ANAVEX Life Sciences Corp. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019; filed December 16, 2019. The filing provides annual results, not a standalone fourth-quarter income statement. Anavex is a clinical-stage biopharmaceutical company developing precision-medicine therapies for CNS diseases. It reported no operating revenue.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $29.1 million | $19.3 million |
| Research and development | $22.3 million | $13.3 million |
| General and administrative | $6.8 million | $6.0 million |
| Net loss | $26.3 million | $17.3 million |
| Net loss per share, basic and diluted | $0.54 | $0.39 |
| Operating cash used | $18.5 million | $12.6 million |
| Financing cash provided | $17.8 million | $8.1 million |
| Cash and cash equivalents at year-end | $22.2 million | $22.9 million |
R&D was the principal operating cost; its increase reflected advancement of Alzheimer’s, Parkinson’s disease dementia and Rett syndrome trials. The company had $20.3 million of working capital, total current liabilities of $5.0 million and total assets of $25.3 million at year-end. The filing reports no borrowings or interest-bearing debt. Profitability and revenue margins are not meaningful while revenue is zero. Accumulated deficit was $133.4 million.
Cash decreased by $0.7 million during FY2019 despite higher operating cash use, primarily because the company raised funds by issuing shares. It issued shares for approximately $17.8 million in net financing cash flow. The company stated that existing cash and financial commitments were expected to cover cash commitments for more than two years after the financial statements were issued, while noting that estimates depend on trial timing, spending and other assumptions.
Business, developments and changes from the prior year
- Lead candidate ANAVEX 2-73 was being studied in an Alzheimer’s Phase 2b/3 trial planned for approximately 450 participants, a Parkinson’s disease dementia Phase 2 trial planned for approximately 120 participants, and Phase 2 Rett syndrome studies. These programs were underway, not completed efficacy demonstrations.
- In October 2019, the company initiated ATTENTION-AD, a planned two-year open-label extension for eligible Alzheimer’s trial participants. In November 2019, after fiscal year-end, the FDA granted ANAVEX 2-73 Rare Pediatric Disease designation for Rett syndrome.
- Management described earlier Phase 2a Alzheimer’s findings as favorable and reported exploratory relationships between drug concentration, cognitive and functional measures, and genomic biomarkers. Those findings do not establish efficacy in the larger controlled trial.
- Compared with FY2018, operating expenses rose $9.8 million and net loss widened by $9.0 million. Operating cash use increased $5.9 million. R&D incentive income and grant income partially offset expenses.
- Year-end cash was supported by equity financing. A new Lincoln Park agreement provided for potential share sales of up to $50 million over time; approximately $45.3 million remained available under it at September 30, 2019, subject to contractual, registration and share-limit conditions. The separate Cantor at-the-market facility had not been used by year-end.
Outlook, risks and unusual items
- Management expects R&D spending to continue increasing as clinical trials and extensions advance. The company anticipates continued negative cash flows and has not established when, if ever, it will become profitable.
- Future financing may be needed. Equity issuance could dilute shareholders; the company cautioned that it might not be able to obtain additional funds on acceptable terms or access the full stated capacity of financing arrangements.
- Drug candidates remain subject to clinical, regulatory, manufacturing, intellectual-property and commercialization risks. The company relies on third parties for parts of its research and clinical work. Positive preclinical or early-stage findings may not predict later trial results.
- Financial reporting control weakness: Anavex identified a material weakness in accounting for the Australian R&D incentive program after determining income should have been accrued when qualifying expenses were incurred, rather than when cash was received. It adjusted prior-period amounts; FY2018 net loss was reduced by about $0.2 million, and FY2018 incentive and tax receivables increased by about $1.8 million. Management said it would strengthen quarterly review and reconciliation procedures.
- The independent auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Disclosure controls were also judged ineffective as of September 30, 2019.
- Other income included $2.5 million of R&D incentive income and $0.3 million of grant income in FY2019. Stock-based compensation was $6.4 million. The filing reported no material pending legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Current cash runway and the assumptions behind management’s estimate of more than two years of coverage; compare cash burn with planned trial spending.
- Enrollment, completion timing, safety findings and prespecified efficacy results from the controlled Alzheimer’s, Parkinson’s disease dementia and Rett syndrome trials.
- Whether the Australian R&D incentive accounting weakness has been remediated and whether subsequent filings show reliable quarterly accruals.
- Actual share sales, registration capacity and remaining availability under Lincoln Park and Cantor financing arrangements, together with resulting dilution.
- Outstanding options, warrants and equity-plan capacity; the filing reported 8.46 million options and 350,000 warrants outstanding at year-end.