Anavex Life Sciences (AVXL) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited interim condensed consolidated financial statements, including the balance sheets, statements of operations, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's business, accounting policies, financing activities, commitments, and subsequent events Interim Condensed Consolidated Balance Sheets The balance sheets show a decrease in total assets and stockholders' equity, and an increase in total liabilities from September 30, 2018, to March 31, 2019 | Metric | March 31, 2019 (Unaudited) | September 30, 2018 | | :-------------------------- | :------------------------- | :----------------- | | Cash and cash equivalents | $19,457,845 | $22,930,638 | | Total Current Assets | $20,549,780 | $24,323,740 | | Total Assets | $20,549,780 | $24,376,136 | | Accounts payable & accrued liabilities | $6,370,604 | $3,884,626 | | Total Liabilities | $6,370,604 | $3,884,626 | | Total Stockholders' Equity | $14,179,176 | $20,491,510 | Interim Condensed Consolidated Statements of Operations The statements of operations indicate a significant increase in operating expenses, particularly research and development, leading to a higher net loss for both the three and six months ended March 31, 2019, compared to the prior year | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Six months ended March 31, 2019 | Six months ended March 31, 2018 | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | General and administrative | $2,061,251 | $1,489,450 | $3,822,559 | $2,887,253 | | Research and development | $6,078,786 | $3,245,023 | $11,790,996 | $5,939,335 | | Total operating expenses | $(8,140,037) | $(4,734,473) | $(15,613,555) | $(8,826,588) | | Total other income, net | $180,191 | $10,310 | $329,013 | $52,665 | | Net loss | $(8,007,894) | $(4,752,024) | $(15,341,307) | $(8,811,189) | | Basic and diluted loss per share | $(0.17) | $(0.11) | $(0.33) | $(0.20) | Interim Condensed Consolidated Statements of Cash Flows Cash flows show an increased use of cash in operating activities for the six months ended March 31, 2019, primarily due to higher clinical development costs, partially offset by cash provided from financing activities | Metric | Six months ended March 31, 2019 | Six months ended March 31, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(15,341,307) | $(8,811,189) | | Stock-based compensation | $3,960,139 | $2,347,681 | | Net cash used in operating activities | $(8,491,627) | $(6,441,100) | | Net cash provided by financing activities | $5,018,834 | $4,657,427 | | Decrease in cash and cash equivalents | $(3,472,793) | $(1,783,673) | | Cash and cash equivalents, end of period | $19,457,845 | $25,656,584 | Interim Condensed Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity decreased from October 1, 2018, to March 31, 2019, primarily due to the net loss, despite additional paid-in capital from share issuances and stock-based compensation | Metric | March 31, 2019 | September 30, 2018 | | :----------------------------------- | :------------- | :----------------- | | Common Shares Outstanding | 48,173,241 | 45,933,472 | | Additional Paid-in Capital | $138,696,975 | $129,377,542 | | Accumulated Deficit | $(124,273,274) | $(108,931,967) | | Total Stockholders' Equity | $14,179,176 | $20,491,510 | - For the six months ended March 31, 2019, shares issued under purchase agreement contributed $5,068,834 to additional paid-in capital, and share-based compensation added $3,960,139[13] Notes to the Condensed Consolidated Interim Financial Statements These notes provide essential context and details for the financial statements, covering the company's business, accounting policies, financial commitments, and significant events post-reporting period Note 1 Business Description and Basis of Presentation Anavex Life Sciences Corp. is a clinical-stage biopharmaceutical company focused on developing precision medicine for CNS diseases, with ANAVEX®2-73 as its lead compound. The company expects continued negative cash flows and will require additional capital to fund future operations - Anavex Life Sciences Corp. is a clinical stage biopharmaceutical company developing differentiated therapeutics for CNS diseases using precision medicine, with ANAVEX®2-73 as its lead compound for Alzheimer's, Parkinson's, and Rett syndrome[15] - The Company expects to experience negative cash flows for the foreseeable future and will need to raise additional capital to fund later stage clinical development programs[19][22] - The company believes existing cash and financial commitments will meet cash commitments for at least the next eighteen months[21] Note 2 Recent Accounting Pronouncements The company adopted new revenue recognition and stock compensation standards with no material impact. It is currently evaluating the impact of new lease accounting and nonemployee share-based payment standards, effective October 1, 2019 - Adoption of ASU 2014-09 (Revenue Recognition) and ASU 2017-09 (Stock Compensation Scope) on October 1, 2018, did not have a material impact[30][31] - The Company is evaluating the impact of ASU 2016-02 (Leases) and ASU 2018-07 (Nonemployee Share-based Payments), both effective October 1, 2019[32][33] Note 3 Other Income The company recognized grant income from a clinical study grant for Rett syndrome, which is amortized as related research and development expenditures are incurred | Grant Income | Three months ended March 31, 2019 | Six months ended March 31, 2019 | | :----------- | :-------------------------------- | :------------------------------ | | Recognized | $74,527 | $149,055 | Note 4 Equity Offering Agreements The company has two key equity offering agreements: a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald for up to $50 million (no shares sold yet) and a Purchase Agreement with Lincoln Park Capital Fund for up to $50 million, under which shares have been issued - Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. allows for the sale of up to $50,000,000 in common stock; no shares have been sold as of March 31, 2019[38][40] - Purchase Agreement with Lincoln Park Capital Fund, LLC for up to $50,000,000, with $7,836,072 remaining available as of March 31, 2019[42][45] - During the three months ended March 31, 2019, the Company issued 2,239,223 shares to Lincoln Park for an aggregate purchase price of $5,361,534[45] Note 5 Commitments The company is subject to ordinary course litigation, has outstanding share purchase warrants, and operates a stock-based compensation plan, which resulted in significant non-cash expenses - No material adverse effect on consolidated financial statements is expected from pending claims and legal proceedings[48] | Share Purchase Warrants | Number of Shares | | :---------------------- | :--------------- | | Balance, March 31, 2019 | 370,000 | | Stock-based Compensation Expense | Three months ended March 31, 2019 | Six months ended March 31, 2019 | | :------------------------------- | :-------------------------------- | :------------------------------ | | General and administrative | $950,999 | $2,006,587 | | Research and development | $942,153 | $1,953,552 | | Total share based compensation | $1,893,152 | $3,960,139 | Note 6 Subsequent Events Subsequent to March 31, 2019, the company authorized preferred stock, approved a new omnibus incentive plan making 6 million additional shares available, and extended the CEO's employment agreement with revised compensation - Authorization of 10,000,000 shares of preferred stock with a par value of $0.001 per share[59] - Approval of the 2019 Omnibus Incentive Plan, making 6,000,000 additional shares of Common Stock available for issuance[60] - CEO's employment agreement extended through July 5, 2022, with an annual base salary of $550,000, a 20% target bonus, and 750,000 stock options[62] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, and future outlook, including details on its business, pipeline, target indications, intellectual property, and liquidity Forward-Looking Statements This section contains cautionary statements regarding forward-looking information, outlining various risks and uncertainties that could cause actual results to differ materially from projections, particularly concerning clinical trials, regulatory approvals, and financial performance - Forward-looking statements are based on current expectations and projections, subject to risks including ability to generate revenue, conduct clinical trials, raise capital, demonstrate product efficacy, obtain regulatory approvals, and protect intellectual property[64][65] Our Current Business Anavex is a clinical-stage biopharmaceutical company focused on precision medicine for CNS diseases, with ANAVEX®2-73 as its lead compound. The company's approach involves activating the sigma-1 receptor (S1R) to restore cellular homeostasis - Anavex is a clinical stage biopharmaceutical company developing differentiated therapeutics for CNS diseases using precision medicine[68] - The lead compound, ANAVEX®2-73, is being developed for Alzheimer's disease, Parkinson's disease, and rare diseases like Rett syndrome[69] - The company's approach involves activating the sigma-1 receptor (S1R) to restore cellular balance (homeostasis) in brain cells, which is believed to halt or delay neurodevelopmental and neurodegenerative disease progression[71][72] Our Pipeline Anavex's pipeline includes ANAVEX®2-73 in multiple clinical studies for Alzheimer's, Parkinson's, and Rett syndrome, along with other preclinical compounds (ANAVEX3-71, ANAVEX1-41, ANAVEX1066, ANAVEX1037) targeting various neurodegenerative, neurodevelopmental, pain, and cancer indications - ANAVEX®2-73 is in three clinical studies: Phase 2b/3 for Alzheimer's disease (commenced Oct 2018), Phase 2 for Parkinson's Disease Dementia (commenced Oct 2018), and Phase 2 for Rett syndrome (commenced March 2019)[77][78][81][87][89][98] - ANAVEX®2-73 received Orphan Drug Designation for Rett syndrome (May 2016) and infantile spasms (June 2016)[88] - ANAVEX3-71 is a preclinical candidate with a novel mechanism for neuroprotection and cognition, granted Orphan Drug Designation for Frontotemporal dementia (April 2016)[105][106] - Other preclinical compounds include ANAVEX1-41 (sigma-1 agonist for neuroprotection), ANAVEX1066 (mixed sigma-1/sigma-2 ligand for neuropathic and visceral pain), and ANAVEX1037 (sigma-1/sigma-2 ligand for prostate and pancreatic cancer)[108][109][111] Our Target Indications The company targets a range of Central Nervous System diseases, including Alzheimer's, Parkinson's, Rett syndrome, Depression, Epilepsy, and Neuropathic Pain, as well as various cancers such as Malignant Melanoma, Prostate Cancer, and Pancreatic Cancer, all representing significant unmet medical needs and large market opportunities - Target CNS diseases include Alzheimer's disease (5.5 million Americans, urgent unmet need), Parkinson's disease (10+ million worldwide, market projected to $3.2 billion by 2021), Rett syndrome (rare, severe neurodevelopmental disorder affecting 1 in 10,000-15,000 females), Depression, Epilepsy (3.4 million Americans, market projected to $4.5 billion by 2019), and Neuropathic Pain[113][114][116][117][118][119] - Target cancer indications include Malignant Melanoma (75% of skin cancer deaths, market projected to $4.4 billion by 2022), Prostate Cancer (market projected to $13.5 billion in 2024), and Pancreatic Cancer (market projected to $2.9 billion by 2021)[119][120][121] Patents, Trademarks and Intellectual Property Anavex maintains a portfolio of U.S. and international patents and applications for its drug candidates, including ANAVEX®2-73 and ANAVEX3-71, and employs confidentiality agreements to protect its intellectual property - Anavex holds ownership or exclusive rights to four U.S. patents, nine U.S. patent applications, and various PCT or ex-U.S. patent applications[122] - A U.S. patent for ANAVEX®2-73 (composition with anticholinesterase inhibitors) is expected to expire in June 2034[123] - Two U.S. patents for ANAVEX3-71 (compound and methods of treating diseases) are expected to expire in April 2030 and January 2030, respectively[125] Financial Highlights For the second quarter of fiscal 2019, operating expenses increased significantly to $8.1 million, primarily due to increased research and development activities, resulting in a net loss of $8.0 million | Metric | Q2 FY2019 | Q2 FY2018 | | :--------------- | :----------- | :----------- | | Operating expenses | $8.1 million | $4.7 million | | Net loss | $8.0 million | $4.8 million | | Loss per share | $0.17 | $0.11 | - The increase in operating expenses is mainly due to a $2.8 million increase in research and development expenses, driven by the commencement of three clinical studies for ANAVEX®2-73[128] Results of Operations The company reported no revenue. Total operating expenses for the six months ended March 31, 2019, increased to $15.6 million, largely due to a $5.9 million rise in R&D expenses for new clinical trials. Other income also increased due to grant funding - No revenues have been earned since inception; none are anticipated until alliances are established for product development or marketing[130] | Operating Expenses | Q2 FY2019 | Q2 FY2018 | H1 FY2019 | H1 FY2018 | | :----------------- | :----------- | :----------- | :----------- | :----------- | | Total | $8.1 million | $4.7 million | $15.6 million | $8.8 million | | R&D | $6.1 million | $3.2 million | $11.8 million | $5.9 million | - R&D expenses increased primarily due to the commencement of three ANAVEX®2-73 clinical studies: Phase 2b/3 Alzheimer's, Phase 2 Parkinson's Disease Dementia, and Phase 2 Rett syndrome[133] | Other Income | Q2 FY2019 | Q2 FY2018 | H1 FY2019 | H1 FY2018 | | :----------- | :----------- | :----------- | :----------- | :----------- | | Net Amount | $0.18 million | $0.0 million | $0.3 million | $0.05 million | | Grant Income | N/A | N/A | $149,055 | N/A | Liquidity and Capital Resources Working capital and cash and cash equivalents decreased due to increased cash used in operating activities for clinical development. The company relies on existing cash and future equity/debt financing, including existing agreements with Cantor Fitzgerald and Lincoln Park, to fund operations | Metric | March 31, 2019 | September 30, 2018 | | :-------------------------- | :------------- | :----------------- | | Working Capital | $14,179,176 | $20,439,114 | | Cash and cash equivalents | $19.5 million | $22.9 million | | Cash Flows (Six months ended) | 2019 | 2018 | | :---------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(8,491,627) | $(6,441,100) | | Net cash from financing activities | $5,018,834 | $4,657,427 | | Decrease in cash and cash equivalents | $(3,472,793) | $(1,783,673) | - The company has a Controlled Equity Offering Sales Agreement for up to $50,000,000 and a Purchase Agreement with Lincoln Park Capital Fund, LLC for up to $50,000,000, with $7,836,072 remaining under the latter[140][143][145] - Additional financing will be required and there is no assurance it will be available on commercially reasonable terms[145] Off-Balance Sheet Arrangements The company has no material off-balance sheet arrangements that would significantly affect its financial condition or results of operations - The company has no material off-balance sheet arrangements[148] Critical Accounting Policies There have been no significant changes to the critical accounting policies and estimates previously described in the company's Annual Report on Form 10-K - No significant changes in critical accounting policies and estimates from the Annual Report on Form 10-K for the year ended September 30, 2018[150] Recent Accounting Pronouncements This section refers to Note 2 of the financial statements for details on recently adopted and not yet adopted accounting pronouncements - Refer to Note 2 'Recent Accounting Pronouncements' for details[151] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS This item is not applicable to the company for the reporting period - This item is not applicable[151] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, and reported no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of March 31, 2019[152] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2019[153] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is not aware of any material pending legal proceedings beyond ordinary routine litigation incidental to its business, nor any adverse proceedings involving directors, officers, or major stockholders - No material pending legal proceedings, other than ordinary routine litigation incidental to the business[155] ITEM 1A. RISK FACTORS This section refers readers to the risk factors detailed in the company's Annual Report on Form 10-K, stating that no material changes have occurred since that filing - Refer to 'Item 1A – Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended September 30, 2018; no material changes have occurred[156] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company did not engage in any unregistered sales of equity securities during the reporting period that were not previously disclosed - No unregistered sales of equity securities not previously reported in a Current Report on Form 8-K during the period[157] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities - None[157] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[157] ITEM 5. OTHER INFORMATION The company entered into a Second Amendment to the Employment Agreement with its CEO, extending the term through July 5, 2022, and adjusting compensation to an annual base salary of $550,000, a 20% target bonus, and 750,000 stock options - CEO's employment agreement extended through July 5, 2022[158] - CEO's compensation includes an annual base salary of $550,000, an annual cash target bonus of 20% of base salary, and 750,000 stock options vesting over three years[158] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and material contracts such as the CEO's amended employment agreement - Exhibits include Articles of Incorporation, Rule 13a-14(a)/15(d)-14(a) Certifications, Section 1350 Certifications, and the Second Amendment to the CEO's Employment Agreement[160] SIGNATURES The report is duly signed by the Chief Executive Officer and the Principal Financial Officer, certifying its contents - The report was signed by Christopher Missling, PhD (Chief Executive Officer) and Sandra Boenisch, CPA, CGA (Principal Financial Officer) on May 8, 2019[162]