordable Care Act of 2010. Glycotex received the grant for its program to develop GLYC-101 Gel investigational product for the treatment of acute and chronic wounds.

 
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Strategic Collaborations
Glycotex has been engaged in preliminary discussions with potential corporate partners that could provide synergies for the continued development, manufacture, and future commercialization of its lead compound.

Consumer health care

The Company launched its first dietary supplement product, Promensil, in September 1997 in Australia.

Promensil and Trinovin are “dietary supplements” that deliver standardized levels of all four isoflavones — daidzein, genistein, formononetin and biochanin. In addition, the Company has introduced dietary supplement line extensions including Promensil Vitality and Promensil Double Strength.

The Company established 100% owned subsidiary companies in Canada and the U.K. to market and distribute its range of dietary supplements. The Company also entered into agency agreements to distribute its dietary supplements in Singapore, China, Malaysia, Indonesia, Taiwan, South Africa, Ireland, Austria, Netherlands, Switzerland, Belgium, Portugal, Italy, Malta, Korea, Brazil and UAE. In 2006, the Company licensed the U.S. rights to market Promensil and Trinovin brands to Natrol, Inc.

On August 2, 2011 Novogen announced the completion of the sale of its consumer products business to Pharm-a-Care Laboratories Pty Limited for a total sale price of A$10.1 million in cash. The sale of the consumer business followed a review by the directors of the Company of the strategic alternatives for all of its businesses. While the consumer products business has grown over the past 12 months and is profitable, it did not fit with the Company’s longer term focus on therapeutic drug development programs primarily, through the Company’s majority owned subsidiaries Marshall Edwards, Inc. and Glycotex, Inc.


 
20
 
 
The following table is an analysis of revenue from sales and other sources during the past three fiscal years by categories of activity and by geographical market. Other revenue consists principally of interest income and royalty receipts.


                   
Category of Activity
                 
                   
   
2009
   
2010
   
2011
 
   
(A$'000)
   
(A$'000)
   
(A$'000)
 
                   
                   
Revenue from sale of goods
    8,333       7,983       10,843  
                         
Other revenue
    2,814       1,925       2,535  
                         
Total Revenue
    11,147       9,908       13,378  
                         
Geographical Markets
                       
                         
      2009       2010       2011  
   
(A$'000)
   
(A$'000)
   
(A$'000)
 
                         
Revenue from sale of goods
                       
                         
Australasia
    4,065       3,955       3,793  
                         
Europe
    2,200       2,240       2,367  
                         
North America
    2,068       1,788       1,778  
                         
South America
    -       -       2,905  
                         
      8,333       7,983       10,843  
                         
Other revenue
                       
                         
Australasia
    2,528       1,824       2,404  
                         
Europe
    1       2       -  
                         
North America
    285       99       131  
                         
      2,814       1,925       2,535  
                         
Total Revenue
    11,147       9,908       13,378  




 
21
 
 
Source and Availability of Raw Materials

Phenolic Pharmaceutical Compounds

The Company has taken the strategic decision not to manufacture compounds for clinical trials or commercial scale Active Pharmaceutical Ingredients (API) for its drug candidates, including ME-143 and ME-344 as these can be more economically supplied by third parties with particular expertise in this area.

Isoflavones

Isoflavones for use in consumer health care products were supplied under contract  from  a third party supplier. The Company also used contract formulators and packers in Australia to tablet and pack the final product for supply to world markets.


Patent Protection

The most important area of the intellectual property (“IP”) of the Company is the Company’s discovery that isoflavonoid-derived phenolic compounds have biological activity. This is the basis of the Company’s drug discovery and development program. A number of these phenolic compounds have been identified by the Company as offering significant commercial potential as new pharmaceuticals and these are currently under development. The Company has multiple PCT (Patent Cooperation Treaty) applications pending relating to these compounds and a wide range of therapeutic indications.

The Company pursues a broad patent application filing strategy, and filing PCT patent applications can be used to pursue patent protection in member countries with significant markets for the Company’s products. In May 2011, Novogen sold to its subsidiary, MEI, its isoflavone-based intellectual property portfolio, following approval by Novogen and MEI shareholders in respective Extraordinary General Meetings.

The areas with expanding patent cover include novel dimeric and novel aminated isoflavones, isoflavone formulations and various uses, combined isoflavone/chemotherapy and isoflavone/radiotherapy treatments and glucan preparation and uses.

Trademark Protection

The Company also seeks IP protection through trademark registration of product names and corporate logos. The Company has an active program of registering all product trademarks in significant markets. The trademarks associated with the consumer products business were sold with the consumer business in August 2011.

 
22
 
 
Licensing Arrangements

In 1997, the Company granted an exclusive royalty-bearing license, with the right to grant sublicenses, to Protein Technologies International, then a subsidiary of Ralston Purina Company (“PTI”), covering three of the Company’s patent applications (and U.S. patents arising from such applications) for the development and commercialization of prescription and non-prescription drug products and dietary health supplements in which the biologically active component is derived from soy and consists of at least one isoflavone covered by one of the licensed patent applications (or U.S. patents arising from such applications). Subsequent to the Company’s grant of the license, U.S. patents were issued for all three patent applications. The geographical territory of the license is worldwide, with the exception of Australia and New Zealand. In 1997, Dupont acquired PTI and PTI subsequently changed its name to Solae LLC (“Solae”) in connection with a joint venture that it entered into with Bunge Ltd. In 2004, the parties amended the license to revise the schedule of minimum annual payments and to provide for payment to be made by Solae to the Company in the event that Solae sells its isoflavone drug program. The license was transferred to Archer Daniels Midland Company (“ADM”) in 2005.

Under the terms of the transfer, ADM assumed the rights and obligations formally held by Solae, including the obligation to make minimum annual payments and royalty payments to the Company. Notwithstanding the transfer of the license agreement, Solae remains obligated to make payment to the Company in the event that Solae sells its isoflavone drug program. The license agreement will terminate upon the expiration or invalidation of the last of the patent applications and/or patent rights that it covers.

In connection with agreement, the Company recognized royalty income from ADM of A$1.7 million and A$1.5 million in fiscal years 2011 and 2010, respectively.

During the year the Company renegotiated the licence agreement in place with ADM. The result was that the Company will receive an upfront cash payment of US$2.9 million (less any withholding tax payable) as the full consideration for all unpaid amounts otherwise payable by ADM for the period to May 31, 2013. These funds were received in July 2011.

Australian Government

The activities of the Company are subject to numerous Australian laws and regulations, including those described below.

The Australian Corporations Law is the main body of law governing companies incorporated in Australia, such as Novogen and its Australian subsidiaries. The Australian Securities and Investments Commission is an Australian Government organization which administratively enforces legislation covering matters such as directors’ duties and responsibilities, preparation of accounts, auditor control, issue and transfer of shares, control of shareholders’ meetings, rights of minority interests, amendments to capital structure, preparation and filing of public documents such as annual reports, changes in directors and changes to capital.

 
23
 
 
The ASX imposes listing rules on all listed companies, such as Novogen. The rules cover issues such as continuous and immediate disclosure to the market of relevant information, periodic financial reporting and the prior approval of reports to shareholders.

The Company believes that it materially complies with the foregoing Australian laws and regulations pertaining to public and private companies.

Regulatory Requirements

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 (many 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 product for its intended use and payment of a fee. Application details are available on the TGA website http://www.tga.gov.au.

The first phase of evaluation, known as the Application Entry Process, is usually a short period during which an application is assessed at 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, quality control bioavailability and pharmacokinetics 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 Advisory Committee on Prescriptive Medicines (ACPM) to review the relevant clinical evaluation reports.

 
24
 
 
The clinical evaluation reports (along with any resolutions of the ACPM 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 either the ACPM (for new medicines) or from the Peer Review Committee (PRC) for extensions to products which are already registered. This summary is sent to the sponsoring company which is able to submit a response to the ACPM or PRC dealing with issues raised in the summary and those not previously addressed in the evaluation report. The ACPM/PRC provide independent advice on the quality, risk-benefit, effectiveness and access of the product and conduct medical and scientific evaluations of the application. The ACPM 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 ACPM meeting.

The TGA takes into account the advice of the ACPM 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.
 
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, labelling, 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. The Company believes, but cannot be certain, that its 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:
 
 
 
25
 
 
 
 
pre-clinical laboratory evaluations, including formulation and stability testing, and animal tests performed under the FDA’s Good Laboratory Practices regulations to assess pharmacological activity and toxicity potential;
 
 
 
submission and approval of an Investigational New Drug Application, or IND, including results of pre-clinical tests, manufacturing information, 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 IRBs, 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 results for pre-clinical and clinical studies, 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 the Company 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 the Company 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 submitted, 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.
 
 
26
 
 
 
 
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.

The Company cannot be certain that it will successfully complete Phase I, Phase II, or Phase III testing of its products within any specific time period, if at all. Furthermore, the FDA, the IRB or the Company 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 labelling 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. The Company cannot be certain that any NDA it submits 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 the Company’s business prospects.

 
27
 
 
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, 2011 for the fiscal year 2012, the user fee for an application requiring clinical data, such as an NDA, is US$1,841,500. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual product fee for prescription drugs and biologics (US$98,970), and an annual establishment fee (US$520,100) 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. The Company is not at the stage of development with its products where it is 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 labelling, or other areas may require submission of a NDA Supplement to the FDA for review and approval. New indications will require additional clinical studies and submission of a 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. The Company cannot be certain that it, or its 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 it’s business prospects.

 
28
 
 
The FDA’s policies may change, and additional governmental regulations may be enacted that could delay, limit, or prevent regulatory approval of the Company’s products or affect its ability to manufacture, market, or distribute its 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 the business. The Company’s failure to obtain coverage, an adequate level of reimbursement, or acceptable prices for future products could diminish any revenues the Company may be able to generate. The Company’s 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. The Company 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.

The Company’s activities may also be subject to state laws and regulations that affect the its ability to develop and sell products. The Company is 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. The Company 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 business prospects.

The FDCA includes provisions designed to facilitate the development and expedite the 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 post-marketing 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. The Company cannot be certain that it will be able to take advantage of either the patent term extension or marketing exclusivity provisions of these laws.

 
29
 
 
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.

European Union Regulatory Requirements

Outside the U.S., the Company’s ability to market its 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 (EMA) 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. The Company assumes that the centralized procedure will apply to its 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.
 
 
30
 
 
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 EMA. 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, the Company 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 the Company’s 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 the Company or its products in Europe.

Nasdaq compliance

Novogen

On July 23, 2010 the Company received a notice from Nasdaq advising that it was no longer in compliance with the Nasdaq listing requirement to maintain a closing minimum bid price of US$1.00 per American Depository Receipts (“ADR”),  allowing 180 days to correct the non-compliance.  The Company was subsequently granted an additional 180 calendar days, or until July 18, 2011, to regain compliance in accordance with Nasdaq Rule 5810(c)(3)(A). On April 6, 2011 the Company received a further notice from Nasdaq confirming that for the ten consecutive business days, from March 23, 2011 to April 5, 2011, the closing bid price of the Company’s ADR’s had been at US$1.00 per ADR or greater. Accordingly, the Company regained compliance with Listing Rule 5550(a)(2) and the matter was closed. 

 
31
 
 
A further notice was received from Nasdaq on July 21, 2011. Information regarding this notice is contained below under the item “Significant Changes after Balance Sheet Date”.

Notification from the Nasdaq Stock Market has no bearing on the ASX listing. 

Marshall Edwards, Inc.

During fiscal year 2011, MEI received deficiency notices from Nasdaq regarding non-compliance with the minimum stockholders equity and the minimum Market Value of Publicly Held Shares in accordance with Nasdaq Listing Standards for the Nasdaq Global Market. In March 2011 MEI received a positive response from the Nasdaq Listing Qualifications Staff indicating that its request for a transfer and continued listing on the Nasdaq Capital Market had been granted. MEI’s common stock began trading on the Nasdaq Capital Market effective with the open of business on March 16, 2011.

Under Nasdaq rules, failure to maintain minimum stockholders’ equity of $2.5 million may result in the delisting of MEI’s common stock from the Nasdaq Capital Market, in which case MEI would have 45 calendar days from the date of notification by Nasdaq to submit a plan to regain compliance. If the plan is accepted, Nasdaq can grant an extension of up to 180 calendar days from the date of the original notification for MEI to evidence compliance with this requirement. As a result of continuing losses from operations and the recognition of other expense for the fair value of derivative liabilities related to the securities issued in the private placement that closed in May 2011, MEI’s stockholders’ equity fell below $2.5 million as of June 30, 2011; however, as a result of its financing activities during the three months ended September 30, 2011, MEI’s stockholders’ equity exceeded the $2.5 million requirement as of September 30, 2011.

In addition, under Nasdaq rules, companies listed on the Nasdaq Capital Market are required to maintain a share price of at least $1.00 per share and if the share price declines below $1.00 for a period of 30 consecutive business days, then the listed company would have 180 days to regain compliance with the $1.00 per share minimum. In the event that MEI’s share price declines below $1.00, it may be required to take action, such as a reverse stock split, in order to comply with the Nasdaq rules that may be in effect at the time.

If MEI is not able to comply with the listing standards of the Nasdaq Capital Market, its common stock will be delisted from Nasdaq and an associated decrease in liquidity in the market for its common stock will occur.
 
 
32
 
 
Organizational Structure

Corporate Structure
Novogen Limited is a company limited by shares and is incorporated and domiciled in Australia. Novogen Limited and its controlled entities “Novogen” or the “Group” have prepared a consolidated financial report incorporating the entities that Novogen Limited controlled during fiscal 2011, which included the following controlled entities:


Name of Entity
Country of Incorporation
Ownership %+
Novogen Laboratories Pty Ltd
Australia
100
Novogen Research Pty Ltd
Australia
100
Novogen Inc
U.S.
100
  Glycotex, Inc.
U.S.
80.7
Novogen Limited (U.K.)
U.K.
100
Novogen Canada Limited
Canada
100
Marshall Edwards, Inc.#
U.S.
59.0
  Marshall Edwards Pty Limited*#
Australia
59.0
  
* Indirect ownership through Marshall Edwards, Inc.
+ Ownership % at June 30, 2011.
# The proportion of ownership interest is equal to the proportion of voting power held and excludes convertible preference shares which do not hold any voting rights until converted.

Property, Plant and Equipment

The Company’s leases premises in North Ryde, Sydney which occupies approximately 1,088 square meters. These premises are used as Novogen’s corporate headquarters and also contained the laboratory facilities for the Company’s Chemistry and Quality operations used in the pilot plant manufacturing of the small scale synthetic drug compounds prior to the transfer of this function to the U.S. subsidiary MEI. The lease expires in August 2015.

The Company believes these facilities will adequately meet the Company’s needs for the foreseeable future and is currently seeking alternative arrangements to utilise excess space following the transition of the research and development function to the U.S. and the sale of the consumer business. The Company has raised a provision for the excess space available at its North Ryde premises. In estimating the provision, management has made certain assumptions regarding the time it will take to find a suitable alternative to utilise the excess space and the current space requirements.

The Company’s subsidiary MEI has leased office space, of approximately 345 square meters, located at 11975 El Camino Real, San Diego, California. The location houses MEI’s executive and administrative offices. The lease commenced in July 2010 and expires in April 2013. In addition, MEI has two options to extend the lease for one year each at the market rate in effect at the time of renewal. The Company believes these facilities will adequately meet MEI’s office needs for the foreseeable future.

 
33
 
 
Item 4A.         Unresolved Staff Comments

None

Item 5.           Operating and Financial Review and Prospects

The following discussion and analysis should be read in conjunction with “Item 18. Financial Statements” 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 “Forward-Looking Statements” and “Risk Factors” in Item 3. “Key Information” included above in this Annual Report. All forward-looking statements included in this document are based on the information available to the Company on the date of this document and the Company assumes no obligation to update any forward-looking statements contained in this Annual Report.

Application of Critical Accounting Policies

The significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements under Item 18 of this Annual Report.

Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.  In determining the economic benefits, provisions are made for certain trade discounts and returned goods.

Returns

Over the last three years, returns and estimates of return liability were not considered material and are detailed below.

   
Balance at
Beginning of year
   
Charged to Cost
and Expense
   
Actual
Returns
   
Balance at
End of Year
 
   
A$'000
   
A$'000
   
A$'000
   
A$'000
 
Allowance for Sales returns:
                       
Year ended June 30, 2009
    47       277       288       36  
Year ended June 30, 2010
    36       75       110       1  
Year ended June 30, 2011
    1       126       127       0  
 
34
 
 

Discounts

Discounts are generally calculated as deductions off the Company’s invoice price and as such do not require significant judgment in determining accrual amounts.  Over the last three years, the discounts and estimate of claims were not considered material and are detailed below:

   
Balance at
Beginning of year
   
Charged to Cost
and Expense
   
Actual
Discounts
   
Balance at 
End of Year
 
   
A$'000
   
A$'000
   
A$'000
   
A$'000
 
Allowance for Sales discounts:
                       
Year ended June 30, 2009
    79       647       584       142  
Year ended June 30, 2010
    142       492       557       77  
Year ended June 30, 2011
    77       490       497       70  


Inventory Adjustments

Inventories are measured at the lower of cost or net realizable value. The Company reviews the components of inventory on a regular basis for excess, obsolete and impaired inventory based on estimated future usage and sales. The likelihood of any material inventory write-downs is dependent on rapid changes in customer demand or new product introductions by competitors.
 
 
For additional information on significant accounting policies refer to Item 18 “Financial Statements” - Note 1 – “Summary of Significant Accounting Policies”.

Discontinued operations

The Company looked at strategic alternatives for its consumer products business. The consumer products business was not part of the Company’s longer term focus of therapeutic drug development, which the Company is undertaking through its majority owned subsidiaries MEI and Glycotex. The Company commenced a planned process to dispose of this business and in April 2011 appointed a financial advisor to actively search for a buyer and complete the plan. This business has been classified as a discontinuing operation for the purposes of this report.

On August 1, 2011 Novogen completed the sale of its consumer products business to Pharm-a-Care Laboratories Pty Limited for a total sale price of A$10.1 million in cash.
 
 
35
 
 
Results of Operations

The following table provides a summary of revenues and expenses to supplement the more detailed discussions below:
 
 
STATEMENT OF COMPREHENSIVE INCOME
                   
for the year ended 30 June, 2011
                             
   
 
   
Consolidated
 
         
2011
   
2010
   
2009
   
2011
 
         
A$'000
   
A$'000
   
A$'000
   
US$'000
 
Continuing Operations
                             
Revenue
            2,025       1,784       2,504       2,173  
                                         
Gross profit
            2,025       1,784       2,504       2,173  
                                         
Other income
            512       7       -       549  
                                         
Research & development expenses
      (3,902 )     (7,550 )     (18,138 )     (4,188 )
General and administrative expenses
      (9,562 )     (10,039 )     (6,286 )     (10,262 )
Finance costs
            (18 )     (15 )     (11 )     (19 )
                                         
Loss before income tax
            (10,945 )     (15,813 )     (21,931 )     (11,747 )
                                         
Income tax expense
            (1 )     (1 )     (1 )     (1 )
                                         
                                         
Loss after tax from continuing operations
      (10,946 )     (15,814 )     (21,932 )     (11,748 )
                                         
Profi/(loss) after tax from discontinuing operations
            1,467       568       (1,855 )     1,574  
                                         
Loss for the period
            (9,479 )     (15,246 )     (23,787 )     (10,174 )
                                         
Other comprehensive income (loss)
                                 
Net exchange difference on translation of financial statements of foreign controlled entities
(net of tax 2011: Nil, 2010:Nil)
      (690 )     (1,079 )     6,163       (741 )
                                         
Other comprehensive income (loss)
      (690 )     (1,079 )     6,163       (741 )
                                         
Total comprehensive income (loss)
      (10,169 )     (16,325 )     (17,624 )     (10,915 )
 
 
36
 
 
Operating Results – Fiscal 2011 compared to Fiscal 2010

Revenue

The Group earned revenues from continuing operations for the year ended June 30, 2011 of A$2.0 million versus A$1.8 million in the previous corresponding period. The increase relates to additional royalty revenue recognised and dividend income received from a small investment the Company holds in Nox Technology, which was partially offset by a decrease in interest earned due to a reduction in cash balances held.

The Company looked at strategic alternatives for its consumer products business. The consumer products business was not part of the Company’s longer term focus of therapeutic drug development, which the Company is undertaking through its majority owned subsidiaries MEI and Glycotex. The Company commenced a planned process to dispose of this business and in April 2011 appointed a financial advisor to actively search for a buyer and complete the plan. This business has been classified as a discontinuing operation for the purposes of this report.

The group earned revenue from discontinuing operations for the year ended June 30, 2011 of A$11.4 million versus A$8.1 million for the year ended June 30, 2010.

Consumer product sales

Sales of consumer health care products for the year ended June 30, 2011 were A$10.8 million, an increase of A$2.8 million from A$8.0 million for the twelve months ended June 30, 2010. The increase was primarily related to new distribution in Brazil and increased volume sold to the Company’s distributor in Italy.

Other revenue from discontinuing operations for the year ended June 30, 2011 was A$0.5 million, an increase of A$0.4 million from A$0.1 million for the twelve months ended June 30, 2010. The increase was as a result of signing an amended licence agreement with a European distributor to sell an alternate red clover product. This agreement replaces a previous licence agreement and included an upfront licence fee and an ongoing minimum royalty fee.

Net loss
 
The operating loss attributable to Novogen shareholders for the financial year, after allowing for losses attributable to non-controlling interests of A$3.0 million, reduced by A$5.8 million or 47% to A$6.5 million from a loss of A$12.3 million for the previous year.

The net loss from continuing operations after income tax for the consolidated Group for the year ended June 30, 2011 reduced by A$4.9 million to A$10.9 million from A$15.8 million for the previous year. The reduction in the Group’s net loss for the year ended June 30, 2011 was primarily due to reduced research and development costs as the Company is refocusing on smaller clinical studies of its next generation drug candidates, representing savings from the large Phase III OVATURE study conducted in previous years. These savings have been partially offset by termination payments made in relation to the restructuring of the Australian business and the increased costs of developing the U.S. management team in MEI, to progress the Company’s oncology drug development program.

 
37
 
 
The net profit from discontinuing operations was A$1.5 million for the year ended June 30, 2011 compared to A$0.6 million for the previous year ended June 30, 2010. The increased profit was primarily as a result of the increased revenue earned from Brazil and Italy, combined with currency gains by this business segment, which are partially offset by corresponding currency movements in the Company’s other business segments.

Operating Results – Fiscal 2010 compared to Fiscal 2009

Revenue

The Group earned revenues from continuing operations for the year ended June 30, 2010 of A$1.8 million versus A$2.5 million in the previous corresponding period. The decrease was mainly due to lower interest receipts on lower cash balances, combined with unfavourable exchange rate impacts on royalty receipts.

Consumer product sales

Sales of consumer health care products for the year ended June 30, 2010 were A$8.0 million, a decrease of A$0.3 million from A$8.3 million for the year ended June 30, 2009. The decrease was related to a number of factors including discontinuing sales of the Aliten weight loss product in Australia and decreased consumer demand in the UK associated with the economic downturn. Sales were negatively effected by exchange rate movements as a result of a strengthening of the AUD compared to both the GBP and CAD. These decreases were partially offset by increased export sales from Australia to overseas distributor partners.

Sales in Australia for the year ended June 30, 2010 was A$3.5 million, a decrease of A$0.2 million or 5% from A$3.7 million for the previous year. Sales in North America decreased A$0.3 million to A$1.8 million for the year ended June 30, 2010 compared to A$2.1 million for the previous year. Regulatory issues in Canada, which were resolved during the year, combined with the impact of negative exchange rate movements contributed to this decrease. Sales revenue in Europe remained constant at A$2.2 million for the year. Strong sales growth in Italy has offset declining sales in UK caused by the continuing economic downturn and negative exchange rate movements when converting sales denominated in GBP to A$.

Costs and expenses

Total expenses before interest and tax decreased by A$9.8 million to A$25.1 million for the year ended June 30, 2010 compared to A$34.9 million for the year ended June 2009. Cost of sales decreased A$0.3 million corresponding with reduced sales.
 
 
38
 
 
Cost of sales, which includes only costs associated with the sale of goods, decreased A$0.3 million corresponding with reduced sales from Australia and North America and improved gross margins on consumer product sales as a result of favorable currency movements on purchasing active ingredients from an overseas third party manufacturer. Cost of sales as a percentage of sales in fiscal year 2010 continued to decline due to the impact of the favorable currency movements on the cost of active ingredient in relative A$.

Research and development expenses decreased by A$10.7 million reflecting cost savings following the termination of the Phase III Ovature clinical trial. Selling and promotional expenses decreased by A$2.4 million as a result of reduced marketing expenses associated with discontinuing sales of Aliten. General and Administrative Expenses increased by A$3.7 million primarily as a result of staff terminations described below.

Net loss

The operating loss attributable to Novogen shareholders for the financial year, after allowing for losses attributable to non-controlling interests of A$2.9 million, reduced by A$6.6 million or 35% to A$12.3 million from a loss of A$18.9 million for the previous year.

The net loss from continuing operations after income tax for the consolidated Group for the year ended June 30, 2010 reduced by A$8.6 million to A$15.2 million from A$23.8 million for the previous year. The reduction in the Group’s net loss for the year ended June 30, 2010 was primarily due to costs savings related to the termination of the Phase III Ovature clinical trial, combined with reduced marketing expenses associated with discontinuing sales of Aliten. Other savings in administrative expenses were offset by the termination payments made to the Company’s CEO in December 2009 and termination payments for a number of other senior management staff as part of the Company restructure which took place in June, 2010, amounting in total to approximately A$3 million. This restructure is part of the continuing strategy to focus the Group’s resources towards oncology drug research and development.



 
39
 
 
Liquidity and capital resources

Cash resources

At June 30, 2011, the Group had total funds of A$6.0 million compared to A$15.1 million at June 30, 2010.

During fiscal 2011, the Company had net cash outflows from operating activities of A$8.7 million compared to cash outflows of A$16.6 million in fiscal 2010. Cash was used to fund the Group’s operations including the drug development program undertaken by Novogen’s U.S. subsidiaries Marshall Edwards, Inc. (“MEI”), Glycotex, Inc. (“Glycotex”) and in connection with the restructuring of the Australian business following the transfer of the drug development program to MEI.

The Company invests its cash and cash equivalents in interest bearing facilities with various maturity dates. At the end of fiscal 2011, term deposits amounting to A$0.7 million had a weighted average interest rate of 5.15% and cash deposits at call of A$5.3 million had a weighted average interest rate of 0.78%.

The Company has a multi option facility with St George Bank Limited, an Australian commercial bank, of A$0.25 million, which was fully utilised to support the security deposit in place, required under the lease for the premises in North Ryde, at the end of fiscal 2011.

As of June 30, 2011, the Group did not hold derivative financial instruments in managing its foreign currency, however, the Company may from time to time enter into hedging arrangements where circumstances are deemed appropriate.

The Company believes that its current cash balance, which includes the cash received from the sale of its consumer business in August 2011, will provide sufficient cash resources to fund operations over the next twelve months. The Company’s subsidiaries will require additional funds in order to complete the planned clinical development programs. In order to obtain additional funding the Company’s subsidiaries may need to rely on collaboration and /or licensing opportunities.

The Company cannot assure you that it’s subsidiaries will be able to raise the funds necessary to complete the planned clinical trial programs, or find appropriate collaboration or licensing opportunities.

The Company has historically financed its operations primarily from equity capital.

On August 1, 2011 the Company completed the sale of its consumer products business to Pharm -a-Care Laboratories Pty Limited for a total sale price of A$10.1 million in cash.
 
 
 
40
 
 
On September 30, 2011, the Company purchased 1,333,333 shares of common stock of MEI for an aggregate cash purchase price of US$2 million. The Company also committed to make an additional equity investment in MEI of US$2 million on or before June 30, 2012.

During the three months ended September 30, 2011, MEI issued 1,294,000 shares of its common stock upon conversion of Series B warrants, for gross proceeds of US$1,269,000. The remaining Series B warants were exercised for 305,603 shares on a cashless basis pursuant to the Supplemental Agreement, dated September 28, 2011, to the May 2011 amended and restated securities purchase agreement. Also in connection with the Supplemental Agreements, MEI made cash payments to the private placement investors of US$365,000, and certain amendments were made to the Series A warrants to prevent further reduction in the exercise price of the Series A warrants upon the occurrence of certain events, including the subsequent sale or deemed sale by MEI of shares of common stock at a price per share below the exercise price of the Series A warrants, as amended.

After giving effect to the Series B warrant issuances, no Series B warrants were outstanding and 2,250,564 Series A warrants were outstanding.  In addition to the Series A warrants and the Series A convertible preferred stock of MEI held by the Company, as of September 30, 2011, there were outstanding warrants to purchase 248,003 shares of MEI’s common stock at exercise prices ranging from US$21.70 to US$36.00 per share, which expire at various dates in calendar years 2012 and 2013. Additionally, as of September 30, 2011 there were options outstanding to purchase 736,715 shares of MEI common stock at exercise prices from US$0.77 to US$6.30 per share, which expire at various dates in calendar years 2014 through 2016.

There are no commitments for capital expenditure outstanding at the end of the financial year.

See Note 15 to the Financial Statements “Financial Instruments” for disclosures about financial risk management including interest rate risk, foreign currency risk and liquidity risk.

Research and Development

Research and development policy

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

The Company spent A$4.4 million, A$8.1 million and A$18.8 million on gross research and development expenditure during fiscal 2011, 2010 and 2009 respectively. All of these costs have been recognised as an expense in the statement of comprehensive income in the respective periods.
 
 
 
41
 
 
Due to the nature and uncertainty of the research and development projects being undertaken by the Company, it is not possible to reasonably estimate the cost and timing of project completion. The costs of research and development projects are not estimated on a project by project basis. An analysis of costs between projects may only be performed on an arbitrary and subjective basis.


Trend Information

The Company expects to consume cash and incur operating losses for the foreseeable future. The Company intends to continue its expenditure on the development of its subsidiaries’ oncology drug candidates.

The impact on cash resources and results from operations will vary with the extent and timing of the future clinical trial program. It is not possible to make accurate predictions of future operating results.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Table of Contractual Obligations

The following table summarizes the Company’s future payment obligations and commitments as at June 30, 2011.
 
                               
         
Payments due by period
 
In A$000's
 
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
After 5 years
 
                               
                               
Operating Leases
    720       234       336       150       -  
Other Expenditure Commitments *
    2,834       2,660       174       -       -  
                                         
Total Contractual Cash Obligations
    3,554       2,894       510       150       -  
                                         
                                         
* represents research and development contracts for services to be rendered.
                 
                                         
 
42
 
 

Item 6.                 Directors, Senior Management and Employees.

DIRECTORS

The names and details of the Company’s Directors at the date of this report are as follows:
 
Mr WD Rueckert – elected Chairman October 18, 2010.
Mr JT Austin – appointed September 20, 2010
Mr PDA Scutt – appointed October 29, 2010
Mr PR White – appointed September 20, 2010
Mr RC Youngman – appointed September 20, 2010

Former directors who served during the twelve months ended June 30, 2011:

Mr PA Johnston – resigned as Chairman and Director October 18, 2010.
Mr GM Leppinus – retired October 29, 2010
Professor PJ Nestel AO – retired October 29, 2010

Directors were in office for the entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

William D Rueckert Non-executive Chairman

Mr Rueckert has been director of the Company since March 2009 and was elected Chairman of Novogen Limited effective October 18, 2010. Mr Rueckert was a Director of Marshall Edwards, Inc. between March 2007 and March 2009 and was re-elected as a Director in March 2011. Mr Rueckert is the Managing Member of Oyster Management Group LLC an investment fund specialising in community banks. From 1991 to 2006 he was President and Director of Rosow & Company, a private investment firm based in Connecticut with interests in the petroleum and resort development industries. From 1981 until 1988 he was President of United States Oil Company, a publicly traded oil exploration business. Among his many civic associations, Mr Rueckert is Director and President of the Cleveland H. Dodge Foundation, a private philanthropic organization in New York City and Chairman of the Board of the Trustees of Teachers College, Columbia University.

Other current and former directorships held in the last three years

Mr Rueckert is currently a Director of Chelsea Therapeutics, Inc. a Nasdaq listed drug development company and Fairfield County Bank, a community bank in Ridgefield, Connecticut. Mr Rueckert is currently a Director of NASDAQ listed, Novogen subsidiary, Marshall Edwards, Inc.

During the last three years Mr Rueckert has served as a Director for the Emergency Filtration Products, Inc. and Rapid Pathogen Screening, Inc.

 
43
 
 
Special responsibilities

Chairman of the Board
Chairman of the Remuneration Committee
Chairman of the Audit Committee

Josiah T Austin Non-executive Director

Mr Austin is a United States resident and the largest shareholder in Novogen.  He is managing member of El Coronado Holdings, LLC, a privately owned investment holding company, which invests in public and private companies. He and his family own and operate agricultural properties in the states of Arizona, Montana, and Northern Sonora, Mexico through El Coronado Ranch & Cattle Company, LLC and other entities. Mr Austin previously served on the Board of Directors of Monterey Bay Bancorp of Watsonville, California, and is a prior board member of New York Bancorp, Inc., and North Fork Bancorporation. 

Other current and former directorships held in the last three years

During the last three years Mr Austin has served as Director of Goodrich Petroleum, Inc., a position he has held since 2002.

Peter DA Scutt Non-executive Director
B Com

Mr Scutt is an Australian based corporate advisor who is currently a consultant to specialist corporate advisory house, Spark Capital. Mr Scutt has broad investment and corporate finance experience through his past positions as cofounded and CEO of Texel Capital and managing partner of BT Venture Partners. His early career was highlighted by senior positions, over a 12 year period, at Bankers Trust Company both in Australia and New York where he was a partner and senior managing director. Mr Scutt has a Bachelor of Commerce from the University of NSW.

During the last three years Mr Scutt has served as an alternate Director of Print and Digital Publishing Pty Ltd.

Ross C Youngman Non-executive Director
B Com, MBA

Based in Australia, Mr Youngman is co-founder and Chief Executive Officer of Five Oceans Asset Management and has over 25 years' international experience in the finance industry covering stockbroking, financial planning and asset management.  He spent 12 years with Bankers Trust and Deutsche Bank in both Sydney and New York and was most recently Chief Executive Officer of Deutsche Asset Management in Australia. Prior positions included Head of Deutsche Asset Management's U.S. mutual fund business and Head of BT Funds Management's U.S. asset management business. Mr Youngman has a Bachelor of Commerce from the University of Tasmania and an MBA from Columbia Business School, New York.

 
44
 
 
Peter R White Non-executive Director
AB, MBA 

Mr White is a United States resident and is a corporate finance professional with over 30 years’ experience in financing and advising companies in the US.  He has broad industry experience including technology, media and communications, business services and energy distribution.  Among current responsibilities, Mr White is building a leveraged finance business servicing private equity firms in the U.S. for RBS Citizens Bank.  Mr White has previously worked in senior positions for several large North American financial services leaders, including BankBoston, Fleet Securities, GE Capital, CIT Group and TD Bank. Mr White was educated at Dartmouth College, AB Cum Laude 1977 and has an MBA from The Wharton School - University of Pennsylvania. 


Executive Officers’ profiles

Mark G. Hinze – Chief Financial Officer
BEc, CPA

Mr. Hinze joined the Novogen Group in 1999 and previously held the position of the Group’s Financial Controller. Mr. Hinze holds a Bachelors Degree in Economics from Macquarie University and is a CPA. Mr. Hinze has over 18 years experience in accounting and finance. Prior to joining Novogen Mr. Hinze worked as the Finance and Administration Manager of Alpha Healthcare’s Pathology division. Mr. Hinze was also the Finance Manager for Diagnostic Pathology prior to its sale to Alpha Healthcare.

Craig Kearney – General Manager Consumer Business
BMS Waikato.

Mr. Kearney joined Novogen Limited in December 2001 as the General Manager of the Consumer Business. He has a Bachelor of Management Studies from Waikato University in New Zealand and has subsequently completed managerial development programmes at London School of Business and Duke University in Durham, North Carolina. He has worked 19 years in the Over The Counter (OTC) consumer pharmaceutical category, including 10 years for Wellcome New Zealand and Wellcome Australia, and 6 years for Parke Davis/Warner Lambert Australia. Prior to joining Novogen Limited, Mr. Kearney worked for Pfizer Australia. He held senior sales, marketing and business management roles for all three companies.

 
45
 
 
Ronald L Erratt
FINA

Mr. Erratt has been the Company Secretary of Novogen Limited since it floated on the ASX in 1994. He is also the Company Secretary for all of the wholly owned subsidiaries of Novogen. Mr Erratt has over 30 years experience in accounting and commercial roles. Prior to joining Novogen, he was the Director of Superannuation Fund Administration at Towers Perrin, an international firm of Actuaries and Management Consultants.

Compensation

Principles used to determine the nature and amount of remuneration

Remuneration philosophy

Remuneration is assessed for Directors and senior executives with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team. The appropriateness and nature of remuneration is assessed by reference to employment market conditions. The financial and non-financial objectives of the Company are also considered when assessing the remuneration of Directors and other key management personnel. During the year the Company introduced a bonus scheme to assist with staff retention and financial performance. The scheme is aimed to reward all staff on the successful achievement of certain financial milestones.

The Board has a Remuneration Committee which is responsible for determining and reviewing compensation arrangements for the key management personnel.

Director’s fees

The Constitution of the Company and the ASX Listing Rules specify that the aggregate remuneration of Non-executive Directors shall be determined from time to time by General Meeting. The last determination for Novogen Limited was at the Annual General Meeting held on October 28, 2005 when the shareholders approved an aggregate remuneration of A$560,000. The total Non-executive Director remuneration of Novogen Limited, including share based payments, for the year ended June 30, 2011 utilised A$415,000, (2010: A$212,000) of this authorised amount.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed periodically.

Non-executive Director remuneration

Fees to Non-executive Directors reflect the demands which are made on, and the responsibilities of the Directors. Non-executive Directors’ fees are reviewed periodically by the Board. In conducting these reviews the Board considers independent remuneration surveys to ensure Non-executive Directors’ fees are appropriate and in line with the market.

 
46
 
 
Each Non-executive Director receives a fee for being a Director of the Company. An additional fee is also paid for each Board committee on which a Director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by Non-executive Directors who serve on one or more committees.

Due to the impact of the global financial crisis and the need for the Company to conserve cash, the Company’s Non-executive Directors voluntarily reduced Director’s fees by 20% with effect from February 1, 2009, this reduction was maintained for the year ended June 30, 2011.

Executive Directors and other key management personnel remuneration

The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the key management personnel. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of such Officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team. Such officers are given the opportunity to receive their base remuneration, which is structured as a total employment cost package, in a variety of forms including cash and prescribed non-financial benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group.

Employment Agreements

Novogen Executive Directors and key management executives (standard contracts)

It is the Remuneration Committee policy that employment contracts are entered into with each of the executives who are considered key management personnel. New contracts were entered into in March, 2010. Under the terms of the agreement remuneration is reviewed annually and any increases may be made at the discretion of the Remuneration Committee. Key management executives are given the opportunity to receive their base remuneration, which is structured as a total employment cost package, in a variety of forms including cash and prescribed non financial benefits.

The employment agreement continues until terminated by either party by giving six months notice in accordance with the terms of the contract or in the case of the Company by making a payment in lieu of six months notice to the employee. In the event of the Company terminating without cause, under the terms of the contract the amount payable on termination is a fixed dollar value for each key management personnel which at July 1, 2010 was of an amount equal to 4.66 months remuneration, in addition to any amount payable in lieu of notice.

In September, 2010, an employment agreement was signed with the Chief Financial Officer. The employment agreement continues until terminated by either party by giving six months notice in accordance with the terms of their contract or in the case of the Company by making a payment in lieu of six months notice to the employee. In the event of the Company terminating without cause, under the terms of the contract the amount payable on termination is equal to 6 months remuneration, in addition to any amount payable in lieu of notice.

 
47
 
 
The Company may terminate the contracts at any time without cause if serious misconduct has occurred.

Glycotex, Inc. - Chief Executive Officer

The CEO of Glycotex, Inc. is employed under an employment agreement that commenced in December, 2005 and was subsequently amended in January, 2008. This employment contract has no expiry date. Effective January 1, 2009 Dr Koenig is entitled to a base salary of US$315,000 per annum. Effective from January 1, 2010, Dr Koenig voluntarily agreed to reduction of 20% in paid remuneration. This agreement will remain in effect until terminated by Dr Koenig.
 
In the event that Dr Koenig’s employment is terminated without cause or without good reason or Glycotex, Inc. undergoes a change in control, he will be entitled to certain severance and change in control benefits including:

(1)
in the event of his termination without cause or without good reason, Dr Koenig will be entitled to receive continued payment of his base salary and reimbursement of premiums he pays for continued health coverage under COBRA during the twelve month period following such termination;
   
(2)
in the event of his termination without cause or without good reason during the one year following a change in control, to the extent not vested, the stock option granted to Dr Koenig upon the initial public offering will become fully vested;
   
(3)
in the event that Glycotex undergoes a change in control, fifty percent of each of the four instalments of Dr Koenig’s stock options issuable to him in connection with the offering will become fully vested. In addition, in the event that Dr Koenig’s employment is terminated without cause or good reason within the one year period following a change in control, to the extent not vested, the stock options granted to Dr Koenig upon the initial public offering will vest.

Upon the termination of Dr Koenig’s employment for cause or his resignation other than for good reason, Dr Koenig will be entitled only to any amounts earned and payable but not yet paid, and for reimbursement of business or relocation expenses properly incurred but not yet paid.

Marshall Edwards, Inc. – Chief Executive Officer, Chief Financial Officer and Chief Medical Officer Contracts

Marshall Edwards, Inc. has entered into employment contracts with its Chief Executive Officer, Chief Financial Officer and Chief Medical Officer. These contracts have no set term and detail the amount of remuneration and other benefits applicable on their initial appointment. These contracts do not fix the amount of remuneration increases from year to year.

 
48
 
 
The Chief Executive Officer of MEI commenced in April, 2010 and is employed under an employment agreement. The base salary under this agreement is US$400,000 per annum. An additional cash bonus up to a maximum of 40% of the base salary per fiscal year may be payable upon attainment of milestone goals established by the Board.  Share options were also granted as part of the employment terms – details of these options is described further under Item 18 (Note 13). In the event that employment is terminated by MEI without cause, payment in lieu of notice equivalent to 12 months base salary is payable. Voluntary termination by the CEO can take place at any time by giving three months notice to MEI. In the event that employment is terminated for cause no severance pay or other benefits are payable by MEI.

The Chief Financial Officer of MEI commenced in June, 2010 and is employed under an employment agreement. The base salary under this agreement is US$250,000 per annum. An additional cash bonus up to a maximum of 20% of the base salary per fiscal year may be payable upon attainment of milestone goals established by the Board.  Share options were also granted as part of the employment terms – details of these options is described further under Item 18 (Note 13). In the event that employment is terminated by MEI without cause, payment in lieu of notice equivalent to 12 months base salary is payable. Voluntary termination by the CFO can take place at any time by giving two months notice to MEI. In the event that employment is terminated for cause no severance pay or other benefits are payable by MEI.

The Chief Medical Officer (“CMO”) of MEI commenced employment with MEI in June, 2011, and is employed under an employment agreement. The base salary under this agreement is US$350,000 per annum. An additional cash bonus up to a maximum of 20% of the base salary per fiscal year may be payable upon attainment of milestone goals established by the Board. The CMO works a reduced hours schedule and is currently paid at a rate of 25% of their annual base salary. Share options were also granted as part of the employment terms – details of these options are described further under Note 13. In the event that employment is terminated by MEI without cause, payment in lieu of notice equivalent to 12 months base salary is payable. Voluntary termination by the CMO can take place at any time by giving three months notice to MEI. In the event that employment is terminated for cause no severance pay or other benefits are payable by MEI.



 
49
 
 
Details of Remuneration

Details of the remuneration of the Directors of Novogen Limited, other key management personnel and Group executives of the Novogen Group are set out in the following table.

Remuneration of key management personnel and other Group Executives
(includes movements in executive leave provisions for untaken annual and long service leave).
 
                               
 
             
                                                       
   
Short term benefits
   
Post employment
   
Long term benefits
   
Termination payments
   
Share based payments
   
Total
 
2011
 
Salary & fees
   
Cash bonus #
   
Non-monetary benefits
   
Superan-
nuation
   
Long Service Leave
         
Options
       
      A$       A$       A$       A$       A$       A$       A$    
%
      A$  
Key management personnel
                                               
Non-executive Directors
                                                                     
WD Rueckert (i)
    127,851       -       -       -       -       -       38,589       23.2 %     166,440  
JT Austin ^
    36,218       -       -       -       -       -       -       -       36,218  
P Scutt ^
    28,472       -       -       2,563       -       -       38,589       55.4 %     69,624  
PR White ^
    36,218       -       -       -       -       -       38,589       51.6 %     74,807  
R Youngman ^
    30,935       -       -       2,785       -       -       38,589       53.4 %     72,309  
PA Johnston (ii) ^
    76,698       -       -       25,030       -       -       -       -       101,728  
GM Leppinus ^
    16,000       -       -       -       -       -       -       -       16,000  
PJ Nestel AO (iii) ^
    19,467       -       -       -       -       -       -       -       19,467  
                                                                         
Executives
                                                                       
CD Kearney
    218,525       -       16,738       19,543       9,867       -       15,191       5.4 %     279,864  
RL Erratt (iv) ^
    72,500       33,705       23,220       50,000       6,843       174,634       (32,353 )     -9.8 %     328,549  
DP Gold **
    405,759       -       16,844       -       -       -       367,266       46.5 %     789,869  
TM Zech **
    265,897       -       11,451       -       -       -       58,160       17.3 %     335,508  
MG Hinze
    167,990       27,000       24,533       14,084       9,570       -       34,995       12.6 %     278,172  
AJ Husband ^
    5,140       -       10,467       50,000       7,033       350,854       (26,125 )     -6.6 %     397,369  
BM Palmer ^
    17,760       -       9,965       1,412       2,907       213,227       (34,342 )     -16.3 %     210,929  
                                                                         
Other Group executives
                                                                       
R Koenig **
    241,860       -       27,276       -       -       -       123,876       31.5 %     393,012  
      1,767,290       60,705       140,494       165,417       36,220       738,715       661,024       18.5 %     3,569,865  
 
(i) Remuneration includes MEI and Glycotex Director’s fees of A$58,051*.
(ii) Remuneration includes MEI and Glycotex Director’s fees of A$79,051*.
(iii) Remuneration includes MEI Director’s fees of A$4,000.
(iv) Remuneration excludes amounts earned as a consultant totalling A$43,065

* Glycotex Director’s fees have been earned but not paid as at the date of this report. The amounts owed from Glycotex are not expected to be received in cash but are expected to be settled in equity.
** U.S. based employee.
^ Remuneration and benefits covered period of appointment which was only part of the financial year.
# Cash retention bonus paid on December 31, 2010 – there were no performance conditions attached.

The elements of remuneration have been determined on the basis of the cost to the Company and the consolidated entity.

Share Based Compensation

Employee share option plan

The Company established an Employee Share Option Plan which was approved by shareholders in October, 2007. The employee Share Option Plan provides for the issue of options to eligible employees being an employee or Director of the Company or related company. The number and timing of options issued under the terms of the Employee Share Option Plan is entirely at the discretion of the Board.

 
50
 
 
Each option issued under the Employee Share Option Plan entitles its holder to acquire one fully paid ordinary share and is exercisable at a price generally equal to the weighted average price of such shares at the close of trading on the Australian Stock Exchange Limited for the five days prior to the date of issue. Options generally vest equally over a four year period from the date of grant and expire five years after grant date. No performance conditions apply to the options granted, however, the unvested option lapses if the employee ceases to be an employee during the vesting period. Options are not transferable and can not be settled by the Company in cash. The Employee Share Option Plan provides that in the event of a change of control of the Company or in the event that the Company is taken over, outstanding options become exercisable regardless of vesting status.

Remuneration options: granted and vested during the year
 
During the financial year options were granted, by Novogen Limited, under the Employee Share Option Plan as equity compensation benefits to the Directors, following approval at an Extraordinary General Meeting held May 6, 2011 and to the Chief Financial Officer as disclosed below. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share in Novogen Limited. The exercise price for these options is equivalent to the weighted average price of Novogen’s shares at the close of trading on the ASX for the ten days prior to the date of approval, plus an additional 10% premium added to this amount. The options expire four years after grant date and vest in two equal instalments over a two year period. No performance conditions apply to the options granted, however, should employment be terminated or if a Director ceases to be a director during the vesting period, all unvested options are immediately forfeited. Options are not transferable and cannot be settled by Novogen in cash. The option plan provides that if there is a change in control of Novogen outstanding options become exercisable regardless of vesting status.
 
No performance conditions apply to the options granted to the Company’s Directors, who are a new group who have taken the responsibility and risk of repositioning Novogen for future success. The Company believes that it is important to provide an equity incentive to the Board members to fully align their investments with those of the shareholders. All Directors accepted to receive options, with the exception of Mr JT Austin who refrained from participating due to his existing significant shareholding.

There were no alterations to the terms and conditions of options granted as remuneration since their grant date.

There is no Board policy in relation to staff members limiting their exposure to risk as options vest subject to service criteria, not performance criteria.

 
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The following table sets out options issued to Directors and key management personnel during the year:
 
   
Terms and conditions for each grant
   
Granted number
 
Grant date
 
Value per option at grant date
   
Total value of options at grant date
   
Exercise price per share
 
First exercise date
Last exercise date
              (A$)       (A$)       (A$)      
Non-executive Directors
                               
WD Rueckert
    375,000  
6/05/2011
    0.185       69,375       0.297  
1/07/2011
25/01/2015
P Scutt
    375,000  
6/05/2011
    0.185       69,375       0.297  
1/07/2011
25/01/2015
PR White
    375,000  
6/05/2011
    0.185       69,375       0.297  
1/07/2011
25/01/2015
R Youngman
    375,000  
6/05/2011
    0.185       69,375       0.297  
1/07/2011
25/01/2015
                                       
                                       
Executives
                                     
M Hinze
    250,000  
6/05/2011
    0.185       46,250       0.297  
1/07/2011
25/01/2015
                                       
Total
    1,750,000                 323,750              
                                       

There were no options issued by MEI to Key Management Personnel, directly employed by MEI, during the year. Of the options previously issued by MEI, 25% will vest one year from the effective date of the employees Employment Letter and, thereafter, the remaining 75% of options will vest in equal monthly instalments over the following thirty-six (36) months. The options do not have any performance conditions. There were no options forfeited and all options granted are available for future years.
 
Shares issued on exercise of remuneration options
 
No key management personnel or executives exercised options during the year ended June 30, 2011.

Shares lapsed

The value of options for key management personnel, which lapsed during the year ended June 30, 2011, was nil.

 
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Fair values of options:

The fair value of each option is estimated on the date of grant using a binomial option-pricing model with the following assumptions used for grants made on:

Novogen
   
6 May,
   
2011
Exercise price
 
          0.2970
Share price at grant date
 
              0.24
Dividend yield
 
0%
Expected volatility
 
125%
Historical volatility
 
125%
Risk-free interest rate
 
5.20%
Expected life of option
 
3.7 years
Option fair value
 
0.19

Marshall Edwards
   
1 June, 
2011
   
1 November,
2010
   
1 September,
2010
   
18 June, 
2010
   
7 June, 
2010
   
23 April,
 2010
 
Exercise price
    US$1.28       US$1.15       US$0.77       US$1.52       US$1.86       US$5.05  
Share price at grant date
    US$1.28       US$1.15       US$0.77       US$1.52       US$1.86       US$5.05  
Dividend yield
    0%       0%       0%       0%       0%       0%  
Expected volatility
    144%       137%       136%       136%       135%       132%  
Historical volatility
    144%       137%       136%       136%       135%       132%  
Risk-free interest rate
    1.60%       1.17%       1.41%       2.04%       1.95%       2.61%  
Expected life of warrant/option
 
5 years
   
5 years
   
5 years
   
5 years
   
5 years
   
5 years
 
Warrant/option fair value
    US$0.67       US$1.01       US1$.11       US$1.33       US$1.63       US$4.38  

Glycotex
   
1 January,     
2010
Exercise price
 
 US$15.13
Share price at grant date
 
 US$15.13
Dividend yield
 
0%
Expected volatility
 
52%
Historical volatility
 
52%
Risk-free interest rate
 
2.34%
Expected life of warrant
 
5 years
Warrant fair value
 
US$7.13


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 options 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.

 
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Further detail on the remuneration of Directors and Executives are also provided in Note 20 to the financial statements.

Arrangements and Relationships

There are no arrangements (other than standard employment remuneration arrangements) by which any Director or Executive Officer was appointed to his position. There are no family relationships between any of the Directors or Executive Officers.

No Director has received or has become entitled to receive, during or since the end of the fiscal year ended 2011, a benefit because of a contract made by Novogen Limited, a controlled entity, or a related body corporate with a Director, a firm of which a Director is a member or an entity in which a Director has a substantial financial interest.

Pension Benefits

The Company has paid A$336,000 during fiscal 2011 for employee superannuation benefits and pension benefits.


Board Practices

Novogen Board of Directors
           
Name
Postion Held
 
Year First
 
Current Term
     
Appointed
 
Expires
Current Directors:
       
W.D. Rueckert
Chairman
 
2009
 
October-2013
J.T. Austin
Director
 
2010
 
October-2014
P.R. White
Director
 
2010
 
October-2013
R. Youngman
Director
 
2010
 
October-2013
P. Scutt
Director
 
2010
 
October-2014
           
Former Directors who served during the fiscal year 2011:
 
P. A. Johnston
Chairman
 
1997
 
Resigned October 18, 2010
P. J. Nestel
Director
 
2001
 
Retired October 29, 2010
G. M. Leppinus
Director
 
2005
 
Retired October 29, 2010
           

Term of Directors

The Company’s Constitution requires that at each Annual General Meeting of the Company, one third (or the number nearest to but not exceeding one third) of the Directors, (excluding a Director who is the Managing Director, and a director appointed to fill a casual vacancy) must retire from office provided that no Director may retain office for more than 3 years without offering himself/herself for re-election even though such submission results in more than one third of the Directors retiring from office.

 
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The Board of Directors has the power to appoint any person to be a director either to fill a casual vacancy or as an additional Director (up to a maximum of 10). Any Director so appointed may hold office only until the next Annual General Meeting when he or she shall be eligible for election by the Company shareholders.

Board of Directors

The Board of Directors of Novogen Limited is elected by and accountable to shareholders. The Board monitors and directs the business and is responsible for the corporate governance of the Company. The Board is comprised of five Directors all of whom are non-Executive Directors. In addition, the Board has established an Audit Committee and a Remuneration Committee.

Structure of the Board of Directors

The skills, expertise and experience relevant to the position of Director held by each Director in office at the date of this Annual Report is included in Item 6 beginning on page 43. Directors are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.

In the context of Director independence, “materiality” is considered from both the Company and individual Director perspective. In determining whether a non-Executive Director is independent, he or she must not hold more than 5% of the Company’s outstanding shares.

Also, the following qualitative factors, among others, are considered:

·  
whether the director has been employed as an Executive of the Company within the last three years;
·  
whether the director has been a principal of a material professional advisor or consultant of the Company;