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EX-99.1 - EXHIBIT 99.1 - ANAVEX LIFE SCIENCES CORP.s108360_ex99-1.htm
EX-32.1 - EXHIBIT 32.1 - ANAVEX LIFE SCIENCES CORP.s108360_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - ANAVEX LIFE SCIENCES CORP.s108360_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - ANAVEX LIFE SCIENCES CORP.s108360_ex31-1.htm
EX-23.1 - EXHIBIT 23.1 - ANAVEX LIFE SCIENCES CORP.s108360_ex23-1.htm
EX-21.1 - EXHIBIT 21.1 - ANAVEX LIFE SCIENCES CORP.s108360_ex21-1.htm
EX-10.7 - EXHIBIT 10.7 - ANAVEX LIFE SCIENCES CORP.s108360_ex10-7.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

For the fiscal year ended September 30, 2017

 

☐ 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   NASDAQ Stock Market LLC
Title of each class   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 ☒
   
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
  Yes ☐ No ☒
   
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 ☒  No ☐
   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ☒  No ☐
   
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
   
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  

Smaller reporting company ☐ 

Non-accelerated filer (Do not check if a smaller reporting company)

Emerging growth company ☐

Accelerated filer

   
       
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 ☒
       

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: $163,478,217 based on a price of $4.90 per share, being the closing price of the registrant’s common stock on March 31, 2016.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date 44,220,833 issued and outstanding as of December 8, 2017.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

TABLE OF CONTENTS

  

PART I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 9
ITEM 1B. UNRESOLVED STAFF COMMENTS 17
ITEM 2. PROPERTIES 17
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. MINE SAFETY DISCLOSURES 17
PART II 17
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 17
ITEM 6 SELECTED FINANCIAL DATA 20
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 20
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL MATTERS 27
ITEM 9A. CONTROLS AND PROCEDURES 27
ITEM 9B OTHER INFORMATION 27
PART III 27
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 27
ITEM 11. EXECUTIVE COMPENSATION 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 37
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 38
PART IV 39
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 39

 

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;

our ability to execute our development plan on time and on budget;

our products ability to demonstrate efficacy or an acceptable safety profile;

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;

intellectual property rights and protections;

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, or 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,” and “Anavex” mean Anavex Life Sciences Corp., unless the context clearly requires otherwise.

 

iii

 

 

PART I

 

ITEM 1. BUSINESS

 

Anavex Life Sciences Corp. is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (“CNS”) diseases, pain and various types of cancer. 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 severe neurological disorder caused by mutations in the X-linked gene MECP2 (methyl-CpG-binding protein 2).

  

In November 2016, a Phase 2a clinical trial, consisting of PART A and PART B, which lasted a total of 57 weeks, was completed 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 pharmacokinetic (PK) and pharmacodynamic (PD) data from its positive 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, ANAVEX®2-73 activity appears to be 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, which had been requested by patients and their caregivers. The trial extension allows participants who completed the 52-week PART B of the study to roll-over into a new trial and continue taking ANAVEX®2-73 for an additional 104 weeks, providing an opportunity to gather extended safety data. The trial is independent of our planned larger Phase 2/3 double-blind, placebo-controlled study of ANAVEX®2-73 in Alzheimer’s disease.

 

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 (the “Rettsyndrome.org foundation”). In January 2017, we were awarded a financial grant from the Rettsyndrome.org foundation of a minimum of $0.6 million towards covering the costs of a planned U.S. multicenter Phase 2 clinical trial of ANAVEX®2-73 for the treatment of Rett syndrome. The Phase 2 trial is scheduled to begin following the FDA’s approval of the Company’s investigational new drug (IND) application and will be a randomized, double blind, placebo-controlled study of ANAVEX®2-73 in patients with Rett syndrome lasting up to 12 weeks. Primary and secondary endpoints include safety as well as Rett syndrome conditions such as cognitive impairment, motor impairment, behavioral symptoms and seizure activity.

  

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.

 

We intend to identify and initiate discussions with potential commercial partners within the next 12 months. Further, we may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further our goals.

 

Our Pipeline

 

Our research and development pipeline includes one clinical drug candidate and several compounds in different stages of pre-clinical study.

 

1 

 

 

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, a rare disease. 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 Alzheimer’s disease (AD) by using ligands that activate sigma-1 receptors.

 

In 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 2011. 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, which is being evaluated 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.

 

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.

 

2 

 

 

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.

 

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

 

ANAVEX®2-73 data presented meets prerequisite information in order to progress into a Phase 2/3 placebo controlled study, which is currently in the preparation phase.

 

Preclinical data also validates ANAVEX®2-73 as a prospective platform drug for other neurodegenerative diseases beyond Alzheimer’s as well as neurodevelopmental diseases, more specifically, Parkinson’s disease, epilepsy, Rett syndrome, Angelman syndrome and Fragile X syndrome. ANAVEX®2-73 demonstrated significant improvements in all of these indications in the respective preclinical animal models.

  

For Parkinson’s disease, data demonstrates significant improvements and restoration of function in a classic animal model of Parkinson’s disease. Significant improvements were seen on all measures tested: behavioral, histopathological, and neuroinflammatory endpoints. We are currently in preparation for a Phase 2 clinical trial for the treatment of Parkinson’s disease.

 

For epilepsy, data demonstrates both significant and dose related improvement in the reduction of seizures, as well as significant synergy with each of three generations of epilepsy drugs currently on the market.

 

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 the Rettsyndrome.org foundation, 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.

 

We have filed an investigational new drug application, or IND, for ANAVEX®2-73 for the treatment of Rett syndrome and are currently in preparation for a Phase 2 clinical trial. The IND might not be approved by the FDA, or it may be delayed or put on clinical hold or partial hold, or additional preclinical studies may be required.

  

In May 2017, we announced new preclinical data for ANAVEX®2-73 in the neurodevelopmental disorders Angelman syndrome and Fragile X syndrome. 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 recent 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. 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. 

 

3 

 

 

Additionally, in October 2017 we presented additional data from a preclinical study on ANAVEX®2-73 related to multiple sclerosis. Data presented 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.

 

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. 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 recent 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.

 

In April 2017, new preclinical data was presented for ANAVEX 3-71 indicating that 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.

 

Recent 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 1037

 

ANAVEX 1037 is designed for the treatment of prostate 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. 

 

4 

 

 

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.

 

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 2016, an estimated 5.4 million Americans were suffering from Alzheimer’s disease. The Alzheimer’s Association® reports that by 2025, 7.1 million Americans will be afflicted by the disease, a 30 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.

 

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 from $2.1 billion in 2014 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 methyl-CpG-binding protein 2 (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 2.2 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. GBI Research estimates that the epilepsy market will increase to $4.5 billion by 2019.

 

5 

 

 

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 $18.6 billion in 2017 according to BCC Research.

 

Pancreatic Cancer - Pancreatic cancer is a malignant neoplasm of the pancreas. In the United States, approximately 45,000 new cases of pancreatic cancer will be diagnosed this year and approximately 38,000 patients will die as a result of their cancer. 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), Axovant Sciences Ltd. (NYSE: AXON), 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

 

Anavex holds ownership or exclusive rights to four U.S. patents and nine U.S. or PCT patent applications with various international counterpart applications, all of which relate to drug candidates and methods associated therewith. The most recent U.S. patent application was filed in September 2017. This 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.  The issued patent offers exclusive protection through June, 2034. In addition, we also own a U.S. patent and Continuation in Part (“CiP”) entitled “Bicyclic Heterocyclic Spiro Compounds” for ANAVEX 3-71 with patent protection until January, 2030 and U.S. Patent “Sigma Receptors Ligands With Anti-Apoptotic and/or Proapoptotic Properties, Over Cellular Mechanisms Exhibiting Prototypical Cytoprotective and also Anticancer Activity” covering method of use of a compound related to ANAVEX®2-73, with patent protection until February, 2029. We also own other patent applications covering manufacturing processes, formulations and uses that may provide additional protection of the respective product or product candidate. 

  

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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 NDA or 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. 

 

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.

 

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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 2017, 2016 and 2015.

 

Scientific Advisors

 

We are advised by scientists and physicians with experience relevant to our Company and our product candidates. In the past twelve months, our advisors included Drs Harald Hampel, MD, PhD, Jacqueline French, MD, John Harrison, PhD, Ottavio Arancio, MD, Norman Relkin, MD, PhD, Corinne Lasmezas, PhD, Tangui Maurice, PhD, Abraham Fisher, PhD, Paul Aisen, MD, Jeffrey Cummings, MD, Tanya Simuni, MD, Daniel Weintraub, MD.

  

Employees

 

We currently have ten full-time employees, and we retain several independent contractors on an 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. 

 

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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, which raise substantial doubt about our ability to continue as a going concern.

 

Since inception on January 23, 2004 through September 30, 2017, we have an accumulated deficit of $91,478,558. 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. Our history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. 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 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.

 

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.

 

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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;

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.

 

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

 

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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.

 

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.

 

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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.

 

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.

 

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If our competitors succeed in developing products and technologies 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.

 

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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The patent positions of biopharmaceutical products and processes are complex and uncertain and we may not be able to protect our patents or other intellectual property. If we cannot protect this property, we may be prevented from using it, or our competitors may use it, and our business could suffer significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual property will reduce the time and money we have available for our research and development, possibly resulting in a slow down or cessation of our research and development.

 

We hold ownership or exclusive rights to four issued U.S. patent and nine U.S. or PCT patent applications with various international counterpart applications, all of which relate to drug candidates and methods associated therewith. 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.

 

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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.

 

We may be subject to patent infringement actions.

 

We may file additional patent applications in the United States, or in other jurisdictions for further inventions. We may not be successful in obtaining critical claims or in protecting our potential drug compounds or processes. Even if we do obtain patents, they may not adequately protect the technology we own or have licensed. In addition, others may challenge, seek to invalidate, infringe or circumvent any patents we own or license, and rights we receive under those patents may not provide competitive advantages to us. Further, the manufacture, use or sale of our potential drug compounds may infringe the patent rights of others.

 

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 or other 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 our research and development of our technology.

 

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:

 

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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 100,000,000 shares of common stock. Our board of directors has the authority to issue additional shares of 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.

 

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 October 21, 2015, 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 $50,000,000 of our common stock. Concurrently with the execution of the Purchase Agreement, we agreed to issue 179,598 shares of our common stock to Lincoln Park as a commitment fee and shall issue up to 89,799 shares pro rata, when and if, Lincoln Park purchases at our discretion the $50,000,000 aggregate commitment. The purchase shares sold pursuant to the Purchase Agreement are 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 Purchase Agreement 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.

 

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We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $3.00 per share, subject to adjustment as set forth in the Purchase Agreement. Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares. Therefore, 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.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable.

 

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 $10,500 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.”

 

The following table contains information about the range of high and low sale prices for our common stock over the fiscal quarters for the last two fiscal years as quoted on NASDAQ. Investors should not rely on historical prices of our common stock as an indication of future price performance. On December 8, 2017, the closing price of our common stock as reported by NASDAQ was $3.69 per share.

 

Quarter Ended High Low
September 30, 2017 $5.57 $3.33
June 30, 2017 $6.49 $5.10
March 31, 2017 $6.64 $3.95
December 31, 2016 $4.88 $2.76
September 30, 2016 $8.30 $2.43
June 30, 2016 $6.49 $3.87
March 31, 2016 $6.34 $3.29
December 31, 2015 $14.84 $3.16

 

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Transfer Agent

 

Shares of our common stock are issued in registered form. The Nevada Agency and Trust Company, 50 West Liberty Street, Reno, Nevada (Telephone: (775) 322-0626; Facsimile: (775) 322-5623) is the registrar and transfer agent for shares of our common stock.

 

Holders of Common Stock

 

As of December 8, 2017, there were approximately 54 holders of record and 44,220,833 shares of our common stock were issued and outstanding.

 

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, 2017:

 

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   6,050,553    5.34    2,456,440 
Equity compensation plans not approved by security holders            
Total   6,050,553    5.34    2,456,440 

 

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Stock Option Plan

 

On September 18, 2015, our 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 our directors, officers, employees and consultants. The approval of the 2015 Plan was ratified by our stockholders on May 6, 2016.

 

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 our 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 previously existing stock option plans remain outstanding in accordance with their terms.

 

The purpose of the 2015 Plan is to retain the services of valued key employees and consultants of our company and such other persons as will be select in accordance with the 2015 Plan, 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, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants.

 

The 2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a committee of such board. The exercise price will be determined by the board of directors at the time of grant, and the exercise price of each option shall be at least the fair market value on the grant date; provided, however, that in the event that a grantee owns more than 10% of our common stock as of the date of grant, the exercise price of an option granted to such grantee that is intended to be an incentive stock option shall be not less than 110% of the fair market value on the date of grant. 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.

 

Recent Sales of Unregistered Securities

 

Since the beginning of our fiscal year ended September 30, 2017, 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.

 

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ITEM 6 SELECTED FINANCIAL DATA

 

   For the Years ended September 30, 
(in thousands, except per share amounts)  2017   2016   2015   2014   2013   2012 
Results of operations                        
Revenue                  
Total Operating Expenses   (15,680)   (15,589)   (7,109)   (2,969)   (2,137)   (4,321)
Other income (expenses), net   2,280    882    (4,999)   (8,399)   (1,563)   (3,980)
Net loss before provision for income taxes   (13,401)   (14,707)   (12,108)   (11,368)   (3,700)   (8,301)
Income tax benefit (expense)   (60)   (30)       1,400         
Net loss and comprehensive loss   (13,460)   (14,737)   (12,108)   (9,968)   (3,700)   (8,301)
Loss per share, basic  $(0.33)  $(0.42)  $(0.65)  $(1.02)  $(0.46)  $(1.18)
Loss per share, diluted  $(0.33)  $(0.42)  $(0.65)  $(1.02)  $(0.48)  $(1.16)
Weighted average number of shares outstanding   40,841    35,153    18,585    9,805    7,977    7,042 
                               
Financial Condition                              
Cash and cash equivalents   27,440    9,187    15,291    7,262    345    11 
Total assets   27,838    9,499    15,470    7,354    393    13 
Long term debt               5,720    904     
Shareholders’ equity   24,254    6,308    12,809    193    (2,463)   (2,875)

 

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, 2017, included elsewhere in this Annual Report on Form 10-K.

 

Our Business

 

Anavex Life Sciences Corp. is a clinical stage biopharmaceutical company engaged in the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (“CNS”) diseases, pain and various types of cancer. 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.

 

In November 2016, a Phase 2a clinical trial, consisting of PART A and PART B, which lasted a total of 57 weeks, was completed 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 pharmacokinetic (PK) and pharmacodynamic (PD) data from its positive 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 full 57 weeks include exploratory cognitive and functional scores as well as biomarker signals of brain activity. Additionally, ANAVEX®2-73 activity appears to be 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, which had been requested by patients and their caregivers.  The trial extension allows participants who completed the 52-week PART B of the study to roll-over into a new trial and continue taking ANAVEX®2-73 for an additional 104 weeks, providing an opportunity to gather extended safety data.  The trial is independent of our planned larger Phase 2/3 double-blind, placebo-controlled study of ANAVEX®2-73 in Alzheimer’s disease.

  

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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 Rettsyndrome.org foundation. In January 2017, we were awarded a financial grant from the Rettsyndrome.org foundation of a minimum of $0.6 million towards covering the costs of a planned U.S. multicenter Phase 2 clinical trial of ANAVEX®2-73 for the treatment of Rett syndrome. The Phase 2 trial is scheduled to begin following the FDA’s approval of the Company’s IND application and will be a randomized, double blind, placebo-controlled study of ANAVEX®2-73 in patients with Rett syndrome lasting up to 12 weeks. Primary and secondary endpoints include safety as well as Rett syndrome conditions such as cognitive impairment, motor impairment, behavioral symptoms and seizure activity.

  

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 which indicates that ANAVEX®2-73 induces robust neurorestoration in experimental parkinsonism. The encouraging results gathered in this model, coupled with the favorable profile of the compound in the Alzheimer’s disease trial, support the notion that ANAVEX®2-73 is a promising clinical candidate drug for Parkinson’s disease.

 

We intend to identify and initiate discussions with potential commercial partners within the next 12 months. Further, we may acquire or develop new intellectual property and assign, license, or otherwise transfer our intellectual property to further our goals.

 

Financial Highlights

 

We had cash and cash equivalents of approximately $27.4 million at September 30, 2017, compared to approximately $9.2 million at September 30, 2016. The increase in cash is primarily a result of the sale of shares of common stock for aggregate proceeds of $27.3 million under the Purchase Agreement by and between us and Lincoln Park Capital Fund, LLC, or Lincoln Park, dated October 21, 2015, (the “Purchase Agreement”). During fiscal 2017 we also received $2.0 million in other income from the Australian Tax Office, as part of a government sponsored research and development incentive program.

 

Operating expenses in fiscal 2017 were approximately $15.7 million, compared to approximately $15.6 million in fiscal 2016 and $7.1 million in fiscal 2015. We incurred a decrease in general and administrative expenses of $3.3 million, primarily attributable to one-time compensation related charges incurred in fiscal 2016, as well as increased legal fees in that period as a result of financing and related activities. These decreases were largely offset by a $3.3 million increase in research and development expenses, attributable to clinical preparatory activities, expanded preclinical programs, and expanding our research and development team.

 

We expect our research and development expenses will continue to increase as a result of the planned ANAVEX®2-73 clinical studies for the treatment of Rett syndrome, Alzheimer’s disease and Parkinson’s disease, as well as the Phase 2a clinical trial extension and other auxiliary research and development activities. We continue to target potential research partners to further advance our pipeline compounds. 

 

Net loss for fiscal 2017 was $13.5 million, or $0.33 per share, compared to a net loss of approximately $14.7 million, or $0.42 per share for fiscal 2016 and $12.1 million, or $0.65 per share for fiscal 2015.

 

Results of Operations

 

Revenue

 

We are in the development stage and have not earned any revenues since our inception in 2004 and 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.

 

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Year ended September 30, 2017 compared to year ended September 30, 2016

 

Operating Expenses

 

Our operating expenses for fiscal 2017 were approximately $15.7 million, which was an increase of $0.1 million as compared to fiscal 2016. 

  

In fiscal 2017, our general and administrative expenses decreased by $3.3 million, or 39.9% compared to fiscal 2016 This decrease was mainly attributable to a decrease in one-time compensation related charges, including share based compensation charges, as well as a decrease in legal fees. The decrease in legal fees was a result of financing and reporting activities in fiscal 2016.

 

These decreases in general and administrative expenses were offset by an increase in research and development expenses. Our research and development expenses for fiscal 2017 were approximately $10.7 million as compared to approximately $7.3 million for fiscal 2016, which represents an increase of 47%. The increase was associated with expenditures incurred in preparation of our planned clinical studies for ANAVEX®2-73, and an increase in preclinical activities for ANAVEX®3-71 and ANAVEX®1066. 

 

Salaries and wages, excluding share based compensation, decreased by $2.6 million, or 58%, in fiscal 2017 as a result of one-time charges incurred in fiscal 2016 associated with the vesting of restricted stock awards. We continue to expand our team with the addition of scientific staff and support staff. We incurred non-cash stock based compensation charges of $4.1 million, compared to $5.1 million during fiscal 2016, associated with the vesting of stock options to management, employees and consultants, as part of long term compensation packages. 

 

During fiscal 2017, our legal fees decreased to $0.6 million, from $1.3 million during fiscal 2016. This decrease was as a result of financing and SEC related activities during fiscal 2016 that did not recur in fiscal 2017.

 

Other income (expenses)

 

The aggregate amount in the other income for the year ended September 30, 2017, amounted to $2.3 million as compared to $0.9 million for the year ended September 30, 2016.

 

The largest reason for the increase in other income was the receipt during fiscal 2017 of $2.0 million in connection with a research and development incentive program offered by the Australian Tax Office, or the ATO, as compared to $0.6 million during fiscal 2016. This amount is granted by the ATO in relation to eligible expenditures incurred in Australia in respect of our clinical trials, and other auxiliary research, and is generally a function of expenditures incurred in Australia. In addition, we received a research grant from the Michael J. Fox Foundation, or the MJFF, to develop ANAVEX®2-73 for the treatment of Parkinson’s disease. The MJFF research grant of $0.29 million was received over a period of two years to July 2017 and was recognized as income as the related expenditures were incurred. During each of the years ended September 30, 2017 and 2016, we recognized $0.14 million of this grant on our statement of operations.

 

Year ended September 30, 2016 compared to year ended September 30, 2015

 

Operating Expenses

 

Our operating expenses for fiscal 2016 were approximately $15.6 million which as an increase of 119.3% compared to approximately $7.1 million in fiscal 2015.

 

The increase was mainly attributable to an increase in research and development expenses, as well as an increase in salaries and wages, including non-cash stock based compensation charges.

 

Our research and development expenses for fiscal 2016 were approximately $7.3 million as compared to approximately $2.3 million for fiscal 2015, which represents an increase of 219.3%. Our research and development expenses have increased significantly as a result of an increase in expenses related to our Phase 2a clinical trial for ANAVEX®2-73 for Alzheimer’s disease, which commenced in December 2014; and a significant increase in preclinical activities undertaken for ANAVEX®2-73 for other CNS indications.

 

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Salaries and wages increased as a result of our expanded team. In fiscal 2016, we incurred non-cash stock based compensation charges of $5.1 million associated with the vesting of stock options and restricted stock units issued to directors and officers, management and employees as part of long term compensation packages. In addition, we incurred other non-recurring compensation charges associated with the vesting of restricted stock awards to our CEO, in connection with the achievement of certain performance milestones stipulated in his 2013 employment agreement.

 

During fiscal 2016, we also incurred an increase in legal fees as a result of financing and SEC related activities.

 

Other income (expenses)

 

The aggregate amount in the other income (expense) for fiscal 2016, amounted to $0.9 million as compared to $(5.0) million for the comparable year ended September 30, 2015.

 

The largest reason for the increase in other income was a result of a $0.7 million in grant income received during the period. We received other income in the amount of $0.6 million as part of a research and development incentive program offered by the Australian government, in connection with eligible expenditures on our Phase 2a clinical trial, which was conducted in Australia. In addition, we received a research grant of $0.29 million from the MJFF to develop ANAVEX® 2-73 for the treatment of Parkinson’s disease. During the year ended September 30, 2016, we recognized $0.14 million of this grant on our statement of operations.

 

In addition, there was a decrease in financing-related charges as a result of the conversion of a majority of the remaining principal balance on outstanding convertible debentures during the third and fourth quarter of fiscal 2015.

 

Liquidity and Capital Resources

 

Working Capital

 

   2017   2016 
Current Assets  $27,785,933   $9,446,285 
Current Liabilities   3,584,334    3,190,525 
Working Capital  $24,201,599   $6,255,760 

 

As of September 30, 2017, we had $27.4 million in cash and cash equivalents, an increase of $18.3 million, from $9.2 million at September 30, 2016. The principal reason for this increase is the $27.3 million in cash received from the issuance of shares of common stock under the Purchase Agreement. In our second fiscal quarter, we also received approximately $2.0 million in other income as part of a research and development incentive program offered by the ATO.

 

We intend to use the majority of our capital resources to complete the next clinical trials for ANAVEX®2-73, and to perform work necessary to prepare for further clinical development.

 

Cash Flows

 

   2016   2016   2015 
Cash flows used in operating activities  $(9,017,231)  $(9,236,823)  $(4,227,006)
Cash flows used in investing activities            
Cash flows provided by financing activities   27,270,674    3,132,661    12,255,844 
Increase (decrease) in cash  $18,253,443   $(6,104,162)  $8,028,838 

 

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Cash flow used in operating activities

 

There was a small decrease in cash used in operating activities of $0.2 million during fiscal 2017 as compared to fiscal 2016. This decrease is primarily due to the increase in other income received during fiscal 2017, as described above.

 

The increase in cash used in operating activities during fiscal 2016 as compared to fiscal 2015 was primarily as a result of increased research and development activities offset by a decrease in internal staffing costs, as more fully described above, and as a result of non-recurring tax payments made on behalf of a director and officer in accordance with a 2013 employment agreement.

 

Cash flow provided by financing activities

 

Cash provided by financing activities for fiscal 2017 was related to cash received from the issuance of common shares under the Purchase Agreement with Lincoln Park. During fiscal 2017, we issued 7.1 million shares for gross proceeds of $27.3 million. During fiscal 2016, cash flows from financing activities also related to the exercise of outstanding share purchase warrants.

 

Cash provided by financing activities for fiscal 2015 was primarily attributable to cash received pursuant to the exercise of outstanding share purchase warrants and cash from the issuance of common shares under a purchase agreement entered into with Lincoln Park on July 5, 2013, pursuant to which Lincoln Park initially purchased 250,000 shares of our common stock for $100,000 and we had the right, in our sole discretion over a 25-month period, to sell to Lincoln Park up to the additional aggregate commitment of $9.9 million of shares of common stock.

 

Other Financings

 

$50 Million Lincoln Park Purchase Agreement

 

On October 21, 2015, we entered into a Purchase Agreement (the “Purchase Agreement”) with 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 Purchase Agreement, we issued 179,598 shares of our common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement and shall issue up to 89,799 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 Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the SEC declared effective the related registration statement.

  

We may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 50,000 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 Purchase Agreement.

 

Other than our rights related to the Lincoln Park financing, 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 or perhaps even cease the operation of our business.

 

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 those loans would be available, would increase our liabilities and future cash commitments.

 

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Contractual Obligations and Off-Balance Sheet Arrangements

 

The following table summarizes our contractual obligations as of September 30, 2017, excluding amounts related to uncertain tax positions, funding commitments, contingent development, regulatory and commercial milestone payments:

 

   Payments Due by Period 
Contractual Obligations  Total   Less than 1 year   1-3 years   4 - 5 years   After 5 years 
Long-Term Debt                    
Capital Lease Obligations                    
Operating Leases  $172,783   $115,189   $57,594         
Unconditional Purchase Obligations                    
Other Long-Term Obligations                    
Total Contractual Cash Obligations  $172,783   $115,189   $57,594         

 

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.

 

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 and derivative liabilities.

 

Research and Development Expenses

 

Research and developments costs are expensed as incurred. These expenses are comprised of the costs of our proprietary research and development efforts, including salaries, facilities costs, overhead costs and other related expenses as well as costs incurred in connection with third-party collaboration efforts. Milestone payments made by us to third parties are expensed when the specific milestone has been achieved.

 

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.

 

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Stock-based Compensation

 

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

 

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

 

We are exposed to a variety of market risks, including interest rate risk and foreign currency exchange risk.

 

Interest Rate Risk

 

We invest a major portion of our cash surplus in bank deposits in the United States and, to a lesser extent, Australia. Since the bank deposits typically carry fixed interest rates, financial income over the holding period is not sensitive to changes in interest rates, but only the fair value of these instruments. However, our interest gains from future deposits could decline in the future as a result of changes in the financial markets. In any event, given the historic low levels of the interest rate, we estimate that a decline in the interest rate we are currently receiving will not result in a material adverse effect to our business.

 

Foreign Currency Exchange Risk

 

A significant portion of our expenditures, including clinical research expenses relate to our operations in Australia and a portion of our consultancy expenses are incurred in Euros. The cost of those expenses, as expressed in US dollars, is influenced by the exchange rate of these currencies against the US Dollar. If the US dollar declines in value in relation to these currencies, it will become more expensive for us to fund our operations. A 10% change in exchange rate with the Australian dollar would result in less than a $10,000 impact on our expenses. To limit this risk, the Company holds minimal cash reserves in Australian Dollars and Euros.

 

26 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

ANAVEX LIFE SCIENCES CORP.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

September 30, 2017

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Anavex Life Sciences Corp.

New York, New York

 

We have audited Anavex Life Sciences Corp.’s internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Anavex Life Sciences Corp.’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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.

 

In our opinion, Anavex Life Sciences Corp. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Anavex Life Sciences Corp. as of September 30, 2017 and 2016, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2017 and our report dated December 11, 2017 expressed an unqualified opinion thereon.

 

/s/ BDO USA, LLP

New York, New York

December 11, 2017

 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

 

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

 

 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Anavex Life Sciences Corp.

New York, NY

 

We have audited the accompanying consolidated balance sheets of Anavex Life Sciences Corp. as of September 30, 2017 and 2016 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anavex Life Sciences Corp. at September 30, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2017, 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), Anavex Life Sciences Corp.’s internal control over financial reporting as of September 30, 2017, 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 11, 2017 expressed an unqualified opinion thereon.

 

/s/ BDO USA, LLP

 

New York, New York

December 11, 2017

 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

 

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

 

 

  

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED BALANCE SHEETS

September 30, 2017 and 2016

         
   2017   2016 
         
Assets          
Current          
Cash and cash equivalents  $27,440,257   $9,186,814 
Sales tax recoverable   9,748    79,347 
Prepaid expenses   335,928    180,124 
    27,785,933    9,446,285 
Deposits   52,396    52,396 
Total Assets  $27,838,329   $9,498,681 
           
Liabilities and Stockholders’ Equity          
Current          
Accounts payable and accrued liabilities  $3,584,334   $3,119,993 
Deferred grant income       70,532 
Total Liabilities   3,584,334    3,190,525 
           
Commitments - Note 6          
           
Capital stock          
Authorized:          
100,000,000 common shares, par value $0.001 per share          
Issued and outstanding:          
43,330,817 common shares (September 30, 2016 - 36,168,299)   43,332    36,169 
Additional paid-in capital   115,689,221    84,290,140 
Accumulated deficit   (91,478,558)   (78,018,153)
Total Stockholders’ Equity   24,253,995    6,308,156 
 Total Liabilities and Stockholders’ Equity  $27,838,329   $9,498,681 

 

See Accompanying Notes to Consolidated Financial Statements

 

F-1 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended September 30, 2017, 2016 and 2015

         
   2017   2016   2015 
Operating expenses               
General and administrative  $5,008,275   $8,334,740   $4,836,978 
Research and development   10,672,086    7,254,303    2,271,736 
                
Total operating expenses   (15,680,361)   (15,589,043)   (7,108,714)
                
Other income (expenses)               
Grant income   140,942    141,195     
Research and development incentive income   2,022,902    571,093     
Interest income (expense) , net   88,098    11,322    (71,825)
Gain on settlement of accounts payable   75,204    151,402     
Gain on settlement of debt       61,205     
Financing related charges and adjustments       (5,812)   (4,998,145)
Foreign exchange gain (loss)   (47,583)   (48,445)   70,554 
                
Total other income (expense), net   2,279,563    881,960    (4,999,416)
Net loss before provision for income taxes   (13,400,798)   (14,707,083)   (12,108,130)
                
Income tax expense   59,607    29,615     
                
Net loss and comprehensive loss  $(13,460,405)  $(14,736,698)  $(12,108,130)
                
Loss per share               
Basic and diluted  $(0.33)  $(0.42)  $(0.65)
                
Weighted average number of shares outstanding               
Basic and diluted   40,841,033    35,153,426    18,584,820 

 

See Accompanying Notes to Consolidated Financial Statements

 

F-2 

 

 

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended September 30, 2017, 2016 and 2015

         
   2017   2016   2015 
             
Cash Flows used in Operating Activities               
Net loss  $(13,460,405)  $(14,736,698)  $(12,108,130)
Adjustments to reconcile net loss to net cash used in operations:               
Amortization and depreciation       1,252    995 
Accretion of debt discount       5,830    4,515,987 
Stock-based compensation   4,135,570    5,062,267    1,633,979 
Non-cash financing related charges           29,000 
Change in fair value of derivative financial instruments           567,000 
Loss (gain) on extinguishment of debt       (61,205)   (84,842)
Gain on settlement of accounts payable   (75,204)   (151,402)    
Unrealized foreign exchange       3,065    (18,683)
Changes in non-cash working capital balances related to operations:               
Sales tax recoverable   54,435    (2,507)   (76,840)
Prepaid expenses and deposits   (155,804)   (79,279)   (67,692)
Deposits       (52,396)    
Accounts payable and accrued liabilities   554,709    775,332    1,310,606 
Deferred grant income   (70,532)   (1,082)   71,614 
Net cash used in operating activities   (9,017,231)   (9,236,823)   (4,227,006)
                
Cash Flows provided by Financing Activities               
Issuance of common shares, net of share issue costs   27,270,674    3,167,420    12,343,988 
Repayment of promissory notes       (34,759)   (88,144)
Net cash provided by financing activities   27,270,674    3,132,661    12,255,844 
                
Increase (decrease) in cash and cash equivalents during the year   18,253,443    (6,104,162)   8,028,838 
Cash and cash equivalents, beginning of year   9,186,814    15,290,976    7,262,138 
Cash and cash equivalents, end of year  $27,440,257   $9,186,814   $15,290,976 

 

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, 2017, 2016 and 2015

 

   Common Stock         
           Additional   Common         
           Paid-in   Shares to be   Accumulated     
   Shares   Par Value   Capital   Issued   Deficit   Total 
                               
Balance, October 1, 2014   11,800,063   $11,800   $50,714,151   $640,000   $(51,173,325)  $192,626 
Equity units issued under Purchase Agreement   1,825,000    1,825    8,125,440            8,127,265 
Commitment shares issued under terms of Purchase Agreement   27,144    27    (27)            
Capital stock issued pursuant to debt conversions - at $1.00   7,272,487    7,272    6,587,850    167,415        6,762,537 
Capital stock issued for cash - at $1.00   500,000    500    1,500            2,000 
Capital stock issued pursuant to subscriptions received - at $1.20   25,000    25    29,975    (30,000)         
Shares issued pursuant to the exercise of warrants - at $1.20   3,097,275    3,097    3,713,629            3,716,726 
Shares issued pursuant to the exercise of warrants - cashless   6,838,632    6,839    (6,839)            
Shares issued pursuant to favored nations provision   658,612    659    (659)            
Reclassification of derivative liability           4,482,000            4,482,000 
Stock based compensation           413,979    1,220,000        1,633,979 
Net loss                   (12,108,130)   (12,108,130)
Balance, September 30, 2015   32,044,213   $32,044   $74,060,999   $1,997,415   $(63,281,455)  $12,809,003 
Shares issued under purchase agreements                              
Purchase shares   740,523    741    3,041,619            3,042,360 
Commitment shares   187,616    188    (188)            
Capital stock issued pursuant to debt conversions - at $1.00   173,577    173    173,404    (167,415)       6,162 
Shares issued pursuant to the exercise of warrants   41,687    42    125,020            125,062 
Shares issued pursuant to the exercise of warrants - cashless   1,979,246    1,979    (1,979)            
Shares issued pursuant to employment agreement   1,000,000    1,000    2,439,000    (1,830,000)       610,000 
Shares issued for rounding in connection with 4:1 reverse split   1,437    2    (2)            
Stock option compensation           4,452,267            4,452,267 
Net loss                   (14,736,698)   (14,736,698)
Balance, September 30, 2016   36,168,299   $36,169   $84,290,140   $   $(78,018,153)  $6,308,156 

 

See Accompanying Notes to Consolidated Financial Statements

 

F-4 

 

  

ANAVEX LIFE SCIENCES CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ended September 30, 2017, 2016 and 2015

 

   Common Stock         
           Additional   Common         
           Paid-in   Shares to be   Accumulated     
   Shares   Par Value   Capital   Issued   Deficit   Total 
                               
Balance, September 30, 2016   36,168,299   $36,169   $84,290,140   $   $(78,018,153)  $6,308,156 
Shares issued under purchase agreement                              
  Purchase shares   7,060,976    7,061    27,263,613            27,270,674 
  Commitment shares   48,980    49    (49)            
Shares issued upon exercise of warrants - cashless   52,562    53    (53)             
Share based compensation           4,135,570            4,135,570 
Net loss                   (13,460,405)   (13,460,405)
Balance, September 30, 2017   43,330,817   $43,332   $115,689,221   $   $(91,478,558)  $24,253,995 

 

See Accompanying Notes to Consolidated Financial Statements

 

F-5 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – 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 for the treatment of neurodegenerative and neurodevelopmental diseases including drug candidates to treat Alzheimer’s disease, other central nervous system (CNS) diseases, pain and various types of cancer. The Company’s lead compound ANAVEX 2-73 is being developed to treat Alzheimer’s disease, Parkinson’s disease and potentially other CNS diseases, including rare diseases, such as Rett syndrome.

 

Basis of Presentation

 

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the instructions to Form 10-K.

 

Note 2Summary of Significant Accounting Policies

 

a)Use of Estimates

 

The preparation of financial statements in accordance with United States generally accepted accounting principles 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 deferred income tax asset valuations, asset impairment, conversion features embedded in convertible notes payable, derivative valuations, 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 estimates 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.

 

F-6 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 2

 

Note 2Summary of Significant Accounting Policies – (continued)

 

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.

 

d)Research and Development Incentive Income

 

The Company is eligible to obtain a research and development tax credit from the Australian Tax Authority (the “ATO”) for certain research and development activities undertaken in Australia. The tax incentive is available on the basis of specific criteria with which the Company must comply. Although the tax incentive is administered through the ATO, the Company has accounted for the tax incentive outside of the scope of ASC Topic 740, Income Taxes since the incentive is not linked to the Company’s income tax liability and can be realized regardless of whether the Company has generated taxable income in Australia. The Company recognizes as other income the amount received for qualified expenses in the period they are received.

 

e)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, 2017, loss per share excludes 6,711,339 (2016 – 6,008,309) potentially dilutive common shares related to outstanding options and warrants, as their effect was anti-dilutive.

 

f)Financial Instruments

 

The carrying value of the Company’s financial instruments, consisting of cash and equivalents and 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.

 

F-7 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 3

 

Note 2Summary of Significant Accounting Policies – (continued)

 

g)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 at 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.

 

h)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 salaries, facilities costs, overhead costs and other related expenses, as well as costs incurred in connection with third-party collaboration efforts. Milestone payments made by the Company to third parties are expensed when the specific milestone has been achieved.

 

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, 2017 – Page 4

 

Note 2Summary of Significant Accounting Policies – (continued)

 

i)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.

 

j)Income Taxes

 

The Company has adopted the provisions of 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.

 

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.

 

F-9 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 5

 

Note 2Summary of Significant Accounting Policies – (continued)

 

k)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 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.

 

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 vesting period 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.

 

l)Fair Value Measurements

 

The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

Level 1- quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

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

 

F-10 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 6

 

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.

 

F-11 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 7

 

Note 2Summary of Significant Accounting Policies – (continued)

 

l)Fair Value Measurements – (continued)

 

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, 2017 and 2016, the Company did not have any Level 3 assets or liabilities.

m)Derivative Liabilities

 

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815. The result of this accounting treatment is that the fair value of the embedded derivative is marked- to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not settlement of the derivative instrument is expected within 12 months of the balance sheet date.

 

From time to time, certain of the Company’s embedded conversion features on debt and outstanding warrants have been treated as derivative liabilities for accounting purposes under ASC 815 due to insufficient authorized shares to fully settle conversion features of the instruments if exercised. In this case, the Company utilized the latest inception date sequencing method to reclassify outstanding instruments as derivative instruments. These contracts were recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification were settled.

 

These derivative instruments did not trade in an active securities market. The Company used a binomial option pricing model to value derivative liabilities. This model used Level 3 inputs in the fair value hierarchy established by ASC 820 Fair Value Measurement.

 

The Company did not have any derivative instruments outstanding as at September 30, 2017 and 2016.

 

F-12 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 8

 

Note 2Summary of Significant Accounting Policies – (Continued)

 

n)Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted this standard on October 1, 2016. The adoption of this standard did not have any effect on its financial condition, results of operations and cash flows.

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The Company adopted this standard on October 1, 2016. The adoption of this standard did not have any effect on its financial condition, results of operations and cash flows.

 

In April 2015, the Financial Accounting Standards Board (FASB), issued the Accounting Standards Update 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. The Company adopted this standard on October 1, 2016. The adoption of this standard did not have any effect on its financial condition, results of operations and cash flows.

 

Recent Accounting Pronouncements Not Yet Adopted

 

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 will supersede nearly all existing revenue recognition guidance. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact for any period presented and the Company will apply this standard to all future revenues.

 

F-13 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 9

 

Note 2Summary of Significant Accounting Policies – (Continued)

 

Recent Accounting Pronouncements Not Yet Adopted – (Continued)

 

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17 “Income Taxes: Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public entities in fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The amendments for ASU-2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The adoption of this standard is not expected to have a material impact for any period presented.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). 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 Company is currently evaluating the impact this guidance will have on its financial condition, results of operations and cash flows.

 

In March 2016, the FASB issued ASC 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). These amendments are intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for the Company on October 1, 2017. Early adoption is permitted. Entities have the option to apply the amendments on either a prospective basis or a modified retrospective basis. The adoption of this standard is not expected to have a material impact for any period presented.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, (“ASC 230”) including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. In addition, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (“ASU 2016-18”). ASU 2016-18 clarifies certain existing principles in ASC 230, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. This amendment is effective for the Company beginning on October 1, 2018. Early adoption is permitted. The adoption of ASU 2016-15 and ASU 2016-18 will modify the Company’s current disclosures and reclassifications within the consolidated statement of cash flows but they are not expected to have a material effect on the Company’s consolidated financial statements

 

F-14 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 10

 

Note 2Summary of Significant Accounting Policies – (Continued)

 

Recent Accounting Pronouncements Not Yet Adopted – (Continued)

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 is effective for the Company on a prospective basis beginning on October 1, 2018, with early adoption permitted. 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

 

On June 19, 2015, the Company was awarded grant funding in the amount of $286,455. The grant has been received in exchange for a commitment to provide research and development for preclinical validation of Sigma-1 receptor agonism as potential treatment for Parkinson’s disease.

 

The grant income was deferred and amortized to other income over the related commitment period as the related research and development expenditures were incurred. During the year ended September 30, 2017, the Company recognized $140,942 (2016: $141,195; 2015: $Nil) of this grant on its statement of operations within grant income.

 

Research and development tax incentive

 

During the year ended September 30, 2017, the Company received other income of $2,022,902 (2016: $571,093, 2015: $Nil) in respect of a research and development incentive program offered by the Australian government.

 

F-15 

 

 

Anavex Life Sciences Corp.

Notes to the Consolidated Financial Statements

September 30, 2017 – Page 11

 

Note 4Lincoln Park 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 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 over a 36-month period. In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park whereby the Company agreed to file registration statements with the Securities and Exchange Commission covering the shares of the Company’s common stock that may be issued to Lincoln Park under the Purchase Agreement.

 

The Company may direct Lincoln Park, at its sole discretion, and subject to certain conditions, to purchase up to 50,000 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 2015 Purchase Agreement.

 

In consideration for entering into the 2015 Purchase Agreement, the Company issued to Lincoln Park 179,598 shares of common stock as a commitment fee and agreed to issue up to 89,799 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, 2017, the Company issued to Lincoln Park an aggregate of 7,109,956 (2016: 452,437; 2015: Nil) shares of common stock under the Purchase Agreement, including 7,060,976 (2016: 450,000; 2015: Nil) shares of common stock for an aggregate purchase price of $27,270,674 (2016: $1,357,800; 2015: $Nil) and 48,980 (2016: 2,437; 2015: Nil) commitment shares. At September 30, 2017, an amount of $21,371,526 remained available under the 2015 Purchase Agreement.

 

Note 5Related Party Transactions

 

As at September 30, 2017, included in accounts payable and accrued liabilities was $34,144 (2016: $59,264) owing to directors and officers of the Company for director fees and reimbursable expenses, and a former director and officer of the Company for unpaid fees.

 

F-16 

 

  

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 12 

 

Note 6Commitments

  

a)Lease Commitment

 

The Company is committed to lease payments as follows:

 

Fiscal year ending September 30,   
2018   $115,189 
2019    57,594 
    $172,783 

 

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

 

A summary of the status of the Company’s outstanding share purchase warrants is presented below:

 

   Number of Shares  Weighted Average Exercise Price
Balance, October 1, 2015    4,272,890   $2.11 
Exercised    (2,463,581)  $1.67 
Balance, September 30, 2016    1,809,309   $2.70 
Exercised    (200,000)  $3.00 
Balance,September 30, 2017    1,609,309   $2.66 

 

At September 30, 2017, the Company had share purchase warrants outstanding of 1,609,309, with a weighted average exercise price of $2.66 as follows:

 

Number  Exercise Price  Expiry Date
 1,262,180   $3.00   July 5, 2018
 30,000   $4.00   February 24, 2019
 277,127   $1.20   March 13, 2019
 1,252   $1.68   March 13, 2019
 31,250   $1.24   May 31, 2019
 7,500   $1.04   May 31, 2019
 1,609,309         

 

F-17 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 13 

 

Note 6 Commitments – (Continued)

  

c)Share Purchase Warrants – (Continued)

 

All of the warrants expiring on July 5, 2018 contain a contingent call provision whereby the Company may have the option to call for cancellation of all or any portion of the warrants for consideration equal to $0.001 per share, provided the quoted market price of the Company’s common stock exceeds $6.00 for a period of twenty consecutive trading days, subject to certain minimum volume restrictions and other restrictions as provided in the warrant agreements.

 

During the year ended September 30, 2017, 200,000 share purchase warrants were cashless exercised, resulting in the issuance of 52,562 shares of common stock.

 

During the year ended September 30, 2016, the Company issued 1,979,246 shares of common stock pursuant to the exercise of 2,421,894 share purchase warrants on a cashless basis, and 41,687 shares of common stock pursuant to the exercise of warrants for cash.

  

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 previously existing stock option plans remain outstanding in accordance with their terms.

 

The 2015 Plan is administered by the board of directors, except that it may, in its discretion, delegate such responsibility to a committee of such board. 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.

 

F-18 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 14 

 

Note 6 Commitments – (Continued)

  

d)Stock-based Compensation Plan – (Continued)

 

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

 

    Number of
Shares
   Weighted
Average
Exercise Price
   Weighted
Average
Grant Date
Fair Value
 
Outstanding at October 1, 2015    1,822,500   $2.00      
Granted    2,401,500    5.22   $4.38 
Expired    (25,000)   14.68      
Outstanding at September 30, 2016    4,199,000    3.76      
Granted    1,107,500    5.51   $5.44 
Forfeited    (214,470)   4.06      
Outstanding at September 30, 2017    5,092,030   $4.13      
Exercisable at September 30, 2017    3,326,223   $3.10      
Exercisable at September 30, 2016    2,290,716   $2.42      

  

F-19 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 15

 

Note 6Commitments – (Continued)

 

d)Stock-based Compensation Plan – (Continued)

 

At September 30, 2017, the following stock options were outstanding:

   

Number of Shares          Aggregate   Remaining 
    Number   Exercise      Intrinsic   Contractual 
Total   Vested   Price   Expiry Date  Value   Life (yrs) 
500,000    500,000   $1.60   July 5, 2023  $1,270,000    5.76 
75,000    75,000   $1.20   May 7, 2024   220,500    6.60 
125,000    93,750   $1.32   May 8, 2024   352,500    6.60 
718,750    718,750   $0.92   April 2, 2025   2,314,375    7.50 
29,167    29,167   $1.44   June 8, 2025   78,751    7.69 
50,000    33,333   $1.76   June 15, 2025   119,000    7.71 
266,250    199,688   $5.04   September 18, 2025       7.97 
1,500    1,500   $5.64   September 30, 2025       8.00 
31,250    20,833   $5.68   October 2, 2025       8.01 
25,000    16,666   $8.98   October 16, 2025       8.04 
1,500    1,500   $5.57   December 31, 2025       8.25 
1,500    1,500   $4.90   March 31, 2026       8.50 
1,500    1,500   $5.66   April 27, 2026       8.57 
19,697    19,697   $4.09   May 18, 2026   985    8.63 
1,500    1,500   $6.11   June 30, 2026       8.75 
379,625    126,542   $6.26   July 5, 2026       8.76 
861,429    287,143   $7.06   July 18, 2026       8.80 
13,333    13,333   $3.06   September 7, 2026   14,400    8.94 
1,006,696    1,006,696   $3.28   September 22, 2026   865,759    8.98 
69,166    29,164   $3.63   October 3, 2026   35,275    9.01 
15,000    5,000   $4.35   December 9, 2026       9.19 
50,000       $5.39   February 7, 2027       9.36 
40,000    10,000   $5.26   February 17, 2027       9.38 
781,667    131,669   $5.92   May 12, 2027       9.61 
12,500    1,042   $3.42   August 9, 2027   9,000    9.86 
15,000    1,250   $4.33   September 19, 2027       9.97 
5,092,030    3,326,223           $5,280,544      

  

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, 2017.

 

F-20 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 16

 

Note 6Commitments – (Continued)

  

d)Stock–based Compensation Plan – (Continued)

  

The Company recognized stock based compensation expense of $4,135,570 during the year ended September 30, 2017 (2016: $4,452,267; 2015: $413,979) in connection with the issuance and vesting of stock options in exchange for services, and $Nil (2016: $610,000; 2015 $1,220,000), in connection with the vesting of restricted stock 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:

 

   2017  2016  2015
General and administrative  $2,017,199   $3,208,220   $1,633,979 
Research and development   2,118,371    1,854,047     
Total share based compensation  $4,135,570   $5,062,267   $1,633,979 

 

An amount of approximately $7,964,225 in stock based compensation is expected to be recorded over the remaining term of such options through June 30, 2020.

 

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:

 

   2017  2016  2015
Risk-free interest rate   2.11%   1.28%   1.63%
Expected life of options (years)   6.86    5.88    6.30 
Annualized volatility   111.58%   114.75%   98.41 
Dividend rate   0.00%   0.00%   0.00%

 

The fair value of restricted stock compensation charges recognized during the years ended September 30, 2016 and 2015 was determined with reference to the quoted market price of the Company’s shares on the commitment date.

 

F-21 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 17

 

Note 7Income Taxes

 

The tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:

 

   2017   2016   2015 
Assumed Tax rate   34%    34%    34% 
                
Net operating loss carryforwards  $14,240,000   $11,223,000   $9,177,000 
Research and development tax credits   1,344,000    1,036,000    794,000 
Foreign exchange   (25,000)   (25,000)   (10,000)
Unpaid charges   28,000    152,000    832,000 
Intangible asset costs   51,000    57,000    64,000 
Stock-based compensation   3,394,000    2,004,000    581,000 
Valuation allowance for deferred tax assets   (19,032,000)   (14,447,000)   (11,438,000)
                
Net deferred tax assets  $   $   $ 

  

The provision for income taxes differ from the amount established using the statutory income tax rate as follows:

 

   2017   2016   2015 
             
Income benefit at statutory rate of 34%  $(4,577,000)  $(5,010,000)  $(4,117,000)
Foreign income taxed at other rates   68,000    132,000    80,000 
Permanent differences               
Debt extinguishment           (29,000)
Mark-to-market deriative liability adjustment           193,000 
Non-deductible finance and accretion expenses       5,000    1,511,000 
Non-deductible compensation costs       738,000      
Other permanent differences   2,000        (5,000)
Research and development tax credit   (23,000)   628,000    502,000 
Expiry of foreign net operating loss carryforwards       333,000     
Adjustment and true up to prior years’ tax provision   (55,000)   176,000    100,000 
Effect of foreign exchange and other       (11,000)    
Change in valuation allowance related to current year provision   4,585,000    3,009,000    1,765,000 
                
Income Tax Recovery  $   $   $ 

 

As of September 30, 2017, the Company had net operating loss carry-forwards of approximately $41,000,000 (2016: $33,000,000; 2015: $25,000,000) in the United States, approximately $850,000 (2016: $250,000; 2015: $Nil) in Australia and approximately $13,000 (2016: $Nil) in Germany, available to offset future taxable income in those jurisdictions. The carry-forwards will begin to expire in 2027.

 

F-22 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 18 

 

Note 7Income Taxes – (Continued)

 

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, 2017, 2016 and 2015.

 

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 2009.

 

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 carry-forwards, under certain circumstances. The Company completed a Section 382 analysis through the fiscal year ended September 30, 2017 and currently does not believe Section 382 will apply to limit the utilization of these tax losses.

 

Note 8Supplemental Cash Flow Information

 

Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statement of cash flows.

 

During the year ended September 30, 2016;

 

i)the Company issued 6,162 shares of common stock upon conversion of $6,162 in principal amount of convertible debentures at a conversion price of $1.00 per share and 167,415 shares of common stock pursuant to the application of an incorrect conversion price for conversion notices received during the year ended September 30, 2015;

 

F-23 

 

 

Anavex Life Sciences Corp. 

Notes to the Consolidated Financial Statements 

September 30, 2017 – Page 19

 

Note 8Supplemental Cash Flow Information – (Continued)

 

During the year ended September 30, 2015;

 

i)the Company issued 7,272,487 shares of common stock and an additional 167,415 shares of common stock became issuable upon conversion of $7,439,900 in principal amount of convertible debentures at a conversion price of $1.00 per share;

 

ii)the Company reclassified an amount of $4,482,000 into equity upon modification of the terms of certain derivative instruments.

 

iii)the Company adjusted the price of 658,612 shares of common stock from $2.00 to $1.00 per share pursuant to an anti-dilution provision contained in private placement subscription agreements dated May 31, 2012. Consequently, the Company issued 658,612 shares of common stock for no consideration.

 

F-24 

 

 

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 effective, as of September 30, 2017.

 

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.

 

Based on this evaluation, our management concluded that our internal controls over financial reporting were effective as of September 30, 2017.

 

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, 2017, which is included herein.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B OTHER INFORMATION

 

None.

 

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.

 

27 

 

 

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 52 July 5, 2013
Athanasios Skarpelos Director 51 January 9, 2013
Bernd Metzner, PhD Director 47 May 7, 2014
Elliot Favus, MD Director 43 May 7, 2014
Steffen Thomas, PhD Director 51 June 15, 2015
Peter Donhauser, D.O. Director 52 February 8, 2017
Sandra Boenisch Principal Financial Officer, Treasurer 36 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, Mr. Missling served as the head of healthcare investment banking at Brimberg & Co. in New York, New York. Also, Mr. Missling served as the Chief Financial Officer of Curis, Inc. (NASDAQ:CRIS) and ImmunoGen, Inc. (NASDAQ:IMGN). Mr. 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 18 years of experience working with private and public companies. For the past 10 years, he has been focused on biotechnology companies involved in drug discovery and drug development projects. Mr. Skarpelos was engaged as a consultant to our company for one year effective August 2, 2010. His experience has led to relationships with researchers at academic institutes in Europe and North America. Mr. Skarpelos is a founder of Anavex.

 

Bernd Metzner, PhD. Bernd Metzner is currently the Chief Financial Officer of the Stroeer Group, a media and online advertisement company, where he has been CFO for the last three and a half years. Dr. Metzner started his career at the law firm Flick Gocke Schaumburg and has a degree in business administration from the University of Siegen. After obtaining his doctorate from University of Siegen, he became a chartered accountant.

  

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.

 

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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. He has served as a director of the Company since February 8, 2017.

 

Sandra Boenisch, CPA, CGA Ms. Boenisch is a Chartered Professional Accountant (CPA, CGA) with 14 years of accounting, audit, and financial reporting experience in a variety of industries, both in the United States and Canada. Ms. Boenisch has been 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.

 

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, 2017.

 

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 Bernd Metzner (Chairman), Athanasios Skarpelos and Steffen Thomas. Our board of directors has determined that Bernd Metzner 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.

 

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The Audit Committee operates under a charter that was adopted by our board of directors.

 

Nominating and Corporate Governance Committee

 

The members of our Nominating and Corporate Governance Committee are Bernd Metzner (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.

 

Compensation Committee

 

The members of our Compensation Committee are Bernd Metzner (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.

 

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.

 

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.

 

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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.

 

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 three completed fiscal years: 

 

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Name and Principal
Position
  Year   Salary
($)
   Bonus
($)
   Stock
Awards
($)
   Option
Awards
($)
   Other
Compensation
($)
   Total
($)
 
                             
Christopher Missling,   2017    500,000            2,285,600        2,785,600 
PhD(1)   2016    305,000            8,495,900    2,290,340(2)   11,091,240 
President, Chief Executive   2015    240,000        1,220,000(3)   1,151,309    1,128,064(2)   3,739,373 
Officer, and Director                                   
Sandra Boenisch(4)   2017    71,800(5)           177,800        249,600 
Principal Financial Officer    2016    58,000(5)           407,400        465,400