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Anavex Life Sciences Stock: 1 Key Number You Must Know

I have a confession: I'm a compulsive reader of financial statements and do this sort of thing for fun. My passion doesn't get me invited to many parties, but it does give me a chance to offer helpful advice to the uninitiated.

I thought the treasure trove of curious disclosures in the SEC filings from Anavex Life Sciences (NASDAQ:AVXL) provided a perfect opportunity to shed light on some important lessons. While there are so many figures to choose from to highlight, the 100 million authorized shares of capital stock is one you absolutely must understand if you're considering investing in this pioneer of an alternative Alzheimer's hypothesis.

Slimming your slice of any potential pie
When the company reported fiscal first-quarter earnings, the number of shares outstanding at the end of 2015 was 34.65 million. In a nutshell, the 100 million authorized shares means Anavex can issue another 65.35 million shares at will, without consulting shareholders or the board of directors.

For the sake of argument, suppose Anavex earns a net profit of $100 million a few years from now. Earnings-per-share would come out to $2.88, but if it issues those shares -- and it probably will -- EPS would fall to just $1. That's a big difference in your potential share of any future earnings.

It's not at all uncommon for clinical-stage biotechs to authorize far more shares than the number issued. The ability to raise equity and keep operations running as quickly as possible is the entire point of becoming a publicly traded company. In fact, Anavex's authorized-to-issued ratio is relatively modest compared to the likes of Kite Pharma (NASDAQ:KITE) or bluebird bio (NASDAQ:BLUE).

Going (at a snail's pace) concern
However, when it comes to Anavex, "running" isn't the word I would use to describe the pace of its operations. I'll bet my hat -- as a bald person in a cold place I really need a good hat -- the company will authorize a lot more after the current 100 million have been issued. This means...