Anavex (NASDAQ:AVXL) is one of those companies you either love or hate.
The bulls claim that the Company's drugs have solid potential. The bears cite questionable promotions, a reverse stock split and major shorting as reasons to be skeptical. So what exactly does Anavex do, how have they done, and what is the controversy? Lets look at the issues one at a time.
What Anavex Does
Anavex is a clinical stage pharmaceutical company developing drugs to treat Alzheimer's disease and potentially other central nervous system (NYSE:CNS) diseases.
The Company's drug pipeline includes drugs for the treatment of:
- Alzheimer's disease
- Neuropathic Pain
- Malignant Melanoma
- Prostate Cancer
- Pancreatic Cancer
The Company's Performance
Year end 2015 cash was $15.290 million as compared to year end 2014's $7.262 million. The increase in cash is attributed to severe dilution of the stock related to debt for stock conversions and secondary offerings. December 29, 2015 saw 34.601 million shares of stock outstanding (compared to a post reverse split adjusted 11.800 million shares on September 30, 2014 (per the company annual report).
Anavex has not recorded any revenues so far. The net loss for 2015 was $12.108 million.
As mentioned above, the company exchanged most of their debt for stock this past year. As a result, the current liabilities of the Company for year ended 2015 were $2.661 million compare to 2014's $7.161 million. AVXL has no long term liabilities at year end 2015.
Based on the Company's Proxy report last year, only one executive is listed for Executive compensation via cash. Christopher Missling was paid $240,000 base salary and a $400,000 bonus. This is on the low end of the compensation granted to biopharmaceutical executives. Additional stock awards, option awards and other compensation lifted total compensation to $3.739 million. Unlike the cash compensation, the total compensation is on the high end of compensations granted to biopharmaceutical companies (especially when they have nil revenues). All other executives were granted stock options.
Research & Development Spending
The lifeblood of any biopharmaceutical company is their devotion to R&D spending. On that front, AVXL is doing a marvelous job. Total R&D spending in 2015 was $2.71million compared to $732,000 in 2014. This bodes well for the future, especially given the fact that Wall Street still seems more than willing to buy the Company's secondary offerings to maintain healthy cash balances so far.
Stock Promoting Controversy
Melissa Davis wrote a terrific article describing some of the challenges AVXL faces. The discussion and facts related to this article are quite lengthy and complex. Rather than rehash it all here, I think it is worth it for anyone interested in trading AVXL to read the article.
Hidden inside the Anavex 2015 annual Report released December 29, 2015 the Company reported that the SEC is conducting an investigation into AVXL:
"On December 22, 2015, the Company received a subpoena from the Securities and Exchange Commission (SEC) which indicates that the agency is conducting a formal investigation," Avanex Life Sciences said in its 10-K filing. "The Company believes the subpoena and investigation relate to the recent unusual activity in the market for the Company's shares. The Company is fully cooperating with the SEC in this investigation and is unable to predict when this matter will be resolved or what further action, if any, the SEC may take in connection with it."
Quite often when discussing AVXL the bulls claim that the stock is getting beaten up due to short seller raids. Short interest as of December 31, 2015 as reported by NASD.com and shortsqueeze.com was 2,735,608 shares. That figure represents less than 10% of the shares outstanding and does little to support the claims of the bulls that the shorts are controlling the stock. What is interesting about the claims of the bulls is the fact that given any good news, the shorts would likely cover and artificially support to the stock price. In our opinion that is what cause the large rally in the stock on November 3, 2015 when the stock rallied to $14.84 following the 1:4 reverse split.
As mentioned above, 2015 saw AVXL stock record a 1:4 reverse split. The split was necessary to comply with NASD listing criteria. Post adjusted shares have seen a trading range of $14.84 to $3.16. Friday January 16, 2016 saw Avanex close trading at $4.01. Given the overall market weakness, shares of Anavex did well not to challenge their lows for the year.
Looking at what Anavex did this past year one should be impressed. The company strengthened their balance sheet, maintained NASD listing compliance and continued to heavily invest in R&D spending. On the down side however, the SEC investigation and questions surrounding the questionable claims of one of the Company's main supporters should make investors cautious. Nonetheless, given the current stock price initiating a long position trade at current levels may be a rewarding experience.
Disclaimer: Small capitalization stocks such as Anavex are risky. There is no guarantee that your investment will be safe. There is also a great likelihood that you may lose some or all of your investment. Please do your own due diligence before investing in Anavex or any other investment. Also remember to only initiate trades that are within your pre-defined risk parameters.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.