ANAVEX LIFE SCIENCES CORP. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2015. The unaudited interim statements are in U.S. dollars. Anavex is a clinical-stage biopharmaceutical company developing treatments for Alzheimer’s disease and other CNS diseases, as well as cancer. It reported no revenue.
Key financial metrics
| Metric | Three months ended March 31, 2015 | Six months ended March 31, 2015 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $858,339 | $1,629,017 |
| Net loss | $1,724,859 | $2,511,577 |
| Basic and diluted loss per share | $0.03 | $0.05 |
| Cash used in operating activities | $1,363,351 |
At March 31, 2015, cash was $6,310,643, down from $7,262,138 at September 30, 2014. Current assets were $6,362,628 and current liabilities were $1,528,351, giving working capital of $4,834,277. Total assets were $6,364,377. The filing reports total liabilities of $1,662,078, including $133,727 of long-term convertible debentures.
Convertible debentures had $3,527,566 of principal outstanding and a $3,393,839 debt discount, producing a $133,727 carrying value; they are unsecured, non-interest-bearing and due in 2044. Promissory notes payable were $90,412. The company reported no material off-balance-sheet arrangements. Profit margins are not meaningful because the company had no revenue.
Changes versus prior comparable periods
- Quarterly operating expenses fell 16% from $1,021,167, primarily because the prior-year quarter included a one-time, non-cash $610,000 compensation charge. Higher current-period research and development expense, mainly for the Alzheimer’s trial, partly offset the decrease.
- Six-month operating expenses rose 22.4% from $1,330,775 as clinical-trial and related R&D activity increased.
- Net loss increased from $1,018,860 to $1,724,859 for the quarter and from $660,223 to $2,511,577 for the six months. Financing-related charges and adjustments, including accounting for derivative instruments, significantly affected the comparisons.
- Cash used in operations increased from $782,519 to $1,363,351 for the six months. Financing cash flow was $411,856, compared with $9,633,330 in the prior-year period, when the company issued convertible debentures.
- Cash declined by $951,495 over the six months. The company issued 15,673,912 shares upon conversion of $3,918,478 in debenture principal and sold 2,000,000 shares for $500,000 in an October 2014 private placement.
Outlook, developments and risks
- The Phase 2a randomized trial of ANAVEX 2-73 in mild-to-moderate Alzheimer’s disease began in December 2014; the company announced first-patient dosing in January 2015. The study evaluates safety and exploratory efficacy of ANAVEX 2-73 alone and with donepezil (ANAVEX PLUS). The filing provides no clinical results from this trial.
- Management expects R&D expense to increase during the remaining fiscal year as the trial and related research proceed. It intends to use most available capital for the ANAVEX 2-73/ANAVEX PLUS program and to pursue potential research partners. The company said it expects to fund operations with existing cash and future equity or debt financing, but cautioned that additional financing may not be available on acceptable terms or when needed; a shortfall could force delays, reductions or cessation of R&D.
- On March 26, 2015, stockholders approved increasing authorized common shares from 150 million to 400 million. This allowed the company to reclassify $3,931,000 of derivative liabilities to equity. The quarter included $912,357 of financing-related charges and adjustments; the six-month amount was $874,706. These accounting effects make reported results sensitive to derivative valuation and financing terms.
- Warrants outstanding totaled 78,965,632 at March 31, 2015, with a weighted-average exercise price of $0.40; options outstanding totaled 3,170,000. Subsequent to quarter-end, the company granted options for 2,875,000 shares at $0.23 and issued 4,378,954 shares upon warrant exercise. Common shares outstanding were 77,243,580 as of May 14, 2015.
- The company’s Lincoln Park agreement allows discretionary stock sales up to a stated $10 million commitment, subject to conditions including a $0.50 minimum closing share price. No shares were sold under it during the six months ended March 31, 2015. The filing gives no assurance that this or other financing will meet future needs.
- The company disputes the enforceability of two secured notes due on demand, totaling $90,412, and has not accrued asserted late fees, which it considers unenforceable. The notes bear 12% interest and are secured by company assets, including intellectual property. Separately, management reported that disclosure controls and procedures were not effective due to material weaknesses identified in its prior Form 10-K; it said remediation steps were intended, but segregation of duties may not be economically feasible given the company’s size.
- Management cautioned that forward-looking statements are subject to risks and that preclinical results may not translate to human trials. Previously reported Phase 1 findings included tolerability below the protocol-defined maximum single dose of 55–60 mg; the filing reports no serious adverse events in that study.
Important facts for investors to verify
- Current cash, expected clinical-trial spending and the timing and terms of any additional financing.
- Phase 2a trial enrollment, safety and efficacy updates, and whether preclinical claims are borne out in human studies.
- Potential dilution from outstanding warrants, options, debenture conversions and the expanded authorized share count.
- The accounting and valuation effects of derivative instruments and the company’s continuing remediation of material control weaknesses.
- The status and potential consequences of the disputed secured notes and unaccrued late fees.