Business Context and Reporting Period
Company: Anavex Life Sciences Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Status: Development Stage Company (No revenue since inception in 2004)
Operations: Biopharmaceutical company developing drug targets for cancer and neurological diseases (SIGMACEPTOR platform). Lead candidates include ANAVEX 2-73 (Alzheimer's) and ANAVEX 7-1037 (cancer). Clinical trials are planned for early 2010 pending funding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 |
Nine Months Ended June 30, 2009 |
Balance Sheet June 30, 2009 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(1,339,654) | $(3,509,052) | Accumulated Deficit: $(10,571,866) |
| Loss Per Share (Basic/Diluted) | $(0.07) | $(0.18) | - |
| Cash and Cash Equivalents | - | - | $742,577 |
| Working Capital | - | - | Deficit: $(2,761,379) |
| Total Current Liabilities | - | - | $3,503,956 |
| Promissory Notes Payable | - | - | $2,523,693 |
| Net Cash Used in Operating Activities | - | $(1,823,313) | - |
| Net Cash Provided by Financing Activities | - | $2,559,533 | - |
Material Changes vs. Prior Period
- Expenses: Total expenses for the nine months ended June 30, 2009, decreased by approximately $392,006 compared to the same period in 2008. This was primarily driven by a $642,323 decrease in consulting fees (due to lower stock-based compensation) and the elimination of rent expenses ($75,000 in 2008 vs. $0 in 2009) after a lease expired.
- Research & Development: R&D expenses increased by $269,103 for the nine-month period (from $799,543 to $1,068,646) due to increased research activities.
- Debt: Promissory notes payable increased significantly from $1,550,000 (Sept 30, 2008) to $2,523,693 (June 30, 2009). This includes a loss on extinguishment of debt of $487,469 recorded during the period.
- Cash Position: Cash increased from $6,357 to $742,577, primarily funded by private placements and convertible notes.
- Accounting Policy Change: The company restated prior period figures to expense patent acquisition costs immediately rather than capitalizing them, impacting the net loss for the nine months ended June 30, 2008.
Outlook, Risks, and Management Commentary
- Going Concern: Management and auditors express substantial doubt about the company's ability to continue as a going concern due to an accumulated deficit of over $10.5 million and a working capital deficit. Continued operations depend on securing additional financing.
- Capital Requirements: The company anticipates requiring up to $10 million for the 12 months ending June 30, 2010, to fund clinical trials for lead candidates (ANAVEX 2-73, ANAVEX 1-41, ANAVEX 7-1037).
- Financing Strategy: The company has no committed sources of financing. It plans to raise funds through equity or debt offerings. Failure to secure funding could force a delay or cessation of R&D activities.
- Risks: Key risks include the high failure rate of drug development, inability to obtain regulatory approval, potential dilution of shareholders from future equity issuances, and the "penny stock" status of the common stock which may limit liquidity.
- Subsequent Events: Following June 30, 2009, the company raised an additional $290,000 through private placements.
Investor Verification Checklist
- Debt Maturity: Verify the repayment terms of the $2.5 million in promissory notes, noting that some are due on demand or have specific maturity dates in 2010.
- Stock-Based Compensation: Review the valuation assumptions (Black-Scholes) used for the significant stock-based compensation expenses ($792,127 in consulting fees for the nine months ended June 30, 2009).
- Related Party Transactions: Confirm the terms of consulting agreements with directors and officers, including the recent amendment where a director returned 75,000 shares in exchange for options.
- Warrant and Option Dilution: Assess the impact of 986,147 outstanding warrants and 3,075,000 outstanding stock options on future share count and dilution.
- Patent Strategy: Understand the implications of the accounting policy change to expense patent costs immediately, reflecting the uncertainty of commercialization.