Monday, May 18, 2015

How much is Anavex Life Sciences (AVXL) worth?

In my opinion, the value of Anavex stock depends on the upcoming results of the phase 2a  clinical drug trial of Anavex 273 which is currently underway. The preliminary results are scheduled to be released in the 3rd quarter of 2015 (July-Sept.). If that news shows it is at least marginally effective against Alzheimer's (and by extension, against Mild Cognitive Impairment), then Anavex stock will be worth a lot. If that news shows it is ineffective, it will be worth very little.

I have Mild Cognitive Impairment, which may be an early stage of Alzheimer's, and there are no effective drugs for MCI or Alzheimer's. I noticed I have not been posting on this blog, but on Facebook, but since I noticed that, I decided to also put this here so perhaps more people can see it. DISCLAIMER: I own a bunch of Anavex stock, although I hope Anavex 273 works well more for my brain than for my portfolio.

Anavex Life Sciences is still in an initial research stage, meaning it has no products yet, and no revenue. That means a lot of traditional means of valuating a company won't work. For example, you can't apply a "times-earnings" formula, because they have no earnings. There are many ways to estimate a company's value, however, and here is what I came up for Anavex with a few years ago. This is based on Avavex 273 being effective, because if it is ineffective, it will be worth near zero.

Estimate the number of patients who could benefit from Anavex 273 before its patents expire, estimate the lifetime retail value per patient, and multiply those to get an estimate of the total retail value of Anavex 273. Estimate a profit percentage to remove the costs of manufacturing, distribution, marketing, etc. and multiply it by the total retail value to estimate the company value. This value is based on  Anavex 273 (and the Anavex 273 Plus variant) only, and does not include the other sigma receptor drug candidates the company has in development because they are not as far along in the development process. You can estimate the value per share simply by dividing the estimated company value by the number of shares, but the share should include exercisable options, warrants, and convertible debt, not just the current float or outstanding shares.

Here are some estimates I came up with a long time ago:

Number of U.S. Patients, Alzheimers only 14,000,000
Lifetime Value Per Patient, retail, A-273 only $10,000
Retail Value $140,000,000,000
Profit Percentage 20%
Company Value, A-273 for Alzheimers only $28,000,000,000
Outstanding Shares (if all are exercised) 116,400,000
Value Per Outstanding Share, A-273-Alz only $241

Substitute your own estimates and see your own what-if analysis. My notes say my estimates are for U.S. Alzheimer's patients only because that was the only reliable numbers I could find. There are many millions more worldwide with Alzheimer's and others with Mild Cognitive Impairment, but those numbers are much harder to track down or estimate. My lifetime value per patient estimate is based on an initial therapy  period followed by a permanent maintenance dose. I have a vague recollection that someone told me my profit percentage estimate may be quite low -- but I am not a stock analyst and I am not an expert in the pharmaceutical industry. My total for outstanding shares was calculated a long time ago, and in the most recent meeting-in-lieu-of-an-annual-shareholders-meeting, shareholders authorized Anavex to issue more shares, and I have not reexamined their SEC filings to update an accurate count.

As of this writing, Avavex is still trading below half a dollar per share. Its price between now and the phase 2a trial results are anyone's guess, because the stock market is an auction, after all, so it is subject to issues of awareness, emotions, and estimates on the likelihood of success in the phase 2a trail. If the trial is successful, there should be lots of articles about it, which can dramatically increase awareness of the stock and increase positive emotions about it, leading fewer people to sell and more people to buy, which is the standard recipe for dramatic increases in stock prices. Based on my estimates above, there is a lot up upward potential.

If my estimate of potential company value seems unrealistic when compared to profitable, long-established pharmaceutical companies, perhaps I have made gross errors in my estimates. An alternative is that the potential for Avavex is just that good because of the huge number of potential patients, the death-sentence severity of the disease, and the current lack of any drug competitors.

I am very optimistic about the prospects for Anavex 273 being successful, but my notes on my study of that issue are incomplete. My expectations are irrelevant, however, because the results to be announced next quarter will supersede any analysis I performed in the past. Anavex Life Sciences is traded on OTC-QX, which is the relatively new high-requirement over-the-counter board. Anavex management and reporting is NASDAQ-ready, in my opinion, once they have a product on the market and have revenue that meets the threshold for NASDAQ. The last few months, liquidity of Anavex on OTC has not been an issue because it has become one of the more popular stocks on OTC. My biggest surprise is that with the recent increase in popularity, that so many people are still willing to sell shares. I guess if you bought at twenty cents and sell at forty, you're satisfied to have doubled your money, right? If the phase 2a results are bad, then I guess they made a good choice, but otherwise I don't think their satisfaction will last if the stock price goes into tens or hundreds of dollars per share.

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