Shareholders of Anavex Life Sciences Corp are in for some bad news. The stock prices of the biotech fell more than 20% after the Securities and Exchange Commission subpoenaed it (gave it an investigation order) a week ago, on December 22nd  on what seems to be suspicion of insider trading. As of January 5, the stock price is down to $5.86 according to the NASDAQ Stock Market.

The company revealed this grim news in the annual 10k report filing of the company’s financial performance, explaining that the SEC wants to investigate the internal affairs of the corporation, particularly regarding the trading of shares in the stock market. Pomerantz LLP, a top tier corporate and securities law firm, is the representing counsel for the company, defending it and its investors against claims that it has breached section 10(b) and section 20(a) of the Securities Exchange Act (1934).

Section 10(b) is an anti-fraud rule and is titled “Position Limits and Position Accountability for Security-Based Swaps and Large Trader Reporting”, while section 20(a) is about “Liability to Contemporaneous Traders for Insider Trading.” The rules explained in the latter section imply that the company will only be liable if insider trading is proven. The management has however expressed confidence in their innocence and transparency, saying they will cooperate with the SEC throughout the investigation process.

Adding onto the bad news was the announcement of less than stellar financial results. The company registered losses totaling to $12.1 million, worse than last year’s $10.0 million. Operational costs were up by over 4 million dollars, at $10.0 million compared to $3 million in 2014.

Anavex has been working on an Alzheimer’s and neurological diseases drug, ANAVEX 3-71 in the recent past and news of this investigation by the SEC leaves many wondering if it will hinder the drug development process. Before the SEC hit, the company had released some encouraging positive data regarding the drug, which boosted its stock prices by almost 16%. That rise was against the odds as many biotech stocks have been registering declines in stock prices over the last year.  The CEO, Christopher Missling had at the beginning of this month expressed confidence in the performance of the drug and its ability to surpass the current Alzheimer treatment drug, donepezil, in its effectiveness.  Though the company assures stakeholders otherwise, it seems the latter can only wait and see how it all plays out.

This drug, though still in the pre-clinical trial stage, could be the company’s hope if it produces the same excellent results in humans, and may propel it to become competitors with other biotech giants like Biogen and Eli Lilly, who are also working on Alzheimer drugs. It may add to the company’s drug portfolio, which already has ANAVEX 2-73 and ANAVEX PLUS, the latter being an amalgamation of donepezil and ANAVEX 2-73. It may also attract potential partners and increase the company’s net value, thereby making it a viable candidate for acquisition.