Anavex Life Sciences Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2012 (fiscal second quarter), compared with the same periods in 2011. The filing presents unaudited interim consolidated financial statements. Anavex describes itself as a development-stage biopharmaceutical company with no revenue to date.
Business context and financial performance
The company is developing sigma-receptor compounds for neurological diseases and cancer. Its lead Alzheimer’s candidate, ANAVEX 2-73, completed a Phase 1 single-ascending-dose trial in November 2011. The company reported no revenue since inception; therefore, profit margins are not meaningful.
| Metric | Three months ended Mar. 31, 2012 | Six months ended Mar. 31, 2012 | Prior-year comparison |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $795,606 | $2,981,070 | $1,947,725 and $3,316,870, respectively |
| Net loss | $910,201 | $3,081,704 | $1,972,386 and $4,306,965, respectively |
| Basic and diluted loss per share | $0.03 | $0.11 | $0.08 and $0.17, respectively |
| Cash used in operations | $1,202,305 for six months | $1,672,903 for six months | |
| Cash provided by financing | $1,246,250 for six months | $1,411,875 for six months |
At March 31, 2012, cash was $178,647, current assets were $189,595, and current liabilities were $3,119,454, producing a working-capital deficit of $2,929,859. Total liabilities were $3,119,454, including $1,200,707 of current promissory notes. Accumulated deficit was $32,284,925. The company had 27,465,174 common shares outstanding at March 31 and May 15, 2012.
Material changes versus the prior comparable period
- Quarterly operating expenses fell $1,152,119, chiefly as consulting expense declined by $775,400 and research and development expense by $300,635. Six-month expenses fell $335,800 overall: consulting decreased $1,120,389, while R&D rose $919,408, mainly due to ANAVEX 2-73 clinical-trial preparation.
- Six-month net loss improved by $1,225,261. Lower expenses and the absence of prior-year debt-conversion and debt-settlement charges contributed; higher interest and debt-discount accretion partly offset the improvement.
- Cash increased $43,945 from September 30, 2011. The company raised $996,250 net from share issuance and received $250,000 from promissory notes during the six months.
- Current liabilities rose from $1,345,443 at September 30, 2011 to $3,119,454 at March 31, largely reflecting higher accounts payable and accrued liabilities and promissory notes. Common shares outstanding increased from 26,571,574 to 27,465,174.
Outlook, risks and unusual items
- Management estimated cash needs of approximately $5 million over the next 12 months, primarily for the next ANAVEX 2-73 clinical trial and related development work. Financing was not committed; the company warned it may delay or scale back research, or cease operations, if it cannot raise funds.
- The filing states that the working-capital deficit, accumulated losses and expected future losses raise substantial doubt about the company’s ability to continue as a going concern. Management had no formal plan beyond seeking equity or debt financing.
- On April 20, 2012, $500,000 of convertible notes plus accrued interest and a $250,000 note plus accrued interest were exchanged for a $799,389 note bearing 12% interest and maturing June 19, 2012. Separately, a $216,000 note was due May 4, 2012; the company said it planned to negotiate an extension. On April 2, it also issued a $32,500 note at 10% interest, maturing April 2, 2013.
- The company reported successful completion of the ANAVEX 2-73 Phase 1 single-dose trial; it described the drug as generally well tolerated below the protocol-defined 55–60 mg maximum tolerated single dose. These are early-stage results and do not establish efficacy or regulatory approval.
- Management concluded disclosure controls and procedures were not effective due to previously identified material weaknesses. It planned to hire accounting staff with expertise in complex U.S. GAAP matters and continue remediation.
- Other risks include clinical and regulatory failure, dependence on additional financing and third parties, potential dilution, competition, intellectual-property challenges, and the limited OTC market for the shares. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
- On May 1, 2012, the company gave notice to terminate its Euro Genet Labs facility agreement effective August 1, 2012, and issued termination notice to 13 consultants working at that facility.
Important facts for investors to verify
- Near-term cash requirements and ability to secure financing, given $178,647 cash against a $2.93 million working-capital deficit and stated $5 million funding need.
- Status, terms and repayment or further extension of notes due in 2012, including the $799,389 note maturing June 19 and the separate $216,000 note.
- Timing, design, funding and regulatory status of the next ANAVEX 2-73 trial; distinguish reported Phase 1 tolerability from demonstrated clinical benefit.
- Progress in remediating the material weaknesses and whether disclosure controls become effective.
- Potential dilution from future equity financing and outstanding warrants and options.