ANAVEX LIFE SCIENCES CORP. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2016; filed August 11, 2016. Unaudited interim results. Anavex is a clinical-stage biopharmaceutical company developing therapies for neurological conditions and cancer. It reported no product revenue.
Financial results and liquidity
| Metric | Three months ended June 30, 2016 | Nine months ended June 30, 2016 | Prior-year comparable |
|---|---|---|---|
| Revenue | $0 | $0 | $0 reported |
| Operating expenses | $2.29 million | $9.01 million | $1.51 million; $3.14 million |
| Net loss | $2.24 million | $8.23 million | $4.24 million; $6.75 million |
| Loss per share, basic and diluted | $0.06 | $0.24 | $0.22; $0.44 |
| Operating cash use | Not presented separately | $7.37 million | $2.79 million |
For the nine months, grant income was $684,794, including $571,093 from an Australian government research and development incentive and $113,701 recognized from the Michael J. Fox Foundation grant. There was also a $151,402 gain on settlement of accounts payable. No operating margin is meaningful given the absence of revenue.
Cash was $9.73 million at June 30, down $5.56 million from September 30, 2015. Current assets were $9.84 million and current liabilities $2.17 million, producing working capital of $7.67 million. Financing activities provided $1.81 million, principally from warrant exercises and share sales under the prior Lincoln Park agreement. Total liabilities were approximately $2.17 million, including $87,887 of current promissory notes and $345 carrying value of long-term convertible debentures; the debentures’ remaining principal was $4,982.
Changes versus prior comparable periods
- Operating expenses increased 52% year over year for the quarter and 187% for the nine months. Management cited greater clinical and preclinical spending, expanded staffing, legal costs, and, for the nine-month period, one-time employment-related charges and NASDAQ listing fees.
- Quarterly net loss narrowed from $4.24 million to $2.24 million, mainly because financing-related charges were substantially lower than in 2015, when debenture-related charges were significant. Nine-month net loss increased from $6.75 million to $8.23 million despite higher grant and other income, reflecting sharply higher operating expenses.
- Operating cash use rose to $7.37 million from $2.79 million, which management attributed to higher expenses and one-time tax payments made on behalf of a director and officer under a 2013 employment agreement.
- Shares outstanding increased to 35.71 million from 32.04 million at September 30, 2015. The company completed remaining availability under its 2013 Lincoln Park agreement; it reported $1.68 million of share purchases under that agreement during the nine months.
Business outlook, risks and unusual items
- The lead candidate, ANAVEX 2-73, was in an ongoing Phase 2a Alzheimer’s trial. The company described preliminary exploratory 31-week data as showing favorable safety, a dose response, and sustained cognitive and functional measures. These are company-reported findings; the filing does not establish efficacy in a controlled Phase 2/3 trial. An Australian-approved extension allows eligible participants to continue treatment for up to an additional 104 weeks.
- The company reported FDA Orphan Drug Designations for ANAVEX 3-71 for frontotemporal dementia and ANAVEX 2-73 for Rett syndrome and infantile spasms. It planned a larger placebo-controlled Phase 2/3 Alzheimer’s study and said it intended to seek potential partners within 12 months. No specific financial or clinical guidance was provided.
- Anavex stated it expected to fund operations with cash on hand and future equity or debt financing, but cautioned that additional financing might not be available on acceptable terms. Its separate 2015 Lincoln Park agreement provides for up to $50 million of share purchases over 36 months, subject to conditions, company direction, and effectiveness of the relevant registration statement; future share issuance may dilute existing holders.
- Two secured, demand promissory notes totaling $87,887 bear 12% interest and are secured by company assets, including intellectual property. The company disputes their issuance and enforceability and has not accrued contractual late fees it considers unenforceable. The notes include potentially substantial late-fee provisions, making the dispute and possible exposure important to monitor.
- Management concluded disclosure controls and procedures were not effective at June 30 because of previously reported material weaknesses. The company described remediation steps, including updated accounting policies and restricted access to financial assets.
- A securities class action and two shareholder derivative actions were pending or stayed; the class action motion to dismiss was pending. The company denied the allegations and said it would defend the matters. Separately, SEC staff advised counsel it did not intend to recommend enforcement action related to an earlier investigation.
- Subsequent to quarter-end, the company granted an officer/director options covering 1,241,054 shares at exercise prices of $6.26 and $7.06, vesting quarterly over three years.
Investor facts to verify
- Current cash burn, financing needs and expected runway; the filing gives cash and nine-month operating cash use but no explicit runway estimate.
- Clinical-trial status, underlying 31-week Phase 2a data, and plans or timing for the proposed Phase 2/3 study.
- Availability and actual use of the $50 million Lincoln Park facility, including registration conditions, share-sale pricing and potential dilution.
- Status and potential financial consequences of the disputed secured notes, securities class action and derivative suits.
- Progress in remediating material weaknesses and whether disclosure controls have become effective.