Anavex Life Sciences Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2012; filed August 17, 2012. Unaudited statements are presented in U.S. dollars. Anavex was a development-stage pharmaceutical company developing compounds for neurodegenerative diseases and cancer.
Financial performance and position
- Revenue: None since inception. The company said it did not expect revenue until it established a development, licensing, or commercialization arrangement.
- Quarterly results: Operating expenses were $697,913, down from $1.64 million in the comparable 2011 quarter. Net loss was $4.54 million versus $1.58 million; the 2012 loss included a $3.83 million noncash loss on extinguishment of debt. Basic and diluted loss per share was $0.16 versus $0.06.
- Nine-month results: Operating expenses were $3.68 million versus $4.95 million. Net loss increased to $7.62 million from $5.89 million; loss per share was $0.28 versus $0.24. Research and development expense rose to $2.54 million from $2.01 million, while consulting expense fell to $780,000 from $2.30 million.
- Cash flow: Cash used in operations was $1.44 million for the nine months, compared with $2.88 million in 2011. Financing provided $1.32 million, down from $3.84 million. Cash declined $116,507 to $18,195; investing cash flow was nil.
- Liquidity and liabilities: Current assets were $21,095 and current liabilities $2.22 million, resulting in a $2.20 million working-capital deficit. Total assets were $22,135. Accounts payable and accrued liabilities were $2.17 million; promissory notes payable were $49,000. Accumulated deficit was $36.83 million.
- Margins and debt: Operating and profit margins are not meaningful because the company had no revenue and reported losses. In May 2012, it settled notes and accrued interest through issuance of 2,700,513 share-and-warrant units. The transaction generated the reported $3.83 million loss on debt extinguishment.
Changes and notable items
- Quarterly operating expenses fell mainly due to reduced consulting, research and development, legal, and travel costs. Management attributed the R&D decline for the quarter to lower activity while preparing for further clinical trials; nine-month R&D increased year over year.
- The nine-month loss was higher despite lower operating expenses, principally because of the debt-extinguishment loss and increased interest and debt-discount accretion.
- Common shares outstanding were 30,165,687 at June 30 and 30,240,687 as of August 17. The additional 75,000 shares related to a former president’s services and settlement of a consulting agreement. At June 30, 4,892,552 warrants and 1,775,000 options were outstanding.
Business outlook, risks, and controls
- Management estimated cash needs of approximately $5 million over the next 12 months, primarily to advance ANAVEX 2-73 and prepare for further clinical development. The company had no committed financing and said it might need equity or debt funding; failure to raise funds could force delays, reductions, or cessation of operations.
- The filing states that the completed Phase 1 single-ascending-dose trial of ANAVEX 2-73 had a protocol-defined maximum tolerated single dose of 55–60 mg. Doses below that range were described as generally well tolerated, with mild adverse events in some volunteers; headache and dizziness were reported above the range. The filing provides no specific quantified guidance for future results or trial timing.
- The company reported substantial doubt about its ability to continue as a going concern, citing its accumulated deficit, ongoing losses, working-capital deficit, and dependence on future financing. It expected further losses.
- Key risks include clinical or regulatory failure, inability to fund development, competition, reliance on third parties, intellectual-property challenges, dilution, and limited trading liquidity. The company reported no material pending legal proceedings and no material off-balance-sheet arrangements.
- Management concluded that disclosure controls and procedures were not effective at period end because of previously identified material weaknesses. It said remediation efforts were underway, including use of an accounting consultant; no material change in internal control during the quarter was reported.
Important facts for investors to verify
- Whether the company obtained financing after the filing and how its cash runway compared with the stated $5 million 12-month need.
- The status, design, timing, and funding of the next ANAVEX 2-73 clinical trial; the filing does not provide a clear schedule.
- The terms and accounting for the May 2012 debt settlement, including the reported $3.83 million loss and the resulting share and warrant dilution.
- Whether the disclosed control weaknesses were remediated and independently assessed.
- Subsequent share-count changes, warrant exercises or expirations, and other dilution after June 30.