ANAVEX LIFE SCIENCES CORP. (AVXL) FY 2024 MD&A

ITEM 7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion should be read in conjunction
with our consolidated financial statements and related notes thereto included elsewhere in this report. Past operating results are not
necessarily indicative of results that may occur in future periods. This discussion contains forward-looking statements, which involve
a number of risks and uncertainties. See Forward Looking Statements included elsewhere in this report.

Financial Operations Overview

We are in
the development stage and have not earned any revenues since our inception in 2004. We do not anticipate earning any revenues until we
can establish an alliance with other companies to develop, co-develop, license, acquire or market our products.

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Our operating costs consist primarily of research and development
activities including the cost of clinical studies and clinical supplies as well as clinical drug manufacturing and formulation. Research
and development expenses also include personnel related costs such as salaries and wages, and third-party contract research organization
(CRO) expenses in support of these clinical studies. Personnel costs include salaries and wages, benefits, and non-cash share-based compensation
charges associated with options and other equity awards granted to employees and consultants who are directly engaged in support of our
research and development activities.

General and administrative expenses consist of personnel costs,
expenses for outside professional services and expenses associated with operating as a public company. Personnel costs consist of salaries
and wages, benefits and share-based compensation for general and administrative personnel. Outside professional services and public company
expenses include expenses related to compliance and reporting, additional insurance expenses, audit and SOX compliance, expenses associated
with patent research, applications and filings, investor and stockholder relations activities and other administrative expenses and professional
services.

Comparison of year ended September 30, 2024 to year ended
September 30, 2023

Operating Expenses

Our operating expenses for fiscal 2024 decreased to $52.9 million,
from $55.8 million in fiscal 2023. The decrease is attributable to a modest decrease in research and development expenses of $1.9 million
(4.3%) to $41.8 million in fiscal 2024 as well as a small decrease in general and administrative expenses of $1.0 million (8.3%) to $11.0
million in fiscal 2024, as more fully described below.

During fiscal 2024, we experienced an overall decrease
in total research and development expenses over the comparable fiscal 2023 financial year.

The decreases were largely due to:

These decreases were largely offset by the following
increases in research and development expenditures over the comparable fiscal 2023 financial year:

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The following table summarizes our research and development expenses for
the years ended September 30, 2024, and 2023 (in thousands):

External service provider cost by product candidate
was as follows (in thousands):

General and administrative expenses were $11.0 million
for the fiscal 2024 financial year, as compared to $12.0 million in fiscal 2023. The primary reason for the decrease in general and administrative
expenses was a reduction in share-based compensation charges of $1.9 million, as a result of the vesting of previous option awards and
the extended timeline of milestone based vesting awards.

We
expect to see our research and development expenditures increase from current levels as we advance our clinical programs, including continuation
of ANAVEX®3-71 trial in Schizophrenia and subsequent advancements, planned advancement of ANAVEX®2-73 for
Parkinson’s disease, planned initiation of an ANAVEX®2-73
for a Fragile X clinical trial, and as we continue to grow our staffing to manage and support these clinical initiatives.

Other income (net)

Net other income for the year ended September 30, 2024 was $9.9
million as compared to $8.3 million for fiscal 2023. The primary reason for the increase in other income was due to a one-time financing
charge of $0.9 million recognized in the comparable year associated with entering into the 2023 Purchase Agreement (as described below),
as well as an increase in interest income in fiscal 2024 earned on cash and cash equivalents, due to an increase in market wide interest
rates year over year.

During
fiscal 2024, we recorded $2.3 million in research and development incentive income, consisting of the Australian research and development
incentive credit administered through the ATO, in connection with fiscal 2024 eligible expenditures. In comparison, research and development
incentive income for fiscal 2023 was $2.7 million in connection with fiscal 2023 eligible expenditures. This income is driven by the clinical
trial expenditures incurred in Australia, and the decrease is a result of the completion of the EXCELLENCE trial in Rett Syndrome and
the Phase 2b/3 clinical trial in Alzheimer’s disease, as well as
related open label extension trials, which were completed during fiscal 2024. We expect to continue to receive support from the Australian
government for future clinical trials which we plan to conduct, in part, within Australia.

Net loss

Net loss for fiscal 2024 was $43.0 million, or $0.52
per share, compared to a net loss of approximately $47.5 million, or $0.60 per share for fiscal 2023.

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Liquidity and Capital Resources

Working Capital (in thousands)

At September 30, 2024, we had $132.2 million in cash and cash
equivalents, a decrease from $151.0 million at September 30, 2023.

We intend to continue to use our capital resources to advance
our clinical trials for ANAVEX®2-73 and ANAVEX®3-71, and to perform work necessary to prepare for future
development of our pipeline compounds.

Cash Flows

Following is a summary
of sources of cash flows for the years ended September 30, 2024 and 2023 (in thousands)

Cash flow used in operating activities

There was an increase in cash used in operating activities of
$3.0 million during fiscal 2024. The principal reason for this is an increase in net cash expenses, after taking into account non-cash
share-based compensation, over the comparable period of approximately $3.3 million.

Cash flow provided by financing activities

Cash provided by financing activities in fiscal 2024 was $12.0
million, comprised of $11.3 attributable to cash received from the issuance of common shares at various market prices under the 2023 Purchase
Agreement (as defined below) and $0.7 million received pursuant to the exercise of stock options.

Cash provided by financing activities in fiscal 2023 was $29.7
million, comprised of $27.9 million attributable to cash received from the issuance of common shares under the 2023 Purchase Agreement
and $1.8 million received pursuant to the exercise of stock options.

Other Financings

2023 Purchase Agreement

On February 3, 2023, the Company entered into a $150,000,000
purchase agreement (the “2023 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant
to which the Company has the right to sell and issue to Lincoln Park, and Lincoln Park is obligated to purchase, up to $150.0 million
in value of its shares of Common Stock from time to time over a three-year period until February 3, 2026.

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On any business day and subject to certain customary
conditions, the Company may direct Lincoln Park to purchase up to 200,000 shares of Common Stock (such purchases, “Regular Purchases”).
The amount of a Regular Purchase may increase under certain circumstances based on the market price of the Common Stock; provided, however,
that Lincoln Park’s committed obligation under any Regular Purchase shall not exceed $4.0 million. The purchase price of shares
of Common Stock will be based on the then prevailing market prices of such shares at the time of sales as described in the 2023 Purchase
Agreement. There are no limits on the price per share that Lincoln Park may pay to purchase Common Stock under the 2023 Purchase Agreement.
In addition, if the Company has directed Lincoln Park to purchase the full amount of Common Stock available as a Regular Purchase on a
given day, it may direct Lincoln Park to purchase additional amounts as “accelerated purchases” and “additional accelerated
purchases,” each as set forth in the 2023 Purchase Agreement.

The 2023 Purchase Agreement limits the Company’s
sale of shares of Common Stock to Lincoln Park to 15,606,426 shares of Common Stock, representing 19.99% of the shares of the Common Stock
outstanding on the date of the 2023 Purchase Agreement unless (i) stockholder approval is obtained to issue more than such amount or (ii)
the average price of all applicable sales of Common Stock to Lincoln Park under the 2023 Purchase Agreement equals or exceeds the lower
of (A) the closing price of the Common Stock on the Nasdaq Capital Market immediately preceding the Execution Date or (B) the average
of the closing price of the Common Stock on the Nasdaq Capital Market for the five Business Days immediately preceding the Execution Date.

The 2023 Purchase Agreement also prohibits the Company
from directing Lincoln Park to purchase any shares of Common Stock if those shares, when aggregated with all other shares of Common Stock
then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership,
at any single point in time, of more than 4.99% of the then total outstanding shares of Common Stock, as calculated pursuant to Section
13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.

In consideration for entering into the 2023 Purchase
Agreement, the Company issued to Lincoln Park 75,000 shares of Common Stock as a commitment fee (the “initial commitment shares”)
during the year ended September 30, 2023 and agreed to issue up to 75,000 shares pro rata (collectively with the initial commitment shares,
the “commitment shares”), when and if, Lincoln Park purchased, at the Company’s discretion, the $150.0 million aggregate
commitment.

During the year ended September 30, 2024, the Company
issued to Lincoln Park an aggregate of 2,455,646 shares of Common Stock under the 2023 Purchase Agreement, including 2,450,000 shares
of Common Stock for an aggregate purchase price of $11.3 million and 5,646 commitment shares. During the year ended September 30, 2023,
the Company issued to Lincoln Park an aggregate of 3,288,943 shares of Common Stock under the 2023 Purchase Agreement, including 3,275,000
shares of Common Stock for an aggregate purchase price of $27.9 million and 13,943 commitment shares as well as the 75,000 initial commitment
shares.

On September 30, 2024, an amount of $110.8 million
remained available under the 2023 Purchase Agreement.

Controlled Equity Offering Sales Agreement

On May 1, 2020, we entered into an Amended and Restated
Sales Agreement (the “2020 Sales Agreement”) with Cantor Fitzgerald & Co. and SVB Leerink LLC (the “Sales Agents”),
pursuant to which we could offer and sell shares of Common Stock registered under an effective registration statement from time to time
through the Sales Agents (the “At-the-Market Offering”).

No shares were sold during the years ended September
30, 2024 and 2023 under the 2020 Sales Agreement. The Company terminated the 2020 Sales Agreement on July 24, 2024.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

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Application
of Critical Accounting Policies

Our
financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses. These estimates and assumptions are affected by management’s
application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with
the following aspects of our financial statements is critical to an understanding of our financial statements.

We base our assumptions and estimates on historical experience
and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes in circumstances,
politics, global economics, general business conditions and other factors. Our significant estimates are related to the valuation of warrants
and options.

There are accounting policies that we believe are significant
to the presentation of our financial statements. The most significant of these accounting policies relates to the accounting for our research
and development expenses and share-based compensation expense.

Research and Development Expenses

Research
and development costs are expensed as incurred. These expenses are comprised of the costs of the Company’s
proprietary research and development efforts, including preclinical studies, clinical trials, manufacturing costs, employee salaries and
benefits and share-based compensation expense, contract services including external research and development expenses incurred under arrangements
with third parties such as contract research organizations (“CROs”),
facilities costs, overhead costs and other related expenses. Milestone payments made by the Company to third parties are expensed when
the specific milestone has been achieved. Manufacturing costs are expensed as incurred in accordance with Accounting Standard Codification
(“ASC”)
730, Research and Development, as these materials have no alternative future use outside of their intended use.

Nonrefundable advance payments for goods or services that will
be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered,
or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation
to external CROs, and clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment,
invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.
Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. The
Company reviews and accrues CRO expenses and clinical trial study expenses based on work performed and relies upon estimates of those
costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion.
Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical
site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these
contracts may be uneven and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion
of portions of the clinical trial or similar conditions. The objective of our policy is to record expenses in our financial statements
based on actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based
on our estimate of the degree of completion of the event or events specified in the specific clinical trial contract.

In addition, we incur expenses in respect of the acquisition
of intellectual property relating to patents and trademarks. The probability of success and length of time to develop commercial applications
of the drugs subject to the acquired patents and trademarks is difficult to determine and numerous risks and uncertainties exist with
respect to the timely completion of the development projects. There is no assurance the acquired patents and trademarks will ever be successfully
commercialized. Due to these risks and uncertainties, we expense the acquisition of patents and trademarks.

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Share-based Compensation

We account for all share-based payments and awards under the
fair value-based method.

The fair value of all share purchase options and warrants are
expensed over their contractual vesting period, or over the expected performance period for only the portion of awards expected to vest,
in the case of milestone-based vesting, with a corresponding increase to additional paid-in capital.

Compensation costs for share-based payments with graded vesting
are recognized on a straight-line basis. Share-based compensation expense is adjusted for actual forfeitures of unvested awards as they
occur.

We have granted share purchase option awards that vest upon
achievement of certain performance criteria, or milestone-based awards. We estimate an implicit service period for achieving performance
criteria for each award and recognizes the resulting fair value as expense over the implicit service period when we conclude that achieving
the performance criteria is probable. We periodically review and update as appropriate our estimates of implicit service periods and conclusions
on achieving the performance criteria. Performance awards vest upon achievement of the performance criteria.

We
use the Black-Scholes option valuation model to calculate the fair value of share purchase options and warrants at the date of the grant.
This model requires the input of subjective assumptions, including the expected price volatility, and expected life of each award.
These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management’s
judgment. Changes in these assumptions can materially affect the fair value estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements and their
possible effect on our results, see Note 2 to our Consolidated Financial Statements found elsewhere in this Annual Report.