Item
1. FINANCIAL STATEMENTS
ANAVEX LIFE
SCIENCES CORP.
INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
ANAVEX LIFE SCIENCES CORP.
|
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
|
As at June 30, 2018 and September 30, 2017
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June
30, 2018
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September 30, 2017
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(Unaudited)
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Assets
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|
|
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Current
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|
|
|
|
|
|
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Cash and cash equivalents
|
|
$
|
25,827,592
|
|
|
$
|
27,440,257
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|
Sales tax recoverable
|
|
|
6,145
|
|
|
|
9,748
|
|
Prepaid expenses
|
|
|
858,560
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|
|
|
335,928
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Deferred financing
charges
|
|
|
50,000
|
|
|
|
—
|
|
|
|
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26,742,297
|
|
|
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27,785,933
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Deposits
|
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52,396
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|
|
|
52,396
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Total Assets
|
|
$
|
26,794,693
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|
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$
|
27,838,329
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|
|
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Liabilities and Stockholders’ Equity
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|
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Current
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|
|
|
|
|
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Accounts payable
and accrued liabilities
|
|
$
|
3,209,070
|
|
|
$
|
3,584,334
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|
Total Liabilities
|
|
|
3,209,070
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|
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|
3,584,334
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Commitments - Note 6
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Capital stock
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Authorized:
|
|
|
|
|
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100,000,000 common shares, par value $0.001 per
share
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|
|
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|
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Issued and outstanding:
|
|
|
|
|
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45,314,155 common shares
(September 30, 2017
- 43,330,817)
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|
|
45,315
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|
|
|
43,332
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|
Additional paid-in capital
|
|
|
126,679,219
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|
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115,689,221
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Accumulated deficit
|
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|
(103,138,911
|
)
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|
|
(91,478,558
|
)
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Total Stockholders’ Equity
|
|
|
23,585,623
|
|
|
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24,253,995
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Total Liabilities and Stockholders’
Equity
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$
|
26,794,693
|
|
|
$
|
27,838,329
|
|
See Accompanying
Notes to Condensed Consolidated Interim Financial Statements
ANAVEX
LIFE SCIENCES CORP.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
For
the three and nine months ended June 30, 2018 and 2017
(Unaudited)
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Three months ended June 30,
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Nine months ended June 30,
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2018
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2017
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2018
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2017
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Operating expenses
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General and administrative
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$
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1,620,379
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$
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1,405,026
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$
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4,507,632
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$
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3,647,224
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Research and
development
|
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2,997,634
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2,300,277
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8,936,969
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6,835,700
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Total operating expenses
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(4,618,013
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)
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(3,705,303
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)
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(13,444,601
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)
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(10,482,924
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)
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Other income (expenses)
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Grant income
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74,528
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69,146
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74,528
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121,116
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Research and development incentive income
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1,629,513
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—
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1,629,513
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2,022,902
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Interest income, net
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112,226
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26,677
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171,249
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48,479
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Gain on settlement of accounts payable
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—
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75,204
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—
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75,204
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Financing related charges
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(30,943
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)
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—
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(30,943
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)
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—
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Foreign exchange
gain
|
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(16,475
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)
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|
|
(65,932
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)
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(22,833
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)
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(40,128
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)
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|
|
|
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Total other income
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1,768,849
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105,095
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1,821,514
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2,227,573
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Net loss before provision for income taxes
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(2,849,164
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)
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(3,600,208
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)
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(11,623,087
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)
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(8,255,351
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)
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Income tax expense
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—
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(9,877
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)
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(37,266
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)
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(50,480
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)
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Net loss and
comprehensive loss
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$
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(2,849,164
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)
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$
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(3,610,085
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)
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$
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(11,660,353
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)
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$
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(8,305,831
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)
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Loss per share
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Basic
and diluted
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$
|
(0.06
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)
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$
|
(0.04
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)
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|
$
|
(0.26
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)
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|
$
|
(0.12
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)
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Weighted average number of shares outstanding
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Basic
and diluted
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45,212,074
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41,509,225
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44,365,683
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40,344,149
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See Accompanying
Notes to Condensed Consolidated Interim Financial Statements
ANAVEX
LIFE SCIENCES CORP.
CONDENSED
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
For
the nine months ended June 30, 2018
(Unaudited)
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2018
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2017
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Cash Flows used in Operating Activities
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Net loss
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$
|
(11,660,353
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)
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$
|
(8,305,831
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)
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Adjustments to reconcile net loss to net cash
used in operations:
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Stock-based compensation
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4,025,412
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3,017,876
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Gain on settlement of accounts
payable
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|
—
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|
|
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(75,204
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)
|
Changes in non-cash working capital balances
related to operations:
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Sales tax recoverable
|
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3,603
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|
|
55,967
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|
Prepaid expenses and deposits
|
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(522,632
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)
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|
127,430
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Accounts payable and accrued
liabilities
|
|
|
(375,264
|
)
|
|
|
(1,594,127
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)
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Deferred
grant income
|
|
|
—
|
|
|
|
(51,459
|
)
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Net cash used in operating activities
|
|
|
(8,529,234
|
)
|
|
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(6,825,348
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)
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Cash Flows provided by Financing Activities
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|
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Issuance of common shares
|
|
|
6,966,569
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|
|
|
22,431,958
|
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Deferred financing
charges
|
|
|
(50,000
|
)
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
6,916,569
|
|
|
|
22,431,958
|
|
|
|
|
|
|
|
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Increase in cash and cash equivalents during
the period
|
|
|
(1,612,665
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)
|
|
|
15,606,610
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Cash and cash
equivalents, beginning of period
|
|
|
27,440,257
|
|
|
|
9,186,814
|
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Cash and
cash equivalents, end of period
|
|
$
|
25,827,592
|
|
|
$
|
24,793,424
|
|
See Accompanying
Notes to Condensed Consolidated Interim Financial Statements
ANAVEX
LIFE SCIENCES CORP.
CONDENSED
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the nine months ended June 30, 2018
(Unaudited)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Balance, October 1, 2017
|
|
|
43,330,817
|
|
|
$
|
43,332
|
|
|
$
|
115,689,221
|
|
|
$
|
(91,478,558
|
)
|
|
$
|
24,253,995
|
|
Shares issued under purchase agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Purchase shares
|
|
|
1,883,580
|
|
|
|
1,883
|
|
|
|
6,964,686
|
|
|
|
—
|
|
|
|
6,966,569
|
|
Commitment shares
|
|
|
12,514
|
|
|
|
13
|
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares issued pursuant to cashless exercise
of options
|
|
|
87,244
|
|
|
|
87
|
|
|
|
(87
|
)
|
|
|
—
|
|
|
|
—
|
|
Share based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,025,412
|
|
|
|
—
|
|
|
|
4,025,412
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,660,353
|
)
|
|
|
(11,660,353
|
)
|
Balance, June 30, 2018
|
|
|
45,314,155
|
|
|
$
|
45,315
|
|
|
$
|
126,679,219
|
|
|
$
|
(103,138,911
|
)
|
|
$
|
23,585,623
|
|
See Accompanying
Notes to Condensed Consolidated Interim Financial Statements
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated
Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 1
|
Business
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
unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”)
for interim reporting. Accordingly, certain information and footnote disclosures normally included in the annual financial statements
in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the
disclosures are adequate to make the information presented not misleading.
These
accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for fair presentation of the information contained herein. The consolidated
balance sheet as of September 30, 2017 was derived from the audited annual financial statements but does not include all disclosures
required by GAAP. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K
for the year ended September 30, 2017 filed with the SEC on December 11, 2017. The Company follows the same accounting policies
in the preparation of interim reports.
Operating
results for the nine months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year
ending September 30, 2018.
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, 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.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 1
|
Business
Description and Basis of Presentation
– (continued)
|
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.
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
|
|
Level 3 -
|
assets and liabilities whose
significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets
or liabilities.
|
The
book value of cash and cash equivalents and accounts payable and accrued liabilities approximate their fair values due to the
short-term maturity of those instruments.
At
June 30, 2018 and September 30, 2017, the Company did not have any Level 3 assets or liabilities.
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 June 30, 2018, loss per share excludes 8,454,047 (September 30, 2017 – 6,711,339) potentially dilutive common shares
related to outstanding options and warrants, as their effect was anti-dilutive.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 1
|
Business Description and
Basis of Presentation
– (continued)
|
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. Manufacturing costs are expensed as incurred in accordance with Accounting Standard
Codification (“ASC”) 730 Research and Development, as these materials have no alternative future use outside of their
intended use.
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.
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.
|
Note 2
|
Recent Accounting Pronouncements
|
Recently
Adopted Accounting Pronouncements
In
November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
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 Company
adopted this standard on October 1, 2017. The adoption of this standard did not have any impact on the Company’s financial
position, results of operations or cash flows for any period presented.
In
March 2016, the FASB issued ASC 2016-09, “
Compensation – Stock Compensation (Topic 718) – Improvements to
Employee Share-Based Payment Accounting
”. 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. The Company adopted this standard on October 1, 2017. The adoption of this
standard did not have a material impact on the Company’s financial position, results of operations or cash flows for any
period presented.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 2
|
Recent Accounting Pronouncements
– (Continued)
|
Recently
Adopted Accounting Pronouncements
– (Continued)
The
SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects
of the U.S. tax reform announced on December 22, 2017 by the U.S. Government commonly referred to as the Tax Cuts and Jobs Act.
SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform enactment date for companies
to complete the accounting under Accounting Standards Codification (“ASC”) 740. In accordance with SAB 118, a company
must reflect the income tax effects of those aspects of the U.S. tax reform for which the accounting under ASC 740 is complete.
Specifically,
the Company will be required to revalue its U.S. deferred tax assets and liabilities due to the federal income tax rate reduction
from 35 percent to 21 percent. Since the Company has provided a full valuation allowance against its deferred tax
assets, the revaluation of the deferred tax assets did not have a material impact on any period presented.
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.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases
. The guidance would require lessees to recognize
most leases on their balance sheets as lease liabilities with corresponding right –of use assets. The guidance is effective
for annual and interim reporting periods beginning on or after December 15, 2018. The Company is currently evaluating the impact
this guidance will have on its financial condition, results of operations and cash flows.
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
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 2
|
Recent Accounting Pronouncements
– (Continued)
|
Recent
Accounting Pronouncements Not Yet Adopted
– (Continued)
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,”
clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The
new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the
same immediately before and after a change to the terms and conditions of the award. The new guidance 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.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-based Payments
(“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. The effective date for the standard is for interim periods in fiscal years beginning after
December 15, 2018, with early adoption permitted, but no earlier than the Company’s adoption date of Topic 606. The new guidance
is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company
is currently evaluating the effect ASU 2018-07 will have on the consolidated financial statements.
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.
Grant
Income
Clinical
Study Grant
The
Company was awarded grant funding in the amount of $597,886. The grant is being received in equal quarterly instalments over a
period of two years in exchange for a commitment to complete clinical testing for a therapeutic drug candidate for the treatment
of Rett syndrome.
The
grant income is deferred when received and amortized to other income as the related research and development expenditures are
incurred. During the three and nine months ended June 30, 2018, the Company recognized $74,528 and $74,528, respectively (2017:
$Nil and $Nil, respectively) of this grant on its statement of operations within grant income.
Preclinical
Study Grant
During
the year ended September 30, 2015, the Company was awarded grant funding in the amount of $286,455. The grant was 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 three and nine months ended June 30, 2018, the Company recognized $Nil and $Nil, respectively
(2017: $69,146 and $121,116, respectively) of this grant on its statement of operations within grant income.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
Research
and development tax incentive
During
the three and nine months ended June 30, 2018, the Company received other income of $1,629,513 and $1,629,513, respectively (2017:
$Nil and $2,022,902, respectively) in respect of a research and development incentive program offered by the Australian government.
|
Note 4
|
Lincoln 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
to October 21, 2018.
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 nine months ended June 30, 2018, the Company issued to Lincoln Park an aggregate of 1,896,094 (2017: 5,951,229) shares of
common stock under the Purchase Agreement, including 1,883,580 (2017: 5,910,939) shares of common stock for an aggregate purchase
price of $6,966,569 (2017: $22,431,958) and 12,514 (2017: 40,290) commitment shares. At June 30, 2018, an amount of $14,404,957
(September 30, 2017: $21,371,526) remained available under the 2015 Purchase Agreement.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 5
|
Related Party Transactions
|
There
were no related party transactions during the three and nine months ended June 30, 2018 and 2017.
The
Company is committed to lease payments as follows:
Fiscal year ending September 30,
|
|
|
|
|
2018
|
|
|
$
|
34,232
|
|
2019
|
|
|
|
68,463
|
|
|
|
|
$
|
102,695
|
|
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, 2016
|
|
|
|
1,809,309
|
|
|
$
|
2.70
|
|
Exercised
|
|
|
|
(200,000
|
)
|
|
$
|
3.00
|
|
Balance, September 30, 2017
|
|
|
|
1,609,309
|
|
|
$
|
2.66
|
|
Exercised
|
|
|
|
(18,750
|
)
|
|
$
|
1.24
|
|
Balance, June 30, 2018
|
|
|
|
1,590,559
|
|
|
$
|
2.68
|
|
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 6
|
Commitments
–
(Continued)
|
|
a)
|
Share
Purchase Warrants – (Continued)
|
At
June 30, 2018, the Company had share purchase warrants outstanding of 1,590,559, 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
|
12,500
|
|
$1.24
|
|
May 31, 2019
|
7,500
|
|
$1.04
|
|
May 31, 2019
|
1,590,559
|
|
|
|
|
Subsequent to June 30, 2018, an aggregate of 737,393 share purchase warrants at $3.00 per share were exercised on a cashless basis, pursuant to which the Company issued 117,150 shares of common stock and an additional 80,981 shares of common stock were to be issued. The remaining 524,787 share purchase warrants exercisable at $3.00 per share until July 5, 2018 expired unexercised.
|
b)
|
Stock–based
Compensation Plan
|
2015
Stock Option Plan
On
September 18, 2015, the Company’s board of directors approved a 2015 Omnibus Incentive Plan (the “2015 Plan”),
which provides for the grant of stock options and restricted stock awards to directors, officers, employees and consultants of
the Company.
The
maximum number of our common shares reserved for issue under the plan is 6,050,553 shares, subject to adjustment in the event
of a change of the Company’s capitalization. As a result of the adoption of the 2015 Plan, no further option awards will
be granted under any previously existing stock option plan. Stock option awards previously granted under the previously existing
stock option plans remain outstanding in accordance with their terms.
The
2015 Plan provides that it may be administered by the board of directors, or the board of directors may delegate such responsibility
to a committee. The exercise price will be determined by the board of directors at the time of grant shall be at least equal to
the fair market value on such date. If the grantee is a 10% stockholder on the grant date, then the exercise price shall not be
less than 110% of fair market value of the Company’s shares of common stock on the grant date. Stock options may be granted
under the 2015 Plan for an exercise period of up to ten years from the date of grant of the option or such lesser periods as may
be determined by the board, subject to earlier termination in accordance with the terms of the 2015 Plan.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
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, 2016
|
|
|
|
4,199,000
|
|
|
$
|
3.76
|
|
|
|
|
|
Granted
|
|
|
|
1,107,500
|
|
|
|
5.51
|
|
|
$
|
5.44
|
|
Forfeited
|
|
|
|
(214,470
|
)
|
|
|
4.09
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
|
5,092,030
|
|
|
|
4.13
|
|
|
|
|
|
Granted
|
|
|
|
1,930,000
|
|
|
|
2.98
|
|
|
$
|
2.56
|
|
Forfeited
|
|
|
|
(7,709
|
)
|
|
|
4.32
|
|
|
|
|
|
Exercised
|
|
|
|
(150,833
|
)
|
|
|
1.18
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
|
6,863,488
|
|
|
$
|
3.87
|
|
|
|
|
|
Exercisable at June 30, 2018
|
|
|
|
3,974,821
|
|
|
$
|
3.64
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
|
3,326,223
|
|
|
$
|
3.10
|
|
|
|
|
|
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 6
|
Commitments
–
(Continued)
|
|
d)
|
Stock-based
Compensation Plan – (Continued)
|
At
June 30, 2018, 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
|
|
$
|
510,000
|
|
|
|
5.01
|
|
|
37,500
|
|
|
|
37,500
|
|
|
$
|
1.20
|
|
|
May 7, 2024
|
|
|
53,250
|
|
|
|
5.85
|
|
|
125,000
|
|
|
|
125,000
|
|
|
$
|
1.32
|
|
|
May 8, 2024
|
|
|
162,500
|
|
|
|
5.86
|
|
|
618,750
|
|
|
|
618,750
|
|
|
$
|
0.92
|
|
|
April 2, 2025
|
|
|
1,051,875
|
|
|
|
6.76
|
|
|
29,167
|
|
|
|
29,167
|
|
|
$
|
1.44
|
|
|
June 8, 2025
|
|
|
34,417
|
|
|
|
6.94
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
1.76
|
|
|
June 15, 2025
|
|
|
43,000
|
|
|
|
6.96
|
|
|
265,208
|
|
|
|
266,250
|
|
|
$
|
5.04
|
|
|
September 18, 2025
|
|
|
—
|
|
|
|
7.22
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.64
|
|
|
September 30, 2025
|
|
|
—
|
|
|
|
7.25
|
|
|
31,250
|
|
|
|
28,646
|
|
|
$
|
5.68
|
|
|
October 2, 2025
|
|
|
—
|
|
|
|
7.26
|
|
|
25,000
|
|
|
|
22,916
|
|
|
$
|
8.98
|
|
|
October 16, 2025
|
|
|
—
|
|
|
|
7.30
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.57
|
|
|
December 31, 2025
|
|
|
—
|
|
|
|
7.50
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
4.90
|
|
|
March 31, 2026
|
|
|
—
|
|
|
|
7.75
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
5.66
|
|
|
April 27, 2026
|
|
|
—
|
|
|
|
7.82
|
|
|
19,697
|
|
|
|
19,697
|
|
|
$
|
4.09
|
|
|
May 18, 2026
|
|
|
—
|
|
|
|
7.88
|
|
|
1,500
|
|
|
|
1,500
|
|
|
$
|
6.11
|
|
|
June 30, 2026
|
|
|
—
|
|
|
|
8.00
|
|
|
379,625
|
|
|
|
221,448
|
|
|
$
|
6.26
|
|
|
July 5, 2026
|
|
|
—
|
|
|
|
8.01
|
|
|
861,429
|
|
|
|
502,500
|
|
|
$
|
7.06
|
|
|
July 18, 2026
|
|
|
—
|
|
|
|
8.05
|
|
|
1,006,696
|
|
|
|
1,006,696
|
|
|
$
|
3.28
|
|
|
September 22, 2026
|
|
|
—
|
|
|
|
8.23
|
|
|
64,166
|
|
|
|
39,164
|
|
|
$
|
3.63
|
|
|
October 3, 2026
|
|
|
—
|
|
|
|
8.26
|
|
|
15,000
|
|
|
|
8,750
|
|
|
$
|
4.35
|
|
|
December 9, 2026
|
|
|
—
|
|
|
|
8.44
|
|
|
50,000
|
|
|
|
16,667
|
|
|
$
|
5.39
|
|
|
February 7, 2027
|
|
|
—
|
|
|
|
8.61
|
|
|
40,000
|
|
|
|
20,000
|
|
|
$
|
5.26
|
|
|
February 17, 2027
|
|
|
—
|
|
|
|
8.64
|
|
|
780,000
|
|
|
|
325,002
|
|
|
$
|
5.92
|
|
|
May 12, 2027
|
|
|
—
|
|
|
|
8.87
|
|
|
12,500
|
|
|
|
4,167
|
|
|
$
|
3.42
|
|
|
August 9, 2027
|
|
|
—
|
|
|
|
9.11
|
|
|
15,000
|
|
|
|
5,000
|
|
|
$
|
4.33
|
|
|
September 19, 2027
|
|
|
—
|
|
|
|
9.22
|
|
|
545,000
|
|
|
|
90,834
|
|
|
$
|
3.30
|
|
|
December 13, 2027
|
|
|
—
|
|
|
|
9.45
|
|
|
50,000
|
|
|
|
—
|
|
|
$
|
2.60
|
|
|
March 2, 2028
|
|
|
1,000
|
|
|
|
9.67
|
|
|
200,000
|
|
|
|
16,667
|
|
|
$
|
2.72
|
|
|
March 19, 2028
|
|
|
—
|
|
|
|
9.72
|
|
|
150,000
|
|
|
|
12,500
|
|
|
$
|
2.30
|
|
|
March 15, 2028
|
|
|
48,000
|
|
|
|
9.71
|
|
|
635,000
|
|
|
|
—
|
|
|
$
|
2.30
|
|
|
March 15, 2028
|
|
|
203,200
|
|
|
|
9.71
|
|
|
350,000
|
|
|
|
—
|
|
|
$
|
4.19
|
|
|
June 18, 2028
|
|
|
—
|
|
|
|
9.97
|
|
|
6,863,488
|
|
|
|
3,974,821
|
|
|
|
|
|
|
|
|
$
|
2,107,242
|
|
|
|
|
|
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 June 30, 2018.
Anavex Life Sciences Corp.
Notes to the Condensed Consolidated Interim Financial Statements
June 30, 2018
(Unaudited)
|
Note 6
|
Commitments
– (Continued)
|
|
d)
|
Stock–based
Compensation Plan – (Continued)
|
During
the three and nine months ended June 30, 2018, the Company recognized stock-based compensation expense of $1,643,274 and $4,025,412,
respectively (2017: $1,159,716 and $3,017,876, respectively) in connection with the issuance and vesting of stock options
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:
|
|
Three months ended June 30,
|
|
|
Nine months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
General and administrative
|
|
$
|
802,591
|
|
|
$
|
574,470
|
|
|
$
|
1,999,633
|
|
|
$
|
1,452,181
|
|
Research and development
|
|
|
840,683
|
|
|
|
585,246
|
|
|
|
2,025,779
|
|
|
|
1,565,695
|
|
Total share based compensation
|
|
$
|
1,643,274
|
|
|
$
|
1,159,716
|
|
|
$
|
4,025,412
|
|
|
$
|
3,017,876
|
|
An
amount of approximately $8,597,000 in stock-based compensation is expected to be recorded over the remaining term of such
options through June, 2021.
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:
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.73%
|
|
1.98%
|
Expected life of options (years)
|
|
6.84
|
|
6.82
|
Annualized volatility
|
|
108.67%
|
|
111.67%
|
Dividend rate
|
|
0.00%
|
|
0.00%
|
On
July 6, 2018, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with
Cantor Fitzgerald & Co., as agent (“Cantor Fitzgerald”), pursuant to which the Company may offer and sell
shares of common stock, for aggregate gross sale proceeds of up to $50,000,000 from time to time through Cantor Fitzgerald (the
“Offering”).
Upon
delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales
Agreement, Cantor Fitzgerald may sell the Shares by methods deemed to be an “at the market offering” offering, in
negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices,
or by any other method permitted by law, including negotiated transactions, subject to the prior written consent of the Company.
The Company is not obligated to make any sales of Shares under the Sales Agreement. The Company or Cantor Fitzgerald may suspend
or terminate the offering of Shares upon notice to the other party, subject to certain conditions. Cantor Fitzgerald will
act as sales agent on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable
state and federal law, rules and regulations and the rules of Nasdaq.
The
Company has agreed to pay Cantor Fitzgerald commissions for its services of acting as agent of up to 3.0% of the gross proceeds
from the sale of the Shares pursuant to the Sales Agreement. The Company has also agreed to provide Cantor Fitzgerald with
customary indemnification and contribution rights. During the three and nine months ended June 30, 2018, the Company incurred
$50,000 in legal and accounting fees associated with the Sales Agreement. This amount is included in deferred financing charges
at June 30, 2018 and is expected to be reclassified to share capital upon issuance of shares under the Sales Agreement.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements. All statements other than statements of historical facts contained
in this Quarterly Report on Form 10-Q, 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:
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our
ability to generate any revenue or to continue as a going concern;
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our
ability to successfully conduct clinical and preclinical trials for our product candidates;
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our
ability to raise additional capital on favorable terms;
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our
ability to execute our development plan on time and on budget;
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our
products ability to demonstrate efficacy or an acceptable safety profile;
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our
ability to obtain the support of qualified scientific collaborators;
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our
ability, whether alone or with commercial partners, to successfully commercialize any
of our product candidates that may be approved for sale;
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our
ability to identify and obtain additional product candidates;
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intellectual
property rights and protections;
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the
anticipated start dates, durations and completion dates of our ongoing and future clinical
studies;
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the
anticipated designs of our future clinical studies;
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our
anticipated future regulatory submissions and our ability to receive regulatory approvals
to develop and market our product candidates; and
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our
anticipated future cash position.
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We
have based these forward-looking statements largely on our current expectations and projections about future events, including
the responses we expect from the U.S. Food and Drug Administration, (“FDA”), and other regulatory authorities and
financial trends that we believe may affect our financial condition, results of operations, business strategy, preclinical and
clinical trials, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions
including without limitation the risks described in “Risk Factors” in Part II, Item 1A of this Quarterly Report on
Form 10-Q. These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and “Anavex”
mean Anavex Life Sciences Corp., unless the context clearly requires otherwise.
Our
Current 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,
methyl-CpG-binding protein 2 (“MECP2”).
In
November 2016, we completed a Phase 2a clinical trial, consisting of PART A and PART B, which lasted a total of 57 weeks, for
ANAVEX
®
2-73 in mild-to-moderate Alzheimer’s patients. This open-label randomized trial met both primary and
secondary endpoints and was designed to assess the safety and exploratory efficacy of ANAVEX
®
2-73 in 32 patients.
ANAVEX
®
2-73 targets sigma-1 and muscarinic receptors, which have been shown in preclinical studies to reduce stress
levels in the brain believed to restore cellular homeostasis and to reverse the pathological hallmarks observed in Alzheimer’s
disease. In October 2017, we presented positive pharmacokinetic (PK) and pharmacodynamic (PD) data from the Phase 2a study, which
established a concentration-effect relationship between ANAVEX
®
2-73 and study measurements. These measures obtained
from all patients who participated in the entire 57 weeks include exploratory cognitive and functional scores as well as biomarker
signals of brain activity. Additionally, the study appears to show that ANAVEX
®
2-73 activity is enhanced by its
active metabolite (ANAVEX19-144), which also targets the sigma-1 receptor and has a half-life approximately twice as long as the
parent molecule.
In
March 2016, we received approval from the Ethics Committee in Australia to extend the Phase 2a clinical trial an additional 102
weeks, which had been requested by patients and their caregivers. Subsequently, in May 2018, we received approval from the Ethics
Committee in Australia to further extend the Phase 2a extension trial for an additional two years. The two consecutive trial extensions
have allowed participants who completed the 52-week PART B of the study to continue taking ANAVEX
®
2-73, providing
an opportunity to gather extended safety data for a cumulative time period of five years. The trial extensions are independent
of our larger Phase 2b/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 to cover some
of 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 our 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. The Company
is moving forward with a Phase 2 trial with ANAVEX
®
2-73 in Parkinson’s Disease Dementia (“PDD”),
which will study the effect of the compound on both the cognitive and motor impairment of Parkinson’s disease. The double-blind,
randomized, placebo-controlled Phase 2 PDD study has been approved by the regulatory authorities in Spain (Europe), and the Company
plans to initiate this clinical trial in the second half of calendar 2018.
We
continue to identify and initiate discussions with potential strategic and commercial partners to most effectively advance our
programs and realize maximum shareholder value. Further, we may acquire or develop new intellectual property and assign, license,
or otherwise transfer our intellectual property to further our goals.
Our
Pipeline
Our
research and development pipeline includes one clinical drug candidate and several compounds in different stages of pre-clinical
study.
Our
proprietary SIGMACEPTOR™ Discovery Platform produced small molecule drug candidates with unique modes of action, based on
our understanding of sigma receptors. Sigma receptors may be targets for therapeutics to combat many human diseases, both of neurodegenerative
nature, including Alzheimer’s disease, as well as of neurodevelopmental nature, like Rett syndrome. When bound by the appropriate
ligands, sigma receptors influence the functioning of multiple biochemical signals that are involved in the pathogenesis (origin
or development) of disease.
Compounds
that have been subjects of our research include the following:
ANAVEX
®
2-73
ANAVEX
®
2-73
may offer a disease-modifying approach in neurodegenerative and neurodevelopmental diseases by using ligands that activate sigma-1
receptors.
In
Alzheimer’s disease (AD) animal models, ANAVEX
®
2-73 has shown pharmacological, histological and behavioral
evidence as a potential neuroprotective, anti-amnesic, anti-convulsive and anti-depressive therapeutic agent, due to its potent
affinity to sigma-1 receptors and moderate affinities to M1-4 type muscarinic receptors. In addition, ANAVEX
®
2-73
has shown a potential dual mechanism which may impact both amyloid and tau pathology. In a transgenic AD animal model Tg2576 ANAVEX
®
2-73
induced a statistically significant neuroprotective effect against the development of oxidative stress in the mouse brain, as
well as significantly increased the expression of functional and synaptic plasticity markers that is apparently amyloid-beta independent.
It also statistically alleviated the learning and memory deficits developed over time in the animals, regardless of sex, both
in terms of spatial working memory and long-term spatial reference memory.
Based
on the results of pre-clinical testing, we initiated and completed a Phase 1 single ascending dose (SAD) clinical trial of ANAVEX
®
2-73
in 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.
Through
57 weeks, Alzheimer’s patients taking a daily oral dose between 10mg and 50mg of ANAVEX
®
2-73 was well tolerated.
There were no clinically significant treatment-related adverse events and no serious adverse events. Despite non-optimized dosing
of ANAVEX
®
2-73 throughout the 57-week study, continued significant improvements from baseline of cognitive, functional
and behavioral scores in a group of patients were observed, respectively. This data was analyzed using refined mathematical modeling
methods in conjunction with the detailed pharmacokinetic (PK) information.
In
October 2017, we presented positive PK and pharmacodynamic (PD) data from the Phase 2a study, which established a concentration-effect
relationship between ANAVEX
®
2-73 and study measurements. These measures, obtained from all patients who participated
in the entire 57 weeks, include exploratory cognitive and functional scores as well as biomarker signals of brain activity. Additionally,
the study appears to show that ANAVEX
®
2-73 activity is enhanced by its active metabolite (ANAVEX19-144), which
also targets the sigma-1 receptor and has a half-life approximately twice as long as the parent molecule.
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).
In
July 2018, we presented the results of a genomic DNA and RNA evaluation of the participants in the Phase 2a study. More than 33,000
genes were analyzed using unbiased data driven machine learning, artificial intelligence (AI) system for analyzing DNA & RNA
data of patients exposed to ANAVEX
®
2-73. The analysis identified genetic variants that impacted response to ANAVEX
®
2-73,
among them variants related to the Sigma-1 receptor (SIGMAR1), the target for ANAVEX
®
2-73. Results showed that
study participants without the SIGMAR1 (rs1800866) variants, which is about 80 percent of the population worldwide, demonstrated
improved cognitive (MMSE) and the functional (ADCS-ADL) scores. The results from this evaluation may enable a precision medicine
approach, since these signatures can now be applied to neurological indications tested in clinical studies with ANAVEX
®
2-73
including Alzheimer’s disease, Parkinson’s disease dementia and Rett syndrome.
ANAVEX
®
2-73
data presented met prerequisite information in order to progress into a Phase 2b/3 placebo-controlled study. On July 2, 2018,
the Human Research Ethics Committee in Australia approved the initiation of our Phase 2b/3, double-blind, randomized, placebo-controlled
48-week safety and efficacy trial of ANAVEX
®
2-73 for the treatment of early Alzheimer’s disease. This Phase
2b/3 study design incorporates inclusion of genomic precision medicine biomarkers identified in the ANAVEX
®
2-73
Phase 2a study. The Phase 2b/3 study, which is expected to enroll approximately 450 patients, randomized 1:1:1 to either two different
ANAVEX
®
2-73 doses or placebo, is scheduled to begin in the second half of calendar 2018.
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 and, more recently, tuberous sclerosis complex. 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. In July 2018 the Company received approval from the Spanish Agency for Medicinal Products and Medical Devices (AEMPS),
to initiate its Phase 2, double-blind, placebo-controlled 14-week trial of the safety and efficacy of ANAVEX
®
2-73
for the treatment of Parkinson’s disease dementia (PDD). The Phase 2 study is scheduled to initiate enrollment of approximately
120 patients, randomized 1:1:1 to two different ANAVEX
®
2-73 doses or placebo, within the next few months, in up
to 24 clinical study sites.
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.
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.
In
March 2018, we presented preclinical data of ANAVEX
®
2-73 in a genetic mouse model of tuberous sclerosis complex
(“TSC”). TSC is a rare genetic disorder characterized by the growth of numerous benign tumors in many parts of the
body with a high incidence of seizures. The new preclinical data demonstrates that treatment with ANAVEX
®
2-73 significantly
increases survival and reduces seizures.
ANAVEX
®
3-71
ANAVEX
®
3-71
is a preclinical drug candidate with a novel mechanism of action via sigma-1 receptor activation and M1 muscarinic allosteric
modulation, which has been shown to enhance neuroprotection and cognition in Alzheimer’s disease. 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.
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 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.
|
|
●
|
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.
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●
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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.
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●
|
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.
|
Patents,
Trademarks and Intellectual Property
Anavex
holds ownership or exclusive rights to four U.S. patents, nine U.S. patent applications, and various PCT or ex-U.S. patent applications
relating to our drug candidates, methods associated therewith, and to our research programs.
We
own one issued U.S. patent entitled “ANAVEX®2-73 and certain anticholinesterase inhibitors composition and method for
neuroprotection” claims a composition of matter of ANAVEX®2-73 directed to a novel and synergistic neuroprotective compound
combined with donepezil and other cholinesterase inhibitors. This patent is expected to expire in June 2034, absent any
patent term extension for regulatory delays. A related continuation application is also pending in the U.S. In addition, we own
one issued U.S. Patent with claims directed to methods of treating melanoma with a compound related to ANAVEX®2-73. This patent
is expected to expire in February 2030, absent any patent term extension for regulatory delays.
With
regard to ANAVEX 3-71, we own exclusive rights to two issued U.S. patents with claims respectively directed to the ANAVEX 3-71
compound and methods of treating various diseases including Alzheimer’s with the same. These patents are expected to expire
in April 2030, and January 2030, respectively, absent any patent term extension for regulatory delays. We also own exclusive rights
to related patents or applications that are granted or pending in Australia, Canada, China, Europe, Japan, Korea, New Zealand,
Russia, and South Africa, and are expected to expire in January 2030.
We
also own other patent applications directed to enantiomers, formulations and uses that may provide additional protection for one
or more of our product candidates.
We
regard patents and other intellectual property rights as corporate assets. Accordingly, we attempt to optimize the value of intellectual
property in developing our business strategy including the selective development, protection, and exploitation of our intellectual
property rights. In addition to filings made with intellectual property authorities, we protect our intellectual property and
confidential information by means of carefully considered processes of communication and the sharing of information, and by the
use of confidentiality and non-disclosure agreements and provisions for the same in contractor’s agreements. While no agreement
offers absolute protection, such agreements provide some form of recourse in the event of disclosure, or anticipated disclosure.
Our
intellectual property position, like that of many biomedical companies, is uncertain and involves complex legal and technical
questions for which important legal principles are unresolved. For more information regarding challenges to our existing or future
patents, see Item 1A “Risk Factors.”
Financial
Highlights
We
had cash of $25.8 million at June 30, 2018, compared to $27.4 million at September 30, 2017. During the nine months ended June
30, 2018, we utilized $8.5 million in operations, compared to $6.8 million in the comparative period during fiscal 2017. During
the nine months ended June 30, 2018, we received cash of $7.0 million from the issuance of shares of common stock under the Purchase
Agreement by and between the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) dated October 21, 2015 (the
“Purchase Agreement).
Operating
expenses for the third quarter of fiscal 2018 were $4.6 million, compared to $3.7 million for the comparable quarter in fiscal
2017. The increase in operating expenses is primarily attributable to an increase in research and development expenses of $0.7
million from $2.3 million in the third quarter of fiscal 2017 to $3.0 million in the third quarter of fiscal 2018, due to a continued
increase in expenses being incurred in preparation for three clinical trials scheduled to commence during the second half of calendar
2018, as well as an expanded scientific team. Our general and administrative expenses also increased by $0.2 million to $1.6 million,
primarily as a result of an increase in salaries and wages associated with our expanded team.
We
expect our research and development expenses will continue to increase as our planned ANAVEX
®
2-73 clinical studies
for the treatment of Rett syndrome, Alzheimer’s disease and Parkinson’s disease commence. We continue to target potential
research partners to further advance our pipeline compounds.
Net
loss for the third quarter of fiscal 2018 was $2.9 million, or $0.06 per share, as compared to $3.6 million, or $0.04 per share
in the comparative quarter of fiscal 2017.
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.
Three
months ended June 30, 2018 compared to three months ended June 30, 2017
Operating
Expenses
Total
operating expenses for the third quarter of fiscal 2018 were $4.6 million, which represents an increase of $0.9 million from the
comparable quarter of fiscal 2017.
Research
and development expenses for the third quarter of fiscal 2018 were $3.0 million, as compared to $2.3 million in the comparable
quarter of fiscal 2017, an increase of approximately 30%. The increase was associated with expenditures incurred in preparation
of our planned clinical studies for ANAVEX
®
2-73. Of the $3.0 million, approximately $1.0 million was spent on preparatory
activities for these clinical trials during the quarter and $0.1 million was spent on the ANAVEX
®
2-73 extension
study for Alzheimer’s. Additionally, of the $3.0 million, approximately $0.4 million was spent on preclinical activities
for ANAVEX
®
3-71 and ANAVEX
®
2-73. The remainder of research and development activities were associated
with personnel and consulting costs.
There
was also an increase in general and administrative expenses of approximately $0.2 million, primarily related to an increase in
staffing and personnel costs incurred as a result of our expanded team and associated long-term incentive compensation. Other
general and administrative expenditures for the third quarter also included an increase in insurance costs as a result of increased
plan premiums.
Other
income
The
net amount of other income for the third quarter of fiscal 2018 was $1.8 million as compared to $0.1 million for the comparable
quarter of fiscal 2017. The main reason for this increase in other income is a result of a timing difference with respect to the
receipt of the research and development incentive income from the Australian tax office. The Company participates, through its
subsidiary in Australia, in the Australian government’s research and development incentive program, which provides a refundable
tax offset to eligible companies that engage in research and development activities in Australia. During the third fiscal quarter,
we received $1.6 million in this research and development incentive income.
During
the quarter we also received $74,528 in grant income from the Rett foundation, to be utilized towards our planned Phase 2a clinical
trial for Rett syndrome, which is currently in preparation. In the comparative period, grant income included the recognition of
a grant from the Michael J. Fox Foundation, which was utilized for a preclinical study.
Nine
months ended June 30, 2018 compared to nine months ended June 30, 2017
Operating
Expenses
Total
operating expenses for the nine months ended June 30, 2018 were $13.4 million, which represents an increase of approximately $3.0
million from the comparable period during fiscal 2017.
Research
and development expenses for the period in fiscal 2018 were $8.9 million, as compared to $6.8 million in the comparable period
of fiscal 2017, an increase of approximately 31%. The increase was associated with expenditures incurred in preparation of our
planned clinical studies for ANAVEX
®
2-73. Of the $8.9 million, approximately $2.9 million was spent on preparatory
activities for these clinical trials during the quarter and $0.3 million was spent on the ANAVEX
®
2-73 extension
study for Alzheimer’s. Additionally, of the $8.9 million, approximately $2.0 million was spent on preclinical activities
for ANAVEX
®
3-71, ANAVEX
®
2-73, as well as other pipeline compounds. The remainder of research and
development activities were associated with personnel and consulting costs.
There
was also an increase in general and administrative expenses of approximately $0.9 million, primarily related to an increase in
staffing and personnel costs of approximately $0.9 million incurred as a result of our expanded team and associated long-term
incentive compensation. Other general and administrative increases included an increase in insurance costs as a result of increased
plan premiums.
Other
income
The
net amount of other income for the nine months ended June 30, 2018 was $1.8 million as compared to $2.2 million for the comparable
period of fiscal 2017. The main reason for this decrease in other income is due to a decrease in the research and development
incentive income from the Australian tax office. This was a result of a change in year ends of our Australian subsidiary during
fiscal 2017, which resulted in a longer claim period in the comparable period with respect to the research and development claim.
Liquidity
and Capital Resources
Working
Capital
|
June
30, 2018
|
|
September
30, 2017
|
|
Current Assets
|
$
|
26,742,297
|
|
$
|
27,785,933
|
|
Current Liabilities
|
|
3,209,070
|
|
|
3,584,334
|
|
Working Capital
|
$
|
23,533,227
|
|
$
|
24,201,599
|
|
At
June 30, 2018, we had $25.8 million in cash and cash equivalents, a decrease of $1.6 million from September 30, 2017. The principal
reason for this decrease is due to an increase in cash utilized in operations to $8.5 million for the nine months ended June 30,
2018, offset by cash received of $7.0 million from the issuance of shares of common stock issued under the Purchase Agreement.
Cash
Flows
|
|
Nine
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net cash flows used in
operating activities
|
|
$
|
(8,529,234
|
)
|
|
$
|
(6,825,348
|
)
|
Net cash flows from financing activities
|
|
|
6,916,569
|
|
|
|
22,431,958
|
|
Increase (decrease) in cash and cash
equivalents during the period
|
|
$
|
(1,612,665
|
)
|
|
$
|
15,606,610
|
|
Cash
flow used in operating activities
Net
cash used in operating activities for the nine months ended June 30, 2018 was $8.5 million, compared to $6.8 million during the
comparable period during fiscal 2017. The principal reason for this increase in net cash used from operating activities in the
current period is due to the increase in operating expenses, as described above.
Cash
flow provided by financing activities
Cash
provided by financing activities for the nine months ended June 30, 2018 was $6.9.lm vgb
85 million, attributable to cash received from the issuance of common shares at various market prices
under the Purchase Agreement.
Cash
provided by financing activities for the nine months ended June 30, 2017 was $22.4 million, attributable to cash received from
the issuance of common shares at various market prices under the Purchase Agreement.
Other
Financing
Sales
Agreement
On
July 6, 2018, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor
Fitzgerald & Co., as agent (“Cantor Fitzgerald”), pursuant to which we may offer and sell shares of our common
stock, for aggregate gross sale proceeds of up to $50,000,000 from time to time through Cantor Fitzgerald (the “Offering”).
Upon
delivery of a placement notice based on the Company’s instructions and subject to the terms and conditions of the Sales
Agreement, Cantor Fitzgerald may sell the Shares by methods deemed to be an “at the market offering” as defined in
Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including
sales made directly on or through The Nasdaq Capital Market (“Nasdaq”), on any other existing trading market for the
our common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing
market prices, or by any other method permitted by law, including negotiated transactions, subject to the prior written consent
of the Company.
We
are not obligated to make any sales of shares under the Sales Agreement. We or Cantor Fitzgerald may suspend or terminate the
offering of shares upon notice to the other party, subject to certain conditions. Cantor Fitzgerald will act as sales agent
on a commercially reasonable efforts basis consistent with its normal trading and sales practices and applicable state and federal
law, rules and regulations and the rules of Nasdaq.
We
have agreed to pay Cantor Fitzgerald commissions for its services of acting as agent of up to 3.0% of the gross proceeds from
the sale of the shares pursuant to the Sales Agreement.
Purchase
Agreement
On
October 21, 2015, we entered into a 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 our 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 above financings, 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 the next 12 months after the date these interim condensed
consolidated financial statements are issued using 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.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to our stockholders.
Contractual
Obligations
The
following table summarizes our contractual obligations as of June 30, 2018, excluding amounts related to uncertain tax positions,
funding commitments, contingent development, and 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
|
|
$
|
102,695
|
|
|
$
|
68,463
|
|
|
$
|
34,232
|
|
|
|
—
|
|
|
|
—
|
|
Unconditional
Purchase Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
Long-Term Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
Contractual Cash Obligations
|
|
$
|
102,695
|
|
|
$
|
68,463
|
|
|
$
|
34,232
|
|
|
|
—
|
|
|
|
—
|
|
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, mechanical problems, 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 at their acquisition dates.
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. The
cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as 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. Upon exercise of share purchase options, the consideration
paid by the option holder, together with the amount previously recognized in additional capital surplus, is recorded as an increase
to share capital.
We
use the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option
pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in assumptions
can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single
measure of the fair value of our share purchase options.
For
a discussion of recent accounting pronouncements and their possible effect on our results, see Note 2 to our Condensed Consolidated
Interim Financial Statements found elsewhere in this Quarterly Report.