Anavex Life Sciences Corp. — Form 10-Q Summary
Business context and reporting period
This unaudited quarterly report covers the three months ended December 31, 2011, the first quarter of fiscal 2012. Anavex is a development-stage biopharmaceutical company researching sigma-receptor drug candidates for neurological diseases and cancer. It had no revenue from inception and reported no revenue for the quarter.
Financial results and liquidity
| Metric | Quarter ended Dec. 31, 2011 | Comparable 2010 quarter |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $2.189 million | $1.369 million |
| Net loss | $2.175 million | $1.887 million |
| Basic and diluted loss per share | $0.08 | $0.08 |
| Cash used in operating activities | $1.088 million | $1.084 million |
| Cash provided by financing activities | $962,500 | $1.243 million |
At December 31, cash was $9,079, versus $134,702 at September 30, 2011. Current assets were $82,623 and current liabilities were $2.566 million, resulting in a $2.483 million working-capital deficit. Total liabilities were $2.566 million; all reported promissory notes were classified as current. The company had an accumulated deficit of $31.378 million. Margins are not meaningful given the absence of revenue.
Quarterly financing included $712,500 net proceeds from common-share issuance and $250,000 from promissory notes. An offering of units generated $769,500 gross proceeds and incurred $57,000 in finder’s fees. The company reported no investing cash flows for the quarter.
Changes versus the prior comparable period
Expenses rose $819,472, primarily because research and development expense increased $1.220 million to $1.717 million as clinical-trial activity for ANAVEX 2-73 increased. Consulting expense fell $344,989 to $307,212, and investor-relations expense fell $39,535 to $15,000. Net loss increased by approximately $288,000.
Other income and expense improved by $531,567 year over year, largely because there was no debt-conversion expense in the quarter, compared with $504,160 in the prior-year quarter, and because of a foreign-exchange gain. A $55,000 gain from remeasuring derivative liabilities partly offset interest and financing charges and $38,175 of debt-discount accretion.
Outlook, developments, and risks
- Management estimated cash needs of approximately $10 million over the next 12 months to fund research and development, including the next ANAVEX 2-73 clinical trial. It had no committed source of additional financing and said it may need equity or debt financing; failure to obtain funds could delay or reduce research, or threaten continued operations.
- The filing states that the working-capital deficit, accumulated losses, expected future losses, and dependence on financing raise substantial doubt about the company’s ability to continue as a going concern. Management disclosed no formal plan beyond seeking equity financing and/or promissory notes.
- Management reported successful completion of a Phase 1 single-ascending-dose study of ANAVEX 2-73, announced November 14, 2011. The reported maximum tolerated single dose was 55–60 mg; lower doses were described as well tolerated, with mild adverse events in some volunteers. Headache and dizziness were reported at doses above the maximum tolerated dose. These early-stage findings do not establish efficacy or later-stage safety.
- A $250,000 unsecured note issued November 1, 2011, matured January 20, 2012; the company said it was negotiating an extension. Other notes included $750,000 of 8% convertible notes maturing in April and May 2012, and a $216,000 8% note maturing in May 2012.
- After quarter-end, the company reported issuing $337,500 of units and 8,000 units to a director for consulting services. It also extended and amended certain warrants, including changing their exercise price to $1.50.
- Management concluded disclosure controls and procedures were ineffective because of material weaknesses previously disclosed in its annual report. It planned to hire accounting staff with expertise in complex U.S. GAAP matters; it reported no material change in internal control during the quarter.
- Key risks include clinical and regulatory failure, inability to secure financing, dilution from future share issuance, dependence on third parties, patent and commercialization uncertainty, and volatile, limited trading in the company’s OTC-quoted penny stock. The filing reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the company obtained financing sufficient to meet its stated approximately $10 million cash requirement and fund the next ANAVEX 2-73 trial.
- Whether the matured $250,000 note was extended or repaid, and how the other 2012 note maturities were addressed.
- The clinical-trial protocol, timing, endpoints, and subsequent results for ANAVEX 2-73; the Phase 1 report concerned healthy volunteers and a single-dose study.
- Progress in remediating the disclosed control weaknesses and hiring qualified accounting personnel.
- The effects of subsequent unit issuances, warrant changes, and potential conversions or exercises on share count and dilution.