Anavex Life Sciences Corp (AVXL)

[ElsaSara]

https://seekingalpha.com/article/4437842-anavex-catalyst-rich-year
Anavex: A Catalyst-Rich yeear
Jul. 05, 2021 3:36 AM

Summary

Anavex Life Sciences Corporation conducts clinical trials for its small Anavex 2-73 (blarcamesine) and Anavex 3-71 (AF710B) molecules.The biotech has a rich development pipeline aimed at neurodegenerative and neuro-developmental disorders, such as Parkinson's, Alzheimer's and Rett diseases.It has been a catalyst-rich year with a lot of news pertaining to the biotech's own clinical trials, as well as peer Biogen's aducanumab obtaining FDA approval.A comparison with another peer shows that the company has a more disciplined cash generation and use strategy and is still undervalued despite the recent stock upside.Looking forward, there are catalysts to propel the share price to the $28 level, all amid a volatile path.

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After recording a 52-week high on the back of promising mid-stage data for its Parkinson's disease candidate, Anavex Life Sciences (NASDAQ:AVXL) dropped sharply on June 29, posting its highest one-day loss since early November.

Data by YCharts

This drop was not due to bad news though.

The previous day, the stock had jumped by 17% after announcing results from a proof-of-concept Phase 2 trial randomizing 132 patients with Parkinson's disease dementia (PDD).

Now, with vaccination in progress and normal care, including clinical trials having resumed in most geographies, it makes sense to dig into the biotech's research pipeline in order to explain the stock's phenomenal 400% rise during the last one-year period.

The pipeline

Anavex conducts clinical trials for its small molecules Anavex 2-73 (blarcamesine) and Anavex 3-71 (AF710B), for slowing the progression of Alzheimer's disease. In addition, the therapies being developed are intended to treat other neurodegenerative and neuro-developmental disorders, such as Rett syndrome and Parkinson's disease as well as other central nervous system diseases.

Lesser known, Rett syndrome is a serious and rare neurological disorder that primarily affects women. It was once considered to be a form of autism. It has since been singled out as a genetic disorder, with a mutation occurring on the X chromosome. The exact location of this mutation is unknown, but researchers know that it is usually a sporadic one with symptoms of the disease usually appearing between the first 12 and 18 months of life. The effects include slow brain growth, a small head and problems with muscle coordination.

Anavex has two active studies for Rett, including a Phase 2, designed to test for safety, tolerability and efficacy with "completed" status in October 2020 involving 31 participants as part of an interventional clinical trial.

Source: clinicaltrials.gov

Coming back to June 28, Anavex reported that 2-73 improved endpoints in a Phase 2 Parkinson's disease study. Going into details, the predictive biomarker of response established with SIGMAR1 mRNA expression correlates significantly with responses in primary and secondary clinical efficacy endpoints from the proof-of-concept randomized, double-blind, placebo-controlled Phase 2 trial.

In simpler English, the treatment resulted in significant increase of SIGMAR1, or activation of the sigma-1 receptor whose production typically increases with age, but is reduced in people with neuro-degenerative diseases.

As a result, a series of neuro-protective effects was triggered, including the clearance of unnecessary or damaged cellular components. This study (highlighted in yellow), which assessed safety, tolerability, and efficacy of 2-73 for cognitive impairment in patients with PDD also demonstrates for the first time that a drug-specific biomarker correlates with clinical efficacy end points.

Now, for Anavex, the data also strengthens the regulatory pathway for Parkinson as a new therapy, in the same way as for Alzheimer's disease, where phase IIb/phase III trials are already under way using 2-73 in the same dosing regimen as for the completed PDD study, but with differentiated patient selection criteria. The study completed enrollment in the first week of June.

Exploring further, Parkinson's disease is a chronic central nervous system disease and the second largest age-related disorder after Alzheimer's. It is a fairly common neurological disorder in older adults, estimated to affect nearly 2% of those older than 65. Furthermore, the Parkinson's Foundation estimates that 1 million Americans have Parkinson's disease. It is also estimated that up to 80% of those with the disease eventually experience PDD.

I now assess the finances.

The finances

The biotech had cash and equivalents of approximately $75.9 million as at March 31, 2021, sufficient to last for up to three years, according to its CEO. Now, Anavex does not generate revenues and has to resort to equity offerings to finance operations.

Pursuing further, operational costs consist mainly of R&D, which were at $6.7 million for the first quarter, compared to $6.1 million in Q1-2020, while General and Administrative expenses increased by $0.5 million. These are likely to increase further given the progression to advanced phases of trials which typically imply more expenses.

Now, in this era of cheap money, getting funding through public offerings is a common financing option, but thinking aloud, this remains a loan from investors. Also, their timings can get jittery at times, and this was the case on June 23, when Anavex's shares were down pre-market by 10.7% after entering into a purchase agreement with Deep Track Capital for the issuance and sale of an aggregate of 2,380,953 common shares, at $21.00 each in a registered direct offering. Around $50 million of gross proceeds were expected.

Adopting a cautionary posture, I make a comparison with Cassava Sciences (SAVA) as to the cash used versus issuance of common stock.

Source: Table compiled using data from Seeking Alpha

Exploring further, Cassava also has three clinical trials at Phase 2 for Alzheimer's compared to more for Anavex, which is additionally involved for Phase 2/Phase 3.

Source: clinicaltrials.gov

Consequently, it is logical that Anavex is using more cash for operations as it is involved in more late stage trials, but its equity issuance seems more disciplined, rising gradually, with the total still below Cassava.

For investors, this comparison is strictly limited to cash use and generation over a historical period, and does not pertain to efficacy of drug candidates nor constitute an elaborate assessment of the way the corporate finances are managed. As a matter of fact, Cassava has also progressed and selected Premier Research International to help conduct the phase 3 trial for Alzheimer's disease, which is planned to begin in the second half of 2021. It is also involved in a number of dietary supplements trials and one for type 2 diabetes.

Valuations and key takeaways

Therefore, it has been a rich second quarter with data readouts for its lead drug candidate, Anavex 2-73, both in Parkinson and Alzheimer's diseases. These have resulted in moving the stock higher. With enrollment for Alzheimer's having been completed, the remainder of 2021 looks to be a catalyst-rich year for Anavex.

Now, another reason for shares witnessing over a five-fold rise in the year is also partly due to its prospects in Alzheimer's after the FDA granted Biogen's (NASDAQ: BIIB) accelerated approval for ADUHELM (aducanumab) as the first and only Alzheimer's disease treatment to address a defining pathology of the disease by reducing amyloid beta plaques in the brain.

Now, Alzheimer's disease is one of our biggest challenges for healthcare today as it is a progressive, and the most common cause of primary neurodegenerative dementias. Its global incidence is 47 million, with the U.S. having approximately 5 million of people afflicted. Despite availability of aducanumab, there are still no commercially available therapies to address the cause of the progressive cognitive decline. For this purpose, the FDA provided only an accelerated approval for Biogen, and the company will be required to produce a phase 4 confirmatory trial.

Thus, developing new drugs remains a huge unmet medical need and, with Biogen's drug possibly costing over $56,000 per year for treatment, biotech companies stand to benefit from a $2,600 trillion market (47,000,000 x 56,000). Now, looking at the trailing Price to Book multiples, those like Anavex with a richer developmental pipeline consisting of Alzheimer's, Parkinson and Rett diseases deserve a better valuation, at least two times Cassava's.

Source: Seeking Alpha

Hence, I obtain a target price of $28 taking into consideration the current $25 share price.

Target price for Anavex = (12.81 x 2)/22.71 x 25 = $28.2.

Now, some will have realized that this remains a cautious target for Anavex, considering the 3000% one-year stock price appreciation of its peer and the biotech being near to developing a treatment for Alzheimer's after the completed Parkinson's study also using 2-73.

Finally, as shown by the one and three months price performances, biotechs' stock move along a very volatile path, highly susceptible to news pertaining to clinical trials and equity offerings. In this fluctuating environment, Anavex's display of more disciplined fiscal management is a big positive.