Anavex Life Sciences Corp. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2016; filed May 11, 2016. Figures are in U.S. dollars unless stated otherwise. Anavex is a clinical-stage biopharmaceutical company with no product revenue.
Financial results and liquidity
| Metric | Three months ended Mar. 31, 2016 | Three months ended Mar. 31, 2015 | Six months ended Mar. 31, 2016 | Six months ended Mar. 31, 2015 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $2.18 million | $0.86 million | $6.71 million | $1.63 million |
| Net loss | $2.03 million | $1.72 million | $5.99 million | $2.51 million |
| Loss per share, basic and diluted | $0.06 | $0.12 | $0.17 | $0.18 |
| Operating cash used | Not separately stated | Not separately stated | $5.15 million | $1.36 million |
- Six-month operating expenses increased $5.08 million year over year, primarily from higher clinical and preclinical R&D, expanded management and staff costs, and one-time employment-agreement and NASDAQ listing-related expenses.
- Six-month other income was $744,907, versus other expense of $882,560 a year earlier. It included $637,027 of grant income, including $571,093 from an Australian R&D incentive program and $65,934 recognized from a Michael J. Fox Foundation grant. The quarter also included a $151,402 gain on settlement of accounts payable.
- Cash was $11.95 million at March 31, 2016, down $3.34 million from September 30, 2015. Working capital was $9.68 million, compared with $12.81 million at fiscal year-end. Six-month financing cash inflow was $1.81 million, mainly from warrant exercises and Lincoln Park share sales; investing cash flow was zero.
- Total liabilities were $2.43 million, including $2.34 million of accounts payable and accrued liabilities and $88,145 of promissory notes. Convertible debentures had a carrying value of $337; approximately $4,982 principal remained outstanding and is due in 2044.
- There is no meaningful gross or operating margin to report because the company had no revenue. The filing reports no material off-balance-sheet arrangements.
Material changes and capital
- Six-month net loss increased to $5.99 million from $2.51 million. Operating cash use rose to $5.15 million from $1.36 million; management attributed the cash-use increase primarily to one-time tax payments made on behalf of a director and officer under a 2013 employment agreement.
- G&A expense for the six months included $2.29 million for that tax payment, $610,000 of restricted-stock compensation and $258,092 of director/officer stock-option compensation. Total stock-based compensation in operating cash-flow reconciliation was $1.05 million.
- Common shares outstanding increased from 32.04 million at September 30, 2015 to 35.70 million at March 31, 2016. The company completed a 1-for-4 reverse split in October 2015; reported share and per-share figures reflect it.
- The 2013 Lincoln Park purchase arrangement was fully used during the period. A separate October 2015 agreement allows sales of up to $50 million of stock to Lincoln Park over 36 months, subject to conditions and at the company’s discretion; sales dilute existing holders.
Outlook, clinical developments and risks
- Management said it expects to fund operations with cash on hand and future equity or debt financing, but gave no specific cash-runway estimate. It cautioned that financing may not be available on acceptable terms; insufficient funding could delay, reduce or halt R&D. Equity financing would dilute shareholders.
- The lead candidate ANAVEX 2-73 is in a Phase 2a Alzheimer’s trial. Management reported that an interim analysis showed a positive dose-response relationship and that the completed Part A met the safety objective, with exploratory cognitive measures showing improvement from baseline. These are company-reported interim findings, not confirmation of efficacy.
- In March 2016, an Australian Ethics Committee approved an extension allowing eligible participants to continue treatment for an additional 104 weeks to collect longer-term safety data. This extension is separate from the planned larger Phase 2/3 placebo-controlled study; the filing does not provide a start date for that study.
- The company reported positive preclinical findings for ANAVEX 2-73 in a Rett syndrome model and for ANAVEX 3-71 in animal models. In April 2016, after quarter-end, the FDA granted ANAVEX 3-71 orphan drug designation for frontotemporal dementia. Preclinical results do not establish human benefit.
- Promissory notes bearing 12% interest are secured by company assets, including intellectual property, and are due on demand. The company disputes their issuance and enforceability and has not accrued contractual late fees it considers unenforceable. The notes provide for substantial daily late fees, creating a contingent exposure if enforced.
- The company disclosed an SEC formal investigation relating, it believes, to unusual trading activity in its stock and said it was cooperating. It also reported securities class-action and shareholder derivative lawsuits alleging misleading statements, stock promotion and fiduciary-duty breaches; the company denied the allegations and said it would defend the cases. Outcomes and potential financial exposure were not clear in the filing.
- Management concluded disclosure controls and procedures were not effective at March 31, 2016 because of material weaknesses previously reported. It described remediation steps taken after quarter-end and intended further remediation by fiscal year-end.
- Clinical development, regulatory outcomes, reliance on external financing, foreign-exchange movements and legal proceedings are material risks. Management’s forward-looking statements are subject to uncertainty, and six-month results are not necessarily indicative of full-year results.
Investor verification points
- Review subsequent clinical-trial data, trial design and timing for the planned Phase 2/3 study; distinguish exploratory signals from demonstrated efficacy.
- Track cash burn, grant receipts, funding availability and use of the Lincoln Park facility, including potential dilution.
- Confirm the status and enforceability of the secured, demand promissory notes and any unaccrued late-fee claims.
- Monitor developments and any quantified exposure from the SEC investigation and shareholder litigation.
- Assess progress in remediating the disclosed material weaknesses and whether controls are later deemed effective.