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Markets Are Overlooking The Anavex Life Sciences Corp. (NASDAQ:AVXL) Announcement

Markets Are Overlooking The Anavex Life Sciences Corp. (NASDAQ:AVXL) Announcement
Written by
Chris Sandburg
Published on
January 20, 2017
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Towards the end of last year, we highlighted Anavex Life Sciences Corp. (NASDAQ:AVXL) as being a company to keep an eye on. Prior to our December coverage, we had actually highlighted the company on a couple of occasions, suggesting that market sentiment was overly negative towards Anavex, and that the potential of its pipeline represented an opportunity to get in at a discount ahead of what – to us – looked like what would be an inevitable revaluation.Our primary thesis was that the company had a number of upcoming catalysts in the form of trial initiations, and that each of these represented the potential for a medium-term data stream. As data from these trials rolls out, given the blockbuster potential indications for the drugs in question, we noted that we expect to see some sharp upside momentum, assuming the data comes out positive.The company wants to kick off two trials this year – one phase 2/3 in Alzheimer’s and another, a phase 2, in Rett syndrome. There is also the chance of a phase 2 initiation in Parkinson’s but, as noted previously, we are of the impression that this latter trial is secondary in terms of focus right now, meaning it’s probably resource pivotal.Anavex just put out a press release detailing news surrounding the second of our focus trials, the phase 2 Rett.Here is what the release states, and why it is important for the company.For those new to this one, Anavex's lead asset is called 2-73, and it is a novel mechanism of action (MOA) asset that the company beliefs could be revolutionary in terms of treating central nervous system (CNS) disorders. Basically, it tries to restore damaged cells to a state of homeostasis. In this instance, homeostasis refers to the environment within which, and around which, a cell can function healthily. Rett syndrome is a rare genetic disorder that mostly affects girls, and is usually diagnosed very early on in life (normally between birth and two years). It is a disorder of the gray matter in the brain, and severely impacts the way the brain develops. It used to be associated with autism, but now it is its own class of disease, and – as things stand – there is no cure and very little in the way of treatment.In its most recent announcement, Anavex reported that it had been awarded a grant from Rettsyndrome.org, which should pretty much fully fund the above-mentioned phase 2 trial. The grant, which will add up to $0.6 million to the company's balance sheet, should see the asset funded through to a pivotal study. We don't really need to go into much detail as to why this is a big deal – suffice to say that biotechnology companies, especially at this end of the market, are very much capital sensitive. Phase 2 is where the trials really start to get expensive, and for a company investigating CNS disorders (where trials can be disproportionately expensive to conduct) capital raises are necessary on a regular basis. For shareholders, this is not great, as these raises dilute their exposure. With Rettsyndrome.org stepping in to foot the bill on this one, Anavex shareholders are essentially being let off the hook for what would have been a dilutive raise.The company has run up to the tune of 4% on the release, which we think is a market oversight. The avoidance of dilution alone should be enough to push the gains into double digits, but beyond that, that the company has a fully funded phase 2 trial about to kick off should add equal or further value to the run.Cash on hand is pretty strong right now, reported at $17.3 million as of December 12, compared to $9.2 million at September 30. The company used $9.2 million throughout fiscal 2016, and we expect this will increase to somewhere in the region of $16 or $17 million this year as the assets that comprise its pipeline mature.We will be updating our subscribers as soon as we know more. For the latest updates on AVXL, sign up below!Disclosure: We have no position in AVXL and have not been compensated for this article.

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