Business Context and Reporting Period
Company: Anavex Life Sciences Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2010
Business Stage: Development Stage Company (No revenue generated since inception in 2004).
Operations: Discovery and development of novel drug targets for central nervous system diseases (Alzheimer's, epilepsy, depression) and cancer using the SIGMACEPTOR platform. Lead candidate ANAVEX 2-73 was expected to enter first Human Clinical Trials in Q1 2011.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2010 | Three Months Ended Dec 31, 2009 |
|---|---|---|
| Revenue | $0 | $0 |
| Total Expenses | $1,369,145 | $881,707 |
| Net Loss | $(1,886,751) | $(467,611) |
| Cash and Cash Equivalents (End of Period) | $423,783 | $21,034 |
| Working Capital (Deficit) | $(97,249) | $(2,964,313) |
| Current Liabilities | $582,937 | $3,290,071 |
| Accumulated Deficit (Since Inception) | $(23,782,825) | $(21,896,074) |
Key Expense Drivers (Q4 2010): Consulting fees ($652,201) and Research & Development ($497,290) comprised the majority of operating expenses.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately 303% compared to the prior year quarter, driven primarily by a $504,160 debt conversion expense and the absence of a $649,038 gain on the change in fair value of derivative liabilities recognized in the prior year.
- Expense Growth: Total operating expenses increased by $487,438 (55%). R&D expenses rose by $285,811 due to the commencement of clinical trial activities for ANAVEX 2-73. Consulting fees increased by $179,017 due to expanded management infrastructure and stock-based compensation.
- Liquidity Improvement: Cash increased by $159,114 to $423,783, funded by private equity placements totaling $1,183,075 during the quarter.
- Debt Reduction: Current liabilities decreased significantly from $3.29 million to $582,937. This was achieved by converting approximately $2.29 million of promissory notes into common stock and reducing accounts payable by $414,826.
Guidance, Outlook, Risks, and Unusual Items
- Capital Requirements: Management estimates a cash requirement of approximately $10,000,000 for the twelve-month period ending December 30, 2011, primarily to fund clinical trials for ANAVEX 2-73, ANAVEX 1-41, and ANAVEX 7-1037.
- Going Concern: The company has an accumulated deficit of $23.8 million and expects to incur further losses. The filing explicitly states that these conditions cast "substantial doubt" about the company's ability to continue as a going concern. Continued operations are dependent on obtaining additional financing.
- Unusual Items:
- Debt Conversion Expense: A non-cash expense of $504,160 was recorded due to the reduction of the conversion price on convertible notes to induce holders to convert debt to equity.
- Derivative Liability: Embedded conversion features on promissory notes were reclassified to additional paid-in capital in the prior fiscal year, eliminating the volatility associated with fair value adjustments in the current quarter.
- Risks: Risks include failure to secure additional financing, failure of clinical trials, regulatory approval delays, and the "penny stock" status of the common stock which may limit liquidity.
Investor Verification Checklist
- Financing Status: Verify if the company has secured the estimated $10 million required for the upcoming 12-month period to fund clinical trials.
- Clinical Trial Progress: Confirm the status of the first Human Clinical Trials (HCT) for ANAVEX 2-73, which were expected to commence in Q1 2011.
- Dilution Impact: Review the impact of recent equity issuances and debt conversions on existing shareholder ownership percentages.
- Going Concern: Assess the company's ability to meet obligations without further dilution or debt restructuring, given the substantial doubt expressed in the filing.
- Subsequent Events: Note the termination of the consultant agreement with Genesis BioPharma Group (costing $45,000) and new executive compensation agreements entered into after the period end.