Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Anavex Life Sciences has had all the appearances of being one of 2015's big biotech success stories. Its shares surged more than nine-fold for the year through Monday, helped by its listing on Nasdaq, new money it has attracted and some good news it's received about Alzheimer’s treatment candidates.

But on Tuesday, the company disclosed toward the bottom of its 10-K filing that it was subpoenaed on Dec. 22 by the U.S. Securities and Exchange Commission. That indicates an active investigation, which Anavex thinks is related to unusual moves in its share price. The stock fell as much as 21 percent in response. 

The Subpoena Blues
Anavex's shares plunged on its disclosure of an active SEC investigation
Source: Bloomberg
Intraday times are displayed in ET.

It's too early to draw many conclusions from the disclosure, other than the general truth that an SEC subpoena typically isn't great news, and the market doesn't seem to like it (even if the stock's decline is miniscule compared to its gains over the course of the year).

Setting the subpoena aside, though, the biotech stock has attributes that should raise some red flags among investors. Anavex is small-cap ($217 million), with only seven full-time employees and no revenue yet to speak of. It's trying to develop medicines for Alzheimer's disease, a path littered with the corpses of other companies and their disappointing drug candidates (TorreyPines Therapeutics and Satori Pharmacueticals come to mind). Anavex spends minimally on R&D, and has trumpeted arguably questionable early-stage data. It was worth less than $10 million as recently as March. 

So while Tuesday's disclosure may have raised some questions among investors, the bigger issue may be whether Anavex's data and drug candidates back up the company's surge in market value. 

There's no disputing that the market opportunity is huge. Aricept, the best-selling Alzheimer's drug on the market, was doing $4 billion in sales for Pfizer and Eisai before it went off patent. That has likely played a role in the run-up in the company's stock price. Anavex has started phase 2 trials on its most advanced drug candidate (Anavex 2-73) in combination with Aricept. Anavex's story is that it, too, could capture billions in sales for years to come should the drug get approved in combination with Aricept: 

Chasing Aricept
Anavex hopes its drug candidate will be approved in combination with the current best selling Alzheimer's drug, which went off patent in late 2010.
Source: Bloomberg


Of course, approval of any kind is highly uncertain. No disease provokes as much hype and as much disappointment as Alzheimer's. There hasn't been a significant new drug in a decade, and there's reason to be skeptical of Anavex's chances. The company's shares actually fell after a press release where it announced that Anavex 2-73 on its own had succeeded in a phase 2(a) study. That would ordinarily be good news, but it turns out the trial was tiny (32 patients), extremely short (5 weeks), had a small effect and wasn't conducted in a double-blind fashion, making the results almost impossible to interpret, as they just as easily could have been a placebo effect. 

The shares continued their ascent after the company announced it was moving forward with its plans for 2-73 based on FDA guidance, but there's no data at all yet from a large, long, double-blind study. This stage of studies has often been a valley of death for Alzheimer's drugs and companies, because cognitive improvement is so hard to measure or produce. 

The company spends less than a million dollars on R&D most quarters, and running big, long Alzheimer's trials would cost dramatically more over a sustained period of time. 

Light On R&D
In all of 2015, according to its most recent filing, Anavex spent $2.271 million on R&D

Biogen, by contrast, has made a huge bet on Alzheimer's, and expects to spend billions on research and trials in the next several years.

Any improvement in the state of treatment would be wonderful news for patients, and a big moneymaker. But investors may want to remember that Anavex isn't the first tiny biotech to work on early-stage Alzheimer's treatments -- and it has never ended well.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at

To contact the editor responsible for this story:
Beth Williams at