Anavex Life Sciences Corp. — Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2015. The interim financial statements are unaudited; amounts are in U.S. dollars.
Business context
Anavex is a clinical-stage biopharmaceutical company developing treatments for Alzheimer’s disease, other central nervous system conditions, and cancer. Its lead candidate, ANAVEX 2-73, was in a Phase 2a trial initiated in December 2014, evaluating the drug alone and with donepezil (ANAVEX PLUS) in mild-to-moderate Alzheimer’s patients. The company reported no revenue since inception.
Financial results and liquidity
| Metric | Three months ended June 30, 2015 | Nine months ended June 30, 2015 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.513 million | $3.142 million |
| Research and development expense | $799,462 | $1.525 million |
| Net loss | $4.240 million | $6.752 million |
| Loss per share, basic and diluted | $0.06 | $0.11 |
| Cash used in operating activities | Not provided for the quarter | $2.794 million |
Cash was $7.961 million at June 30, 2015, up $699,193 from September 30, 2014. Working capital was $6.626 million, compared with $5.910 million at fiscal year-end. Financing activities provided $3.493 million in the nine-month period, primarily from warrant exercises and share issuance; investing activities used no cash. No revenue or operating margins were reported.
Current liabilities were $1.352 million. Convertible debentures had a reported carrying value of $57,962, net of a substantial debt discount; the note also reports $1.471 million of debenture principal before discount. Promissory notes payable were $92,516, including secured notes due on demand bearing 12% interest. The company disputed the enforceability of those secured notes and had not accrued claimed late fees.
Changes versus prior comparable periods
- Quarterly operating expenses increased 51% to $1.513 million; nine-month operating expenses increased 35% to $3.142 million. Management attributed the increases mainly to Phase 2a trial activity and, in part, stock-based compensation.
- Quarterly net loss increased from $1.009 million to $4.240 million. Nine-month net loss increased from $1.669 million to $6.752 million.
- Other expense was $2.727 million for the quarter and $3.610 million for nine months, compared with $10,257 of expense and $660,295 of income, respectively, in the prior-year periods. Management cited convertible-debt discount amortization and changes in derivative-related financing income or expense. These items include non-cash charges.
- Nine-month operating cash use rose from $1.743 million to $2.794 million, mainly due to increased research and development activity. Cash growth was much lower than in the prior-year period, when financing proceeds included $10 million from convertible debentures.
Outlook, risks, and notable items
- Management expected R&D expense to continue increasing as the Phase 2a trial and related research progressed. It intended to use most available capital for ANAVEX 2-73 and ANAVEX PLUS development and planned to seek potential research partners.
- Management said it expected to fund operations through cash on hand and future equity or debt financing, but warned that additional financing might not be available on acceptable terms. A financing shortfall could force delays, scaled-back research, or cessation of operations; equity financing would dilute existing holders.
- The Lincoln Park facility permits discretionary share sales, subject to conditions including a $0.50 minimum closing share price. No shares were sold under it during the nine months ended June 30. By August 13, 2015, the company reported selling 1.75 million shares for $1.375 million and issuing 18,995 commitment shares under the facility.
- After quarter-end, the company announced initial cognitive EEG/ERP P300 data for the first 12 of 32 patients in the ongoing Phase 2a trial. It also announced a Michael J. Fox Foundation grant for a preclinical Parkinson’s study and a U.S. patent Notice of Allowance related to ANAVEX 2-73. These are developments reported after June 30, not quarter-end financial results.
- Disclosure controls and procedures were deemed ineffective because of previously disclosed material weaknesses. Management said it intended to take reasonable steps to remediate them, while noting that full segregation of duties might not be economically feasible.
- The company reported no material pending legal proceedings, but disputed the enforceability of the secured promissory notes described above. It also cautioned that preclinical results may not translate to human trials and that forward-looking clinical and financing expectations are uncertain.
Important facts for investors to verify
- Cash runway and expected clinical-trial spending, including whether additional financing will be required and on what terms.
- Remaining debenture principal, carrying value, conversion accounting, and the effect of further conversions or warrant exercises on dilution.
- Status and potential exposure relating to the disputed secured notes and unaccrued late fees.
- Full Phase 2a results, beyond the initial post-quarter-end data from 12 of 32 patients, and the trial’s progress and costs.
- Remediation of the disclosed material weaknesses and the company’s subsequent disclosure-control assessments.
- Share count and financing activity after June 30; the filing reports 86,216,609 shares outstanding at quarter-end and 120,446,116 as of August 14, 2015.