Anavex Life Sciences AVXL S
July 27, 2016 - 1:54pm EST by
Napoleon
2016 2017
Price: 5.28 EPS 0 0
Shares Out. (in M): 36 P/E 0 0
Market Cap (in $M): 189 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0
Borrow Cost: Tight 15-50% cost

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  • Fraud
 

Description

 Idea:

Anavex is a clinical stage biotech company primarily focused on development of Anavex 2-73, whose most “advanced” indication is for Alzheimer’s, currently underway in its phase IIa trials.  

We do not view Anavex as capable of progressing the compounds currently under development into potential candidates for FDA approval. The Company is most likely not even capable of conducting actual research given their employee count (seven), lack of IP (~5 patents listed issued in Greece with very little correlation to the business), lack of R&D spend (about $5 million over the operating history, most to conduct trials), and de minimis PP&E value ($700 in computer equipment). Instead we view Anavex as a scheme well designed to capture financing from investors to payout management (in excess of R&D spend). Anavex is nothing more than a trading sardine, once buyers realize the sardines do not in fact cure cancer, there will be no value. 

In this write up I will lay out the evidence that proceeds my confidence in this claim and detail why, within the year, Anavex will again be trading at a near zero equity value on the OTC, or even worse suspended as a result of a current SEC investigation underway. 

We think Anavex is a short at these levels because AVXL previously underwent a paid promotion scheme whereby the share price hit $15; since then, investors and sell-side have been irrationally using this number as an anchoring point for valuation. Furthermore, recent articles promoting Anavex online have helped pushed up the share price nearly 60% over the past month, today it is down 30% but it is still worth 0. We do note that other informed investors have come up with the same thesis as ours. We have similarly been following the story for a year now. We only now propose the short given strong upcoming catalysts and timely market movements. Without this setup we would be hesitant to take the other side of large retail buying at a high borrow cost.

 

Background:

The company was founded by Tom Skarpelos, an individual with sparse information online. Looking a little bit more in depth reveals he was the head of IR at Acrongenomics, which is now worthless having had its registration revoked by the SEC

https://www.sec.gov/alj/aljdec/2014/id593cff.pdf

Tom Skarpelos, the founder of Anavex, created the company by conducting a reverse merger through an OTC shell called Thrifty Printing.

In October 2015, the company conducted a 1:4 reverse stock split and was uplisted to the Nasdaq. Around the same, the company underwent a paid promotion scheme (more below).

 

Management: 

Management does not have a core competency in the biotech space. The CEO, Christopher Missling, has a background in investment banking and has previously held numerous head of finance positions at other biotech firms. He was recently a partner at Brimberg & Co, an “investment bank” which in May of 2013 was expelled from membership in FINRA after it failed to pay fines levied after the firm “failed to timely respond to FINRA requests for information and documents” [2]. Per his background, the CEO has a well rounded knowledge space into how to raise capital, but not so much into how to create groundbreaking treatments for previously incurable diseases.

The CEO alone makes $2.5m in full pay, more than the company spent on R&D for FY’15. 

Christopher is highly promotional, appearing numerous times on micro cap investment interviews such as “stock news now,” to talk up the market size of Alzherimer’s Disease and Anavex. 

The CFO, Sandra Boenish, was previously the VP of Finance at Naked Brands, a natorious pump and dump whose once $6bn market cap now sits on the OTC for $10mn. By our accounts Sandra actually resides in Canada; her employment contract with Anavex gives credence to this theory as she is paid in CAD not USD

 

Warning Signs:

While the company was executing a 4:1 reverse split, AVXL was actively pumped by paid promoters across the web sending the share price up to nearly $15. Since then, bulls have been using this number as an anchoring point; we view that in the absence of material advancement in the company’s pipeline (as is the case since the pump) that the anchoring to a $15 price point (made possible only by paid web promoters) is irrational behavior. 

Others have claimed the paid stock promotion was paid for by Anavex itself. This would seemingly be confirmed by the actual promotional email itself (below, prior to uplisting the ticker was AVXLD). This claim has been vehemently declined by the company, so I will leave it up to the reader’s judgment. I will however supply this quote by Warren Buffet: “Honesty is a very expensive gift. Don’t expect it from cheap people”

 

 

 

 

 

The company is plagued by shady characters, among them management, PR firms, financing firms, and corporate partners:

PR: The company has previously used The Primorsis Group,  a notorious “press release” company which has been involved in numerous pump and dumps, such as HiEnergy. 

Financing: Anavex has accessed funding via converts, warrants, and additional share offerings through Lincoln Park Capital – a firm who has a terrible track record and mostly exists to prey on companies in dire need of financing like Anavex. Anavex engaged LPC in a $50M stock purchase deal in which they “gave Lincoln Park Capital Fund 179,598 shares in exchange for Lincoln Park's agreement to purchase up to $50 million of its shares over the next three years” at Anavex’s discretion. 

Partner: In January 2014, the company announced a clinical development partnership with the Roskapm Insititute – a company that was “served with federal criminal subpoenas in 2013 regarding private stock placements, ultimately leading to a 2-year prison sentence" 

In response, the CEO said, “Maybe we didn’t know about it at the time, I guess,” said CEO Missling.

 

Company refuting short sellers:

The CEO responded to allegations that the company paid for stock promotion by saying:

“We are not by any means highly promotional,” adding he would probably have to take legal action against a company “blaming or accusing us.” 

http://www.thestreetsweeper.org/article.html?c=3&i=22215

 

Covering up purported clinicaltrials.gov edit: 

“According to the clinicaltrials.gov changes record, in October 2014 Anavex entered changes switching study design to open-label, reducing the number of arms from 8 to 4, and reducing the number of exclusion criteria from 23 to four, with investigator discretion added,” 

Kristina Capiak, the VP of Regulatory affairs has actually disputed this, blaming an erroneous change by a “new CRO member.”  Oddly she has been very adamant in denying these changes and has posted comments on various forums (such as alzforum.org) claiming the same “new CRO member” as culprit for the changes and has made a similar comment on the clinicaltrials.gov change log.

 

Clinical Trial data (or lack thereof):

 

Flaws in current clinical trials and data represented so far:

 

The main trial data investors is the Anavex 2-73 phase 2a trial readout from January 11, 2016. This trial is inherently flawed as it is an open label. If you give someone a pill and say it is going to help their memory, chances are you will see a slight improvement. Anavex reported that their 2-73 candidate had an 80% probability of achieving a 2 point or higher movement in MMSE score over 5 weeks of treatment. A 5 week period is too short as only in“repeated assessments with 1.5 year intervals [does] change in MMSE of at least 2–4 points indicated a reliable change at the 90% confidence level.”

Furthermore “Small changes in MMSE can be interpreted only with great uncertainty. They have a reasonable probability of being caused by measurement error, regression to the mean or practice.” [1] 

Additionally, we view a major flaw in the phase IIa trial being that n = 32 and the study’s two stage design where all test subjects are evaluated for maximum dosage, but only those who opt in to the program further are tested for cognitive ability.

Dr. Adam Kline, an Alzheimer’s disease research expert who reviewed Anavex 2-73 data said:

"The chance you would have gotten similar data giving the patients 10 cups of coffee a day instead? Almost 100%,"

We do note that a major risk in the short would be investor perception of further clinical trial data which may appear positive (but not statistically valid). 

 

Setup/Catalyst:

Anavex has appreciated 60% in the past month, today it has dropped over 30% on poor data published. Recent market appreciation was only a result of promotion in widely read retail investor publications like Zacks and Motley Fool. Furthermore, for what it’s worth, it appears bots have been posting positive scripted messages across twitter recently.

 

Multiple complaints have been made against the company in the past few months, alleging that the Company failed to disclose that it used a paid stock promoter to artificially inflate the Company’s share price. see: https://www.pacermonitor.com/public/case/11005682/McCambell_v_Missling_et_al or http://securities.stanford.edu/filings-documents/1057/ALSC00_01/20151230_f01c_15CV10162.pdf 

 

On December 22, 2015, the Company received a subpoena from the SEC which indicated that the agency is conducting a formal investigation.

 

Catalyst:

Results from clinical II trial is due October 2016.

Results from Subpeona launched December 2015.

Results from shareholder lawsuits currently underway 

 

[1] http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2095596/

[2] http://brokercheck.finra.org/Report/Download/46832563

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Results from clinical II trial is due October 2016.

Results from Subpeona launched December 2015.

Results from shareholder lawsuits currently underway  

    sort by    

    Description

     Idea:

    Anavex is a clinical stage biotech company primarily focused on development of Anavex 2-73, whose most “advanced” indication is for Alzheimer’s, currently underway in its phase IIa trials.  

    We do not view Anavex as capable of progressing the compounds currently under development into potential candidates for FDA approval. The Company is most likely not even capable of conducting actual research given their employee count (seven), lack of IP (~5 patents listed issued in Greece with very little correlation to the business), lack of R&D spend (about $5 million over the operating history, most to conduct trials), and de minimis PP&E value ($700 in computer equipment). Instead we view Anavex as a scheme well designed to capture financing from investors to payout management (in excess of R&D spend). Anavex is nothing more than a trading sardine, once buyers realize the sardines do not in fact cure cancer, there will be no value. 

    In this write up I will lay out the evidence that proceeds my confidence in this claim and detail why, within the year, Anavex will again be trading at a near zero equity value on the OTC, or even worse suspended as a result of a current SEC investigation underway. 

    We think Anavex is a short at these levels because AVXL previously underwent a paid promotion scheme whereby the share price hit $15; since then, investors and sell-side have been irrationally using this number as an anchoring point for valuation. Furthermore, recent articles promoting Anavex online have helped pushed up the share price nearly 60% over the past month, today it is down 30% but it is still worth 0. We do note that other informed investors have come up with the same thesis as ours. We have similarly been following the story for a year now. We only now propose the short given strong upcoming catalysts and timely market movements. Without this setup we would be hesitant to take the other side of large retail buying at a high borrow cost.

     

    Background:

    The company was founded by Tom Skarpelos, an individual with sparse information online. Looking a little bit more in depth reveals he was the head of IR at Acrongenomics, which is now worthless having had its registration revoked by the SEC

    https://www.sec.gov/alj/aljdec/2014/id593cff.pdf

    Tom Skarpelos, the founder of Anavex, created the company by conducting a reverse merger through an OTC shell called Thrifty Printing.

    In October 2015, the company conducted a 1:4 reverse stock split and was uplisted to the Nasdaq. Around the same, the company underwent a paid promotion scheme (more below).

     

    Management: 

    Management does not have a core competency in the biotech space. The CEO, Christopher Missling, has a background in investment banking and has previously held numerous head of finance positions at other biotech firms. He was recently a partner at Brimberg & Co, an “investment bank” which in May of 2013 was expelled from membership in FINRA after it failed to pay fines levied after the firm “failed to timely respond to FINRA requests for information and documents” [2]. Per his background, the CEO has a well rounded knowledge space into how to raise capital, but not so much into how to create groundbreaking treatments for previously incurable diseases.

    The CEO alone makes $2.5m in full pay, more than the company spent on R&D for FY’15. 

    Christopher is highly promotional, appearing numerous times on micro cap investment interviews such as “stock news now,” to talk up the market size of Alzherimer’s Disease and Anavex. 

    The CFO, Sandra Boenish, was previously the VP of Finance at Naked Brands, a natorious pump and dump whose once $6bn market cap now sits on the OTC for $10mn. By our accounts Sandra actually resides in Canada; her employment contract with Anavex gives credence to this theory as she is paid in CAD not USD

     

    Warning Signs:

    While the company was executing a 4:1 reverse split, AVXL was actively pumped by paid promoters across the web sending the share price up to nearly $15. Since then, bulls have been using this number as an anchoring point; we view that in the absence of material advancement in the company’s pipeline (as is the case since the pump) that the anchoring to a $15 price point (made possible only by paid web promoters) is irrational behavior. 

    Others have claimed the paid stock promotion was paid for by Anavex itself. This would seemingly be confirmed by the actual promotional email itself (below, prior to uplisting the ticker was AVXLD). This claim has been vehemently declined by the company, so I will leave it up to the reader’s judgment. I will however supply this quote by Warren Buffet: “Honesty is a very expensive gift. Don’t expect it from cheap people”

     

     

     

     

     

    The company is plagued by shady characters, among them management, PR firms, financing firms, and corporate partners:

    PR: The company has previously used The Primorsis Group,  a notorious “press release” company which has been involved in numerous pump and dumps, such as HiEnergy. 

    Financing: Anavex has accessed funding via converts, warrants, and additional share offerings through Lincoln Park Capital – a firm who has a terrible track record and mostly exists to prey on companies in dire need of financing like Anavex. Anavex engaged LPC in a $50M stock purchase deal in which they “gave Lincoln Park Capital Fund 179,598 shares in exchange for Lincoln Park's agreement to purchase up to $50 million of its shares over the next three years” at Anavex’s discretion. 

    Partner: In January 2014, the company announced a clinical development partnership with the Roskapm Insititute – a company that was “served with federal criminal subpoenas in 2013 regarding private stock placements, ultimately leading to a 2-year prison sentence" 

    In response, the CEO said, “Maybe we didn’t know about it at the time, I guess,” said CEO Missling.

     

    Company refuting short sellers:

    The CEO responded to allegations that the company paid for stock promotion by saying:

    “We are not by any means highly promotional,” adding he would probably have to take legal action against a company “blaming or accusing us.” 

    http://www.thestreetsweeper.org/article.html?c=3&i=22215

     

    Covering up purported clinicaltrials.gov edit: 

    “According to the clinicaltrials.gov changes record, in October 2014 Anavex entered changes switching study design to open-label, reducing the number of arms from 8 to 4, and reducing the number of exclusion criteria from 23 to four, with investigator discretion added,” 

    Kristina Capiak, the VP of Regulatory affairs has actually disputed this, blaming an erroneous change by a “new CRO member.”  Oddly she has been very adamant in denying these changes and has posted comments on various forums (such as alzforum.org) claiming the same “new CRO member” as culprit for the changes and has made a similar comment on the clinicaltrials.gov change log.

     

    Clinical Trial data (or lack thereof):

     

    Flaws in current clinical trials and data represented so far:

     

    The main trial data investors is the Anavex 2-73 phase 2a trial readout from January 11, 2016. This trial is inherently flawed as it is an open label. If you give someone a pill and say it is going to help their memory, chances are you will see a slight improvement. Anavex reported that their 2-73 candidate had an 80% probability of achieving a 2 point or higher movement in MMSE score over 5 weeks of treatment. A 5 week period is too short as only in“repeated assessments with 1.5 year intervals [does] change in MMSE of at least 2–4 points indicated a reliable change at the 90% confidence level.”

    Furthermore “Small changes in MMSE can be interpreted only with great uncertainty. They have a reasonable probability of being caused by measurement error, regression to the mean or practice.” [1] 

    Additionally, we view a major flaw in the phase IIa trial being that n = 32 and the study’s two stage design where all test subjects are evaluated for maximum dosage, but only those who opt in to the program further are tested for cognitive ability.

    Dr. Adam Kline, an Alzheimer’s disease research expert who reviewed Anavex 2-73 data said:

    "The chance you would have gotten similar data giving the patients 10 cups of coffee a day instead? Almost 100%,"

    We do note that a major risk in the short would be investor perception of further clinical trial data which may appear positive (but not statistically valid). 

     

    Setup/Catalyst:

    Anavex has appreciated 60% in the past month, today it has dropped over 30% on poor data published. Recent market appreciation was only a result of promotion in widely read retail investor publications like Zacks and Motley Fool. Furthermore, for what it’s worth, it appears bots have been posting positive scripted messages across twitter recently.

     

    Multiple complaints have been made against the company in the past few months, alleging that the Company failed to disclose that it used a paid stock promoter to artificially inflate the Company’s share price. see: https://www.pacermonitor.com/public/case/11005682/McCambell_v_Missling_et_al or http://securities.stanford.edu/filings-documents/1057/ALSC00_01/20151230_f01c_15CV10162.pdf 

     

    On December 22, 2015, the Company received a subpoena from the SEC which indicated that the agency is conducting a formal investigation.

     

    Catalyst:

    Results from clinical II trial is due October 2016.

    Results from Subpeona launched December 2015.

    Results from shareholder lawsuits currently underway 

     

    [1] http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2095596/

    [2] http://brokercheck.finra.org/Report/Download/46832563

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Results from clinical II trial is due October 2016.

    Results from Subpeona launched December 2015.

    Results from shareholder lawsuits currently underway  

    Messages


    SubjectAdam Feuerstein on avxl
    Entry07/27/2016 02:50 PM
    Memberjm671

    https://www.thestreet.com/story/13654593/1/anavex-alzheimer-s-drug-plays-losing-game-against-the-placebo-effect.html


    SubjectRe: Adam Feuerstein on avxl
    Entry07/28/2016 09:01 PM
    MemberNapoleon

    We agree completely with what is said in the article. Just to note, the clinical trial seems to be designed for deciet; this time around at least investors took note of the erroneous trial design leading to high placebo effects. 


    SubjectRe: Re: Adam Feuerstein on avxl
    Entry07/29/2016 05:34 AM
    Memberjm671

    While you put it at end of your write up I believe the fact that the SEC investigation is Formal and the co was subpoenaed is critical and reflects the severity of the situation.  Also I don't believe you mentioned valuation but the stock is trDing at 10x cash and the stock is still up over the last 12 months so I believe there's plenty more downside left. 


    SubjectRe: Author Exit Recommendation
    Entry08/11/2016 06:33 PM
    MemberNapoleon

    SEC investigation catalyst did not play out, but retail investor base has mostly exited since reccomendation, will possibly look to re-etner, still comfortable being short here but not comfortable paying such a high borrow cost at these price levels.


    SubjectRe: Re: Author Exit Recommendation
    Entry08/12/2016 01:04 PM
    Memberjm671

    Thanks for your write up.  we had previously mentioned our short thesis on avxl.  The sec  investigation, to us, wasnt a huge catalyst in inititiating our short.  also, as you can see by the short interest, the interest didnt change much after the investigation was first announced.  The thesis that attracted us was that we thought it was an overvalued stock with a product that wasn't any good as evidenced by the lack of institional/strategic investors, and  a company that needs cash.  We took some $ off the table recently but are shorting a lot today.   


    Subjectavxl offering
    Entry09/07/2016 08:29 AM
    Memberjm671

    avxl's s3 is now effective so the company can begin its value offering with Lincoln Park.  We believe the company desperately needs cash becasue, in addition to its cash burn and current liabilities, it also has a $5mm debt listed on its b/s at $345k.  


    SubjectRe: avxl offering
    Entry09/13/2016 07:54 PM
    MemberNapoleon

    jm671, definitely a large amount of dilution coming and definitely working for the short today. 


    SubjectIs this remotely material?
    Entry09/28/2016 10:13 AM
    Membermack885

    Any thoughts on the vague release from AVXL causing a 50% squeeze?  It's not a licensing deal.  No terms are discussed. For all we know, AVXL could be paying Biogen to run the test.    

     

    NEW YORK, NY, September 28, 2016 – Anavex Life Sciences Corp. (“Anavex” or the “Company”) (Nasdaq: AVXL), a clinical-stage biopharmaceutical company developing differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including Alzheimer’s disease, other central nervous system (CNS) diseases, pain and various types of cancer, today announced that it has signed a material transfer agreement with Biogen (Cambridge, MA) under which Biogen will test Anavex’s lead drug candidate, ANAVEX 2-73 in an oligodendrocyte precursor cell (OPC) differentiation assay. A satisfactory result from the OPC assay study may lead to an in vivo remyelination study using a chemical demyelination model.

    “Battling demyelinating diseases such as multiple sclerosis requires an understanding of the processes that cause remyelination to fail.  Remyelination of demyelinated axons is typically a function of oligodendrocyte precursor cells. These studies will examine the therapeutic role ANAVEX 2-73 may play in permitting remyelination in the brain,” said Christopher U. Missling, PhD, President and Chief Executive Officer of Anavex.


    SubjectRe: Is this remotely material?
    Entry09/28/2016 10:27 AM
    Memberjm671

    It is our understanding that avxl is indeed paying Biogen to run the test, as do many other companies.  THis is not the first time the company has put out a press release we find to be "questionable" shall we say.  We also note the company is in the process of doing what is usually an aweful equity raise thru a firm called Lincoln park  which then dumps the shares on retail ivnestors with a built in profit.  Insiders also earlier this week awarded themselves signficant options at around $2.85 which  might explalain the timing of the news.   


    SubjectRe: Re: Is this remotely material?
    Entry09/28/2016 10:34 AM
    MemberNapoleon

    Agreed – not material and just musings from their PR machine in order to issue shares at a more amicable share price. We sold the front month $5 strike calls on the news and expect a fade. 

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