Anavex Life Sciences Corp. — FY2012 Form 10-K
Reporting period: Fiscal year ended September 30, 2012. The company is a development-stage pharmaceutical business with no product revenue. Its lead candidate, ANAVEX 2-73 for Alzheimer’s disease, completed a Phase 1 single-ascending-dose study in 2011; further research was being deferred pending funding and management review.
Financial performance and position
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $4.32 million | $6.18 million |
| Net loss | $8.30 million | $7.31 million |
| Loss per share, basic and diluted | $0.29 | $0.29 |
| Cash used in operating activities | $1.69 million | $3.80 million |
| Cash at year-end | $11,362 | $134,702 |
| Current liabilities | $2.89 million | $1.35 million |
| Working capital deficit | $2.88 million | $1.14 million |
Margins are not meaningful because the company had no revenue. Year-end promissory notes payable were $299,000, all current; accounts payable and accrued liabilities were $2.59 million. Total liabilities were $2.89 million. Financing activities provided $1.57 million during FY2012, but cash still fell by $123,340.
Changes versus prior year and unusual items
- Operating expenses fell 30.1%, chiefly due to lower consulting, stock-based compensation, travel and rent costs; research and development expense edged up 2.2% to $2.65 million.
- Net loss increased by about $995,000 despite lower operating expenses. Other expense was $3.98 million, driven principally by a $3.83 million loss on extinguishment of debt. The company settled notes with equity units valued at $5.18 million for principal and accrued interest of about $1.35 million; the charge was substantially non-cash.
- Common shares outstanding increased from 26.57 million to 30.24 million. The debt-settlement units included warrants exercisable at $0.75 per share, creating potential further dilution.
Outlook, risks and contingencies
- Management estimated a need for $4 million over the following 12 months and said available capital supported basic operations only until January 2013. No committed financing source was identified.
- The company planned to seek a strategic partner, partners or acquirer, and to defer most research until it had sufficient capital and experienced management. Failure to secure funding could force further delays, reductions or cessation of operations.
- The auditor’s report included a going-concern emphasis: the $37.50 million accumulated deficit, FY2012 loss and funding shortfall raised substantial doubt about continued operations. The financial statements were not adjusted for outcomes of that uncertainty.
- Management reported disclosure controls and internal control over financial reporting were ineffective, identifying material weaknesses in segregation of duties and management supervision/review. It described remediation efforts and a plan to reassess controls in FY2013.
- ANAVEX 2-73’s Phase 1 findings were limited to safety and tolerability in healthy volunteers; efficacy in patients and later-stage clinical success were not established. The filing also highlights regulatory, intellectual-property, competition, financing and dilution risks.
- After year-end, the company issued two 8% promissory notes totaling $200,000, due March 31, 2013. It reported no material pending legal proceedings.
Key facts investors should verify
- Whether the company obtained the stated $4 million funding need or a strategic transaction, and how long available cash supported operations.
- Whether research resumed and what concrete clinical or regulatory milestones followed the Phase 1 study.
- The composition, aging and settlement status of the $2.59 million in accounts payable and accrued liabilities, as well as repayment or refinancing of current notes.
- Subsequent share issuances, warrant exercises and other potential dilution, including the low-exercise-price warrants issued in debt settlements.
- Whether management remediated the disclosed material weaknesses and whether subsequent filings continued to report a going-concern uncertainty.