We Called The Anavex Life Sciences Corp. (NASDAQ:AVXL) Bounce: What's Next?

Back on August 15, we published this piece detailing our thoughts on Anavex Life Sciences Corp. (NASDAQ:AVXL).At the time, the company was staging something of a bounce having taken a pretty substantial hit during the months prior to our highlighting it. Specifically, Anavex had fallen from June highs in and around $6.20 a share to lows on August 9 at $3.40.During the period, which amounted to a more than 45% depreciation for Anavex, the company had put out no real fresh news (outside of some third-quarter offerings that didn't throw up any surprises) and we opined that the decline was based purely on short pressure and a number of misinformed, but widely read, analyses pertaining to the company's so-called failure points. AVXL Daily ChartOur thesis was simple – Anavex was undervalued before it started to decline (so, at the above-mentioned six dollar highs) and that, as such, the 45% depreciation represented a nice opportunity to pick up an exposure at discount. We noted that the balance we were seeing might represent the start of a longer-term turnaround for the stock and that – at that price – now could be the time to enter on a recovery play.As it turns out, we were pretty much spot on.The company has risen 43% from lows and 27% from the point at which we put forward our recovery play thesis to trade at current prices of $4.90 a share.So where do things go from here?We think this company is just getting started. Regular readers will know that we have long been fans of Anavex and, specifically, its lead development asset – a drug called Anavex 2-73. Anybody wanting to catch up on our previous coverage can do so at this link.For those not wanting to click away, the asset is (primarily) targeting Alzheimer's disease – a very tough to treat condition and one for which there are basically no effective therapies on the market today – data so far has suggested that the drug can be both safe and effective in late stage forms of the condition, which are even harder to treat than early onset versions.To touch briefly on the science, the drug differentiates itself from the spate of development stage Alzheimer's assets that have tried and failed before it in that it seeks to potentially modify Alzheimer’s disease rather than temporarily address its symptoms. The candidate restores (or at least, this is the hypothesis) cellular homeostasis by targeting sigma-1 and muscarinic receptors.If it can be shown to be effective in an Alzheimer's indication, then there is a good chance that it will also prove effective in other neurological conditions, things like Parkinson's disease and Rett's syndrome. Unsurprisingly, these two conditions are close second and third in the company's development pipeline right now.Jumping back to Alzheimer's, however, management expects to initiate a phase 2b/3 study investigating Anavex 2-73 in late stage Alzheimer's patients at some point before the end of 2017. The trial comes off the back of a successful phase 2a study and, theoretically at least, could serve to underpin a registration application in the US if the data comes out indicative of efficacy.Keep in mind that this is Alzheimer's we are talking about, so the odds are stacked against Anavex and its 2-73 asset in the sense that new Alzheimer's treatments are few and far between over the last 30 years.With that said, however, promising early-stage data has drawn a wide amount of speculative attention towards the stock and, assuming the company can get the trials completed without having dilute shareholders too much, this one could be a real blockbuster play.Cash on hand at June 30 was $24.8 million, meaning at current burn the company's runway is somewhere between 18-24 months.Here's our previous coverage of AVXLWe will be updating our subscribers as soon as we know more. For the latest updates on AVXL, sign up below!Image courtesy of Tim Brauhn via FlickrDisclosure: We have no position in AVXL and have not been compensated for this article.