ANAVEX LIFE SCIENCES CORP. — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015; comparisons are with FY2014, which was restated. The company is a clinical-stage biopharmaceutical developer with no product revenue. Its lead candidate, ANAVEX 2-73, is being studied for Alzheimer’s disease; the filing also describes preclinical programs and ANAVEX PLUS, a combination with donepezil.
Financial performance and position
| Metric | FY2015 / Sep. 30, 2015 | FY2014 / Sep. 30, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $7.11 million | $2.97 million |
| Research and development | $2.27 million | $0.73 million |
| Net loss | $12.11 million | $9.97 million |
| Loss per share | $0.65 | $1.02 |
| Cash used in operations | $4.23 million | $2.66 million |
| Cash | $15.29 million | $7.26 million |
| Working capital | $12.81 million | $5.91 million |
| Total liabilities | $2.66 million | $7.16 million |
Operating and R&D expenses rose substantially, primarily with the start of the ANAVEX 2-73 Phase 2a trial, as well as higher compensation, consulting and legal costs. Net loss increased despite lower total other expenses, largely because FY2014 included sizable non-cash financing charges. Loss per share improved, but the filing’s share and per-share data are retrospectively adjusted for the October 2015 1-for-4 reverse split. No meaningful operating margin is available because the company had no revenue.
Financing activities provided $12.26 million in FY2015, mainly from warrant exercises and Lincoln Park share sales. The company had $85,238 of promissory notes payable at year-end; the remaining convertible debenture carrying value was $332 after debt discounts. Management said it expected cash on hand and future equity or debt financing to fund operations for the next 12 months, but stated that further financing might not be available on acceptable terms. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
Material changes and notable items
- FY2015 operating expenses increased by $4.14 million year over year; operating cash use increased by $1.57 million.
- During FY2015, $7.44 million in debenture principal was converted; most remaining principal was converted, with a small balance outstanding at year-end.
- The company restated FY2014 to correct accounting for a deferred tax benefit related to convertible debentures: the correction increased the FY2014 tax benefit by $1.4 million and reduced additional paid-in capital by the same amount.
- After year-end, Anavex entered a discretionary, 36-month Lincoln Park purchase agreement for up to $50 million of common stock. Access depends on agreement terms and market-price conditions; share sales may dilute existing holders.
- In October 2015, the company effected a 1-for-4 reverse stock split and began trading on Nasdaq under AVXL. The filing reports 34.60 million shares outstanding as of December 29, 2015.
Outlook, development, risks and contingencies
- Initial analysis of the completed Part A portion of the Phase 2a study in 32 mild-to-moderate Alzheimer’s patients reported that ANAVEX 2-73 was well tolerated and showed improvements from baseline across exploratory cognitive measures. These are preliminary findings from a small study, not evidence of confirmed clinical benefit or regulatory approval.
- The company planned to use most available capital for the next ANAVEX 2-73 trial and related development, and intended to seek potential partners. It did not provide quantified financial guidance.
- A Michael J. Fox Foundation grant of $286,455 is expected to fund a preclinical ANAVEX 2-73 Parkinson’s disease study over 24 months.
- Key risks include continued losses and cash burn, dependence on additional financing, clinical and regulatory failure or delay, competition, reliance on collaborators, and uncertain patent protection. Potential equity financing could materially dilute shareholders.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at September 30, 2015. Material weaknesses included insufficient segregation of duties, inadequate complex-accounting and tax expertise, and deficient monitoring controls. The company reported additional staffing and remediation plans.
- On December 22, 2015, the SEC issued a subpoena indicating a formal investigation, which the company believed related to unusual trading activity in its shares. Anavex said it was cooperating and could not predict the outcome.
- The independent auditor gave an unqualified opinion on the financial statements; it did not audit or express an opinion on internal control effectiveness.
Important facts for investors to verify
- Current cash burn, remaining cash runway, and the conditions and practical availability of Lincoln Park financing.
- Complete Phase 2a results, trial status and design of subsequent studies, including whether exploratory cognitive findings are replicated.
- Progress in remediating material weaknesses and whether future filings report effective controls.
- Status and outcome of the SEC investigation and any related regulatory or legal developments.
- Fully diluted share count, including warrants, options, restricted stock, and potential Lincoln Park issuances.
- Terms, enforceability and settlement status of the secured promissory notes that the company disputes.