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After reporting that the FDA has awarded its preclinical drug 3-71 for the treatment of frontotemporal dementia, shares in Anavex Life Sciences Corp. soared 11% higher. Does the potential for 3-71 make this company one investors can buy?
Tough targetAnavex Life Sciences is a clinical-stage biotech working on therapies that target neurodegenerative diseases. Its most advanced drug is 2-73, a therapy that targets sigma-1 and muscarinic receptors that are thought to play a role in Alzheimer's disease. However, "thought" is the key word for investors to focus on.
Alzheimer's disease is a notoriously tough-to-treat disease, and the cause of it has so far eluded researchers. It is commonly believed that a buildup in amyloid plaques that interfere with the signaling between brain cells is the culprit, but attempts to break down those plaques and reverse the effects of this disease have been hit-and-miss.
Anavex Life Sciences is studying 2-73 in a phase 2a dosing study, from which it has been releasing data in dribs and drabs that has investors hopeful that this therapy could eventual improve upon patient care.
Recently, findings from an ongoing phase 2a study of 2-73 seemed to suggest that patients receiving 2-73 were improving, at least in terms of showing a positive dose depending slope that's consistent with improvement on a commonly used Alzheimer's assessment scale known as MMSE.
However, the results come from a trial involving only 32 patients, and that's hardly a big enough patient pool to draw any broad based conclusions. The company hopes to conduct a larger, placebo-controlled, phase 2/3 that could prove 2-73's efficacy, but it's yet to start enrolling patients in that study and results from it could be years away.
Therefore, investors hoping that 2-73 could lead to commercialization and revenue that could be used to develop 3-71 probably should change their thinking. Instead, any money that could usher along 3-71 trials will likely come from dilutive share offerings to investors.
Investors who might be considering this company based on news that 3-71 has received orphan designation from the FDA might want to think twice, too. The FDA designation doesn't tell us anything about 3-71, its efficacy, or its safety. The only thing it tells investors is that frontotemporal dementia isn't very common. Orphan-drug designation is awarded to therapies that treat patient populations smaller than 200,000 people in the United States.In fact, fewer than 60,000 people are believed to have this condition in the United States.
Looking aheadAnavex Life Sciences recently reported that 3-71 offered up some encouraging results in rats, but it's yet to launch any study of it in humans. In fact, the company's phase 2a 2-73 trial is the only one listed on clinicaltrials.gov.
That's not too encouraging, especially considering that Anavex Life Sciences' balance sheet isn't all that healthy. Exiting its most recent quarter, it had just $13.8 million in cash on its books and it was spending about $4.5 million per quarter on operating expenses. That's not a very big cash cushion, especially when we consider that those expenses are going to climb substantially if the company moves 3-71 into human trials or begins enrolling patients in a 2-73 phase 2/3 study.
Overall, given how far out any data may be on 3-71 in humans, investors are probably better off looking at other companies with drugs in more advanced studies and more rock-solid financials than this one.
The article Does 3-71 Make Anavex Life Sciences a Buy? originally appeared on Fool.com.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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