Anavex Life Sciences Corp. — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013. The filing provides annual results, not standalone fourth-quarter financials.
Business context
Anavex is a development-stage pharmaceutical company with no operating revenue. Its lead Alzheimer’s disease candidates are ANAVEX 2-73 and ANAVEX PLUS, a combination of ANAVEX 2-73 and donepezil. ANAVEX 2-73 completed a Phase 1 single-ascending-dose study in 2011; further trials had been delayed for lack of funding. The company had one full-time employee and relied on contractors.
Financial performance and liquidity
| Metric | FY2013 / Sept. 30, 2013 | FY2012 / Sept. 30, 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Total expenses | $2.137 million | $4.321 million |
| Net loss | $3.700 million; $0.12 per share | $8.302 million; $0.29 per share |
| Net cash used in operating activities | $777,573 | $1.693 million |
| Cash | $345,074 | $11,362 |
| Working capital | Deficit of $1.559 million | Deficit of $2.876 million |
| Total liabilities | $2.857 million | $2.888 million |
Expenses fell 50.5%, primarily because research and development spending declined 90.1% to $263,847 after clinical work was delayed, and consulting expense declined. Salaries and wages rose to $1.067 million, including $1.003 million of stock-based compensation for the new CEO’s options. Other income and expenses produced a net loss of $1.563 million, versus a $3.980 million loss in FY2012; FY2013 included losses on debt and accounts-payable settlements.
At year-end, current liabilities were $1.953 million, including $1.742 million of accounts payable and accrued liabilities and $210,863 of promissory notes. A separate $904,000 derivative liability related to warrants. The company reported an accumulated deficit of $41.205 million in its balance sheet; the statements of operations report cumulative net losses of $40.654 million since inception, so the filing’s cumulative figures do not reconcile clearly.
Material changes and financing
- In July 2013, Anavex issued 4.209 million shares and warrants to settle $1.658 million of notes, accrued interest, and other payables. The settlement resulted in a reported loss of approximately $1.472 million.
- A July private placement issued 2.196 million shares and warrants for gross proceeds of $878,453, before fees and issuance costs. Year-end shares outstanding were 37.238 million, up from 30.241 million a year earlier.
- Anavex entered a Lincoln Park purchase agreement for up to $10 million of common stock. Lincoln Park initially bought $100,000 of shares; further sales are at Anavex’s discretion and subject to conditions, including a reported $0.50 share-price floor. The registration statement became effective October 23, 2013. The filing describes the commitment period inconsistently as 25 months in some sections and 36 months in the note.
- At year-end, 9.149 million warrants were outstanding, generally exercisable at $0.75; 6.449 million of the 2013 warrants have full-ratchet price adjustments and other provisions that caused liability classification. There were also 3.075 million outstanding options.
Outlook, risks, and unusual items
Management planned to begin a multiple-ascending-dose study of ANAVEX 2-73 in the first half of FY2014 and subsequently pursue further clinical development; it also intended to seek partners. These were plans, not assured milestones. The company estimated it needed approximately $6 million for the 12 months ending September 30, 2014 and stated it lacked sufficient capital to execute its business plan. The auditor’s report highlighted substantial doubt about the company’s ability to continue as a going concern.
Key risks include the need for additional financing, potential dilution, clinical and regulatory failure, competition, and uncertain intellectual-property protection. The company disclosed disputed secured notes issued to former officers/directors, backed by company assets and intellectual property; it had not accrued claimed late fees and said it would consider legal remedies if enforcement were attempted. No material pending legal proceedings were otherwise reported.
Management concluded that disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses in accounting expertise and staffing, segregation of duties, monitoring, and review of equity transactions. Remediation was planned, with assessment intended in FY2014. The company had no standing audit committee or audit committee financial expert.
Important facts for investors to verify
- Reconcile the filing’s cumulative net-loss and accumulated-deficit totals, and confirm the year-end liability and working-capital position.
- Confirm the actual availability and remaining capacity of the Lincoln Park financing, including the share-price condition, registration requirements, and commitment-period discrepancy.
- Track cash runway against the stated $6 million funding need and verify whether the planned clinical study began.
- Review dilution exposure from outstanding warrants, options, and the CEO’s milestone-based restricted shares; confirm the terms and accounting treatment of the warrant derivative liability.
- Check the status and potential consequences of the disputed secured notes and the company’s remediation of material control weaknesses.