Anavex Stock: Despite Positive Spin, No Clarity On Anomalies (NASDAQ:AVXL)

Although the company posted “positive” topline data from the phase 2b/3 trial of ANAVEX2-73 or blarcamesine, Cantor Fitzgerald analyst Charles Duncan downgraded Anavex Life Sciences Corp. (NASDAQ:AVXL) to Neutral from Overweight with a price target of $11, down from $16 they had earlier before the data readout. Charles Duncan cited the choice of statistical analyses and other trial design/conduct “complexifiers” as reasons for the downgrade, despite data that was “provocative, but not yet compelling.” The analyst also cites safety signals that may have implications for AVXL’s entire platform.

Given the enthusiasm surrounding the trial data and the persistent criticism of the company from some quarters, it is important to understand these statements from Mr. Duncan. But first, a very brief background to Anavex, to the data, and the data itself.

Anavex is a smallcap biopharma developing a non-amyloid targeting molecule targeting Alzheimer’s Disease and a few related indications. ANAVEX2-73 is a mixed ligand for sigma1/muscarinic receptors, which impact a number of cellular and physiological pathways. Among non-amyloid targeting AD molecules, ANAVEX2-73 is the most advanced. In 2022, the company published data from two indications, Rett Syndrome in adult patients, and Alzheimer’s Disease.

Both data readouts have been met with, on the one hand, high exuberance, and on the other hand, stringent criticism. In my May article, I discussed some of the criticism surrounding the Rett trial. The central criticism was that a few weeks before the data readout, Anavex changed the endpoints of the trial, “allowing it to claim success where the drug most likely failed,” according to Adam Feuerstein. In that article, I analyzed their entry on the official registry for the Avatar trial, and showed that there’s some credence to the CEO’s statement that the changes were done much earlier than they have been accused of. That is to say, changing an endpoint after data has been read and shown to have not met the endpoint – that is a bad thing; but many trials are forced to change endpoints midway for entirely benign reasons, and one of the indications of the reason being benign is that data hasn’t been unblinded yet. In that article, I showed that this might be the case for Anavex, hence the criticism has no foundation.

Apart from the criticism of timing, the endpoint itself was criticized as being less foolproof than the earlier ones. Earlier, it used to be the Rett Syndrome Behavior Questionnaire (RSBQ), but this was changed to Rett Syndrome Behavior Questionnaire (RSBQ) area under the curve (AUC) response. Anavex claimed this was done following necessary guidelines. They also say that the AUC analysis is more relevant.

ACADIA Pharmaceuticals Inc.’s (ACAD) trofinetide also posted positive Rett Syndrome data in December. This trial, known as LAVENDER, used the more traditional RSBQ score from baseline as the primary endpoint. Both molecules have the same fast-track designation, orphan drug designation, and rare pediatric disease designation from the FDA, so if the FDA does not require an additional trial from AVXL to clarify the endpoint change, then both molecules will arrive at the market nearly simultaneously. If, on the other hand, AVXL gets delayed, it will lose a major advantage.

Coming to the Alzheimer’s data, this was released on December 2. Although the data – read it here – met plenty of endpoints and can be broadly construed as excellent, it was met with considerable criticism. Key highlights of the data, per the company:

• Robust, Statistically Significant and Clinically Meaningful Absolute Improvement in Cognitive Function as Measured by ADAS-Cog and ADCS-ADL

• Key Secondary Endpoint CDR-SB Also Met, Demonstrating Statistically Significant Results

Seeking Alpha author C.C. Abbott does a thorough job of making us understand the criticisms. I will keep it simple. Apparently, AVXL’s trial data presentation is full of errors, and these errors may change the positive conclusion they have drawn. First, there are random and small changes to the patient baseline data from slide to slide, however these changes can cascade into something that may impact the p-values. Second, there are basic math errors, simple errors in subtracting one number from another. Third, there are missing patient data, 9 in placebo arm and 37 in drug arm who are not accounted for. I recommend you to read Dr Abbott’s article if you want the scientific details. There are other, more tendentious criticisms – like whether they presented certain endpoint data and so on – which can have differing interpretations. However, these few are obvious errors, once pointed out.

Did the company address these issues in a later update? Such errors may happen in the natural course of things, and may not indicate, as lawyers would say, “intent.” They could become glaring for a company facing as much scrutiny as Anavex does. However, if they address these satisfactorily, at least the scientific community will tend to forgive and forget. According to Dr Abbott, though, in a conference call 3 days later, the company did not address any of these questions.

A second article by Harrier Capital contains responses from Anavex to a set of very complex, interesting scientific criticisms of the data. I will tell you frankly – it is not impossible to follow the discussion, but it is unnecessary. There are 8 to 10 issues that people have pointed out. The company may be able to explain 7 of them, but the other 3, they can neither explain, nor explain away. The FDA will take a hard look at this data, and they will have the same problem intelligent lay investors are having. At the end of their article, Harrier Capital lists some questions that Anavex did not answer. A few of these will be among those 3 that cannot be explained away.

Note I have intentionally ignored two bullish articles on Anavex written during this time. While I am aware of, and respect, Mr. Lane Simonian’s work, I have not taken it into consideration because I know I am not looking for explanations from anyone outside the company. These are major criticisms, and I will only accept their responses if published in a peer-reviewed journal or setting.

So have they presented anything like that? I don’t think so; the only thing they have is a presentation at JPM scheduled for today, Jan 12. I may update this article with anything they say there that is relevant. But in the more than one month since their data drop, they have really not presented anything explaining the found anomalies.

Financials

AVXL has a market cap of $810mn and a cash balance of $149mn. Their research and development expenses for the previous quarter were $11.4 million, while general and administrative expenses were $3.9 million. Good to see they are able to keep expenses this low while conducting a full scale Alzheimer’s trial. This gives them a runway of nearly 10 quarters.

Bottomline

Recently, Raghu Selvaraju of HC Wainwright maintained a buy rating for AVXL while raising the price target to $50 from $42. Current price is $10.8. Mr. Selvaraju seems very confident, but then I don’t have the luxury of lowering my PT or, worse, my rating after bad news comes in.

Anavex Life Sciences Corp. has always been a trading stock in my opinion. The extreme noise surrounding the company demotivates any long-term investor from taking a strong position. If they succeed with their molecule – they might well do so – this will be a lost opportunity, but one I will not regret, given the frenzy.