Equity Research Kumaraguru Raja, PhD, Vice President, Biotechnology Research (212)

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1 Feb 06, 2017 Healthcare NCM AVXL Buy Initiation Current Price $5.10 Target Price $16.00 Market Capitalization M Shares Outstanding 39.61M Float 37.28M Institutional Holdings 11.68% 12-month Low/High $2.43/$8.30 Average 90-day Volume 765,300 Fiscal Year End Sep 30 Revenues ($ MIL) Period E Q1 Anavex Life Sciences Targeting the Sigma-1 Receptor to Treat Neurological Diseases Unique approach to treat neurological diseases. The sigma-1 receptor plays an important role in calcium homeostasis and modulates signal transduction in the junction of ER and mitochondria. Selective pharmacological agonism of the sigma-1 and muscarinic receptors is expected to activate neuroprotective pathway and amplify it, has significant therapeutic potential ANAVEX 2-73 has potential in neurological diseases. ANAVEX 2-73 is a aminotetrahydrofuran derivative, and is a mixed sigma-1 and muscarinic receptor agonist with moderate affinity. ANAVEX 2-73 has shown promising therapeutic effects in human and mouse models of diseases like Alzheimer's, Parkinson's, Rett syndrome, and others ANAVEX 2-73 Phase 2a data promising. The Phase 2a trial was designed primarily for safety, tolerability, bioavailability and exploratory dose finding. In the small, open label trial in mild to moderate Alzheimer's patients, where most patients have not received optimal dose, ANAVEX 2-73 has maintained cognitive and quality of life score close to baseline at week 57 ANAVEX 2-73 potential in multiple indications. ANAVEX 2-73 provides a novel approach to target neurological diseases and has advantages over treatments targeting amyloid and Tau. Pre-clinical data in animal models suggests that it might have potential in multiple indications Grant signifies unmet need in Rett syndrome and ANAVEX 2-73 potential. Anavex has received a grant from the International Rett Syndrome Foundation for at least $600,000, based on promising animal data. This grant is expected to cover most of the cost of the planned Phase 2 clinical trial of ANAVEX 2-73 in Rett syndrome Equity Research Kumaraguru Raja, PhD, Vice President, Biotechnology Research (212) kraja@noblelsp.com Q2 Q3 Q E EPS ($) Period E Q1 (0.12) (0.11)E Q2 (0.06) (0.10)E Q3 (0.06) (0.11)E Q4 (0.18) (0.12)E (0.42) (0.45)E Noble Life Science Partners Trading: (561) Sales: (561) Refer to the last two pages for Analyst Certification & Disclosures Page: 1 of 53

2 Table of Contents 1. Key Investment Considerations 2. Investment Risks 3. Pipeline 4. Upcoming Milestones 5. Targeting the sigma-1 receptor i. The sigma-1 protein plays an important role in calcium homeostasis ii. The sigma-1 protein modulates signal transduction in the junction of ER and mitochondria iii. Mitochondria dysfunction may play a role in neurological diseases iv. Role of the sigma-1 receptor in neurological diseases v. Targeting the sigma-1 receptors in neurological diseases 6. Characteristics of ANAVEX 2-73 i. Overview ii. Anavex Plus 7. Potential Mechanism of Action of ANAVEX 2-73 i. Overview ii. Pluripotent modulator multiple functionalities of the sigma-1 receptor iii. Muscarinic receptors iv. CNS diseases associated with the sigma-1 receptor 8. Alzheimer s Disease Program i. Overview of Alzheimer's disease ii. Prevalence- The Statistics Behind the Disease iii. Mortality Page: 2 of 53

3 iv. Brain changes associated with Alzheimer s v. Treatment of Alzheimer s vi. Competitive Landscape for Alzheimer s Drugs vii. ANAVEX 2-73 comparison with other drugs in development viii. ANAVEX 2-73 in Alzheimer's disease ix. ANAVEX 2-73 Phase 1 data- Alzheimer s x. ANAVEX 2-73 Phase 2a is a safety and exploratory dose finding clinical trial 9. Rett Syndrome Program i. Overview ii. Rett Syndrome (Epidemiology) iii. Standard of Care iv. Endpoints for a Rett Syndrome clinical trial v. Drug development and the timeline and efficacy and safety profiles vi. Upcoming Phase 2 Trial of ANAVEX Programs in Preclinical Development i. Parkinson's Disease ii. Partnership Michael J. Fox Foundation iii. Multiple Sclerosis A crippling, long-lasting disease iv. Anavex and Biogen material transfer agreement 11. References 12. Valuation & Financials Page: 3 of 53

4 1. Key Investment Considerations Significant unmet need in Alzheimer s disease for disease modifying therapies: Approved therapies for Alzheimer's manage the symptoms of the disease and do not alter or slow the disease's progression. Therapies under development for Alzheimer's focusing on individual components of Alzheimer's complex pathophysiology. There is significant unmet need for disease modifying therapies which potentially slow or reverse the disease progression. Anavex focuses on restoring cellular homeostasis: Alzheimer's is a complex disease potentially driven by amyloid beta, tau hyper-phosphorylation, calcium ion imbalance, inflammation and mitochondrial dysfunction. Anavex is targeting treatment of Alzheimer's disease using a mixed muscarinic receptor and the sigma-1 agonist to restore cellular homeostasis by reducing chronic stress and protein misfolding. The sigma-1 receptor agonist activity is seen only under pathological condition and does not impact normal physiological activity reducing the potential for adverse effects. ANAVEX 2-73 is a sigma-1 receptor agonist developed for treating Alzheimer s disease: ANAVEX 2-73 is expected to have potential in suppressing the symptoms of Alzheimer s due to its ability to strategically target the sigma-1 and muscarinic receptors. The sigma-1 receptor stimulates recovery of cell function when activated. ANAVEX 2-73 has been shown to activate the sigma-1 receptor and therefore has the potential to modify Alzheimer s disease. The sigma-1 receptor focus has high potential: The sigma-1 receptor is a chaperone protein at the endoplasmic reticulum that modulates calcium signaling. Research shows that the sigma-1 receptor is a key cellular survival protein in neurodegenerative diseases. ANAVEX 2-73 can target and activate the sigma-1 receptor. ANAVEX 2-73 has displayed a favorable safety profile: Results of the Phase 1 and Phase 2a studies have indicated a favorable safety profile for ANAVEX 2-73 as no drug related serious effects were reported, no discontinuations due to adverse effects occurred, and no dose-limiting adverse events or anomalies for 1, 10, 30, 40, and 50mg doses were observed. ANAVEX 2-73 is progressing as a very versatile drug candidate: ANAVEX 2-73 is undergoing studies for a variety of different potential target diseases and disorders. For Alzheimer s disease, it is currently in Phase 2 clinical trials with a planned Phase 2 trial for Rett syndrome upcoming. Potential future indications include, epilepsy and cognitive disorders, amyotrophic lateral sclerosis, anxiety disorders, autistic disorder, fragile X syndrome, multiple sclerosis, Parkinson's disease, and stroke. ANAVEX 2-73 Phase 2a data promising: The Phase 2a trial was designed primarily for safety, tolerability, bioavailability and exploratory dose finding. In the small, open label trial in mild to moderate Alzheimer's Page: 4 of 53

5 patients, where most patients have not received an optimal dose, ANAVEX 2-73 has maintained cognitive and quality of life scores close to baseline at week 57. Market opportunity for Alzheimer s treatments are high and rising: In the U.S. alone there are 5.2 million people living with Alzheimer s disease. It has been estimated by Alzheimer s Association that the overall cost impact of Alzheimer s and other forms of dementia was $226 billion in Cost of treatment and care escalates as the disease progresses. In fact, the Alzheimer s Associations predicts by the year 2050 the annual cost of treatment for Americans may be $1.1 trillion. Potential treatment option for Rett Syndrome: ANAVEX 2-73 is effective in suppressing the symptoms of Rett Syndrome in animal models due to its ability to strategically target the sigma-1 and muscarinic receptors. The sigma-1 receptor stimulates recovery of cell function when activated. ANAVEX 2-73 targets the sigma-1 receptor as a sigma-1 agonist and has demonstrated improvements in a range of behavioral and gait paradigms in mouse models for Rett syndrome. Additionally, ANAVEX 2-73 has displayed anticonvulsant, anti-amnesic, neuroprotective, and antidepressant properties in a variety of animal models. Unmet need for treatment of Rett Syndrome: It is estimated that 1 in every 10,000 females under the age of 12 suffer from Rett Syndrome making it the second largest genetic cause of mental retardation in females. T here currently exists no direct treatment for Rett Syndrome with individual cost of care varying dependent on the severity of the symptoms. Treatments for rare diseases can command premium pricing with annual costs in the range of $100K-$500K. Anavex s drug candidate s potential is being noticed: The Michael J. Fox Foundation is the world s largest nonprofit funder of Parkinson s research. Its focus is on the acceleration of development of improved therapies and cure research for Parkinson s disease. The foundation has awarded Anavex a research grant for a preclinical trial to test ANAVEX 2-73 s potential efficacy in treatment of Parkinson s disease. Biogen testing ANAVEX 2-73, could potentially lead to collaboration/partnership. Anavex and Biogen have entered into a material transfer agreement under which Biogen will test ANAVEX 2-73 in an oligodendrocyte precursor cell (OPC) differentiation assay. If the results from the OPC assay are satisfactory, Biogen may progress to an in vivo demyelination study using a chemical demyelination model. The purpose of this study will be to identify ANAVEX 2-73 s potential role in therapies focused on demyelination in the brain. Anavex and Ariana started to collaborate in hopes of expediting ANAVEX 2-73 s Phase 2/3 Alzheimer s clinical development time frame: This partnership is advantageous as Ariana Pharma has ownership over a patient stratification technology entitled KEM that can minimize the time frame it takes to conduct the remaining Phase 2/3 Alzheimer s clinical development. KEM is a wide-ranging and FDA-tested clinical data analysis system that allows for the full examination of datasets. Specifically, KEM provides researchers with extensive data analysis pertaining to each patient in a disease group. Experienced management team with a broad range of expertise: The Anavex team is comprised of well- Page: 5 of 53

6 seasoned professionals in their fields. The team is able to boast decades of experience with a wide range of associated expertise from clinical research and global pharmaceutical development, to finance and patent law. Intellectual Property: Anavex has three issued U.S. patent and eight U.S. patent applications covering drug candidates and their methods of use. The existing patent portfolio is expected to provide intellectual property protection until at least The ANAVEX 2-73 IP portfolio covers formulations and treatments related to the use of sigma receptor ligands. The company also obtained exclusive rights to worldwide patents/patent applications for preclinical ANAVEX 3-71 (for an upfront payment and potential future royalties), which provides protection until April 29, Valuation: We value Anavex based on a risk-adjusted net present value (rnpv) of its CNS product pipeline and SIGMACEPTOR Discovery Platform. The company is valued at $16/per share over the next year. The main investment driver is ANAVEX 2-73 for Alzheimer s disease, as well as ANAVEX 2-73 for Rett syndrome. The Phase 2a Alzheimer s trial recently reported data in fiscal 4Q16, with preparations for a Phase 2/3 trial ongoing with at trial expected to commence later in Conservatively, we assess a 18% probability of success for the Alzheimer s disease program given the promising Phase 2 data and the need for a safe and efficacious therapeutic for mild-to-moderate Alzheimer s patients. We conservatively assume that ANAVEX 2-73 will capture ~10% of the estimated market with peak year sales of $6B. Preclinical data for ANAVEX 2-73 for Rett syndrome (Orphan Drug Designation granted by FDA) was reported fiscal 2Q16, with preparations for a Phase 2, placebo-controlled trial ongoing, with a trial expected to commence in mid Conservatively, we assess a 20% probability of success for the Rett syndrome program given the positive preclinical data and the market potential for a therapeutic for Rett patients is large and of significant unmet need as there is currently no cure and limited treatment. We conservatively assume ANAVEX 2-73 for Rett will capture ~25% of the estimated market in the peak year with sales of $500M. Finances: For the year ended September 30, 2015, Anavex received ~$286K from grant funding awarded for research and development for preclinical validation of sigma-1 receptor agonist as potential treatment for Parkinson s disease. The grant income was deferred to four equal semi-annual payments beginning in Additional grant funding from the Australian government, as a research and developmental incentive, in the total of approximately $570K was redeemed in As of 12/12/2016, the company had approximately $17M in cash and cash equivalents. We believe the current finances are sufficient until late 2017 and the company will likely have to tap into the capital markets or seek non-dilutive financing to move its pipeline forward. We expect operating expenses to increase over current levels. In fiscal 4Q16 the operating expenses were about $6.6M. Page: 6 of 53

7 2. Investment Risks Risk may hinder achievement of price target Every therapeutic product subject to regulatory approval is subject to regulatory, scientific and clinical challenges. Risk in biotechnology drug development includes overcoming scientific/biologic barriers, understanding novel targets/biology, difficulty in recruiting patients for clinical trials, delays in FDA approval, changes in economic environment and the inability to raise additional capital to run operations. These and other factors may hinder reaching our price target. Even after regulatory approval, in the face of stiff competition from other entrenched or novel therapies, the products may not capture a meaningful market share to justify our projections. If the company enters into an agreement with a commercialization partner, revenues from the company's marketed products are still subject to risk. The company's commercialization partner may not allocate the resources to facilitate successful market penetration of its products or the competitive landscape may change with novel medical advances of which we are unaware. Specific risks to Anavex s drug development pipeline are listed below: Anavex currently has several drugs under development with its lead candidate being ANAVEX ANAVEX 2-73 is in Phase 2 trial for treatment of Alzheimer s disease, and is expected to enter a Phase 2 trial for Rett syndrome later this year. It is in pre-clinical testing in multiple sclerosis and Parkinson's disease. Data from clinical trials so far have indicated a favorable safety profile, but clinical data is needed from large patient populations to further mitigate risk. Robust controlled, randomized clinical trials are needed to demonstrate statistically significant efficacy. The underlying cause of Alzheimer s disease remains complex with no current disease modifying treatment available. Even though the ANAVEX 2-73 potentially has versatile variety of applications, a failed trial could effectively derail this product candidate's progress towards its primary goal. Anavex has many drugs in the early stages of development. These drugs run the risk of failing to present statistically significant results during clinical trials. ANAVEX 2-73 primarily acts as a sigma-1 agonist and it is not a validated target, therefore development risk is comparatively higher Alzheimer s disease is a complicated neurodegenerative disease that is difficult to treat with new drug candidates having a 99.6% failure rate. We have accounted for some of the increased expectation of risk in our valuation methods. Currently, there are five medications that have been approved by the FDA to treat the negative symptoms associated with Alzheimer s disease. The brand names of medications that treat Alzheimer s include Aricept, Razzadyne, Namenda, Exelon, and Namzaric. Some of the drugs are all encompassing while others only Page: 7 of 53

8 treat specific stages of the Alzheimer s disease. ANAVEX 2-73 must prove ability to effectively compete with these and future products. 3. Pipeline Anavex s pipeline is based on its mixed sigma-1 and muscarinic receptor agonist ANAVEX ANAVEX 2-73 is a aminotetrahydrofuran derivative with moderate affinity for both the sigma-1 and muscarinic receptors. It has sub-micromolar affinity for the sigma-1 receptor and micromolar affinity for muscarinic receptors. ANAVEX 2-73 is an orally available product candidate, currently in development for Alzheimer s disease (AD). ANAVEX 2-73 has displayed a favorable profile and shows reversal of memory loss (anti-amnesic properties) and neuroprotection in models of Alzheimer s disease. In a Phase 2a, 57-week trial, promising data was reported in the study, which met both primary and secondary endpoints. There were no clinically significant treatment-related adverse events and no serious adverse events. The pipeline also includes several compounds in pre-clinical development for oncology and CNS indications. Page: 8 of 53

9 Exhibit 1: The company has a pipeline focused on Alzheimer s disease and Oncology Source: Anavex Page: 9 of 53

10 4. Upcoming Milestones 1H17: ANAVEX 2-73 (Alzheimer's disease) Phase 2a PK/PD data 1H17: ANAVEX 2-73 (Rett Syndrome) IND filing 1H17: ANAVEX 2-73 (Rett Syndrome) Phase 2 study initiation 1H17: ANAVEX 2-73 Parkinson's disease IND filing Mid-2017: ANAVEX 2-73 (Alzheimer's disease) Phase 2/3 study initiation 2018: ANAVEX 2-73 (Alzheimer's disease) Phase 2/3 data 5. Targeting the Sigma-1 Receptor for Treating Neurological Diseases The sigma-1 protein plays an important role in calcium homeostasis The endoplasmic reticulum (ER) is the organelle where most of the proteins in the cell are synthesized. Located in the ER and the plasma membrane, the sigma-1 receptor protein chaperone regulates calcium homeostasis through the close association with inositol triphosphate (IP3) at the ER membrane-associated mitochondria borders. (1,2). Chaperones are the proteins that aide in correcting misfolded proteins. Proteins enter the ER as linear peptide chains that need to be folded into correct three-dimensional configurations in the ER so that they can then exit the ER to their respective final destinations. The correct folding of these proteins is performed by chaperone proteins inside the ER (1,2). Page: 10 of 53

11 Exhibit 2: The sigma-1 receptor mechanism of action: restoring calcium homeostasis. Anavex is targeting treatment of Alzheimer's disease using a mixed muscarinic and the sigma-1 agonist to restore cellular homeostasis by reducing chronic stress and protein misfolding. The sigma-1 receptor agonist activity is seen only under pathological condition and does not impact normal physiological activity reducing the potential for adverse effects. Source: Anavex The sigma-1 protein modulates signal transduction in the junction of ER and mitochondria The sigma-1 receptor modulates a variety of intracellular signal transduction pathways through protein-toprotein interactions and could be associated with various proteins, including inositol 1,4,5-trisphosphate receptor, IRE, BiP, ankyrin, etc. in the mitochondria-associated membrane (MAM). In resting condition, the sigma-1 protein resides with the ER-resident chaperone BiP. It has been shown that under ER stress or via agonist stimulation, the sigma-1 dissociates from BiP and binds IP3R, enhancing calcium entry into mitochondria. There are several pathways by which the sigma-1 receptors can alter the physiological and pathological processes (3). Page: 11 of 53

12 The sigma-1 receptors also have mobility, meaning they can move in between different organellar membranes as an effect of ligand binding. As molecular proteins, the sigma-1 receptors do not have the inherent ability of signaling machinery. Rather, the sigma-1 receptors upon ligand activation appear to predominantly function through translocation and protein-to-protein interaction to modulate the activity of several ion channels and signaling molecules. This includes inositol phosphates, protein kinases, and calcium channels. The sigma-1 interactions characteristics are still awaiting to be determined in each pathway (3). Mitochondria dysfunction may play a role in neurological diseases Mitochondria represents the organelles of a cell acting as the power plant. Surrounded by two membranes, the inner and outer membrane also divide independently of the cell in which they reside. The outer membrane is made up of protein-based pores, is permeable and allows for the passage of proteins and ions. In contrast, the inner membrane has restricted permeability, yet consists of proteins aiding in the transport of the adenosine triphosphate (ATP) synthesis. Mitochondria are responsible for the production of ATP, which is essential for the survival of neurons and longterm changes in neuronal structure and functions. Further, these dynamic organelles work to control developmental and synaptic plasticity, and the arbitration of cell survival and death. Role in neurological disease Several inherited diseases are caused by mutations in mitochondrial DNA, however, the most commonly known neurological disorders (Alzheimer s and Parkinson s disease) are not linked to mitochondrial mutations (4). As these diseases progress, causing impairment of the mitochondria, a chain reaction leads to a reduction in ATP production. What follows next is impairment of reactive oxygen species (ROS), leading to the ability to cause oxidative stress and consequently damage cellular contents. Exposure to high levels of oxidants may explain the induction of mitochondrial permeability transition (MPT) opening. The significance of this process allows the inner membrane (known for its restricted permeability) to become permeable, leading to swelling of the inner membrane (5). Mitochondrial Dysfunction in Alzheimer s Disease Mitochondrial dysfunction and Alzheimer s disease (AD) are alike as disruptions in energy metabolism are a plausibly prominent feature of Alzheimer s disease. This is represented in abnormalities in cerebral metabolism which precede the onset of neurological dysfunction and gross neuropathology in Alzheimer s disease (6). Research groups worldwide, have hypothesized, that defective mitochondrial metabolism sets up circumstances that bring about the amyloid cascade model. The amyloid cascade model hypothesis is that Alzheimer s is primarily driven by the accumulation of beta amyloid in neurons (7,8). Positron emission tomography (PET) data has shown reduced cerebral metabolism in temporoparietal cortices in AD (6). It has been theorized that these changes are caused by inhibition of mitochondrial enzymes particularly Amyloid binding alcohol dehydrogenase Page: 12 of 53

13 (ABAD), being a mitochondrial matrix-localized enzyme, is possibly a direct molecular link between amyloid and mitochondrial toxicity (9). Amyloid has been observed bound to ABAD in AD brain mitochondria and the act of blocking this interaction was observed to suppress free radical generation and B-amyloid induced apoptosis in neurons (7). This is further supported by animal models expressing ADAB being crossed with those expressing B-amyloid showed signs of impaired memory and oxidative stress (10). The most consistent defect in mitochondrial enzyme activity reported in Alzheimer s disease has been the electron transport chain (ETS) carrier cytochrome c oxidase (COX)2. Mitochondria also act as high-capacity Ca2+ sinks which enables the mitochondria to aid in maintaining cellular Ca2+ homeostasis which is required for normal neuronal function. Excessive Ca2+ uptake on the other hand has been shown to increase ROS production, inhibit ATP synthesis, induce mitochondrial permeability transition pore (PTP), and release small proteins that trigger the initiation of apoptosis, such as cytochrome c and apoptosis-inducing factor (AIF). Released cytochrome c binds apoptotic protease-activating factor 1 (Apaf1) and activates the caspase cascade that stands as a causative mechanism in the pathogenesis of AD (11). Role of the sigma-1 receptor in neurological diseases Neurological diseases, such as Alzheimer s disease (AD), are the leading cause of dementia worldwide. The current, widely accepted, pathology of AD comprises amyloid-β deposition and neurofibrillary tangles of the tau protein. But no existing drugs can effectively reverse the cognitive impairment. Anavex intends to move beyond delaying cognitive impairment, and work on correcting the underlying cause of the disease. The sigma-1 receptor works by stabilizing calcium signaling through the IP3 receptor between the endoplasmic reticulum and mitochondria (12,13). The sigma-1 protein protects the cell from the accumulation of misfolded proteins, associated with Alzheimer s disease, by detecting the misfolds and marking them for cell degradation and elimination. Based on these aspects of the sigma-1 receptor, ANAVEX 2-73 being an agonist has the potential to produce positive results in clinical trials by upregulating the sigma receptor. Anavex intends to modify the underlying cause of Alzheimer s disease, and neurological disorders such as multiple sclerosis, Rett syndrome, Parkinson s disease (14). Targeting the sigma-1 receptors in neurological diseases Overview/ Introduction The sigma-1 receptors reside in the endoplasmic reticulum membranes that are close in proximity to the mitochondria. Due to the sigma-1 receptor's subcellular staging, these receptors can regulate the function of the mitochondria involving bioenergetics and free radical generation. Thus, the sigma-1 receptors may be of use as an intracellular drug target that allows us to control ER stress and free radical generation under pathological Page: 13 of 53

14 conditions (15). The sigma-1 receptor targeting seems to have potential in neurodegenerative disorders, depression, idiopathic pain, drug abuse, and cancer. Ligands associated with the function of the sigma-1 receptors have shown mechanisms of therapeutic properties observed through exploration in recent research. Protein folding/degradation, oxidative stress, and cell survival can be regulated by chaperone activity activated by the sigma-1 receptor. The process in which chaperone activity is activated is due to the synthetic sigma-1 receptor ligands in an agonist-antagonist manner (15). Molecular biology (the sigma-1 receptor) The sigma-1 receptors are confirmed to be in the ER due to the proteins possession of a double arginine and ER retention signal at the N-terminus. The location in which the sigma-1 receptor binding process takes place is in the inner ER membrane or at the luminal surface of the ER membrane. Data from electron microscopic studies have confirmed the location of the sigma-1 receptors residing in the plasma membrane (16). Majority of the sigma-1 receptor ligands contain either hydrophobic or amphipathic properties. This may be due to the hydrophobic environment in which the ligand-binding site may be allowing hydrophobic molecules to enter the binding site (16). Page: 14 of 53

15 Exhibit 3: The sigma-1 receptor and endoplasmic reticulum protein degradation in neurodegenerative disease. The sigma-1 receptors translocate the mitochondria-associated membrane to the cell membrane. The sigma-1 receptor is one of the ER chaperones that participates in the degradation of misfolded proteins. In Alzheimer's disease, the accumulation of amyloid beta results in increased cytosolic calcium levels in the ER and plasma membrane, potentially resulting in calcium overload of the mitochondria. This overload inhibits mitochondrial ATP production, releasing calcium stored in the mitochondria, deregulating calcium signaling. This leads to release of proapoptotic proteins from damaged mitochondria, leading to neuronal injury. Source: Katz L., et al. (43) The sigma-1 receptor has two transmembrane domains and primarily localizes at the ER membrane. The sigma1 receptors are scattered around the mitochondria-associated ER membrane. Subcellular localization/protein purification studies, coupling proteins identification and in vitro protein activity assays has given the scientific community insight in to the structure and function of the sigma-1 receptors. Specifically, the function of the C-terminus of the sigma-1 receptor has the capability of possessing a molecular chaperone activity. This activity stabilizes ER proteins and regulates their degradation (16). The sigma-1 receptors predominantly reside in the ER membrane. They often form clusters and are immersed at specialized subdomains of ER membranes. To illustrate this concept, when studying the cells of Chinese hamster ovaries, researchers conclude that the sigma-1 receptors scatter onto the ER membrane that is affiliated with the mitochondrial outer-membrane (16). Page: 15 of 53

16 Studies that have been recently conducted indicate that cholesterol and sphingolipids (membrane lipids) are a part of recruiting the sigma-1 receptors to the MAM. Considerable levels of ceramides and cholesterol are contained in MAM. This leads to the formation of lipid microdomains. In addition, some sterols and sphingolipids which are bonded to the sigma-1 receptors may play a role to promoting the sigma-1 receptors to the MAM (16). Exhibit 4:The endoplasmic reticulum, mitochondria-associated membranes. The mitochondria-associated membrane (MAM) sub-compartment of the endoplasmic reticulum (ER) plays critical roles in regulating ERmitochondria communications. The MAM is characterized by direct apposition to a mitochondrion, a unique lipid profile, and the expression of a unique set of proteins involved in Ca (2+) signaling. Source: Bhuvanendram, S. et al. (44) The sigma-1 receptors are located in the ER membrane in order to stabilize ER membrane proteins that strengthen the signaling and move across the ER membranes. Due to the sigma-1 receptor association with membrane proteins, the sigma-1 receptors openly commit to regulations of signals across the ER membranes. In addition, it is possible that the sigma-1 receptors transmembrane domain may be used to form protein complexes (16). Page: 16 of 53

17 The scientific community's understanding of the function of the sigma-1 receptors has grown substantially throughout the last fifteen years. The sigma-1 receptors have the capability to regulate several cellular events like neuronal differentiation, cellular survival, and bioenergetics. According to different animal studies, the capabilities of the sigma-1 receptors have been correlated to the pathophysiology of specific human diseases like depression, ischemia, drug abuse, pain, and cancer. The sigma-1 receptors are predicted to be utilized as a molecule in drugs that are developed based upon the monoamine theory. Overall, targeting the sigma-1 receptors will allow for the implementation of a new strategy of treatment for patients struggling with neuropsychiatric diseases (16). In mammals, the sigma-1 receptors are expressed in several organs such as the brain, liver, pancreas, testis, placenta, adrenal gland, and malignant tumors. The sigma-1 receptors are a part of the process in which morphogenesis of neuronal cells are regulated (16). Chaperones associated with the sigma-1 receptors are located at the MAM which as a subcompartment of the ER is in proximity to the mitochondria. At this location, the sigma-1 receptors are associated with lipid rafts. In addition, the association between the sigma-1 receptors and cholesterol is volatile based upon the ligand treatment, which is leading the change in location of the sigma-1 receptors at the ER membrane. The role of the sigma-1 receptors is to regulate ER s cholesterol distribution and the way in which lipid rafts at the plasma membrane form. The sigma-1 receptors have the ability to accelerate gangliosides glycosylation at Golgi (17). Page: 17 of 53

18 6. Characteristics of ANAVEX 2-73 Overview ANAVEX 2-73 is an orally administered small molecule, Tetrahydro-N,N-dimethyl-2,2-diphenyl-3furanmethanamine hydrochloride. ANAVEX 2-73 is being primarily developed in Alzheimer s disease treatment, and has the potential to treat a variety of similar disorders. Its mechanism of action is as an agonist of the sigma1 receptor (a chaperone protein at the endoplasmic reticulum that modulates calcium signaling). The orally available drug candidate, was developed with the intention to modify AD pathophysiology, in contrast to the currently approved AD drugs on the market, which temporarily address cognitive symptoms to delay impairment. The compound has shown favorable results in Phase 1/2 studies, with a primarily clean safety profile and the potential to reverse memory loss and neuroprotection. The sigma-1 receptor (S1R/s-1R) stimulates recovery of cell function when activated, which is the focus of ANAVEX 2-73 to produce positive results in patients with the potential of modifying Alzheimer s disease and other indications such as multiple sclerosis, Rett syndrome, Parkinson s disease, and a variety of other diseases and disorders. Due to its neuroprotective properties, ANAVEX 2-73 may be an effective remedy for other diseases like epilepsy. ANAVEX 2-73 differs from other drugs geared at combating epilepsy, due to its cognitive-enhancing features and the potential to reduce the intensity of some symptoms correlated to epilepsy. In preclinical antiseizure models, ANAVEX 2-73 has anti-seizure effects which is the primary debilitating symptom associated with epilepsy. Based on conclusions from data from three predictive preclinical anti-seizure models, ANAVEX 273 has potential to have less side effects than current epilepsy medications that are on the market. Anavex PLUS Anavex PLUS represents a potentially novel combination of ANAVEX 2-73 and the FDA approved donepezil (Aricept ). Adding to the clinical usefulness of Anavex PLUS, scientific findings from The Journal of Neuroscience, in mid-2014, found a link between excess calcium signaling (signaling a toxic amount) in neurons and the prevalence of AD. Given that the calcium alterations can be modulated through the IP3 receptor, the findings confirm an opportunity for Anavex PLUS, which acts a sigma-1 receptor agonist and the sigma-1 receptor acts as a calcium signaling modulator through IP3 (18). When tested in early and late-stage AD mouse models, results indicated subduing the excess calcium can dramatically reduce hippocampal and cortical Amyloid-beta accumulation and hippocampal tau pathology (leading indicators of AD) (18). Page: 18 of 53

19 7. Potential Mechanism of Action of ANAVEX 2-73 Overview Damage to the ER-mitochondria associations provide an explanation for the features of neurodegenerative diseases, as the ER-mitochondria axis regulates many cell functions that are disrupted through the progression of AD. Therapeutics aimed at correcting this damaged ER-mitochondria association, may correct damage to neurogenerative disease-linked features (19). Specifically, the mitochondria functions are associated with the ER membranes (known as MAM), in which communication occurs directly with the MAM to regulate many of the fundamental cellular processes discussed above. MAM (mitochondria-associated membranes) are those regions in the ER closely associated with the mitochondria (19). Pluripotent modulator multiple functionalities of the sigma-1 receptor The sigma-1 receptor is an endoplasmic reticulum protein that resides specifically in the mitochondriaassociated endoplasmic reticulum (MAM) where it promotes cellular survival. Researchers suggest that the sigma-1 receptor is a pluripotent modulator (providing multiple functionalities), able to translocate to the plasma membrane (ion channel and other receptor interaction), as well as the nuclear envelope (recruits chromatinremodeling factors to affect gene transcription) (20). Muscarinic receptors The sigma-1 receptors are located in the postsynaptic densities and are juxtapositional to the metabotropic machr M2. Visualization of the ultrastructure of the sigma-1 receptors indicated that they are excluded from the plasma membrane and instead are primarily located in the subsurface endoplasmic reticulum cisternae. Interaction between the sigma-1 receptors and machr M2 may promote survival and proper functioning of motor neurons and their close proximity suggests a role of the sigma-1 receptors in amyotrophic lateral sclerosis, whose hallmark is motor neuron degradation (20). CNS diseases associated with the sigma-1 receptor Loss of sigma-1 functionality is suspected to play a significant role in a variety of central nervous system diseases primarily due to its incredibly varied array of regulatory interactions. Research surrounding the sigma-1 receptor have stated the increased importance of the receptor in maintaining the structural integrity of the MAM, especially in the pathogenesis of AD. The impairment of the sigma-1 receptor results in neurodegeneration, causing a reduction in sigma-1 receptors in the brain (20). Page: 19 of 53

20 8. Alzheimer s Disease Program Overview of Alzheimer's disease Alzheimer s disease (AD) is an irreversible and progressive brain disorder that gradually deteriorates the cognitive functions of memory, thinking skills, and the ability to carry out day-to-day tasks usually affecting individuals in their 60's and beyond, acting as a precursor to dementia amongst this age group. Dementia is defined by the National Institute of Health (21) as the loss of cognitive functioning (thinking, remembering, and reasoning) and behavioral abilities to the extent that the person s daily life is affected. Dementia ranges from its mildest stage (onset of dementia), to its most severe and debilitating stage, where the person affected is completely dependent on a caregiver for day-to-day activities (21). There is no known cure for Alzheimer s disease or any of the other conditions that cause dementia. Approved drugs treat symptoms of the disease, but have not been shown to alter disease progression. ~ 5.4 million estimated to have Alzheimer s in the United States. In 2014, ~ 2.7 million people in the United States were treated for Alzheimer s disease, and U.S. sales for Alzheimer s disease treatments were ~ $5.3 billion (22). Alzheimer s disease develops as a result of multiple factors. The complexity of the disease progresses over the course of many years, with numerous factors increasing or decreasing a person s chance of developing the disease. These risk factors include age, genetics, education, and past medical history. The single greatest risk factor for Alzheimer s disease is age, with most people affected are 65 years of age, or older. While people young than the age of 65 may develop this disease, it is a less likely scenario. With age being the primary risk factor, age alone is not sufficient to cause the disease (23). Prevalence- The Statistics Behind the Disease The number of Americans living with Alzheimer's disease is growing year-over-year. An estimated 5.4 million Americans of all ages have Alzheimer's disease in 2016, with 5.2 million people are age 65 and older (24). The AD prevalence has grown at a rate of 2% over the past three years (100,000 new cases per year). These numbers will escalate rapidly in coming years, as the baby boom generation has begun to reach age 65 and beyond, the age range of greatest risk of Alzheimer's. By 2050, the number of people age 65 and older with Alzheimer's disease may nearly triple, from 5.2 million to a projected 13.8 million (24). Mortality Alzheimer s disease is listed as the sixth-leading cause of death in the United States. In 2013, over 84,000 Americans died from Alzheimer's according to official death certificates; however, in 2016, an estimated 700,000 people with Alzheimer's will die, and the disease likely will contribute to many of those deaths. Having the Page: 20 of 53

21 disease puts an individual at a higher risk of death. Among people age 70, 61% of those with AD were expected to die before the age of 80, compared to 30% of those without AD (25). Brain changes associated with Alzheimer s Progression of Neuron Deterioration A healthy adult brain is marked by healthy neurons (approximately 100 billion), with long branching extensions (dendrites). These extensions allow for neurons to communicate with each other, exchanging information from one neuron, to be received by another. The connections made here (synapses) allow for rapid signal transfer, creating memories, thoughts, movements, and sensations throughout the body (26-28). Accumulation of the protein beta-amyloid (beta-amyloid plaques) outside neurons and the accumulation of an abnormal form of the protein tau (tau tangles) inside neurons result in a deterioration of the healthy formation, contributing to the development of Alzheimer s. The accumulation of beta amyloid is believed to interfere with the neuron-to-neuron communication at synapses and to contribute to cell death (26-28). Amyloid Plaques and Neurofibrillary Tangles Further progressions of deterioration within an Alzheimer s affected brain, displays the presence of hard, and insoluble amyloid plaques. In a healthy functioning brain, the amyloid protein fragments are normally produced by the body and broken down. Neurofibrillary tangles are insoluble twisted fibers found inside the brain's nerve cells, consisting of tau proteins. In Alzheimer's disease, the tau protein is abnormal and the microtubule structures collapse (29). Amidst the deterioration, information at synapses begins to fail and once healthy neurons become diseased and die. The result of advancement in Alzheimer s results in severe shrinkages from cell loss and dying neurons (2628). Treatment of Alzheimer s Diagnosis is typical determined by physicians through medical history, mental status testing, physical and neurological exams. Today s approved treatments are not able to stop the neurons from dying off. As the dying off of neurons lead to the fatal impact of Alzheimer s, approved drugs on the market today are simply aimed at slowing neuronal deterioration. The FDA approved drugs temporarily improve symptoms by increasing the amount of chemicals called neurotransmitters in the brain. The effectiveness of these drugs varies from person to person (30-31). Despite the lack of disease-modifying therapies, active management has led to a better quality of life for Alzheimer s patients. Active management includes taking advantage of treatment options to mediate coexisting conditions, effective physician and caregiver support for day-to-day tasks, and taking part in cognitive function Page: 21 of 53

22 enhancing activities, such as adult day care programs and support groups (30-31). The products on the market already serve to treat the symptoms of Alzheimer s disease. Such drugs include Aricept, Razzadyne, and Exelon, which act as Cholinesterase Inhibitors and slows acetylcholine breakdown. Another approved drug, Namenda, regulates glutamate activity. In both cases these drugs serve to manage the symptoms of the disease and do not alter or slow the diseases progression. Non-Pharmacologic Therapy Non-pharmacologic therapies include physical therapy and reminiscence therapy (using photos and objects to jolt memory). Although these lines of therapies have not been shown to diminish the deteriorating effects of Alzheimer s, they look to delay the course of the disease by maintaining cognitive function of the brain. Nonpharmacologic therapies are said to improve patient quality of life to minimize behavioral symptoms and diseaseinduced depression (32). Existing treatments for Alzheimer s disease dementia The two classes of drugs approved for the treatment of Alzheimer s disease dementia are acetylcholinesterase inhibitors, or AChEIs, and NMDA receptor antagonists. Initial work focused on the use of acetylcholine precursors, using a similar rationale to dopamine therapy in Parkinson s disease. Acetylcholine is responsible for muscle movement around the CNS involved with memory, cognition, and sleep. AChEI drugs are given to AD patients in order to treat some of the memory and cognitive symptoms (32). Acetylcholinesterase Designed to Temporarily Alleviate Symptoms Acetylcholinesterase inhibitors (AChEIs) are intended to prevent the acetylcholinesterase enzyme from breaking down acetylcholine in the brain; increased concentration of acetylcholine leads to increased communication between nerve cells. This may temporarily alleviate or stabilize some symptoms of Alzheimer's disease. Acetylcholinesterase is an enzyme that causes the breakdown of acetylcholine and therefore declining neurotransmission. Through neurotransmission acetylcholine is released from the pre-synaptic neurons to the synaptic cleft and then binds to the acetylcholine receptors to relay neurological signals (i.e. memory, cognition, and sleep). Acetylcholinesterase, located on the pot-synaptic membrane terminates the signal through hydrolysis; acetylcholinesterase inhibitors block the lysing action of ACHEIs and, therefore instigating increased accumulation of cholinesterase in the synaptic cleft for potential improved neurologic function (32). Competitive Landscape for Alzheimer s Drugs Novartis Exelon Patch (rivastigmine) Novartis (NVS: NOT RATED) Exelon Patch (rivastigmine) is a cholinesterase inhibitor, for which the exact mechanism of action of rivastigmine is unknown. To exert therapeutic effects, rivastigmine tartrate enhances the Page: 22 of 53

23 cholinergic function in Alzheimer s patients, by increasing the acetylcholine concentration. The Exelon Patch (rivastigmine) was approved in 2000 for the treatment of mild, moderate, and severe Alzheimer s disease, as well as Parkinson s disease. Clinical trials for the Exelon Patch, for mild to medium AD, were conducted. The trial design of Study 1 comprised a 24-week, double-blind, placebo-controlled trial. Patients were instructed to apply the rivastigmine tartrate patch, compared to rivastigmine given orally (6 mg) or placebo. The ADAS-cog score (measure of cognitive function in the brain) showed statistical significance for the 13.3mg Exelon Patch, as well as the 6mg Exelon capsule. Adverse reactions occurring 4% over the placebo reported no significant change from placebo in Study 1. Study 2, was a 48-week comparator trial between the of the mg/24hr dose and 9.5 mg/24hr dose rivastigmine tartrate patch. Study 2 reported statistical significance for the 13.3mg compared to the 9.5mg Exelon Patch at week 24, but not at week 48. Adverse reactions occurring 4% over the placebo reported no significant change from placebo in Study 2 reported nausea and vomiting were greater in the 13.3mg patch. Total sales for the Exelon Patch in 2015 were ~ $471 million on ~ 780,000 prescriptions sold, compared to generic sales (beginning in 2015) of rivastigmine totaling ~ $76 million on ~ 124,000 prescriptions sold. Eisai Aricept (donepezil HCL) Eisai s Aricept is a reversible inhibitor of the enzyme acetylcholinesterase, an enzyme which breaks down the acetylcholine neurotransmitter (associated with memory and learning functions). Alzheimer s patients experience a reduction in the availability of acetylcholine. Aricept intends to increase this availability, improving cholinergic function. Aricept was approved in 1996 for the treatment of mild to severe Alzheimer s disease and is no longer patent-protected. In a Phase III, multi-center, double-blind, placebo-controlled, 30-week study, patients with mild/moderate AD were randomly assigned to a placebo group, or a 5mg or 10mg donepezil group. Efficacy results showed robust statistically significant changes in the ADAS-cog score (measure of cognitive function in the brain) in both the 5mg/day (P=0.0047) and 10 mg/day (P<0.0001), were significant compared to placebo but not between themselves. Efficacy results for moderate/severe AD evaluated the effects of 10mg/day Aricept compared to placebo. The SIB change scores (measure of cognitive function improvement in severe AD patients) of Aricept compared to placebo was statistically significant. The effects of ADCS-ADL-severe change scores (assessment of day-today task functions) was also statistically significant to placebo. Finally, efficacy was tested for severe cognitive impairment from AD between Aricept 10mg/day compared to Aricept 23mg/day. The Aricept 23mg/day was statistically significant to Aricept 10mg/day in the SIB change scores but not in the CIBIC-plus scores. Adverse reactions occurring 4% over the placebo for mild/moderate and moderate/severe clinical trials results Page: 23 of 53

24 in similar adverse events such as, nausea, vomiting, diarrhea, and anorexia. Trial discontinuation from adverse events for mild/moderate AD were greater in the Aricept 10 mg/day group (13%) compared to Aricept 5mg/day (5%) and placebo (5%). For moderate/severe AD discontinuation was also greater in the higher 23mg/day dose of Aricept (19%) compared to the 10mg/day Aricept (8%). Following the 2010 patent expiration, Aricept continues as a leader in the Alzheimer's space. December 31, 2015, sales totaled roughly $20.4 million compared to generic sales of the donepezil HCl of approximately $2.8 billion. Axovant Sciences, Inc. RVT-101 RVT- 101 is a potent antagonist of the 5-HT6 serotonin receptor. This mechanism of action promotes the release of acetylcholine to improve cognitive impairment in Alzheimer s and other dementia patients. The company is currently advancing RVT-101 through clinical trials. In a Phase IIb double-blind, placebocontrolled, randomized interventional efficacy trial of RVT-101 as an adjunct to donepezil, 684 subjects were treated. Patients received either a 15 or 35mg dose of RVT-101 or placebo. Results indicated that patients receiving the 35mg RVT-101 combination with donepezil demonstrated statistically significant improvements in cognition at the 12, 24, 36, and 48-week intervals compared to patients receiving donepezil alone. Statistically significant benefits were also seen for ADAS-cog score and ADCS-ADL scale through week 48. Efficacy results for RVT-101 compared to placebo for ADAS-cog scores shows statistical significance at weeks 12, 24, 36, and 48, with P-values of P=0.008, P=0.007, P=0.039, and P=0.018, respectively. Statistical significance was also seen for ADCS-ADL benefits compared to placebo at weeks 12, 24, 36, and 48, with pvalues of P=0.016, P=0.016, P=0.029, and P=0.048, respectively. RVT-101 was seen to be well-tolerated by subjects, with no serious adverse events observed at weeks 24 or 48. There was no statistical significance in withdrawals from the trial due to adverse events. AB Science Masitinib (masitinib mesylate) The company is currently advancing masitinib through late-stage clinical trials. In a Phase II multi-center, doubleblind, placebo-controlled, randomized, parallel-group trial in patients with mild/moderate AD, 34 patients received masitinib as an adjunct therapy. These patients were randomly assigned doses of 3 or 6mg/kg/day or placebo, twice a day for 24 weeks. Efficacy results, at week 12, for ADAS-cog score, ADCS-ADL score, and MMSE (30-point questionnaire used to measure cognitive impairment) all showed statistical significance with pvalues of P=0.0160, P=0.0350, and P=0.0470, respectively. Efficacy results, at week 24, for ADAS-cog and MMSE scores showed statistical significance with p-values of P=0.0300, P=0.0310, respectively. However, at week 24, ADCS-ADL scores were not statistically significant (P=0.1280). Mild to moderate adverse events occurred more frequently in masitinib patients (65%) compared to placebo Page: 24 of 53

25 (38%). Adverse events associated with masitinib included gastrointestinal disorders, oedema, and rash. H. Lundbeck A/S Idalopirdine (Lu AE58054) Lundbeck s Idalopirdine acts a serotonin 5-HT6 antagonist against the negative cognitive effects of Alzheimer s. The focus on a 5-HT6 receptor deviates from the traditional approaches in drug research for Alzheimer s disease. The company is advancing idalopirdine through clinical trials, as an add-on to the approved generic, donepezil. In a Phase II, 24-week, efficacy and safety study, 278 Alzheimer's patients were evaluated. The patient population was administered 90mg/day idalopirdine, as an add-on to donepezil. Results from the Phase II study observed the effects of the idalopirdine add-on treatment based on ADAS-cog (measure of cognitive function in the brain) and ADCS-ADL scores. Idalopirdine showed statistical significance in the mean difference from placebo in ADAS-Cog (P=0.0040) at 24 weeks, but did not show statistical significance in the ADCS-ADL score (P=0.124). Adverse events for the idalopirdine add-on treatment displayed that it was generally safe and well-tolerated. Phase III trials are currently to evaluate the long-term safety and tolerability of the drug as an adjunct treatment to donepezil patients. The trial will be open label with an anticipated enrollment of approximately 1770 patients. The first of the 3 Phase III trials being conducted has failed to meet its primary endpoint. Idalopirdine showed a weak efficacy profile as neither of the two dosages used in the study met the primary endpoint of a reduction in the Alzheimer's Disease Assessment Scale-cognitive subscale (ADAS-cog) total score when added to donepezil. In addition, the secondary endpoints also did not show separation from placebo. The remaining 2 Phase III will continue as planned and data is expected in the first quarter of Otsuka Holdings AVP-786 (deuterium-modified dextromethorphan) Otsuka savp-786 was developed by combining deuterium into specific molecular positions of dextromethorphan. The combination product is a derivative of dextromethorphan hydrobromide (an active ingredient in the central nervous system) and quinidine sulfate (a metabolic inhibitor that enables dextromethorphan to reach therapeutic concentrations). The company is currently advancing AVP-786 through clinical trials. Two Phase III (TRIAD-1 and TRIAD-2) multicenter, randomized, double-blind, placebo-controlled, 12-week studies were initiated in late TRIAD-1 consists of a 380 patient population whom will be evaluated based on an 18 mg or 28 mg dose of AVP-786. TRIAD-2 consists of a 325 patient population whom will be evaluated on an undisclosed AVP-786 dose, twice a day, or a placebo dose, twice a day. The trials will assess safety, efficacy, and tolerability of AVP-786, with an expected study completion date of July vtv Therapeutics Azeliragon (TTP-488) Azeliragon is a receptor antagonist that binds glycation end products (RAGE). RAGE inhibitors have been seen Page: 25 of 53

26 to mediate amyloid transport to the brain, and Azeliragon blocks this interaction in AD patients (Lue et al., 2005). The company is currently advancing their Azeliragon candidate through clinical trials for mild to moderate AD. In a Phase IIb double-blind, placebo-controlled, multicenter trial, patients were treatment with 5mg/day and 20mg/day doses to test safety and efficacy. Efficacy was tested by ADAS-cog mean change, with the 5mg/day dose and placebo reporting the same 3.1 mean change from baseline. The Data and Safety Monitoring Board (DSMB) recommended a discontinuation of the 20mg/day dose as concentration related adverse events were found. In the 5mg/day treatment group, gastrointestinal-related adverse events were greater in the Azeliragon group (33.6%) compared to placebo (22.7%), with the placebo group reported greater psychiatric-related adverse events (39.4%), compared to the Azeliragon group (26.7%). The 5mg/day dose selection was in support of a Phase III, 18-month trial compared to placebo. Data from a Phase III study is expected in mid Eli Lilly- Solanezumab Eli Lilly and Company (LLY: NOT RATED) in a Phase III safety and efficacy trial for solanezumab, tested the effect of passive immunization on the progression of AD versus placebo. The trial design was interventional, randomized, double-blind, placebo-controlled safety/efficacy study of 2,100 subjects with mild Alzheimer s disease. Eli Lilly and Company announced on November 23, 2016, solanezumab, did not meet the primary endpoint in the EXPEDITION 3 clinical trial. The trial was assessing the rate of cognitive decline, for which a statistically significant result was not seen (p= 0.95) over placebo, measured by the ADAS-Cog. On the heels of the failed trial, Eli Lilly will no longer pursue further clinical development of solenazumab. Biogen and Eisai Alzheimer's partnership Eisai (ESALY) Co. in partnership with Biogen (BIIB) Inc. are in the enrollment stage of the Phase 3 efficacy and safety study for E2609. E2609 is an oral candidate for the treatment of Alzheimer s that is believed to inhibit the BACE enzyme to ultimately slow plaque development and in turn slow the progression of the disease. The FDA has granted fast track designation for development of this product. Biogen and Eisai have multiple drugs under development for Alzheimer's disease including aducunumab, E2601 in Phase 3 trials and BAN2401 in Phase 2 trial. Merck Verubecestat Merck Verubecestat is in the process of Phase 3 trials for MK-8931 a BACE1 and BACE2 inhibitor targeted at the slowing of Alzheimer s progression with the end expectation of becoming a long-term maintenance therapy Page: 26 of 53

27 to limit Aβ production. Dosage ranges, tolerability, efficacy, and safety have been tested in previous trials and currently the Phase 1 trial is an open-label study investigating MK-8931 in participants with mild and moderate hepatic insufficiency. This two-part, open-label study is expected to complete in May 2017 with the primary outcome being measurement of the area under the concentration versus time curve of MK-8931 as well as observation of the maximum plasma concentration of MK AstraZeneca and Eli Lilly AZD3293 AstraZeneca (AZN) and Eli Lilly (LLY) are currently collaborating in the development of AZD3293 a BACE1 inhibitor. Safety and efficacy testing were the primary focuses of previous studies. The companies have recently provided study results for a Phase 1 two part single and multiple dose safety, pharmacokinetics, and effects study. This study was structured as a randomized, double-blind, placebo-controlled, single and multiple ascending dose study to assess the safety, tolerability, pharmacokinetics and effect on biomarkers of AZD3293. The primary objective of this study was to identify both what safety issues the drug may pose and to identify how many participants report said issues. Primary and secondary focuses of this study were comprised of adverse events assessments and tolerability measurements. Results identified no serious adverse effects though minor side effects such as dizziness, headache, and infection (nasopharengitis) were observed. The companies plan to advance the product into Phase 3 clinical trials and the FDA has granted fast track designation for development of this product. AstraZeneca and Eli Lilly and Company announced, in December 2016, a worldwide agreement to co-develop MEDI1814, an antibody selective for amyloid-beta 42 (Aβ42), which is currently in Phase I trials as a potential disease-modifying treatment for Alzheimer s disease. Novartis (NVS) BACE inhibitor Novartis (NVS) has entered a global partnership with Amgen (AMGN) in part to co-develop Novartis BACE inhibitor therapy molecule CNP520. Dosage, safety, and tolerability trials have been completed and the companies are currently in the recruiting stage for their study of CAD106 and CNP520 versus placebo in participants at risk for the onset of clinical symptoms of Alzheimer's disease. This is a randomized, double-blind, placebo-controlled, two-cohort, parallel group study to evaluate the efficacy of CAD106 and CNP520 in participants at risk for the onset of clinical symptoms of Alzheimer s disease. The primary outcome of the study is currently to identify the time until diagnosis of MCI due to AD or dementia due to AD and to identify change in the Alzheimer's prevention Initiative composite cognitive (APCC) test score between the baseline and over the following 60 months. Secondary outcomes will be measures of changes in dementia ratings, safety and adverse effect recording, AD related biomarker changes, immune responses, and change on the total scale score and individual neurocognitive domain index scores of the RBANS. The study is estimated to be completed in August 2023 with no currently defined periodic results schedule. Page: 27 of 53

28 ANAVEX 2-73 comparison with other drugs in development Currently, four FDA approved drugs are sold to treat the symptoms of Alzheimer s disease. ANAVEX 2-73 differs from these approved competitors as the drug is in development to treat the cause of the disease, which is believed to be the misfolding of proteins. As previously stated, the sigma-1 receptor is at the root of the misfolding, which ANAVEX 2-73 aims to work as an agonist to the sigma-1 receptor. Other companies competing product candidates for on beta-secretase (BACE) inhibition with E2609 and CNP520 stated generally as BACE inhibitors, AZD3293 as a BACE1 inhibitor, and MK-8931 as a BACE1 and BACE2 inhibitor. The goal of these BACE inhibition candidates is to mitigate symptoms of the disease and lessen its severity through prevention of plaque buildup. The products on the market already serve to treat the symptoms of Alzheimer s disease. Such drugs include Aricept, Razzadyne, and Exelon which act as Cholinesterase Inhibitors and slows acetylcholine breakdown. Other drugs such as Namenda regulate glutamate activity. In both cases these drugs serve to manage the symptoms of the disease and do not alter or slow the diseases progression. ANAVEX 2-73 in Alzheimer's disease In preclinical mouse models, mice were treated with ANAVEX 2-73, administered orally, once a day, for two months. Results were found to alleviate both learning and memory deficits similarly seen in the progression of AD. The preclinical observations displayed a strong effect that was not seen to be linked to amyloid-beta. This was due to the findings that ANAVEX 2-73 marginally decreased amyloid-beta in the brain. As ANAVEX 2-73 is targeting both mixed muscarinic and sigma-1 receptors, the study suggests that the drug is able to achieve further benefits when compared to clinical compounds taking a single-target approach. The upstream (multitarget) approach may be a more comprehensive approach to treat the complex disease of Alzheimer s. Findings in the AD animal models confirmed the efficacy of the mixed muscarinic cholinergic and the sigma-1 receptor agonist in a chronic transgenic mouse model of Alzheimer s, suggesting protection of the brain during the most aggressive phase of the AD pathology. ANAVEX 2-73 was found to dose-dependently blocks Tau and amyloid-beta proteins and memory deficit in a mouse model of Alzheimer s disease (AD). A reduction in these areas displays a potential to halt and/or reverse the course of Alzheimer s disease. The success of preclinical trials were significant enough to begin preparations for an Investigational New Drug (IND), eventually progressing into human trials. ANAVEX 2-73 Phase 1 data- Alzheimer s ANAVEX completed a Phase 1 Escalation Study to Investigate safety, tolerability, and pharmacokinetics. The Page: 28 of 53

29 study was conducted in Germany by ABX-CRO in collaboration with Technical University of Dresden. It was a randomized, double-blind, placebo-controlled within each dosage step, two cohorts alternating single dose escalating study in healthy male subjects. The primary objective of the study was to evaluate the safety and tolerability of ANAVEX 2-73 following single oral administration of escalating doses in subjects. The secondary objective was to determine the pharmacokinetics (how the drug moves in the body) of single oral doses of ANAVEX Results of the study indicated a favorable safety profile for ANAVEX 2-73 as no serious effects were reported, no discontinuations due to adverse effects occurred, and no dose-limiting adverse events or anomalies for 1, 10, 30, 40, and 50mg doses were observed. The maximum tolerable dosage was identified to be 55mg with adverse effects occurring above 55mg. Moderate and reversible occurrences of dizziness and headaches were reported. At 60mg the complaints were abdominal pain (1), nausea (2), vomiting (3), and acute diarrhea. Other side effects observed were one subjects experience of euphoric mood and another subject presented with mild depressive symptoms, each at the highest dose levels. PK data revealed biotransformation of ANAVEX 2-73 to its main metabolite, which also actively targets the sigma-1 and muscarinic receptors like its parent drug ANAVEX It is suitable for daily oral dosing based on its PK profile and shows rapid absorption into the blood. The biological half-life (T1/2) for ANAVEX 2-73 was 8.56 hours and hours for its metabolite. These results are excellent for ANAVEX 2-73 as it primarily indicated that the drug has viable save dosage levels, that are effectively absorbed and metabolized. This trial effectively identifies ANAVEX as viable for consumption. ANAVEX 2-73 Phase 2a Safety and exploratory dose finding clinical trial Trial Objective The Phase 2a trial is designed with the objective of obtaining information on PK/PD (pharmacokinetic/pharmacodynamic) and safety. As many patients are under-treated and not receiving the optimal dose, Phase 2a PART A was designed to be dose-finding. The objective of this trial was not to determine efficacy. Instead, this study is expected to provide information on potential trial design for a future trial, aimed at exploring efficacy. Trial Design The Phase 2a Alzheimer s trial enrolled 32 mild-to-moderate AD patients (72% already taking donepezil) in Part A of the two-part trial. The trial design for Part A was a randomized, open-label, two-period trial with on-and-off dosing to assess bioavailability and crossover between the 30 mg and 50 mg oral doses and 3 mg and 5 mg intravenous doses. Subsequently, Part B will be an open-label, 52 week extension to assess a longer-term effect of the drug. The primary endpoint of the Phase 2a trial will assess tolerability of the maximum dose, with secondary endpoint assessing a dose response, bioavailability, and cognitive effects using, Mini Mental State Examination Page: 29 of 53

30 (MMSE), and evaluation of ADSC-ADL and Anavex PLUS. Exhibit 5: PART A and PART B Trial Designs. PART A is a simple randomized, open-label, two-period, crossover between oral (30mg/50mg) and IV (3mg/5mg) administration, adaptive trial lasting up to 5 weeks for each patient. PART B is an open-label extension for an additional 52 weeks. Initially planned for 26 weeks, PART B was extended to 52 weeks as a result of requests from patients and caregivers. Source: Anavex Trial data of endpoints Interim analysis of the first 14 patients at week 12 in the Part B study portion, demonstrated an ADCS-ADL improvement of points. Cogstate tests (measure of a person s ability to store and use information) demonstrated improvements in ANAVEX 2-73 patients for attention, memory, and psychomotor function. Attention and memory improvements were statistically significant with corresponding p-values of p< 0.05 and p< 0.001, respectively. Depicted in Exhibit 6 below are the secondary endpoints of MMSE and ADCS-ADL measuring cognition and behavior, respectively. Both secondary endpoints were maintained close to baseline through week 57. The secondary endpoint for MMSE displayed a 1.8 MMSE points improvement, representing a p-value of p= , when compared to the historical standard of care. The result was statistically significant at a minimum dose of 14 mg of ANAVEX The secondary endpoint for ADCS-ADL displayed a 1.8 points improvement, representing a p-value of p= , when compared to the historical standard of care. Page: 30 of 53

31 Exhibit 6: Cognition: MMSE All Patients (Phase 2a Clinical Trial Data). The initial analysis of the 5-week Part A portion of the Phase 2a study, showed highly statistically significant improvements in Cogstate tests. The figure depicts the improvement in median MMSE score, displaying a +1.5 change over baseline at the 5-week period, representing a p-value of p= The MMSE mean score was maintained close to baseline over a 57-week period. The ADCS-ADL (quality of life score) maintained close to baseline through week 57, with a 4 ADCS-ADL points improvement, representing a p-value of p= , to the historical standard of care. Source: Anavex Page: 31 of 53

32 Exhibit 7: Reduction in Symptoms. Part A displayed a reduction in insomnia, anxiety and other cognitive and behavioral symptoms assessed in the short trial. Figure 7 displays the symptoms improvements. Source: Anavex Page: 32 of 53

33 Exhibit 8: Function: Improves Components of Cogstate Tasks. Interim analysis of the first 14 patients at week 12 in the Part B study portion, demonstrated an ADCS-ADL improvement of points. Cogstate tests (measure of a person s ability to store and use information) demonstrated improvements in ANAVEX 2-73 patients for attention, memory, and psychomotor function. Attention and memory improvements were statistically significant with corresponding p-values of p< 0.05 and p< 0.001, respectively. Source: Anavex Axovant's RVT-101 Phase IIb overview Axovant completed a Phase IIb randomized, double-blind, placebo-controlled, trial in 684 mild-to-moderate Alzheimer s patients. Patients in the study were randomized in a 1:1:1 protocol to receive either RVT mg, RVT mg, or placebo (donepezil). The co-primary endpoints we will focus on is the ADCS-ADL scores at week 24 relative to placebo. At the 35 mg dose, RVT-101 met the co-primary endpoint, achieving statistical significance at weeks 12, 24, 36, and 48 compared to patients receiving donepezil alone. The ADCS-ADL benefit relative to placebo at weeks 24 and 48 were 2.11 (p= 0.016) and 2.34 (p= 0.048), respectively. No significant drug-related serious adverse events were observed in the RVT-101 treatment group at weeks 24 or 48. For adverse events (AE) between treatment and placebo groups, results were not statistically significant. Further, a lowered percentage of withdrawal and drug-related AE s were reported in the 35 mg RVT-101 group than in the control group. Based Page: 33 of 53

34 upon the balance of efficacy and safety of the co-primary endpoints, with the low drop-out rate, the company will advance the 35 mg dose into the Phase III MINDSET study. Exhibit 9: Axovant's RVT-101; ADCS-ADL baseline change from placebo: Exhibit 9 depicts the ADCS-ADL score improvement of (p= 0.016) and (p= 0.048) at week 24 and 48, respectively for RVT-101 (Intepirdine) at 35 mg. The 15 mg dose did not show much difference from placebo at week 48. Source: Axovant Anavex Extension Trial Following approval from the Australian Ethics Committee, a trial extension was announced allowing subjects whom successfully complete the 52 weeks in PART B to roll-over in an additional trial for 104 weeks. The twoyear trial will allow the company to extend safety and efficacy data following positive feedback from patients and caregivers alike in regards to the effects of the treatment on cognitive and functional benefits. The open-label extension study will assess primary and secondary endpoints every three month. The primary endpoint of the extension study is to establish safety and tolerability of ANAVEX 2-73, with secondary endpoints assessing cognitive and functional measurements using Mini Mental State Examination (MMSE) and evaluation Page: 34 of 53

35 of Activities of Daily Living Inventory (ADCS-ADL), respectively. Anavex and Ariana Pharma started to collaborate in hopes of expediting ANAVEX 2-73 s Phase 2/3 Alzheimer s clinical development time frame. This partnership is advantageous because Ariana has ownership over a patient stratification technology entitled KEM that can minimize the time frame it takes to conduct the remaining Phase 2/3 Alzheimer s clinical development. KEM is wide ranging and FDA-tested clinical data analysis system that allows for the full examination of datasets. In specific, KEM provides researchers with excess analysis pertaining to each patient in a disease group. For this study specifically researchers will be studying 32 patients. This is similar to data collected by other studies that are larger in size yet the study will remain to be efficient in reference to its cost and efficiency. 9. Rett Syndrome Program Overview Rett syndrome is a rare X-linked dominant postnatal neurological disorder that primarily presents itself in girls though it can rarely be seen in boys. It is caused by mutations in X-linked MECP2, encoding methyl-cpgbinding protein 2. There are variations of Rett syndrome that do not contain all the diagnostic features of classic Rett syndrome and are either milder or more severe. There currently exists no cure for Rett syndrome, but medical and therapeutic treatments aid in the management of symptoms (33). In an exploratory study testing the neurodevelopmental effects of ANAVEX 2-73 for rare disease like Rett syndrome, a 12-week, behavioral study was conduct in a mouse model. Wild type (WT) and vehicle-treated wild type (HET) were studied. The ANAVEX 2-73 doses of 10 mg/kg and 30 mg/kg were given to 20 Het mice each, which 20 WT and 20 separate HET mice were treated with 0.25% MC/H20. The design criteria measure core deficit observed in Rett; including muscular coordination, balance, motor learning and muscular strengths. Clasping, both normal and impaired, were noted with HET mice clasping more than WT at both 8 and 12 week observation periods. The mice treated with ANAVEX 2-73 (30 mg/kg) clasped less than HET mice at both 8 and 12-week period. Acoustic startle was measured as an unconditioned reflex response to external auditory stimulation, with WT mice having a higher start response rate compared to impaired mice. HET mice started less than WT mice, with ANAVEX 2-73 (30 mg/kg) treated mice showing an increase startle response compared to the HET mice. Page: 35 of 53

36 Exhibit 10: Significant improvements seen in multiple movement impairments in mouse models. Source: Anavex A NeuroCube was used as a platform employing computer vision to detect changes in gait dynamics. Here mice walk into a chamber, during the 5-min time frame images are captured using bio-informatic data mining algorithms. The ANAVEX 2-73 (30 mg/kg) mice demonstrated statistically significant improvement in GAIT, correlation, and body movement. Data demonstrated significant improvements in both behavioral and gait (walking impairment) patterns in the mouse model with a MECP2-null mutation that causes neurological symptoms that mimic Rett syndrome. The positive preclinical data may the potential for the mechanism of action of ANAVEX 2-73 to target not only neurodegenerative diseases, but neurodevelopmental diseases, as well. We believe targeting this indication will offer the company a competitive advantage Rett Syndrome (Epidemiology) Progression of Rett Syndrome can be broken down into 4 stages: Stage I, early onset. Begins between the ages of 6 to 18 months. Motor skills may develop slower, primarily notable in how long it takes them to start sitting and crawling, and decreased head growth can occur though often not to a visually noticeable extent. This stage usually lasts for a few months but can continue for more than a year (35). Page: 36 of 53

37 Stage II, rapid destructive stage. Begins between ages 1 and 4 and can persist for periods as short as a few weeks to a few months. At this stage the slowed head growth is more noticeable. Symptoms can include loss of purposeful hand skills, loss ability for spoken language, a large variety of hand movements such as wriggling, clasping, and random touching can occur while the child is awake. Walking and initial motor movements may become difficult, and breathing irregularities can occur predominantly while the child is awake. In some cases, the child will display autism like social symptoms (35). Febrile seizures, and epileptic paroxysms occur in most patients with the severity varying, ranging from relatively mild or easily controlled by medication to severe drugresistant episodes (34). Stage III, plateau or pseudo-stationary stage. Begins between ages 2 and 10 and can last for years. Many of the symptoms from stage 2 become more prominent while others may recede slightly. Specifically, apraxia, motor problems, and seizures stand out during this stage. Behavioral improvements have been noted usually displaying less irritability, crying, and autistic-like features. Communication skills may improve with the child becoming less withdrawn and more alert to their surroundings during this stage (36). May also experience cold feet and lower limbs, with or without color and atrophic changes. This is due to poor perfusion, which is a consequence of altered autonomic control. Frequent nighttime waking and daytime sleeping as well as unexplained night laughing, and sudden agitation can occur. Many sufferers of Rett syndrome will remain in this stage for most of their lives. Stage IV, late motor deterioration stage. This stage can persist for decades and the severity of symptoms related to motor function can get worse. Prominent features of this stage include reduced mobility to the extent losing the ability to walk, scoliosis, muscle weakness, rigidity, spasticity, and abnormal posturing of arms, legs or top of body. Cognitive functions, communication, and hand skills tend not to decline and potential decreases in repetitive hand movements and improved eye gaze may occur (36). The motor deterioration continues with age and due to immobility, many patients will eventually suffer from pronounced muscle wasting and at older ages many develop Parkinsonian features (34). It is estimated that 1 in every 10,000 females under the age of 12 suffer from Rett Syndrome making it the second largest genetic cause of mental retardation in females (34). Within the United States federal government, many organizations support clinical and basic research on Rett syndrome. Research is primarily focused around the MECP2 genes potential mutations and in identifying the mechanisms by which the genes absence effects mature brain cells. The NIH spends about $12 million dollars annually on Rett Syndrome research. Standard of care Treatment and care of patients with Rett syndrome can involve, help with feeding and diapering, methods to treat constipation and GERD, Physical therapy to help prevent hand problems, Weight bearing exercises for those with scoliosis. A feeding tube may be needed if the child aspirates food. High calorie diets help in combating the slowed growth and weight gain may improve alertness and social interactions. A variety of Page: 37 of 53

38 medications are used to manage symptoms such as carbamazepine for the seizures. Costs of care vary dependent on the severity of the symptoms and have been recorded to range between $238 and $85,776 ($21,158 mean) in annual costs based on a study of individuals with Rett syndrome on the Australian Rett syndrome Database (35). Endpoints for a Rett Syndrome clinical trial Preclinical Trial ANAVEX 2-73 is effective in suppressing the symptoms of Rett syndrome due to its ability to strategically target the sigma-1 and muscarinic receptors. The sigma-1 receptor (S1R) stimulates recovery of cell function when activated. ANAVEX 2-73 targets the sigma-1 receptor as a sigma-1 receptor agonist and has demonstrated improvements in a range of behavioral and gait paradigms (specifically stride length and front step length) mouse models for Rett syndrome. Additionally, ANAVEX 2-73 has displayed anticonvulsant, anti-amnesic, neuroprotective, and antidepressant properties in a variety of animal models. Drug development and the timeline and efficacy and safety profiles In an experiment sponsored by the Resttsyndrome.org Scout Program, administered by PsychoGenics Inc. promising data revealed that some Rett symptoms have been suppressed due to the usage of ANAVEX This test was performed by allowing mice with MECP2-null mutation treated with ANAVEX 2-73 to walk in a chamber that recorded their paw placements and processed the captured images through bioinformatics data mining algorithms. Startle responses to audio stimulation, paw clasping of hind legs, and rotarod balance were all measured and significant improvements in mice treated with ANAVEX 2-73 over the vehicle treated mice were observed. Anavex completed a preclinical escalation study to investigate safety, tolerability, and pharmacokinetics of ANAVEX Results of the study indicated a favorable safety profile for ANAVEX 2-73 as no serious effects were reported, no discontinuations due to adverse effects occurred, and no dose-limiting adverse events or anomalies for 1, 10, 30, 40, and 50mg doses were observed. The maximum tolerable dosage was identified to be 55mg with adverse effects occurring above 55mg. Moderate and reversible occurrences of dizziness and headache were reported. At 60mg the complaints were abdominal pain (1), nausea (2), vomiting (3), and acute diarrhea (1). It is suitable for daily oral dosing based on its PK profile and shows rapid absorption into the blood. The biological half-life (T1/2) for ANAVEX 2-73 was 8.56 hours and hours for its metabolite. This was an excellent result for ANAVEX 2-73 as it primarily indicated that the drug has viable save dosage levels, is effectively absorbed into the body, and metabolizes neither very rabidly nor at an excessively slow rate. This trial effectively identifies ANAVEX 2-73 as viable for consumption with a favorable safety profile. Page: 38 of 53

39 Upcoming Phase 2 Trial of ANAVEX 2-73 Trial Design The design of the trial (expected to begin in 2017) will be a 12-week randomized, double blind, placebocontrolled in approximately 50 to 80 Rett syndrome patients. Primary and secondary endpoints include safety as well as Rett syndrome conditions such as cognitive impairment, motor impairment, behavioral symptoms and seizure activity. Funding through Rett Syndrome Foundation The Rett Syndrome Foundation awarded Anavex with an economic grant of at least $600,000. This grant will enable Anavex to conduct most of its U.S. based multicenter Phase two clinical trial of ANAVEX 2-73 for the treatment of Rett Syndrome. The trials are set to commence in These trials will be arbitrary, double blind, placebo-controlled study of ANAVEX The study will last up to 12 weeks. The trial will study ANAVEX 2-73 in patients with Rett syndrome. Other aspects that will be critically observed throughout the progression of these trials include cognitive/motor impairment, behavioral symptoms, and seizure activity. Current pre-clinical research that is independent to ANAVEX 2-73 demonstrates that ANAVEX 2-73 might positively impact a diverse range of the symptoms that are affiliated with Rett syndrome. Page: 39 of 53

40 10. Programs in Preclinical Development Parkinson's Disease Parkinson's disease (PD) is a progressive neurodegenerative disease of the nervous system that affects movement. It may start with a small tremor but overtime increases to a more noticeable shake; and although shaking is the most well-known sign of Parkinson's disease, the disease also causes stiffness and slowed movement. The exact cause of Parkinson's disease remains unknown, but researchers have identified factors, such as genetics and environmental triggers that may be possible origins (36). Primary Symptoms The four primary symptoms Parkinson's disease are 1) tremors (trembling of the hands, arms, legs, jaw, and face), 2) slowed movement (bradykinesia), 3) rigid muscles or stiffness of limbs and trunk, and 4. impaired posture and loss of coordination. Due to the effects of Parkinson's disease, many patients experience decreased quality of life through other systematic effects of Parkinson's disease; episodic freezing of movement, tendency to fall easily, and difficulty breathing. Patients suffer from a loss of spontaneity and flexibility; making eating and going to the restroom difficult. Parkinson's disease progresses slowly in most people and, can be lived with for twenty years or more from the time of diagnosis. Parkinson's disease is chronic and progressive with symptoms growing worse throughout the duration of the disease (36). Stages and Symptoms of Parkinson's The symptoms of Parkinson's disease can be summed up in five stages: Stage 1- Patient experiences mild symptoms that make day-to-day activities difficult such as brushing teeth or getting dressed. Patient will also begin to lose balance, experience tremors, and have worsening posture. Stage 2- The symptoms described in stage 1 will advance in severity and, begin to affect both sides of the body, the patient will experience difficulty in walking. Stage 3- The patient's symptoms increase in severity and, will show an inability to walk straight and stand. Stage 4- In this stage the patient may be able to walk but is severely limited, in this stage tremors may be reduced or cease completely. Stage 5- In the fifth stage the Parkinson's completely impedes the patient's ability to move about freely, and patients will be unable to care for themselves and will require constant care (36). Parkinson's and the Substantia Nigra Parkinson's Disease (PD) is usually characterized by a loss of the dopamine neurons in the substantia nigra. When the area of the brain stem named the substantia nigra (which controls movement) stops producing dopamine, the brain does not receive signals regarding how and when to move. The substantia nigra is located in the midbrain and, plays a major role in movement. The substantia nigra plays a key role in brain function Page: 40 of 53

41 related to eye movements, motor planning, learning, and addiction. Brain Stimulation and Motor Function Pathway on Parkinson's Mechanism of Action The basal ganglia (situated at the base of the forebrain) is a group of nuclei in the brain which act together to perform as a functional unit, regulating voluntary motor function, eye movements, routine behavioral activity, and cognitive function. One of the main components of the basal ganglia and, the nuclei source in the neurological dysfunction of Parkinson's disease is the substantia nigra. Other major nuclei that play roles in the functional pathway of the motor system are known as the striatum, globus pallidus, nucleus accumbens, and the subthalamic nucleus. Substantia nigra - plays an important role in reward, addiction, and movements. Striatum a major input system inside part of the brain Globus pallidus - involved in the regulation of voluntary movement Nucleus accumbens - contains neurons that are part of basal ganglia, receives dopamine neurons, and is associated with the pleasure system of the brain Subthalamic nucleus - strong reciprocal connections link, the subthalamic nucleus and external segment of the globus pallidus. As a result of the indirect and direct neurological functions, the basal ganglia play a central role in neurological disease movement disorders such as Parkinson's disease and Huntington disease (37). Abnormalities in the basal ganglia through direct and indirect pathways can result in functional neurological disorders. Glutamate (Glu) is a non-essential amino acid, and an import neurotransmitter that plays a key role in long-term potentiation and, is excitatory in nature. The striatum (a major input system inside part of the brain) receives the cortical neurons (glutamate) and, then projects these responses from the cortex in two different pathways, direct and indirect (37). Parkinson's Disease Therapeutics - First Line and Adjunct Therapies Currently there are a number of drugs approved in the US to treat the symptoms of idiopathic Parkinson's disease; resting tremor, rigidity, and bradykinetic movements (slow movements). Currently, there is no cure for Parkinson's disease; therefore patients require ongoing therapeutics to potentially slow the progression and, to treat mild, moderate, and severe cases. The Parkinson's disease prescription drug market is comprised of first line therapeutics, as well as adjunct therapy and, secondary treatments. Levodopa (a metabolite precursor of dopamine which is converted to dopamine in the brain), dopamine agonist (have relative affinity to stimulate dopamine receptors), and MOA-B and COMT inhibitors (inhibitory activity causes an increase in extra cellular levels of dopamine), are the mainstay and highest prescribed first line and adjunct therapies prescribed to treat the symptoms of Parkinson's disease. In 2015, there were approximately 3.6 million prescriptions written in the US and $513 million in levodopa based sales (38). Levodopa/Carbidopa Levodopa, is a crystalline compound and is designed as a pre-synaptic agonist intended to replace declining dopamine levels. Ideally, a dopamine replacement would provide patients with declining production of dopamine levels the needed dopamine to stimulate the direct and indirect pathways for normal neuron function (i.e. motor Page: 41 of 53

42 function); however, dopamine is unable to cross the blood brain barrier and, is ineffective as a result. Levodopa is a metabolite precursor to dopamine, and it is suggested that levodopa is converted to dopamine in the brain, therefore relieving the symptoms of Parkinson's disease (38). Levodopa is the gold standard in the management of motor symptoms of Parkinson's disease. However, it is important to note that orally administered levodopa is rapidly broken down (decarboxylation) to dopamine in the extracerebral (outside the brain) tissue; therefore only small portion of oral administration reaches the brain. Carbidopa, an inhibitor of decarboxylation of levodopa to the extra-cerebral tissue, is combined with levodopa, thus making levodopa more available for transport to the brain. Only about 30% of an oral dose of levodopa reaches systematic circulation when not administered with carbidopa (38). Combinations of levodopa/carbidopa were first approved to treat Parkinson's as early as Merck's (MRK: Not Rated) drug Sinemet (carbidopa-levodopa), a 2 to 3 times daily oral tablet, was approved by the FDA in Today the drug is available in generic form and in 2015 the generic formulations generated US sales of $386 million from 2.9 million prescriptions. Levodopa Phenomenon A Mainstay Treatment Levodopa is generally regarded as a mainstay treatment intended to restore striatal dopamine levels and can improve the quality of life and life expectancy of Parkinson's patients. Levodopa is used to treat early, mid, and late stage Parkinson's disease patients. At some point levodopa is used in mostly all patients along the advancing stages of disease. The dynamics of the levodopa mechanism of action create a more complicated and complex treatment paradigm for Parkinson's patients. In advanced stages, small and frequent doses are often required due to declining neurons, the short half -life of the drug, and slow onset of an optimal drug concentration needed to produce a clinical effect. Carbidopa combined with levodopa offer patients a half-life of about 1.5 hours, compared to 50 minutes when levodopa is administered as a mono-therapy. Levodopa's natural transport (peripheral conversion) to extracerebral tissue in addition to the short half-life of the drug requires patients to take several doses per day to maintain a response threshold for a clinical effect on Parkinson's symptoms (tremors, slowed movement, rigid muscles, coordination, and impaired posture). Preclinical Trial ANAVEX 2-73 for Parkinson's disease A study Investigating the potential neurorestorative effects of a clinical sigma-1 receptor agonist in a mouse model of Parkinson s disease performed by Lund University used ANAVEX 2-73 as its sigma-1 agonist to test dose-response effects of ANAVEX 2-73 on the behavior of intact mice, perform a behavioral-pharmacological evaluation of the effects of the compound in mice sustaining intrastriatal 6-hydroxydopamine (6-OHDA) lesions. Treatment is given daily for 5 weeks and the analyses were done in a blinded fashion. The objective of this study was to investigate the potential neurorestorative effects of ANAVEX 2-73 using an animal model. The study is funded was by The Michael J. Fox Foundation for Parkinson s Research. Page: 42 of 53

43 The study found that ANAVEX 2-73 reduced novelty/stress-induced horizontal activity (a potential anxiolytic effect) while basal activity levels were not significantly reduced. Behavioral patterns were completely normal (no signs of either dystonia or stereotypic behaviors). Experiments on mice sustaining 6-OHDA lesions show an amelioration of parkinsonian motor symptoms in tests assessing spontaneous rotational activity and forelimb use asymmetry. They concluded that ANAVEX 2-73 has robust neurorestorative effects on the nigrostriatal DA pathway. Effects observed are consistent with those produced by the selective sigma-1 receptor agonist PRE084 in a previous study adding support to the σ-1r as a target for disease-modifying treatment in parkinsonian disorders. ANAVEX 2-73 could be a suitable investigational drug for this indication. With the safety and tolerability of the compound previously determined in human subjects, along with preliminary data in, both in a Phase 2a trial for AD, a five week dosing study of ANAVEX 2-73 was conducted in a 6-hydroxydopamine lesions mouse model of Parkinson s disease was followed by a battery of standardized tests that are linked to parkinsonian motor symptoms. The preclinical data was well-tolerated, showing the ability to induce significant motor recovery and reduce microglial activation (potential biomarker for PD), both with statistically significant p-values of p< No signs of behavioral abnormalities were seeing, including dystonia ( spasms, cramps, posture ). Though this is far from a human trial, it does provide supporting evidence into the potential for sigma-1 agonists in the treatment of Parkinson s and acts as a reassurance as to the potential of ANAVEX 2-73 as it undergoes pre-clinical assessment for treatment of Parkinson s. Partnership Michael J. Fox Foundation The Michael J. Fox Foundation is the world s largest nonprofit founder of Parkinson s research. Its focus is on the acceleration of development of improved therapies and cure research for Parkinson s disease. The foundation has awarded Anavex a research grant for the development of ANAVEX 2-73 for treatment of Parkinson s disease and will fully fund a pre-clinical trial into ANAVEX 2-73 s potential efficacy in treatment of Parkinson s. Michael J. Fox Foundation funded ANAVEX 2-73 drug candidate study was presented at World Parkinson Congress 2016 The Michael J. Fox Foundation for Parkinson s Research has provided Anavex with a research grant. This will enable Anavex to develop a preclinical trial that could be classified as a Parkinson s pre-clinical trial. Multiple Sclerosis A Crippling, Long-lasting Disease Multiple Sclerosis (MS) is marked as a progressive autoimmune disease affecting the central nervous system (CNS) (39). This long-lasting disease can affect the brain, spinal cord, even the eye s optic nerves, leading to problems with one s vision, balance, and muscular control. Today, the disease affects approximately 400,000 Page: 43 of 53

44 people within the United States, and upwards of 2 million worldwide (40). Multiple Sclerosis is initiated by the immune system attacking the protective coating on nerve fibers (myelin sheath) in the central nervous system. Without this protection, the nerves are vulnerable to damage. The damage creates a lesion, disrupting the flow of nerve impulses from the brain to the spinal cord. These disruptions lead to a variety of symptoms including: numbness, pain or tingling in parts of the body, affecting vision, sensation, coordination, movement, and bladder and bowel control (41). Eventually, the disease can cause the nerves themselves to deteriorate or become permanently damaged. Signs and symptoms of MS vary widely and depend on the amount of nerve damage. Some people with severe MS may lose the ability to walk independently or at all, while others may experience long periods of remission without any new symptoms. Currently, available therapeutics help to decrease recovery time between MS episodes, to manage symptom more efficiently (41). Multiple Sclerosis is quantified by using the Expanded Disability Status Scale (EDSS). The disease is marked by symptoms that impair cognitive functions, sensory and motor skills, leading to a progressive disability. Impairment is measured on a 0-to-10 scale, with 0.0 representing no impairment from MS, and 10.0 representing death due to MS (42). Anavex and Biogen material transfer agreement Anavex and Biogen have entered into a material transfer agreement under which Biogen will test ANAVEX 2-73 in an oligodendrocyte precursor cell (OPC) differentiation assay. If the results from the OPC assay are satisfactory Biogen may progress to an in vivo demyelination study using a chemical demyelination model. The purpose of this study will be to identify ANAVEX 2-73 s potential role in therapies focused on demyelination in the brain. Page: 44 of 53

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48 Company Profile Anavex Life Sciences is a biopharmaceutical company developing innovative therapies for neurological disorders and cancer. The company uses its SIGMACEPTOR Discovery Platform to develop novel drugs that target neurological and neurodegenerative diseases, such as Alzheimer s, Parkinsons's, Rett Syndrome and different forms of cancers. The lead product candidate, ANAVEX 2-73, is on path for a Phase 2/3 in Alzheimer s disease and a Phase 2 study in Rett s Syndrome. In previous trials, ANAVEX 2-73 has exhibited a high affinity and selection to sigma-1 receptors, and has shown synergistic action with other receptors, such as Muscarinic and N-methyl-D-aspartate (NMDA) in clinical trials. The drug has also displayed a favorable side effect profile, which can be beneficial to patients and advantageous when compared to current treatments. Valuation Summary We value Anavex Life Sciences based on a risk-adjusted net present value (rnpv) of its CNS product pipeline and SIGMACEPTOR Discovery Platform. The company is valued at $16/per share over the next year. The main investment driver is ANAVEX 2-73 for Alzheimer s disease, in preparation for a Phase 2/3 trial, as well as ANAVEX 2-73 for the Rett s syndrome, in preparation for a Phase 2 trial. The Phase 2a Alzheimer s trial recently reported Phase 2a data in 4Q16, with preparations for a Phase 2/3 trial ongoing with a trial expected to commence later in Conservatively, we assess a 18% probability of success for the Alzheimer s disease program based on data so far and the higher risk associated with Alzheimer's trials. The market potential for a safe and efficacious therapeutics for mild-to-moderate Alzheimer s patients, with the potential to reduce the cognitive decline is large and of significant need. We conservatively assume that ANAXEX 2-73 will be used by 600K of the 5.2 million Alzheimer's patients at a cost of $10,000 per year with a peak sales potential of $6B in Preclinical data for ANAXEX 2-73 for Rett s syndrome (Orphan Drug Designation granted by FDA) was reported 2Q16, with preparations for a Phase 2, placebo-controlled trial ongoing, with a trial expected to commence in Conservatively, we asses a 20% probability of success for the Rett s syndrome program given the positive preclinical data in mouse models. The market potential for a safe, efficacious, therapeutics for Rett s patients is large and of significant unmet need as there is currently no cure and limited treatment. We conservatively assume ANAVEX 2-73 for will be used in 5,000 patients with a peak sales potential of $500M in We include a 20% technology premium to account for the potential in other indications. Given the current valuation, Anavex stock has a favorable risk/reward profile and has the potential to offer Page: 48 of 53

49 significant returns to investors. We believe the targeting the Sigma 1 Receptor is unique and innovative in attempting to treat the root cause of the disease, where other therapeutics intend to manage cognitive decline. Page: 49 of 53

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