Anavex Life Sciences Corp.'s (NASDAQ:AVXL) media department has been busy lately touting the potential benefits of Alzheimer's disease drugs in its pipeline, but the company's research is in the uber-early stages. So does it make sense to buy stock in this company? Let's take a closer look.
Tapping into a huge market opportunity
There's a massive need for new Alzheimer's disease therapies. There's no cure for Alzheimer's disease, and the patient population is big and growing as baby boomers get older.
In the U.S. alone, an estimated 5.2 million people suffer from the disease, and 7.1 million Americans will be diagnosed with Alzheimer's by 2025, according to the Alzheimer's Association.
Globally, a larger and longer-living population is similarly resulting in rising prevalence of the disease. According to the World Health Organization, there are 7.7 million new cases of dementia diagnosed every year, and the vast majority of those patients (60% to 70%) are diagnosed with Alzheimer's disease.
Because of the sheer size of the patient population, an estimated $604 billion is being spent treating dementia patients worldwide, including $226 billion that's being spent in the United States.
That spending is expected to soar in the coming decades as the global patient population triples. In the U.S., the Alzheimer's Association estimates that a growing population of Alzheimer's disease patients will result in spending more than $1 trillion on American dementia patients by 2050.
However, spending is primarily heading toward palliative care. Of the top 10 leading causes of death among Americans, Alzheimer's disease is the only one that can't be prevented, cured, or slowed.
Is help is on the way?
The market opportunity has captured the attention of drugmakers big and small, and as a result, hundreds of millions of dollars are being spent on Alzheimer's disease research every year. The vast majority of that spending comes from the National Institutes of Health, but big pharmaceutical companies such as Biogen Inc. (NASDAQ:BIIB) are spending a lot of money, too.
Earlier this year, Biogen reported promising phase 1 study results for its Alzheimer's drug, aducanumab/BIIB-037, that were so good the company decided to skip mid-stage studies and advance the drug into a large late-stage study involving more than 1,300 patients.
Biogen's spending dwarfs that of Anavex. According to Anavex's S-1 SEC filing, the company spent just $732,000 on R&D during the fiscal year ending September 2014.
The majority of that spending has gone to developing 2-73, a therapy that targets the sigma-1 receptor that may play a role in various diseases, including opioid addiction, amnesia, pain, and Alzheimer's disease.
Research into the development of sigma-1 agonists stems from studies conducted as early as 2005 showing that they may offer neuroprotective activity against amyloid toxicity, alleviating cognitive deficits and reducing neuronal damage in Alzheimer's patients.
Although sigma-1 is thought to play a role in Alzheimer's disease, the exact cause of Alzheimer's disease remains unknown, and therefore, it's also ultimately unknown whether targeting sigma-1 will prove to be effective at battling the disease.
So far, Anavex's proof that targeting sigma-1 is valid is pretty limited. Last month, the company presented five-week data from a non-placebo controlled phase 2a study involving 32 patients in Australia.
That data showed a 1.5-point improvement in score from baseline on the Mini Mental State Examination. On the surface, any improvement is encouraging. However, the finding is far from definitive, given the small sample size and lack of a placebo control arm. Absent a study like Biogen's that includes a large patient population and a placebo that can disprove any possible placebo effect, investors have to significantly discount Anavex's results.
Anavex also recently reported pre-clinical results for a second Alzheimer's disease drug, 3-71. In that study, 3-71, which targets sigma-1 and the M1 muscarinic acetylcholine receptor (M1R), was shown to reverse synaptic loss in hippocampal neurons in animals. However, while that finding is intriguing, it's far from conclusive, given that the drug has yet to be tested in humans; where most drugs fall short.
Anavex has some intriguing science, but its efforts are limited and in the early stage, and that presents a big problem for investors. Historically, over 90% of drugs fail at some point in human trials, and the track record of success is far worse for drugs addressing Alzheimer's disease.
Additionally, Anavex has little in the way of wiggle room on its balance sheet. It recently moved to the Nasdaq stock exchange from the over-the-counter market to attract more investors, but its cash is limited and its SEC filings detail a significant need for new capital to continue its studies. That means there's likely to be significant dilution to current investors because of future stock offerings.
Because Anavex is an early-development-stage company that lacks a well-heeled partner to split costs and pipeline risk with, and the company has arguably iffy financial backing, this stock is far too risky for me to consider buying it.