UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to________________

 

Commission file number: 001-37606

 

ANAVEX LIFE SCIENCES CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   98-0608404
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
51 W 52nd Street, 7th Floor, New York, NY USA   10019
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code 1-844-689-3939

 

Securities registered under Section 12(b) of the Act:

 

Common Stock, $0.001 par value   AVXL   NASDAQ Stock Market LLC
Title of each class   Trading Symbol   Name of each exchange on which registered

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  Yes ¨ No x
   
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
  Yes ¨ No x
   
Indicate by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes x No ¨
   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  Yes x No ¨
   
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨   Accelerated filer   x
Non-accelerated filer     ¨   Smaller reporting company   x
    Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
  Yes ¨ No x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $139,768,112 based on a price of $3.05 per share, being the closing price of the registrant’s common stock on March 31, 2019.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date 56,123,076 issued and outstanding as of December 12, 2019.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

TABLE OF CONTENTS

 

PART I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 14
ITEM 1B. UNRESOLVED STAFF COMMENTS 27
ITEM 2. PROPERTIES 27
ITEM 3. LEGAL PROCEEDINGS 27
ITEM 4. MINE SAFETY DISCLOSURES 27
PART II 27
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 27
ITEM 6 SELECTED FINANCIAL DATA 29
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 29
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS 35
ITEM 9A. CONTROLS AND PROCEDURES 35
ITEM 9B OTHER INFORMATION 35
PART III 36
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 36
ITEM 11. EXECUTIVE COMPENSATION 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 44
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 45
PART IV 46
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 46
ITEM 16. FORM 10-K SUMMARY 47

 

 

ii

 

 

Forward Looking Statements.

 

This Annual Report on Form 10-K includes forward-looking statements. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our anticipated future clinical and regulatory milestone events, future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” “should,” “forecast,” “could,” “suggest,” “plan” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such forward-looking statements include, without limitation, statements regarding:

 

·our ability to generate any revenue or to continue as a going concern;
·our ability to successfully conduct clinical and preclinical trials for our product candidates;
·our ability to raise additional capital on favorable terms and the impact of such activities on our stockholders and stock price;
·our ability to execute our research and development plan on time and on budget;
·our products ability to demonstrate efficacy or an acceptable safety profile of our product candidates;
·our ability to obtain the support of qualified scientific collaborators;
·our ability, whether alone or with commercial partners, to successfully commercialize any of our product candidates that may be approved for sale;
·our ability to identify and obtain additional product candidates;
·our reliance on third parties in non-clinical and clinical studies;
·our ability to defend against product liability claims;
·our ability to safeguard against security breaches;
·our ability to obtain and maintain sufficient intellectual property protection for our product candidates;
·our ability to comply with our intellectual property licensing agreements;
·our ability to defend against claims of intellectual property infringement;
·our ability to comply with the maintenance requirements of the government patent agencies;
·our ability to protect our intellectual property rights throughout the world;
·competition;
·the anticipated start dates, durations and completion dates of our ongoing and future clinical studies;
·the anticipated designs of our future clinical studies;
·our anticipated future regulatory submissions and our ability to receive regulatory approvals to develop and market our product candidates; and
·our anticipated future cash position.

 

We have based these forward-looking statements largely on our current expectations and projections about future events, including the responses we expect from the U.S. Food and Drug Administration, (“FDA”), and other regulatory authorities and financial trends that we believe may affect our financial condition, results of operations, business strategy, preclinical and clinical trials, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including without limitation the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These risks are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors which could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable laws including the securities laws of the United States, we assume no obligation to update or supplement forward-looking statements.

 

As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,”, “Company” and “Anavex” mean Anavex Life Sciences Corp., unless the context clearly requires otherwise.

 

iii

 

 

PART I

 

ITEM 1. BUSINESS

 

Overview and Strategy

 

Anavex Life Sciences Corp. is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. We analyze genomic data from clinical studies to identify biomarkers, which we use to select patients that will receive the therapeutic benefit for the treatment of neurodegenerative and neurodevelopmental diseases.

 

Our lead compound, ANAVEX®2-73, is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein 2 (“MECP2”).

 

Our total portfolio currently consists of five programs. To prioritize the allocation of our resources, we designate certain programs as core programs and others as seed programs. We currently have two core programs and three seed programs. Our core programs are at various stages of clinical and preclinical development, in neurodegenerative and neurodevelopmental diseases.

 

The following table summarizes key information about our programs:

 

 

 

1

 

 

Anavex has a portfolio of compounds varying in sigma-1 receptor (S1R) binding activities. The SIGMAR1 gene encodes the S1R protein, which is an intracellular chaperone protein with important roles in cellular communication. S1R is also involved in transcriptional regulation at the nuclear envelope and restores homeostasis and stimulates recovery of cell function when activated. In order to validate the ability of our compounds to activate quantitatively the S1R, we performed, in collaboration with Stanford University, a quantitative Positron Emission Tomography (PET) imaging scan in mice, which demonstrated a dose-dependent ANAVEX®2-73 target engagement or receptor occupancy (RO) with S1R in the brain.

 

 

 

Cellular Homeostasis

 

Many diseases are possibly directly caused by chronic homeostatic imbalances or cellular stress of brain cells. In pediatric diseases like Rett syndrome or infantile spasms, the chronic cellular stress is possibly caused by the presence of a constant genetic mutation. In neurodegenerative diseases, such as Alzheimer’s and Parkinson’s diseases, chronic cellular stress is possibly caused by age-correlated buildup of cellular insult and hence chronic cellular stress. Specifically, defects in homeostasis of protein or ribonucleic acid (“RNA”) lead to the death of neurons and dysfunction of the nervous system. The spreading of protein aggregates resulting in a proteinopathy, a characteristic finding in Alzheimer’s and Parkinson’s diseases that results from disorders of protein synthesis, trafficking, folding, processing or degradation in cells. The clearance of macromolecules in the brain is particularly susceptible to imbalances that result in aggregation and degeneration in nerve cells. For example, Alzheimer’s disease pathology is characterized by the presence of amyloid plaques, neurofibrillary tangles, which are aggregates of hyperphosphorylated Tau protein that are a marker of other diseases known as tauopathies as well as inflammation of microglia. With the SIGMAR1 activation through SIGMAR1 agonists like ANAVEX®2-73, our approach is to restore cellular balance, i.e. homeostasis. Therapies that correct defects in cellular homeostasis might have the potential to halt or delay neurodevelopmental and neurodegenerative disease progression.

 

2

 

 

ANAVEX®2-73-specific Biomarkers

 

A full genomic analysis of Alzheimer’s disease (AD) patients treated with ANAVEX®2-73 resulted in the identification of actionable genetic variants. A significant impact of the genomic biomarkers SIGMAR1, the direct target of ANAVEX®2-73 and COMT, a gene involved in memory function, on the drug response level was identified, leading to an early ANAVEX®2-73-specific biomarker hypothesis. It is expected that excluding patients with these two identified biomarker variants (approximately 10%-20% of the population) in prospective studies would identify approximately 80%-90% patients that would display clinically significant improved functional and cognitive scores. The consistency between the identified DNA and RNA data related to ANAVEX®2-73, which are considered independent of AD pathology, as well as multiple endpoints and time-points, provides support for precision medicine clinical development of ANAVEX®2-73 by using genetic biomarkers identified within the study population itself to target patients who are most likely to respond to ANAVEX®2-73 treatment in AD as well as indications like Parkinson’s disease dementia (PDD) or Rett syndrome (RTT) in which ANAVEX®2-73 is currently studied.

 

Clinical Studies Overview

 

Alzheimer’s Disease

 

In November 2016, we completed a Phase 2a clinical trial, consisting of PART A and PART B, which lasted a total of 57 weeks, for ANAVEX®2-73 in mild-to-moderate Alzheimer’s patients. This open-label randomized trial met both primary and secondary endpoints and was designed to assess the safety and exploratory efficacy of ANAVEX®2-73 in 32 patients. ANAVEX®2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease. In October 2017, we presented positive pharmacokinetic (PK) and pharmacodynamic (PD) data from the Phase 2a study, which established a concentration-effect relationship between ANAVEX®2-73 and study measurements. These measures obtained from all patients who participated in the entire 57 weeks include exploratory cognitive and functional scores as well as biomarker signals of brain activity. Additionally, the study appears to show that ANAVEX®2-73 activity is enhanced by its active metabolite (ANAVEX19-144), which also targets the sigma-1 receptor and has a half-life approximately twice as long as the parent molecule.

 

In March 2016, we received approval from the Ethics Committee in Australia to extend the Phase 2a clinical trial by an additional 108 weeks, which had been requested by patients and their caregivers. Subsequently, in May 2018, we received approval from the Ethics Committee in Australia to further extend the Phase 2a extension trial for an additional two years. The two consecutive trial extensions have allowed participants who completed the 52-week PART B of the study to continue taking ANAVEX®2-73, providing an opportunity to gather extended safety data for a cumulative time period of five years.

 

In October 2018, we presented new long-term clinical data for ANAVEX®2-73 in a presentation at the 2018 Clinical Trials on Alzheimer’s Disease (CTAD) Meeting. At 148 weeks into the five-year extended Phase 2a clinical study, data confirmed a significant association between ANAVEX®2-73 concentration and both exploratory functional and cognitive endpoints as measured by the Alzheimer’s Disease Cooperative Study-Activities of Daily Living (ADCS-ADL) evaluation and the Mini Mental State Examination (MMSE), respectively. The cohort of patients treated with higher ANAVEX®2-73 concentration maintained ADCS-ADL performance compared to the lower concentration cohort (p<0.0001). As well, the patient cohort with the higher ANAVEX®2-73 concentration performed better at MMSE compared to the lower concentration cohort (p<0.0008). A significant impact on the drug response levels of both the SIGMAR1 (p<0.0080) and COMT (p<0.0014) genomic biomarkers, identified and specified at week 57, was also confirmed over the 148-week period. Further, ANAVEX®2-73 demonstrated continued favorable safety and tolerability through 148 weeks.

 

3

 

 

A larger Phase 2b/3 double-blind, placebo-controlled study of ANAVEX®2-73 in Alzheimer’s disease commenced in August 2018, which is independent of the ongoing Phase 2a extension study. The Phase 2b/3 study will enroll approximately 450 patients for 48 weeks, randomized 1:1:1 to two different ANAVEX®2-73 doses or placebo. The trial is currently taking place in Australia; however, additional regions are being added. The ANAVEX®2-73 Phase 2b/3 study design incorporates genomic precision medicine biomarkers identified in the ANAVEX®2-73 Phase 2a study. Primary and secondary endpoints will assess safety and both cognitive and functional efficacy, measured through Alzheimer’s Disease Assessment Scale – Cognition (ADAS-Cog), ADCS-ADL and Clinical Dementia Rating – Sum of Boxes for cognition and function (CDR-SB).

 

In October 2019, we initiated a long-term open label extension study, entitled the ATTENTION-AD study, for patients who have completed the 48-week Phase 2b/3 placebo-controlled trial. This study is expected to last two years and will give patients the opportunity to continue their treatment.

 

Rett Syndrome

 

In February 2016, we presented positive preclinical data for ANAVEX®2-73 in Rett syndrome, a rare neurodevelopmental disease. The study was funded by the International Rett Syndrome Foundation (“Rettsyndrome.org”). In January 2017, we were awarded a financial grant from Rettsyndrome.org of a minimum of $0.6 million to cover some of the costs of a multicenter Phase 2 clinical trial of ANAVEX®2-73 for the treatment of Rett syndrome. This award is being received in quarterly instalments which commenced during fiscal 2018.

 

In March 2019, we commenced the first Phase 2 clinical trial in a planned Rett syndrome program of ANAVEX®2-73 for the treatment of Rett syndrome. The studies will be conducted in a range of patient age demographics and geographic regions.

 

The first Phase 2 study, which commenced in March 2019, is taking place in the United States and is a randomized double-blind, placebo-controlled safety, tolerability, pharmacokinetic and efficacy study of oral liquid ANAVEX®2-73 formulation to treat Rett syndrome. Pharmacokinetic and dose findings will be investigated in a total of 21 patients over a 7-week treatment period including ANAVEX®2-73-specific genomic precision medicine biomarkers. All patients who participate in the study will be eligible to receive ANAVEX®2-73 under a voluntary open label extension protocol. Primary and secondary endpoints include safety as well as Rett syndrome conditions such as cognitive impairment, motor impairment, behavioral symptoms and seizure activity. The ANAVEX®2-73 Phase 2 Rett syndrome study designs incorporate genomic precision medicine biomarkers identified in the ANAVEX®2-73 Phase 2a Alzheimer’s disease study.

 

In June 2019, we commenced the second Phase 2 study of ANAVEX®2-73 for the treatment of Rett syndrome, called the AVATAR study. This study is taking place in Australia using a convenient once-daily oral liquid ANAVEX®2-73 formulation. Similar to the United States-based Phase 2 study for Rett syndrome, the study will evaluate the safety and efficacy of ANAVEX®2-73 in approximately 33 patients over a 7-week treatment period including ANAVEX®2-73 specific precision medicine biomarkers. All patients who participate in the study will be eligible to receive ANAVEX®2-73 under a voluntary open label extension protocol.

 

In September 2019, we announced approval from the Australian Human Research Ethics Committee to commence the third study of ANAVEX®2-73 for the treatment of Rett syndrome, called the EXCELLENCE study. Similar to the AVATAR study, this study is taking place in Australia and is using a convenient once-daily oral liquid ANAVEX®2-73 formulation. The study will evaluate the safety and efficacy of ANAVEX®2-73 in approximately 69 pediatric patients, aged 5 to 18, over a 12-week treatment period incorporating ANAVEX®2-73 specific precision medicine biomarkers. All patients who participate in the study will be eligible to receive ANAVEX®2-73 under a voluntary open label extension protocol.

 

4

 

 

Parkinson’s Disease

 

In September 2016, we presented positive preclinical data for ANAVEX®2-73 in Parkinson’s disease, which demonstrated significant improvements on all measures: behavioral, histopathological, and neuroinflammatory endpoints. The study was funded by the Michael J. Fox Foundation. Additional data was announced in October 2017 from the model for experimental parkinsonism. The data presented indicates that ANAVEX®2-73 induces robust neurorestoration in experimental parkinsonism. The encouraging results we have gathered in this model, coupled with the favorable profile of this compound in the Alzheimer’s disease trial, support the notion that ANAVEX®2-73 is a promising clinical candidate drug for Parkinson’s disease.

 

In October 2018, we initiated a double-blind, randomized, placebo-controlled Phase 2 trial with ANAVEX®2-73 in Parkinson’s Disease Dementia (PDD), which will study the effect of the compound on both the cognitive and motor impairment of Parkinson’s disease. The Phase 2 study will enroll approximately 120 patients for 14 weeks, randomized 1:1:1 to two different ANAVEX®2-73 doses or placebo. The ANAVEX®2-73 Phase 2 PDD study design incorporates genomic precision medicine biomarkers identified in the ANAVEX®2-73 Phase 2a study. The study is currently taking place in Spain and Australia.

 

Our Pipeline

 

Our research and development pipeline includes ANAVEX®2-73 currently in three different clinical studies, and several other compounds in different stages of pre-clinical study.

 

Our proprietary SIGMACEPTOR™ Discovery Platform produced small molecule drug candidates with unique modes of action, based on our understanding of sigma receptors. Sigma receptors may be targets for therapeutics to combat many human diseases, both of neurodegenerative nature, including Alzheimer’s disease, as well as of neurodevelopmental nature, like Rett syndrome. When bound by the appropriate ligands, sigma receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin or development) of disease.

 

Compounds that have been subjects of our research include the following:

 

ANAVEX®2-73

 

ANAVEX®2-73 may offer a disease-modifying approach in neurodegenerative and neurodevelopmental diseases by activation of sigma-1 receptors.

 

In Rett syndrome, administration of ANAVEX®2-73 resulted in both significant and dose related improvements in an array of behavioral paradigms in the MECP2 HET Rett syndrome disease model. In addition, in a further experiment sponsored by Rettsyndrome.org, ANAVEX®2-73 was evaluated in automatic visual response and respiration tests in 7-month old mice, an age at which advanced pathology is evident. Vehicle-treated MECP2 mice demonstrated fewer automatic visual responses than wild-type mice. Treatment with ANAVEX®2-73 for four weeks significantly increased the automatic visual response in the MECP2 Rett syndrome disease mouse. Additionally, chronic oral dosing daily for 6.5 weeks of ANAVEX®2-73 starting at ~5.5 weeks of age was conducted in the MECP2 HET Rett syndrome disease mouse model assessed the different aspects of muscular coordination, balance, motor learning and muscular strengths, some of the core deficits observed in Rett syndrome. Administration of ANAVEX®2-73 resulted in both significant and dose related improvements in an array of these behavioral paradigms in the MECP2 HET Rett syndrome disease model.

 

In March 2019, we commenced the first Phase 2 clinical trial in a planned Rett syndrome program of ANAVEX®2-73 for the treatment of Rett syndrome. The studies will be conducted in a range of patient age demographics and geographic regions, as more fully described above under Clinical Studies Overview – Rett Syndrome.

 

5

 

 

In May 2016 and June 2016, the FDA granted Orphan Drug Designation to ANAVEX®2-73 for the treatment of Rett syndrome and infantile spasms, respectively. Further, in November 2019, the FDA granted to ANAVEX®2-73 the Rare Pediatric Disease (RPD) designation for the treatment of Rett syndrome. The RPD designation provides priority review by the FDA to encourage the development of treatments for rare pediatric diseases.

 

For Parkinson’s disease, data demonstrates significant improvements and restoration of function in a disease modifying animal model of Parkinson’s disease. Significant improvements were seen on all measures tested: behavioral, histopathological, and neuroinflammatory endpoints. In July 2018 the Company received approval from the Spanish Agency for Medicinal Products and Medical Devices (AEMPS), to initiate its Phase 2, double-blind, placebo-controlled 14-week trial of the safety and efficacy of ANAVEX®2-73 for the treatment of Parkinson’s disease dementia. The Phase 2 study commenced in October 2018 and will enroll 120 patients, randomized 1:1:1 to two different ANAVEX®2-73 doses or placebo, in up to 24 clinical study sites across Spain and Australia.

 

In Alzheimer’s disease (AD) animal models, ANAVEX®2-73 has shown pharmacological, histological and behavioral evidence as a potential neuroprotective, anti-amnesic, anti-convulsive and anti-depressive therapeutic agent, due to its potent affinity to sigma-1 receptors and moderate affinities to M1-4 type muscarinic receptors. In addition, ANAVEX®2-73 has shown a potential dual mechanism which may impact both amyloid and tau pathology. In a transgenic AD animal model Tg2576, ANAVEX®2-73 induced a statistically significant neuroprotective effect against the development of oxidative stress in the mouse brain, as well as significantly increased the expression of functional and synaptic plasticity markers that is apparently amyloid-beta independent. It also statistically alleviated the learning and memory deficits developed over time in the animals, regardless of sex, both in terms of spatial working memory and long-term spatial reference memory.

 

Based on the results of pre-clinical testing, we initiated and completed a Phase 1 single ascending dose (SAD) clinical trial of ANAVEX®2-73. In this Phase 1 SAD trial, the maximum tolerated single dose was defined per protocol as 55-60 mg. This dose is above the equivalent dose shown to have positive effects in mouse models of AD. There were no significant changes in laboratory or electrocardiogram (ECG) parameters. ANAVEX®2-73 was well tolerated below the 55-60 mg dose with only mild adverse events in some subjects. Observed adverse events at doses above the maximum tolerated single dose included headache and dizziness, which were moderate in severity and reversible. These side effects are often seen with drugs that target CNS conditions, including AD.

 

The ANAVEX®2-73 Phase 1 SAD trial was conducted as a randomized, placebo-controlled study. Healthy male volunteers between the ages of 18 and 55 received single, ascending oral doses over the course of the trial. Study endpoints included safety and tolerability together with pharmacokinetic parameters. Pharmacokinetics includes the absorption and distribution of a drug, the rate at which a drug enters the blood and the duration of its effect, as well as chemical changes of the substance in the body. This study was conducted in Germany in collaboration with ABX-CRO, a clinical research organization that has conducted several Alzheimer’s disease studies, and the Technical University of Dresden.

 

In December 2014, a Phase 2a clinical trial was initiated for ANAVEX®2-73, for the treatment of Alzheimer’s disease. The open-label randomized trial was designed to assess the safety and exploratory efficacy of ANAVEX®2-73 in 32 patients with mild-to-moderate Alzheimer’s disease. ANAVEX®2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s disease.

 

6

 

 

The Phase 2a study met both primary and secondary objectives of the study. The 31-week preliminary exploratory safety and efficacy data from the Phase 2a study of ANAVEX®2-73 in Alzheimer’s patients, with most receiving also donepezil, the current standard of care, demonstrated favorable safety, maximum tolerated dose, positive dose response, sustained efficacy response through 31 weeks for both cognitive and functional measures, as well as positive unexpected therapeutic response events. ANAVEX®2-73 continued to demonstrate a favorable adverse event (AE) profile through 31 weeks in a patient population of elderly Alzheimer’s patients with varying degrees of physical fragility. The most common side effects across all AE categories tended to be of mild severity grade 1 and were resolved with dose reductions that were anticipated within the adaptive design of the study protocol.

 

Through 57 weeks, Alzheimer’s patients taking a daily oral dose between 10mg and 50mg of ANAVEX®2-73 was well tolerated. There were no clinically significant treatment-related adverse events and no serious adverse events. Despite non-optimized dosing of ANAVEX®2-73 throughout the 57-week study, continued significant improvements from baseline of cognitive, functional and behavioral scores in a group of patients were observed, respectively. This data was analyzed using refined mathematical modeling methods in conjunction with the detailed pharmacokinetic (PK) information.

 

In October 2017, we presented positive PK and PD data from the Phase 2a study, which established a concentration-effect relationship between ANAVEX®2-73 and study measurements. These measures, obtained from all patients who participated in the entire 57 weeks, include exploratory cognitive and functional scores as well as biomarker signals of brain activity. Additionally, the study appears to show that ANAVEX®2-73 activity is enhanced by its active metabolite (ANAVEX19-144), which also targets the sigma-1 receptor and has a half-life approximately twice as long as the parent molecule.

 

Pre-specified exploratory analyses included the cognitive (MMSE) and the functional (ADCS-ADL) changes from baseline. A continued stabilization of both cognitive and functional measures in patients treated with ANAVEX®2-73 was observed. This correlation was positive within all measured scores (MMSE, ADCS-ADL, Cogstate, HAM-D and EEG/ERP).

 

In July 2018, we presented the results of a genomic DNA and RNA evaluation of the participants in the Phase 2a study. More than 33,000 genes were analyzed using unbiased, data driven, machine learning, artificial intelligence (AI) system for analyzing DNA & RNA data in patients exposed to ANAVEX®2-73. The analysis identified genetic variants that impacted response to ANAVEX®2-73, among them variants related to the Sigma-1 receptor (SIGMAR1), the target for ANAVEX®2-73. Results showed that study participants without the SIGMAR1 (rs1800866) variants, which is about 80 percent of the population worldwide, demonstrated improved cognitive (MMSE) and the functional (ADCS-ADL) scores. The results from this evaluation may enable a precision medicine approach, since these signatures can now be applied to neurological indications tested in clinical studies with ANAVEX®2-73 including Alzheimer’s disease, Parkinson’s disease dementia and Rett syndrome.

 

ANAVEX®2-73 data presented met prerequisite information in order to progress into a Phase 2b/3 placebo-controlled study. On July 2, 2018, the Human Research Ethics Committee in Australia approved the initiation of our Phase 2b/3, double-blind, randomized, placebo-controlled 48-week safety and efficacy trial of ANAVEX®2-73 for the treatment of early Alzheimer’s disease. This Phase 2b/3 study design incorporates inclusion of genomic precision medicine biomarkers identified in the ANAVEX®2-73 Phase 2a study. The Phase 2b/3 study, which is expected to enroll approximately 450 patients, randomized 1:1:1 to either two different ANAVEX®2-73 doses or placebo, commenced in October 2018.

 

Preclinical data also validates ANAVEX®2-73 as a prospective platform drug for other neurodegenerative diseases beyond Alzheimer’s disease, Parkinson’s disease or Rett syndrome, more specifically, epilepsy, infantile spasms, Fragile X syndrome, Angelman syndrome, multiple sclerosis and, more recently, tuberous sclerosis complex (TSC). ANAVEX®2-73 demonstrated significant improvements in all of these indications in the respective preclinical animal models.

 

7

 

 

In a study sponsored by the Foundation for Angelman Syndrome, ANAVEX®2-73 was assessed in a mouse model for the development of audiogenic seizures.  The results indicated that ANAVEX®2-73 administration significantly reduced audiogenic-induced seizures. In a study sponsored by FRAXA Research Foundation regarding Fragile X syndrome, data demonstrated that ANAVEX®2-73 restored hippocampal brain-derived neurotrophic factor (BDNF) expression to normal levels. BDNF under-expression has been observed in many neurodevelopmental and neurodegenerative pathologies. BDNF signaling promotes maturation of both excitatory and inhibitory synapses. ANAVEX®2-73 normalization of BDNF expression could be a contributing factor for the positive data observed in both neurodevelopmental and neurodegenerative disorders like Angelman and Fragile X syndromes.

 

Preclinical data presented also indicates that ANAVEX®2-73 demonstrates protective effects of mitochondrial enzyme complexes during pathological conditions, which, if impaired, are believed to play a role in the pathogenesis of neurodegenerative and neurodevelopmental diseases.

 

Preclinical data on ANAVEX®2-73 related to multiple sclerosis indicates that ANAVEX®2-73 may promote remyelination in multiple sclerosis disease. Further, data also demonstrates that ANAVEX®2-73 provides protection for oligodendrocytes (“OL’s”) and oligodendrocyte precursor cells (“OPC’s”), as well as central nervous system neurons in addition to helping repair by increasing OPC proliferation and maturation in tissue culture.

 

In March 2018, we presented preclinical data of ANAVEX®2-73 in a genetic mouse model of tuberous sclerosis complex (“TSC”). TSC is a rare genetic disorder characterized by the growth of numerous benign tumors in many parts of the body with a high incidence of seizures. The new preclinical data demonstrates that treatment with ANAVEX®2-73 significantly increases survival and reduces seizures.

 

ANAVEX®3-71

 

ANAVEX®3-71 is a preclinical drug candidate with a novel mechanism of action via sigma-1 receptor activation and M1 muscarinic allosteric modulation, which has been shown to enhance neuroprotection and cognition in Alzheimer’s disease models. ANAVEX®3-71 is a CNS-penetrable mono-therapy that bridges treatment of both cognitive impairments with disease modifications. It is highly effective in very small doses against the major Alzheimer’s hallmarks in transgenic (3xTg-AD) mice, including cognitive deficits, amyloid and tau pathologies, and also has beneficial effects on inflammation and mitochondrial dysfunctions. ANAVEX®3-71 indicates extensive therapeutic advantages in Alzheimer’s and other protein-aggregation-related diseases given its ability to enhance neuroprotection and cognition via sigma-1 receptor activation and M1 muscarinic allosteric modulation.

 

A preclinical study examined the response of ANAVEX®3-71 in aged transgenic animal models and showed a significant reduction in the rate of cognitive deficit, amyloid beta pathology and inflammation with the administration of ANAVEX 3-71. In April 2016, the FDA granted Orphan Drug Designation to ANAVEX®3-71 for the treatment of Frontotemporal dementia (FTD).

 

During pathological conditions ANAVEX®3-71 demonstrated the formation of new synapses between neurons (synaptogenesis) without causing an abnormal increase in the number of astrocytes. In neurodegenerative diseases such as Alzheimer’s and Parkinson’s disease, synaptogenesis is believed to be impaired. Additional preclinical data presented also indicates that in addition to reducing oxidative stress, ANAVEX®3-71 demonstrates protective effects of mitochondrial enzyme complexes during pathological conditions, which, if impaired, are believed to play a role in the pathogenesis of neurodegenerative and neurodevelopmental diseases.

 

ANAVEX®1-41

 

ANAVEX®1-41 is a sigma-1 agonist. Pre-clinical tests revealed significant neuroprotective benefits (i.e., protects nerve cells from degeneration or death) through the modulation of endoplasmic reticulum, mitochondrial and oxidative stress, which damages and impairs cell viability. In addition, in animal models, ANAVEX®1-41 prevented the expression of caspase-3, an enzyme that plays a key role in apoptosis (programmed cell death) and loss of cells in the hippocampus, the part of the brain that regulates learning, emotion and memory. These activities involve both muscarinic and sigma-1 receptor systems through a novel mechanism of action.

 

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Preclinical data presented also indicates that ANAVEX®1-41 demonstrates protective effects of mitochondrial enzyme complexes during pathological conditions, which, if impaired, are believed to play a role in the pathogenesis of neurodegenerative and neurodevelopmental diseases.

 

ANAVEX®1066

 

ANAVEX®1066, a mixed sigma-1/sigma-2 ligand is designed for the potential treatment of neuropathic and visceral pain. ANAVEX®1066 was tested in two preclinical models of neuropathic and visceral pain that have been extensively validated in rats. In the chronic constriction injury model of neuropathic pain, a single oral administration of ANAVEX®1066 dose-dependently restored the nociceptive threshold in the affected paw to normal levels while leaving the contralateral healthy paw unchanged. Efficacy was rapid and remained significant for two hours. In a model of visceral pain, chronic colonic hypersensitivity was induced by injection of an inflammatory agent directly into the colon and a single oral administration of ANAVEX®1066 returned the nociceptive threshold to control levels in a dose-dependent manner. Companion studies in rats demonstrated the lack of any effects on normal gastrointestinal transit with ANAVEX®1066 and a favorable safety profile in a battery of behavioral measures.

 

Our compounds are in the pre-clinical and clinical testing stages of development, and there is no guarantee that the activity demonstrated in pre-clinical models will be shown in human testing.

 

ANAVEX®1037

 

ANAVEX®1037 is designed for the treatment of prostate and pancreatic cancer. It is a low molecular weight, synthetic compound exhibiting high affinity for sigma-1 receptors at nanomolar levels and moderate affinity for sigma-2 receptors and sodium channels at micromolar levels. In advanced pre-clinical studies, this compound revealed antitumor potential. It has also been shown to selectively kill human cancer cells without affecting normal/healthy cells and also to significantly suppress tumor growth in immune-deficient mice models. Scientific publications highlight the possibility that these ligands may stop tumor growth and induce selective cell death in various tumor cell lines. Sigma receptors are highly expressed in different tumor cell types. Binding by appropriate sigma-1 and/or sigma-2 ligands can induce selective apoptosis. In addition, through tumor cell membrane reorganization and interactions with ion channels, our drug candidates may play an important role in inhibiting the processes of metastasis (spreading of cancer cells from the original site to other parts of the body), angiogenesis (the formation of new blood vessels) and tumor cell proliferation.

 

We continue to identify and initiate discussions with potential strategic and commercial partners to most effectively advance our programs and realize maximum shareholder value. Further, we may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further our goals.

 

Our Target Indications

 

We have developed compounds with potential application to two broad categories and several specific indications. including:

 

Central Nervous System Diseases

 

·Alzheimer’s disease – In 2019, an estimated 5.8 million Americans were suffering from Alzheimer’s disease. The Alzheimer’s Association® reports that by 2025, 7.2 million Americans will be afflicted by the disease, about a 24 percent increase from currently affected patients. Medications on the market today treat only the symptoms of Alzheimer’s disease and do not have the ability to stop its onset or its progression. There is an urgent and unmet need for both a disease modifying cure for Alzheimer’s disease as well as for better symptomatic treatments.

 

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·Parkinson’s disease – Parkinson’s disease is a progressive disease of the nervous system marked by tremors, muscular rigidity, and slow, imprecise movement. It is associated with degeneration of the basal ganglia of the brain and a deficiency of the neurotransmitter dopamine. Parkinson’s disease afflicts more than 10 million people worldwide, typically middle-aged and elderly people. The Parkinson’s disease market is set to expand to $3.2 billion by 2021, according to business intelligence provider GBI Research.

 

·Rett syndrome - Rett syndrome is a rare X-linked genetic neurological and developmental disorder that affects the way the brain develops, including protein transcription, which is altered and as a result leads to severe disruptions in neuronal homeostasis. It is considered a rare, progressive neurodevelopmental disorder and is caused by a single mutation in the MECP2 gene. Because males have a different chromosome combination from females, boys who have the genetic MECP2 mutation are affected in devastating ways. Most of them die before birth or in early infancy. For females who survive infancy, Rett syndrome leads to severe impairments, affecting nearly every aspect of the child’s life; severe mental retardation, their ability to speak, walk and eat, sleeping problems, seizures and even the ability to breathe easily. Rett syndrome affects approximately 1 in every 10,000-15,000 females.

 

·Depression - Depression is a major cause of morbidity worldwide according to the World Health Organization. Pharmaceutical treatment for depression is dominated by blockbuster brands, with the leading nine brands accounting for approximately 75% of total sales. However, the dominance of the leading brands is waning, largely due to the effects of patent expiration and generic competition.

 

·Epilepsy - Epilepsy is a common chronic neurological disorder characterized by recurrent unprovoked seizures. These seizures are transient signs and/or symptoms of abnormal, excessive or synchronous neuronal activity in the brain. According to the Centers for Disease Control and Prevention, epilepsy affects 3.4 million Americans. Today, epilepsy is often controlled, but not cured, with medication that is categorized as older traditional anti-epileptic drugs and second generation anti-epileptic drugs. Because epilepsy afflicts sufferers in different ways, there is a need for drugs used in combination with both traditional anti-epileptic drugs and second generation anti-epileptic drugs.

 

·Neuropathic Pain – We define neuralgia, or neuropathic pain, as pain that is not related to activation of pain receptor cells in any part of the body. Neuralgia is more difficult to treat than some other types of pain because it does not respond well to normal pain medications. Special medications have become more specific to neuralgia and typically fall under the category of membrane stabilizing drugs or antidepressants.

 

Cancer

 

·Malignant Melanoma - Predominantly a skin cancer, malignant melanoma can also occur in melanocytes found in the bowel and the eye. Malignant melanoma accounts for 75% of all deaths associated with skin cancer. The treatment includes surgical removal of the tumor, adjuvant treatment, chemo and immunotherapy, or radiation therapy. According to IMS Health the worldwide malignant melanoma market is expected to grow to $4.4 billion by 2022.

 

·Prostate Cancer – Specific to men, prostate cancer is a form of cancer that develops in the prostate, a gland in the male reproductive system. The cancer cells may metastasize from the prostate to other parts of the body, particularly the bones and lymph nodes. Drug therapeutics for prostate cancer are expected to increase to nearly $13.5 billion in 2024 according to Datamonitor Healthcare.

 

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·Pancreatic Cancer - Pancreatic cancer is a malignant neoplasm of the pancreas. In the United States, approximately 55,000 new cases of pancreatic cancer will be diagnosed this year and approximately 44,000 patients will die as a result of their cancer, according to the American Cancer Society. Sales predictions by GBI Research forecast that the market for the pharmaceutical treatment of pancreatic cancer in the United States and five largest European countries will increase to $2.9 billion by 2021.

 

Competition

 

The pharmaceutical industry is intensely competitive.

 

At this time, our competitors are other biomedical development companies that are trying to discover and develop compounds to be used in the treatment of Alzheimer’s disease and other CNS diseases, and those companies already doing so. Those companies include Biogen (NASDAQ:BIIB), Perrigo Company Plc (NYSE:PRGO), Pfizer Inc. (NYSE:PFE), Allergan Plc (NYSE:AGN), Novartis AG (NYSE:NVS), GlaxoSmithKline Plc (NYSE:GSK), Merck & Co. Inc. (NYSE:MRK), Eli Lilly & Co. (NYSE: LLY), Johnson & Johnson (NYSE:JNJ) and Roche Holding AG (VTX:ROG). For additional discussion of the risks related to competition, see Item 1A “Risk Factors.”

 

Patents, Trademarks and Intellectual Property

 

We hold ownership or exclusive rights to eight U.S. patents, eight U.S. patent applications, and various PCT or ex-U.S. patent applications relating to our drug candidates, methods associated therewith, and to our research programs.

 

We own one issued U.S. patent entitled “ANAVEX®2-73 and certain anticholinesterase inhibitors composition and method for neuroprotection” claims a composition of matter of ANAVEX®2-73 directed to a novel and synergistic neuroprotective compound combined with donepezil and other cholinesterase inhibitors.  This patent is expected to expire in June 2034, absent any patent term extension for regulatory delays. We own two issued U.S. patents each with claims directed to crystalline forms of ANAVEX®2-73. The first of these two patents claims crystalline forms of ANAVEX®2-73, dosage forms and compositions containing crystalline ANAVEX®2-73, and methods of treatment for Alzheimer’s disease using them. This patent is expected to expire in July 2036, absent any patent term extension for regulatory delays. The second of these two patents claims pharmaceutical compositions containing a crystalline form of ANAVEX®2-73, and methods of treatment for Alzheimer’s disease using the compositions. This patent is expected to expire in June 2037, absent any patent term extension for regulatory delays. We also own an issued U.S. patent that claims methods and dosage forms for treating seizures, the dosage forms containing a low-dose anti-epilepsy drug combined with either: (i) ANAVEX®2-73 and its active metabolite ANAVEX®19-144; or (ii) ANAVEX®19-144. This patent is expected to expire in October 2035, absent any patent term extension for regulatory delays. In addition, we own one issued U.S. Patent with claims directed to methods of treating melanoma with a compound related to ANAVEX®2-73. This patent is expected to expire in February 2030, absent any patent term extension for regulatory delays.

 

We also own one issued patent with claims directed to methods for treating or preventing pain with ANAVEX®1066. This patent is expected to expire in November 2036, absent any patent term extension for regulatory delays.

 

With regard to ANAVEX®3-71, we own exclusive rights to two issued U.S. patents with claims respectively directed to the ANAVEX®3-71 compound and methods of treating various diseases including Alzheimer’s with the same. These patents are expected to expire in April 2030, and January 2030, respectively, absent any patent term extension for regulatory delays. We also own exclusive rights to related patents or applications that are granted or pending in Australia, Canada, China, Europe, Japan, Korea, New Zealand, Russia, and South Africa, and are expected to expire in January 2030.

 

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We also own other patent applications directed to enantiomers, formulations and uses that may provide additional protection for one or more of our product candidates.  

 

We regard patents and other intellectual property rights as corporate assets. Accordingly, we attempt to optimize the value of intellectual property in developing our business strategy including the selective development, protection, and exploitation of our intellectual property rights. In addition to filings made with intellectual property authorities, we protect our intellectual property and confidential information by means of carefully considered processes of communication and the sharing of information, and by the use of confidentiality and non-disclosure agreements and provisions for the same in contractor’s agreements. While no agreement offers absolute protection, such agreements provide some form of recourse in the event of disclosure, or anticipated disclosure.

 

Our intellectual property position, like that of many biomedical companies, is uncertain and involves complex legal and technical questions for which important legal principles are unresolved. For more information regarding challenges to our existing or future patents, see Item 1A “Risk Factors.”

 

Government Approval

 

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture, and expected marketing of our potential drug compounds and in potential future research and development activities. The nature and extent to which such regulation will apply to us will vary depending on the nature of any potential drug compounds developed. We anticipate that all of our potential drug compounds will require regulatory approval by governmental agencies prior to commercialization.

 

The process of obtaining these approvals and the subsequent compliance with the appropriate federal statutes and regulations requires substantial time and financial resources. For more information regarding the risks related to obtaining government approvals, see Item 1A “Risk Factors.”

 

The steps ordinarily required before a new drug may be marketed in the United States, which are similar to steps required in most other countries, include:

 

·non-clinical laboratory tests, non-clinical studies in animals, formulation studies and the submission to the FDA of an IND;
·adequate and well-controlled clinical trials to establish the safety and efficacy of the drug;
·the submission of a new drug application, or NDA, or biologic license application, or BLA, to the FDA; and
·FDA review and approval of the New Drug Application (NDA) or biologics license application (BLA).

 

Non-clinical tests include laboratory evaluation of potential drug compound chemistry, formulation and toxicity, as well as animal studies. The results of non-clinical testing are submitted to the FDA as part of an IND. A 30-day waiting period after the filing of each IND is required prior to commencement of clinical testing in humans. At any time during the 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials under specified terms. The FDA may require additional animal testing after an initial IND is approved and prior to Phase III trials.

 

Clinical trials to support NDAs are typically conducted in three sequential phases, although the phases may overlap. During Phase I, clinical trials are conducted with a small number of subjects to assess metabolism, pharmacokinetics, and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to assess the efficacy of the drug in specific, targeted indications; assess dosage tolerance and optimal dosage; and identify possible adverse effects and safety risks.

 

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If a compound is found to be potentially effective and to have an acceptable safety profile in Phase I and II evaluations, Phase III trials are undertaken to further demonstrate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical trial sites.

 

After successful completion of the required clinical trials, a NDA is generally submitted. The FDA may request additional information before accepting the NDA for filing, in which case the NDA must be resubmitted with the additional information. Once the submission has been accepted for filing, the FDA reviews the NDA and responds to the applicant. The FDA’s requests for additional information or clarification often significantly extends the review process. The FDA may refer the NDA to an appropriate advisory committee for review, evaluation, and recommendation as to whether the NDA should be approved, although the FDA is not bound by the recommendation of an advisory committee.

 

Under the United States Orphan Drug Act, a sponsor may request that the FDA designate a drug intended to treat a “rare disease or condition” as an “orphan drug.” A “rare disease or condition” is one which affects less than 200,000 people in the United States, or which affects more than 200,000 people, but for which the cost of developing and making available the product is not expected to be recovered from sales of the product in the United States. Upon the approval of the first NDA or BLA for a drug designated as an orphan drug for a specified indication, the sponsor of that NDA or BLA is entitled to seven years of exclusive marketing rights in the United States unless the sponsor cannot assure the availability of sufficient quantities to meet the needs of persons with the disease. However, orphan drug status is particular to the approved indication and does not prevent another company from seeking approval of an off-patent drug that has other labeled indications that are not under orphan or other exclusivities. Orphan drugs may also be eligible for federal income tax credits for costs associated with the drugs’ development. In order to increase the development and marketing of drugs for rare disorders, regulatory bodies outside the United States have enacted regulations similar to the Orphan Drug Act.

 

Sales outside the United States of potential drug compounds we develop will also be subject to foreign regulatory requirements governing human clinical trials and marketing for drugs. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. In most cases, if the FDA has not approved a potential drug compound for sale in the United States, the potential drug compound may be exported for sale outside of the United States, only if it has been approved in any one of the following: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa. There are specific FDA regulations that govern this process.

 

Research and Development Expenses

 

Historically, a significant portion of our operating expenses has related to research and development. See our Consolidated Financial Statements contained elsewhere in this Annual Report for costs and expenses related to research and development, and other financial information for fiscal years 2019 and 2018.

 

Scientific Advisors

 

We are advised by scientists and physicians with experience relevant to our Company and our product candidates. Our scientific advisors include clinicians and scientists who are affiliated with a number of highly regarded medical institutions.

 

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Employees

 

We currently have sixteen full-time employees, and we retain several independent contractors on a regular or as-needed basis. We believe that we have good relations with our employees.

 

Available Information

 

Our internet website address is www.anavex.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website. We include our website address in this report only as an inactive textual reference and do not intend it to be an active link to our website. The contents of our website are not incorporated into this report.

 

ITEM 1A. RISK FACTORS

 

In addition to other information in this Annual Report on Form 10-K, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.

 

Risks Related to our Company

 

We have had a history of losses and no revenue, and we are dependent on financing cash flows to support our research and development activities.

Since inception through September 30, 2019, we have an accumulated a deficit of over $133 million. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. As a result, our management expects the business to continue to experience negative cash flows for the foreseeable future and cannot predict when, if ever, our business might become profitable. We believe that our existing cash and cash equivalents, along with existing financial commitments from third parties, will be sufficient to meet our cash commitments for in excess of two years after the date of this filing. The assumptions upon which we have based our estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of our research and development programs and the level of financial resources available. We have the ability to adjust our operating plan spending levels based on the timing of future clinical trials. We will need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations.

We are an early stage pharmaceutical research and development company and may never be able to successfully develop marketable products or generate any revenue. We have a very limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is no assurance that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease operations.

 

We are an early stage company and have not generated any revenues to date and have no operating history. All of our potential drug compounds are in the concept stage or early clinical development stage. Moreover, we cannot be certain that our research and development efforts will be successful or, if successful, that our potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. We have no relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of potential drug compounds either in non-clinical testing or in clinical trials, failure to establish business relationships and competitive disadvantages against larger and more established companies. If we fail to become profitable, we may suspend or cease operations.

 

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We will need additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate our research and development activities.

 

We will need to raise additional funding and the current economic conditions may have a negative impact on our ability to raise additional needed capital on terms that are favorable to our Company or at all. We may not be able to generate significant revenues for several years, if at all. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development activities.

We have identified a material weakness in our internal control over financial reporting related to accounting for the Australian research and development incentive program

During the preparation of our financial statements for the year ended September 30, 2019, we identified an adjustment regarding our accounting for research and development incentive income associated with the Australian research and development incentive program. Specifically, previously the Company accounted for research and development incentive income when received in cash. During the preparation of our financial statements for the year ended September 30, 2019, we determined, based on a continuing assessment of the Company’s eligibility for the incentive programs under which it was receiving such income, that the income should have been accrued and recorded earlier, specifically in the period in which the qualifying research and development expenditures were incurred. The cumulative impact of adjusting the above noted historical amounts resulted in a decrease in our reported net loss for the year ended September 30, 2018, as well as an increase in the reported assets as of September 30, 2018. As a result of the adjustment, we identified a material weakness in our internal control over financial reporting related to the accounting of the Australian research and development incentive program during the year ended September 30, 2019. Please refer to Item 9A Controls and Procedures.

Risks Related to our Business

Even if we are able to develop our potential drug compounds, we may not be able to receive regulatory approval, or if approved, we may not be able to generate significant revenues or successfully commercialize our products, which will adversely affect our financial results and financial condition and we will have to delay or terminate some or all of our research and development plans which may force us to cease operations.

 

All of our potential drug compounds will require extensive additional research and development, including non-clinical testing and clinical trials, as well as regulatory approvals, before we can market them. In particular, human therapeutic products are subject to rigorous non-clinical and clinical testing and other approval procedures of the FDA and similar regulatory authorities in other countries. Various federal statutes and regulations also govern or influence testing, manufacturing, safety, labeling, storage, and record-keeping related to such products and their marketing. We cannot predict if or when any of the potential drug compounds we intend to develop will be approved for marketing. There are many reasons that we may fail in our efforts to develop our potential drug compounds. These include:

 

·the possibility that non-clinical testing or clinical trials may show that our potential drug compounds are ineffective and/or cause harmful side effects;
·regulators may not authorize us to commence or continue a clinical trial or may impose a clinical hold or may limit the conduct of a clinical trial through the imposition of a partial clinical hold;
·the number of patients required for clinical trials for our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate or the duration of these clinical trials may be longer than we anticipate;
·our third-party contractors, including investigators, may fail to meet their contractual obligations to us in a timely manner, or at all, or may fail to comply with regulatory requirements;
·our potential drug compounds may prove to be too expensive to manufacture or administer to patients;
·our potential drug compounds may fail to receive necessary regulatory approvals from the United States Food and Drug Administration or foreign regulatory authorities in a timely manner, or at all;
·even if our potential drug compounds are approved, we may not be able to produce them in commercial quantities or at reasonable costs;
·even if our potential drug compounds are approved, they may not achieve commercial acceptance;
·regulatory or governmental authorities may apply restrictions to any of our potential drug compounds, which could adversely affect their commercial success; and
·the proprietary rights of other parties may prevent us or our potential collaborative partners from marketing our potential drug compounds.

 

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If we fail to develop our potential drug compounds, our financial results and financial condition will be adversely affected, we will have to delay or terminate some or all of our research and development plans and may be forced to cease operations.

 

Our research and development plans will require substantial additional future funding which could impact our operations and financial condition. Without the required additional funds, we will likely cease operations.

 

It will take several years before we can develop potentially marketable products, if at all. Our research and development plans will require substantial additional capital, arising from costs to:

 

·conduct research, non-clinical testing and human studies;
·establish pilot scale and commercial scale manufacturing processes and facilities; and
·establish and develop quality control, regulatory, marketing, sales, finance and administrative capabilities to support these programs.

 

Our future operating and capital needs will depend on many factors, including:

 

·the pace of scientific progress in our research and development programs and the magnitude of these programs;
·the scope and results of pre-clinical testing and human studies;
·the time and costs involved in obtaining regulatory approvals;
·the time and costs involved in preparing, filing, prosecuting, securing, maintaining and enforcing patents;
·competing technological and market developments;
·our ability to establish additional collaborations;
·changes in our existing collaborations;
·the cost of manufacturing scale-up; and
·the effectiveness of our commercialization activities.

 

We base our outlook regarding the need for funds on many uncertain variables. Such uncertainties include the success of our research initiatives, regulatory approvals, the timing of events outside our direct control such as negotiations with potential strategic partners and other factors. Any of these uncertain events can significantly change our cash requirements as they determine such one-time events as the receipt or payment of major milestones and other payments.

 

Additional funds will be required to support our operations and if we are unable to obtain them on favorable terms, we may be required to cease or reduce further research and development of our drug product programs, sell some or all our intellectual property, merge with another entity or cease operations.

 

If we fail to demonstrate efficacy in our non-clinical studies and clinical trials our future business prospects, financial condition and operating results will be materially adversely affected.

 

The success of our research and development efforts will be greatly dependent upon our ability to demonstrate potential drug compound efficacy in non-clinical studies, as well as in clinical trials. Non-clinical studies involve testing potential drug compounds in appropriate non-human disease models to demonstrate efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing in humans. If certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation of the potential drug compound’s efficacy in humans, the regulatory agencies may require additional more rigorous testing before allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend further testing on our potential drug compounds if, in the judgment of our management and advisors, the non-clinical test results do not support further development.

 

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Moreover, success in non-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical testing. The clinical trial process may fail to demonstrate that our potential drug compounds are safe for humans and effective for indicated uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug compounds. Any delay in, or termination of, our non-clinical testing or clinical trials will delay the filing of an IND and NDA with the Food and Drug Administration or the equivalent applications with pharmaceutical regulatory authorities outside the United States and, ultimately, our ability to commercialize our potential drug compounds and generate product revenues. In addition, we expect that our early clinical trials will involve small patient populations. Because of the small sample size, the results of these early clinical trials may not be indicative of future results. Also, the IND process may be extremely costly and may substantially delay the development of our potential drug compounds. Moreover, positive results of non-clinical tests will not necessarily indicate positive results in subsequent clinical trials.

 

Following successful non-clinical testing, potential drug compounds will need to be tested in a clinical development program to provide data on safety and efficacy prior to becoming eligible for product approval and licensure by regulatory agencies. From the first human trial through to regulatory approval can take many years and 10-12 years is not unusual for certain compounds.

 

If any of our future clinical development potential drug compounds become the subject of problems, our ability to sustain our development programs will become critically compromised. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the suspension or termination of our clinical programs. Examples of problems that could arise include, among others:

 

·efficacy or safety concerns with the potential drug compounds, even if not justified;
·manufacturing difficulties or concerns;
·regulatory proceedings subjecting the potential drug compounds to potential recall;
·publicity affecting doctor prescription or patient use of the potential drug compounds;
·pressure from competitive products; or
·introduction of more effective treatments.

 

Each clinical phase is designed to test attributes of the drug and problems that might result in the termination of the entire clinical plan can be revealed at any time throughout the overall clinical program. The failure to demonstrate efficacy in our clinical trials would have a material adverse effect on our future business prospects, financial condition and operating results.

 

If we do not obtain the support of qualified scientific collaborators, our revenue, growth and profitability will likely be limited, which would have a material adverse effect on our business.

 

We will need to establish relationships with leading scientists and research institutions. We believe that such relationships are pivotal to establishing products using our technologies as a standard of care for various indications. Additionally, although in discussion, there is no assurance that our current research partners will continue to work with us or that we will be able to attract additional research partners. If we are not able to establish scientific relationships to assist in our research and development, we may not be able to successfully develop our potential drug compounds. If this happens, our business will be adversely affected.

 

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We may not be able to develop, market or generate sales of our products to the extent anticipated. Our business may fail and investors could lose all their investment in our Company.

 

Assuming that we are successful in developing our potential drug compounds and receiving regulatory clearances to market our products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including the following:

 

·If our competitors receive regulatory approvals for and begin marketing similar products in the United States, the European Union, Japan and other territories before we do, greater awareness of their products as compared to ours will cause our competitive position to suffer;
·Information from our competitors or the academic community indicating that current products or new products are more effective or offer compelling other benefits than our future products could impede our market penetration or decrease our future market share; and
·The pricing and reimbursement environment for our future products, as well as pricing and reimbursement decisions by our competitors and by payers, may have an effect on our revenues.

 

If this happens, our business will be adversely affected.

 

None of our potential drug compounds may reach the commercial market for a number of reasons and our business may fail.

 

Successful research and development of pharmaceutical products is high risk. Most products and development candidates fail to reach the market. Our success depends on the discovery of new drug compounds that we can commercialize. It is possible that our products may never reach the market for a number of reasons. They may be found ineffective or may cause harmful side-effects during non-clinical testing or clinical trials or fail to receive necessary regulatory approvals. We may find that certain products cannot be manufactured at a commercial scale and, therefore, they may not be economical to produce. Our potential products could also fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. Our patents, patent applications, trademarks and other intellectual property may be challenged, and this may delay or prohibit us from effectively commercializing our products. Furthermore, we do not expect our potential drug compounds to be commercially available for a number of years, if at all. If none of our potential drug compounds reach the commercial market, our business will likely fail and investors will lose all of their investment in our Company. If this happens, our business will be adversely affected.

 

If our competitors succeed in developing products and technologies faster or that are more effective or with a better profile than our own, or if scientific developments change our understanding of the potential scope and utility of our potential products, then our technologies and future products may be rendered undesirable or obsolete.

 

We face significant competition from industry participants that are pursuing technologies in similar disease states to those that we are pursuing and are developing pharmaceutical products that are competitive with our products. Nearly all of our industry competitors have greater capital resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors may be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies. Rapid technological development, as well as new scientific developments, may result in our products becoming obsolete before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate population of patients who should be treated with a targeted therapy like we are developing may limit the drug’s market potential if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.

 

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Our reliance on third parties, such as university laboratories, contract manufacturing organizations and contract or clinical research organizations, may result in delays in completing, or a failure to complete, non-clinical testing or clinical trials if they fail to perform under our agreements with them.

 

In the course of product development, we may engage university laboratories, other biotechnology companies or contract or clinical manufacturing organizations to manufacture drug material for us to be used in non-clinical and clinical testing and contract research organizations to conduct and manage non-clinical and clinical studies. If we engage these organizations to help us with our non-clinical and clinical programs, many important aspects of this process have been and will be out of our direct control. If any of these organizations we may engage in the future fail to perform their obligations under our agreements with them or fail to perform non-clinical testing and/or clinical trials in a satisfactory manner, we may face delays in completing our clinical trials, as well as commercialization of any of our potential drug compounds. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials, regulatory filings and the potential market approval of our potential drug compounds.

 

If we fail to compete successfully with respect to partnering, licensing, mergers, acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to research and develop our potential drug compounds.

 

Our competitors compete with us to attract established biotechnology and pharmaceutical companies or organizations for partnering, licensing, mergers, acquisitions, joint ventures or other collaborations. Collaborations include contracting with academic research institutions for the performance of specific scientific testing. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities is unique, we may not be able to find a substitute. Other companies have already begun many drug development programs, which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.

 

Universities and public and private research institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may develop proprietary technology and acquire patent applications and patents that we may need for the development of our potential drug compounds. In some instances, we will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products.

 

The use of any of our products in clinical trials may expose us to liability claims, which may cost us significant amounts of money to defend against or pay out, causing our business to suffer.

 

The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our products. We currently have one drug compound in clinical trials, however, when any of our products enter clinical trials or become marketed products, they could potentially harm people or allegedly harm people possibly subjecting us to costly and damaging product liability claims. Some of the patients who participate in clinical trials are already ill when they enter a trial or may intentionally or unintentionally fail to meet the exclusion criteria. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation. Although we intend to obtain product liability insurance, which we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover claims. The insurance costs along with the defense or payment of liabilities above the amount of coverage could cost us significant amounts of money and management distraction from other elements of the business, causing our business to suffer.

 

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If we are unable to safeguard against security breaches with respect to our information systems, our business may be adversely affected.

 

In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our business and employees. Any misappropriation, loss or other unauthorized disclosure of confidential information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our employees, third parties and investors. We could also incur significant costs implementing additional security measures and organizational changes, implementing additional protection technologies, training employees or engaging consultants. In addition, we could incur increased litigation as a result of any potential cyber-security breach. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.

 

Risks Related to our Common Stock

 

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations and would severely dilute existing or future investors if we were to raise funds at lower prices.

 

A prolonged decline in the price of our common stock could result in a reduction in our ability to raise capital. Because our operations have been financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations. We believe the following factors could cause the market price of our common stock to continue to fluctuate widely and could cause our common stock to trade at a price below the price at which you purchase your shares of common stock:

 

·actual or anticipated variations in our quarterly operating results;
·announcements of new services, products, acquisitions or strategic relationships by us or our competitors;
·changes in accounting treatments or principles;
·changes in earnings estimates by securities analysts and in analyst recommendations; and
·general political, economic, regulatory and market conditions.

 

The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, could materially adversely affect the market price of our common stock.

 

If we issue additional shares of common stock in the future, it will result in the dilution of our existing stockholders.

 

Our articles of incorporation authorize the issuance of 10,000,000 shares of preferred stock and 100,000,000 shares of common stock. Our board of directors has the authority to issue additional shares of preferred and common stock up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all such shares of common stock to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares of common stock will result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares of common stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such issuance may result in a change of control of our corporation.

 

20

 

 

Trading of our common stock may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

 

There is currently a limited market for our common stock and the volume of our common stock traded on any day may vary significantly from one period to another. Trading in our stock is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price for our common stock that is unrelated to operating performance. There is no assurance that a sufficient market will develop in the stock, in which case it could be difficult for our stockholders to resell their stock.

 

The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.

 

On June 7, 2019, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed to purchase up to $50 million of our common stock. Concurrently with the execution of the 2019 Purchase Agreement, we issued 324,383 shares of our common stock to Lincoln Park as a commitment fee and shall issue up to 162,191 shares pro rata, when and if, Lincoln Park purchases at our discretion the $50 million aggregate commitment. The purchase shares sold pursuant to the 2019 Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period. The purchase price for shares that we may sell to Lincoln Park under the 2019 Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.

 

We have the right to control the timing and amount of any sales of our shares to Lincoln Park in our sole discretion, subject to certain limits on the amount of shares that can be sold on a given date. Sales of shares of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. Therefore, Lincoln Park may ultimately purchase all, some or none of the shares of our common stock that may be sold pursuant to the 2019 Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares. Sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales, which could have a materially adverse effect on our business and operations.

 

We may not be able to access sufficient funds under the Purchase Agreement when needed.

 

Our ability to sell shares to Lincoln Park and obtain funds under the 2019 Purchase Agreement is limited by the terms and conditions in the 2019 Purchase Agreement, including restrictions on the amounts we may sell to Lincoln Park at any one time, and a limitation on our ability to sell shares to Lincoln Park to the extent that it would cause Lincoln Park to beneficially own more than 4.99% of our outstanding shares of common stock. Additionally, we have only registered approximately $15.5 million of shares of our common stock, and we will only be able to sell or issue to Lincoln Park a number of shares equal to 19.99% of the shares of common stock outstanding on the date of the 2019 Purchase Agreement unless we obtain shareholder approval or the average price of such sales exceeds the price of our common stock on June 7, 2019 as determined under NASDAQ rules. Therefore, we currently do not, and may not in the future, have access to the full amount available to us under the 2019 Purchase Agreement. In addition, any amounts we sell under the Purchase Agreement may not satisfy all of our funding needs, even if we are able and choose to sell and issue all of our common stock currently registered.

 

21

 

 

Future sales of our common stock may cause our share price to fall.

 

On July 6, 2018, we entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. to offer shares of our common stock from time to time through “at-the-market” offerings, pursuant to which we offer and sell shares of our common stock for an aggregate offering price of up to $50 million. To date, no offerings have occurred under this agreement. We are not obligated to make or continue to make any sale of shares of our common stock under the “at-the-market” offerings. Although any sale of securities pursuant to the “at-the-market” offerings will result in an increase in cash for each share sold, it may result in shareholder dilution and may cause our share price to fall.

 

Risks Related to our Intellectual Property

 

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize product candidates similar or identical to ours, and our ability to successfully commercialize our product candidates that we may pursue may be impaired.

 

Our success depends in large part on our ability to obtain and maintain protection of our intellectual property, particularly patents, in the United States and other countries with respect to our product candidates and technology. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates or by in-licensing intellectual property. U.S. patents related to ANAVEX®2-73 are directed to a dosage form comprising certain doses of ANAVEX®2-73 and donepezil, and the coverage is limited to the United States only. We may not be able to obtain patent protection for ANAVEX®2-73 as a single drug or in other jurisdictions.

 

Moreover, we may be subject to a third-party preissuance submission of prior art to the United States Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing on third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

 

In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical product candidates, or limit the duration of the patent protection of our product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.

 

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We hold ownership or exclusive rights to eight issued U.S. patent, eight U.S. patent applications, and various PCT or ex-U.S. patent applications relating to our drug candidates, methods associated therewith, and to our research programs. Neither patents nor patent applications ensure the protection of our intellectual property for a number of reasons, including the following:

 

  1. Competitors may interfere with our patenting process in a variety of ways. Competitors may claim that Anavex is not entitled to an issued patent for a variety of legal reasons. Competitors may also claim that we are infringing their patents and restrict our freedom to operate. If a court or, in some circumstances, a board of a national patent authority, agrees, we would lose some or all of our patent protection. As a company, we have no meaningful experience with competitors interfering with our patents or patent applications.
  2. Because of the time, money and effort involved in obtaining and enforcing patents, our management may spend less time and resources on developing potential drug compounds than they otherwise would, which could increase our operating expenses and delay product programs.
  3. Issuance of a patent may not provide significant practical protection. If we receive a patent of narrow scope, then it may be possible for competitors to design products that do not infringe our patent(s).
  4. Anavex is seeking patent protection for a number of indications, combination products and drug regimens. The lack of patent protection in global markets for a specific end product or indication may inhibit our ability to advance our compounds and may make Anavex less attractive to potential partners.
  5. Defending a patent lawsuit takes significant time and can be very expensive.
  6. If a court decides that an Anavex compound, its method of manufacture or use, infringes on the competitor’s patent, we may have to pay substantial damages for infringement.
  7. A court may prohibit us from making, selling or licensing the potential drug compound unless the patent holder grants a license. A patent holder is not required to grant a license. If a license is available, we may have to pay substantial royalties or grant cross licenses to our patents, and the license terms may be unacceptable.
  8. Redesigning our potential drug compounds so that they do not infringe on other patents may not be possible or could require substantial funds and time.

 

It is also unclear whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge, methods and know-how.

 

We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unable or unwilling to grant us exclusive rights to technology or products derived from these collaborations.

 

If we do not obtain required intellectual property licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling potential drug compounds requiring these rights or licenses. There is also a risk that legal disputes may arise as to the rights to technology or potential drug compounds developed in collaboration with other parties, all with attendant risk, distraction, expense, and lack of predictability.

 

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.

 

We are party to an exclusive license agreement with Life Science Research Israel Ltd., with respect to certain in-licensed intellectual property related to our ANAVEX®3-71 product candidate, and we may need to obtain additional licenses from others in the future. Our license agreement with Life Science Research Israel Ltd. imposes, and we expect that future license agreements will impose, various development, diligence, commercialization, and other obligations on us. In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization of ANAVEX®3-71 or other product candidates covered by any such future licenses. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

 

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Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

·the scope of rights granted under the license agreement and other interpretation-related issues;

 

·the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

·the sublicensing of patent and other rights under our collaborative development relationships;

 

·our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

·the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

·the priority of invention of patented technology.

 

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

 

If we do not obtain required intellectual property licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling potential drug compounds requiring these rights or licenses. There is also a risk that legal disputes may arise as to the rights to technology or potential drug compounds developed in collaboration with other parties, all with attendant risk, distraction, expense, and lack of predictability.

 

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

 

Our success will also depend in part on our ability to commercialize our compounds without infringing the proprietary rights of others. We have not conducted extensive freedom of use patent searches and no assurance can be given that patents do not exist or could be issued which would have an adverse effect on our ability to market our technology or maintain our competitive position with respect to our technology. If our compounds or other subject matter are claimed under other United States patents or other international patents or are otherwise protected by third party proprietary rights, we may be subject to infringement actions. In such event, we may challenge the validity of such patents or other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market our technology. There can be no assurances that we would be successful in a challenge or be able to obtain such licenses or that such licenses, if available, could be obtained on commercially reasonable terms. Furthermore, the failure to succeed in a challenge, develop a commercially viable alternative or obtain needed licenses could be materially adverse. Adverse consequences include delays in marketing some or all of our potential drug compounds based on our drug technology or the inability to proceed with the development, manufacture or sale of potential drug compounds requiring such licenses. If we defend ourselves against charges of patent infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether we are successful. Such proceedings are typically protracted with no certainty of success. An adverse outcome could subject us to significant liabilities to third parties and force us to curtail or cease the research and development of our technology.

 

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Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize ANAVEX®2-73 or our other product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Additionally, parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

 

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

 

While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge, methods and know-how.

 

We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

 

25

 

 

Although we are not currently involved in any litigation, we may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

 

Competitors may infringe our patents or other intellectual property. Although we are not currently involved in any litigation, if we were to initiate legal proceedings against a third party to enforce a patent covering ANAVEX®2-73 or our other product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

 

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring ANAVEX®2-73 or our other product candidates to market.

 

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

 

We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

 

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We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

We do not own any real property. We maintain several offices of which the office at 7th Floor, 51 West 52nd Street, New York, NY, USA is our main office. Our lease costs are approximately $16,000 per month. We believe our offices are suitable and adequate to operate our business now as they provide us with sufficient space to conduct our operations. We fully utilize our current premises.

 

ITEM 3. LEGAL PROCEEDINGS

 

We know of no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which our Company or our subsidiary is a party or of which any of their property is subject. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder holding more than 5% of our shares, is an adverse party or has a material interest adverse to our or our subsidiary’s interest. 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market information

 

Our common stock is quoted on the NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “AVXL.”

 

Holders of Common Stock

 

As of December 12, 2019, there were approximately 53 holders of record and 56,123,076 shares of our common stock were issued and outstanding.

 

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Dividends

 

We have not paid any cash dividends on our common stock and have no intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

 

Securities Authorized for Issuance under Equity Compensation Plans or Individual Compensation Arrangements

 

The following table summarizes certain information regarding our equity compensation plan or individual compensation arrangements as at September 30, 2019:

 

Equity Compensation Plan Information
Plan Category  Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
  Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
  Number of securities
remaining available for
future issuances under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
Equity compensation plans approved by security holders   12,050,553    4.02    4,934,704 
Equity compensation plans not approved by security holders   -    -    - 
Total   12,050,553    4.02    4,934,704 

 

Stock Option Plan

 

2019 Stock Option Plan

 

On January 15, 2019, the Board approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees, consultants and advisors of the Company. The 2019 Plan was approved by our stockholders on April 5, 2019.

 

Under the terms of the 2019 Plan, 6,000,000 shares of Common Stock are available for issuance, in addition to the shares available under the 2015 Plan. Any awards outstanding under the Company’s 2015 Omnibus Incentive Plan (the “2015 Plan”) or the Company’s 2007 Stock Option Plan (the “2007 Plan”) will remain subject to and be paid under the 2015 Plan or the 2007 Plan, respectively, and any shares subject to outstanding awards under the 2015 Plan or the 2007 Plan that subsequently cease to be subject to such awards (other than by reason of settlement of the awards in shares) will automatically become available for issuance under the 2019 Plan.

 

The 2019 Plan provides that it may be administered by the Board, or the Board may delegate such responsibility to a committee. The exercise price will be determined by the board of directors at the time of grant shall be at least equal to the fair market value on such date. If the grantee is a 10% stockholder on the grant date, then the exercise price shall not be less than 110% of fair market value of the Company’s shares of common stock on the grant date. Stock options may be granted under the 2019 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2019 Plan.

 

28

 

 

The purpose of the 2019 Plan is to retain the services of valued key employees and consultants of our Company and such other persons, and to encourage such persons to acquire a greater proprietary interest in our Company, thereby strengthening their incentive to achieve the objectives of the shareholders of our Company. The purpose is also to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants.

 

Recent Sales of Unregistered Securities

 

Since the beginning of our fiscal year ended September 30, 2019, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.

 

Repurchases of Equity Securities by Our Company and Affiliated Purchasers

 

None.

 

ITEM 6 SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2019, included elsewhere in this Annual Report on Form 10-K.

 

Financial Highlights

 

During fiscal 2019, we make significant progress in the advancement of clinical studies for ANAVEX®2-73, including commencement of a Phase 2b/3 Alzheimer’s disease trial in August 2018, a Phase 2 Parkinson’s disease dementia trial in October 2018, and a multi-regional Phase 2 clinical program for the treatment of Rett syndrome in March 2019. As a result, our operating expenses for fiscal 2019 increased to $29.1 million, from $19.3 million in fiscal 2018. The increase is attributable to an increase in research and development expenses of $9.0 million in 2019, from $13.3 million in fiscal 2018 to $22.3 million in fiscal 2019.

 

During fiscal 2019, we utilized $18.5 million to fund our operations, compared to $12.6 million during fiscal 2018. Our cash position decreased only slightly by $0.7 million during fiscal 2019, to $22.2 million. The majority of our operations were financed through the issuance of shares of common stock under the purchase agreements by and between the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”).

 

We expect our research and development expenses will continue to increase as we advance our ANAVEX®2-73 clinical studies, including adding extension studies to allow us to continue to gather longer term data, and adding additional staffing to advance the clinical studies currently underway. We will continue to target potential research partners to further advance our pipeline compounds. 

 

Net loss for fiscal 2019 was $26.3 million, or $0.54 per share, as compared to $17.3 million, or $0.39 per share in fiscal 2018.

 

29

 

 

Results of Operations

 

Revenue

 

We are in the development stage and have not earned any revenues since our inception in 2004. We do not anticipate earning any revenues until we can establish an alliance with other companies to develop, co-develop, license, acquire or market our products.

 

Year ended September 30, 2019 compared to year ended September 30, 2018

 

Operating Expenses

 

Total operating expenses for the year ended September 30, 2019 were $29.1 million, compared to $19.3 million in fiscal 2018, which was an increase of approximately $9.8 million from fiscal 2018.

 

Research and development expenses for fiscal 2019 were $22.3 million, as compared to $13.3 million fiscal 2018, an increase of $9.0 million. During fiscal 2019, research and development expenses included approximately $0.4 million spent in connection with the Phase 2a extension trial for Alzheimer’s Disease, compared to approximately $0.4 million in fiscal 2018. In addition, in August 2018, we initiated a Phase 2b/3 clinical trial in Alzheimer’s Disease and during fiscal 2019 research and development expenses included approximately $6.2 million spent in connection with this trial, as compared to approximately $2.4 million in fiscal 2018.

 

In October 2018, we initiated a Phase 2 clinical trial for Parkinson’s Disease Dementia and during fiscal 2019 research and development expenses included approximately $3.3 million spent in connection with this trial, as compared to approximately $0.9 million in fiscal 2018.

 

Additionally, research and development expenses during fiscal 2019 included approximately $3.0 million in connection with the Phase 2 clinical studies for the treatment of Rett syndrome, as compared to approximately $0.6 million in fiscal 2018.

 

During fiscal 2019, we spent approximately $2.3 million on preclinical development activities for ANAVEX®2-73 and ANAVEX®3-71, as compared to approximately $3.9 million in fiscal 2018.

 

The remainder of research and development expenses consisted primarily of personnel costs, including non-cash stock option compensation charges of $3.2 million, as compared to $2.8 million in fiscal 2018.

 

During fiscal 2019 our general and administrative expenses were $6.8 million as compared to $6.0 million in fiscal 2018, an increase of $0.8 million, primarily related to salaries and wages, including stock-option compensation charges associated with an increase in staffing and personnel.

 

Other income

 

The net amount of other income for the year ended September 30, 2019 was $2.9 million as compared to $2.2 million for the comparable period of fiscal 2018. During fiscal 2019, we recorded $2.5 million in the research and development incentive income, including the Australian research and development incentive credit administered through the Australian Tax Office, and the New York City Biotechnology Tax Credit from the City of New York, in connection with fiscal 2019 eligible expenditures. In comparison, research and development incentive income for fiscal 2018 was $1.8 million in connection with fiscal 2018 eligible expenditures.

 

We received $0.3 million in connection with a financial grant from the Rettsyndrome.org foundation, which was awarded to cover some of the costs of the Phase 2 clinical trial of ANAVEX®2-73 for the treatment of Rett syndrome, as compared to $0.15 million received during fiscal 2018 in connection with the same award, which is being received in quarterly instalments over a two year period.

 

30

 

 

Net loss for fiscal 2019 was $26.3 million, or $0.54 per share, compared to a net loss of approximately $17.3 million, or $0.39 per share for fiscal 2018.

 

Liquidity and Capital Resources

 

Working Capital

 

   2019   2018 
Current Assets  $25,329,373   $26,052,793 
Current Liabilities   5,039,674    3,884,626 
Working Capital  $20,289,699   $22,168,167 

 

At September 30, 2019, we had $22.2 million in cash and cash equivalents, a decrease of $0.7 million, from $22.9 million at September 30, 2018. The principal reason for this decrease is an increase in operating expenditures incurred in connection with the clinical trials for ANAVEX®2-73, as more fully described above.

 

We intend to use the majority of our capital resources to advance our clinical trials for ANAVEX®2-73, and to perform work necessary to prepare for future development of our pipeline compounds.

 

Cash Flows

 

   2019   2018 
Cash flows used in operating activities  $(18,527,117)  $(12,582,406)
Cash flows provided by financing activities   17,782,109    8,072,787 
Increase (decrease) in cash  $(745,008)  $(4,509,619)

 

Cash flow used in operating activities

 

There was an increase in cash used in operating activities of $5.9 million during fiscal 2019 as a result of an increase in operating expenditures, as more fully described above.

 

Cash flow provided by financing activities

 

Cash provided by financing activities for fiscal 2019 and 2018 were related to cash received from the issuance of shares under the purchase agreements with Lincoln Park, including the Purchase Agreement and a prior purchase agreement with Lincoln Park which has expired pursuant to its terms (see Note 4 to our Consolidated Financial Statements). During fiscal 2019, we issued 6.7 million shares for gross proceeds of $17.8 million. During fiscal 2018, we issued 2.4 million shares for gross proceeds of $8.2 million.

 

Other Financings

 

Purchase Agreement

 

On June 7, 2019, we entered into the 2019 Purchase Agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed to purchase up to $50,000,000 of our common stock. Concurrently with the execution of the 2019 Purchase Agreement, we issued 324,383 shares of our common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement and shall issue up to 162,191 shares pro rata, when and if Lincoln Park purchases, at our discretion, the $50,000,000 aggregate commitment. The purchase shares that may be sold pursuant to the 2019 Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time until July 1, 2022.

 

31

 

 

We may direct Lincoln Park, at our sole discretion, and subject to certain conditions, to purchase up to 200,000 shares of common stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances up to 250,000 shares provided that Lincoln Park’s committed obligation for Regular Purchases on any business day shall not exceed $2,000,000. In the even we purchase the full amount allowed for a Regular Purchase on any given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional purchases. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the Purchase Agreement.

 

At September 30, 2019, approximately $45.3 million in shares of our common stock remained available for purchase by Lincoln Park under the 2019 Purchase Agreement, including $15.4 million of our shares of common stock currently registered under our effective registration statement.

 

Controlled Equity Offering Sales Agreement

 

On July 6, 2018, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as agent (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell shares of common stock, for aggregate gross sale proceeds of up to $50,000,000 from time to time through Cantor Fitzgerald (the “At-the-Market Offering”). 

 

Upon delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald may sell shares of common stock by methods deemed to be an “at the market offering” offering, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions, subject to the prior written consent of the Company. The Company is not obligated to make any sales of shares under the Sales Agreement. The Company or Cantor Fitzgerald may suspend or terminate the At-the-Market Offering upon notice to the other party, subject to certain conditions.  Cantor Fitzgerald will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of Nasdaq.

 

The Company has agreed to pay Cantor Fitzgerald commissions for its services of acting as agent of up to 3.0% of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement.  The Company has also agreed to provide Cantor Fitzgerald with customary indemnification and contribution rights. To date, no shares of common stock have been sold pursuant to the Sales Agreement.

 

We expect that we will be able to continue to fund our operations through existing cash on hand and through equity and debt financing in the future. If we raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming these loans would be available, would increase our liabilities and future cash commitments.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

 

Application of Critical Accounting Policies

 

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

 

32

 

 

We base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances, politics, global economics, general business conditions and other factors. Our significant estimates are related to the valuation of warrants and options.

 

There are accounting policies that we believe are significant to the presentation of our financial statements. The most significant of these accounting policies relates to the accounting for our research and development expenses and stock-based compensation expense.

 

Research and Development Expenses

 

Research and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense, contract services including external research and development expenses incurred under arrangements with third parties such as contract research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials have no alternative future use outside of their intended use.

 

Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. The Company reviews and accrues CRO expenses and clinical trial study expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions. The objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

 

In addition, we incur expenses in respect of the acquisition of intellectual property relating to patents and trademarks. The probability of success and length of time to developing commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks will ever be successfully commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and trademarks.

 

Stock-based Compensation

 

We account for all stock-based payments and awards under the fair value-based method.

 

33

 

 

Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity-based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

 

We account for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid in capital.

 

We use the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of our share purchase options.

 

For a discussion of recent accounting pronouncements and their possible effect on our results, see Note 2(n) to our Consolidated Financial Statements found elsewhere in this Annual Report.

 

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

 34 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

ANAVEX LIFE SCIENCES CORP.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2019

 

 

 

 

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Anavex Life Sciences Corp.

New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Anavex Life Sciences Corp. (the “Company”) and subsidiaries as of September 30, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2019 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 16, 2019 expressed an adverse opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/S/ BDO USA, LLP 

We have served as the Company's auditor since 2013

 

 

New York, New York

December 16, 2019

 

 

 

 

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Anavex Life Sciences Corp.

New York, New York

Opinion on Internal Control over Financial Reporting

We have audited Anavex Life Sciences Corp.’s (the “Company’s”) internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of September 30, 2019, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of September 30, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2019, and the related notes (collectively referred to as “the financial statements”) and our report dated December 16, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness regarding management’s failure to design and maintain effective internal controls over the accuracy of accounting for the Australian research and development incentive program has been identified and described in management’s assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated December 16, 2019 on those financial statements.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/S/ BDO USA, LLP 
 

New York, New York

December 16, 2019

 

 

 

 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED BALANCE SHEETS

As at September 30, 2019 and 2018

 

   2019   2018 
         
Assets          
Current          
Cash and cash equivalents  $22,185,630   $22,930,638 
Incentive and tax receivables   2,642,745    1,870,357 
Prepaid expenses and deposits   500,998    1,251,798 
Total Current Assets   25,329,373    26,052,793 
Deferred costs   -    101,133 
Deposits   -    52,396 
Total Assets  $25,329,373   $26,206,322 
           
Liabilities and Stockholders' Equity          
Current Liabilities          
Accounts payable  $3,523,332   $2,955,293 
Accrued liabilities   1,516,342    929,333 
Total Liabilities   5,039,674    3,884,626 
           
Commitments - Note 5          
           
Capital stock          
Authorized:          
10,000,000 preferred stock, par value $0.001 per share          
100,000,000 common stock, par value $0.001 per share          
Issued and outstanding:          
52,650,251 common shares (2018 - 45,933,472)   52,652    45,935 
Additional paid-in capital   153,633,807    129,377,542 
Accumulated deficit   (133,396,760)   (107,101,781)
Total Stockholders' Equity   20,289,699    22,321,696 
Total Liabilities and Stockholders' Equity  $25,329,373   $26,206,322 

 

See Accompanying Notes to Consolidated Financial Statements

 

 F-1 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended September 30, 2019 and 2018

 

   2019   2018 
Operating expenses          
General and administrative  $6,846,599   $5,989,170 
Research and development   22,260,349    13,344,421 
Total operating expenses   (29,106,948)   (19,333,591)
           
Other income (expenses)          
Grant income   298,943    149,055 
Research and development incentive income   2,465,691    1,830,186 
Interest income, net   207,280    255,092 
Gain on settlement of accounts payable   115,758    - 
Financing related charges   (151,133)   (30,943)
Foreign exchange gain (loss), net   (42,389)   (49,789)
           
Total other income, net   2,894,150    2,153,601 
Net loss before provision for income taxes   (26,212,798)   (17,179,990)
           
Income tax expense, current   (82,181)   (72,746)
           
Net loss and comprehensive loss  $(26,294,979)  $(17,252,736)
           
Net Loss per share          
Basic and diluted  $(0.54)  $(0.39)
           
Weighted average number of shares outstanding          
Basic and diluted   48,906,470    44,655,725 

 

See Accompanying Notes to Consolidated Financial Statements

 

 F-2 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended September 30, 2019 and 2018

 

   2019   2018 
         
Cash Flows used in Operating Activities          
Net loss  $(26,294,979)  $(17,252,736)
Adjustments to reconcile net loss to net cash used in operations:          
Stock-based compensation   6,430,873    5,517,004 
Deferred costs   151,133    - 
Gain on settlement of accounts payable   (115,758)   - 
Changes in non-cash working capital balances related to operations:          
Incentive and tax receivables   (772,388)   (231,096)
Prepaid expenses and deposits   803,196    (915,870)
Accounts payable   683,797    38,233 
Accrued liabilities   587,009    262,059 
Net cash used in operating activities   (18,527,117)   (12,582,406)
           
Cash Flows provided by Financing Activities          
Issuance of common shares   17,832,109    8,173,920 
Deferred financing charges   (50,000)   (101,133)
Net cash provided by financing activities   17,782,109    8,072,787 
           
Decrease in cash and cash equivalents during the period   (745,008)   (4,509,619)
Cash and cash equivalents, beginning of period   22,930,638    27,440,257 
Cash and cash equivalents, end of period  $22,185,630   $22,930,638 

 

See Accompanying Notes to Consolidated Financial Statements

 

 F-3 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the years ended September 30, 2019 and 2018

 

   Common Stock     
           Additional         
           Paid-in   Accumulated     
   Shares   Par Value   Capital   Deficit   Total 
                     
Balance, September 30, 2017   43,330,817   $43,332   $115,689,221   $(89,849,045)  $25,883,508 
Shares issued under 2015 Purchase Agreement                         
Purchase shares   2,383,580    2,384    8,171,536    -    8,173,920 
Commitment shares   14,681    15    (15)   -    - 
Shares issued pursuant to cashless exercise of options   78,646    78    (78)   -    - 
Shares issued pursuant to cashless exercise of warrants   125,748    126    (126)   -    - 
Share based compensation   -    -    5,517,004    -    5,517,004 
Net loss   -    -    -    (17,252,736)   (17,252,736)
Balance, September 30, 2018   45,933,472   $45,935   $129,377,542   $(107,101,781)  $22,321,696 
                          
Shares issued under 2015 Purchase Agreement                         
Purchase shares   4,848,995    4,849    13,192,755    -    13,197,604 
Commitment shares   23,701    24    (24)   -    - 
Shares issued under 2019 Purchase Agreement                         
Purchase shares   1,500,000    1,500    4,633,005    -    4,634,505 
Commitment shares   339,415    339    (339)   -    - 
Shares issued pursuant to cashless exercise of warrants   4,938    5    (5)   -    - 
Share based compensation   -    -    6,430,873    -    6,430,873 
Net loss   -    -    -    (26,294,979)   (26,294,979)
Balance, September 30, 2019   52,650,521   $52,652   $153,633,807   $(133,396,760)  $20,289,699 

 

See Accompanying Notes to Consolidated Financial Statements

 

 F-4 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 1

 

Note 1Business Description and Basis of Presentation

 

Business 

Anavex Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data from clinical studies to identify biomarkers, which are used to select patients that will receive the therapeutic benefit for the treatment of neurodegenerative and neurodevelopmental diseases. The Company’s lead compound ANAVEX®2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein 2 (“MECP2”).

 

Basis of Presentation

 

These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form 10-K and have been prepared under the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Liquidity

 

All of the Company’s potential drug compounds are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or, if successful, that its potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. To date, we have not generated any revenues from our operations. The Company expects the business to continue to experience negative cash flows for the foreseeable future and cannot predict when, if ever, our business might become profitable.

 

The Company believes that its existing cash and cash equivalents, along with existing financial commitments from third parties, will be sufficient to meet its cash commitments for in excess of two years after the date that these consolidated financial statements are issued. The process of drug development can be costly, and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials.

 

Other than our rights related to the Sales Agreement and the 2019 Purchase Agreement (each as defined below), there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our research and development activities.

 

 F-5 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 2

 

Note 1Business Description and Basis of Presentation – Continued

 

Adjustment of Prior Period Financial Statements

 

The Company adjusted amounts to previously reported consolidated financial statements which were immaterial. These adjustments were identified in connection with the preparation of the consolidated financial statements for the year ended September 30, 2019 and related to the timing of recognition of research and development incentive income. Previously the Company accounted for research and development incentive income when received in cash. During the year ended September 30, 2019, based on a continuing assessment regarding the Company’s eligibility for the incentive programs under which it was receiving such income, the Company determined that the income should have been accrued and recorded in the period in which the qualifying research and development expenditures were incurred.

 

The Company evaluated the materiality of these misstatements both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99 Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and determined that the effect of the adjustment in the period of origination was not material.

 

The Company adjusted the accumulated deficit as of the beginning of the earliest year presented in these consolidated financial statements, resulting in a decrease in the previously reported deficit at October 1, 2017 by $1,629,513 from $(91,478,558) to the adjusted amount $(89,849,045). In addition, the consolidated financial statements for the year ended September 30, 2018 presented herein have been adjusted to include an increase in net income and incentives and taxes receivable as noted below.

 

   As Previously         
   Reported   Adjustment   As Adjusted 
Balance Sheet:               
Incentive and tax receivables  $40,171   $1,830,186   $1,870,357 
Total current assets  $24,222,607   $1,830,186   $26,052,793 
Total assets  $24,376,136   $1,830,186   $26,206,322 
Accumulated deficit  $(108,931,967)  $1,830,186   $(107,101,781)
Total Stockholders' Equity  $20,491,510   $1,830,186   $22,321,696 
Total Liabilities and Stockholders' Equity  $24,376,136   $1,830,186   $26,206,322 
Statement of Operations:               
Research and development incentive income  $1,629,513   $200,673   $1,830,186 
Total other income, net  $1,952,928   $200,673   $2,153,601 
Net loss before provision for income taxes  $(17,380,663)  $200,673   $(17,179,990)
Net loss and comprehensive loss  $(17,453,409)  $200,673   $(17,252,736)
Statement of Cash Flows:               
Net loss  $(17,453,409)  $200,673   $(17,252,736)
Incentive and tax receivables  $(30,423)  $(200,673)  $(231,096)

 

As the Company adjusted the research and development incentive income for the year ended September 30, 2019 in the Company’s fourth quarter and determined that amounts were immaterial to previously issued unaudited condensed consolidated financial statements, in future filings, the Company will adjust corresponding quarterly amounts included in previously issued unaudited condensed consolidated financial statements for the first, second and third quarter to increase research and development incentive income and reduce net loss by $413,682, $510,990, and $552,335, respectively.

 

 F-6 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 3

 

Note 2Summary of Significant Accounting Policies

 

a)Use of Estimates

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to accounting for research and development costs, valuation and recoverability of deferred tax assets, asset impairment, stock-based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimate s and the actual results, future results of operations will be affected.

b)Principles of Consolidation

 

These consolidated financial statements include the accounts of Anavex Life Sciences Corp. and its wholly-owned subsidiaries, Anavex Australia Pty Limited, a company incorporated under the laws of Australia, Anavex Germany GmbH, a company incorporated under the laws of Germany, and Anavex Canada Ltd., a company incorporated under the laws of the Province of Ontario, Canada. All inter-company transactions and balances have been eliminated.

 

c)Cash and equivalents

 

The Company considers only those investments which are highly liquid, readily convertible to cash and that mature within three months from the date of purchase to be cash equivalents.

 

 F-7 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 4

 

Note 2Summary of Significant Accounting Policies – (continued)

 

d)Research and Development Expenses

 

Research and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits and stock based compensation expense, contract services including external research and development expenses incurred under arrangements with third parties such as contract research organizations (“CROs”), facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification (“ASC”) 730, Research and Development, as these materials have no alternative future use outside of their intended use.

 

Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation to external CROs, and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. The Company reviews and accrues CRO expenses and clinical trial study expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions. The objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

 

In addition, the Company incurs expenses in respect of the acquisition of intellectual property relating to patents and trademarks. The probability of success and length of time to develop commercial applications of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties exist with respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks will ever be successfully commercialized. Due to these risks and uncertainties, the acquisition of patents and trademarks does not meet the definition of an asset and thus are expensed as incurred within general and administrative expenses.

 

 F-8 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 5

 

Note 2Summary of Significant Accounting Policies – (continued)

 

e)Research and Development Incentive Income

 

The Company is eligible to obtain certain research and development tax credits, including the New York City Biotechnology Tax Credit (“NYC Biotech credit”), and the Australian research and development tax incentive credit (the “Australia R&D credit”) through a program administered through the Australian Tax Office (the “ATO”), which provides for a cash refund based on a percentage of certain research and development activities undertaken in Australia by the Company’s wholly owned subsidiary, Anavex Australia Pty Ltd. (“Anavex Australia”). The cash refund is available to eligible companies with annual aggregate revenue of less than $20.0 million (Australian) during the reimbursable period.

 

The tax incentives are available on the basis of specific criteria with which the Company must comply. Although the tax incentive may be administered through the local tax authority, the Company has accounted for the incentives outside of the scope of ASC Topic 740, Income Taxes, since the incentives are not linked to the Company’s taxable income and can be realized regardless of whether the Company has generated taxable income in the respective jurisdictions.

 

With respect to the Australia R&D credit, Anavex Australia may be eligible to receive the cash refund for certain research and development expenses incurred by Anavex Australia outside of Australia, to the extent such expenses are pre-approved by the Australian authority pursuant to an advanced overseas finding application. The Company accrues for the amount of cash refund it expects to receive in relation to research and development expenses outside of Australia only to the extent it has received advanced approval from the Department of Industry, Innovation and Science in Australia, pursuant to an approved advanced overseas finding application.

 

The Company recognizes the amount of cash refund it expects to receive related to the NYC Biotech credit and Australian research and development tax incentive program when there is reasonable assurance that the cash refund will be received, when the relevant expenditures have been incurred, and when the amount can be reliability measured. This amount is included in Incentive and tax receivables in the accompanying consolidated balance sheets.

 

In addition, Anavex Australia incurs Goods and Services Tax (“GST”) on services provided by Australian vendors. As an Australian entity, Anavex Australia is entitled to a refund of the GST paid. The Company’s estimate of the amount of cash refund it expects to receive related to GST incurred is included in “Incentive and tax receivables” in the accompanying consolidated balance sheets. 

 

f)Basic and Diluted Loss per Share

 

Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the weighted average number of all potentially dilutive securities convertible into shares of common stock that were outstanding during the period.

 

As of September 30, 2019, loss per share excludes 8,812,933 (2018 – 7,185,296) potentially dilutive common shares related to outstanding options and warrants, as their effect was anti-dilutive.

 

 F-9 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 6

 

Note 2Summary of Significant Accounting Policies – (continued)

 

g)Financial Instruments

 

The carrying value of the Company’s financial instruments, consisting of cash and equivalents, incentive and tax receivables, accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

 

h)Foreign Currency Translation

 

The functional currency of the Company is the US dollar. Monetary items denominated in a foreign currency are translated into US dollars at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when the assets were acquired, or obligations incurred. Foreign currency denominated expense items are translated at exchange rates prevailing on the transaction date. Unrealized gains or losses arising from the translations are credited or charged to income in the period in which they occur.

 

The Company has determined that the functional currency of Anavex Australia Pty Limited is the US dollar. The Company has determined that the functional currency of Anavex Germany GmbH is the US dollar. The functional currency of Anavex Canada Ltd. is the Canadian dollar.

 

i)Segment and Geographic Reporting

 

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies for the management of CNS diseases.

 

j)Grant Income

 

Research and development incentive income is recognized when the research and development activities have been undertaken and the Company has completed its assessment of whether such activities meet the relevant qualifying criteria. The Company recognizes such income at the fair value of the grant when it is received, and all substantive conditions have been satisfied. Grants received from government and other agencies in advance of the specific research and development costs to which they relate are deferred and recognized in the consolidated statement of operations in the period they are earned and when the related research and development costs are incurred.

 

k)Income Taxes

 

The Company has adopted the provisions of Financial Accounting Standards Board (FASB) ASC 740, Income Taxes, (“ASC 740”) which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

 F-10 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 7

 

Note 2Summary of Significant Accounting Policies – (continued)

 

k)Income Taxes – (Continued)

 

The Company follows the provisions of ASC 740 regarding accounting for uncertainty in income taxes. The Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As additional information is obtained, there may be a need to periodically adjust the recognized tax positions and tax benefits. These periodic adjustments may have a material impact on the consolidated statements of operations.

 

l)Stock-based Compensation

 

The Company accounts for all stock-based payments and awards under the fair value method.

 

Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date are measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.

 

The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected to vest, in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

 

The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.

 

m)Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

 F-11 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 8

 

Note 2Summary of Significant Accounting Policies – (continued)

 

m)Fair Value Measurements – (continued)

 

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;

 

Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

 

Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The book value of cash and cash equivalents and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of those instruments.

 

At September 30, 2019 and 2018, the Company did not have any Level 3 assets or liabilities.

 

n)Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition from contracts with customers, ASU 2014-09 (Topic 606 and IFRS 15). This standard superseded nearly all existing revenue recognition guidance. ASU 2014-09 is effective for the Company on a prospective basis beginning on October 1, 2018. The adoption of this standard did not have a material impact for any period presented.

 

In May 2017, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance was effective for the Company on a prospective basis beginning on October 1, 2018. The adoption of this standard did not have a material impact for any period presented.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The guidance is effective for annual and interim reporting periods beginning on or after December 15, 2018. The new guidance is effective for the Company on a prospective basis beginning on October 1, 2019. The adoption of this guidance is not expected to have a material impact for any period presented.

 

 F-12 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 9

 

Note 2Summary of Significant Accounting Policies – (continued)

 

n)Recent Accounting Pronouncements – (continued)

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for the Company beginning on October 1, 2019. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.

 

Other than noted above, the Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.

 

Note 3Other Income

 

Grant income

 

During the year ended September 30, 2017, the Company was awarded grant funding in the amount of $597,886. The grant is being received in equal quarterly installments over a period of two years beginning during the year ended September 30, 2018, in exchange for a commitment to complete clinical testing for a therapeutic drug candidate for the treatment of Rett syndrome.

 

The grant income is deferred when received and amortized to other income as the related research and development expenditures are incurred. During the year ended September 30, 2019, the Company recognized $298,943 (2018: $149,055) of this grant on its statement of operations as a component of other income.

 

Research and development incentive income

 

Research and development incentive income represents the receipt by the Company’s Australian subsidiary, of the Australian research and development incentive credit, (the “ATO R&D Credit”), as well as receipt by the Company of the New York City Biotechnology Tax Credit (“NYC Biotech credit”).

 

During the year ended September 30, 2019, the Company recorded research and development incentive income of $2,215,691 (AUD 3,281,300) (2018: $1,647,219 (AUD 2,344,486)) in respect of the ATO R&D Credit for eligible research and development expenses incurred during the year.

 

During the year ended September 30, 2019, the Company recorded research and development incentive income of $250,000 (2018: $182,967) in respect of the NYC Biotech Credit awarded to the Company during the year.

 

 F-13 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 10

 

Note 4Equity Offering Agreements

 

Controlled Equity Offering Sales Agreement

 

On July 6, 2018, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as agent (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell shares of common stock, for aggregate gross sale proceeds of up to $50,000,000 from time to time through Cantor Fitzgerald (the “Offering”). 

 

Upon delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales Agreement, Cantor Fitzgerald may sell the Shares by methods deemed to be an “at the market offering” offering, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, or by any other method permitted by law, including negotiated transactions, subject to the prior written consent of the Company. The Company is not obligated to make any sales of Shares under the Sales Agreement. The Company or Cantor Fitzgerald may suspend or terminate the offering of Shares upon notice to the other party, subject to certain conditions.  Cantor Fitzgerald will act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of Nasdaq.

 

The Company has agreed to pay Cantor Fitzgerald commissions for its services of acting as agent of up to 3.0% of the gross proceeds from the sale of the Shares pursuant to the Sales Agreement.  The Company also agreed to provide Cantor Fitzgerald with customary indemnification and contribution rights. The Company incurred $151,133 in legal and accounting fees associated with the Sales Agreement. This amount was charged to financing related charges on the statement of operations during the year ended September 30, 2019, based on the passage of time. At September 30, 2019, no shares had been sold pursuant to the Offering.

 

2015 Purchase Agreement

 

On October 21, 2015, the Company entered into a $50,000,000 purchase agreement (the “2015 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company could sell and issue to Lincoln Park, and Lincoln Park was obligated to purchase, up to $50,000,000 in value of its shares of common stock from time to time over a 36-month period.

 

During the year ended September 30, 2019, the Company issued to Lincoln Park an aggregate of 4,872,696 (2018: 2,398,261) shares of common stock under the 2015 Purchase Agreement, including 4,848,995 (2018: 2,383,580) shares of common stock for an aggregate purchase price of $13,197,604 (2018: $8,173,290) and 23,701 (2018: 14,681) as commitment shares. At September 30, 2019, all remaining purchase amounts available for issuance under the 2015 Purchase Agreement have been utilized and the 2015 Purchase Agreement has expired pursuant to its terms. As such, no further shares will be sold under the 2015 Purchase Agreement.

 

 F-14 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 11

 

Note 4Equity Offering Agreements – (continued)

 

2019 Purchase Agreement

 

On June 7, 2019, the Company entered into a $50,000,000 purchase agreement (the “2019 Purchase Agreement”) with Lincoln Park, pursuant to which the Company may sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $50,000,000 in value of its shares of common stock from time to time from June 12, 2019, the date a prospectus supplement under which shares of common stock issuable under the 2019 Purchase Agreement was filed with the SEC, until July 1, 2022, which is the first day of the next month following the 36-month anniversary of June 12, 2019.

 

The Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 200,000 shares of common stock on any business day (a “Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances up to 250,000 shares, provided that Lincoln Park’s committed obligation for Regular Purchases on any business day shall not exceed $2,000,000. In the event we purchase the full amount allowed for a Regular Purchase on any given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional accelerated purchases. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the 2019 Purchase Agreement.

 

The 2019 Purchase Agreement limits the Company’s sale of shares of Common Stock to Lincoln Park to 10,076,680 shares of Common Stock, representing 19.99% of the shares of the Common Stock outstanding on the date of the 2019 Purchase Agreement unless (i) shareholder approval is obtained to issue more than such amount or (ii) the average price of all applicable sales of Common Stock to Lincoln Park under the 2019 Purchase Agreement equals or exceeds the lower of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution Date or (B) the average of the closing prices of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately preceding the Execution Date, and it also limits the Company’s sale of shares to Lincoln Park to the extent it would cause Lincoln Park to beneficially own more than 4.99% of the Company’s outstanding shares of Common Stock at any given time.

 

In consideration for entering into the 2019 Purchase Agreement, the Company issued to Lincoln Park 324,383 shares of common stock as a commitment fee and agreed to issue up to 162,191 shares pro rata, when and if, Lincoln Park purchases at the Company’s discretion the $50,000,000 aggregate commitment.

 

During the year ended September 30, 2019, the Company issued to Lincoln Park an aggregate of 1,839,415 shares of common stock under the 2019 Purchase Agreement, including 1,500,000 shares of common stock for an aggregate purchase price of $4,634,505 and 339,415 commitment shares, inclusive of the 324,383 initial commitment shares described above. At September 30, 2019, an amount of $45,365,495 remained available under the 2019 Purchase Agreement.

 

 F-15 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 12

 

Note 5Commitments

 

a)Lease

 

The Company has entered into an office lease agreement under which it leases office space on a month-to-month basis until March 2020. During the year ended September 30, 2019 the Company incurred office lease expense of $190,416 (2018: $151,405).

 

b)Litigation

 

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company's consolidated financial statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its consolidated financial statements.

 

c)Share Purchase Warrants

 

At September 30, 2019, the Company had outstanding warrants to purchase 350,000 shares of common stock at $4.19 until June 2021. The following table summarizes the warrant activity during the years ended September 30, 2019 and 2018:

 

       Weighted Average 
   Number of Shares   Exercise Price ($) 
Balance, September 30, 2017   1,609,309    2.66 
Issued   350,000    4.19 
Exercised   (756,143)   2.96 
Expired   (524,787)   3.00 
Balance, September 30, 2018   678,379    2.87 
Exercised   (8,750)   1.13 
Expired   (319,629)   1.46 
Balance, September 30, 2019   350,000    4.19 

 

During the year ended September 30, 2018, 350,000 options granted to a consultant to the Company were converted to 350,000 warrants with the same exercise price.

 

During the year ended September 30, 2019, the Company issued 4,938 shares in connection with the exercise of 8,750 warrants on a cashless basis.

 

During the year ended September 30, 2018, an aggregate of 737,393 warrants at $3.00 per share and 18,750 warrants at $1.24 per share were exercised on a cashless basis, pursuant to which the Company issued 125,748 shares of common stock.

 

 F-16 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 13

 

Note 5Commitments – (Continued)

 

d)Stock–based Compensation Plan

 

2015 Stock Option Plan

 

On September 18, 2015, the Company’s board of directors approved a 2015 Omnibus Incentive Plan (the “2015 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of the Company.

 

The maximum number of our common shares reserved for issue under the plan is 6,050,553 shares, subject to adjustment in the event of a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will be granted under any previously existing stock option plan. Stock option awards previously granted under the previously existing stock option plans remain outstanding in accordance with their terms.

 

The 2015 Plan provides that it may be administered by the board of directors, or the board of directors may delegate such responsibility to a committee. The exercise price will be determined by the board of directors at the time of grant shall be at least equal to the fair market value on such date. If the grantee is a 10% stockholder on the grant date, then the exercise price shall not be less than 110% of fair market value of the Company’s shares of common stock on the grant date. Stock options may be granted under the 2015 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2015 Plan.

 

2019 Stock Option Plan

 

On January 15, 2019, the Board approved the 2019 Omnibus Incentive Plan (the “2019 Plan”), which provides for the grant of stock options and restricted stock awards to directors, officers, employees, consultants and advisors of the Company. Under the terms of the 2019 Plan, 6,000,000 additional shares of Common Stock are available for issuance under the 2019 Plan, in addition to the shares available under the 2015 Plan. Any awards outstanding under the 2015 Plan or the Company’s 2007 Stock Option Plan (the “2007 Plan”) will remain subject to and be paid under the 2015 Plan or the 2007 Plan, respectively, and any shares subject to outstanding awards under the 2015 Plan or the 2007 Plan that subsequently cease to be subject to such awards (other than by reason of settlement of the awards in shares) will automatically become available for issuance under the 2019 Plan.

 

The 2019 Plan provides that it may be administered by the Board, or the Board may delegate such responsibility to a committee. The exercise price will be determined by the board of directors at the time of grant shall be at least equal to the fair market value on such date. If the grantee is a 10% stockholder on the grant date, then the exercise price shall not be less than 110% of fair market value of the Company’s shares of common stock on the grant date. Stock options may be granted under the 2019 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may be determined by the board, subject to earlier termination in accordance with the terms of the 2019 Plan.

 

 F-17 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 14

 

Note 5Commitments – (Continued)

 

d)Stock–based Compensation Plan – (Continued)

 

A summary of the status of Company’s outstanding stock purchase options is presented below:

 

           Weighted     
       Weighted   Average Grant     
   Number of   Average Exercise   Date Fair Value   

Aggregate

intrinsic

   Shares   Price ($)   ($)    value
Outstanding, September 30, 2017   5,092,030    4.13       $ 5,280,544
Granted   1,730,000    2.71    2.09     
Forfeited   (164,280)   3.66          
Exercised   (150,833)   1.18          
Outstanding, September 30, 2018   6,506,917    3.83       $ 2,353,088
Granted   2,265,399    2.79    2.27     
Forfeited   (309,383)   3.25          
Outstanding, September 30, 2019   8,462,933    3.58       $ 4,115,032
Exercisable, September 30, 2019   5,727,963    3.85       $ 3,275,500

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s stock for the options that were in-the-money at September 30, 2019.

 

The Company recognized stock-based compensation expense of $6,430,873 during the year ended September 30, 2019 (2018: $5,517,004) in connection with the issuance and vesting of stock options and warrants in exchange for services. These amounts have been included in general and administrative expenses and research and development expenses on the Company’s statement of operations as follows:

 

   2019   2018 
General and administrative  $3,203,165   $2,699,557 
Research and development   3,227,708    2,817,447 
Total stock-based compensation  $6,430,873   $5,517,004 

 

An amount of approximately $5,097,281 in stock-based compensation is expected to be recorded over the remaining term of such options through 2022.

 

The fair value of each option award is estimated on the date of grant using the Black Scholes option pricing model based on the following weighted average assumptions:

 

   2019   2018 
Risk-free interest rate   2.50%   2.73%
Expected life of options (years)   6.05    5.60 
Annualized volatility   104.45%   106.45%
Dividend rate   0.00%   0.00%

 

The fair value of stock compensation charges recognized during the years ended September 30, 2019 and 2018 was determined with reference to the quoted market price of the Company’s shares on the grant date.

 

 F-18 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 15

 

Note 6Income Taxes

 

The Company’s U.S. and foreign loss before income taxes are set forth below:

 

   2019   2018 
United States   (18,031,016)   (14,681,272)
Foreign   (8,181,782)   (2,498,718)
Total   (26,212,798)   (17,179,990)

 

US Tax Reform

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

 

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

 

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017. The Company did not need to recognize any provisional tax expense for the year ended September 30, 2018.

 

The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post – 1986 undistributed foreign subsidiary earnings and profits (“E&P”) as well as Global Intangible Low-Taxed Income (“GILTI”) and Base-Erosion Anti-Abuse provisions. The Company had no adjustments related to these latter noted provisions at September 30, 2018.

 

The components of net deferred income tax assets as of September 30, 2019 and 2018 are as follows:

 

   2019   2018 
Net operating loss carryforwards  $18,704,000   $13,556,000 
Research and development tax credit carryforwards   1,162,000    1,605,000 
Stock-based compensation   6,570,000    4,677,000 
Unpaid charges   69,000    91,000 
Intangible asset costs   30,000    35,000 
Foreign exchange and other   15,000    16,000 
Valuation allowance deferred tax assets   (26,551,000)   (19,981,000)
Net deferred tax assets  $-   $- 

 

Certain deferred income tax assets in the table above as of September 30, 2018 have been adjusted to reflect state operating loss carryforwards and tax rates with a corresponding offset in the valuation allowance of approximately $3.9 million.

 

 F-19 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2019 – Page 16

 

Note 6Income Taxes - Continued

 

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements for the years ended September 30, 2019 and 2018 is as follows:

 

   2019   2018 
Income benefit at statutory federal rate  $(5,505,000)  $(4,215,000)
Foreign income taxed at other rates   (825,000)   (173,000)
Other permanent differences   140,000    131,000 
Research and development credit benefit   914,000    (102,000)
Adjustment and true up to prior years' tax provision   194,000    (82,000)
Effect of changes in tax rates   -    6,832,000 
State minimum and excise taxes   82,181    72,746 
Change in federal valuation allowance   5,082,000    (2,391,000)
Income tax expense  $82,181   $72,746 

 

As of September 30, 2019, the Company had U.S. federal net operating loss carryforwards of approximately $60.8 million (2018: $50.6 million) which will begin to expire in 2027 and state net operating loss carryforwards of approximately $64.0 million which will begin to expire in 2036. In addition, the Company had approximately $3.5 million (Approximately AUD$ 5.2 million) (2018: $1.0 million) net operating loss carryforwards in Australia, which have an indefinite life and approximately $3.6 million (Approximately € 3.3 million) (2018: $0.6 million) in Germany, available to offset future taxable income in those jurisdictions.

 

The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change, and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. Because management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of these assets, a valuation allowance equal to the deferred tax asset has been established at September 30, 2019 and 2018.

 

Uncertain Tax Positions

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2012.

 

Certain of the Company’s net operating loss carryforwards in the United States may be subject to limitations by Section 382 of the Internal Revenue Code with respect to the amount utilizable each year. This limitation reduces the Company’s ability to utilize net operating loss carryforwards, under certain circumstances. The Company completed a Section 382 analysis through the fiscal year ended September 30, 2019 and currently does not believe Section 382 will apply to limit the utilization of these tax losses.

  

 F-20 

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS

 

Not Applicable

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our principal financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective, as of September 30, 2019. This determination is based on the material weakness management identified in our internal control over financial reporting for the Australian research and development incentive income, as described below. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

During the preparation of our financial statements for the year ended September 30, 2019, we identified an adjustment regarding our accounting for research and development incentive income associated with the Australian research and development incentive program. Specifically, previously the Company accounted for research and development incentive income when received in cash. During the preparation of our financial statements for the year ended September 30, 2019, we determined, based on a continuing assessment of the Company’s eligibility for the incentive programs under which it was receiving such income, that the income should have been accrued and recorded earlier, specifically in the period in which the qualifying research and development expenditures were incurred. The cumulative impact of adjusting the above noted historical amounts resulted in a decrease in our reported net loss for the year ended September 30, 2018, as well as an increase in the reported assets as of September 30, 2018. As a result of the adjustment, we identified a material weakness in internal control over financial reporting for the accounting of the Australian research and development incentive program during the year ended September 30, 2019. 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We determined that our internal controls over accounting for Australian research and development incentive income were not effective as of September 30, 2019, as a result of adjustments required to prior period financial statements of that program.

BDO USA, LLP, an independent registered public accounting firm, has provided an attestation report on the Company’s internal control over financial reporting as of September 30, 2019, which is included herein.

Remediation of Material Weaknesses and Changes in Internal Control over Financial Reporting
 

In response to the above, related to accounting for the Australian research and development incentive program, with the oversight of the Audit Committee of our Board of Directors, management has, and will continue to evaluate, our policies and procedures related to the accounting for the Australian research and development incentive program to ensure that the accounting, estimates and disclosures of this program are assessed and reconciled on a quarterly basis.

 

ITEM 9B OTHER INFORMATION

 

None.

 

 35 

 

 

PART III

 

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

Our directors are to be elected at our annual meeting and each director elected is to hold office until his or her successor is elected and qualified. Our board of directors may remove our officers at any time.

 

Our directors and executive officers, their age, positions held, and duration of such, are as follows:

 

Name   Position   Age   Date first appointed
Christopher Missling, PhD   Director, President, Chief Executive Officer, Secretary   54   July 5, 2013
Athanasios Skarpelos   Director   53   January 9, 2013
Claus van der Velden, PhD   Director   47   March 2, 2018
Elliot Favus, MD   Director   45   May 7, 2014
Steffen Thomas, PhD   Director   53   June 15, 2015
Peter Donhauser, D.O.   Director   54   February 8, 2017
Sandra Boenisch, CPA, CGA   Principal Financial Officer, Treasurer   38   October 1, 2015

 

Business Experience

 

The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed.

 

Christopher Missling, PhD. Christopher Missling has over twenty years of healthcare industry experience in big pharmaceutical, biotech industry and investment banking. Most recently, from March 2007 until his appointment by our Company, Dr. Missling served as the head of healthcare investment banking at Brimberg & Co. in New York, New York. Also, Dr. Missling served as the Chief Financial Officer of Curis, Inc. (NASDAQ:CRIS) and ImmunoGen, Inc. (NASDAQ:IMGN). Dr. Missling earned his MS and PhD from the University of Munich and an MBA from Northwestern University Kellogg School of Management and WHU Otto Beisheim School of Management.

 

Athanasios Skarpelos. Athanasios (Tom) Skarpelos is a self-employed investor with 20 years of experience working with private and public companies. For more than 12 years, he has been focused on biotechnology companies involved in drug discovery and drug development projects. His experience has led to relationships with researchers at academic institutes in Europe and North America. Mr. Skarpelos is a founder of Anavex.

 

Claus van der Velden, PhD. Claus van der Velden, PhD, brings significant expertise in management, accounting, internal controls and risk management. Since July of 2011, he has served as corporate head of Management Accounting, Internal Audit and Risk Management at Stroeer SE & Co KGaA, a publicly listed German digital media company. Previously, Dr. van der Velden served as the Director of Corporate Business Controlling for the Nutrition & Health business unit at Cognis, a worldwide supplier of global nutritional ingredients and specialty chemicals. In this position, he was also a compliance representative and a member of the global leadership team. After the acquisition of Cognis by BASF, he was responsible for the management accounting processes of the BASF Nutrition & Health division, developing and producing mostly natural-source ingredients for the food and healthcare industries. Dr. van der Velden started his career as a strategy consultant at an international marketing and strategy consultancy firm. He studied in Kiel and Stockholm and received a degree in economics from the University of Kiel and later obtained his doctorate in business management from the WHU-Otto Beisheim School of Management where he also previously taught economics.

 

 36 

 

 

Elliot Favus, MD. Elliot Favus is Chief Executive Officer of Favus Institutional Research, a healthcare research firm serving institutional investors. He has been a healthcare equity research analyst on Wall Street since 2006, starting at Lazard Capital Markets and subsequently at Och-Ziff Capital Management Group. Prior to working on Wall Street, Dr. Favus was an Instructor in medicine at Mount Sinai School of Medicine in New York. He attended the University of Michigan (BA, 1996), the University of Chicago Pritzker School of Medicine (MD, 2001) and the NYU-Bellevue Hospital Internal Medicine Residency Program (2004). He is board-certified in Internal Medicine (2004) and has 10 years of basic science laboratory experience working on human genetics projects at Harvard Medical School, the University of Chicago and the University of Pittsburgh.

 

Steffen Thomas, PhD Steffen Thomas, has over 15 years of experience as a European patent attorney and is currently practicing at Epping Hermann Fischer, a major intellectual property law firm in Europe. Previously, he worked for Japan-based Takeda Pharmaceutical Company, the largest pharmaceutical company in Asia and a top firm worldwide, as an in-house patent attorney. Prior to that, he worked for Nycomed Pharma, acquired by Takeda in 2011 for approximately USD $10 billion. Dr. Thomas’ legal practice covers drafting of patent applications, prosecuting patent applications before national and international patent offices, defending and challenging patents in opposition, appeal, and nullity proceedings, enforcing patents before the infringement courts, and preparing opinions on patentability and infringement in the technical field of chemistry. Dr. Thomas has particular expertise in small molecule pharmaceuticals. He holds MS and PhD degrees in Chemistry from the University of Munich.

 

Peter Donhauser, D.O. Peter Donhauser, had more than 20 years of expertise in clinical research prior to practicing osteopathic medicine with an integrated medical approach in private practice beginning in 2000. He worked at the University Hospital of Munich in the fields of geriatrics and neuromusculoskeletal diseases.  During this time, he was a clinical trial investigator in multiple Phase 3 studies, including studies sponsored by Merck Sharp & Dohme, Merck, Boehringer Mannheim, Roche, Servier and Sanofi. He received his human medicine degree at the University of Munich and Doctor of Osteopathic Medicine (D.O.) from the German-American Academy for Osteopathy, or DAAO, a member of the European Register for Osteopathic Physicians, or EROP, at the Philadelphia College of Osteopathic Medicine.

 

Sandra Boenisch, CPA, CGA Ms. Boenisch is a Chartered Professional Accountant (CPA, CGA) with over 15 years of accounting, audit, and financial reporting experience in a variety of industries, both in the United States and Canada. Ms. Boenisch was an independent consultant, providing financial reporting services to a range of public companies in the United States and Canada since January 2012. From 2008 until 2012, Ms. Boenisch was employed at BDO Canada LLP (Vancouver, BC) where she was hired as a Senior Accountant and was later promoted to Manager, Audit Assurance. Ms. Boenisch specialized in managing assurance engagements for public companies in the United States and Canada. Prior to that, Ms. Boenisch worked for another public accounting firm from 2001 to 2008. As an independent consultant, Ms. Boenisch has acquired considerable experience in finance, governance, and regulatory compliance. She holds a BComm from Laurentian University.

 

Family Relationships

 

There are no family relationships between any director or executive officer.

 

Involvement in Certain Legal Proceedings

 

There are no material proceedings to which any director or executive officer or any associate of any such director or officer is a party adverse to our Company or has a material interest adverse to our Company.

 

 37 

 

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports that they file.

 

Based solely on the copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe that all Section 16(a) filing requirements applicable to our executive officers and directors and 10% stockholders were met for the year ended September 30, 2019.

 

Code of Ethics

 

We have adopted a code of ethics that applies to our directors, principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and to all employees. We have posted our policy on our website at www.anavex.com.

 

Audit Committee and Audit Committee Financial Experts

 

The members of the Audit Committee are Claus van der Velden (Chairman), Athanasios Skarpelos and Steffen Thomas. Our board of directors has determined that Claus van der Velden is an “audit committee financial expert” as defined by applicable SEC and Nasdaq rules.

 

The Audit Committee oversees and reports to our board of directors on various auditing and accounting-related matters, including, among other things, the maintenance of the integrity of our financial statements, reporting process and internal controls; the selection, evaluation, compensation and retention of our independent registered public accounting firm; legal and regulatory compliance, including our disclosure controls and procedures; and oversight over our risk management policies and procedures.

 

The Audit Committee operates under a charter that was adopted by our board of directors. The Audit Committee met five times during fiscal 2019.

 

Nominating and Corporate Governance Committee

 

The members of our Nominating and Corporate Governance Committee are Claus van der Velden (Chairman), Steffen Thomas and Peter Donhauser.

 

The Nominating and Corporate Governance Committee is appointed by the Board to oversee and evaluate the Board's performance and the company's compliance with corporate governance regulations, guidelines and principles, to identify individuals qualified to become Board members, to recommend to the Board proposed nominees for Board membership, and to recommend to the Board directors to serve on each standing committee. The Nominating and Corporate Governance Committee did not meet but did act by written consent during fiscal 2019.

 

Compensation Committee

 

The members of our Compensation Committee are Claus van der Velden (Chairman), Steffen Thomas and Peter Donhauser.

 

The Compensation Committee assists our board of directors in discharging its responsibilities relating to compensation of our directors and executive officers. Its responsibilities include, among other things, reviewing, approving and recommending compensation programs and arrangements applicable to our officers; determining the objectives of our executive officer compensation programs; overseeing the evaluation of our senior executives; administering our incentive compensation plans and equity-based plans, including reviewing and granting equity awards to our executive officers; and reviewing and approving director compensation and benefits. The Compensation Committee can delegate to other members of our board of directors, or an officer or officers of the Company, the authority to review and grant stock-based compensation for employees who are not executive officers.

 

 38 

 

 

The Compensation Committee has the responsibilities and authority designated by Nasdaq rules. Specifically, the Compensation Committee has the sole discretion to select and receive advice from a compensation consultant, legal counsel or other adviser and is directly responsible for oversight of their work. The Compensation Committee must also determine reasonable compensation to be paid to such advisors by us.

 

Prior to the formation of our Compensation Committee, our board of directors performed the functions that would have been handled by the Compensation Committee.

 

The Compensation Committee operates under a charter that was adopted by our board of directors. The Compensation Committee met two times during fiscal 2019.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The Company’s compensation objectives are to offer our executive officers’ compensation and benefits that are competitive and meet our goals of attracting, retaining and motivating highly skilled, talented management, which is necessary for the Company to achieve its financial and strategic objectives and create long-term value for our stockholders.

 

A significant portion of the Company’s executive compensation opportunity is related to factors that directly and indirectly influence shareholder value, including long-term stock performance and operational performance. We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances.

 

Our Executive Compensation Program and Philosophy

 

The intent of the Company’s compensation program is to attract and retain talent, to create incentives for and to reward excellent performance. We seek to compensate our executives in a manner that is competitive, rewards performance that creates shareholder value, recognizes individual contributions, and encourages long-term value creation.

 

The Compensation Committee meets at least twice per year to review and evaluate executive compensation and each executive officer’s performance. The Compensation Committee utilizes quantitative and qualitative factors, including the accomplishment of initiatives, attitude, and leadership and applies overall judgment to assess performance, taking into account the financial condition of the Company. Ultimately, the Compensation Committee seeks to evaluate, based on the achievement of financial and nonfinancial objectives, the variable compensation, including special awards, of executive officers of the Company and decide on the base salary and target discretionary bonus for such persons taking into account relevant benchmark data.

 

The Compensation Committee believes that a significant portion of each executive’s compensation opportunity should be tied to variable compensation and value creation for shareholders. The Compensation Committee believes this mix provides an appropriate balance between the financial security required to attract and retain qualified individuals, and the Compensation Committee’s goal of ensuring that executive compensation rewards performance that benefits shareholders over the long term.

 

Compensation Consultants

 

The Compensation Committee makes recommendations to the Board for all compensation for executives, including the structure and design of the compensation programs. The Compensation Committee is responsible for retaining and terminating compensation consultants and determining the terms and conditions of their engagement. During fiscal 2019, the Compensation Committee did not engage any compensation consultants.

 

 39 

 

  

Annual Discretionary Cash Bonuses

 

The Company has an annual discretionary cash bonus program. The Compensation Committee, or board of directors works with the Chief Executive Officer to evaluate the Company’s financial performance and overall financial condition to determine if discretionary bonuses are to be paid.

 

Benefits

 

The Company’s executives are entitled to participate in employee benefit plans, programs and arrangements implemented by the Company and generally available to all salaried employees, such as medical, dental and insurance programs. Executives are also allowed to participate in the Company’s tax-qualified 401(k) Plan offered to all similarly situated full-time employees.

 

Summary Compensation

 

The particulars of compensation paid to our named executive officers for the last two completed fiscal years:

 

Name and Principal 
Position
  Year  Salary 
($)
   Bonus 
($)
   Stock 
Awards 
($)
   Option 
Awards 
($)
   Other  
Compen- 
sation 
($)
   Total 
($)
 
Christopher Missling, PhD(1)  2019   512,500    50,000    -    2,806,339    11,200    3,380,039 
President, Chief Executive Officer, and Director  2018   500,000    65,000    -    1,973,889    11,000    2,549,889 
                                  
Sandra Boenisch(2)  2019   72,327    13,561    -    138,672    -    224,560 
Principal Financial Officer and Treasurer  2018   79,608    11,414    -    141,047    -    232,069 

 

(1)Christopher Missling was appointed as director, President, Chief Executive Officer, Chief Financial Officer, and Secretary on July 5, 2013.
(2)Compensation to Ms. Boenisch denominated in Canadian Dollars and has been translated to US dollars at an exchange rate of 0.7534 during the year ended September 30, 2019 (2018: 0.7805).

 

Employment Agreements

 

Christopher Missling

 

We and Dr. Missling entered into an employment agreement dated July 5, 2013, as amended and extended (the “CEO Employment Agreement”), whereby we currently pay to Dr. Missling an annual base salary of $550,000. In addition, Dr. Missling is eligible to earn an annual cash bonus for each whole or partial calendar year of up to twenty percent of his base salary, and to participate in our employee benefit plans. We have agreed to indemnify Dr. Missling in connection with his provision of services to us.

 

During the year ended September 30, 2019, in connection with the second amendment to the CEO Employment Agreement, Dr. Missling was granted 750,000 options for shares of the Company’s common stock, one third of which shall vest on each of July 5, 2020, July 5, 2021 and July 5, 2022.

 

 40 

 

 

Sandra Boenisch

 

We and Ms. Boenisch entered into an employment agreement dated October 1, 2015, as amended and extended whereby we currently pay Ms. Boenisch an annual base salary of $96,000 Canadian dollars. Ms. Boenisch is eligible for discretionary salary increases.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth for each named executive officer and director certain information concerning the outstanding equity awards as of September 30, 2019.

 

Option Awards  Stock Awards 
Name  Number of
Securities
Underlying
Exercisable
Options
(#)
   Number of
Securities
Underlying
Unexercisable
Options
(#)
   Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
   Option
Exercise
Price
($)
   Option
Expiration
Date
  Number
of
Shares of
Units of
Stock
that
have
not
Vested
(#)
   Market
Value of
Shares
or
Units of
Stock
that
have not
Vested
($)
   Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
that have
not
Vested
(#)
   Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that
have not
Vested
($)
 
Christopher Missling   500,000    -    -    1.60   July 5, 2023   -    -    -    - 
    125,000    -    -    1.32   May 8, 2024                    
    500,000    -    -    0.92   April 2, 2025                    
    187,500    -    -    5.04   Sept 18, 2025                    
    379,625    -    -    6.26   July 5, 2026                    
    861,429    -    -    7.06   July 18, 2026                    
    500,000    -    -    3.28   Sept 22, 2026                    
    375,000    75,000    -    5.92   May 12, 2027                    
    233,333    166,667    -    3.30   Dec 13, 2027                    
    450,000    -    -    2.30   May 15, 2028                    
    -    409,500    -    2.58   Oct. 1, 2028                    
    750,000    -    -    3.15   May 3, 2029                    
                                            
Sandra Boenisch   25,000    -    -    5.68   Oct 2, 2025   -    -    -    - 
    106,696    -    -    3.28   Sept 22, 2026                    
    29,168    5,832    -    5.92   May 12, 2027                    
    17,500    12,500    -    3.30   Dec 13, 2027                    
    30,000    -    -    2.30   May 15, 2028                    
    -    27,300    -    2.58   Oct. 1, 2028                    
    -    35,000    -    2.93   June 4, 2029                    

 

Stock Option Plans

 

For a description of our Equity Compensation Plans, please see Item 5 to this annual report on Form 10-K.

 

 41 

 

 

Compensation of Directors

 

The table below shows the compensation of our directors who were not our named executive officers for the fiscal year ended September 30, 2019:

 

Name  Fees Earned
or Paid in
Cash
($)
   Stock
Awards
($)
   Option
Awards
($) (1)
   Non-Equity
Incentive
Plan
Compensation
($)
   Nonqualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)
   Total
($)
 
Athanasios Skarpelos   -    -    93,871    -    -    -    93,871 
Claus van der Velden   16,000    -    93,871    -    -    -    109,871 
Elliot Favus   -    -    93,871    -    -    -    93,871 
Steffen Thomas   -    -    93,871    -    -    -    93,871 
Peter Donhauser   -    -    93,871    -    -    -    93,871 

 

(1) At September 30, 2019, the aggregate number of outstanding vested and unvested stock option awards held by each director was: Mr. Skarpelos options to purchase 195,500 shares, Mr. Van der Velden options to purchase 95,500 shares, Mr. Favus options to purchase 240,500 shares, Mr. Thomas options to purchase 195,500 shares and Mr. Donhauser options to purchase 95,500 shares.

 

We currently compensate Claus van der Velden $4,000 per quarter for performing the functions of Chairman of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.

 

In addition, directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award further special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

 

Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.

 

Resignation, Retirement, Other Termination, or Change in Control Arrangements

 

Our Employment Agreement with Dr. Missling contains provisions regarding our obligations upon his termination and upon a change of control. In the event of a change of control, as such term is defined in the employment agreement, all previously granted but unvested stock options held by Dr. Missling shall vest. Depending on the nature of the termination of Dr. Missling’s services, certain of his salary, bonus and granted securities shall vest in the amounts at such time as set forth in the Employment Agreement. A copy of Dr. Missling’s Second Amendment to Employment Agreement is set forth in its entirety as an exhibit to our Quarterly Report on Form 10-Q filed with the SEC on May 9, 2019.

 

Our employment agreement with Sandra Boenisch contains provisions regarding our obligations to Ms. Boenisch upon a change of control. In the event of a change of control, as such term is defined in the employment agreement, all of the remaining unvested option shares granted to Ms. Boenisch will immediately vest with no restrictions on purchase or sales. A copy of Ms. Boenisch’s employment agreement is set forth in its entirety as Exhibit 10.8 hereto.

 

 42 

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth, as of December 12, 2019, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and our named executive officers and by our current directors and executive officers as a group. We have determined the number and percentage of shares beneficially owned by such person in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. This information does not necessarily indicate beneficial ownership for any other purpose.

 

Title of class  Name and address of
beneficial owner
  Amount and nature of
beneficial ownership
   Percent of
class (1)
 
            
Common Stock  Christopher Missling (CEO/Director)   5,163,430(2)   8.6%
              
Common Stock  Athanasios Skarpelos (Director)   1,456,458(3)   2.6%
              
Common Stock  Claus van der Velden (Director)   16,667(4)   * 
              
Common Stock  Elliot Favus (Director)   195,000(5)   * 
              
Common Stock  Steffen Thomas (Director)   150,000(6)   * 
              
Common Stock  Peter Donhauser (Director)   50,000(7)   * 
              
Common Stock  Sandra Boenisch (Principal Financial Officer)   236,743(8)   * 
              
Common Stock  Directors & Executive Officers as a group (7 persons)   7,268,298    11.9%
              
Common Stock  Park West Asset Management LLC
   3,495,615    6.2%

 

*Less than 1%

 

(1)Percentage of ownership is based on 56,123,076 of our common stock issued and outstanding as of December 12, 2019. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

 

(2)Includes options to purchase 500,000 shares of our common stock at $1.60 per share, options to purchase 125,000 shares of our common stock at $1.32 per share, options to purchase 500,000 shares of our common stock at $0.92 per share, options to purchase 187,500 shares of our common stock at $5.04 per share, options to purchase 379,625 shares of our common stock at $6.26 per share, options to purchase 861,429 shares of our common stock at $7.06 per share, options to purchase 500,000 shares of our common stock at $3.28 per share, and options to purchase 375,000 shares of our common stock at $5.92 per share, options to purchase 266,666 shares of our common stock at $3.30 per share, and options to purchase 450,000 shares of our common stock at $2.30 per share that are vested or are vesting within 60 days. Excludes options to purchase 75,000 shares of our common stock at $5.92 per share, options to purchase 133,334 shares of our common stock at $3.30 per share, options to purchase 409,500 shares of our common stock at $2.58 per share and options to purchase 750,000 shares of our common stock at $3.15 per share that do not vest within 60 days.

 

 43 

 

 

(3)Includes options to purchase 50,000 shares of our common stock at $0.92 per share and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 45,500 shares of our common stock at $2.30 per share that do not vest within 60 days.

 

(4)Includes options to purchase 16,667 shares of our common stock at $2.60 per share that have vested or are vesting within 60 days. Excludes options to purchase 33,333 shares of our common stock at $2.60 per share and options to purchase 45,500 shares of our common stock at $2.30 per share that are not vesting within 60 days.

 

(5)Includes options to purchase 37,500 shares of our common stock at $1.20 per share, options to purchase 50,000 shares of our common stock at $0.92 per share, options to purchase 1,500 shares of our common stock at $5.64 per share, options to purchase 1,500 shares of our common stock at 5.57 per share, options to purchase 1,500 shares of our common stock at $4.90 per share, options to purchase 1,500 shares of our common stock at $5.66 per share, options to purchase 1,500 shares of our common stock at $6.11 per share, and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 45,500 shares of our common stock at $2.30 per share that do not vest within 60 days.

 

(6)Includes options to purchase 50,000 shares of our common stock at $1.76 per share and options to purchase 100,000 shares of our common stock at $3.28 per share that have vested or are vesting within 60 days. Excludes options to purchase 45,500 shares of our common stock at $2.30 per share that do not vest within 60 days.

 

(7)Includes options to purchase 50,000 shares of our common stock at $5.39 per share that have vested or are vesting within 60 days. Excludes options to purchase 45,500 shares of our common stock at $2.30 per share that do not vest within 60 days.

 

(8)Includes options to purchase 25,000 shares of our common stock at $5.68 per share, options to purchase 106,696 shares of our common stock at $3.28 per share, options to purchase 32,084 shares of our common stock at $5.92 per share, options to purchase 20,000 shares of our common stock at $3.30 per share, and options to purchase 30,000 shares of our common stock at $2.30 per share that have vested or are vesting within 60 days. Excludes options to purchase 2,916 shares of our common stock at $5.92 per share, options to purchase 10,000 shares of common stock at $3.30 per share, options to purchase 27,300 shares of common stock at $2.58 per share and options to purchase 35,000 shares of common stock at $2.93 per share that do not vest within 60 days.

 

Change in Control

 

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with related persons

 

There have been no transactions, since October 1, 2017, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds $120,000, and in which any of the following persons had or will have a direct or indirect material interest.

 

i.any director or executive officer of our Company;
ii.any beneficial owner of shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; and
iii.any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons.

 

Compensation of Named Executive Officers and Directors

 

For information regarding compensation of named executive officers and directors, please see “Item 11. Executive Compensation.”

 

 44 

 

 

Director Independence

 

Under the NASDAQ Stock Market Rules, the Board has a responsibility to make an affirmative determination that those members of its Board that serve as independent directors do not have any relationships with the Company and its businesses that would impair their independence. The Board has determined that that Christopher Missling, PhD is not independent as that term is defined by NASDAQ 5605(a)(2) because Mr. Missling serves as our President, Chief Executive Officer, and Secretary.

 

The Board has determined that that Claus van der Velden, Elliot Favus, Athanasios Skarpelos, Steffen Thomas and Peter Donhauser are independent as that term is defined by NASDAQ 5605(a)(2) and the applicable rules of the Securities and Exchange Commission.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Fees Paid to Our Independent Registered Public Accounting Firm

 

The following table sets forth the aggregate fees billed or expected to be billed to our Company for professional services rendered by our independent registered public accounting firm, for the fiscal years ended September 30, 2019 and 2018:

 

   2019   2018 
Audit Fees  $229,763   $224,181 
Audit Related Fees   -    - 
Tax Fees   -    - 
All Other Fees   -    - 
Total Fees  $229,763   $224,181 

 

Audit Fees. Consist of fees billed for professional services rendered for the audits of our financial statements, reviews of our interim financial statements included in quarterly reports, services performed in connection with regular filings with the Securities and Exchange Commission for the fiscal years ended September 30, 2019 and 2018 in connection with statutory and regulatory filings or engagements.

 

Policy on Pre-Approval by Audit Committee of Services Performed by Independent Registered Public Accounting Firm

 

Our Audit Committee pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by our Audit Committee before the respective services were rendered.

 

Our Audit Committee has considered the nature and amount of fees billed or expected to be billed by BDO USA, LLP and believes that the provision of services for activities unrelated to the audit was compatible with maintaining BDO USA, LLP’s independence.

 

 45 

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibit
Number
Description
(3) Articles of Incorporation and Bylaws
3.1 Articles of Incorporation (incorporated by reference to our Registration Statement on Form SB-2 filed on January 13, 2005)
3.2 Bylaws (incorporated by reference to our Current Report on Form 8-K filed on September 28, 2007)
3.3 Articles of Merger filed with the Secretary of State of Nevada on January 10, 2007 and which is effective January 25, 2007 (incorporated by reference to our Current Report on Form 8-K filed on January 25, 2007)
(10) Material Contracts
10.1 2015 Omnibus Incentive Plan (incorporated by reference to our Annual Report on Form 10-K filed on December 29, 2015)
10.2 2019 Omnibus Incentive Plan (incorporated by reference to our Proxy Statement, dated February 11, 2019, as filed on February 11, 2019).
10.3 Purchase Agreement, dated as of June 7, 2019, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to our Current Report on Form 8-K filed on June 12, 2019)
10.4 Registration Rights Agreement, dated as of June 7, 2019, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to our Current Report on Form 8-K filed on June 12, 2019)
10.5 First Amendment to Employment Agreement, dated as of July 5, 2016, by and between the Company and Christopher Missling, PhD (incorporated by reference to our Current Report on Form 8-K filed on July 7, 2016)
10.6 Amended and Restated First Amendment to Employment Agreement, dated as of July 18, 2016, by and between the Company and Christopher Missling, PhD (incorporated by reference to our Current Report on Form 8-K filed on July 22, 2016)
10.7 Second Amendment to Employment Agreement, dated as of May 3, 2019 by and between the Company and Christopher Missling, PhD (incorporated by reference to our Quarterly Report on Form 10-Q filed on May 9, 2019)
10.8 Controlled Equity OfferingSM Sales Agreement, dated July 6, 2018, by and between Anavex Life Sciences Corp. and Cantor Fitzgerald & Co. (incorporated by reference to our Current Report on Form 8-K filed on July 6, 2018)

 

 46 

 

 

Exhibit
Number
Description
14 Code of Ethics
14.1 Code of Ethics Adopted on September 13, 2016 (incorporated by reference to our Annual Report on Form 10-K filed on December 14, 2016)
(21) Subsidiaries
21.1* Subsidiaries of the Registrant
(23) Consent
23.1* Consent of Independent Registered Public Accounting Firm
(31) Section 302 Certifications
31.1* Section 302 Certification of Christopher Missling, PhD.
31.2* Section 302 Certification of Sandra Boenisch
(32) Section 906 Certifications
32.1* Section 906 Certification of Christopher Missling, PhD and Sandra Boenisch
(99) Additional Exhibits
99.1 Insider Trading Policy Adopted August 9, 2017 (incorporated by reference to our Annual Report on Form 10-K filed on December 11, 2017)
(101) XBRL
101.INS* XBRL INSTANCE DOCUMENT
101.SCH* XBRL TAXONOMY EXTENSION SCHEMA
101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB* XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

* Filed herewith.

 

ITEM 16. FORM 10-K SUMMARY

 

Not Applicable.

 

 47 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: December 16, 2019   ANAVEX LIFE SCIENCES CORP.
     
    By:  

/s/ Christopher Missling, PhD

    Name:   Christopher Missling, PhD
    Title:  

Chief Executive Officer (Principal Executive Officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures   Title(s)   Date
         
/s/ Christopher Missling, PhD       December 16, 2019
Christopher Missling, PhD   Chief Executive Officer (Principal Executive Officer)    
         
/s/ Sandra Boenisch       December 16, 2019
Sandra Boenisch, CPA, CGA   Principal Financial Officer and Treasurer (Principal Accounting Officer)    
         
/s/ Athanasios Skarpelos       December 16, 2019
Athanasios Skarpelos   Director    
         
/s/ Claus van der Velden, PhD       December 16, 2019
Claus van der Velden, PhD   Director    
         
/s/ Elliot Favus, MD       December 16, 2019
Elliot Favus, MD   Director    
         
/s/ Steffen Thomas, PhD       December 16, 2019
Steffen Thomas, PhD   Director    
         
/s/ Peter Donhauser, D.O.       December 16, 2019
Peter Donhauser, D.O.   Director    

 

 48 

 

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

     
Name of Subsidiary   Jurisdiction of Incorporation or Organization
Anavex Australia Pty Limited   Australia
Anavex Germany GmbH   Germany
Anavex Canada Ltd.   Ontario, Canada

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

Anavex Life Sciences Corp.

New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-218292, No. 333-207600 and No. 333-232550) and Form S-8 (No. 333-219934) of Anavex Life Sciences Corp. and subsidiaries of our reports dated December 16, 2019 relating to the consolidated financial statements, and the effectiveness of Anavex Life Sciences Corp.’s internal control over financial reporting, which appear in this Annual Report on Form 10-K. Our report on the effectiveness of internal control over financial reporting expresses an adverse opinion on the effectiveness of Anavex Life Sciences Corp.’s internal control over financial reporting as of September 30, 2019.

 

/S/ BDO USA, LLP 

 

New York, New York

December 16, 2019

 

Exhibit 31.1

 

CERTIFICATION

 

I, Christopher Missling, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Anavex Life Sciences Corp.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 16, 2019  
   
/s/ Christopher Missling  
Christopher Missling, PhD  
Chief Executive Officer, President, Secretary
(Principal Executive Officer)
 

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Sandra Boenisch, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Anavex Life Sciences Corp.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: December 16, 2019  
   

/s/ Sandra Boenisch

 
Sandra Boenisch, CPA, CGA  
Principal Financial Officer, Treasurer
(Principal Financial and Accounting Officer)
 

 

 

 

 

Exhibit 32.1

 

CERTIFICATION

 

In connection with the Annual Report of Anavex Life Sciences Corp. (the “Company”) on Form 10-K for the fiscal year ending September 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), we, Christopher Missling, Chief Executive Officer (Principal Executive Officer) and Sandra Boenisch, Principal Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

Date: December 16, 2019  
   
/s/ Christopher Missling  
Christopher Missling, PhD  
Chief Executive Officer, President, Secretary (Principal Executive Officer)  
   

/s/ Sandra Boenisch

 
Sandra Boenisch, CPA, CGA  
Principal Financial Officer, Treasurer
(Principal Financial and Accounting Officer)
 

 

 

 

 

 

v3.19.3.a.u2
Income Taxes (Details 2) - USD ($)
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Income Tax Disclosure [Abstract]    
Income benefit at statutory federal rate $ (5,505,000) $ (4,215,000)
Foreign income taxed at other rates (825,000) (173,000)
Other permanent differences 140,000 131,000
Research and development credit benefit 914,000 (102,000)
Adjustment and true up to prior years' tax provision 194,000 (82,000)
Effect of changes in tax rates 6,832,000
State minimum and excise taxes 82,181 72,746
Change in Federal valuation allowance 5,082,000 (2,391,000)
Income tax expense $ 82,181 $ 72,746
v3.19.3.a.u2
Commitments (Details 3)
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]    
Risk-free interest rate 2.50% 2.73%
Expected life of options (years) 6 years 18 days 5 years 7 months 6 days
Annualized volatility 104.45% 106.45%
Dividend rate 0.00% 0.00%
v3.19.3.a.u2
Equity Offering Agreements (Details Narrative) - USD ($)
12 Months Ended
Jun. 07, 2019
Jul. 06, 2018
Oct. 21, 2015
Sep. 30, 2019
Sep. 30, 2018
Gross sale proceeds       $ 17,832,109 $ 8,173,920
2019 Purchase Agreement [Member] | Lincoln Park Capital Fund, LLC [Member]          
Total number of shares obligated to purchase $ 50,000,000        
Agreement term 36 months        
Description of purchases price The Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 200,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase. The amount of a purchase may be increased under certain circumstances provided, however that Lincoln Park’s committed obligation under any single purchase shall not exceed $2,000,000. The purchase price of shares of common stock related to the future funding will be based on the then prevailing market prices of such shares at the time of sales as described in the 2019 Purchase Agreement.        
Number of share issued 324,383     1,839,415  
Pro rata basic number of shares obligated to purchase 162,191        
Number of shares issued for aggregate purchase price       1,500,000  
Number of shares issued for aggregate purchase price, value       $ 4,634,505  
Number of shares issued for commitment       339,415  
Amount of shares remain available       $ 45,365,495  
Initial commitment shares       324,383  
2019 Purchase Agreement [Member] | Lincoln Park Capital Fund, LLC [Member] | Common Stock [Member]          
Number of share issued       10,076,680  
Percentage of gross proceeds from sales       19.99%  
Equity Offering Sales Agreement [Member] | Cantor Fitzgerald & Co [Member]          
Gross sale proceeds   $ 50,000,000      
Percentage of gross proceeds from sales       3.00%  
Legal and accounting fees       $ 151,133  
2015 Purchase Agreement [Member] | Lincoln Park Capital Fund, LLC [Member]          
Total number of shares obligated to purchase     $ 50,000,000    
Agreement term     36 months    
Number of share issued       4,872,696 2,398,261
Number of shares issued for aggregate purchase price       4,848,995 2,383,580
Number of shares issued for aggregate purchase price, value       $ 13,197,604 $ 8,173,290
Number of shares issued for commitment       23,701 14,681
v3.19.3.a.u2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2019
Sep. 30, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, authorized 10,000,000 10,000,000
Capital shares, par value (in dollars per share) $ 0.001 $ 0.001
Capital shares, authorized 100,000,000 100,000,000
Capital shares, issued 52,650,251 45,933,472
Capital shares, outstanding 52,650,251 45,933,472
v3.19.3.a.u2
Business Description and Basis of Presentation
12 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Description and Basis of Presentation
Note 1Business Description and Basis of Presentation

 

Business 

Anavex Life Sciences Corp. (the “Company”) is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics by applying precision medicine to central nervous system (“CNS”) diseases with high unmet need. Anavex analyzes genomic data from clinical studies to identify biomarkers, which are used to select patients that will receive the therapeutic benefit for the treatment of neurodegenerative and neurodevelopmental diseases. The Company’s lead compound ANAVEX®2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other central nervous system diseases, including rare diseases, such as Rett syndrome, a rare severe neurological monogenic disorder caused by mutations in the X-linked gene, methyl-CpG-binding protein 2 (“MECP2”).

 

Basis of Presentation

 

These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form 10-K and have been prepared under the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Liquidity

 

All of the Company’s potential drug compounds are in the clinical development stage and the Company cannot be certain that its research and development efforts will be successful or, if successful, that its potential drug compounds will ever be approved for sales to pharmaceutical companies or generate commercial revenues. To date, we have not generated any revenues from our operations. The Company expects the business to continue to experience negative cash flows for the foreseeable future and cannot predict when, if ever, our business might become profitable.

 

The Company believes that its existing cash and cash equivalents, along with existing financial commitments from third parties, will be sufficient to meet its cash commitments for in excess of two years after the date that these consolidated financial statements are issued. The process of drug development can be costly, and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research and development programs and the level of financial resources available. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials.

 

Other than our rights related to the Sales Agreement and the 2019 Purchase Agreement (each as defined below), there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to delay or scale down some or all of our research and development activities.

 

Adjustment of Prior Period Financial Statements

 

The Company adjusted amounts to previously reported consolidated financial statements which were immaterial. These adjustments were identified in connection with the preparation of the consolidated financial statements for the year ended September 30, 2019 and related to the timing of recognition of research and development incentive income. Previously the Company accounted for research and development incentive income when received in cash. During the year ended September 30, 2019, based on a continuing assessment regarding the Company’s eligibility for the incentive programs under which it was receiving such income, the Company determined that the income should have been accrued and recorded in the period in which the qualifying research and development expenditures were incurred.

 

The Company evaluated the materiality of these misstatements both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99 Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and determined that the effect of the adjustment in the period of origination was not material.

 

The Company adjusted the accumulated deficit as of the beginning of the earliest year presented in these consolidated financial statements, resulting in a decrease in the previously reported deficit at October 1, 2017 by $1,629,513 from $(91,478,558) to the adjusted amount $(89,849,045). In addition, the consolidated financial statements for the year ended September 30, 2018 presented herein have been adjusted to include an increase in net income and incentives and taxes receivable as noted below.

 

   As Previously         
   Reported   Adjustment   As Adjusted 
Balance Sheet:               
Incentive and tax receivables  $40,171   $1,830,186   $1,870,357 
Total current assets  $24,222,607   $1,830,186   $26,052,793 
Total assets  $24,376,136   $1,830,186   $26,206,322 
Accumulated deficit  $(108,931,967)  $1,830,186   $(107,101,781)
Total Stockholders' Equity  $20,491,510   $1,830,186   $22,321,696 
Total Liabilities and Stockholders' Equity  $24,376,136   $1,830,186   $26,206,322 
Statement of Operations:               
Research and development incentive income  $1,629,513   $200,673   $