ANAVEX LIFE SCIENCES CORP. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2013; unaudited. The company is a development-stage drug developer with no revenue since inception.
Business context and outlook
ANAVEX’s lead candidate, ANAVEX 2-73, is being developed for Alzheimer’s disease. A Phase 1 single-dose study completed in 2011 found the drug generally well tolerated up to the stated maximum tolerated dose range of 55–60 mg. Further trials had not proceeded by June 30, 2013 because of insufficient funding. Management planned a multiple-ascending-dose study in the first quarter of fiscal 2014 and intended to seek partners within 12 months.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Total expenses | $125,982 | $668,960 |
| Net loss | $151,924 | $711,541 |
| Basic and diluted loss per share | $0.01 | $0.02 |
| Operating cash used | Nine-month period: $293,065 | |
| Financing cash provided | Nine-month period: $283,348 | |
| Investing cash flow | Nine-month period: $0 |
At June 30, cash was $1,645, current assets were $3,480, and current liabilities were $3,556,844, producing a working-capital deficit of $3,553,364. Current liabilities included $2,799,244 of accounts payable and accrued liabilities and $757,600 of promissory notes. The accumulated development-stage deficit was $38,216,467. No revenue was reported, so revenue-based margins are not applicable.
Changes versus comparable periods
- Quarterly expenses fell to $125,982 from $697,913; nine-month expenses fell to $668,960 from $3,678,983. Management attributed much of the decline to lower consulting costs and suspension of clinical trials; R&D expense declined to $166,584 for nine months from $2,540,903.
- Quarterly net loss narrowed to $151,924 from $4,542,618, and nine-month net loss narrowed to $711,541 from $7,624,322. The prior-year periods included a $3,829,328 loss on debt extinguishment, explaining much of the difference.
- Nine-month operating cash use decreased from $1,441,007 to $293,065, primarily due to reduced R&D spending. Cash declined by $9,717 from September 30, 2012, as financing cash inflows only slightly exceeded operating cash use.
- Promissory notes increased to $757,600 from $299,000 at September 30, 2012. No debt or liquidity margin improvement should be inferred from lower losses: the company also sharply reduced development activity.
Liquidity, risks, contingencies, and subsequent events
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern. It estimated cash needs of approximately $5 million over the next 12 months, in addition to addressing current liabilities of $3,556,844. Additional financing was essential to fund operations and planned clinical work.
- Post-period financing and liability settlements: On July 5, 2013, the company exchanged $549,000 of promissory notes and accrued interest for units, settled $1,108,506 of accounts payable for units, and raised gross proceeds of $878,453 in a private placement. The units included warrants exercisable at $0.75 for five years. Placement-agent compensation included a 10% cash fee and warrants.
- Equity facility: A July 5 agreement with Lincoln Park Capital allows the company, at its discretion and subject to registration and other conditions, to sell up to $10 million of stock over 36 months. LPC initially bought 250,000 shares for $100,000; the company also issued 341,858 commitment-fee shares. Future proceeds are not assured and sales may dilute existing shareholders.
- Disputed secured notes: Two notes totaling approximately $108,600, issued to then-officers/directors for unpaid consulting fees, were secured by company assets and intellectual property and were not repaid at maturity. The company disputed their issuance and said it would consider legal remedies if enforcement or collection were pursued. Their terms included substantial daily late fees.
- Management and equity awards: Former executive officers resigned during the quarter, leaving the company without a principal executive or financial officer and with one director during part of the period. A new CEO/CFO and director was appointed after quarter-end. The new executive received 2 million fully vested options and 4 million restricted shares subject to milestone vesting.
- Controls: Management concluded disclosure controls were not effective, citing insufficient supervision and review and inadequate segregation of duties due to limited personnel. The filing says executive departures materially affected internal controls.
- Other development risks: Clinical progress, regulatory outcomes, candidate efficacy and safety, partnering, and financing remain uncertain. The filing cautions that preclinical results may not translate to human trials. No material pending legal proceedings were reported apart from the disclosed note dispute.
Important facts for investors to verify
- Whether the LPC registration and sale conditions were met, and how much financing was actually drawn after the initial purchase.
- The remaining cash, accounts payable, and note balances after the July 2013 settlements, including the status and enforceability of the disputed secured notes.
- Whether the planned ANAVEX 2-73 study began, and its funding, design, and regulatory status.
- The dilution from post-quarter unit issuances, warrants, commitment-fee shares, options, and restricted stock; the filing reports 37,237,587 common shares outstanding as of August 12, 2013.
- Progress in remediating the disclosed control weaknesses and maintaining adequate executive and board oversight.