Business context and reporting period
Anavex Life Sciences Corp. is a development-stage pharmaceutical company with no revenue to date. Its lead candidate, ANAVEX 2-73, is being developed for Alzheimer’s disease. This unaudited Form 10-Q covers the quarter and six months ended March 31, 2013, the second quarter of the company’s fiscal year, which ends September 30.
The company reported that its 2011 Phase 1 single-ascending-dose study found ANAVEX 2-73 generally well tolerated up to 55 mg. A multiple-ascending-dose study was planned, subject to obtaining sufficient capital.
Financial results and position
| Metric | Three months ended March 31, 2013 | Six months ended March 31, 2013 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Total expenses | $127,111 | $542,978 | $795,606 and $2,981,070, respectively |
| Net loss | $106,100 | $559,617 | $910,201 and $3,081,704, respectively |
| Loss per share | $0.00 | $0.02 | $0.03 and $0.11, respectively |
| Cash used in operating activities | Not presented | $260,875 | $1,202,305 |
| Cash provided by financing activities | Not presented | $250,000 | $1,246,250 |
At March 31, 2013, cash was $487, versus $11,362 at September 30, 2012. Current liabilities were $3,435,275, comprising $2,673,983 in accounts payable and accrued liabilities and $761,292 in promissory notes. Current assets were $487, resulting in a working-capital deficit of $3,434,788. Accumulated deficit was $38,064,543. The filing reports no revenue or operating margin.
Outstanding common shares were reported as 30,240,687 at March 31 and May 17, 2013. Promissory notes are all classified as current; several bear 8% to 12% annual interest and mature in June 2013, while a $100,000 note is due on demand.
Material changes versus the prior comparable period
- Six-month net loss narrowed to $559,617 from $3,081,704, while total expenses fell to $542,978 from $2,981,070.
- Research and development expense dropped to $127,563 for the six months from $2,146,940 a year earlier. Management attributed the decline to suspension of clinical trials pending financing.
- For the quarter, research and development expense was $560 versus $429,607. Consulting expense also declined, partly because of lower management infrastructure and no comparable-period stock-based compensation.
- Operating cash use decreased to $260,875 from $1,202,305. Financing cash inflow was $250,000, compared with $1,246,250, which included common-share proceeds in the prior period.
- Cash fell by $10,875 over the six months. The company issued no common shares for cash during the period, according to the cash-flow statement.
Outlook, risks, contingencies and unusual items
- Funding and going concern: Management estimated cash needs of approximately $5 million over the following 12 months, in addition to addressing $3,435,275 of current liabilities. No additional financing was committed. The filing states that the accumulated deficit, expected further losses and funding dependence raise substantial doubt about the company’s ability to continue as a going concern.
- Clinical plans: The next ANAVEX 2-73 study and further development depend on financing. Management also intended to seek potential partners within 12 months; there is no assurance of funding or partnership.
- Debt and security: Two January 2013 notes totaling approximately $112,292 were issued to then-directors for unpaid consulting fees. They bear 12% interest, are secured against company assets including intellectual property, and have penalty provisions for late payment. The company disputes their issuance and says it may pursue a legal remedy if enforcement or collection is attempted. A separate $100,000 note, exchanged for unpaid consulting fees, was due on demand at March 31.
- Governance and controls: Management reported that disclosure controls were not effective because of material weaknesses previously reported. The company said executive departures during the quarter materially affected internal controls and left it without a principal executive financial officer; it also reported that the board then had one director.
- Other risks: The company has no products generating revenue and faces clinical, regulatory, intellectual-property, competition, financing and potential dilution risks. It reported no material legal proceedings otherwise and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company obtained financing after the filing, and whether it met the stated $5 million funding need and near-term liabilities.
- The status, enforceability and repayment terms of the disputed secured notes, including any late fees or claims against intellectual property.
- Whether clinical development of ANAVEX 2-73 resumed and whether the planned multiple-ascending-dose study began.
- The status of management appointments, board composition and remediation of the reported control weaknesses.
- Reconcile filing presentation inconsistencies: the balance sheet and cover report 30,240,687 shares, while one statement-of-capital-deficit line appears to show 33,294,200; the MD&A also contains inconsistent comparative-period labels. Verify against the filed financial statements and subsequent filings.