Shares of clinical-stage biotechnology company Anavex Life Sciences (AVXL -1.82%) recently shot higher. Investors reacting to great news for its Alzheimer's disease drug candidate, blarcamesine, drove the stock about 40% higher when the market opened on Friday, Dec. 2.

Unfortunately, the big gain started to fizzle shortly after the market opened. This left investors who were cheering the positive results feeling more than a little confused.

Is Anavex Life Sciences a smart stock to buy now, or will the road ahead be a rocky one full of potholes? Let's start by looking at the results Anavex touted as successful.

Why Anavex stock jumped

Anavex recently reported results from a phase 2b/3 study with early-stage Alzheimer's disease patients and Anavex 2-73. This is an experimental drug that Anavex has been developing for Alzheimer's disease since 2009. 

Patients were randomized into groups that received a high dose of 2-73, a midsized dose, or a placebo. Anavex said the trial met its co-primary endpoints, which were reduction in cognitive decline, as measured by the Alzheimer's disease assessment scale (ADAS) related to cognition, and the ADAS test related to activities of daily living.

At the moment, Alzheimer's disease is robbing cognitive ability from more than 6 million Americans. Aduhelm from Biogen is the only drug approved to arrest the progression of the disease, and it's rife with problems that have severely limited its uptake. With strong demand and no effective treatment options, success for 2-73 could quickly lead to billions in annual sales.

Why Anavex stock didn't jump very high

Anavex's successful results pushed the stock higher, but not nearly as high as you would expect for a company with a potential new Alzheimer's disease drug. The recent rally only pushed the company's market cap up to around $1 billion, which is about half as much as it was worth at its peak last summer.

Biogen's Alzheimer's disease drug development partner, Eisai, was at the same conference as Anavex. Eisai presented successful results from a phase 3 trial with a candidate similar to Aduhelm called lecanemab.

Lecanemab produced results that were a clear success and will more than likely lead to its approval by the end of 2023. Anavex's presentation didn't drive its stock very high because it was a lot less convincing.

There are a lot of ins and outs when it comes to interpreting clinical trials, but the first thing to look for is a clear explanation of how the new drug candidate met its primary endpoints.

Instead of clearly explaining how 2-73 met co-primary endpoints up front, the company made a big deal about how patients treated with the candidate were 84% more likely to have improved cognition scores using an arbitrary scale. Further frustrating biotech analysts, we don't know if the company means 84% of all patients randomized to receive 2-73 or just a handful because the company didn't describe its intent-to-treat population.

Stay on the sidelines

Investors who want to take a chance on Anavex should understand that it's a clinical-stage company. Without any approved products to sell, the company lost $48 million during its fiscal year 2022, which ended in September.

Anavex's market value has risen a whopping 2,840% over the past decade, but its shareholders have only seen the price of their shares go 181% higher. That's because this and most clinical-stage drugmakers tend to fund operations by selling more shares of their own stock.

Anavex will probably ask the FDA to approve 2-73 for the treatment of Alzheimer's disease. Given its problematic phase 3 results, though, it has nearly zero chance of earning approval.

Anavex won't stop with Alzheimer's disease. The company is testing 2-73 as a treatment for a handful of neurological disorders, including Parkinson's disease. Running more trials will increase its cash burn rate, making it harder for long-term investors to realize a positive return. Without a clear path forward, it's probably best to keep your distance from this stock.