Anavex Life Sciences Corp. — FY2016 Form 10-K
Reporting period: Fiscal year ended September 30, 2016. Anavex is a clinical-stage biopharmaceutical company with no product revenue; its lead candidate, ANAVEX 2-73, is being developed primarily for Alzheimer’s disease.
Financial performance and position
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $15.6 million | $7.1 million |
| Research and development expense | $7.3 million | $2.3 million |
| Net loss | $14.7 million | $12.1 million |
| Loss per share, basic and diluted | $0.42 | $0.65 |
| Cash used in operating activities | $9.2 million | $4.2 million |
| Cash and cash equivalents at year-end | $9.2 million | $15.3 million |
| Working capital | $6.3 million | $12.8 million |
| Total assets | $9.5 million | $15.5 million |
| Debt at year-end | $0 | About $6,500 in debentures and $85,000 in promissory notes |
Operating expenses rose 119%, mainly from clinical and preclinical development, increased staffing and legal costs. FY2016 included about $5.1 million in non-cash compensation charges. Other income was $882,000, including $712,000 in grant income and gains on debt and payable settlements; FY2015 had $5.0 million in net other expense, largely financing-related charges. No operating margin is meaningful because the company had no revenue.
Financing activities provided $3.1 million, principally from warrant exercises and share sales. Cash decreased by $6.1 million during the year. The company reported $17.3 million of cash at December 12, 2016, after subsequent share issuance that raised $11.0 million. It had no long-term debt at September 30, 2016. Operating lease commitments totaled $280,472.
Material changes and business developments
- The 32-patient, open-label randomized Phase 2a Alzheimer’s trial of ANAVEX 2-73 ran for 52 weeks and was reported completed in November 2016, after fiscal year-end. The company said it met primary and secondary endpoints; the filing describes the study as exploratory and does not provide detailed numerical efficacy results in the supplied text.
- An Australian ethics committee approved a 104-week extension for eligible participants. A larger, double-blind, placebo-controlled Phase 2/3 study was in planning.
- The company reported positive preclinical findings for ANAVEX 2-73 in Parkinson’s disease and Rett syndrome; these are not clinical efficacy results. ANAVEX 3-71 remained preclinical and received FDA Orphan Drug Designation for frontotemporal dementia.
- Share count increased from 32.0 million to 36.2 million during the year. At December 12, 2016, 39.6 million shares were outstanding. The company entered a 36-month Lincoln Park purchase agreement for up to $50 million in shares, subject to its terms and market conditions; it is a potential financing source, not cash already received.
Outlook, risks and unusual items
Management expects research and development spending to increase as the trial extension, planned larger Alzheimer’s study and other pipeline work advance. It intended to pursue discussions with potential commercial partners within 12 months. The filing provides no revenue or earnings guidance and says it cannot predict when, if ever, the company will become profitable.
The company disclosed an accumulated deficit of $78.0 million, no operating revenue, expected negative cash flows for the foreseeable future and substantial doubt about its ability to continue as a going concern. It expects to need additional capital; unavailable or unfavorable financing could force it to delay, reduce or stop development. Further equity issuance could dilute shareholders.
Other material risks include clinical-trial failure or delay, regulatory approval uncertainty, dependence on collaborators and external research providers, competition from better-resourced companies, intellectual-property and patent challenges, and foreign-currency exposure. The filing disclosed securities class-action litigation and two related shareholder derivative actions; the company denied the allegations, and the motions or actions were pending or stayed as described in the filing.
Management and the auditor identified a material weakness in internal control over financial reporting due to inadequate oversight and limited segregation of duties. The auditor gave an adverse opinion on internal control effectiveness, while issuing an unqualified opinion on the financial statements. Management described planned remediation and control improvements.
Most important facts for investors to verify
- Obtain the complete Phase 2a results, including patient-level or aggregate efficacy and safety data, and confirm the design, status and timing of any Phase 2/3 trial.
- Reconcile year-end cash with subsequent financing proceeds and assess the cash runway against planned trial costs and the going-concern disclosure.
- Review the terms, remaining availability and potential dilution of the Lincoln Park facility, as well as warrants, options and other share-based awards.
- Track remediation of the material weakness and any changes in auditor or management assessments of financial controls.
- Check developments and potential financial exposure in the disclosed securities and derivative litigation.