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Bull Vs. Bear: Anavex Life Sciences Corp.

By Cory Renauer and Cheryl Swanson - May 23, 2016 at 4:06PM

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Here's the case for, and against, buying Anavex Life Sciences' stock.

Anavex Life Sciences (AVXL 2.90%) a small-cap clinical-stage biotech with an eye on Alzheimer's, has been on a great run over the past year, although fairly volatile since uplisting from the Pink Sheets to the Nasdaq exchange last October. Despite the rollercoaster ride, the stock is still up more than 180% over the past year.

AVXL Chart

Recently, Anavex's stock has been jumpy, and it's currently down more than 25% this year. Does that make right now a good time to get in, or could there be more losses ahead?

To help answer that question, we asked a team of our Motley Fool contributors to put up their best case for, and against, investing in Anavex Life Sciences' stock right now. Read what they have to say before making up your own mind.

The bull case

Cory Renauer: According to the Alzheimer's Association, more than 5 million Americans are living with the disease, at an incredible cost. And I'm not just talking about emotional cost. This year, Alzheimer's and other dementias will cost the nation $236 billion.

Existing drugs only partially alleviate symptoms of the disease. A treatment that could actually slow or stop its progression would be the best-received FDA approval in a generation. It could also become one of the best-selling drugs of all time.

Anavex's lead candidate, 2-73, could be that drug. It's been shown that disruption in the association between endoplasmic reticulum and mitochondria are common in all neurodegenerative diseases. By acting on sigma receptors, 2-73 is thought to restore these associations, making it a potential treatment for Alzheimer's and several other neurological conditions. 

In 2-73's first clinical trial with mild to moderate Alzheimer's patients, it showed some amazing results. After treatment with 2-73, patients showed a significant improvement, compared with their pre-treatment scores, on a working memory test. This might explain how one patient from the trial recently regained her ability to play the piano, and another award-winning artist began painting again.

The company continues to advance its plans to execute a larger phase 2/3 Alzheimer's trial with this drug. If the results are positive, you can expect this stock to go through the roof.

Image source: Anavex Life Sciences.

The bear case

Cheryl Swanson: Anavex's drug 2-73 may actually produce a game-changing Alzheimer's treatment someday. But this biotech requires such a leap of faith, and has such murky financing, that my optimism is limited.

As recently as 2006, Anavex was a registered online photo-processing company called Thrifty Printing. And then, like the flick of a switch, the company conducted a reverse merger and officially changed its name to Anavex Life Sciences on Jan. 25, 2007.

That's a leap of faith I just can't make -- to believe a paradigm-breaking drug for Alzheimer's, a disease that has a 99% failure rate in drug trials, will come from a photo-finishing company that turned into a biotech overnight.

Image source: Alzheimer's Association.

Never mind that deep-pocketed Eli Lilly and Pfizer have all had major late-stage failures in Alzheimer's. More recently, Biogen's aducanumab showed mixed results in a phase 1 trial after raising everyone's hopes with interim data. In fact, a worldwide quest is under way to find new treatments, with a host of companies pursuing solutions in well-funded, large-scale trials. By contrast, when Anavex said it had successfully concluded a drug trial for 2-73 back in December, the trial was a 12-month, 32-patient, single-armed study that didn't include a comparator (placebo) arm.

The drug may succeed yet, but I for one am not convinced that it's chances are good enough to warrant an investment. What about the recently announced orphan-drug designation for another Anavex investigational drug, 3-71? That announcement sent the stock up over 7% in premarket trade in early April.

First, the compound hasn't even been tested in humans yet. Second, the designation applies only to treatment for frontotemporal dementia, representing only about 10% of U.S. dementia patients, or around 50,000 people per year. Third, an orphan-drug designation, just for the record, is a long way from FDA approval, which certainly won't be happening unless this company can acquire funding for research and development.

Speaking of funding, Anavex has another red flag in the lack of buy-in from real venture capital. When an early-stage biotech has compelling science and a good shot at someday commercializing novel drugs, quarter over quarter, you'll typically see a big increase in institutional investing. Where is Anavex in this picture? Institutions own less than 4% of the stock. In short, a reality check is in order.

According to Anavex's latest 10-K filing, since inception, the company has an accumulated deficit of over $63 million, and management expects negative cash flow to continue for the foreseeable future. Anavex has seen astounding gains on its stock, and certainly its success would be terrific news for the Alzheimer's community. But for me, there are substantial doubts this company will ever have a drug on the market.

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