Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (Report) includes forward-looking statements.
All statements contained in this Report other than statements of historical
fact, including statements regarding our future results of operations and
financial position, our business strategy and plans, and our objectives for
future operations, are forward-looking statements. The words "believe," "may,"
"estimate," "continue," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and trends that we believe may affect our financial
condition, results of operations, business strategy, short-term and long-term
business operations and objectives and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions. Our
business is subject to significant risks including, but not limited to, our
ability to obtain substantial additional financing, the results of our research
and development efforts, the results of nonclinical and clinical testing, the
effect of regulation by the U.S. Food and Drug Administration (FDA) and other
agencies, the impact of competitive products, product development,
commercialization and technological difficulties, the effect of our accounting
policies, and other risks as detailed in the section entitled "Risk Factors" in
this Report. Further, even if our product candidates appear promising at various
stages of development, our share price may decrease such that we are unable to
raise additional capital without significant dilution or other terms that may be
unacceptable to our management, Board of Directors (Board) and stockholders.
Moreover, we operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for our management or Board
to predict all risks, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and assumptions,
the future events and trends discussed in this Report may not occur and actual
results could differ materially and adversely from those anticipated or implied
in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future
events. The events and circumstances reflected in the forward-looking statements
may not be achieved or occur. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under no
duty to update any of these forward-looking statements after the date of this
Report or to conform these statements to actual results or revised expectations.
If we do update one or more forward-looking statements, no inference should be
drawn that we will make additional updates with respect to those or other
forward-looking statements.
Business Overview
VistaGen Therapeutics, Inc., a Nevada corporation (which may be referred to as
VistaGen, the Company, we, our, or us), is a biopharmaceutical company committed
to developing differentiated new generation medications for anxiety, depression
and other central nervous system (CNS) disorders. Our pipeline includes three
clinical-stage CNS drug candidates, each with a differentiated mechanism of
action, an exceptional safety profile in all clinical studies to date, and
therapeutic potential in multiple CNS markets. We aim to become a
fully-integrated biopharmaceutical company that develops and commercializes
innovative CNS therapies for large and growing mental health and neurology
markets where we believe current treatments are inadequate to meet the needs of
millions of patients and their caregivers worldwide.
PH94B Neuroactive Nasal Spray for Anxiety-related Disorders
PH94B neuroactive nasal spray is a rapid-onset synthetic neurosteroid with
therapeutic potential in a wide range of neuropsychiatric indications involving
anxiety or phobia. Conveniently self-administered in microgram-level doses
without systemic exposure, we are initially developing PH94B as a potential
fast-acting, non-sedating, non-addictive new generation acute treatment of
anxiety in adults with social anxiety disorder (SAD). SAD affects over 20
million Americans and, according to the National Institutes of Health (NIH), is
the third most common psychiatric condition after depression and substance
abuse. A person with SAD feels symptoms of anxiety or fear in certain social
situations, such as meeting new people, dating, being on a job interview,
answering a question in class, or having to talk to a cashier in a store. Doing
everyday things in front of people - such as eating or drinking in front of
others or using a public restroom - also causes anxiety or fear. A person with
SAD may also feel symptoms of fear and anxiety in performance situations, such
as giving a lecture, a speech or a presentation to classmates at school or
colleagues at work, as well as playing in a sports game, or dancing or playing a
musical instrument on stage. A person with SAD is afraid that he or she will be
humiliated, judged, and rejected. The fear and anxiety that people with SAD
have in social and performance situations is so strong that they feel they are
beyond their ability to control. As a result, SAD gets in the way of going to
work, attending school, or doing everyday things in situations with potential
for interpersonal interaction. People with SAD may worry about these and other
things for weeks before they happen. Sometimes, they end up staying away from
places or events where they think they might have to do something that will
embarrass or humiliate them. Without treatment, SAD can last for many years or
a lifetime and prevent a person from reaching his or her full potential.
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Only three drugs, all oral antidepressants (ADs), are approved by the U.S Food
and Drug Administration (FDA) specifically for treatment of SAD. These
FDA-approved ADs have slow onset of therapeutic effect (often taking many weeks
to months), require chronic administration and often cause significant side
effects beginning soon after administration. Slow onset of effect, chronic
administration and significant side effects may make the FDA-approved ADs
inadequate or inappropriate treatment alternatives for many individuals affected
by SAD episodically. Our PH94B is fundamentally different from all current
anti-anxiety drugs, including all ADs approved by the FDA for treatment of SAD.
Intranasal self-administration of a microgram level dose (3.2 mcg) of PH94B
engages specific nasal chemosensory neurons (NCNs). NCNs activate olfactory bulb
neurons (OBNs) on the base of the brain. OBNs send neural connections to neurons
in the central limbic amygdala, the brain center where fear and anxiety are
regulated. Neurons in the limbic amygdala modulate inhibitory/excitatory
neurotransmitters, resulting in rapid-onset anti-anxiety effects, without
requiring systemic uptake and distribution to produce such rapid-onset effects.
In all clinical studies to date, PH94B has not shown psychological side effects
(such as dissociation or hallucinations), detectable systemic exposure, sedation
or other side effects and safety concerns that may be caused by the current ADs
approved by the FDA for treatment of SAD, as well as by benzodiazepines and beta
blockers, which are not approved by the FDA to treat SAD but which are be
prescribed by psychiatrists and physicians for treatment of SAD on an off-label
basis.
In a peer-reviewed, published double-blind, placebo-controlled Phase 2 clinical
trial, PH94B neuroactive nasal spray was highly significantly more effective
than placebo in reducing both public-speaking (performance) anxiety (p=0.002)
and social interaction anxiety (p=0.009) in laboratory-simulated challenges of
SAD patients within 15 minutes of self-administration of a non-systemic 1.6
microgram dose of PH94B. Based on its novel mechanism of pharmacological
action, rapid-onset of therapeutic effects and exceptional safety and
tolerability profile in clinical trials to date, we are preparing for Phase 3
clinical development of PH94B for acute treatment of anxiety in adults with SAD.
Our goal is to develop and commercialize PH94B as the first FDA-approved,
rapid-onset, acute treatment of anxiety in adults with SAD, for acute use on
demand much like a rescue inhaler is used on demand before an asthma attack or a
migraine drug is used before a migraine episode. We believe additional potential
anxiety-related neuropsychiatric indications for PH94B include general anxiety
disorder, postpartum anxiety, perioperative and pre-testing (e.g., pre-MRI)
anxiety, panic disorder, post-traumatic stress disorder and specific social
phobias. The FDA has granted Fast Track designation for development of PH94B for
acute treatment of anxiety in adults with SAD, which we believe is the FDA's
first such designation for a drug candidate for SAD.
In addition to development of PH94B as a potential treatment for SAD, we are
currently planning for exploratory open-label Phase 2A clinical development of
PH94B for acute treatment of adjustment disorder with anxiety (AjDA), an
emotional or behavioral reaction considered excessive or out of proportion to a
stressful event or major life change, occurring within three months of the
stressor, and/or significantly impairing a person's social, occupational and/or
other important areas of functioning. Given the diverse impact of the COVID-19
pandemic, including, among other things, fear and axiety about health and
safety, economic loss, unemployment, social isolation, disruption of established
education and work practices, we submitted our preliminary protocol for the
study to the FDA through the FDA's Coronavirus Treatment Acceleration Program
(CTAP). As a result of that submission, we are currently in discussions wih the
FDA's Division of Psychiatric Products to determine the appropriate next steps
for the study, including the study protocol. We are planning to conduct the
proposed Phase 2A study in New York City and enroll approximately 25 to 30
subjects suffering from AjDA-provoking stressors, including, but not limited to,
stressors related to the diverse impact of the COVID-19 pandemic and recent
social unrest in the U.S.
PH10 Neuroactive Nasal Spray for Depression and Suicidal Ideation
PH10 neuroactive nasal spray is an odorless, fast-acting synthetic neurosteroid
drug candidate with therapeutic potential in a wide range of neuropsychiatric
indications involving depression and suicidal ideation. Conveniently
self-administered in microgram-level doses without systemic exposure, we are
initially developing PH94B as a potential rapid-onset, treatment of major
depressive disorder (MDD).
Depression is a serious medical illness and a global public health concern that
can occur at any time over a person's life. While most people will experience
depressed mood at some point during their lifetime, MDD is different. MDD is the
chronic, pervasive feeling of utter unhappiness and suffering, which impairs
daily functioning. Symptoms of MDD include diminished pleasure or loss of
interest in activities, changes in appetite that result in weight changes,
insomnia or oversleeping, psychomotor agitation, loss of energy or increased
fatigue, feelings of worthlessness or inappropriate guilt, difficulty thinking,
concentrating or making decisions, and thoughts of death or suicide and attempts
at suicide. Current FDA-approved medications available in the
multi-billion-dollar global AD market often fall far short of satisfying the
unmet medical needs of millions suffering from the debilitating effects of
depression.
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While current FDA-approved ADs are widely used, about two-thirds of patients
with MDD do not respond to their initial AD treatment. Inadequate response to
current ADs is among the key reasons MDD is one of the leading public health
concerns in the United States, creating a significant unmet medical need for new
agents with fundamentally different mechanisms of action and side effect and
safety profiles.
PH10 is a new generation antidepressant with a mechanism of action that is
fundamentally different from all current ADs. After self-administration, a
non-systemic microgram-level dose of PH10 binds to nasal chemosensory receptors
that, in turn, activate key neural circuits in the brain that can lead to
rapid-onset antidepressant effects, but without the psychological side effects
(such as dissociation and hallucinations) or safety concerns that maybe be
caused by ketamine-based therapy (KBT), including intravenous ketamine or
esketamine nasal spray, or the significant side effects of current ADs. In an
exploratory 30-patient Phase 2A clinical trial, PH10, self-administered at a
dose of 6.4 micrograms, was well-tolerated and demonstrated significant
(p=0.022) rapid-onset antidepressant effects, which were sustained over an
8-week period, as measured by the Hamilton Depression Rating Scale (HAM-D),
without side effects or safety concerns that may be caused by KBT. Based on
positive results from this exploratory Phase 2A study, we are preparing for
Phase 2B clinical development of PH10 in MDD, which preparation includes two
additional preclinical toxicology studies required by the FDA to support our new
Investigational New Drug (IND) application for proposed Phase 2B clinical
development of PH10 in the U.S. With its exceptional safety profile during
clinical development to date, we believe PH10, has potential for multiple
applications in global depression markets, including first as a stand-alone
therapy for MDD, and eventually also an add-on therapy to augment current
FDA-approved ADs for patients with MDD who have an inadequate response to
standard ADs, and to prevent relapse following successful treatment with KBT.
AV-101, an Oral NMDA Receptor Antagonist
AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate receptor), an
ionotropic glutamate receptor in the brain. Abnormal NMDAR function is
associated with numerous CNS diseases and disorders. AV-101 is an oral prodrug
of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective full
antagonist of the glycine co-agonist site of the NMDAR that inhibits the
function of the NMDAR. Unlike ketamine and many other NMDAR antagonists,
7-Cl-KYNA is not an ion channel blocker. In all studies to date, AV-101 has
exhibited no dissociative or hallucinogenic psychological side effects or safety
concerns similar to those that may be caused by amantadine and KBT. With its
exceptionally few side effects and excellent safety profile in all studies to
date, AV-101 has potential to be a new, differentiated oral treatment for
multiple large-market CNS indications where we believe current treatments are
inadequate to meet high unmet patient needs. The FDA has granted Fast Track
designation for development of AV-101 as both a potential adjunctive treatment
for MDD and as a non-opioid treatment for neuropathic pain.
In late-2019, we completed a Phase 2 clinical trial of AV-101 as a potential
adjunctive treatment, together with a standard FDA-approved oral AD (either a
selective serotonin reuptake inhibitor (SSRI) or a serotonin norepinephrine
reuptake inhibitor (SNRI)), in MDD patients who had an inadequate response to a
stable dose of a standard AD (the Elevate Study). Topline results of the Elevate
Study (n=199) indicated that the AV-101 treatment arm (1440 mg) did not
differentiate from placebo on the primary endpoint (change in the
Montgomery-Åsberg Depression Rating Scale (MADRS-10) total score compared to
baseline), potentially due to sub-therapeutic levels of 7-Cl-KYNA in the brain.
As in prior clinical studies, AV-101 was well tolerated, with no psychotomimetic
side effects or drug-related serious adverse events.
Recent discoveries from successful AV-101 preclinical studies suggest that there
is a substantially increased brain concentration of AV-101 and its active
metabolite, 7-Cl-KYNA, when AV-101 is given together with probenecid, a safe and
well-known oral anion transport inhibitor approved by the FDA for treatment of
gout. These surprising effects were first revealed as to AV-101 and 7-Cl-KYNA in
our recent preclinical studies, although the effects are consistent with
well-documented clinical studies of probenecid increasing the therapeutic
benefits of several classes of FDA-approved drugs that are unrelated to AV-101
and 7-Cl-KYNA, including certain antibacterial, anticancer and antiviral drugs.
When probenecid was administered adjunctively with AV-101 in an animal model,
substantially increased brain concentrations of both AV-101 and of 7-Cl-KYNA
were discovered. We also recently identified that some of the same kidney
transporters that reduce drug concentrations in the blood, by excretion in the
urine, are also found in the blood brain barrier and function to reduce
7-Cl-KYNA levels in the brain by pumping it out of the brain and back into the
blood. In the recent preclinical studies with AV-101 and probenecid, we
discovered that blocking those transporters in the blood brain barrier with
probenecid resulted, as noted above, in a substantially increased brain
concentration of 7-Cl-KYNA. This 7-Cl-KYNA efflux-blocking effect of probenecid,
with the resulting increased brain levels and duration of 7-Cl-KYNA, suggests
the potential impact of AV-101 with probenecid could result in far more profound
therapeutic benefits for patients with MDD and other NMDAR-focused CNS disorders
than demonstrated in the Elevate Study. Some of the new discoveries from our
recent AV-101 preclinical studies with adjunctive probenecid were presented by a
collaborator of VistaGen at the British Pharmacological Society's Pharmacology
2019 annual conference in Edinburgh, UK in December 2019.
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In addition, a Phase 1B target engagement study completed after the Elevate
Study by the Baylor College of Medicine (Baylor) with financial support from the
U.S. Department of Veterans Affairs (VA), involved 10 healthy volunteer U.S.
military Veterans who received single doses of AV-101 (720 mg or 1440 mg) or
placebo, in a double-blind, randomized, cross-over controlled trial. The primary
goal of the study was to identify and define a dose-response relationship
between AV-101 and multiple electrophysiological (EEG) biomarkers related to
NMDAR function, as well as blood biomarkers associated with suicidality
(theBaylor Study). The findings from the Baylor Study suggest that, in healthy
Veterans, the higher dose of AV-101 (1440 mg) was associated with dose-related
increase in the 40 Hz Auditory Steady State Response (ASSR), a robust measure of
the integrity of inhibitory interneuron synchronization that is associated with
NMDAR inhibition. Findings from the Baylor Study were presented at the 58th
Annual Meeting of the American College of Neuropsychopharmacology (ACNP) in
Orlando, Florida in December 2019.
The successful Baylor Study and the recent discoveries in our preclinical
studies involving AV-101 and adjunctive probenecid suggest that it may be
possible to increase therapeutic concentrations and duration of 7-Cl-KYNA in the
brain, and thus increase NMDAR antagonism in MDD patients with an inadequate
response to standard ADs when AV-101 and probenecid are combined. During 2020,
we plan to complete preclinical assessment of of AV-101 with adjunctive
probenecid and evaluate its potential for future clinical development and
commercialization for treatment of CNS indications involving abnormal function
of the NMDAR.
VistaStem Therapeutics - Stem Cell Technology for Drug Rescue and Regenerative
Medicine
In addition to our current CNS drug candidates, we have stem cell
technology-based, pipeline-enabling capabilities through our wholly-owned
subsidiary, VistaStem Therapeutics (VistaStem). VistaStem is focused on applying
human pluripotent stem cell (hPSC) technologies, including our customized
cardiac bioassay system, CardioSafe 3D, to discover and develop small molecule
New Chemical Entities (NCEs) for our CNS pipeline or out-licensing. In addition,
VistaStem's stem cell technologies involving hPSC-derived blood, cartilage,
heart and liver cells have multiple potential applications in the cell therapy
(CT) and regenerative medicine (RM) fields.
To advance potential CT and RM applications of VistaStem's hPSC technologies
related to heart cells, in 2016, we licensed to BlueRock Therapeutics LP, a next
generation CT/RM company formed jointly by Bayer AG and Versant Ventures, rights
to develop and commercialize certain proprietary technologies relating to the
production of cardiac stem cells for the treatment of heart disease. As a result
of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now holds rights
to develop and commercialize VistaStem's hPSC technologies relating to the
production of heart cells for the treatment of heart disease (the Bayer
Agreement). In a manner similar to the Bayer Agreement, we may pursue
additional collaborations involving rights to develop and commercialize
VistaStem's hPSC technologies for production of blood, cartilage, and/or liver
cells for CT and RM applications, including, among other indications, treatment
of arthritis, cancer and liver disease.
Subsidiaries
As noted above, VistaStem, a California corporation, is our wholly-owned
subsidiary. Our Condensed Consolidated Financial Statements in this Report also
include the accounts of VistaStem and VistaStem's two wholly-owned inactive
subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem
Canada, Inc., a corporation organized under the laws of Ontario, Canada.
Financial Operations Overview and Results of Operations
Our critical accounting policies and estimates and recent accounting
pronouncements are disclosed in our Annual Report on Form 10-K for the fiscal
year ended March 31, 2020, as filed with the SEC on June 29, 2020, and in Note 3
to the accompanying unaudited Condensed Consolidated Financial Statements
included in Part 1, Item 1 of this Report.
Summary
Net Loss
We have not yet achieved recurring revenue-generating status from any of our
product candidates or technologies. Since inception, we have devoted substantial
time and effort to developing AV-101 for multiple CNS indications, including
manufacturing research, process development and production of AV-101 drug
substance and finished drug product, preclinical efficacy and safety studies,
and clinical efficacy and safety studies in CNS indications. In addition, since
acquiring our exclusive worldwide licenses to PH 94B and PH10 in 2018, we have
devoted substantial resources focused on development and commercialization of
PH94B and PH10, for which we are actively pursuing initiatives to advance
manufacturing research, process development and production programs for drug
substance and finished drug product, additional preclinical safety studies, and
clinical efficacy and safety studies in multiple neuropsychiatry indications.
Also, from-time-to-time, we have devoted resources to VistaStem's stem cell
technology research and development, bioassay development and small molecule
drug rescue initiatives, as well as creating, protecting and patenting
intellectual property (IP) related to our product candidates and stem cell
technologies, with the corollary initiatives of recruiting and retaining
personnel and raising working capital. As of June 30, 2020, we had an
accumulated deficit of approximately $205.0 million. Our net loss for the three
months ended June 30, 2020 and 2019 was approximately $3.1 million and $6.2
million, respectively. We expect losses to continue for the foreseeable future,
primarily as we engage in further development of PH94B, PH10 and AV-101, and
pursue potential drug rescue, drug development and CT and RM opportunities.
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Summary of the Three Months Ended June 30, 2020
During the three months ended June 30, 2020, we continued to advance our
manufacturing, preclinical and clinical development, and regulatory initiatives
necessary to develop and commercialize our Phase 3 clinical development of PH94B
for acute treatment of anxiety in adults with SAD and acute treatment of, PH10
for MDD and AV-101 for NMDAR-focused indications. In addition, we continued to
expand the regulatory and intellectual property foundation to support broad
clinical development and, ultimately, commercialization of our product
candidates in the U.S. and foreign markets, and on a limited basis, advance drug
rescue applications of our stem cell technology to further expand our CNS
pipeline.
Throughout the quarter ended June 30, 2020 and through the date of this Report,
a new strain of coronavirus (COVID-19) has spread to many countries in the world
and the outbreak has been declared a pandemic by the World Health Organization.
The U.S. Secretary of Health and Human Services has also declared a public
health emergency in the U.S. in response to the outbreak. Our operations and
those of our contract research organizations (CROs) and contract development and
manufacturing organizations (CDMOs) have been impacted by shelter-in-place
orders, social distancing measures, travel bans and restrictions, and certain
business and government closures or reductions in service. Our headquarters
operations have been significantly curtailed as our employees have been working
remotely throughout this period.Since the beginning of the COVID-19 pandemic, we
have experienced delays in the delivery of supplies of active pharmaceutical
product (API) required to continue development of PH94B and PH10. Future
unexpected delays may result in a significant, material delay or disruption to
our current clinical development plans, programs, and our operations.
During the quarter ended June 30, 2020, we completeda successful and positive
meeting with the FDA regarding Phase 3 clinical development of PH94B for the
acute treatment of anxiety in adult patients with SAD, reaching consensus with
the FDA on key aspects of a unique initial pivotal Phase 3 clinical trial of
PH94B involving a single-event, laboratory-simulated public speaking challenge
in adult patients with SAD. We agreed with the FDA that our initial pivotal
Phase 3 study of PH94B will be a randomized, double-blind, placebo-controlled,
parallel comparison study conducted at approximately 12 to 15 sites in North
America. Dr. Michael Liebowitz, Professor of Clinical Psychiatry at Columbia
University, director of the Medical Research Network in New York City, and
creator of the Liebowitz Social Anxiety Scale (LSAS), is expected to be the
Principal Investigator of the study. Target enrollment for the study (completed
patients) is approximately 182 adult patients with SAD. As in the highly
statistically significant (p=0.002) Phase 2 study of PH94B in SAD, our initial
pivotal Phase 3 study will involve a single laboratory-simulated,
anxiety-provoking public speaking challenge. Also, as in the Phase 2 study, the
Subjective Units of Distress Scale (SUDS) will be used to assess the primary
efficacy endpoint of our Phase 3 study.
In June 2020, we entered into a strategic licensing and collaboration agreement
for the clinical development and commercialization of PH94B with EverInsight
Therapeutics Inc., a biopharmaceutical company focused on developing and
commercializing transformative pharmaceutical products for patients in Greater
China and other parts of Asia (the EverInsight Agreement). Under the terms of
the EverInsight Agreement, EverInsight will be responsible for clinical
development, regulatory submissions and commercialization of PH94B for treatment
of SAD, and potentially other anxiety-related indications, in key markets in
Asia, including markets in Greater China, South Korea and Southeast Asia
(collectively, the Territory). Under the terms of the EverInsight greement, in
August 2020, we received a non-dilutive upfront license fee payment of $5.0
million from EverInsight. Upon successful development and commercialization of
PH94B in the Territory, we are eligible to receive up to $172 million in
additional development and commercial milestone payments. After payment of
sublicense fees to Pherin pursuant to our PH94B license from Pherin, and payment
of consulting fees related to consummation of the EverInsight Agreement, we
received net cash proceeds of approximately $4.655 million.
To satisfy our obligations under the common stock purchase and registration
rights agreements that we entered with Lincoln Park Capital Fund (LPC) in March
2020, we filed a Registration Statement on Form S-1 (the LPC Registration
Statement) with the SEC on March 31, 2020 (Registration No. 333-237514), which
the SEC declared effective on April 14, 2020 (the Commencement Date). Subsequent
to the Commencement Date and through June 30, 2020, we sold an additional
6,201,995 registered shares of our common stock to LPC and received aggregate
cash proceeds to us of $2,840,200. Since June 30, 2020 and through the date of
this Report, we have sold an additional 100,000 shares of our common stock to
LPC and received $51,000 in cash proceeds.
Subsequent to the end of the quarter, on August 2, 2020, we entered into an
underwriting agreement (the Underwriting Agreement) with Maxim Group, LLC as
representative of the underwriters named therein (theUnderwriter), pursuant to
which we sold to the Underwriter, in an underwritten public offering (the Public
Offering), an aggregate of 15,625,000 shares (the Shares) of our common stock
for a public offering price of $0.80 per Share, resulting in gross proceeds to
us of $12,500,000. The Public Offering closed on August 5, 2020, at which time
we sold the Shares to the Underwriter. Under the terms of the Underwriting
Agreement, we granted to the Underwriter a 45-day over-allotment option (the
Over-Allotment Option) to purchase up to an additional 2,343,750 Shares (the
Option Shares) at a public offering price of $0.80 per share. On August 5, 2020,
the Underwriter exercised the Over-Allotment Option with respect to an aggregate
of 2,243,250 Option Shares. The sale of the exercised Option Shares was
completed on August 7, 2020 and resulted in additional gross proceeds to us of
$1,794,600. Net proceeds to us from the sale of the Shares and the exercised
Option Shares, after deducting underwriting discounts and commissions and
offering expenses payable by us, is approximately $12.9 million.
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As a matter of course, we continue to minimize, to the greatest extent possible,
cash commitments and expenditures for both internal and external research and
development and general and administrative services. To further advance the
nonclinical and clinical development of PH94B, PH10, AV-101 and our stem cell
technology platform, as well as support our operating activities, we continue to
carefully manage our routine operating costs, including our internal employee
related expenses, as well as external costs relating to regulatory consulting,
contract research and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public company
compliance and other professional services and internal costs.
Results of Operations
Comparison of Three Months Ended June 30, 2020 and 2019
The following table summarizes the results of our operations for the three
months ended June 30, 2020 and 2019 (amounts in thousands).
Three Months Ended June 30,
2020 2019
Operating expenses:
Research and development $1,731 $4,314
General and administrative 1,391 1,910
Total operating expenses 3,122 6,224
Loss from operations (3,122) (6,224)
Interest income (expense), net (3) 16
Other income 1 -
Loss before income taxes (3,124) (6,208)
Income taxes (3) (2)
Net loss (3,127) (6,210)
Accrued dividends on Series B Preferred Stock (336) (302)
Net loss attributable to common stockholders $(3,463) $(6,512)
Revenue
We reported no revenue for either quarter ended June 30, 2020 or 2019. As
described more completely in Note 11, Sublicensing and Collaboration Agreements,
to our Condensed Consolidated Financial Statements in Part I of this Report, on
June 24, 2020 we entered into the EverInsight Agreement, pursuant to which we
received an non-dilutive upfront license fee payment of $5.0 million on August
3, 2020. We expect to recognize revenue pursuant to this payment in future
periods beginning with the quarter ending September 30, 2020. While we may
potentially receive additional cash payments and royalties in the future under
the EverInsight Agreement or the 2016 Bayer Agreement (also described in Note
11, Sublicensing and Collaborative Agreements, to our Condensed Consolidated
Financial Statements in Part I of this Report) in the event certain
performance-based milestones and commercial sales are achieved, there can be no
assurance that the EverInsight Agreement or the Bayer Agreement will provide
additional revenue beyond that noted or cash payments to us in the near term, or
at all.
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Research and Development Expense
Research and development expense decreased from $4.3 million to $1.7 million for
the quarters ended June 30, 2020 and 2019, respectively, primarily due to the
completion of the Elevate Study in the fourth calendar quarter of 2019. Expenses
related to the Elevate Study and other AV-101 related nonclinical activities
decreased by $2.5 million in the quarter ended June 30, 2020 compared to expense
in the quarter ended June 30, 2019. Noncash research and development expenses,
primarily stock-based compensation and depreciation in both periods, accounted
for approximately $249,000 and $416,000 in the quarters ended June 30, 2020 and
2019, respectively. The following table indicates the primary components of
research and development expense for each of the periods (amounts in thousands):
Three Months Ended June 30,
2020 2019
Salaries and benefits $348 $340
Stock-based compensation 227 391
Consulting and other professional services 93 136
Technology licenses and royalties 108 167
Project-related research, licenses and supplies:
Elevate study and other AV-101 expenses 165 2,666
PH94B and PH10 project expenses 635 424
Stem cell and all other 5 42
805 3,132
Rent 138 136
Depreciation 12 12
Total Research and Development Expense $1,731 $4,314Salaries and benefits expense is essentially unchanged between periods,
reflecting no changes in compensation levels for our Chief Medical Officer
(CMO), Chief Scientific Officer (CSO), or members of our scientific staff
between the periods. The change reflects the return from leave of absence of one
member of our scientific staff during the quarter ended June 30, 2019 and modest
increases in the cost of Company-provided benefits beginning in mid-2019.
Stock-based compensation expense reflects the amortization of option grants made
to our CMO, CSO, members of our scientific staff and certain clinical and
scientific consultants since June 2016, all earlier outstanding grants having
become fully vested and amortized. Grants awarded after June 30, 2019, including
those granted during the quarter ended June 30, 2020, account for approximately
$101,000 of expense in the quarter ended June 30, 2020, offset by the expense
reduction of approximately $199,000 attributable to certain options granted
between June 2016 and February 2018 that became fully vested and amortized
during the quarter ended June 30, 2020 or earlier. Stock compensation expense is
further reduced in the quarter ended June 30, 2020 by approximately $58,000 due
to the absence of the impact of immediate vesting attributable to certain
options granted in May 2019. Expense attributable to recent option grants is
generally being amortized over two-year to three-year vesting periods, with
essentially all of the grants made since May 2019, including those made in the
quarter ended June 30, 2020, being immediately vested and expensed upon grant,
in accordance with the terms of the respective grants.
Consulting and other professional services reflects fees incurred, generally on
an as-needed basis, for project-based scientific, nonclinical and clinical
development and regulatory advisory and analytical services rendered to us by
third parties, including by members of our Scientific Advisory Board and CNS
Clinical and Regulatory Advisory Board, especially in support of our PH94B and
PH10 development initiatives.
Technology license and royalties expense reflects both recurring annual license
fees, as well as legal counsel and other costs related to patent prosecution and
protection pursuant to our stem cell technology license agreements, our AV-101
patents, or patents that we have elected to pursue for commercial purposes.
These costs do not occur ratably throughout the year or between years. In both
periods, this expense includes legal counsel and other costs we have incurred to
advance various patent applications in the U.S. and numerous foreign countries,
primarily with respect to AV-101 and our stem cell technology platform, but also
nominally with respect to our PH94B and PH10 intellectual property portfolios.
AV-101 project expense for the quarter ended June 30, 2019 reflects the costs of
conducting the Elevate Study in MDD, including various CROs, investigator and
clinical site costs, and CRO support services for AV-101 projects for
indications other than MDD, as well as expense incurred to manufacture
additional quantities of AV-101 for use in potential future clinical development
of AV-101 in a number of potential CNS indications. AV-101 project expense for
the quarter ended June 30, 2020 primarily reflects the cost of certain
preclinical studies related to the use of AV-101 with adjunctive probenecid and
certain AV-101 manufacturing stability studies.
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PH94B and PH10 project expenses for the quarters ended June 30, 2020 and 2019
primarily reflect manufacturing and regulatory initiatives necessary to
facilitate Phase 3 clinical development of PH94B for acute treatment of anxiety
in patients with SAD and Phase 2B development of PH10 for MDD. Manufacturing,
formulation and analysis of sufficient quantities of API and drug product are
currently the critical path items for advancing the clinical development of both
of these product candidates and production and analytical processes for both
have been delayed by issues related to the ongoing COVID-19 pandemic.
Stem cell and other project related expenses reflects costs associated with drug
rescue applications of our stem cell technology in both years. These expenses
are typically incurred by our in-house scientific personnel. As a result of
shelter-in-place and remote working requirements related to the ongoing COVID-19
pandemic, such expenses have been reduced to an insignificant level in the
quarter ended June 30, 2020.
Rent expense for both periods presented reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an operating lease
related to our South San Francisco office and laboratory facility, a
right-of-use asset and a lease liability, both of which must be amortized over
the expected lease term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our headquarters facilities
in South San Francisco by five years from July 31, 2017 to July 31, 2022. In
implementing ASC 842, we also projected that we would exercise a five-year
option to extend our tenancy under the lease when it expires in 2022, which
extension would be subject to projected market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility between
research and development expense and general and administrative expense based
generally on square footage dedicated to each function. Refer to Note 10,
Commitments and Contingencies, in the accompanying Condensed Consolidated
Financial Statements in Part I of this Report for additional information.
Following our implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in such items as common area maintenance fees,
taxes and insurance which are generally assessed to us by our landlord.
General and Administrative Expense
General and administrative expense decreased to approximately $1.4 million from
approximately $1.9 million for the quarters ended June 30, 2020 and 2019,
respectively. Noncash general and administrative expense, $466,000 in the
quarter ended June 30, 2020, decreased from $772,000 in the quarter ended June
30, 2019 primarily due to decreases in stock-based compensation and the noncash
components of investor and public relations expense attributable to the
amortization of the fair value of common stock or warrants granted to service
providers. The following table indicates the primary components of general and
administrative expense for each of the periods (amounts in thousands):
Three Months Ended June 30,
2020 2019
Salaries and benefits $348 $344
Stock-based compensation 448 672
Board fees 46 46
Legal, accounting and other professional fees 195 279
Investor and public relations 112 304
Insurance 102 82
Travel expenses 4 30
Rent and utilities 90 90
All other expenses 46 63
$1,391 $1,910Salaries and benefits expense is essentially unchanged between periods,
reflecting no changes in compensation levels for our Chief Executive Officer
(CEO), Chief Financial Officer (CFO), Vice President-Corporate Development (VP
Corporate Development) and a non-officer member of our administrative staff and
modest increases in the cost of Coimpany-provided benefits beginning in
mid-2019.
Stock-based compensation expense reflects the amortization of option grants made
to our CEO, CFO, VP Corporate Development, administrative staff, independent
members of our Board and certain consultants since June 2016, all earlier grants
having become fully vested and amortized. Grants awarded after June 30, 2019,
including those granted during the quarter ended June 30, 2020, account for
approximately $229,000 of expense in the quarter ended June 30, 2020, offset by
the expense reduction of approximately $333,000 attributable to certain options
granted between June 2016 and February 2018 that became fully vested and
amortized during the quarter ended June 30, 2020 or earlier. Stock compensation
expense is further reduced in the quarter ended June 30, 2020 by approximately
$98,000 due to the absence of the impact of immediate vesting attributable to
certain options granted in May 2019. Expense attributable to recent option
grants is generally being amortized over two-year to three-year vesting periods,
with essentially all of the grants made since May 2019, including those made in
the quarter ended June 30, 2020, being immediately vested and expensed upon
grant, in accordance with the terms of the respective grants.
Board fees represents fees paid as consideration for Board and Board Committee
services to the independent members of our Board.
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Legal, accounting and other professional fees for the quarters ended June 30,
2020 and 2019 includes expense related to routine legal fees as well as the
accounting expense related to the annual audit of our prior year financial
statments. In 2019, we also incurred $30,000 attributable to services provided
by an international business development consultant.
Investor and public relations expense includes the fees of our various external
service providers for a broad spectrum of investor relations, public relations
and social media services, and well as market awareness and strategic advisory
and support functions and initiatives that, in 2019, included numerous in-person
meetings in multiple U.S. and certain foreign markets and other communication
activities focused on expanding global market awareness of the Company, our CNS
product candidate pipeline and technologies and our research and development
programs, including among registered investment professionals and investment
advisors, individual and institutional investors, and prospective strategic
collaborators for development and commercialization of our product candidates in
major pharmaceutical markets worldwide. During the quarter ended June 30, 2020,
we curtailed the number of external service providers engaged in these
activities compared to the prior year. Further, in the quarter ended June 30,
2019, in addition to cash fees and expenses we incurred for such activities, we
recognized approximately $79,400 of noncash expense attributable to the
amortization of the fair value of stock and warrants granted in previous periods
to various corporate development, investor relations, and market awareness
service providers. No such noncash expense ws incurred in the quarter ended June
30, 2020.
The increase in insurance expense is primarily attributable to the market-rate
increase in the premium for our directors and officers liability insurance upon
renewal of our policy in May 2020.
In the quarter ended June 30, 2019, travel expense reflects costs associated
with in-person management presentations and meetings held in multiple U.S.
markets and certain international markets with existing and potential individual
and institutional investors, investment professionals and advisors, media, and
securities analysts, as well as various investor relations, market awareness and
corporate development and partnering initiatives and in monitoring the progress
of our Elevate Study. As a result of shelter-in-place and travel restrictions
associated with the ongoing COVID-19 pandemic, such meetings have occurred
remotely and there has generally been no in-person business travel by our
executives.
Rent expense for both periods presented reflects our implementation of ASC 842
effective April 1, 2019 and the requirement to recognize, as an operating lease
related to our South San Francisco office and laboratory facility, a
right-of-use asset and a lease liability, both of which must be amortized over
the expected lease term. The underlying lease reflects commercial property rents
prevalent in the South San Francisco real estate market at the time of our
November 2016 lease amendment extending the lease of our headquarters facilities
in South San Francisco by five years from July 31, 2017 to July 31, 2022. In
implementing ASC 842, we also projected that we would exercise a five-year
option to extend our tenancy under the lease when it expires in 2022, which
extension would be subject to projected market rent conditions at that time. We
allocate total rent expense for our South San Francisco facility between
research and development expense and general and administrative expense based
generally on square footage dedicated to each function. Refer to Note 10,
Commitments and Contingencies, in the accompanying Condensed Consolidated
Financial Statements in Part I of this Report for additional information.
Following our implementation of ASC 842, changes in rent expense between periods
are primarily related to changes in such items as common area maintenance fees,
taxes and insurance which are generally assessed to us by our landlord.
Interest and Other Expenses
Interest expense totaled $3,200 for the quarter ended June 30, 2020 compared to
interest income, net of interest expense of $16,500 for the quarter ended June
30, 2019. The following table indicates the primary components of interest
income and expense for each of the periods (amounts in thousands):
Three Months Ended June 30,
2020 2019
Interest income $- $19
Interest expense on financing lease, insurance premium
financing notes
and Payroll Protection Program loan
(3) (3)
Interest income (expense), net $(3) $16Following the completion of our underwritten public offering in February 2019,
which generated $11.5 million in gross proceeds to us, during the quarter ended
June 30, 2019, we deposited a portion of the proceeds in interest-bearing cash
equivalent accounts and earned interest income. As a result of the decline in
market interest rates in 2020 compared to 2019 and a reduction in the amount of
cash deposited in such accounts, we earned no interest in the quarter ended June
30, 2020. Interest expense in both periods relates to interest paid on insurance
premium financing notes and on our financing lease of office equipment subject
to ASC 842, and in 2020, interest accrued on our Payroll Protection Program
loan.
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We recognized $335,800 and $302,500 for the quarters ended June 30, 2020 and
2019, respectively, representing the 10% cumulative dividend accrued on
outstanding shares of our Series B 10% Convertible Preferred Stock (Series B
Preferred) as an additional deduction in arriving at net loss attributable to
common stockholders in the accompanying Condensed Consolidated Statement of
Operations and Comprehensive Loss included in Part I of this Report. There have
been no conversions of outstanding shares of Series B Preferred stock into
shares of our common stock since August 2016.
Liquidity and Capital Resources
Since our inception in May 1998 through June 30, 2020, we have financed our
operations and technology acquisitions primarily through the issuance and sale
of our equity and debt securities for cash proceeds of approximately $86.1
million, as well as from an aggregate of approximately $17.7 million of
government research grant awards (excluding the fair market value of government
sponsored and funded clinical trials), strategic collaboration payments,
intellectual property licensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $38.2 million in
noncash acquisitions of product licenses and in settlements of certain
liabilities, including liabilities for professional services rendered to us or
as compensation for such services.
Recent Developments
At June 30, 2020, we had cash and cash equivalents of approximately $1.5
million. As more completely described in Note 8,Capital Stock and Note
12,Subsequent Events, to our Condensed Consolidated Financial Statements in Part
I of this Report, on March 24, 2020, we entered into a purchase agreement and a
registration rights agreement with LPC pursuant to which LPC committed to
purchase up to $10,250,000 of our common stock at market-based prices over a
period of 24 months (theLPC Agreement). To satisfy our obligations under the LPC
Agreement, we filed the LPC Registration Statement with the SEC on March 31,
2020, which the SEC declared effective on April 14, 2020 (Registration No.
333-237514). Subsequent to the effectiveness of the LPC Registration Statement
and through the date of this Report, we sold 6,301,995 registered shares of our
common stock to Lincoln Park and received gross cash proceeds of $2,891,200.
As more completely described in Note 11, Sublicensing and Collaboration
Agreements, and in Note 12, Subsequent Events,to our Condensed Consolidated
Financial Statements in Part I of this Report, on June 24, 2020, we entered into
a strategic licensing and collaboration agreement for the clinical development
and commercialization of PH94B with EverInsight Therapeutics Inc., a
biopharmaceutical company focused on developing and commercializing
transformative pharmaceutical products for patients in Greater China and other
parts of Asia (the EverInsight Agreement). Under the terms of the EverInsight
Agreement, EverInsight agreed to make a non-dilutive upfront license fee payment
of $5.0 million to us, and we are eligible to receive up to $172 million of
additional milestone payments upon successful achievement of specific
development and commercial milestones in the future, in addition to royalties.
We received net cash proceeds of approximately $4.655 million in August 2020,
after a required sublicense payment to Pherin Pharmaceuticals, Inc. (Pherin)
pursuant to our PH94B license from Pherin and consulting payments related to
consummation of the EverInsight Agreement.
As described more completely in Note 12, Subsequent Events, to our Condensed
Consolidated Financial Statements in Part I of this Report, on August 2, 2020,
we entered into an underwriting agreement (the Underwriting Agreement) pursuant
to which we sold to the Underwriter, in an underwritten public offering (the
Public Offering), an aggregate of 15,625,000 shares (the Shares) of our common
stock for a public offering price of $0.80 per Share, resulting in gross
proceeds to us of $12,500,000. The Public Offering closed on August 5, 2020.
Under the terms of the Underwriting Agreement, we granted to the Underwriter a
45-day over-allotment option (theOver-Allotment Option) to purchase up to an
additional 2,343,750 Shares (the Option Shares) at a public offering price of
$0.80 per share. On August 5, 2020, the Underwriter exercised the Over-Allotment
Option with respect to an aggregate of 2,243,250 Option Shares (the Exercised
Option Shares). We completed the sale of the Exercised Option Shares on August
7, 2020, which resulted in additional gross proceeds to us of $1,794,600. Net
proceeds to us from the sale of the Shares and the Exercised Option Shares,
after deducting underwriting discounts and commissions and offering expenses
payable by us, is approximately $12.9 million.
Going Concern
Although the transactions described above have generated approximately $20.0
million in net cash procceds to us between April 1, 2020 and the date of this
Report, we believe it is possible that our cash position at June 30, 2020,
together with such net proceeds, will not be sufficient to fund our planned
operations for the twelve months following the issuance of these financial
statements, which raises substantial doubt that we can continue as a going
concern. During the next twelve months, subject to securing appropriate and
adequate additional financing, we plan to prepare for and launch (i) a pivotal
Phase 3 clinical trial of PH94B for acute treatment of anxiety in adult patients
with SAD, (ii) a small exploratory open-label Phase 2A study of PH94B for acute
treatment of adult patients with AjDA and (iii) several nonclinical studies
involving PH94B, PH10 and AV-101. When necessary and advantageous, we plan to
raise additional capital, through the sale of our equity securities in one or
more (i) private placements to accredited investors, (ii) public offerings
and/or (iii) in strategic licensing and development collaborations involving one
or more of our drug candidates in markets outside the United States, similar to
the Everinsight Agreement. Subject to certain restrictions, our Registration
Statement on Form S-3 (Registration No. 333-234025) (the S-3 Registration
Statement), which became effective on October 7, 2019, remains available for
future sales of our equity securities in one or more public offerings from time
to time. While we may make additional sales of our equity securities under the
S-3 Registration Statement, we do not have an obligation to do so.
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As we have been in the past, we expect that, when and as necessary, we will be
successful in raising additional capital from the sale of our equity securities
either in one or more public offerings or in one or more private placement
transactions with individual accredited investors and institutions. In addition
to the potential sale of our equity securities, we may also seek to enter
research, development and/or commercialization collaborations that could
generate revenue or provide funding, including non-dilutive funding, for
development of one or more of our CNS product candidates. We may also seek
additional government grant awards or agreements similar to our relationships
with the NIH, Baylor and the VA in connection with certain government-sponsored
studies. Such strategic collaborations may provide non-dilutive resources to
advance our strategic initiatives while reducing a portion of our future cash
outlays and working capital requirements. We may also pursue intellectual
property arrangements similar to the EverInsight Agreement and the Bayer
Agreement (described more completely in Note 11, Sublicensing and Collaboration
Agreements to our Condensed Consolidated Financial Statements in Part I of this
Report) with other parties. Although we may seek additional collaborations that
could generate revenue and/or provide non-dilutive funding for development of
our product candidates, as well as new government grant awards and/or
agreements, no assurance can be provided that any such collaborations, awards or
agreements will occur in the future.
Our future working capital requirements will depend on many factors, including,
without limitation, the scope and nature of opportunities related to our success
and the success of certain other companies in clinical trials, including our
development and commercialization of our current product candidates and various
applications of our stem cell technology platform, the availability of, and our
ability to obtain, government grant awards and agreements, and our ability to
enter into collaborations on terms acceptable to us. To further advance the
clinical development of PH94B, PH10, and AV-101 and, to a lesser extent, our
stem cell technology platform, as well as support our operating activities, we
plan to continue to carefully manage our routine operating costs, including our
employee headcount and related expenses, as well as costs relating to regulatory
consulting, contract research and development, investor and public relations and
corporate development, legal, acquisition and protection of intellectual
property, public company compliance and other professional services and
operating costs.
Notwithstanding the foregoing, there can be no assurance that our current
strategic collaborations under the EverInsight Agreement and the Bayer Agreement
will generate additional revenue from future potential milestone payments, or
that future financings or government or other strategic collaborations will be
available to us in sufficient amounts, in a timely manner, or on terms
acceptable to us, if at all. If we are unable to obtain substantial additional
financing on a timely basis when needed in 2020 or thereafter, our business,
financial condition, and results of operations may be harmed, the price of our
stock may decline, we may be required to reduce, defer, or discontinue certain
of our research and development activities and we may not be able to continue as
a going concern. As noted above, these Condensed Consolidated Financial
Statements do not include any adjustments that might result from the negative
outcome of this uncertainty.
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the
periods stated (in thousands):
Three Months Ended June 30,
2020 2019
Net cash used in operating activities $(2,807) $(4,761)
Net cash used in investing activities - -
Net cash provided by (used in) financing activities 2,998 (42)
Net increase (decrease) in cash and cash equivalents 191 (4,803)
Cash and cash equivalents at beginning of period 1,355 13,100
Cash and cash equivalents at end of period $1,546 $8,297The decrease in cash used in operations results primarily from the completion of
the Elevate Study, which commenced at the end of the first calendar quarter of
2018 and was completed during the fourth calendar quarter of 2019, partially
offset by nonclinical development and manufacturing advancements related to
PH94B and PH10 during our current fiscal year. We used no cash for investing
activities in either year presented. Cash provided by financing activities in
the quarter ended June 30, 2020 primarily reflects the cash proceeds to us from
sales of our common stock pursuant to the LPC Agreement and from the Spring 2020
Private Placement, net of routine insurance premium financing note and financing
lease payments. Cash used in financing activities in the three months ended June
30, 2019 primarily reflects routine insurance premium financing note and
financing lease payments.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recent Accounting Pronouncements
For information relating to recent accounting pronouncements and the expected
impact of such pronouncements on our condensed consolidated financial
statements, see Note 3 of the Notes to Condensed Consolidated Financial
Statements included In Part I of this Report.
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