Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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☒
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Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the fiscal year ended: March 31, 2018
or
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☐
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Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Commission file number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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20-5093315
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(State or other jurisdiction of incorporation
or organization)
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(I.R.S. Employer Identification
No.)
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343 Allerton Avenue
South San Francisco, California 94080
(650) 577-3600
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive
office)
Securities registered pursuant to Section 12(b) of the
Act
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Title of each class
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Name of each exchange on which registered
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Common
Stock, par value $0.001 per share
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The
NASDAQ Capital Market
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Securities registered pursuant to Section 12(g) of the
Act
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No
☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes ☐ No
☒
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ☒ No
☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
☒
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Emerging Growth Company ☐
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(Do
not check if a smaller
reporting company)
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No
☒
The aggregate market value of the common stock of the registrant
held by non-affiliates of the registrant on September 30, 2017, the
last business day of the registrant’s second fiscal quarter,
was: $18,305,024.
As of June 26,
2018, there were
23,037,615 shares of the
registrant’s common stock, $0.001 par value per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III incorporate by
reference certain information from VistaGen Therapeutics,
Inc.’s definitive proxy statement, to be filed with the
Securities and Exchange Commission on or before July 27,
2018.
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Forward-Looking Statements
This Annual Report on Form 10-K (Annual
Report) contains
forward-looking statements that involve substantial risks and
uncertainties. All statements contained in this Annual Report other
than statements of historical facts, including statements regarding
our strategy, future operations, future financial position, future
revenue, projected costs, prospects, plans, objectives of
management and expected market growth, are forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements.
The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,”
“may,” “plan,” “predict,”
“project,” “target,”
“potential,” “will,” “would,”
“could,” “should,” “continue,”
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements include,
among other things, statements about:
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the
availability of capital to satisfy our working capital
requirements, including our ELEVATE Study (defined below) and other
clinical and non-clinical development objectives;
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the
accuracy of our estimates regarding expenses, future revenues and
capital requirements;
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our plans to develop and commercialize our lead
product candidate, AV-101, initially as an adjunctive treatment for
Major Depressive Disorder (MDD), and subsequently as a treatment for additional
diseases and disorders involving the Central Nervous System
(CNS);
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our
ability to initiate and complete our clinical trials, including our
ELEVATE Study (defined below), and to advance AV-101 and/or other
product candidates into additional clinical trials, including
pivotal clinical trials, and successfully complete such clinical
trials;
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regulatory
developments in the U.S. and foreign countries;
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the performance of the U.S. National Institutes of
Health (NIH), U.S. National Institute of Mental Health
(NIMH), our third-party contract manufacturer(s)
(CMOs), contract research organization(s)
(CROs) and other third-party non-clinical and clinical
drug development collaborators and regulatory service
providers;
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our ability to obtain and maintain intellectual
property (IP) protection for our core assets, including our
product candidates;
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the
size of the potential markets for our product candidates and our
ability to serve those markets;
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the
rate and degree of market acceptance of our product candidates for
any indication once approved;
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the
success of competing products and product candidates in development
by others that are or become available for the indications that we
are pursuing;
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the
loss of key scientific, clinical or non-clinical development,
regulatory, and/or management personnel, internally or from one or
more of our third-party collaborators; and
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other risks and uncertainties, including those
listed under Part I, Item 1A of this Annual Report titled
“Risk
Factors.”
These forward-looking statements are only predictions and we may
not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, so you should not
place undue reliance on our forward-looking statements. Actual
results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. 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 business,
financial condition and operating results. We have included
important factors in the cautionary statements included in this
Annual Report, particularly in Part I, Item 1A, titled
“Risk
Factors,” that could
cause actual future results or events to differ materially from the
forward-looking statements that we make. Our forward-looking
statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments
we may make.
You should read this Annual Report and the documents that we have
filed as exhibits to the Annual Report with the understanding that
our actual future results may be materially different from what we
expect. We do not assume any obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable
law.
All brand names or trademarks appearing in this Annual Report are
the property of their respective holders. Unless the context
requires otherwise, references in this report to
“VistaGen,” the “Company,”
“we,” “us,” and “our” refer to
VistaGen Therapeutics, Inc., a Nevada corporation. All references
to future quarters and years in this Annual Report refer to
calendar quarters and calendar years, unless reference is made
otherwise.
Business Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
diseases and disorders of the central nervous system
(CNS) with high unmet need.
Our
lead CNS product candidate, AV-101, is an oral, non-opioid and
non-sedating therapy that we believe offers the potential to be a
new at-home treatment for multiple CNS indications with high unmet
medical need. These indications include potential use as a new
generation treatment alternative for Major Depressive Disorder
(MDD), as a non-addictive,
non-sedating option for management of chronic neuropathic pain
(CNP), to reduce
dyskinesia induced by levodopa therapy for Parkinson’s
disease (PD LID), and
additional CNS indications where modulation of NMDA
(N-methyl-D-aspartate) receptor and AMPA
(alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptor
pathways may achieve therapeutic benefit.
For MDD, we believe AV-101 has potential as a first line oral
monotherapy and as an adjunctive oral therapy. As an adjunctive
therapy, we believe AV-101 has potential both to displace atypical
antipsychotics such as aripiprazole in the current MDD drug
treatment paradigm both for patients with an inadequate response to
current antidepressants approved by the U.S. Food and Drug
Administration (FDA) and to prevent relapse of MDD following
successful treatment with the FDA-approved anesthetic, ketamine
hydrochloride, an ion-channel blocking NDMA receptor antagonist
(ketamine), whether administered by intravenous
(IV) injection or as an intranasal spray formulation.
We believe AV-101 may have potential to deliver ketamine-like
antidepressant effects on an at-home basis, without the requirement
for inconvenient administration in a medical setting, and without
causing psychological or other side effects and safety concerns
associated with ketamine therapy.
AV-101 is in Phase 2 development in the United States. In the
fourth quarter of 2017, we received authorization from the FDA to
initiate ELEVATE, our Phase 2 multi-center, multi-dose, double
blind, placebo-controlled clinical study to evaluate the efficacy
and safety of AV-101 as an adjunctive treatment of MDD in adult
patients with an inadequate therapeutic response to current
FDA-approved antidepressants (the ELEVATE
Study). As planned, we
initiated the ELEVATE Study in the first quarter of 2018. Dr.
Maurizio Fava, Professor of Psychiatry at Harvard Medical School
and Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We currently anticipate top line results from
the ELEVATE Study in the first half of 2019.
AV-101 is also in the subject of a small Phase 2 clinical study
being conducted and funded by the U.S. National Institute of Mental
Health (the NIMH), pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH (the NIMH Study). Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, is acting as the Principal Investigator for the NIMH
Study, which is focused on AV-101 monotherapy for subjects with
treatment-resistant MDD and certain biomarkers. Dr. Zarate and the
NIMH were among the first in the U.S. to conduct clinical studies
demonstrating the robust, fast-acting antidepressant effects of
ketamine in MDD patients with inadequate responses to multiple
current FDA-approved antidepressants.
In addition to our CNS business, we have two additional programs
through our wholly-owned subsidiary VistaStem Therapeutics
(VistaStem). VistaStem is focused on applying human
pluripotent stem cell (hPSC) technology to rescue, develop and commercialize
(i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our pipeline or
out-licensing. To advance potential RM applications of
VistaStem’s cardiac stem cell technology, we have exclusively
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company established in 2016 with $225 million of
committed capital from Bayer AG and Versant Ventures
(BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to the BlueRock Agreement, we may pursue additional
VistaStem collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
Our Strategy
Our
core strategy is to independently pursue development and
commercialization of our product candidates that address high unmet
medical needs of patients with CNS diseases and disorders. We have
assembled a management team and a team of scientific, clinical, and
regulatory advisors, including recognized experts in the fields of
depression and other CNS diseases and disorders, with significant
pharmaceutical industry and regulatory experience to lead and
execute the development and commercialization of our CNS product
candidate opportunities. As we continue to build and develop our
product portfolio, we may opportunistically pursue strategic
partnerships that maximize the value of our product candidate
pipeline.
Key
elements of our strategy are to:
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Develop and commercialize AV-101 for depression. The ELEVATE
Study is our ongoing Phase 2 clinical development program for
AV-101 focused on our initial regulatory and commercial objective
for AV-101: to displace atypical antipsychotics as the primary
at-home adjunctive treatment of
MDD in patients with an inadequate response to current
antidepressants approved by the FDA for at-home use. Following the
completion of the ELEVATE Study, we intend to develop AV-101
internally and independently, through our initial pivotal Phase 3
clinical program for AV-101 focused on adjunctive treatment of MDD
to augment current FDA-approved antidepressants, accompanied by
submission to the FDA of our initial New Drug Application
(NDA)
for AV-101. In addition to adjunctive treatment of MDD with current
antidepressants approved by the FDA for at-home use, we believe
AV-101 may have therapeutic potential as a stand-alone first-line
oral therapy for depression and as an at-home oral adjunctive
treatment following in-clinic intravenous or intranasal
administration of ketamine, to prevent relapse of MDD following
cessation of ketamine treatment. If our initial MDD-related NDA is
approved by the FDA, we may pursue strategic partnerships to
maximize the commercial potential of AV-101 for these additional
MDD indications and multiple other CNS indications. We may also
contract for and/or establish a specialty sales force focused
primarily on clinical psychiatrists and long-term care physicians
who prescribe standard antidepressants, atypical antipsychotics and
ketamine for treatment of their MDD patients under the current and
evolving MDD drug treatment paradigm.
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Develop and commercialize AV-101 for multiple additional CNS
diseases and disorders. We intend to independently pursue
clinical development and commercialization of AV-101 across
multiple CNS-related indications beyond depression that we believe
are underserved by currently available medicines and represent
significant unmet medical needs. Based on AV-101 preclinical
studies, our successful first-in-human NIH-funded AV-101 Phase 1
clinical safety studies, and regulatory submissions related to the
ELEVATE Study, we believe AV-101 also has potential as a
non-addictive, non-opioid, non-sedating treatment alternative for
chronic neuropathic pain, as well as several additional CNS
indications where modulation of
NMDA receptors and activation of AMPA pathways may achieve
therapeutic benefit, including
PD LID, epilepsy and Huntington’s
disease.
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License and/or acquire additional CNS product candidates.
While our resources are currently focused on development of AV-101
for depression and additional CNS indications, we anticipate
pursuing acquisition of additional CNS-related product candidates
in the future, with an emphasis on opportunities related to
neuropsychiatry. We believe that a diversified CNS product
candidate portfolio, combined with our internal and collaborative
network of CNS drug development expertise and ecosystem, will
mitigate risks inherent in drug development and increase the
likelihood of our success.
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Leverage VistaStem’s stem cell technology platform. We
are applying VistaStem’s cardiac stem cell technology to
screen and develop proprietary NCEs for our internal CNS drug
development pipeline through drug rescue, without incurring many of
the substantial costs and risks typically inherent in new drug
discovery and nonclinical drug development. To further capitalize
on VistaStem’s stem cell technology platform while supporting
its CNS pipeline-enabling drug rescue programs, we may seek
additional cell therapy and regenerative medicine collaborations,
similar to the BlueRock Agreement, involving our intellectual
property relating to blood, cartilage and/or liver
cells.
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Our Programs
AV-101 (L-4-cholorkyurenine or 4-Cl-KYN)
Overview
AV-101
is an oral prodrug candidate (4-Cl-KYN) in development for
convenient at-home use to treat multiple CNS indications with high
unmet medical need. After oral administration, AV-101 readily gains
access to the CNS and is rapidly converted in vivo into its active metabolite,
7-chlorokynurenic acid (7-Cl-KYNA), a well-characterized,
potent and highly selective antagonist of the NMDA
(N-methyl-D-aspartate)
receptor at its glycine (GlyB) co-agonist binding
site.
AV-101’s mechanism of action (MOA) involves both NMDA and AMPA receptors in the
brain responsible for fast excitatory synaptic activity throughout
the CNS. AV-101’s MOA is fundamentally different from
all FDA-approved antidepressants, as well as all FDA-approved
atypical antipsychotics, drugs such as aripiprazole, that are often
used adjunctively to augment standard antidepressants. For
depression, we believe AV-101 has potential both as a stand-alone
first-line oral monotherapy and as an adjunctive oral therapy for
at-home use. As an adjunctive therapy, we believe AV-101 has
potential for at-home use to both augment current antidepressants
approved by the FA for at-home use and to prevent relapse of MDD
following successful treatment with ketamine hydrochloride, an
ion-channel blocking NDMA receptor antagonist (ketamine), administered in a clinical setting either by
intravenous (IV) injection or as an intranasal spray
formulation.
Current
evidence suggests that AV-101’s modulation of NMDA receptor
signaling may provide faster-acting antidepressant effects in the
treatment of MDD than current FDA-approved antidepressants. In
addition, as confirmed in our AV-101 Phase 1 clinical studies,
targeting and modulating or
inhibiting activity of NMDA
receptors at the specific GlyB site of the NMDA receptor, rather
than blocking NMDA receptor
activity, does not have the negative side effects typically
associated with standard antidepressants, atypical antipsychotics
often used adjunctively in the current MDD drug treatment paradigm,
or classic ion channel-blocking NMDA receptor antagonists, such as
ketamine.
We believe AV-101 may have potential
to deliver ketamine-like antidepressant effects, without the need
for inconvenient administration in a medical setting, and without
causing psychological or other negative side effects and safety
concerns often associated with ketamine therapy. As published in
the October 2015 issue of the
peer-reviewed Journal
of Pharmacology and Experimental
Therapeutics, in an
article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using four well-established preclinical
models of depression, AV-101 was shown to induce ketamine-like
fast-acting, dose-dependent, persistent and statistically
significant antidepressant-like responses following a single
treatment. These responses were equivalent to those seen with a
single sub-anesthetic control dose of ketamine. In addition, these
studies confirmed that the fast-acting antidepressant effects of
AV-101 were mediated through both GlyB site inhibition of the NMDA
receptor and activation of the AMPA receptor pathway in the
brain.
Major Depressive Disorder
Depression
is a serious medical illness and a global public health concern.
The World Health Organization
(WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIMH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2016, approximately 16 million adults in the U.S.
had at least one major depressive episode in the past year.
According to the U.S. Centers for Disease Control and Prevention
(CDC) in an August 2017 report, one in eight Americans
over the age of 12 reported taking a standard, FDA-approved
antidepressant in the previous month.
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 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. MDD is the psychiatric
diagnosis most commonly associated with suicide, with the incidence
of attempted suicide approximately 20 times higher in patients with
MDD compared with the general population.
Standard Antidepressants
For many people, depression
cannot be controlled for any length of time without
treatment. Standard depression medications available in
the multi-billion-dollar global depression market, including
commonly-prescribed SSRIs and SNRIs, have limited effectiveness,
and, because of their mechanism of action, generally must be taken
for at least four to six weeks before some patients may experience
any notable therapeutic benefit. Approximately two out of
every three depression sufferers, including over an estimated 6.0
million drug-treated MDD patients in the U.S., do not receive
adequate therapeutic benefits from their initial treatment
with a standard antidepressant, and the likelihood of achieving
remission of depressive symptoms declines with each successive
treatment attempt. Even after multiple treatment attempts,
approximately one out of every three depression sufferers still
fails to find an adequately effective standard antidepressant. In
addition, this trial and error process and the systemic effects of
the various antidepressants involved may increase the risk of
patient tolerability issues and serious side effects, including
suicidal thoughts and behaviors in certain
groups.
Ketamine and NIMH Clinical Studies in Major Depressive
Disorder
Ketamine hydrochloride (ketamine) belongs to a class of drugs that
block NMDA receptors, which are neurochemical receptors in the
brain found on nerve cells that respond to glutamate, which is a
chemical messenger that helps form and maintain important
connections between neurons. Ketamine is an FDA-approved,
rapid-acting general anesthetic currently administered only by
intravenous or intramuscular injection. The off-label use of
ketamine to treat MDD in treatment-resistant patients has been
studied in several clinical trials conducted by depression experts
at Yale University and other academic institutions, as well as at
the NIMH, including by Dr. Carlos Zarate, Jr., the NIMH’s
Chief of Experimental Therapeutics & Pathophysiology Branch and
of the Section on Neurobiology and Treatment of Mood and Anxiety
Disorders. In randomized, placebo-controlled, double
blind clinical trials reported by Dr. Zarate and others at the
NIMH, a single sub-anesthetic dose of ketamine (0.5 mg/kg over 40
minutes) produced robust and rapid (within twenty-four hours)
antidepressant effects in MDD patients who had not responded to
standard antidepressants. These results were in sharp
contrast to the very slow onset of standard antidepressants
(SSRIs and SNRIs) that usually require many weeks of chronic usage
to achieve similar antidepressant effects. The potential
for widespread therapeutic use of current FDA-approved ketamine, a
U.S. Drug Enforcement Agency (DEA) Schedule III drug, for MDD is
limited by its potential for abuse, dissociative and other
psychological side effects and by the inconvenience and practical
challenges associated with the necessity of administration in a
medical setting. Notwithstanding these limitations, however,
the discovery of ketamine’s fast-acting antidepressant
effects revolutionized thinking about the current MDD drug
treatment paradigm and catalyzed research and development of a new
generation of antidepressant medications with a faster-acting
mechanism of action (MOA)
similar to ketamine’s and fundamentally differentiated from
all current FDA-approved antidepressants. Our oral CNS
drug candidate, AV-101 is among a new generation of antidepressants
with potential to deliver faster-acting antidepressant effects than
current antidepressants, without the side effects typically
associated with current antidepressants, atypical antipsychotics
and ketamine.
AV-101, Mechanism of Action and Major Depressive
Disorder
As described above, AV-101 (4-Cl-KYN) is an orally available
prodrug candidate that produces, in the brain, 7-Cl-KYNA, one of
the most potent and selective antagonists of the GlyB site of the
NMDA receptor, resulting in the down-regulation of NMDA receptor
signaling. Growing evidence suggests that glutamatergic activation
involving AMPA receptors is central to the neurobiology and
treatment of MDD and other mood
disorders.
AV-101’s
mechanism of action (MOA)
is fundamentally different from the MOA of all standard,
FDA-approved antidepressants and all atypical antipsychotics used
adjunctively to augment inadequate response to standard
antidepressants, placing AV-101 among a “new
generation” of antidepressants with potential to treat
millions of MDD sufferers worldwide who are poorly served by SSRIs,
SNRIs and other current depression therapies. AV-101 is
functionally similar to ketamine in that both are believed to
induce final common pathway antidepressant activity via
glutamatergic activation involving AMPA receptors. However, AV-101
inhibits NMDA receptor channel activity, whereas ketamine blocks
the ion channel of the NMDA receptor. AV-101, as a prodrug,
produces in the brain an antagonist that inhibits the NMDA receptor
by selectively binding to its functionally required GlyB site.
Experimental evidence confirms that inhibiting the NMDA receptor by
targeting the GlyB site can produce potent antidepressive effects
and bypass adverse effects that result when ketamine blocks the
NMDA receptor ion channel. Experimental evidence also supports the
conclusion that this NMDA receptor inhibition by AV-101 may result
in a glutamatergic activation that depends on the AMPA receptor
pathway, resulting in an increase in neuronal connections that has
been associated with the faster-acting antidepressant effects that
are similar to those seen with ketamine, rather than those achieved
by standard antidepressants.
In
peer-reviewed published preclinical studies, AV-101 caused
fast-acting, ketamine-like antidepressant effects, including rapid
onset and long duration of effect following a single treatment,
without causing negative side effects associated with ketamine. In
two NIH-funded randomized, double blind, placebo-controlled Phase 1
safety studies, AV-101 was found to be safe, well-tolerated and not
associated with any severe adverse events. There were no signs of
sedation, hallucinations or any of the psychological side effects
often associated with ketamine and other channel-blocking NMDA
receptor antagonists.
Building
on over $8.8 million of prior grant award funding from the NIH for
preclinical and Phase 1 clinical development of AV-101, pursuant to
our CRADA with the NIH, Dr. Carlos Zarate, Jr., as Principal
Investigator, and his team at the NIMH are conducting, and the NIMH
is funding, the NIMH Study. Among the objectives of the
NIMH Study, the NIMH is evaluating the ability of AV-101 to improve
overall depressive symptomatology in subjects with
treatment-resistant MDD, specifically whether subjects with
treatment-resistant MDD have a greater and more rapid decrease in
depressive symptoms when treated with AV-101 monotherapy than with
placebo, as well as assessment of multiple
biomarkers.
We are
conducting our ELEVATE Study to evaluate the safety and efficacy of
AV-101 as an adjunctive treatment of MDD in adult patients with an
inadequate response to standard, FDA-approved
antidepressants. We
currently anticipate that top line results of the ELEVATE Study
will be available in the first half of 2019. The Principal
Investigator of the ELEVATE Study is Dr. Maurizio Fava of Harvard
Medical School. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the largest clinical trial ever conducted in
depression, STAR*D, whose findings were published in journals such
the New England Journal of
Medicine and the Journal of
the American Medical Association.
AV-101 as Adjunctive Treatment to Ketamine to Prevent Post-Ketamine
MDD and/or Suicidal Ideation Relapse
The use
of ketamine to treat MDD has been studied in several clinical
trials conducted by depression experts at numerous academic
institutions and at the NIMH. In randomized, placebo-controlled,
double blind clinical trials ketamine has produced robust and rapid
(within twenty-four hours) antidepressant effects in MDD patients
who had not responded to standard antidepressants. We
believe the potential for widespread and long-term use of ketamine
may be limited by its potential for abuse, dissociative and other
psychological side effects and by the inconvenience and practical
challenges associated with required administration in a clinical
setting. In the event that ketamine’s side effects, safety
concerns, required in-clinic administration or other factors limit
the use of ketamine and result in relapse of MDD and/or suicidal
ideation, we believe AV-101 has potential to prevent relapse of MDD
and/or suicidal ideation without ketamine-like side effects and
safety concerns, when administered orally, on an at-home basis,
following cessation of ketamine therapy. We plan to leverage our
ELEVATE Study IND to conduct an exploratory Phase 2 study to assess
the efficacy and safety of AV-101 as an adjunctive treatment to
ketamine to prevent MDD and/or suicidal ideation relapse
post-ketamine therapy.
AV-101 and Neuropathic Pain
Neuropathic
pain is a complex, chronic pain state that results from
problems with signals from nerves. There are various causes of
neuropathic pain, including tissue injury, nerve damage or disease,
diabetes, infection, toxins, certain types of drugs, such as
antivirals and chemotherapeutic agents, certain cancers, and even
chronic alcohol intake. With neuropathic pain, damaged,
dysfunctional or injured nerve fibers send incorrect signals to
other pain centers and impact nerve function both at the site of
injury and areas around the injury.
According
to the WHO, about 116 million Americans were living with chronic
pain in 2011.
Many
neuropathic pain treatments on the market today, including
prescription opioids, antidepressants, and anticonvulsants such as
gabapentin and pregabalin, have side effects including anxiety,
depression, dizziness, cognitive impairment and/or
sedation.
The
effects of AV-101 were assessed in published peer-reviewed studies
involving four well-established nonclinical models of pain, both
hyperalgesia and allodynia, to examine its analgesic and behavioral
profile. The publication, titled: “Characterization of the effects of
L-4-chlorokynurenine on nociception in rodents,” by
lead author, Tony L. Yaksh, Ph.D., Professor in Anesthesiology at
the University of California, San Diego, was published in
The Journal of Pain in
April 2017 (J Pain. 18:1184-1196, 2017)). In these studies,
systemic delivery of AV-101 yielded high brain concentrations of
AV-101's active metabolite, 7-Cl-KYNA that were calculated to
exceed its IC50 at the NMDA receptor GlyB site and resulted in
robust, dose-dependent anti-nociceptive effects, similar to
gabapentin, but with no discernable negative side effects.
Gabapentin, an anticonvulsant drug commonly used for neuropathic
pain, causes sedation and mild cognitive impairment. Other commonly
prescribed medications for neuropathic pain include drugs targeting
opioid receptors in the brain. Unfortunately, misuse of such drugs
can lead to a significantly increased risk of addiction, and, we
believe, their therapeutic utility for neuropathic pain is unclear.
Therefore, we believe AV-101, an oral drug candidate that
does not target opioid receptors and is equally effective on pain,
but is better tolerated than gabapentin, pregabalin or potentially
addictive drugs targeting opioid receptors, could be an important
treatment alternative for the millions of patients battling chronic
neuropathic pain. Taken together with our successful AV-101 Phase
1a and 1b clinical safety studies, we believe the published results
of these nonclinical studies support further clinical development
of AV-101 in an exploratory Phase 2 clinical study to assess its
potential as a non-opioid, non-addictive, non-sedating treatment to
reduce debilitating neuropathic pain, especially diabetic
neuropathic pain, effectively, without causing gabapentin- or
pregabalin-like side effects or risk of addiction associated with
pain medications targeting opioid receptors.
AV-101 and Parkinson’s Disease Levodopa-Induced
Dyskinesia
Parkinson's disease (PD) is
a chronic, progressive motor disorder that causes tremors,
rigidity, slowed movements and postural instability. The
Parkinson’s Foundation estimates that PD affects about one
million people in the United States and ten million worldwide. The
main finding in brains of people with PD is loss of dopaminergic
neurons in the area of the brain known as
the substantia
nigra. The most
commonly-prescribed treatments for PD are levodopa-based therapies.
In the brain, levodopa is converted to dopamine to replace the
dopamine loss caused by PD. Unfortunately, abnormal involuntary
movements, called dyskinesias, gradually emerge as a prominent
side-effect in response to previously beneficial doses of
levodopa. Parkinson’s disease levodopa-induced dyskinesia (PD LID) can
be severely disabling, rendering patients unable to perform routine
daily tasks. It may
be necessary to reduce the dose of levodopa to avoid dyskinesias,
which may in turn exacerbate the core PD motor
disorder. Studies
published in the New England Journal of
Medicine and
Movement
Disorders have shown PD LID
develops in approximately 45% of levodopa-treated Parkinson’s
disease patients after five years and 80% after 10 years of
levodopa treatment. In the U.S., there are an estimated 150,000 to
200,000 people with PD who are impacted by PD
LID.
AV-101 is not a dopamine-based drug candidate. Rather, it is
believed to work through a different receptor in the brain that is
equally important in PD, known as glutamate. We believe AV-101 has
potential to reduce troublesome dyskinesia experienced by many
patients with Parkinson’s disease as a result of their
levodopa therapy, but without interfering with levodopa or causing
side effects resulting from certain current PD LID treatments,
including hallucinations, dizziness, dry mouth, swelling of legs
and feet, constipation and falls.
In a monkey model of Parkinson’s disease, AV-101 (250 mg/kg
and 450 mg/kg) resulted in a 30% reduction of the mean dyskinesia
score associated with PD LID. Maximum dyskinesia scores were also
reduced by 17%. Importantly, AV-101 did not reduce the
anti-parkinsonian therapeutic benefit of levodopa. Moreover, the
duration of levodopa response and delay to levodopa effect were not
affected by treatment with AV-101. We believe these
preclinical data warrant clinical development of AV-101 in an
exploratory Phase 2 clinical study to assess its potential in
Parkinson’s disease patients diagnosed with PD
LID.
AV-101 and Epilepsy
AV-101
has been shown to protect against seizures and neuronal damage in
animal models of epilepsy, providing preclinical support for its
potential as a novel treatment alternative for epilepsy. Epilepsy
is one of the most prevalent neurological disorders, affecting
almost 1% of the worldwide population. According to the Epilepsy
Foundation, as many as three million Americans have epilepsy, and
one-third of those suffering from epilepsy are not effectively
treated with currently available medications. In addition, standard
anticonvulsants can cause significant side effects, which
frequently interfere with compliance.
Glutamate
is a neurotransmitter that is critically involved in the
pathophysiology of epilepsy. Through its stimulation of the NMDA
receptor subtype, glutamate has been implicated in the
neuropathology and clinical symptoms of the disease. In support of
this, NMDA receptor antagonists are potent anticonvulsants.
However, classic NMDA receptor antagonists are limited by adverse
effects, such as neurotoxicity, declining mental status, and the
onset of psychotic symptoms following administration of the drug.
The endogenous amino acid glycine modulates glutamatergic
neurotransmission by stimulating the GlyB co-agonist site of the
NMDA receptor. GlyB site antagonists inhibit NMDA receptor function
and are therefore anticonvulsant and neuroprotective. Importantly,
GlyB site antagonists have fewer and less severe side effects than
classic channel-blocking NMDA receptor antagonists and other
antiepileptic agents, making them a safer potential alternative to,
and one expected to be associated with greater patient compliance
than, available anticonvulsant medications.
AV-101
has two additional therapeutically important properties as a drug
candidate for treatment of epilepsy:
|
1.
|
AV-101
is preferentially converted to 7-Cl-KYNA in brain areas related to
neuronal injury as a result of astrocytes, which are responsible
for the enzymatic transamination of 4-Cl-KYN prodrug to active
7-Cl-KYNA, becoming focally activated at sites of neuronal injury.
Due to AV-101’s highly focused site of conversion, local
concentrations of newly formed 7-Cl-KYNA are greatest at the site
of therapeutic need. In addition to delivering the drug where it is
needed, this reduces the chance of systemic and dangerous side
effects with long-term use of the drug; and
|
|
2.
|
An
active metabolite of AV-101, 4-Cl-3-hydroxyanthranilic acid,
inhibits the synthesis of quinolinic acid, an endogenous NMDA
receptor agonist that causes convulsions and excitotoxic neuronal
damage.
|
AV-101’s
ability to activate astrocytes for focal delivery of an
anti-epileptic principle, and its dual action as a NMDAR GlyB
antagonist and quinolinic acid synthesis inhibitor, make AV-101 a
potential Phase 2 development candidate for treatment of
epilepsy.
AV-101 and Huntington’s Disease
Working
together with metabotropic glutamate receptors, the NMDA receptor
ensures the establishment of long-term potentiation (LTP), a process believed to be
responsible for the acquisition of information. These functions are
mediated by calcium entry through the NMDA receptor-associated
channel, which in turn influences a wide variety of cellular
components, like cytoskeletal proteins or second-messenger
synthases. However, over activation at the NMDA receptor triggers
an excessive entry of calcium ions, initiating a series of
cytoplasmic and nuclear processes that promote neuronal cell death
through necrosis as well as apoptosis, and these mechanisms have
been implicated in several neurodegenerative diseases.
Huntington's
disease (HD) is an
inherited disorder that causes degeneration of brain cells, called
neurons, in motor control regions of the brain, as well as other
areas. Symptoms of the disease, which gets progressively worse,
include uncontrolled movements (called chorea), abnormal body
postures, and changes in behavior, emotion, judgment, and
cognition. HD is caused by an expansion in the number of
glutamine repeats beyond 35 at the amino terminal end of a protein
termed “huntingtin.” Such a mutation in huntingtin
leads to a sequence of progressive cellular changes in the brain
that result in neuronal loss and other characteristic
neuropathological features of HD. These are most prominent in the
neostriatum and in the cerebral cortex, but also observed in other
brain areas.
The
tissue levels of two neurotoxic metabolites of the kynurenine
pathway of tryptophan degradation, quinolinic acid (QUIN) and 3-hydroxykynurenine
(3-HK) are increased in the
striatum and neocortex, but not in the cerebellum, in early stage
HD. QUIN and 3-HK and especially the joint action of these two
metabolites, have long been associated with the neurodegenerative
and other features of the pathophysiology of HD. The neuronal death
caused by QUIN and 3-HK is due to both free radical formation and
NMDA receptor overstimulation (excitotoxicity).
Based
on the hypothesis that 3-HK and QUIN are involved in the
progression of HD, early intervention aimed at affecting the
kynurenine pathway in the brain may present a promising treatment
strategy. We believe the ability of AV-101 to reduce the brain
levels of neurotoxic QUIN and to potentially produce significant
local concentrations of 7-Cl-KYNA on chronic administration, may
present an exciting opportunity for exploratory Phase 2 clinical
investigation of AV-101 as a potential chronic treatment
alternative for certain symptoms of HD.
AV-101 Phase 1 Clinical Safety Studies
The
safety data from two NIH-funded AV-101 Phase 1 clinical safety
studies indicate that AV-101 was safe and well tolerated in
healthy subjects at all doses tested, in both single-ascending and
multiple-ascending dose studies. There were no adverse effects
(AEs) reported by subjects
that received AV-101 that were graded as probably related to study
drug. The type and distribution of AEs reported by subjects in the
studies were considered to be typical for studies in healthy
volunteers. All AEs were completely resolved. Further, no serious
adverse events (SAEs) were
reported.
The
Pharmacokinetics (PK) of
AV-101 were fully characterized across the range of doses in these
Phase 1a and 1b studies. Plasma concentration-time profiles
obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA after administration
of a single escalating dose (Phase 1a) and multiple, once daily
oral doses of 360, 1,080, or 1,440 mg for 14 days (Phase 1b) were
consistent with rapid absorption of the oral dose and first-order
elimination of both analytes, with evidence of multi-compartment
kinetics, particularly for the AV-101’s active metabolite,
7-Cl-KYNA.
Although
the Phase 1 safety and PK studies were not designed to measure or
evaluate the potential antidepressant effects of AV-101,
approximately 9% (5/54) of the subjects receiving AV-101 and 0% of
the 30 subjects receiving placebo reported “feelings of
well-being” (coded as euphoric mood), similar to the
fast-acting antidepressant effects reported in the literature with
ketamine.
VistaStem
Therapeutics and our Stem Cell Programs
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology to discover, rescue, develop and
commercialize proprietary new chemical entities
(NCEs)
for our CNS development pipeline and cellular therapies and
regenerative medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. We used our hPSC-derived cardiomyocytes
(human heart cells) to develop CardioSafe 3D™, our customized
in vitro bioassay system
for predicting heart toxicity of drug rescue NCEs. We
believe CardioSafe 3D is
more comprehensive and clinically predictive than the hERG assay,
which currently is the only in
vitro cardiac safety assay required by FDA guidelines, and
provides us with new generation human cell-based technology to
identify and evaluate drug rescue candidates and develop drug
rescue NCEs for our CNS development pipeline and/or
out-licensing.
Scientific Background
Stem
cells are the building blocks of all cells of the human
body. They have the potential to develop into many
different mature cell types. Stem cells are defined by a
minimum of two key characteristics: (i) their capacity to
self-renew, or divide in a way that results in more stem cells; and
(ii) their capacity to differentiate, or turn into mature,
specialized cells that make up tissues and organs. There
are many different types of stem cells that come from different
places in the body or are formed at different times throughout our
lives, including pluripotent stem cells and adult or
tissue-specific stem cells, which are limited to differentiating
into the specific cell types of the tissues in which they reside.
We focus exclusively on human pluripotent stem cells.
Human
pluripotent stem cells (hPSCs) can be differentiated into all
of the more than 200 types of cells in the human body, can be
expanded readily, and have diverse medical research, drug
discovery, drug rescue, drug development and therapeutic
applications. We believe hPSCs can be used to develop numerous cell
types, tissues and customized assays that can mimic complex human
biology, including heart and liver biology for drug
rescue.
Human
pluripotent stem cells are either embryonic stem cells
(hESCs) or induced
pluripotent stem cells (iPSCs). Both hESCs and iPSCs
have the capacity to be maintained and expanded in an
undifferentiated state indefinitely. We believe these features make
them highly useful research and development tools and as a source
of normal, functionally mature cell populations. We use multiple
types of these mature cells as the foundation to design and develop
novel, customized bioassay systems to test the safety and efficacy
of NCEs in vitro.
These cells also have potential for diverse cellular therapy and
regenerative medicine applications.
CardioSafe 3D vs. hERG
Assay
The
limitations of current preclinical drug testing systems used by
pharmaceutical companies and others contribute to the high failure
rate of NCEs. Incorporating novel in vitro assays using hPSC-derived
cardiomyocytes (hPSC-CMs)
early in preclinical development offers the potential to improve
clinical predictability, decrease development costs, and avoid
adverse patient effects, late-stage clinical termination, and
product recall from the market.
We
produce functional, non-transformed hPSC-CMs at a high level of
purity and with normal ratios of all important cardiac cell
types. Importantly, our hPSC-CM differentiation
protocols do not involve either genetic modification or antibiotic
selection. This is important because genetic modification and
antibiotic selection can distort the ratio of cardiac cell types
and have a direct impact on the ultimate results and clinical
predictivity of assays that incorporate hPSC-CMs produced in such a
manner. In addition to normal expression all of the key ion
channels of the human heart (calcium, potassium and sodium) and
various cardiomyocytic markers of the human heart, our CardioSafe 3D cardiac toxicity assays
screening for both direct cardiomyocyte cytotoxicity and
arrhythmogenesis (or development of irregular beating patterns). We
believe CardioSafe 3D is
sensitive, stable, reproducible and capable of generating data
enabling a more accurate prediction of the in vivo cardiac effects of NCEs than is
possible with existing preclinical testing systems, particularly
the hERG assay, which uses
either transformed hamster ovary cells or human kidney cells and is
currently the only in vitro
cardiac safety assay required by FDA Guidelines (ICH57B). We believe the clinical
predictivity of the hERG assay is limited because it assesses only
a single cardiac ion channel - the hERG potassium ion channel
– and does not assess any other clinically relevant cardiac
ion channels, including calcium, non-hERG potassium and sodium ion
channels. In addition, the hERG assay does not assess clinically
relevant cardiac biological effects associated with cardiomyocyte
viability, including apoptosis and other forms of cytotoxicity, as
well as energy, mitochondria and oxidative stress. As a result of
its limitations, results of the hERG assay can lead to false
negative and false positive predictions regarding the cardiac
safety of new drug candidates.
We
believe that CardioSafe 3D
provides valuable and more comprehensive bioanalytical tools for
in vitro cardiac safety
screening than the hERG assay.
Using CardioSafe 3D to Develop Drug Rescue NCEs
Our
drug rescue activities are focused on producing for our internal
CNS pipeline or out-licensing proprietary, safer variants of
still-promising NCEs previously discovered, optimized and tested
for efficacy by pharmaceutical companies and others but terminated
before FDA approval due to unexpected heart toxicity. Our drug
rescue strategy involves using CardioSafe 3D to assess the cardiac
toxicity that caused certain NCEs available in the public to be
terminated, and using that insight to produce and develop a new,
potentially safer, and proprietary NCEs for our CNS pipeline or
out-licensing. We believe the pre-existing public domain
knowledge base supporting the therapeutic and commercial potential
of NCEs we target for our drug rescue programs will provide us with
a valuable head start as we launch each of our drug rescue
programs. Leveraging the substantial prior investments by global
pharmaceutical companies and others in discovery, optimization and
efficacy validation of the NCEs we identify in the public domain is
an essential component of our drug rescue strategy.
By
using CardioSafe 3D to
enhance our understanding of the cardiac liability profile
of NCEs, insight not previously available when the NCEs
were originally discovered, optimized for efficacy and developed,
we believe we can demonstrate preclinical proof-of-concept
(POC) as to the efficacy
and safety of new, safer drug rescue NCEs in standard in vitro and in vivo models, as well as in
CardioSafe 3D, earlier in
development and with substantially less investment in discovery and
preclinical development than was required of pharmaceutical
companies and others prior to their decision to terminate the
original NCE.
Our
goal in each drug rescue program will be to produce a proprietary
drug rescue NCE and establish its preclinical POC, using standard
preclinical in vitro and
in vivo efficacy and safety
models, as well as CardioSafe 3D. In this context, POC means that
the lead drug rescue NCE, as compared to the original,
previously-terminated NCE,
demonstrates both (i) equal or superior efficacy in the same, or a
similar, in vitro and
in vivo preclinical
efficacy models used by the initial developer of the
previously-terminated NCE before it was terminated for
safety reasons, and (ii) significant reduction of concentration
dependent cardiotoxicity in CardioSafe 3D.
Regenerative Medicine
We
believe stem cell technology-based cell therapy and regenerative
medicine (RM) have the potential to transform healthcare in the
U.S. and certain other large markets over the next decade by
providing new approaches for treating the fundamental mechanisms of
disease. We currently intend to establish strategic cell therapy-
and/or RM-focused collaborations to leverage our stem cell
technology platform, our expertise in human biology,
differentiation of human pluripotent stem cells to develop
functional adult human cells and tissues involved in human disease,
including blood, bone, cartilage, heart and liver cells for cell
therapy and RM purposes. In December
2016, we exclusively sublicensed to BlueRock Therapeutics, a next
generation RM company established by Bayer AG and Versant Ventures,
rights to certain proprietary technologies relating to the
production of cardiac stem cells for the treatment of heart
disease. In a manner similar to our exclusive sublicense
agreement with BlueRock Therapeutics, we may pursue additional cell
therapy and RM collaborations or licensing transactions involving
blood, cartilage, and/or liver cells derived from hPSCs for
cell-based therapy, cell repair therapy, and/or tissue
engineering.
Intellectual Property
We rely
upon patents as a major component of our intellectual property
(IP) portfolio, as is
typical for development-stage biopharmaceutical companies. In
addition, from time to time, we enter into patent license
agreements to acquire rights to IP and to provide certain IP rights
to commercialization partners. We also rely, in part, on trade
secrets for protection of some of our discoveries. We seek to
protect our trade secrets by entering into confidentiality
agreements with employees, consultants, collaborators and third
parties. We also own several registered and common-law
trademarks.
To help
protect our IP rights, our employees, contractors and consultants
also sign agreements in which they assign to us, for example, their
interests in patents, trade secrets and copyrights arising from
their work for us.
From
time to time, we may sponsor or facilitate research with key
scientists in academic institutions to advance or supplement our
internal research and development activities and objectives. These
sponsored research agreements generally provide us with an
opportunity to negotiate a new license, or acquire a substantially
prescribed license, to acquire IP rights in the results of the
sponsored research.
AV-101
We have
developed a portfolio of IP assets around AV-101, which involves
obtaining patents and protecting trade secrets. In addition to
these IP assets, we plan to seek regulatory exclusivity for the use
of AV-101, with initial emphasis on treating depression as our lead
indication in clinical development. These two approaches to
obtaining exclusivity exist separately in the US and in several
other countries and would be expected to provide complementary
protection in countries where they are available.
Although AV-101 (also known as L-4-Cl-kynurenine) is not itself
patent protected as a chemical compound, as part of our strategy to
seek and secure broad commercial exclusivity for AV-101, we have
pursued related patents in the U.S., Europe, and other selected
major pharmaceutical markets, including China, Japan and Korea. For
example, some of our granted AV-101 patents and pending
applications relate to the treatment of depression and others
relate to the treatment of additional CNS diseases and disorders,
including, among others, Parkinson’s disease levodopa-induced
dyskinesia and the management of certain types of neuropathic
pain. Several of these patent applications were allowed or
have been granted, relating to certain oral unit dose formulations
of AV-101 without any restriction as to the particular medical
condition, disease or disorder to be treated and, in certain
countries, relating to novel therapeutic methods for treatment of
depression and levodopa-induced dyskinesia. Additional granted
patents and pending applications involve methods to synthesize
AV-101. We expect that our granted patents will not begin to expire
until 2034, and we plan to seek patent term extensions in places,
such as the U.S., Europe and Japan, where they are
available.
As
noted elsewhere in this Annual Report, we are currently involved
with the NIMH Study being conducted by the NIMH. As part of our
analysis of the study results, we will be evaluating the
possibility of seeking additional patent protection in the U.S.,
Europe, China, Japan, Korea and selected major markets based on the
clinical data and on clinical observations.
As
mentioned above, a complementary component of our plan is to obtain
regulatory exclusivity for approved therapeutic indications for
AV-101. For example, the FDA’s New Drug Product
Exclusivity is available for NCEs such as AV-101, which have not
been previously approved by the FDA. This provides the holder
of an FDA-approved NDA with up to five years of protection from
competition in the U.S. marketplace from generic versions of the
same product. As applicable, we will pursue similar types of
regulatory exclusivity in other regions, such as Europe, and in
certain other countries.
There
is no guarantee that we will be successful in obtaining any
additional patents related to AV-101 in the U.S., Europe, or any
other country, or that if we are successful in obtaining any
patents that we would also be successful in protecting those
patents against challengers or in enforcing them to stop
infringement. Outside the U.S. and Europe, we are pursuing patent
rights in a limited number of countries that we believe are the
major markets for pharmaceuticals where having patent rights should
substantially facilitate commercialization of AV-101.
Stem Cell Technology
We have
obtained and are pursuing IP rights to several stem cell
technologies through a combination of our own patent properties,
exclusive and non-exclusive patent and technology licenses, and
participation in sponsored research relationships. Generally, our
stem cell IP portfolio relates to drug development and drug
discovery. It also relates to production systems of enriched
populations of certain stem cell and differentiated cell types,
such as cardiomyocytes, and the use of various cell types that have
been differentiated from pluripotent stem cells for those and other
purposes including cell-based therapy and RM. Additionally, we
maintain certain trade secrets regarding our stem cell
technology.
Overall,
our stem cell patent portfolio includes several issued U.S. patents
and pending patent applications as well as foreign counterpart
patents and applications in countries of commercial interest to us
such as China, Japan and Korea.
The
patent properties in these families are based on discoveries from
our internal research and development activities, research that we
have sponsored at various academic institutions, as well as from
patent license agreements signed with the University Health Network
(Toronto) and the Mount Sinai School of Medicine.
These
license agreements generally require us to pay nominal annual
license fees, and, in certain cases, patent prosecution and
maintenance fees, and royalty payments that vary based on product
sales and services that are covered by the licensed patent rights,
as well fees for sublicensing. As noted above in the context of
AV-101 IP, there is also no guarantee that we will successfully
obtain stem cell related patents in the countries in which we are
pursuing patent rights or that we would be successful in enforcing
granted patent rights against infringers.
In
December 2016, we exclusively sublicensed to BlueRock Therapeutics,
Inc., a company founded by Bayer AG and Versant Ventures to usher
in a new era of cell-based medicine that repairs the body when it
cannot repair itself, rights to certain proprietary technologies
relating to the production of cardiac stem cells for the treatment
of heart disease.
Strategic Transactions and Relationships
Strategic
collaborations are an important cornerstone of our corporate
development strategy. We believe that our highly selective
outsourcing of certain research, development, manufacturing and
regulatory activities gives us flexible access to a broad range of
capabilities and expertise at a lower overall cost than developing
and maintaining such capabilities and expertise internally on a
full-time basis. In particular, we contract with third parties for
certain manufacturing, nonclinical development, clinical
development and regulatory affairs support. Our current strategic
collaborations include our CRADA with the NIMH, pursuant to which
the NIMH is conducting the NIMH Study, and our relationships with
Cato Research Ltd. as our contract research organization
(CRO) for the ELEVATE Study
and Norac Pharma as our contract manufacturing organization
(CMO) currently responsible
for the production of our AV-101 drug substance.
Manufacturing
We do
not have any manufacturing facilities or personnel. We currently
rely, and expect to continue to rely, on third parties for the
manufacturing of our product candidates for preclinical and
clinical testing, as well as for commercial manufacturing if our
product candidates receive marketing approval. As a key part of our
product development approach, we aim to complete formulation work
at an early stage of development, such that our clinical studies
are conducted with a formulation that has the potential for
eventual scale-up. All of our product candidates are small
molecules and are manufactured in reliable and reproducible
synthetic processes from readily available starting materials. The
chemistry does not require unusual equipment in the manufacturing
process. We expect to continue to develop product candidates that
can be produced cost-effectively at contract manufacturing
facilities.
Commercialization
We
intend to develop and, if approved by the FDA, to commercialize our
product candidates in the United States. We may work in combination
with one or more pharmaceutical partners for certain indications,
where specialist capabilities are needed. Depending on the specific
development path pursued, this may include larger depression and
neuropathic pain indications. For other, more specialized
indications, we intend to commercialize our product candidates
independently. For example, we believe the patient and prescriber
populations for PD LID are relatively concentrated and can be
addressed with a focused sales team. We will, however, continuously
review our partnering strategy in the light of new clinical data
and market understanding. We may enter into development and/or
commercialization arrangements for commercialization rights for
other regions outside the United States.
Competition
The
biopharmaceutical industry is highly competitive and subject to
rapid and significant technological change. The large and growing
markets for MDD, neuropathic pain, PD LID, and other CNS diseases
and disorders make them attractive therapeutic areas for
biopharmaceutical businesses. We face
potential competition from many different sources, including major
pharmaceutical, specialty pharmaceutical, and biotechnology
companies, academic institutions, governmental agencies, and public
and private research institutions. Any product candidates that we
successfully develop and commercialize will compete with existing
therapies and new therapies that may become available in the
future. Many of our competitors may have significantly greater
financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical studies,
obtaining regulatory approvals, and marketing approved products
than we do. Several of these entities have commercial products,
robust drug pipelines, readily available capital, and established
research and development organizations. Mergers and
acquisitions in the pharmaceutical, biotechnology, and diagnostic
industries may result in even more resources being concentrated
among a smaller number of our competitors. These competitors also
compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical study sites and
patient registration for clinical studies, as well as in acquiring
technologies complementary to, or necessary for, our programs.
Small or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with
large and established companies. It is probable that the number of
companies seeking to develop products and therapies similar to our
products will increase. The key competitive factors affecting
the success of all of our product candidates, if approved, are
likely to be their efficacy, safety, convenience, price, the level
of branded and generic competition, and the availability of
reimbursement from government and other third-party
payors.
Although
currently there are no FDA-approved therapies for MDD with the
mechanism of action of AV-101, we are aware of a number of pharmaceutical, biotechnology, and
specialty pharmaceutical companies that are developing therapies
targeting NMDA receptors. Most of the therapies being developed are
broad NMDA receptor antagonists and tend to have multiple target
actions, we believe AV-101 is an NMDA receptor GlyB antagonist and
is truly modulatory, without negative off-target activity in
preclinical screening. We are aware of the following companies
developing or commercializing NMDA receptor-targeted therapies,
including but not limited to, Adamas Pharmaceuticals, Allergan,
AmKor Pharma, Aptynix, Avanir Pharmaceuticals, Axsome Therapeutics,
Biohaven Pharmaceutical Holding Co. Ltd., Cadent
Therapeutics, Cerecor, Eli Lilly, Genentech, Immune
Pharmaceuticals, Intra-Cellular Therapies, Janssen Pharmaceuticals,
NeuroRx, Newron Pharmaceuticals, Otonomy, Relmada Therapeutics,
Sage Therapeutics and UCB. In the field of new generation, orally
available, adjunctive treatments of adult MDD patients with an
inadequate response to standard antidepressants, and with an
initial objective of displacing atypical antipsychotics in the
current MDD drug treatment paradigm, we believe our principal
competitor may be Alkermes’ orally available drug candidate,
ALKS-5461, an opioid modulator for which Alkermes has submitted an
NDA with the FDA.
Additionally,
we expect that AV-101 will have to compete with a variety of
therapeutic procedures. such as psychotherapy and
electroconvulsive therapy.
While
we believe that our employees and consultants, scientific
knowledge, technology, and development experience provide us with
competitive advantages, many of our potential competitors, alone or
with their strategic partners, have substantially greater
financial, technical and human resources than we do and
significantly greater experience in the discovery and development
of product candidates, obtaining FDA and other regulatory approvals
of treatments and the commercialization of those
treatments.
We
believe that VistaStem’s stem cell technology platform, the
hPSC-derived human cells we produce, and the customized human
cell-based assay systems we have formulated and developed are
capable of being competitive in the diverse and growing global stem
cell, cell therapy and RM markets, including markets involving the
sale of hPSC-derived cells to third-parties for their in vitro drug discovery and safety
testing, contract predictive toxicology drug screening services for
third parties, internal drug discovery, drug development and drug
rescue of new NCEs, and RM, including in vivo cell therapy research and
development. A representative list of such biopharmaceutical
companies pursuing one or more of these potential applications of
adult and/or hPSC technology includes the following: Acea
Biosciences, Astellas, Athersys, BioCardia, BioTime, Caladrius
Biosciences, Cellectis Bioresearch, Cellerant Therapeutics, Cytori
Therapeutics, Fujifilm Holdings, HemoGenix, International Stem
Cell, Neuralstem, Organovo Holdings, PluriStem Therapeutics, and
Stemina BioMarker Discovery. Pharmaceutical companies and other
established corporations such as Bristol-Myers Squibb, Charles
River, GE Healthcare Life Sciences, GlaxoSmithKline, Novartis,
Pfizer, Roche Holdings, Thermo Fisher Scientific and others have
been and are expected to continue pursuing internally various stem
cell-related research and development programs. Many of the
foregoing companies have greater resources and capital availability
and as a result, may be more successful in their research and
development programs than us. We anticipate that
acceptance and use of hPSC technology for drug development and
regenerative medicine will continue to occur and increase at
pharmaceutical and biotechnology companies in the
future.
Government Regulation
Our
business activities, including the manufacturing, research,
development and marketing of our product candidates, are subject to
extensive regulation by numerous governmental authorities in the
United States and other countries. Before marketing in the United
States, any new drug developed by us or our collaborators must
undergo rigorous preclinical testing, clinical trials and an
extensive regulatory clearance process implemented by the United
States Food and Drug Administration (FDA) under the Federal Food, Drug, and
Cosmetic Act, as amended. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion,
import, export, sale and distribution of biopharmaceutical
products. The regulatory review and approval process, which
includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Moreover,
government coverage and reimbursement policies will both directly
and indirectly impact our ability to successfully commercialize any
future approved products, and such coverage and reimbursement
policies will be impacted by enacted and any applicable future
healthcare reform and drug pricing measures. In addition, we are
subject to state and federal laws, including, among others,
anti-kickback laws, false claims laws, data privacy and security
laws, and transparency laws that restrict certain business
practices in the pharmaceutical industry.
In the
United States, drug product candidates intended for human use
undergo laboratory and animal testing until adequate proof of
safety is established. Clinical trials for new product candidates
are then typically conducted in humans in three sequential phases
that may overlap. Phase 1 trials involve the initial introduction
of the product candidate into healthy human volunteers. The
emphasis of Phase 1 trials is on testing for safety or adverse
effects, dosage, tolerance, metabolism, distribution, excretion and
clinical pharmacology. Phase 2 involves studies in a limited
patient population to determine the initial efficacy of the
compound for specific targeted indications, to determine dosage
tolerance and optimal dosage, and to identify possible adverse side
effects and safety risks. Once a compound shows evidence of
effectiveness and is found to have an acceptable safety profile in
Phase 2 evaluations, Phase 3 trials are undertaken to more fully
evaluate clinical outcomes. Before commencing clinical
investigations in humans, we or our collaborators must submit an
Investigational New Drug Application (IND) to the FDA.
Regulatory
authorities, Institutional Review Boards and Data Monitoring
Committees may require additional data before allowing clinical
studies to commence, continue or proceed from one phase to another,
and could demand that studies be discontinued or suspended at any
time if there are significant safety issues. We have in the past
and may in the future rely on assistance from our third-party
collaborators and contract service providers to file our INDs and
generally support our development and regulatory activities
approval process for our potential products. Clinical testing must
also meet requirements for clinical trial registration,
institutional review board oversight, informed consent, health
information privacy, and good clinical practices, or GCPs.
Additionally, the manufacture of our drug product, must be done in
accordance with current good manufacturing practices (cGMPs).
To
establish a new product candidate’s safety and efficacy, the
FDA requires companies seeking approval to market a drug product to
submit extensive preclinical and clinical data, along with other
information, for each indication for which the product will be
labeled. The data and information are submitted to the FDA in the
form of a New Drug Application (NDA), which must be accompanied by
payment of a significant user fee unless a waiver or exemption
applies. Generating the required data and information for an NDA
takes many years and requires the expenditure of substantial
resources. Information generated in this process is susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval at any stage of the process. The failure to
demonstrate adequately the quality, safety and efficacy of a
product candidate under development would delay or prevent
regulatory approval of the product candidate. Under applicable laws
and FDA regulations, each NDA submitted for FDA approval is given
an internal administrative review within 60 days following
submission of the NDA. If deemed sufficiently complete to permit a
substantive review, the FDA will “file” the NDA. The
FDA can refuse to file any NDA that it deems incomplete or not
properly reviewable. The FDA has established internal goals of
eight months from submission for priority review of NDAs that cover
product candidates that offer major advances in treatment or
provide a treatment where no adequate therapy exists, and 12 months
from submission for the standard review of NDAs. However, the FDA
is not legally required to complete its review within these
periods, these performance goals may change over time and the
review is often extended by FDA requests for additional information
or clarification. Moreover, the outcome of the review, even if
generally favorable, may not be an actual approval but a
“complete response letter” that describes additional
work that must be done before the NDA can be approved. Before
approving an NDA, the FDA can choose to inspect the facilities at
which the product is manufactured and will not approve the product
unless the manufacturing facility complies with cGMPs. The FDA may
also audit sites at which clinical trials have been conducted to
determine compliance with GCPs and data integrity. The FDA’s
review of an NDA may also involve review and recommendations by an
independent FDA advisory committee, particularly for novel
indications. The FDA is not bound by the recommendation of an
advisory committee.
In
addition, delays or rejections may be encountered based upon
changes in regulatory policy, regulations or statutes governing
product approval during the period of product development and
regulatory agency review.
Before
receiving FDA approval to market a potential product, we or our
collaborators must demonstrate through adequate and well-controlled
clinical studies that the potential product is safe and effective
in the patient population that will be treated. In addition, under
the Pediatric Research Equity Act, or PREA, an NDA or supplement to
an NDA must contain data to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective, unless a waiver applies. If regulatory approval of a
potential product is granted, this approval will be limited to
those disease states and conditions for which the product is
approved. Marketing or promoting a drug for an unapproved
indication is generally prohibited. Furthermore, FDA approval may
entail ongoing requirements for risk management, including
post-marketing, or Phase 4, studies. Even if approval is obtained,
a marketed product, its manufacturer and its manufacturing
facilities are subject to payment of significant annual fees and
continuing review and periodic inspections by the FDA. Discovery of
previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer,
including labeling changes, warning letters, costly recalls or
withdrawal of the product from the market.
Any
drug is likely to produce some toxicities or undesirable side
effects in animals and in humans when administered at sufficiently
high doses and/or for sufficiently long periods of time.
Unacceptable toxicities or side effects may occur at any dose level
at any time in the course of studies in animals designed to
identify unacceptable effects of a product candidate, known as
toxicological studies, or during clinical trials of our potential
products. The appearance of any unacceptable toxicity or side
effect could cause us or regulatory authorities to interrupt,
limit, delay or abort the development of any of our product
candidates. Further, such unacceptable toxicity or side effects
could ultimately prevent a potential product’s approval by
the FDA or foreign regulatory authorities for any or all targeted
indications or limit any labeling claims and market acceptance,
even if the product is approved.
In
addition, as a condition of approval, the FDA may require an
applicant to develop a Risk Evaluation and Mitigation Strategy, or
REMS. A REMS uses risk
minimization strategies beyond the professional labeling to ensure
that the benefits of the product outweigh the potential risks. To
determine whether a REMS is needed, the FDA will consider the size
of the population likely to use the product, seriousness of the
disease, expected benefit of the product, expected duration of
treatment, seriousness of known or potential adverse events, and
whether the product is a new molecular entity. REMS can include
medication guides, physician communication plans for healthcare
professionals, and elements to assure safe use (ETASU). ETASU may include, but are not
limited to, special training or certification for prescribing or
dispensing, dispensing only under certain circumstances, special
monitoring, and the use of patient registries. The FDA may require
a REMS before approval or post-approval if it becomes aware of a
serious risk associated with use of the product. The requirement
for a REMS can materially affect the potential market and
profitability of a product.
Any
trade name that we intend to use for a potential product must be
approved by the FDA irrespective of whether we have secured a
formal trademark registration from the U.S. Patent and Trademark
Office. The FDA conducts a rigorous review of proposed product
names, and may reject a product name if it believes that the name
inappropriately implies medical claims or if it poses the potential
for confusion with other product names. The FDA will not approve a
trade name until the NDA for a product is approved. If the FDA
determines that the trade names of other products that are approved
prior to the approval of our potential products may present a risk
of confusion with our proposed trade name, the FDA may elect to not
approve our proposed trade name. If our trade name is rejected, we
will lose the benefit of any brand equity that may already have
been developed for this trade name, as well as the benefit of our
existing trademark applications for this trade name.
We and
our collaborators and contract manufacturers also are required to
comply with the applicable FDA cGMP regulations. cGMP regulations
include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection
by the FDA. These facilities must be approved before we can use
them in commercial manufacturing of our potential products and must
maintain ongoing compliance for commercial product manufacture. The
FDA may conclude that we or our collaborators or contract
manufacturers are not in compliance with applicable cGMP
requirements and other FDA regulatory requirements, which may
result in delay or failure to approve applications, warning
letters, product recalls and/or imposition of fines or
penalties.
If a
product is approved, we must also comply with post-marketing
requirements, including, but not limited to, compliance with
advertising and promotion laws enforced by various government
agencies, including the FDA’s Office of Prescription Drug
Promotion, through such laws as the Prescription Drug Marketing
Act, federal and state anti-fraud and abuse laws, including
anti-kickback and false claims laws, healthcare information privacy
and security laws, post-marketing safety surveillance, and
disclosure of payments or other transfers of value to healthcare
professionals and entities. In addition, we are subject to other
federal and state regulation including, for example, the
implementation of corporate compliance programs.
If we
elect to distribute our products commercially, we must comply with
state laws that require the registration of manufacturers and
wholesale distributors of pharmaceutical products in a state,
including, in certain states, manufacturers and distributors who
ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some
states also impose requirements on manufacturers and distributors
to establish the pedigree of product in the chain of distribution,
including some states that require manufacturers and others to
adopt new technology capable of tracking and tracing product as it
moves through the distribution chain.
Outside
of the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of
clinical trials, marketing authorization, pricing and reimbursement
vary widely from country to country. At present, foreign marketing
authorizations are applied for at a national level, although within
the European Community (EC), centralized registration
procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy
has been presented, marketing authorization will be granted. This
foreign regulatory development and approval process involves all of
the risks associated with achieving FDA marketing approval in the
U.S. as discussed above. In addition, foreign regulations may
include applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or other
transfers of value to healthcare professionals and
entities.
Reimbursement
Potential
sales of AV-101 or any other future product candidate, if approved,
will depend, at least in part, on the extent to which such products
will be covered by third-party payors, such as government health
care programs, commercial insurance and managed healthcare
organizations. These third-party payors are increasingly limiting
coverage and/or reducing reimbursements for medical products and
services. A third-party payor’s decision to provide coverage
for a drug product does not imply that an adequate reimbursement
rate will be approved. Further, one payor’s determination to
provide coverage for a drug product does not assure that other
payors will also provide coverage for the drug product. In
addition, the U.S. government, state legislatures and foreign
governments have continued implementing cost-containment programs,
including price controls, restrictions on reimbursement and
requirements for substitution of generic products. Adoption of
price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and
measures, could further limit our future revenues and results of
operations. Decreases in third-party reimbursement or a decision by
a third-party payor to not cover AV-101, if approved, or any future
approved products could reduce physician usage of our products, and
have a material adverse effect on our sales, results of operations
and financial condition.
In the
United States, the Medicare Part D program provides a voluntary
outpatient drug benefit to Medicare beneficiaries for certain
products. We do not know whether AV-101, if approved, or any other
future product candidate will be eligible for coverage under
Medicare Part D, but individual Medicare Part D plans offer
coverage subject to various factors such as those described above.
In addition, while Medicare Part D plans have historically included
“all or substantially all” drugs in the following
designated classes of “clinical concern” on their
formularies: anticonvulsants, antidepressants, antineoplastics,
antipsychotics, antiretrovirals, and immunosuppressants, the
Centers for Medicare and Medicaid Services (CMS) has in the past proposed, but not
adopted, changes to this policy. If this policy is changed in the
future and if CMS no longer considers the antidepressant class to
be of “clinical concern”, Medicare Part D plans would
have significantly more discretion to reduce the number of products
covered in that class. Furthermore, private payors often follow
Medicare coverage policies and payment limitations in setting their
own coverage policies.
Healthcare Laws and Regulations
Sales
of AV-101, if approved, or any other future product candidate will
be subject to healthcare regulation and enforcement by the federal
government and the states and foreign governments in which we might
conduct our business. The healthcare laws and regulations that may
affect our ability to operate include the following:
●
The federal
Anti-Kickback Statute makes it illegal for any person or entity to
knowingly and willfully, directly or indirectly, solicit, receive,
offer, or pay any remuneration that is in exchange for or to induce
the referral of business, including the purchase, order, lease of
any good, facility, item or service for which payment may be made
under a federal healthcare program, such as Medicare or Medicaid.
The term “remuneration” has been broadly interpreted to
include anything of value.
●
Federal
false claims and false statement laws, including the federal civil
False Claims Act, prohibits, among other things, any person or
entity from knowingly presenting, or causing to be presented, for
payment to, or approval by, federal programs, including Medicare
and Medicaid, claims for items or services, including drugs, that
are false or fraudulent.
●
The
U.S. federal Health Insurance Portability and Accountability Act of
1996 (HIPAA ) created
additional federal criminal statutes that prohibit among other
actions, knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program,
including private third-party payors or making any false,
fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or
services.
●
HIPAA,
as amended by the Health Information Technology for Economic and
Clinical Health Act of 2009 (HITECH ) and their implementing
regulations, impose obligations on certain types of individuals and
entities regarding the electronic exchange of information in common
healthcare transactions, as well as standards relating to the
privacy and security of individually identifiable health
information.
●
The
federal Physician Payments Sunshine Act requires certain
manufacturers of drugs, devices, biologics and medical supplies for
which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program, with specific
exceptions, to report annually to CMS information related to
payments or other transfers of value made to physicians and
teaching hospitals, as well as ownership and investment interests
held by physicians and their immediate family members.
Also,
many states have similar laws and regulations, such as
anti-kickback and false claims laws that may be broader in scope
and may apply regardless of payor, in addition to items and
services reimbursed under Medicaid and other state programs.
Additionally, we may be subject to state laws that require
pharmaceutical companies to comply with the federal
government’s and/or pharmaceutical industry’s voluntary
compliance guidelines, state laws that require drug manufacturers
to report information related to payments and other transfers of
value to physicians and other healthcare providers or marketing
expenditures, as well as state and foreign laws governing the
privacy and security of health information, many of which differ
from each other in significant ways and often are not preempted by
HIPAA.
Additionally, to the extent that our product is sold in a foreign
country, we may be subject to similar foreign laws as well to
compliance with the U.S Foreign Corrupt Practices
Act.
Stem Cell Technology - United States
With
respect to our stem cell research and development in the U.S., the
U.S. government has established requirements and procedures
relating to the isolation and derivation of certain stem cell lines
and the availability of federal funds for research and development
programs involving those lines. All of the stem cell lines that we
are using were either isolated under procedures that meet U.S.
government requirements and are approved for funding from the U.S.
government, or were isolated under procedures that meet U.S.
government requirements.
All
procedures we use to obtain clinical samples, and the procedures we
use to isolate hESCs, are consistent with the informed consent and
ethical guidelines promulgated by the U.S. National Academy of
Science, the International Society of Stem Cell Research
(ISSCR), or the NIH. These
procedures and documentation have been reviewed by an external Stem
Cell Research Oversight Committee, and all cell lines we use have
been approved under one or more of these guidelines.
The
U.S. government and its agencies on July 7, 2009 published
guidelines for the ethical derivation of hESCs required for
receiving federal funding for hESC research. Should we seek further
NIH funding for our stem cell research and development, our request
would involve the use of hESC lines that meet the NIH guidelines
for NIH funding. In the U.S., the President’s Council on
Bioethics monitors stem cell research, and may make recommendations
from time to time that could place restrictions on the scope of
research using human embryonic or fetal tissue. Although numerous
states in the U.S. are considering, or have in place, legislation
relating to stem cell research, it is not yet clear what affect, if
any, state actions may have on our ability to commercialize stem
cell technologies.
Subsidiaries and Inter-Corporate Relationships
VistaGen Therapeutics. Inc., a California corporation, dba
VistaStem Therapeutics (VistaStem), is our wholly-owned subsidiary and has two
wholly-owned subsidiaries: VistaStem Canada Inc., a corporation
incorporated pursuant to the laws of the Province of Ontario, and
Artemis Neuroscience, Inc., a corporation incorporated pursuant to
the laws of the State of Maryland. The operations of VistaStem, and
each of its wholly owned subsidiaries are managed by our senior
management team based in South San Francisco,
California.
Corporate History
VistaGen Therapeutics, Inc., a California corporation incorporated
on May 26, 1998, dba VistaStem, is our wholly-owned subsidiary.
Excaliber Enterprises, Ltd. (Excaliber), a publicly-held company (formerly OTCBB: EXCA)
was incorporated under the laws of the State of Nevada on October
6, 2005. Pursuant to a strategic merger transaction on May 11,
2011, Excaliber acquired all outstanding shares of VistaStem in
exchange for 341,823 shares of our common stock and assumed all of
VistaStem’s pre-Merger obligations (the Merger). Shortly after the Merger, Excaliber’s
name was changed to “VistaGen Therapeutics, Inc.” (a
Nevada corporation).
VistaStem, as the accounting acquirer in the Merger, recorded the
Merger as the issuance of common stock for the net monetary assets
of Excaliber, accompanied by a recapitalization. The
accounting treatment for the Merger was identical to that resulting
from a reverse acquisition, except that we recorded no goodwill or
other intangible assets. A total of 78,450 shares of our common
stock, representing the shares held by stockholders of Excaliber
immediately prior to the Merger are reflected as outstanding for
all periods presented in the Consolidated Financial Statements of
the Company included in Item 8 of this Annual
Report. Additionally, the Consolidated Balance Sheets reflect
the $0.001 par value of Excaliber’s common
stock.
The Consolidated Financial Statements included in Item 8 of this
Annual Report represent the activity of VistaStem from May 26,
1998, and the consolidated activity of VistaStem and Excaliber (now
VistaGen Therapeutics, Inc., a Nevada corporation), from May 11,
2011 (the date of the Merger) through March 31, 2018. The
Consolidated Financial Statements also include the accounts of
VistaStem’s two inactive wholly-owned subsidiaries, Artemis
Neuroscience, Inc., a Maryland corporation (Artemis), and VistaStem Canada, Inc., a corporation
organized under the laws of Ontario, Canada (VistaStem
Canada).
Employees
As of June 26, 2018, we employed nine full-time employees, four of
whom have doctorate degrees. Five full-time employees work in
research and development and laboratory support services and four
full-time employees work in general and administrative roles.
Staffing for all other functional areas is achieved through our
diverse network of strategic relationships with service providers
and consultants, each of whom provides services on a real-time,
as-needed basis, including human resources and payroll, information
technology, facilities, legal, investor relations and website
maintenance, regulatory affairs, and FDA program
management.
We have never had a work stoppage, and none of our employees is
represented by a labor organization or under any collective
bargaining agreement. We consider our employee relations to be
good.
Facilities
We lease our office and laboratory space, which consists of
approximately 10,900 square feet located in South San Francisco,
California, under a lease expiring on July 31,
2022.
Legal Proceedings
None.
Environmental Regulation
Our business does not require us to comply with any extraordinary
environmental regulations.
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all other information in this Annual Report
before investing in our securities. The risks described
below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and/or
operating results could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of AV-101. We cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize AV-101, or any product
candidate.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development, regulatory
approval and commercialization of AV-101 for depression, including
for MDD, and, potentially, various other diseases and disorders
involving the CNS, as well as, but to a more limited extent, our
ability to acquire, license or produce, develop and commercialize
additional product candidates. AV-101 will require substantial
additional nonclinical and clinical testing and regulatory approval
before it may be commercialized. It is unlikely to achieve
regulatory approval, if at all, until at least 2021. Each drug
rescue NCE will require substantial nonclinical development, all
phases of clinical development, and regulatory approval before it
may be commercialized. The nonclinical and clinical development of
our product candidates are, and the manufacturing and marketing of
our product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the
United States and in other countries where we intend to test and,
if approved, market any product candidate. Before obtaining
regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through numerous nonclinical and
clinical studies that the product candidate is safe and effective
for use in each target indication. Research and development of
product candidates in the pharmaceutical industry is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of nonclinical or clinical studies. This process
takes many years and may also include post-marketing studies and
surveillance obligations, which would require the expenditure of
substantial resources beyond the proceeds we have raised to date.
Of the large number of drug candidates in development in the United
States, only a small percentage will successfully complete the FDA
regulatory approval process and will be commercialized.
Accordingly, we cannot assure you that AV-101, or any other future
product candidate will be successfully developed or
commercialized.
We are not permitted to market our product candidates in the United
States until we receive approval of an NDA from the FDA, or in any
foreign countries until we receive the requisite approval from such
countries. We expect the FDA to require us to complete our ELEVATE
study, our double-blind, placebo-controlled Phase 2 clinical study
to evaluate the efficacy and safety of AV-101 as an adjunctive
treatment of MDD in patients with an inadequate response to current
FDA-approved antidepressants, and at least two pivotal Phase 3
clinical trials in order to submit an NDA for AV-101 as an
adjunctive treatment for MDD patients with an inadequate response
to standard, FDA-approved antidepressants. Also, we anticipate that
the FDA will require that we conduct additional toxicology
studies, additional nonclinical and certain small clinical studies
before submitting an NDA for AV-101. The results of all of these
studies will not be known until after the studies are
concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive
and uncertain process. The FDA may refuse to permit the filing of
our NDA, delay, limit or deny approval of an NDA for many reasons,
including, among others:
●
if
we submit an NDA and it is reviewed by an advisory committee, the
FDA may have difficulties scheduling an advisory committee meeting
in a timely manner or the advisory committee may recommend against
approval of our application or may recommend that the FDA require,
as a condition of approval, additional non-clinical or clinical
studies, limitations on approved labeling or distribution and use
restrictions;
the FDA may require development of a REMS as a condition of
approval or post-approval;
●
the
FDA or applicable regulatory agency may determine that there is
insufficient evidence of overall effectiveness in an NDA and
require additional clinical studies;
●
the
FDA or the applicable foreign regulatory agency may determine that
the manufacturing processes or facilities of third-party contract
manufacturers with which we contract do not conform to applicable
requirements, including cGMPs; or
●
the
FDA or applicable foreign regulatory agency may change its approval
policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize AV-101 or any other product candidate we
may develop. Any such setback in our pursuit of regulatory approval
for any product candidate would have a material adverse effect on
our business and prospects.
We have been granted Fast Track designation from the FDA for AV-101
for the adjunctive treatment of MDD. However, this designation may
not actually lead to a faster development or regulatory review or
approval process for AV-101. Further, there is no guarantee the FDA
will grant Fast Track designation for AV-101 as a treatment option
for other CNS indications or for other product candidates in the
future.
The Fast Track designation is a program offered by the FDA pursuant
to certain mandates under the FDA Modernization Act of 1997,
designed to facilitate drug development and to expedite the review
of new drugs that are intended to treat serious or life threatening
conditions. Compounds selected must demonstrate the potential to
address unmet medical needs. The Fast Track designation allows for
close and frequent interaction with the FDA. A designated Fast
Track drug may also be considered for priority review with a
shortened review time, rolling submission, and accelerated approval
if applicable. The designation does not, however, guarantee
approval or expedited approval of any application for the
product.
In December 2017, the FDA granted Fast Track designation for AV-101
for the adjunctive treatment of MDD in patients with an inadequate
response to current antidepressants. However, this designation may
not lead to a faster development or regulatory review or approval
process for AV-101 and the FDA may withdraw Fast Track designation
of AV-101 if it believes that the designation is no longer
supported by data from our AV-101 MDD clinical development
program.
In addition, we may apply for Fast Track designation for AV-101 as
a treatment option for other CNS indications, as well as for other
product candidates. The FDA has broad discretion whether or not to
grant a Fast Track designation, and even if we believe AV-101 and
other product candidates may be eligible for this designation, we
cannot be sure that the review or approval will compare to
conventional FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101 and/or other product candidates, including positive results,
may not be predictive of the results of later-stage clinical
trials. AV-101 or other product candidates in later stages of
clinical trials may fail to show the desired safety and efficacy
results despite having progressed through preclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical
trials due to adverse safety profiles or lack of efficacy,
notwithstanding promising results in earlier studies. Similarly,
our future clinical trial results may not be successful for these
or other reasons.
Moreover, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
preclinical studies and clinical trials nonetheless failed to
obtain FDA approval. We have not yet completed a Phase 2 clinical
trial for AV-101, and if the NIMH Study and/or our ELEVATE Study,
or any future clinical study of AV-101 fail(s) to produce positive
results, the development timeline and regulatory approval and
commercialization prospects for AV-101 and, correspondingly, our
business and financial prospects, could be materially adversely
affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early and late stage clinical trials towards
approval and commercialization, it is customary that various
aspects of the development program, such as manufacturing and
methods of administration, are altered along the way in an effort
to optimize processes and results. While these types of changes are
common and are intended to optimize the product candidates for
later stage clinical trials, approval and commercialization, such
changes do carry the risk that they will not achieve these intended
objectives.
For example, the results of planned clinical trials may be
adversely affected if we or our collaborator seek to optimize and
scale-up production of a product candidate. In such case, we will
need to demonstrate comparability between the newly manufactured
drug substance and/or drug product relative to the previously
manufactured drug substance and/or drug product. Demonstrating
comparability may cause us to incur additional costs or delay
initiation or completion of our clinical trials, including the need
to initiate a dose escalation study and, if unsuccessful, could
require us to complete additional nonclinical or clinical studies
of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns attributable to AV-101 are identified during the
NIMH Study, other investigator-sponsored clinical trials or in our
clinical trials of AV-101, including our ELEVATE study, it may
adversely affect or delay our clinical development and
commercialization of AV-101.
AV-101, as a monotherapy in patients with treatment-resistant
depression, is currently being tested by the NIMH in the NIMH Study
and may be subjected to testing in the future for other CNS
indications in additional investigator-sponsored clinical trials.
If serious adverse events or other undesirable side effects or
safety concerns, or unexpected characteristics attributable to
AV-101 are observed in the NIMH Study, other investigator-sponsored
clinical trials of AV-101, or in our clinical trials of AV-101,
including our ELEVATE Study, it may adversely affect or delay our
clinical development and commercialization of AV-101, and the
occurrence of these events could have a material adverse effect on
our business and financial prospects.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of AV-101 or other our
product candidates could result in increased costs to us and could
delay, prevent or limit our ability to generate revenue and
continue our business.
Under our CRADA with the NIMH, the NIMH is conducting and funding
the NIMH Study. We will need to complete our ELEVATE study, at
least two additional large Phase 3 pivotal clinical trials,
additional toxicology and other standard nonclinical studies, as
well as certain standard smaller clinical studies prior to the
submission of an NDA to the FDA for AV-101 as an adjunctive
treatment for MDD in patients with an inadequate response to
current antidepressants, or any other CNS indication. Successful
completion of our nonclinical and clinical trials is a prerequisite
to submitting an NDA to the FDA and, consequently, the ultimate
approval required before commercial marketing of any product
candidate we may develop. Except as disclosed herein, we do not
know whether the NIMH Study, our ELEVATE study or any of our
future-planned nonclinical and clinical trials of AV-101 or any
other product candidate will be completed on schedule, if at all,
as the commencement and completion of nonclinical and clinical
trials can be delayed or prevented for a number of reasons,
including, among others:
●
the
FDA may deny permission to proceed with planned clinical trials or
any other clinical trials we may initiate, or may place a planned
or ongoing clinical trial on hold;
●
delays
in filing or receiving approvals of additional INDs that may be
required;
●
negative
results from nonclinical studies;
●
delays
in reaching or failing to reach agreement on acceptable terms with
prospective CROs, investigators and clinical trial sites, the terms
of which can be subject to extensive negotiation and may vary
significantly among different CROs, investigators and clinical
trial sites;
●
delays
in the manufacturing of, or insufficient supply of product
candidates necessary to conduct nonclinical or clinical trials,
including delays in the manufacturing of sufficient supply or
finished drug product;
●
inability
to manufacture or obtain clinical supplies of a product candidate
meeting required quality standards;
●
difficulties obtaining Institutional Review
Board ( IRB) approval to conduct a clinical trial at a
prospective clinical site or sites;
●
challenges
in recruiting and enrolling patients to participate in clinical
trials, including the proximity of patients to clinical trial
sites;
●
eligibility
criteria for a clinical trial, the nature of a clinical trial
protocol, the availability of approved effective treatments for the
relevant disease and competition from other clinical trial programs
for similar indications;
●
severe
or unexpected adverse drug-related side effects experienced by
patients in a clinical trial;
●
delays
in validating any endpoints utilized in a clinical
trial;
●
the
FDA may disagree with our clinical trial design and our
interpretation of data from prior nonclinical studies or clinical
trials, or may change the requirements for approval even after it
has reviewed and commented on the design for our clinical
trials;
●
reports
from nonclinical or clinical testing of other CNS indications or
therapies that raise safety or efficacy concerns; and
●
difficulties
retaining patients who have enrolled in a clinical trial but may be
prone to withdraw due to rigors of the clinical trial, lack of
efficacy, side effects, personal issues or loss of
interest.
●
Clinical trials may also be delayed or terminated
prior to completion as a result of ambiguous or negative interim
results. In addition, a clinical trial may be suspended or
terminated by us, the FDA, the IRBs at the sites where the IRBs are
overseeing a clinical trial, a data and safety monitoring board
(DSMB), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
●
failure
to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
●
inspection
of the clinical trial operations or trial sites by the FDA or other
regulatory authorities that reveals deficiencies or violations that
require us to undertake corrective action, including the imposition
of a clinical hold;
●
unforeseen
safety issues, including any that could be identified in
nonclinical carcinogenicity studies, adverse side effects or lack
of effectiveness;
●
changes
in government regulations or administrative actions;
●
problems
with clinical supply materials that may lead to regulatory actions;
and
●
lack
of adequate funding to continue nonclinical or clinical
studies.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of AV-101
or other product candidates may occur, which may result in changes
to nonclinical studies and clinical trial protocols or additional
nonclinical studies and clinical trial requirements, which could
result in increased costs to us and could delay our development
timeline.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of AV-101
or other product candidates may force us to amend nonclinical
studies and clinical trial protocols or the FDA may impose
additional nonclinical studies and clinical trial requirements.
Amendments or changes to our clinical trial protocols would require
resubmission to the FDA and IRBs for review and approval, which may
adversely impact the cost, timing or successful completion of
clinical trials. Similarly, amendments to our nonclinical studies
may adversely impact the cost, timing, or successful completion of
those non-clinical studies. If we experience delays completing, or
if we terminate, any of our nonclinical studies or clinical trials,
or if we are required to conduct additional nonclinical studies or
clinical trials, the commercial prospects for AV-101 or other
product candidates may be harmed and our ability to generate
product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct our nonclinical and clinical trials of AV-101 and any
other product candidates. If these third parties do not
successfully carry out their contractual duties and/or meet
expected deadlines, completion of our nonclinical or clinical
trials and development of AV-101 or other product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize AV-101 or other product candidates and our business
could be substantially harmed.
We do not have the internal staff resources to independently
conduct nonclinical and clinical trials completely on our own. We
rely on our network of strategic relationships with various
academic research centers, medical institutions, nonclinical and
clinical investigators, contract laboratories and other third
parties, such as CROs, to conduct nonclinical and clinical trials
of our product candidates. We enter into agreements with
third-party CROs to provide monitors for and to manage data for our
clinical trials, as well as provide other services necessary to
prepare for, conduct and complete clinical trials. We rely heavily
on these and other third-parties for execution of nonclinical and
clinical trials for our product candidates and we control only
certain aspects of their activities. As a result, we have less
direct control over the conduct, timing and completion of these
nonclinical and clinical trials and the management of data
developed through nonclinical and clinical trials than would be the
case if we were relying entirely upon our own internal staff
resources. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. Outside parties
may:
●
have
staffing difficulties and/or undertake obligations beyond their
anticipated capabilities and resources;
●
fail
to comply with contractual obligations;
●
experience
regulatory compliance issues;
●
undergo
changes in priorities or become financially distressed;
or
●
form
relationships with other entities, some of which may be our
competitors.
These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted in accordance with the applicable protocol, legal,
regulatory and scientific requirements and standards, and our
reliance on CROs, the NIMH or other independent investigators does
not relieve us of our regulatory responsibilities. We and our CROs,
the NIMH and any investigator in an investigator-sponsored study
are required to comply with regulations and guidelines, including
current Good Clinical Practice regulations (cGCPs) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we or
any of our CROs fail to comply with applicable cGCPs, the clinical
data generated in our clinical trials may be deemed unreliable and
the FDA or comparable foreign regulatory authorities may require us
to perform additional clinical trials before approving our
marketing applications. We cannot assure you that, upon inspection,
the FDA will determine that any of our clinical trials comply with
cGCPs. In addition, our clinical trials must be conducted with
product candidates produced under cGMPs and will require a large
number of test patients. Our failure or the failure of our CROs to
comply with these regulations may require us to repeat clinical
trials, which would delay the regulatory approval process and could
also subject us to enforcement action up to and including civil and
criminal penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs, and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the NIMH Study and other investigator-sponsored
clinical studies, we cannot control the amount and timing of
resources these third-parties devote to clinical trials involving
our product candidates. If we are unable to rely on nonclinical and
clinical data collected by our third-party collaborators, we could
be required to repeat, extend the duration of, or increase the size
of our clinical trials and this could significantly delay
commercialization and require significantly greater
expenditures.
If our relationships with one or more of these third-parties
terminates, we may not be able to enter into arrangements with
alternative collaborators. If such third-party
collaborators, including our CROs and the NIMH, do not successfully
carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or
accuracy of the clinical data they obtain is compromised due to
their failure to adhere to applicable clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such third-parties are associated with may be extended,
delayed or terminated, and we may not be able to obtain regulatory
approval for or successfully develop and commercialize our product
candidates. As a result, we believe that our financial results and
the commercial prospects for our product candidates in the subject
indication would be harmed, our costs would increase and our
ability to generate revenue would be delayed.
We rely completely on third-parties to manufacture, formulate, hold
and distribute supplies of our product candidates for all
nonclinical and clinical studies, and we intend to continue to rely
on third parties to produce all nonclinical, clinical and
commercial supplies of our product candidates in the
future.
We do not currently have, nor do we plan to acquire or develop, any
internal infrastructure or technical capabilities to manufacture,
formulate, hold or distribute supplies of our product candidates,
for use in nonclinical and clinical studies or commercial scale.
As a result, with respect to our product candidates, we rely,
and will continue to rely, completely on third party contract
manufacturing organizations (CMOs) to manufacture active pharmaceutical ingredient
(API) and formulate, hold and distribute final drug
product. The facilities used by our CMOs to manufacture AV-101 API
and AV-101 final drug product are subject to a pre-approval
inspection by the FDA and other comparable foreign regulatory
agencies to assess compliance with applicable regulatory guidelines
and requirements, including cGMPs, and may be required to undergo
similar inspections by the FDA or other comparable foreign
regulatory agencies, after we submit INDs, NDAs or relevant foreign
regulatory submission equivalent to the applicable regulatory
agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing and formulation
of our product candidates, and, with respect to all of our product
candidates, we are completely dependent on our CMOs to comply with
all applicable cGMPs for manufacture of both API and finished drug
product. If our CMOs cannot secure adequate supplies of suitable
raw materials or successfully manufacture our product candidates,
including AV-101 API and finished drug product, that conforms to
our specifications and the strict regulatory requirements of the
FDA or applicable foreign regulatory agencies, production of
sufficient supplies of our product candidates, including AV-101 API
and finished drug product, may be delayed and our CMOs may not be
able to secure and/or maintain regulatory approval for their
manufacturing facilities, or the FDA may take other actions,
including the imposition of a clinical hold. In addition, we have
no direct control over our CMOs’ ability to maintain adequate
quality control, quality assurance and qualified personnel. All of
our CMOs are engaged with other companies to supply and/or
manufacture materials or products for such other companies, which
exposes our CMOs to regulatory risks for the production of such
materials and products. As a result, failure to satisfy the
regulatory requirements for the production of those materials and
products may affect the regulatory clearance of our CMO’s
facilities generally or affect the timing of manufacture of AV-101
for required or planned nonclinical and/or clinical studies of our
product candidates. If the FDA or an applicable foreign regulatory
agency determines now or in the future that our CMOs’
facilities are noncompliant, we may need to find alternative
manufacturing facilities, which would adversely impact our ability
to develop, obtain regulatory approval for or market our product
candidates. Our reliance on CMOs also exposes us to the possibility
that they, or third parties with access to their facilities, will
have access to and may appropriate our trade secrets or other
proprietary information.
With respect to AV-101, we do not yet have long-term supply
agreements in place with our CMOs and each batch of AV-101 is
individually contracted under a separate supply agreement. If we
engage new CMOs, such contractors must complete an inspection by
the FDA and other applicable foreign regulatory agencies. We plan
to continue to rely upon CMOs and, potentially, collaboration
partners, to manufacture research and development scale quantities,
and, if approved, commercial scale quantities of our product
candidates. Although we believe our current scale of manufacturing
for AV-101 and current and projected supply of AV-101 API and
finished drug product will be adequate to support our planned
nonclinical and clinical studies of AV-101, no assurance can be
given that unanticipated AV-101 supply shortages or CMO-related
delays in the manufacture and formulation of AV-101 API and/or
finished drug product will not occur in the future.
Even if we receive marketing approval for AV-101 or any other
product candidate in the United States, we may never receive
regulatory approval to market AV-101 or any other product candidate
outside of the United States.
We have not yet selected any markets outside of the United States
where we intend to seek regulatory approval to market AV-101 or any
other product candidate. In order to market AV-101 or any other
product candidate outside of the United States, we must establish
and comply with the numerous and varying safety, efficacy and other
regulatory requirements of other countries. Approval procedures
vary among countries and can involve additional product candidate
testing and additional administrative review periods. The time
required to obtain approvals in other countries might differ from
that required to obtain FDA approval. The marketing approval
processes in other countries may implicate all of the risks
detailed above regarding FDA approval in the United States as well
as other risks. In particular, in many countries outside of the
United States, products must receive pricing and reimbursement
approval before the product can be commercialized. Obtaining this
approval can result in substantial delays in bringing products to
market in such countries. Marketing approval in one country does
not ensure marketing approval in another, but a failure or delay in
obtaining marketing approval in one country may have a negative
effect on the regulatory process in others. Failure to obtain
marketing approval in other countries or any delay or other setback
in obtaining such approval would impair our ability to market our
product candidates in such foreign markets. Any such impairment
would reduce the size of our potential market, which could have a
material adverse impact on our business, results of operations and
prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates, the United
States Drug Enforcement Administration (DEA) may need to determine whether such product
candidates will be considered to be a controlled substance, taking
into account the recommendation of the FDA. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA will consider any of our
product candidates, including AV-101, to be controlled substances,
we cannot yet give any assurance that certain of our product
candidates, including AV-101, will not be regulated as controlled
substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed, we, our CMOs, and any
future distributers, prescribers, and dispensers of the scheduled
product candidates may be subject to significant regulatory
requirements, such as registration, security, recordkeeping,
reporting, storage, distribution, importation, exportation,
inventory, quota and other requirements administered by the DEA.
Moreover, if any of our product candidates are regulated as
controlled substances, we and our CMOs would be subject to initial
and periodic DEA inspection. If we or our CMOs are not able to
obtain or maintain any necessary DEA registrations, we may not be
able to commercialize any product candidates that are deemed to be
controlled substances or we may need to find alternative CMOs,
which would take time and cause us to incur additional costs,
delaying or limit our commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA may seek civil penalties, refuse to renew necessary
registrations, or initiate administrative proceedings to revoke
those registrations. In some circumstances, violations could result
in criminal proceedings or consent decrees. Individual states also
independently regulate controlled substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have any internal resources for the sale,
marketing and distribution of pharmaceutical products, nor do we
intend to create such internal capabilities in the foreseeable
future. Therefore, to market our product candidates, if approved by
the FDA or any other regulatory body, we must make contractual
arrangements with third parties to perform services related to
sales, marketing, managerial and other non-technical capabilities
relating to the commercialization of our product candidates. If we
are unable to establish adequate contractual arrangements for such
sales, marketing and distribution capabilities, or if we are unable
to do so on commercially reasonable terms, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
●
the
efficacy and safety of our product candidates as demonstrated in
clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
●
limitations
or warnings contained in the labeling approved for our product
candidates by the FDA or other applicable regulatory
authorities;
●
the
clinical indications for which our product candidates are
approved;
●
availability
of alternative treatments already approved or expected to be
commercially launched in the near future;
●
the
potential and perceived advantages of our product candidates over
current treatment options or alternative treatments, including
future alternative treatments;
●
the
willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies;
●
the
strength of marketing and distribution support and timing of market
introduction of competitive products;
●
publicity
concerning our products or competing products and
treatments;
●
pricing
and cost effectiveness;
●
the
effectiveness of our sales and marketing strategies;
●
our
ability to increase awareness of our product candidates through
marketing efforts;
●
our
ability to obtain sufficient third-party coverage or reimbursement;
or
●
the
willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw or limit their approval of such product
candidates;
●
regulatory
authorities may require the addition of labeling statements, such
as a “black box” warning or a
contraindication;
●
we
may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
●
we
may be subject to regulatory investigations and government
enforcement actions;
●
we
may decide to remove such product candidates from the
marketplace;
●
we
could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
●
our
reputation may suffer.
We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA has significant
post-marketing authority, including, for example, the authority to
require labeling changes based on new safety information and to
require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. The FDA also has
the authority to require, as part of an NDA or post-approval, the
submission of a REMS. Any REMS required by the FDA may lead to
increased costs to assure compliance with new post-approval
regulatory requirements and potential requirements or restrictions
on the sale of approved products, all of which could lead to lower
sales volume and revenue.
Manufacturers of drug products and their facilities are subject to
continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates, or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
●
issue
warning letters or untitled letters;
●
seek
an injunction or impose civil or criminal penalties or monetary
fines;
●
suspend
or withdraw marketing approval;
●
suspend
any ongoing clinical trials;
●
refuse
to approve pending applications or supplements to applications
submitted by us;
●
suspend
or impose restrictions on operations, including costly new
manufacturing requirements; or
●
seize
or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceutical industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to our product candidates or address similar
markets. It is probable that the number of companies seeking to
develop product candidates similar to our product candidates will
increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of action and
safety profile as our orally administered AV-101. However, new
antidepressant products with other mechanisms of action or products
approved for other indications, including the FDA-approved
anesthetic ketamine hydrochloride, are being or may be used
off-label for treatment of MDD, as well as other CNS indications
for which AV-101 may have therapeutic potential. Additionally,
other non-pharmaceutical treatment options, such psychotherapy and
electroconvulsive therapy (ECT) are used before or instead of standard
antidepressant medications to treat patients with
MDD.
In the field of new generation, oral adjunctive treatments for
adult patients with MDD with an inadequate response to standard
FDA-approved antidepressants, we believe our principal competitor
may be Alkermes’ oral opioid modulator, ALKS-5461, which
adjunctive treatment product candidate is the subject of an NDA
recently submitted to the FDA by Alkermes.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule drug candidates for the treatment of depression,
including MDD, Parkinson’s disease levodopa-induced
dyskinesia, neuropathic pain, epilepsy, and other neurological
conditions and diseases, including, but not limited to, Abbott
Laboratories, Acadia, Allergan, Alkermes, AstraZeneca, Eli Lilly,
GlaxoSmithKline, IntraCellular, Johnson & Johnson/Janssen,
Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Roche, Sage,
Sumitomo Dainippon, and Takeda, as well as any affiliates of the
foregoing companies. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more
resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of MDD, we may fail to pursue
additional CNS-related Phase 2 development opportunities for
AV-101, or identify additional product candidates for clinical
development for a number of reasons. Our research methodology may
be unsuccessful in identifying new product candidates or our
product candidates may be shown to have harmful side effects or may
have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, with additional limited
focus on NCE drug rescue and RM. As a result, we may forego or
delay pursuit of opportunities with other product candidates or for
other potential CNS-related indications for AV-101 that later prove
to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates
for specific indications may not yield any commercially viable
drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our products, we may be subject to
additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
●
The
federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
●
The
federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
●
The
federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
●
The
federal false statements statute prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any
materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services.
●
The
federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
●
Analogous
state laws and regulations, such as state anti-kickback and false
claims laws and transparency laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including
private insurers, and some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant
compliance.
●
Guidance
promulgated by the federal government in addition to requiring drug
manufacturers to report information related to payments to
physicians and other healthcare providers or marketing expenditures
and drug pricing.
Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, if approved. In particular, a product may not be
promoted for uses that are not approved by the FDA or such other
regulatory agencies as reflected in the product’s approved
labeling. For example, if we receive FDA marketing approval for
AV-101 as an adjunctive treatment of MDD, physicians may prescribe
AV-101 to their patients in a manner that is inconsistent with the
FDA-approved label. However, if we are found to have promoted such
off-label uses, we may become subject to significant liability. The
federal government has levied large civil and criminal fines
against companies for alleged improper off-label promotion and has
enjoined several companies from engaging in off-label promotion.
The FDA has also requested that companies enter into consent
decrees or imposed permanent injunctions under which specified
promotional conduct is changed or curtailed. If we cannot
successfully manage the promotion of our product candidates, if
approved, we could become subject to significant liability, which
would materially adversely affect our business and financial
condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the U.S. healthcare industry
and elsewhere. Government authorities and these third-party payors
have attempted to control costs by limiting coverage and the amount
of reimbursement for particular medications. We cannot be sure that
reimbursement will be available for our product candidates and, if
reimbursement is available, the level of such reimbursement.
Reimbursement may impact the demand for, or the price of, our
product candidates. If reimbursement is not available or is
available only at limited levels, we may not be able to
successfully commercialize our product candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates. Even if we have obtained FDA Orphan Drug
designation for a product candidate, there may be limits to the
regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our product candidates. Even if we obtain Orphan
Drug designation from the FDA for a product candidate, there are
limitations to the exclusivity afforded by such designation. In the
U.S., the company that first obtains FDA approval for a designated
orphan drug for the specified rare disease or condition receives
orphan drug marketing exclusivity for that drug for a period of
seven years. This orphan drug exclusivity prevents the FDA from
approving another application, including a full NDA to market the
same drug for the same orphan indication, except in very limited
circumstances, including when the FDA concludes that the later drug
is safer, more effective or makes a major contribution to patient
care. For purposes of small molecule drugs, the FDA defines
“same drug” as a drug that contains the same active
moiety and is intended for the same use as the drug in question. To
obtain Orphan Drug status for a drug that shares the same active
moiety as an already approved drug, it must be demonstrated to the
FDA that the drug is safer or more effective than the approved
orphan designated drug, or that it makes a major contribution to
patient care. In addition, a designated orphan drug may not receive
orphan drug exclusivity if it is approved for a use that is broader
than the indication for which it received orphan designation. In
addition, orphan drug exclusive marketing rights in the United
States may be lost if the FDA later determines that the request for
designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs
of patients with the rare disease or condition or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
●
our
customers’ ability to obtain reimbursement for our product
candidates in foreign markets;
●
our
inability to directly control commercial activities because we are
relying on third parties;
●
the
burden of complying with complex and changing foreign regulatory,
tax, accounting and legal requirements;
●
different
medical practices and customs in foreign countries affecting
acceptance in the marketplace;
●
import
or export licensing requirements;
●
longer
accounts receivable collection times;
●
longer
lead times for shipping;
●
language
barriers for technical training;
●
reduced
protection of intellectual property rights in some foreign
countries;
●
the
existence of additional potentially relevant third party
intellectual property rights;
●
foreign
currency exchange rate fluctuations; and
●
the
interpretation of contractual provisions governed by foreign laws
in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new therapeutic product candidates, including conducting
clinical trials and other areas required for the successful
development and commercialization of therapeutic products, which
makes it difficult to assess our future viability.
We are a development stage biopharmaceutical company. Although our
lead drug candidate is in Phase 2 development, we currently have no
approved products and currently generate no revenues, and we have
not yet fully demonstrated an ability to overcome many of the
fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with
collaborators:
●
develop
and obtain required regulatory approvals for commercialization of
AV-101 and other product candidates;
●
maintain,
leverage and expand our intellectual property
portfolio;
●
establish
and maintain sales, distribution and marketing capabilities, and/or
enter into strategic partnering arrangements to access such
capabilities;
●
gain
market acceptance for our product candidates; and
●
obtain
adequate capital resources and manage our spending as costs and
expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
Our future success is highly dependent upon our ability to
successfully develop and commercialize AV-101, acquire or license
additional product candidates, or discover, as well as produce,
develop and commercialize proprietary drug rescue NCEs using our
stem cell technology, and we cannot provide any assurance that we
will successfully develop and commercialize AV-101, acquire or
license additional product candidates or discover and develop drug
rescue NCEs, or that, if produced, AV-101 or any other product
candidate will be successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce drug rescue NCEs require substantial
technical, financial and human resources, whether or not any
additional product candidate is acquired or licensed or NCEs are
ultimately identified and produced. In particular, our drug rescue
programs may initially show promise in identifying potential NCEs,
yet fail to yield a lead NCE suitable for preclinical, clinical
development or commercialization for many reasons, including the
following:
●
our
drug rescue research and development methodology may not be
successful in identifying and developing potential drug rescue
NCEs;
●
competitors
may develop alternatives that render our drug rescue NCEs
obsolete;
●
a
drug rescue NCE may, on further study, be shown to have harmful
side effects or other characteristics that indicate it is unlikely
to be effective or otherwise does not meet applicable regulatory
criteria;
●
a
drug rescue NCE may not be capable of being produced in commercial
quantities at an acceptable cost, or at all; or
●
a
drug rescue NCE may not be accepted as safe and effective by
regulatory authorities, patients, the medical community or
third-party payors.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, drug rescue NCEs and/or other product
candidates if and when they are acquired and
developed. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful entering into arrangements with third parties
to sell, market and distribute AV-101, any drug rescue NCEs or
other product candidates or may be unable to do so on terms that
are favorable to us. We likely will have little control
over such third parties, and any of these third parties may fail to
devote the necessary resources and attention to sell, market and
distribute our products effectively. If we do not
establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential drug rescue NCEs and no operating history with respect to
the production of drug rescue NCEs, and we may never be able to
produce a drug rescue NCE.
If we are unable to develop and commercialize AV-101, acquire
or license additional product candidates, or produce suitable drug
rescue NCEs, we may not be able to generate sufficient revenues to
execute our business plan, which likely would result in significant
harm to our financial position and results of operations, which
could adversely impact our stock price.
With respect to drug rescue, there are a number of factors, in
addition to the utility of CardioSafe 3D, that may impact our ability to identify
and produce, develop or out-license and commercialize drug rescue
NCEs, independently or with partners,
including:
●
our
ability to identify potential drug rescue candidates in the public
domain, obtain sufficient quantities of them, and assess them using
our bioassay systems;
●
if
we seek to rescue drug rescue candidates that are not available to
us in the public domain, the extent to which third parties may be
willing to out-license or sell certain drug rescue candidates to us
on commercially reasonable terms;
●
our medicinal chemistry collaborator’s
ability to design and produce proprietary drug rescue NCEs based on
the novel biology and structure-function insight we provide
using CardioSafe
3D; and
●
financial
resources available to us to develop and commercialize lead drug
rescue NCEs internally, or, if we sell or out-license them to
partners, the resources such partners choose to dedicate to
development and commercialization of any drug rescue NCEs they
acquire or license from us.
Even if we do acquire additional product candidates or produce
proprietary drug rescue NCEs, we can give no assurance that we will
be able to develop and commercialize them as marketable drugs, on
our own or in collaboration with others. Before we generate any
revenues from AV-101, additional acquired or licensed products
candidates or any drug rescue NCEs, we or our potential
collaborators must complete preclinical and clinical development
programs, submit clinical and manufacturing data to the FDA,
qualify a third party CMO, receive regulatory approval in one or
more jurisdictions, satisfy the FDA that our CMO is capable of
manufacturing the product in compliance with cGMP, build a
commercial organization, make substantial investments and undertake
significant marketing efforts ourselves or in partnership with
others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe 3D fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of
drug rescue candidates and drug rescue NCEs, then our drug rescue
programs will be adversely affected.
Success of our subsidiary, VistaStem, is partly dependent on our
ability to use CardioSafe 3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of
drug rescue candidates and drug rescue NCEs. If CardioSafe 3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our drug rescue business will be
adversely affected.
CardioSafe 3D may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
The success of our drug rescue programs is highly dependent
upon CardioSafe 3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that CardioSafe 3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If CardioSafe 3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for drug rescue will be
limited and our drug rescue business will be adversely
affected.
We may invest in producing drug rescue NCEs for which there proves
to be no demand.
To generate revenue from our drug rescue activities, we must
produce proprietary drug rescue NCEs for which there proves to be
demand within the healthcare marketplace, and, if we intend to
out-license a particular drug rescue NCE for development and
commercialization prior to market approval, then also among
pharmaceutical companies and other potential collaborators.
However, we may produce drug rescue NCEs for which there proves to
be no or limited demand in the healthcare market and/or among
pharmaceutical companies and others. If we misinterpret market
conditions, underestimate development costs and/or seek to rescue
the wrong drug rescue candidates, we may fail to generate
sufficient revenue or other value, on our own or in collaboration
with others, to justify our investments, and our drug rescue
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our human pluripotent stem cell technology is technically complex,
and the time and resources necessary to develop various human cell
types and customized bioassay systems are difficult to predict in
advance. We might decide to devote significant personnel and
financial resources to research and development activities designed
to expand, in the case of drug rescue, and explore, in the case of
drug discovery and regenerative medicine, potential applications of
our stem cell technology platform. In particular, we may conduct
exploratory nonclinical RM programs involving blood, bone,
cartilage, and/or liver cells. Although we and our collaborators
have developed proprietary protocols to produce multiple
differentiated cell types, we could encounter difficulties in
differentiating and producing sufficient quantities of particular
cell types, even when following these proprietary protocols. These
difficulties could result in delays in production of certain cells,
assessment of certain drug rescue candidates and drug rescue NCEs,
design and development of certain human cellular assays and
performance of certain exploratory non-clinical regenerative
medicine studies. In the past, our stem cell research and
development projects have been significantly delayed when we
encountered unanticipated difficulties in differentiating human
pluripotent stem cells into heart and liver cells. Although we have
overcome such difficulties in the past, we may have similar delays
in the future, and we may not be able to overcome them or obtain
any benefits from our future stem cell technology research and
development activities. Any delay or failure by us, for example, to
produce functional, mature blood, bone, cartilage, and liver cells
could have a substantial and material adverse effect on our
potential drug discovery, drug rescue and regenerative medicine
business opportunities and results of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (hESCs). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the United States and elsewhere voice
opposition to hESC technology and practices. We may use hESCs
derived from excess fertilized eggs that have been created for
clinical use in in vitro fertilization (IVF) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the drug
rescue capabilities of our technology, which would have a material
adverse effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and such regulation varies widely from country to
country. Government-imposed restrictions with respect to use of
hESCs in research and development could have a material adverse
effect on us by harming our ability to establish critical
collaborations, delaying or preventing progress in our research and
development, and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells (iPSCs) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized in vitro assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs to comply with current
or future environmental, health and safety laws and regulations.
These current or future laws and regulations may impair our
research, development, or production efforts. Failure to comply
with these laws and regulations also may result in substantial
fines, penalties, or other sanctions, which could have a material
adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the United States and abroad that involve matters
central to such research and development activities, including
obligations to seek informed consent from donors for the use of
their blood and other tissue to produce, or have produced for us,
iPSCs, as well as state and federal laws that protect the privacy
of such donors. United States federal and state and foreign laws
and regulations are constantly evolving and can be subject to
significant change. If we engage in iPSC-related research and
development activities in countries other than the United States,
we may become subject to foreign laws and regulations relating to
human-subjects research and other laws and regulations that are
often more restrictive than those in the United States. In
addition, both the application and interpretation of these laws and
regulations are often uncertain, particularly in the rapidly
evolving stem cell technology sector. Compliance with these laws
and regulations can be costly, can delay or impede our research and
development activities, result in negative publicity, increase our
operating costs, require significant management time and attention
and subject us to claims or other remedies, including fines or
demands that we modify or cease existing business
practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including CardioSafe 3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing regenerative
medicine applications, such as tissue engineering or organ
replacement, we would first need to obtain FDA pre-market clearance
or approval. Obtaining such clearance or approval from the FDA is
expensive, time-consuming and uncertain, generally requiring many
years to obtain, and requiring detailed and comprehensive
scientific and clinical data. Notwithstanding the time and expense,
these efforts may not result in FDA approval or clearance. Even if
we were to obtain regulatory approval or clearance, it may not be
for the uses that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of $14.3 million and
$10.3 million during the fiscal years ended March 31, 2018 and
2017, respectively. As of March 31, 2018, we had an accumulated
deficit of approximately $156.5 million. We do not know whether or
when we will become profitable. Substantially all of our operating
losses have resulted from costs incurred in connection with our
research and development programs and from general and
administrative costs associated with our operations. We expect to
incur increasing levels of operating losses over the next several
years and for the foreseeable future. Our prior losses, combined
with expected future losses, have had and will continue to have an
adverse effect on our stockholders’ equity (deficit) and
working capital. We expect our research and development expenses to
significantly increase in connection with nonclinical studies and
clinical trials of our product candidates. In addition, if we
obtain marketing approval for our product candidates, we may incur
significant sales, marketing and outsourced-manufacturing expenses
should we elect not to collaborate with one or more third parties
for such services and capabilities. As a public company, we incur
additional costs associated with operating as a public company. As
a result, we expect to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any
future losses or when we will become profitable, if at all. Even if
we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, including receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH, however not including the
fair market value of the NIMH Study sponsored and conducted by the
NIMH under our NIMH CRADA. We have not yet commercialized any
product or generated any revenues from product sales, and we do not
know when, or if, we will generate any revenue from product sales.
We do not expect to generate significant revenue unless and until
we obtain marketing approval of, and begin to experience sales of,
AV-101 or another product candidate, or we enter into one or more
development and commercialization agreements with respect to AV-101
or one or more other product candidates. Our ability to generate
revenue depends on a number of factors, including, but not limited
to, our ability to:
●
initiate
and successfully complete nonclinical and clinical trials that meet
their prescribed endpoints;
●
initiate
and successfully complete all safety studies required to obtain
U.S. and foreign marketing approval for our product
candidates;
●
timely
complete and compose successful regulatory submissions such as NDAs
or comparable documents for both U.S. and foreign
jurisdictions;
●
commercialize
our product candidates, if approved, by developing a sales force or
entering into collaborations with third parties for sales and
marketing capabilities; and
●
achieve
market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a commercialization collaboration or
partnership with respect to the commercialization of our product
candidates, we expect to incur significant sales and marketing
costs as we prepare to commercialize our product candidates. Even
if we initiate and successfully complete pivotal clinical trials of
our product candidates, and our product candidates are approved for
commercial sale, and despite expending these costs, our product
candidates may not be commercially successful. We may not achieve
profitability soon after generating product sales, if ever. If we
are unable to generate product revenue, we will not become
profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2018 included elsewhere in this Annual Report have been
prepared assuming we will continue to operate as a going concern,
although we and our auditors have indicated that our continuing
losses and negative cash flows from operations raise substantial
doubt about our ability to continue as such. Because we continue to
experience net operating losses, our ability to continue as a going
concern is subject to our ability to obtain necessary funding from
outside sources, including obtaining additional funding from the
sale of our securities or obtaining loans and grant awards from
financial institutions and/or government agencies where possible.
Our continued net operating losses increase the difficulty in
completing such sales or securing alternative sources of funding,
and there can be no assurances that we will be able to obtain such
funding on favorable terms or at all. If we are unable to obtain
sufficient financing from the sale of our securities or from
alternative sources, we may be required to reduce, defer, or
discontinue certain or all of our research and development
activities or we may not be able to continue as a going
concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the drug rescue capabilities
of our stem cell technology platform. In particular, we have
expended substantial resources on research and development of
methods and processes relating to the production of AV-101 API,
advancing AV-101 through IND-enabling preclinical development,
Phase 1 clinical safety studies, and into ongoing Phase 2 clinical
development, including preparation for and recent launch of our
ELEVATE study, as well as research and development of our stem cell
technology platform, including development
of CardioSafe 3D for drug rescue and our cardiac stem cell
technology for potential regenerative medicine applications in
connection with the Bluerock Agreement, and we expect to continue
to expend substantial resources for the foreseeable future
developing and commercializing our product candidates on our own or
in collaborations. These expenditures will include costs associated
with general and administrative costs, facilities costs, research
and development, acquiring new technologies, manufacturing product
candidates, conducting nonclinical experiments and clinical trials
and obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At
March 31, 2018, we had a cash and cash equivalents balance of
approximately $10.4 million. We do not believe this amount is
sufficient to enable us to fund our planned operations for at least
the twelve months following the issuance of the financial
statements included in this Annual Report. We expect to seek
additional capital to finalize the results from our ELEVATE study,
produce additional AV-101 study
material, conduct Phase 3-enabling studies, conduct Phase 3 studies
in MDD, conduct AV-101 Phase 2 studies in CNS indications other
than MDD, acquire or license and conduct research and development
of additional product candidates and to fund our internal
operations in 2019 and beyond.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell a product candidate to a
third-party, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, on our own or through a future collaboration, one or
more of our product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of ongoing and future anticipated clinical
trials is highly uncertain, we cannot reasonably estimate the
actual amounts necessary to successfully complete the development
and commercialization of our product candidates, on our own or in
collaboration with others. In addition, other unanticipated costs
may arise. As a result of these and other factors, we will need to
seek additional capital in the near term to meet our future
operating requirements, including capital necessary to develop,
obtain regulatory approval for, and to commercialize our product
candidates, and may seek additional capital in the event there
exists favorable market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future
operating plans. We have completed in the past, and are
considering, a range of potential financing transactions, including
public or private equity or debt financings, government or other
third-party funding, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing
arrangements or a combination of these approaches, and we may
complete additional financing arrangements in 2018 and beyond.
Raising funds in the current economic environment may present
additional challenges. Even if we believe we have sufficient funds
for our current or future operating plans, we may seek additional
capital if market conditions are favorable or if we have specific
strategic considerations.
Our future capital requirements depend on many factors,
including:
●
the
number and characteristics of the product candidates we
pursue;
●
the
scope, progress, results and costs of researching and developing
our product candidates, and conducting preclinical and clinical
studies;
●
the timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the
cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the
cost of manufacturing our product candidates and any products we
successfully commercialize;
●
our
ability to establish and maintain strategic partnerships, licensing
or other collaborative arrangements and the financial terms of such
agreements;
●
market
acceptance of our product candidates;
●
the
effect of competing technological and market
developments;
●
our
ability to obtain government funding for our research and
development programs;
●
the
costs involved in obtaining and enforcing patents to preserve our
intellectual property;
●
the
costs involved in defending against such claims that we infringe
third-party patents or violate other intellectual property rights
and the outcome of such litigation;
●
the
timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the
extent to which we may acquire or invest in additional businesses,
product candidates and technologies.
Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts, in a timely
manner, or on terms acceptable to us, if at all. The terms of any
future financing may adversely affect the holdings or the rights of
our stockholders and the issuance of additional securities, whether
equity or debt, by us, or the possibility of such issuance, may
cause the market price of our shares to decline. The sale of
additional equity securities and the conversion, exchange or
exercise of certain of our outstanding securities will dilute all
of our stockholders. The incurrence of debt could result in
increased fixed payment obligations and we could be required to
agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to
acquire, sell or license intellectual property rights and other
operating restrictions that could adversely impact our ability to
conduct our business. We could also be required to seek funds
through arrangements with collaborative partners or otherwise at an
earlier stage than otherwise would be desirable and we may be
required to relinquish rights to some of our technologies or
product candidates or otherwise agree to terms unfavorable to us,
any of which may have a material adverse effect on our business,
operating results and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
and capabilities of the Company’s staff does not permit
appropriate segregation of duties to prevent one individual from
overriding the internal control system by initiating, authorizing
and completing all transactions, and (ii) the Company utilizes
accounting software that does not prevent erroneous or unauthorized
changes to previous reporting periods and/or can be adjusted so as
to not provide an adequate auditing trail of entries made in the
accounting software.
The existence of one or more
material weaknesses or significant deficiencies could result in
errors in our financial statements, and substantial costs and
resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2018 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (NINDS) and the NIMH, and the California Institute for
Regenerative Medicine (CIRM). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2018, we had
federal and state net operating loss carryforwards of approximately
$88.5 million and $63.5 million, respectively, which begin to
expire in fiscal 2019. Under Section 382 of the
Internal Revenue Code of 1986, as amended
(the Code) changes in our ownership may limit the amount of
our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer, Chief Financial Officer, and Vice President
– Corporate Development as well as our other employees,
consultants and scientific collaborators. As of the date of this
Report, we have nine full-time employees, which may make us more
reliant on our individual employees than companies with a greater
number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
our product candidates or disrupt our administrative
functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel should we elect
to expand our research and development and administrative
activities. We may not be able to attract and retain quality
personnel on acceptable terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors, to assist us in
designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative and technical personnel. The hiring, training and
integration of new employees may be more difficult, costly and/or
time-consuming for us because we have fewer resources than a larger
organization. We may not be able to accomplish these tasks, and our
failure to accomplish any of them could prevent us from
successfully growing the company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, any drug rescue NCE, other
product candidate, or regenerative medicine product candidate we
develop allegedly causes injury or is found to be otherwise
unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of
defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability, and
a breach of warranties. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend
ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization
of our product candidates. Even successful defense would require
significant financial and management resources. Regardless of the
merits or eventual outcome, liability claims may result
in:
●
decreased
demand for product candidates that we may develop;
●
injury
to our reputation;
●
withdrawal
of clinical trial participants;
●
costs
to defend the related litigation;
●
a
diversion of management's time and our resources;
●
substantial
monetary awards to trial participants or patients; or
●
product
recalls, withdrawals or labeling, marketing or promotional
restrictions.
Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the NASDAQ Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the NASDAQ Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the NASDAQ
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our business and operations would suffer in the event of
cybersecurity or other system failures. Our business
depends on complex information systems, and any failure to
successfully maintain these systems or implement new systems to
handle our changing needs could could result in a material
disruption of our product candidates’ development programs or
otherwise materially harm our operations.
In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary
business information and that of our suppliers, as well as
personally identifiable information of employees. Similarly, our
third-party CROs, CMOs and other contractors and consultants
possess certain of our sensitive data. The secure maintenance of
this information is material to our operations and business
strategy. Despite the implementation of security measures, our
internal computer systems and those of our third-party CROs, CMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical failures.
Any such attack or breach could compromise our networks and the
information stored there could be accessed, publicly disclosed,
lost or stolen. The legislative and regulatory landscape for
privacy and data protection continues to evolve, and there has been
an increasing amount of focus on privacy and data protection issues
with the potential to affect our business, including recently
enacted laws in a majority of states requiring security breach
notification. Thus, any access, disclosure or other loss of
information, including our data being breached at our partners or
third-party providers, could result in legal claims or proceedings
and liability under laws that protect the privacy of personal
information, disruption of our operations, and damage to our
reputation, which could adversely affect our business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for AV-101 or other product candidates could result in delays
in our regulatory approval efforts and significantly increase our
costs to recover or reproduce the data. To the extent that any
disruption or security breach results in a loss of or damage to our
data or applications or other data or applications relating to our
technology or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
We may acquire businesses or product candidates, or form strategic
alliances, in the future, and we may not realize the benefits of
such acquisitions.
We may acquire additional businesses or product candidates, form
strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business.
If we acquire businesses with promising markets or technologies, we
may not be able to realize the benefit of acquiring such businesses
if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
product candidates resulting from a strategic alliance, licensing
transaction or acquisition that delay or prevent us from realizing
their expected benefits or enhancing our business. We cannot assure
you that, following any such acquisition or licensing transaction,
we will achieve the expected synergies to justify the
transaction.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our products and compositions, their methods of
use and any other inventions we consider important to the
development of our business. We also rely on trade secrets to
protect aspects of our business that are not amenable to, or that
we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, should they issue, to
preserve the confidentiality of our trade secrets and to operate
without infringing the valid and enforceable patents and
proprietary rights of third parties. We also rely on know-how,
continuing technological innovation and in-licensing opportunities
to develop, strengthen and maintain the proprietary position of our
product candidates. We own and have licensed patents and patent
applications related to AV-101 and human pluripotent stem cell
technology.
Although we have issued patents relating to AV-101 in the U.S. and
the European Union, we cannot yet provide any assurances that any
of our other numerous pending U.S. and additional foreign patent
applications relating to AV-101 will mature into issued patents
and, if they do, that such patents will include claims with a scope
sufficient to protect AV-101 or otherwise provide any competitive
advantage. Moreover, other parties may have developed technologies
that may be related or competitive to our approach, and may have
filed or may file patent applications and may have received or may
receive patents that may overlap or conflict with our patent
applications, either by claiming the same methods or formulations
or by claiming subject matter that could dominate our patent
position. Such third-party patent positions may limit or even
eliminate our ability to obtain patent protection.
The patent positions of biotechnology and pharmaceutical companies,
including our patent position, involve complex legal and factual
questions, and, therefore, the issuance, scope, validity and
enforceability of any additional patent claims that we may obtain
cannot be predicted with certainty. Patents, if issued, may be
challenged, deemed unenforceable, invalidated, or circumvented.
U.S. patents and patent applications may also be subject to
interference proceedings, ex parte reexamination, or inter
partes review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, or comparable
proceedings lodged in various foreign, both national and regional,
patent offices. These proceedings could result in either loss of
the patent or denial of the patent application or loss or reduction
in the scope of one or more of the claims of the patent or patent
application. In addition, such proceedings may be costly. Thus, any
patents that we may own or exclusively license may not provide any
protection against competitors. Furthermore, an adverse decision in
an interference proceeding can result in a third party receiving
the patent right sought by us, which in turn could affect our
ability to develop, market or otherwise commercialize our product
candidates.
Furthermore, though a patent is presumed valid and enforceable, its
issuance is not conclusive as to its validity or its enforceability
and it may not provide us with adequate proprietary protection or
competitive advantages against competitors with similar products.
Even if a patent issues and is held to be valid and enforceable,
competitors may be able to design around our patents, such as using
pre-existing or newly developed technology. Other parties may
develop and obtain patent protection for more effective
technologies, designs or methods. We may not be able to prevent the
unauthorized disclosure or use of our technical knowledge or trade
secrets by consultants, vendors, former employees and current
employees. The laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the United
States, and we may encounter significant problems in protecting our
proprietary rights in these countries. If these developments were
to occur, they could have a material adverse effect on our
sales.
Our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do
not advertise the components that are used in their products.
Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitor’s or potential
competitor’s product. Any litigation to enforce or defend our
patent rights, even if we were to prevail, could be costly and
time-consuming and would divert the attention of our management and
key personnel from our business operations. We may not prevail in
any lawsuits that we initiate and the damages or other remedies
awarded if we were to prevail may not be commercially
meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
The degree of future protection for our proprietary rights is
uncertain, and we cannot ensure that:
●
any
of our issued patents related to AV-101 or pending patent
applications, if issued, will include claims having a scope
sufficient to protect AV-101 or any other products or product
candidates, particularly considering that the compound patent to
AV-101 has expired;
●
any
of our pending patent applications will issue as patents at
all;
●
we
will be able to successfully commercialize our product candidates,
if approved, before our relevant patents expire;
●
we
were the first to make the inventions covered by each of our
patents and pending patent applications;
●
we
were the first to file patent applications for these
inventions;
●
others
will not develop similar or alternative technologies that do not
infringe our patents;
●
others
will not use pre-existing technology to effectively compete against
us;
●
any
of our patents, if issued, will be found to ultimately be valid and
enforceable;
●
any
patents currently held or issued to us in the future will provide a
basis for an exclusive market for our commercially viable products,
will provide us with any competitive advantages or will not be
challenged by third parties;
●
we
will develop additional proprietary technologies or product
candidates that are separately patentable; or
●
that
our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, we may not have
adequate remedies for any such breach or violation, and we could
lose our trade secrets through such breaches or violations.
Further, our trade secrets could otherwise become known or be
independently discovered by our competitors.
We may infringe the intellectual property rights of others, which
may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our
product candidates, if approved.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. We cannot assure you that our business, products and
methods do not or will not infringe the patents or other
intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that may later result in issued patents
that our product candidates may infringe, or which such third
parties claim are infringed by our technologies. The outcome of
intellectual property litigation is subject to uncertainties that
cannot be adequately quantified in advance. The coverage of patents
is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we
would need to demonstrate that our product candidates, products or
methods either do not infringe the patent claims of the relevant
patent or that the patent claims are invalid, and we may not be
able to do this. Even if we are successful in these proceedings, we
may incur substantial costs and the time and attention of our
management and scientific personnel could be diverted in pursuing
these proceedings, which could have a material adverse effect on
us. In addition, we may not have sufficient resources to bring
these actions to a successful conclusion.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcome is
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to be willfully infringing another
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim was
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products. Patent litigation is costly and
time-consuming. We may not have sufficient resources to bring these
actions to a successful conclusion. In addition, intellectual
property litigation or claims could force us to do one or more of
the following:
●
cease
developing, selling or otherwise commercializing our product
candidates;
●
pay
substantial damages for past use of the asserted intellectual
property;
●
obtain
a license from the holder of the asserted intellectual property,
which license may not be available on reasonable terms, if at all;
and
●
in
the case of trademark claims, redesign, or rename, some or all of
our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign all such intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The U.S. Patent and Trademark Office (USPTO), European Patent Office (EPO) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Third parties may initiate legal
proceedings against us alleging that we infringe their intellectual
property rights or we may initiate legal proceedings against third
parties to challenge the validity or scope of intellectual property
rights controlled by third parties, the outcome of which would be
uncertain and could have a material adverse effect on the success
of our business. Any lawsuit we
are engaged in to protect or enforce our patents or the patents of
our licensors could be expensive, time-consuming and
unsuccessful.
Even if the patent applications we own or license are issued,
competitors may infringe these patents. To counter infringement or
unauthorized use, we may be required to file infringement claims,
which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours
or our licensors is not valid, is unenforceable and/or is not
infringed, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation or
defense proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our patent
applications at risk of not issuing.
Further, third parties may initiate legal proceedings against us or
our licensors or collaborators alleging that we or our licensors or
collaborators infringe their intellectual property rights or we or
our licensors or collaborators may initiate legal proceedings
against third parties to challenge the validity or scope of
intellectual property rights controlled by third parties, including
in oppositions, interferences, reexaminations, inter partes reviews
or derivation proceedings before the United States or other
jurisdictions. These proceedings can be expensive and
time-consuming and many of our or our licensors’ or
collaborators’ adversaries in these proceedings may have the
ability to dedicate substantially greater resources to prosecuting
these legal actions than we or our licensors or collaborators
can. Our defense of litigation
or interference proceedings may fail and, even if successful, may
result in substantial costs and distract our management and other
employees. We may not be able to prevent, alone or with our
licensors, misappropriation of our intellectual property rights,
particularly in countries where the laws may not protect those
rights as fully as in the United States or European
Union.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Issued patents covering our product candidates could be found
invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings
against a third party to enforce a patent covering one of our
product candidates, including patents related to AV-101, the
defendant could counterclaim that the patent covering our product
candidate is invalid and/or unenforceable. In patent litigation in
the United States, defendant counterclaims alleging invalidity
and/or unenforceability are commonplace. Grounds for a validity
challenge include alleged failures to meet any of several statutory
requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or EPO, or made a
misleading statement, during prosecution. Third parties may also
raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such
mechanisms include re-examination, post grant review and equivalent
proceedings in foreign jurisdictions, e.g., opposition proceedings.
Such proceedings could result in revocation or amendment of our
patents in such a way that they no longer cover our product
candidates or competitive products. The outcome following legal
assertions of invalidity and unenforceability is unpredictable.
With respect to validity, for example, we cannot be certain that
there is no invalidating prior art, of which we and the patent
examiner were unaware during prosecution. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
We will not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the United States could be less extensive
than those in the United States, assuming that rights are obtained
in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United
States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
The statutory deadlines for pursuing patent protection in
individual foreign jurisdictions are based on the priority date of
each of our patent applications. For the patent applications
relating to AV-101, as well as for many of the patent families that
we own or license, the relevant statutory deadlines have not yet
expired. Thus, for each of the patent families that we believe
provide coverage for our lead product candidates or technologies,
we will need to decide whether and where to pursue protection
outside the United States.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the United States. These products may compete
with our products and our patents or other intellectual property
rights may not be effective or sufficient to prevent them from
competing. Even if we pursue and obtain issued patents in
particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third
parties from so competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. Many companies have encountered significant problems in
protecting and defending intellectual property rights in certain
foreign jurisdictions. The legal systems of some countries,
particularly developing countries, do not favor the enforcement of
patents and other intellectual property protection, especially
those relating to biotechnology. This could make it difficult for
us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents
against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no
benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to
seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
We are a party to a number of license agreements under which we are
granted rights to intellectual property that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
●
the
scope of rights granted under the license agreement and other
interpretation-related issues;
●
whether
and the extent to which our technology and processes infringe on
intellectual property of the licensor that is not subject to the
licensing agreement;
●
our
right to sublicense patent and other rights to third parties under
collaborative development relationships;
●
our
diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
●
the
ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses to support our various stem
cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(Bayh-Dole
Act). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. In addition, the U.S. government may acquire title to
these inventions in any country in which a patent application is
not filed within specified time limits. Intellectual property
generated under a government funded program is also subject to
certain reporting requirements, compliance with which may require
us, or the applicable licensor, to expend substantial resources. In
addition, the U.S. government requires that any products embodying
the subject invention or produced through the use of the subject
invention be manufactured substantially in the U.S. The
manufacturing preference requirement can be waived if the owner of
the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture
substantially in the U.S. or that under the circumstances domestic
manufacture is not commercially feasible. This preference for U.S.
manufacturers may limit our ability to contract with non-U.S.
product manufacturers for products covered by such intellectual
property.
In the event we apply for additional U.S. government funding, and
we discover compounds or drug candidates as a result of such
funding, intellectual property rights to such discoveries may be
subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing
approval of our product candidates, one or more of the U.S. patents
we own or license may be eligible for limited patent term
restoration under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension if the active ingredient of AV-101 is used in
another drug company’s product candidate and that product
candidate is the first to obtain FDA approval. Moreover, the
applicable time period or the scope of patent protection afforded
could be less than we request. If we are unable to obtain patent
term extension or restoration or the term of any such extension is
less than we request, our competitors may obtain approval of
competing products following our patent expiration, and our ability
to generate revenues could be materially adversely
affected.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other biotechnology companies, our success is
heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry
involve both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain. In addition, the
United States has recently enacted and is currently implementing
wide-ranging patent reform legislation: the Leahy-Smith America
Invents Act, referred to as the America Invents Act. The America
Invents Act includes a number of significant changes to U.S. patent
law. These include provisions that affect the way patent
applications will be prosecuted and may also affect patent
litigation. It is not yet clear what, if any, impact the America
Invents Act will have on the operation of our business. However,
the America Invents Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of any patents that may
issue from our patent applications, all of which could have a
material adverse effect on our business and financial
condition.
In addition, recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc., the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in Association for Molecular
Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain. Additionally, on March 4, 2014, the
USPTO issued a memorandum to patent examiners providing guidance
for examining claims that recite laws of nature, natural phenomena
or natural products under the Myriad and Prometheus decisions. This
guidance did not limit the application of Myriad to DNA but,
rather, applied the decision to other natural products. Further, in
2015, in Ariosa Diagnostics, Inc. v.
Sequenom, Inc., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject
matter.
In addition to increasing uncertainty regarding our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S. Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
●
others
may be able to develop and/or practice technology that is similar
to our technology or aspects of our technology but that is not
covered by the claims of patents, should such patents issue from
our patent applications;
●
we
might not have been the first to make the inventions covered by a
pending patent application that we own;
●
we
might not have been the first to file patent applications covering
an invention;
●
others
may independently develop similar or alternative technologies
without infringing our intellectual property rights;
●
pending
patent applications that we own or license may not lead to issued
patents;
●
patents,
if issued, that we own or license may not provide us with any
competitive advantages, or may be held invalid or unenforceable, as
a result of legal challenges by our competitors;
●
third
parties may compete with us in jurisdictions where we do not pursue
and obtain patent protection;
●
we
may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
●
the
patents of others may have an adverse effect on our
business.
Should any of these events occur, they could significantly harm our
business and results of operations.
If, instead of identifying drug rescue candidates based on
information available to us in the public domain, we seek to
in-license drug rescue candidates from biotechnology, medicinal
chemistry and pharmaceutical companies, academic, governmental and
nonprofit research institutions, including the NIH, or other third
parties, there can be no assurances that we will obtain material
ownership or economic participation rights over intellectual
property we may derive from such licenses or similar rights to the
drug rescue NCEs we may produce and develop. If we are unable to
obtain ownership or substantial economic participation rights over
intellectual property related to drug rescue NCEs we produce and
develop, our business may be adversely affected.
Risks Related to our Securities
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
●
plans
for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
●
the
failure of the FDA to approve our product candidates;
●
announcements
of new products, technologies, commercial relationships,
acquisitions or other events by us or our competitors;
●
the
success or failure of other CNS therapies;
●
regulatory
or legal developments in the United States and other
countries;
●
announcements
regarding our intellectual property portfolio;
●
failure
of our product candidates, if approved, to achieve commercial
success;
●
fluctuations
in stock market prices and trading volumes of similar
companies;
●
general
market conditions and overall fluctuations in U.S. equity
markets;
●
variations
in our quarterly operating results;
●
changes
in our financial guidance or securities analysts’ estimates
of our financial performance;
●
changes
in accounting principles;
●
our
ability to raise additional capital and the terms on which we can
raise it;
●
sales
of large blocks of our common stock, including sales by our
executive officers, directors and significant
stockholders;
●
additions
or departures of key personnel;
●
discussion
of us or our stock price by the press and by online investor
communities; and
●
other
risks and uncertainties described in these risk
factors.
Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
A limited number of institutional stockholders could limit your
ability to influence the outcome of key transactions, including
changes in control.
A limited number of institutional stockholders own a substantial
portion of our outstanding preferred stock, consisting of shares of
our Series A Preferred, Series B Preferred, and Series C Preferred,
all of which is convertible, at the option of the holders (but
subject to certain beneficial ownership restrictions), into a
substantial number of shares of our common
stock. Accordingly, should a few of these institutional
holders convert their shares of preferred stock into common stock,
such stockholders may exert influence over us and over the outcome
of any corporate actions requiring approval of holders of our
common stock, including the election of directors and amendments to
our organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of the Company, even if such a change of control is
approved by our Board and would benefit our other stockholders.
Furthermore, the interests of such institutional stockholders may
not always coincide with your interests or the interests of other
common stockholders and an institutional holder may act in a manner
that advances its best interests and not necessarily those of other
stockholders.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation
(the Articles)
permit us to issue up to 10.0 million shares of preferred
stock. Our Board has authorized the issuance of (i) 500,000
shares of Series A Preferred, all of which shares are issued and
outstanding at March 31, 2018; (ii) 4.0 million shares of Series B
10% Convertible Preferred stock, of which approximately 1.2 million
shares remain issued and outstanding at March 31, 2018; and (iii)
3.0 million shares of Series C Convertible Preferred Stock, of
which approximately 2.3 million shares are issued and outstanding
at March 31, 2018. Our Board could authorize the issuance of
additional series of preferred stock in the future and such
preferred stock could grant holders preferred rights to our assets
upon liquidation, the right to receive dividends before dividends
would be declared to holders of our common stock, and the right to
the redemption of such shares, possibly together with a premium,
prior to the redemption of the common stock. In the event and to
the extent that we do issue additional preferred stock in the
future, the rights of holders of our common stock could be impaired
thereby, including without limitation, with respect to
liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (Exchange
Act), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of resources that we could otherwise use to
achieve our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.
Item
1B. Unresolved Staff Comments
The disclosures in this section are not required since we qualify
as a smaller reporting company.
Our corporate headquarters and laboratories are located at 343
Allerton Avenue, South San Francisco, California 94080, where we
occupy approximately 10,900 square feet of office and lab space
under a lease expiring on July 31, 2022. We believe that our
facilities are suitable and adequate for our current and
foreseeable needs.
Item
3. Legal Proceedings
None.
Item
4. Mine Safety
Disclosures
Not applicable.
Item
5. Market for Registrant’s Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
Our common stock was approved for listing and has traded since May
11, 2016 on The NASDAQ Capital Market under the symbol
“VTGN”. From June 21, 2011 through May 10, 2016, our
common stock traded on the OTC Marketplace (OTCQB), under the symbol
“VSTA”. There was no established trading
market for our common stock prior to June 21,
2011.
Shown
below is the range of high and low sales prices for our common
stock for the periods indicated as reported by the NASDAQ Capital
Market or the OTCQB. The market
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual
transactions.
|
|
|
|
|
Year
Ending March 31, 2018
|
|
|
|
First quarter
ending June 30, 2017
|
$2.40
|
$1.72
|
|
Second quarter
ended September 30, 2017
|
$2.05
|
$1.53
|
|
Third quarter ended
December 31, 2017
|
$2.65
|
$0.69
|
|
Fourth quarter
ended March 31, 2018
|
$1.79
|
$0.86
|
|
|
|
|
|
Year
Ending March 31, 2017
|
|
|
|
First quarter
ending June 30, 2016
|
$9.00
|
$3.40
|
|
Second quarter
ended September 30, 2016
|
$4.69
|
$2.81
|
|
Third quarter ended
December 31, 2016
|
$4.50
|
$3.11
|
|
Fourth quarter
ended March 31, 2017
|
$3.90
|
$1.74
|
On June 26, 2018 the closing price of our common stock on the
NASDAQ Capital Market was $1.345
per share.
As of June 26, 2018, we had 23,037,615 shares of common stock
outstanding and approximately 4,500 stockholders of
record. On the same date, two stockholders held all
500,000 outstanding restricted shares of our Series A Preferred
Stock, which shares are convertible into 750,000 shares of common
stock; two stockholders held 1,160,240 outstanding shares of our
Series B 10% Convertible Preferred Stock, which shares are
convertible into 1,160,240 shares of common stock; and one
stockholder held all 2,318,012 outstanding shares of our Series C
Preferred stock, which shares are convertible into 2,318,012 shares
of common stock.
Dividend Policy
We have never paid or declared any cash dividends on our common
stock, and we do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Covenants in
certain of our debt agreements prohibit us from paying dividends
while the debt remains outstanding. Our Series B
Preferred accrues dividends at a rate of 10% per annum, which
dividends are payable solely in unregistered shares of our common
stock at the time the Series B Preferred is converted into common
stock.
Recent Sales of Unregistered Securities
We have issued the following securities in private placement
transactions which were not registered under the Securities Act of
1933, as amended (Securities
Act) and that have not been
previously reported in a Quarterly Report on Form 10-Q or a Current
Report on Form 8-K.
Securities Issued for Professional Services
Between March 2018 and May 2018, we granted an aggregate of 130,000
unregistered shares of our common stock to two accredited investors
and an investment banking firm as full or partial compensation for
financial advisory and investor relations services. The shares of
common stock were issued in private placement transactions exempt
from registration under the Securities Act, in reliance on Section
4(2) thereof and Rule 506 of Regulation D thereunder.
Item 6. Selected
Financial
Data
The disclosures in this section are not required because we qualify
as a smaller reporting company under federal securities
laws.
Item
7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) includes
forward-looking statements. All statements contained in this Annual
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 additional financing, the results
of our research and development efforts, the results of
non-clinical and clinical testing, the effect of regulation by the
United States 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 Annual
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 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 Annual
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 Annual 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
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
diseases and disorders of the central nervous system
(CNS) with high unmet need.
Our
lead CNS product candidate, AV-101, is an oral, non-opioid and
non-sedating therapy that we believe offers the potential to be a
new at-home treatment for multiple CNS indications with high unmet
medical need. These indications include potential use as a new
generation treatment alternative for Major Depressive Disorder
(MDD), as a non-addictive,
non-sedating option for management of chronic neuropathic pain
(CNP), to reduce
dyskinesia induced by levodopa therapy for Parkinson’s
disease (PD LID), and
additional CNS indications where modulation of NMDA
(N-methyl-D-aspartate) receptor and AMPA
(alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptor
pathways may achieve therapeutic benefit.
For MDD, we believe AV-101 has potential as a first line oral
monotherapy and as an adjunctive oral therapy. As an adjunctive
therapy, we believe AV-101 has potential both to displace atypical
antipsychotics such as aripiprazole in the current MDD drug
treatment paradigm both for patients with an inadequate response to
current antidepressants approved by the U.S. Food and Drug
Administration (FDA) and to prevent relapse of MDD following
successful treatment with the FDA-approved anesthetic, ketamine
hydrochloride, an ion-channel blocking NDMA receptor antagonist
(ketamine), whether administered by intravenous
(IV) injection or as an intranasal spray formulation.
We believe AV-101 may have potential to deliver ketamine-like
antidepressant effects on an at-home basis, without the requirement
for inconvenient administration in a medical setting, and without
causing psychological or other side effects and safety concerns
associated with ketamine therapy.
AV-101 is in Phase 2 development in the United States. In the
fourth quarter of 2017, we received authorization from the FDA to
initiate ELEVATE, our Phase 2 multi-center, multi-dose, double
blind, placebo-controlled clinical study to evaluate the efficacy
and safety of AV-101 as an adjunctive treatment of MDD in adult
patients with an inadequate therapeutic response to current
FDA-approved antidepressants (the ELEVATE
Study). As planned, we
initiated the ELEVATE Study in the first quarter of 2018. Dr.
Maurizio Fava, Professor of Psychiatry at Harvard Medical School
and Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We currently anticipate top line results from
the ELEVATE Study in the first half of 2019.
AV-101 is also in the subject of a small Phase 2 clinical study
being conducted and funded by the U.S. National Institute of Mental
Health (the NIMH), pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH (the NIMH Study). Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, is acting as the Principal Investigator for the NIMH
Study, which is focused on AV-101 monotherapy for subjects with
treatment-resistant MDD and certain biomarkers. Dr. Zarate and the
NIMH were among the first in the U.S. to conduct clinical studies
demonstrating the robust, fast-acting antidepressant effects of
ketamine in MDD patients with inadequate responses to multiple
current FDA-approved antidepressants.
In addition to our CNS business, we have two additional programs
through our wholly-owned subsidiary VistaStem Therapeutics
(VistaStem). VistaStem is focused on applying human
pluripotent stem cell (hPSC) technology to rescue, develop and commercialize
(i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our pipeline or
out-licensing. To advance potential RM applications of
VistaStem’s cardiac stem cell technology, we have exclusively
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company established in 2016 with $225 million of
committed capital from Bayer AG and Versant Ventures
(BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to the BlueRock Agreement, we may pursue additional
VistaStem collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue
recognition, impairment of long-lived assets, research and
development, stock-based compensation, warrant liability and income
taxes to be critical accounting policies that require the use of
significant judgments and estimates relating to matters that are
inherently uncertain and may result in materially different results
under different assumptions and conditions. The preparation of
financial statements in conformity with United States generally
accepted accounting principles (GAAP) requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes to the consolidated financial statements. These
estimates include useful lives for property and equipment and
related depreciation calculations, and assumptions for valuing
options, warrants and other stock-based compensation. Our actual
results could differ from these estimates.
Revenue Recognition
We have historically generated revenue principally from
collaborative research and development arrangements, licensing and
technology access fees and government grants. Through
March 31, 2018, we have recognized revenue under the provisions of
the SEC issued Staff Accounting Bulletin 104, Topic 13,
Revenue
Recognition Revised and Updated (SAB 104) and Accounting Standards Codification
(ASC) 605-25, Revenue Arrangements-Multiple
Element Arrangements (ASC 605-25). Revenue for arrangements not having multiple
deliverables, as outlined in ASC 605-25, is recognized once costs
are incurred and collectability is reasonably
assured.
Revenue arrangements with multiple components are divided into
separate units of accounting if certain criteria are met, including
whether the delivered component has stand-alone value to the
customer or counterparty. Consideration received is allocated among
the separate units of accounting based on their respective selling
prices. The selling price for each unit is based on
vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is
not available, or estimated selling price if neither VSOE nor third
party evidence is available. The applicable revenue
recognition criteria are then applied to each of the
units.
We recognize revenue when the four basic criteria of revenue
recognition are met: (i) a contractual agreement exists;
(ii) the transfer of technology has been completed or services
have been rendered; (iii) the fee is fixed or determinable;
and (iv) collectability is reasonably assured. For each source
of revenue, we comply with the above revenue recognition criteria
in the following manner:
●
Collaborative
arrangements typically consist of non-refundable and/or exclusive
technology access fees, cost reimbursements for specific research
and development spending, and various future product development
milestone and royalty payments. If the delivered
technology does not have stand-alone value, the amount of revenue
allocable to the delivered technology is
deferred. Non-refundable upfront fees with stand-alone
value that are not dependent on future performance under these
agreements are recognized as revenue when received, and are
deferred if we have continuing performance obligations and have no
objective and reliable evidence of the fair value of those
obligations. We recognize non-refundable upfront
technology access fees under agreements in which we have a
continuing performance obligation ratably, on a straight-line
basis, over the period in which we are obligated to provide
services. Cost reimbursements for research and
development spending are recognized when the related costs are
incurred and when collectability is reasonably
assured. Payments received related to substantive,
performance-based “at-risk” milestones are recognized
as revenue upon achievement of the milestone event specified in the
underlying contracts, which represent the culmination of the
earnings process. Amounts received in advance are
recorded as deferred revenue until the technology is transferred,
costs are incurred, or a milestone is reached.
●
Technology
license agreements typically consist of non-refundable upfront
license fees, annual minimum access fees and/or royalty payments.
Non-refundable upfront license fees and annual minimum payments
received with separable stand-alone values are recognized when the
technology is transferred or accessed, provided that the technology
transferred or accessed is not dependent on the outcome of the
continuing research and development efforts. Otherwise, revenue is
recognized over the period of our continuing
involvement.
●
Government
grant awards, which support our research efforts on specific
projects, generally provide for reimbursement of approved costs as
defined in the terms of grant awards. We recognize grant revenue
when associated project costs are incurred.
As
described more completely in Note 3, Summary of Significant Accounting
Policies, to the accompanying Consolidated Financial
Statements contained in Item 8 of this Annual Report, the Financial
Accounting Standards Board (the FASB) has issued new guidance regarding
revenue recognition. This new guidance becomes effective for our
fiscal year beginning April 1, 2018, and we will adopt it using the
modified retrospective transition method, applying the new guidance
to the most current period presented. We currently have only the
BlueRock Agreement as a potential revenue generating arrangement.
Upon adoption of the new guidance, we anticipate no change to the
units of accounting previously identified with respect to the
BlueRock Agreement under legacy GAAP, which are now considered
performance obligations under the new guidance, and there was no
change to the revenue recognition pattern for the performance
obligation. Accordingly, we do not expect the adoption of the new
standard to have a material impact on our consolidated financial
statements or result in a cumulative effect change to our opening
accumulated deficit balance.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Property, Plant &
Equipment—Overall, we
review for impairment whenever events or changes in circumstances
indicate that the carrying amount of property and equipment may not
be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use
of the asset and its eventual disposition. In the event that such
cash flows are not expected to be sufficient to recover the
carrying amount of the assets, we write down the assets to their
estimated fair values and recognize the loss in the Consolidated
Statements of Operations and Comprehensive
Loss.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and
non-clinical development of AV-101, our oral NMDAR GlyB antagonist
product candidate in clinical development for MDD and potentially
for other CNS indications, stem cell research and development
costs, and costs related to the application and prosecution of
patents related to AV-101 and our stem cell technology platform.
All such costs are charged to expense as incurred. We also record
accruals for estimated ongoing clinical trial costs. Clinical trial
costs represent costs incurred by contract research organizations
(CROs) and clinical trial sites. Progress payments are
generally made to CROs, clinical sites, investigators and other
professional service providers. We analyze the progress of the
clinical trial, including levels of subject enrollment, invoices
received and contracted costs when evaluating the adequacy of
accrued liabilities. Significant judgments and estimates must be
made and used in determining the clinical trial accrual in any
reporting period. Actual results could differ from those estimates
under different assumptions. Revisions are charged to research and
development expense in the period in which the facts that give rise
to the revision become known.
Stock-Based Compensation
We recognize non-cash compensation expense for all stock-based
awards to employees based on the grant date fair value of the
award. We record this expense over the period during
which the employee is required to perform services in exchange for
the award, which generally represents the scheduled vesting
period. We have granted no restricted stock awards, nor
do we have any awards with market or performance
conditions. For equity awards to non-employees, we
re-measure the fair value of the awards as they vest, and the
resulting value is recognized as an expense during the period over
which the services are performed.
We use the Black-Scholes option pricing model to estimate the fair
value of stock-based awards as of the grant date. The Black-Scholes
model is complex and dependent upon key data input estimates. The
primary data inputs with the greatest degree of judgment are the
expected term of the stock options and the estimated volatility of
our stock price. The Black-Scholes model is highly sensitive to
changes in these two inputs. The expected term of the options
represents the period of time that options granted are expected to
be outstanding. We use the simplified method in accordance with
guidance provided by the Securities and Exchange Commission
(SEC) to estimate the expected term as an input into
the Black-Scholes option pricing model. We determine expected
volatility using the historical method, which, because of the
limited period during which our stock has been publicly traded and
its historically limited trading volume, is based on the historical
daily trading data of the common stock of a peer group of public
companies over the expected term of the option.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity
financings as a component of equity, unless there is a deemed
possibility that we may have to settle the warrants in cash or the
warrants contain other features requiring them to be treated as
liabilities. For warrants issued with the possibility of cash
settlement or otherwise requiring liability treatment, we record
the fair value of the issued warrants as a liability at each
reporting period and record changes in the estimated fair value as
noncash gain or loss in the Consolidated Statements of Operations
and Comprehensive Loss.
Income Taxes
We account for income taxes using the asset and liability approach
for financial reporting purposes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to
reduce the deferred tax assets to an amount expected to be
realized.
Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included in
Item 8 in this Annual Report on Form 10-K for information on recent
accounting pronouncements.
Financial Operations Overview and Results of
Operations
Net Loss
We have
not yet achieved recurring revenue-generating status from any of
our product candidates or technologies. Since inception, we have devoted substantially all
of our time and efforts to developing our lead CNS product
candidate, AV-101, from early nonclinical studies to our ongoing
Phase 2 clinical development program in MDD, as well as stem cell
technology research and development, bioassay development, small
molecule drug development, and creating, protecting and patenting
intellectual property (IP) related to our product candidates and
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As of March
31, 2018, we had an accumulated deficit of approximately $156.5
million. Our net loss for the fiscal years ended March 31, 2018 and
2017 was approximately $14.3 million and $10.3 million,
respectively. We expect losses to continue for the foreseeable
future, primarily as a result of our ELEVATE Study and further
clinical development of AV-101 for the adjunctive treatment of MDD,
as well as a range of other CNS indications.
Summary of Our Fiscal Year Ended March 31, 2018
During the fiscal year ended March 31, 2018 (Fiscal 2018), we have continued to (i) advance nonclinical,
including manufacturing, and clinical development of AV-101 as a
potential new generation antidepressant and as a potential new
therapeutic alternative for several other CNS indications with
significant unmet medical need, (ii) expand our regulatory and IP
foundation to support broad clinical development and, ultimately,
commercialization of AV-101 in the U.S. and major foreign markets,
and (iii) on a limited basis, advance the predictive toxicology
capabilities of CardioSafe 3D for small molecule NCE drug rescue and
development applications and collaborative cell therapy and/or RM
opportunities related to our stem cell technology
platform.
Pursuant to our CRADA with the NIMH, the NIMH continues to fund,
and Dr. Carlos Zarate Jr. of the NIMH continues to conduct, the
NIMH Study at no cost to us other than supplying clinical trial
material.
In the fourth quarter of Fiscal 2018, we launched our ELEVATE
Study. During our preparations for the launch of the ELEVATE Study,
we pursued initiatives that significantly improved the efficiency
of our AV-101 manufacturing processes and supplied sufficient
quantities of AV-101 to enable comprehensive initiation of the
ELEVATE Study.
Additionally, during Fiscal 2018, we continued to pursue
initiatives to secure a broad portfolio of patent protection for
AV-101, covering multiple CNS indications, unit dose formulations
and chemical synthesis methods. During Fiscal 2018 and
subsequently, we filed and have pursued several patent applications
in the U.S., Europe, Japan and other selected countries and
regions. Several of these patent applications were allowed or have
been granted, including for (i) certain novel therapeutic methods
for the use of AV-101, including treatment of depression (U. S. and
Europe), (ii) certain unit dose formulations of AV-101 (U.S. and
Europe) and (iii) treatment of levodopa-induced dyskinesia
(Europe). Other patent applications have been allowed or granted
for the chemical synthesis of AV-101 (U.S., Europe and Japan). We
have also recently filed a new U.S. provisional patent application
for the AV-101 patent portfolio. Based on our patent issuances or
allowances to-date, we believe that counterpart patent applications
related to AV-101 currently under review in other countries are
likely to be granted, although there can be no assurance that all
pending applications will ultimately be granted.
We have obtained and are pursuing patent rights to the production
of several types of stem cells, including cardiomyocytes,
hematopoietic cells, chondrocytes, cartilage cells and hepatocytes,
as well as the use of certain cell types that have been
differentiated from pluripotent stem cells for therapeutic
purposes, including cell-based therapy and regenerative medicine.
For example, the U.S. Patent and Trademark Office (USPTO) granted a
patent during Fiscal 2018 related to methods for producing, from
human pluripotent stem cells (hPSCs), hematopoietic precursor stem
cells, which are stem cells that give rise to all of the blood
cells and most of the bone marrow cells in the body. A related
patent application was allowed in Japan and we expect this patent
to be granted by the Japanese Patent Office later this year.
VistaGen holds an exclusive license to this patent from the
University Health Network (UHN). The technology covered by the
patent has the potential to impact both direct and supportive
therapy for autoimmune disorders and cancer, with CAR-T cell
applications, and foundational technology which may provide
approaches for producing bone marrow stem cells for bone marrow
transfusions.
We were granted a U.S. patent in 2018 related to methods of
producing pluripotent stem cell-derived chondrocytes, chondrocyte
lineage cells, cartilage-like tissue and cartilage. Additionally,
the USPTO allowed claims to the therapeutic administration of these
cells and tissues to treat osteoarthritis and joint injuries
affecting cartilage. VistaGen
also holds an exclusive license to this patent from
UHN.
In December 2017, we completed an underwritten public offering of
shares of our common stock and warrants to purchase shares of our
common stock at a combined public offering price of $1.50 per share
and related warrant, resulting in gross proceeds of $15.0 million
(the December 2017 Public
Offering). We issued an
aggregate of 10,000,000 shares of our common stock and warrants to
purchase up to 10,000,000 shares of our common stock at an exercise
price of $1.50 per share (the December 2017 Offering
Warrants). The December 2017 Offering Warrants are
exercisable at any time through December 13, 2022, and do not
contain any cashless exercise features as long as our Registration
Statement on Form S-1 (Registration No. 333-221009) (the
S-1) is effective. We received net proceeds of
approximately $13.6 million from the December 2017 Public Offering,
after deducting underwriter’s commission and other expenses
related to the offering. The common stock and the shares of common
stock underlying the December 2017 Offering Warrants issued in the
December 2017 Public Offering were offered, issued and sold
pursuant to the S-1.
In September 2017, we completed an underwritten public offering,
pursuant to which we sold 1,371,430 shares of our common stock and
Series A1 Warrants to purchase up to 1,388,931 shares of common
stock and Series A2 Warrants to purchase up to 503,641 shares of
common stock (collectively, the Warrants), each initially exercisable for $1.82 per share
to two of our existing institutional investors, resulting in net
proceeds of approximately $2.0 million (the September 2017 Public
Offering). The Series A1
Warrants became exercisable for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants were exercisable at any
time through September 6, 2022. The common stock and the shares of
common stock underlying the Warrants issued in the September 2017
Public Offering were sold pursuant to our effective
Registration Statement on Form S-3 (Registration No. 333-215671) to
cover this and potential future sales of our equity securities in
one or more public offerings from time to time. Consistent with the anti-dilution protection
provisions of the Series A2 Warrants, the exercise price of such
warrants was reduced upon the closing of the December 2017 Public
Offering. In December 2017 and January 2018, all of the Series A2
Warrants were exercised at the reset exercise price resulting from
the December 2017 Public Offering and we received nominal cash
proceeds. Following these exercises, none of our outstanding
warrants have down round anti-dilution protection features,
except as is customary with respect to
a change in our capital structure in the event of a stock split or
dividend.
During
Fiscal 2018, we also entered into self-placed private placement
transactions with individual accredited investors, pursuant to
which we sold units consisting of an aggregate of 616,323 shares of
our unregistered common stock and, after adjustments, warrants
which are not exercisable until six months and one day following
issuance and expire between April 30, 2021 and November 30, 2022,
to purchase an aggregate of 616,323 unregistered shares of our
common stock at a weighted average fixed exercise price of
approximately $2.00 per share. We received aggregate cash proceeds
of approximately $1.1 million in these self-placed private
placement transactions.
In July
2017, we appointed Mark Wallace, M.D.,
Distinguished Professor of Clinical Anesthesiology at the
University of California, San Diego, to our Clinical and Regulatory
Advisory Board to assist us in advancing development of AV-101 as a
potential non-opioid, non-addictive, non-sedating oral treatment
alternative for neuropathic pain. Dr. Wallace is an internationally
recognized leader in the field of multi-modal pain management, with
over 30 years of professional experience, board certifications,
licensures, honors/awards, grants, articles and
abstracts.
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 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.
Comparison of Fiscal Years Ended March 31, 2018 and
2017
The following table summarizes the results of our operations for
the fiscal years ended March 31, 2018 and 2017 (amounts in
thousands).
|
|
Fiscal
Year Ended March 31,
|
|
|
|
|
|
|
|
|
|
Sublicense
revenue
|
$-
|
$1,250
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
7,763
|
5,204
|
|
General and
administrative
|
6,437
|
6,295
|
|
Total
operating expenses
|
14,200
|
11,499
|
|
|
|
|
|
Loss from
operations
|
(14,200)
|
(10,249)
|
|
|
|
|
|
Interest expense
(net)
|
(9)
|
(5)
|
|
Loss on
extinguishment of accounts payable
|
(135)
|
-
|
|
|
|
|
|
Loss before income
taxes
|
(14,344)
|
(10,254)
|
|
Income
taxes
|
(2)
|
(2)
|
|
|
|
|
|
Net
loss
|
(14,346)
|
(10,256)
|
|
Accrued
dividend on Series B Preferred Stock
|
(1,030)
|
(1,257)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
provision
feature
|
(199)
|
-
|
|
Deemed
dividend on Series B Preferred Stock
|
-
|
(111)
|
|
Net loss
attributable to common stockholders
|
$(15,575)
|
$(11,624)
|
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the
BlueRock Agreement in the fiscal year ended March 31, 2017
(Fiscal
2017). While we may potentially
receive additional payments and royalties under the BlueRock
Agreement in the future, in the event certain performance-based
milestones and commercial sales are achieved, we reported no
revenue under the agreement in Fiscal 2018 and we presently have no
recurring revenue generating arrangements with respect to AV-101 or
other potential product candidates. There can be no assurance that
the BlueRock Agreement will provide additional revenue to us in the
near term or at all.
Research and Development Expense
Research and development expense, including both cash and noncash
components, totaled approximately $7.8 million for Fiscal 2018, an
increase of approximately 49% compared to the $5.2 million reported
for Fiscal 2017. Noncash expenses totaled approximately $1,595,000
and $534,000 for Fiscal 2018 and Fiscal 2017, respectively,
including stock compensation, depreciation and a portion of rent
expense in both periods, and a portion of AV-101 project expenses
in Fiscal 2018. The increase in research and development expense in
Fiscal 2018 reflects our continued focus on nonclinical and
clinical development of AV-101, particularly our preparations for
and fourth quarter Fiscal 2018 initiation of the ELEVATE Study. The
following table indicates the primary components of research and
development expense for each of the periods (amounts in
thousands):
The following table indicates the primary components of research
and development expense for each of the periods (amounts in
thousands):
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
$1,563
|
$1,331
|
|
Stock-based
compensation
|
969
|
375
|
|
Consulting and
other professional services
|
32
|
(75)
|
|
Technology licenses
and royalties
|
433
|
746
|
|
Project-related
research and supplies:
|
|
|
|
AV-101
|
4,154
|
2,292
|
|
Stem cell and all
other
|
130
|
185
|
|
|
4,284
|
2,477
|
|
Rent
|
412
|
310
|
|
Depreciation
|
66
|
37
|
|
All
other
|
3
|
3
|
|
|
|
|
|
Total Research and
Development Expense
|
$7,762
|
$5,204
|
The increase in salaries and benefits reflects the hiring of our
Chief Medical Officer (CMO) in June 2016, and a salary increase granted to
our CMO in July 2017, as well as salary increases granted to our
Chief Scientific Officer (CSO) and to the non-officer members of our scientific
staff in June 2016 and June 2017, offset by the impact of a staff
position terminated in April 2017. Additionally, our
then-newly-hired CMO did not receive a bonus in July 2016; however,
both our CMO and CSO were granted a bonus in September
2017.
Stock based compensation expense increased in the current period
primarily as a result of the routine amortization of option grants
made to our CSO, CMO and scientific staff in November 2016, April
2017, September 2017 and February 2018, plus the new-hire grant
made to our CMO in June 2016. Grants awarded during Fiscal 2018
account for approximately $521,000 of Fiscal 2018 expense. The
expense attributable to these grants is generally being amortized
over a two-year to four-year vesting period, based on the terms of
the respective grants. Substantially all option grants made prior
to September 2015 were fully-vested and fully-expensed prior to
June 30, 2017.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third-parties, primarily by members of
our scientific and CNS clinical and regulatory advisory boards.
Fiscal 2018 expense primarily reflects payment under consulting
agreements with our stem cell-related scientific advisory board
members. Consulting expense in Fiscal 2017 reflected the impact of
the rationalization of the agreements and accruals related to
previous advisory board members.
Technology license expense in both periods 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 or that we have elected to
pursue for commercial purposes. We recognize these costs as they
are invoiced to us by the licensors or counsel and they do not
occur ratably throughout the year or between years. In both
periods, this expense also includes legal counsel and other costs
we have incurred to advance numerous pending or now-granted patent
applications in the U.S. and various foreign countries with respect
to AV-101 and our stem cell technology platform. Technology
license-related expense for Fiscal 2017 also includes net expense
of $158,000 related to the sublicense consideration paid to UHN
pursuant to the BlueRock Agreement plus additional fees and
expenses related to two additional stem cell technology related
licenses acquired from UHN, net of amounts previously accrued in
connection with our prior sponsored research agreement with UHN, as
well as noncash expense of $55,000 representing the fair value of a
warrant granted to intellectual property counsel as partial
compensation for services.
AV-101 project expense for both periods includes costs incurred to
develop more efficient and cost-effective proprietary manufacturing
methods for AV-101, and to produce clinical trial material for the
ELEVATE Study, and, primarily in Fiscal 2018, costs incurred for
certain other nonclinical studies to facilitate further clinical
development of AV-101 in MDD and potentially for other indications
and to comply with applicable FDA regulations. We expect these
expenses to increase significantly during fiscal 2019, as we
continue to conduct and move towards completion of the ELEVATE
Study. Stem cell and other project related expenses reflects costs
associated with our in-house stem cell technology-related
initiatives, and, to a greater extent in Fiscal 2017, our
participation in the FDA’s CiPA project.
The increase in rent expense in Fiscal 2018 reflects higher
commercial property rents prevalent in the South San Francisco real
estate market as recognized in our November 2016 lease amendment,
which extended the lease of our headquarters and laboratory
facilities in South San Francisco by five years, from July 31, 2017
to July 31, 2022, and the related accounting for the extension
amendment.
General and Administrative Expense
General and administrative expense, including both cash and noncash
components, increased approximately 2% to $6.4 million in Fiscal
2018 from $6.3 million in Fiscal 2017. Noncash expense accounted
for approximately $2.9 million and $3.1 million in Fiscal 2018 and
Fiscal 2017, respectively, including, in both periods, stock
compensation expense, a portion of investor relations and
professional services expenses, warrant modification expense, and a
portion of rent expense. The overall increase in general and
administrative expenses was primarily attributable to increased
salary and benefits expense and noncash stock compensation and
investor relations expenses, offset by reductions in professional
services and noncash warrant modification expenses. The following
table indicates the primary components of general and
administrative expenses, including noncash components, for each of
the periods (amounts in thousands):
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
$1,575
|
$1,206
|
|
Stock-based
compensation
|
1,375
|
476
|
|
Board
fees
|
155
|
140
|
|
Legal, accounting
and other professional fees
|
785
|
2,093
|
|
Investor
relations
|
1,454
|
1,219
|
|
Insurance
|
242
|
165
|
|
Travel
expenses
|
131
|
179
|
|
Rent and
utilities
|
279
|
220
|
|
Warrant
modification expense
|
293
|
427
|
|
All other
expenses
|
148
|
170
|
|
|
|
|
|
|
$6,437
|
$6,295
|
The increase in salaries and benefits reflects the impact of the
hiring of our VP-Corporate Development in September 2016 and salary
increases granted in June 2016 and July 2017 to our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), and in June 2016 and June 2017 to a non-officer
member of our administrative staff. Additionally, each of our
administrative officers was granted a bonus in September 2017, but
our VP-Corporate Development had not yet joined the Company in July
2016, when our CEO and CFO received a bonus
payment.
Stock based compensation expense increased in 2017 primarily as a
result of the routine amortization of option grants to independent
members of our Board of Directors and our CEO, CFO, VP-Corporate
Development and administrative staff in November 2016, April 2017,
September 2017 and February 2018, plus the new-hire grant made to
our VP-Corporate Development in September 2016. Grants awarded
during Fiscal 2018 account for approximately $884,000 of Fiscal
2018 expense. The expense attributable to these grants is generally
being amortized over a two-year to four-year vesting period based
on the terms of the respective grants. Substantially all option
grants made prior to September 2015 were fully-vested and
fully-expensed prior to June 30, 2017.
Board fees includes fees recognized for the services of independent
members of our Board. The Board modified its committee assignments
effective in April 2017, resulting in the modest increase in
expense.
Legal, accounting and other professional fees for both Fiscal 208
and Fiscal 2017 includes expense related to routine corporate legal
services, the accounting expense related to the annual audit of the
prior year’s financial statements, tax return preparation and
the review of the financial statements for the first three quarters
of each fiscal year, and various financial advisory and corporate
development services. In addition to cash fees incurred, during the
second quarter of Fiscal 2018, we granted an aggregate of 20,000
unregistered shares of our common stock having an aggregate grant
date fair value of $30,800 to legal services providers as partial
compensation for services and an aggregate of 150,000 unregistered
shares of our common stock having an aggregate grant date fair
value of $234,000 to two investment banking firms pursuant to
financial advisory agreements. Noncash expense recognized during
Fiscal 2017 includes (i) $337,500 recognized in the first quarter
pursuant to the June 30, 2015 grant of an aggregate of
90,000 shares of our Series B 10% convertible preferred stock
having an aggregate grant date fair value of $1,350,000 as
compensation for financial advisory and corporate development
service contracts with two independent providers for services to be
performed through June 30, 2016; (ii) $108,500 recognized in the
second quarter representing the grant date fair value of
25,000 unregistered shares of our
common stock granted to a legal services provider as compensation
for services; and (iii) an aggregate of $1,058,800 recognized in
the third and fourth quarters of Fiscal 2017 representing the grant
date fair value of 320,000 unregistered shares of our common stock
granted as compensation for financial advisory, investment banking
and business development services.
Investor relations expense includes the fees of our various
external service providers for a broad spectrum of investor
relations, market awareness and strategic advisory and support
functions, as well as initiatives that included numerous meetings
in multiple U.S. markets and other communication activities focused
on expanding market awareness of the Company, including among
registered investment professionals and investment advisors, and
individual and institutional investors. During Fiscal 2018, in
addition to cash fees and expenses we incurred, we granted an
aggregate of 582,000 shares of our unregistered common stock to
various corporate development, investor relations, market awareness
and business advisory service providers as full or partial
compensation for their services and recognized noncash expense
totaling $886,300, representing the grant date fair value of the
stock issued. During Fiscal 2017, in addition to cash fees and
expenses we incurred, we granted an aggregate of 160,000
unregistered shares of our common stock to six investor relations
and market awareness service providers as full or partial
compensation for their services and recognized non-cash expense of
$472,800, representing the grant date fair value of the
stock. We also granted three-year, immediately exercisable
warrants to purchase an aggregate of 75,000 shares of our
unregistered common stock at exercise prices ranging from $4.50 per
share to $6.00 per share to three investor relations service
providers and recognized non-cash expense of $172,300 representing
the grant date fair value of the warrants.
In both fiscal years, travel expense reflects costs associated with
management presentations to and meetings in multiple U.S. 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 initiatives.
The increase in rent expense in Fiscal 2018 reflects higher
commercial property rents prevalent in the South San Francisco real
estate market as recognized in our November 2016 lease amendment,
which extended the lease of our headquarters and laboratory
facilities in South San Francisco by five years, from July 31, 2017
to July 31, 2022, and the related accounting for the extension
amendment.
In the second quarter of Fiscal 2018, we reduced the exercise price
of 247,500 warrants issued in the Spring 2017 Private Placement
from a weighted average exercise price of $3.99 per share to $2.00
per share. We also issued to each of the Spring 2017 Private
Placement investors additional warrants to purchase an aggregate
total of 247,501 shares of common stock, each additional warrant
having an exercise price of $2.00 per share. We recognized noncash
expense of $279,700 in the second quarter of Fiscal 2018,
representing the increase in fair value of the initially-granted
warrants before and after the modification plus the fair value of
the additional warrants granted. In the third quarter of Fiscal
2018, we modified outstanding warrants issued in private placement
transactions between August 2017 and November 2017 to purchase an
aggregate of 178,572 shares of our common stock to reduce the
exercise prices from a weighted average of $2.32 per share to a
weighted average of $1.58 per share. We recognized the increase in
the fair value of the warrants, $13,000, as noncash warrant
modification expense in the third quarter of Fiscal 2018. Between
April 2016 and December 2016, we entered into warrant exchange
agreements with certain warrant holders pursuant to which the
warrant holders exchanged outstanding warrants to purchase an
aggregate of 224,513 shares of our common stock for an aggregate of
156,246 shares of our unregistered common stock. We accounted for
these transactions as warrant modifications, resulting in our
recognition of an aggregate of $350,700 in noncash expense
attributable to the increase in fair value related to the warrant
exchanges during the first through third quarters of Fiscal 2017.
Additionally, in the third quarter of Fiscal 2017, we modified an
outstanding warrant to reduce the exercise price from $8.00 per
share to $3.51 per share and increase the number of shares
exercisable under the warrant from 25,000 shares to 50,000 shares,
recognizing $76,900 in expense in the third quarter as the
incremental fair value attributable to the
modification.
Interest and Other Expenses, Net
Interest expense totaled $8,900 for Fiscal 2018 compared to $4,600
for Fiscal 2017. Interest expense in both periods relates to
interest paid on insurance premium financing and on a capital lease
of office equipment.
During
the third quarter of Fiscal 2018, we issued 500,000 unregistered
shares of our common stock having a grant date fair value of
$585,000 and a cash payment of $76,500 to a contract manufacturing
organization in settlement of $526,500 of open accounts payable. We
recognized a corresponding loss on settlement of accounts payable
in the amount of $135,000 for the quarter.
We
recognized $1,030,400, and $1,257,000
in Fiscal 2018 and Fiscal 2017, respectively, representing the 10%
cumulative noncash dividend payable on our Series B Preferred as an
additional deduction in arriving at net loss attributable to common
stockholders in the Consolidated Statement of Operations and
Comprehensive Loss included in Item 8 of this Annual Report. The
reduction in the dividend accrual results from the automatic
conversion of an aggregate of
2,403,051 shares of Series B Preferred into an equal number of
shares of our common stock upon our completion of our May 2016
public offering of units consisting of common stock and warrants,
and a subsequent voluntary conversion of 87,500 shares of our
Series B Preferred in August 2016. There have been no conversions
of outstanding shares of Series B Preferred into common shares
since August 2016.
Our
sale of units consisting of common stock and warrants in the
December 2017 Public Offering at an offering price of $1.50 per
unit triggered the anti-dilution protection provisions of the
Series A2 Warrants to purchase an aggregate of 503,641 shares of
our common stock issued in the September 2017 Public Offering. In
accordance with the anti-dilution terms and formula contained in
the Series A2 warrants, the exercise price of the Series A2
Warrants was reduced from the initial exercise price of $1.82 per
share to $0.001 per share. We recognized the effect of triggering
the down round feature, $199,200, as a further addition to net loss
attributable to common stockholders and in our calculation of basic
and fully diluted earnings per share in our Consolidated Statement
of Operations and Comprehensive Loss and as a dividend in our
Consolidated Statement of Stockholders’ Equity included in
Item 8 of this Annual Report. The holders of the Series A2 Warrants
subsequently exercised them in the third and fourth quarters of
Fiscal 2018 and we received minimal cash proceeds from the
exercises. Following the exercise of the Series A2 Warrants, none
of our outstanding warrants contain antidilution protection
provisions other than is customary in the event of a change in our
capital structure as a result of a stock split or
dividend.
During the first quarter of Fiscal 2017, we allocated the proceeds
from our self-placed private placement sales of Series B Preferred
Units to the Series B Preferred stock and the Series B Warrants
based on their relative fair values on the dates of the sales. The
difference between the relative fair value per share of the Series
B Preferred, approximately $4.20 per share, and its Conversion
Price (or stated value) of $7.00 per share represented a deemed
dividend to the purchasers of the Series B Preferred Units.
Accordingly, we recognized a deemed dividend in the aggregate
amount of $111,100 in arriving at net loss attributable to common
stockholders for Fiscal 2017 in
the Consolidated Statement of Operations and Comprehensive
Loss included in Item 8 of this Annual Report.
Liquidity and Capital Resources
Since our inception in May 1998 through March 31, 2018, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of equity and debt securities,
including convertible promissory notes and short-term promissory
notes, for cash proceeds of approximately $61.4 million, as well as
from an aggregate of approximately $17.6 million of government
research grant awards (excluding the fair market value of the NIMH
Study), strategic collaboration payments, intellectual property
sublicensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $33.6
million in non-cash settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services.
In December 2017, we completed the December 2017 Public Offering
pursuant to which sold shares of our common stock and warrants to
purchase shares of our common stock at a combined public offering
price of $1.50 per share and related warrant under our Registration
Statement on Form S-1 (Registration No. 333-221009), resulting in
gross proceeds of $15.0 million. In September 2017, we completed
the September 2017 Public Offering pursuant to which we sold shares
of our common stock and warrants resulting in gross proceeds of
approximately $2.4 million under our Registration Statement on Form
S-3 (Registration No. 333-215671). Subject to certain restrictions,
the S-3 Registration Statement 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. 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 or
institutions.
At March 31, 2018, we had a cash and cash equivalents balance of
$10.4 million. This amount was not sufficient to enable us to fund
our planned operations, including expected cash expenditures of
approximately $13 million for the twelve months following the date
of this Annual Report, including expenditures required to satisfy a
significant portion of the projected expenses associated with our
ELEVATE Study.
Our cash position at March 31, 2018 considered with our recurring
and anticipated losses, negative cash flows from operations and
limited stockholders’ equity make it probable, in the absence
of additional financing, that we will not be able to meet our
obligations as they come due within one year from the date of this
Report, raising substantial doubt that we can continue as a going
concern. However, to alleviate that doubt, we plan, as we have
numerous times in the past, to raise additional financing when and
as needed, primarily through the sale of our equity securities in
one or more private placements to accredited investors or public
offerings.
In addition to the potential sale of our equity securities, we may
also seek to enter research and development collaborations that
could generate revenue and/or provide funding for development of
AV-101 and additional product candidates. We may also seek
additional government grant awards or agreements similar to our
current CRADA with the NIMH, which provides for the NIMH to fully
fund the NIMH Study. 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. In a manner similar to the BlueRock Agreement, we may
also pursue similar arrangements with third-parties covering other
of our intellectual property. Although we may seek additional
collaborations that could generate revenue and/or non-dilutive
funding for development of AV-101 and other product candidates, as
well as new government grant awards and/or agreements similar to
our CRADA with NIMH, 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 AV-101 as an adjunctive treatment for MDD and
other potential CNS conditions, 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 AV-101 and 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 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
future financing will be available 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 2018 or 2019 and beyond, 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 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):
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
$(9,058)
|
$(7,262)
|
|
Net cash used in
investing activities
|
(2)
|
(239)
|
|
Net cash provided
by financing activities
|
16,517
|
9,994
|
|
|
|
|
|
Net increase
in cash and cash equivalents
|
7,457
|
2,493
|
|
Cash and cash
equivalents at beginning of period
|
2,921
|
428
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$10,378
|
$2,921
|
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of
business, we do not have any off-balance sheet financing
arrangements or liabilities, guarantee contracts, retained or
contingent interests in transferred assets or any obligation
arising out of a material variable interest in an unconsolidated
entity. VistaStem has two inactive, wholly owned subsidiaries,
Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem
Canada, Inc., an Ontario corporation.
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk
The disclosures in this section are not required because we
qualify as a smaller reporting company under federal securities
laws.
Item
8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
Report of
Independent Registered Public Accounting Firm
|
|
65
|
|
Consolidated
Balance Sheets
|
|
66
|
|
Consolidated
Statements of Operations and Comprehensive Loss
|
|
67
|
|
Consolidated
Statements of Cash Flows
|
|
68
|
|
Consolidated Statements of Stockholders' Equity
(Deficit)
|
|
69
|
|
Notes to
Consolidated Financial Statements
|
|
70
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Stockholders and Board of Directors
VistaGen Therapeutics, Inc.
South San Francisco, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets
of VistaGen Therapeutics, Inc. as of March 31, 2018 and 2017,
the related consolidated statements of operations and comprehensive
loss, cash flows, and stockholders’ equity (deficit) for each
of the two fiscal years in the period ended March 31,
2018, and the related notes
(collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company at March 31, 2018 and 2017, and the results of its
operations and its cash flows for each of the two years in the
period ended March 31, 2018, in conformity with accounting principles generally
accepted in the United States of America.
Going Concern Uncertainty
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has not yet generated sustainable revenues, has suffered
recurring losses and negative cash flows from operations and has
minimal stockholders’ equity, all of which raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ OUM & CO. LLP
San Francisco, California
June 26, 2018
We have served as the Company's auditor since 2006.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$10,378,300
|
$2,921,300
|
|
Prepaid
expenses and other current assets
|
644,800
|
456,600
|
|
Total current
assets
|
11,023,100
|
3,377,900
|
|
Property and
equipment, net
|
207,400
|
286,500
|
|
Security
deposits and other assets
|
47,800
|
47,800
|
|
Total
assets
|
$11,278,300
|
$3,712,200
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$1,195,700
|
$867,300
|
|
Accrued
expenses
|
206,300
|
443,000
|
|
Current notes
payable
|
53,900
|
54,800
|
|
Capital lease
obligations
|
2,600
|
2,400
|
|
Total current
liabilities
|
1,458,500
|
1,367,500
|
|
|
|
|
|
Non-current
liabilities:
|
|
|
|
Accrued
dividends on Series B Preferred Stock
|
2,608,300
|
1,577,800
|
|
Deferred rent
liability
|
285,600
|
139,200
|
|
Capital lease
obligations
|
9,300
|
11,900
|
|
Total
non-current liabilities
|
2,903,200
|
1,728,900
|
|
Total
liabilities
|
4,361,700
|
3,096,400
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized at March 31,
2018 and 2017:
|
|
|
|
Series
A Preferred, 500,000 shares authorized, issued and outstanding at
March 31, 2018 and 2017
|
500
|
500
|
|
Series
B Preferred; 4,000,000 shares authorized at March 31, 2018 and
2017; 1,160,240 shares
|
|
|
|
issued
and outstanding at March 31, 2018 and 2017
|
1,200
|
1,200
|
|
Series
C Preferred; 3,000,000 shares authorized at March 31, 2018 and
2017; 2,318,012 shares
|
|
|
|
issued
and outstanding at March 31, 2018 and 2017
|
2,300
|
2,300
|
|
Common stock,
$0.001 par value; 100,000,000 and 30,000,000 shares authorized at
March 31, 2018 and
|
|
|
|
March
31, 2017, respectively; 23,068,280 and 8,974,386 shares issued and
outstanding at March 31, 2018
|
|
|
|
and
March 31, 2017, respectively
|
23,100
|
9,000
|
|
Additional
paid-in capital
|
167,401,400
|
146,569,600
|
|
Treasury
stock, at cost, 135,665 shares of common stock held at March 31,
2018 and 2017
|
(3,968,100)
|
(3,968,100)
|
|
Accumulated
deficit
|
(156,543,800)
|
(141,998,700)
|
|
Total
stockholders’ equity
|
6,916,600
|
615,800
|
|
Total
liabilities and stockholders’ equity
|
$11,278,300
|
$3,712,200
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Amounts in dollars, except share amounts)
|
|
Fiscal
Years Ended March 31,
|
|
|
|
|
|
Revenues:
|
|
|
|
Sublicense
revenue
|
$-
|
$1,250,000
|
|
Total
revenues
|
-
|
1,250,000
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
7,762,500
|
5,203,700
|
|
General and
administrative
|
6,437,100
|
6,294,800
|
|
Total
operating expenses
|
14,199,600
|
11,498,500
|
|
Loss from
operations
|
(14,199,600)
|
(10,248,500)
|
|
Other expenses,
net:
|
|
|
|
Interest
expense, net
|
(8,900)
|
(4,600)
|
|
Loss on
extinguishment of accounts payable
|
(135,000)
|
-
|
|
|
|
|
|
Loss before income
taxes
|
(14,343,500)
|
(10,253,100)
|
|
Income
taxes
|
(2,400)
|
(2,400)
|
Net loss and
comprehensive loss
|
(14,345,900)
|
(10,255,500)
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(1,030,400)
|
(1,257,000)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
provision
feature
|
(199,200)
|
-
|
|
Deemed
dividend on Series B Preferred Units
|
-
|
(111,100)
|
|
|
|
|
|
Net loss
attributable to common stockholders
|
$(15,575,500)
|
$(11,623,600)
|
|
|
|
|
|
Basic and diluted
net loss attributable to common
|
|
|
|
stockholders
per common share
|
$(1.12)
|
$(1.54)
|
|
|
|
|
|
Weighted average
shares used in computing basic
|
|
|
and diluted
net loss attributable to common
|
|
|
|
stockholders
per common share
|
13,890,041
|
7,531,642
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
|
|
Fiscal
Years Ended March 31,
|
|
|
|
|
|
Cash flows
from operating activities:
|
|
|
|
Net
loss
|
$(14,345,900)
|
$(10,255,500)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
80,700
|
54,900
|
|
Stock-based
compensation
|
2,344,200
|
851,300
|
|
Expense related to
modification of warrants, including exchange of warrants for common
stock
|
292,700
|
427,500
|
|
Amortization of
deferred rent
|
146,300
|
83,700
|
|
Fair value of
common stock granted for services
|
1,615,800
|
1,640,100
|
|
Fair value of
Series B Preferred stock granted for services
|
-
|
375,000
|
|
Fair value of
warrants granted for services
|
-
|
240,300
|
|
Loss on
extinguishment of accounts payable
|
135,000
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Prepaid expenses
and other current assets
|
131,200
|
(227,700)
|
|
Accounts payable
and accrued expenses, including accrued interest
|
541,700
|
(451,700)
|
|
Net cash used in
operating activities
|
(9,058,300)
|
(7,262,100)
|
|
|
|
|
|
Cash flows
from property and investing activities:
|
|
|
|
Purchases of
equipment
|
(1,600)
|
(239,100)
|
|
Net cash used in
investing activities
|
(1,600)
|
(239,100)
|
|
|
|
|
|
Cash flows
from financing activities:
|
|
|
|
Net proceeds from
issuance of common stock and warrants, including Units
|
16,722,300
|
9,899,500
|
|
Net proceeds from
issuance of Series B Preferred Units
|
-
|
278,000
|
|
Repayment of
capital lease obligations
|
(2,400)
|
(1,300)
|
|
Repayment of notes
payable
|
(203,000)
|
(182,200)
|
|
Net cash provided
by financing activities
|
16,516,900
|
9,994,000
|
|
Net increase
in cash and cash equivalents
|
7,457,000
|
2,492,800
|
|
Cash and cash
equivalents at beginning of period
|
2,921,300
|
428,500
|
|
Cash and cash
equivalents at end of period
|
$10,378,300
|
$2,921,300
|
|
|
|
|
Supplemental
disclosure of cash flow activities:
|
|
|
|
|
$8,900
|
$16,600
|
Cash paid for
income taxes
|
$2,400
|
$2,400
|
|
|
|
|
Supplemental
disclosure of noncash activities:
|
|
|
Insurance premiums
settled by issuing note payable
|
$202,100
|
$178,200
|
Accrued dividends
on Series B Preferred
|
$1,030,400
|
$1,257,000
|
Accrued
dividends on Series B Preferred settled upon conversion by issuance
of common stock
|
$-
|
$1,768,800
|
Deemed dividend
from trigger of down round provision feature
|
$199,200
|
$-
|
Acquisition of
equipment under capital lease
|
$-
|
$14,700
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
Fiscal Years Ended March 31, 2017 and 2018
(Amounts in dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2016
|
500,000
|
$500
|
3,663,077
|
$3,700
|
2,318,012
|
$2,300
|
2,623,145
|
$2,600
|
$132,725,000
|
$(3,968,100)
|
$(131,743,200)
|
$(2,977,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Series B Preferred Units for cash
under Series B Preferred Unit Private Placement
|
-
|
-
|
39,714
|
-
|
-
|
-
|
-
|
-
|
278,000
|
-
|
-
|
278,000
|
|
Proceeds from sale of common stock and warrants for cash in
May 2016 Public Offering
|
-
|
-
|
-
|
-
|
-
|
-
|
2,570,040
|
2,600
|
9,534,500
|
-
|
-
|
9,537,100
|
|
Proceeds from sale of common stock and warrants for cash in
private placement offerings
|
-
|
-
|
-
|
-
|
-
|
-
|
124,250
|
100
|
362,300
|
-
|
-
|
362,400
|
|
Series B Preferred converted to common stock automatically
upon consummation of May 2016 Public Offering and
voluntarily
|
-
|
-
|
(2,542,551)
|
(2,500)
|
-
|
-
|
2,542,551
|
2,500
|
-
|
-
|
-
|
-
|
|
Common stock issued for dividends upon conversion of Series
B Preferred
|
-
|
-
|
-
|
-
|
-
|
-
|
453,154
|
500
|
1,768,300
|
-
|
-
|
1,768,800
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,257,000)
|
-
|
-
|
(1,257,000)
|
|
Share-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
851,300
|
-
|
-
|
851,300
|
|
Exchange of outstanding warrants for common stock and other
warrant modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
156,246
|
200
|
427,300
|
-
|
-
|
427,500
|
|
Fair
value of common stock and warrants granted for
services
|
-
|
-
|
-
|
-
|
-
|
-
|
505,000
|
500
|
1,879,900
|
-
|
-
|
1,880,400
|
|
Net
loss for fiscal year ended March 31, 2017
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,255,500)
|
(10,255,500)
|
|
Balances at March 31, 2017
|
500,000
|
$500
|
1,160,240
|
$1,200
|
2,318,012
|
$2,300
|
8,974,386
|
$9,000
|
$146,569,600
|
$(3,968,100)
|
$(141,998,700)
|
$615,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock and warrants for cash in
September 2017 Public Offering, net of underwriting discount
and expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
1,371,430
|
1,400
|
2,023,000
|
-
|
-
|
2,024,400
|
|
Proceeds from sale of common stock and warrants for cash in
December 2017 Public Offering, net of underwriting discount
and expenses
|
-
|
-
|
-
|
-
|
-
|
-
|
10,000,000
|
10,000
|
13,614,000
|
-
|
-
|
13,624,000
|
|
Proceeds from sale of common stock and warrants for cash in
private placement offerings
|
-
|
-
|
-
|
-
|
-
|
-
|
616,323
|
600
|
1,072,600
|
-
|
-
|
1,073,200
|
|
Proceeds
from exercise of warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
503,641
|
500
|
-
|
-
|
-
|
500
|
|
Accrued
dividends on Series B Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,030,400)
|
-
|
-
|
(1,030,400)
|
|
Stock-based
compensation expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,344,100
|
-
|
-
|
2,344,100
|
|
Fair
value of common stock granted for services
|
-
|
-
|
-
|
-
|
-
|
-
|
1,102,500
|
1,100
|
1,732,100
|
-
|
-
|
1,733,200
|
|
Fair
value of common stock granted in settlement of accounts
payable
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
500
|
584,500
|
-
|
-
|
585,000
|
|
Increase
in fair value attributable to warrant modifications
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
292,700
|
-
|
-
|
292,700
|
|
Deemed dividend
from trigger of down round provision feature
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
199,200
|
-
|
(199,200)
|
-
|
|
Net
loss for the fiscal year ended March 31, 2018
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,345,900)
|
(14,345,900)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2018
|
500,000
|
$500
|
1,160,240
|
$1,200
|
2,318,012
|
$2,300
|
23,068,280
|
$23,100
|
$167,401,400
|
$(3,968,100)
|
$(156,543,800)
|
$6,916,600
|
See accompanying notes to consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Overview
VistaGen Therapeutics. Inc., a Nevada corporation, is a
clinical-stage biopharmaceutical company focused on developing new
generation medicines for depression and other diseases and
disorders of the central nervous system (CNS) with high unmet need.
Our lead CNS product candidate, AV-101, is an oral, non-opioid and
non-sedating therapy that we believe offers the potential to be a
new at-home treatment for multiple CNS indications with high unmet
medical need. These indications include potential use as a new
generation treatment alternative for Major Depressive Disorder
(MDD), as a non-addictive, non-sedating option for
management of chronic neuropathic pain (CNP), to reduce dyskinesia induced by levodopa
therapy for Parkinson’s disease (PD LID), and additional CNS indications
where
modulation of NMDA (N-methyl-D-aspartate) receptor and AMPA
(alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptor
pathways may achieve therapeutic benefit.
For MDD, we believe AV-101 has potential as a first line oral
monotherapy and as an adjunctive oral therapy. As an adjunctive
therapy, we believe AV-101 has potential both to displace atypical
antipsychotics such as aripiprazole in the current MDD drug
treatment paradigm both for patients with an inadequate response to
current antidepressants approved by the U.S. Food and Drug
Administration (FDA) and to prevent relapse of MDD following
successful treatment with the FDA-approved anesthetic, ketamine
hydrochloride, an ion-channel blocking NDMA receptor antagonist
(ketamine), whether administered by intravenous
(IV) injection or as an intranasal spray formulation.
We believe AV-101 may have potential to deliver ketamine-like
antidepressant effects on an at-home basis, without the requirement
for inconvenient administration in a medical setting, and without
causing psychological or other side effects and safety concerns
associated with ketamine therapy.
AV-101 is in Phase 2 development in the United States. In the
fourth quarter of 2017, we received authorization from the FDA to
initiate ELEVATE, our Phase 2 multi-center, multi-dose, double
blind, placebo-controlled clinical study to evaluate the efficacy
and safety of AV-101 as an adjunctive treatment of MDD in adult
patients with an inadequate therapeutic response to current
FDA-approved antidepressants (the ELEVATE
Study). As planned, we
initiated the ELEVATE Study in the first quarter of 2018. Dr.
Maurizio Fava, Professor of Psychiatry at Harvard Medical School
and Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, is the Principal
Investigator of the ELEVATE Study assisting our internal team,
which is led by Mark Smith, MD, PhD, our Chief Medical
Officer. Dr. Fava was the co-Principal Investigator with Dr.
A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We currently anticipate top line results from
the ELEVATE Study in the first half of 2019.
AV-101 is also in the subject of a small Phase 2 clinical study
being conducted and funded by the U.S. National Institute of Mental
Health (the NIMH), pursuant to our Cooperative Research and
Development Agreement (CRADA) with the NIMH (the NIMH Study). Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, is acting as the Principal Investigator for the NIMH
Study, which is focused on AV-101 monotherapy for subjects with
treatment-resistant MDD and certain biomarkers. Dr. Zarate and the
NIMH were among the first in the U.S. to conduct clinical studies
demonstrating the robust, fast-acting antidepressant effects of
ketamine in MDD patients with inadequate responses to multiple
current FDA-approved antidepressants.
In addition to our CNS business, we have two additional programs
through our wholly-owned subsidiary VistaGen Therapeutics, Inc., a
California corporation, dba VistaStem Therapeutics
(VistaStem). VistaStem is focused on applying human
pluripotent stem cell (hPSC) technology to rescue, develop and commercialize
(i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our pipeline or
out-licensing. To advance potential RM applications of
VistaStem’s cardiac stem cell technology, we have exclusively
sublicensed to BlueRock Therapeutics LP, a next generation cell
therapy and RM company established in 2016 with $225 million of
committed capital from Bayer AG and Versant Ventures
(BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to the BlueRock Agreement, we may pursue additional
VistaStem collaborations or licensing transactions involving blood,
cartilage, and/or liver cells derived from hPSCs for cell-based
therapy, cell repair therapy, RM and/or tissue
engineering.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiaries
As noted above, VistaStem is our wholly-owned subsidiary. Our
Consolidated Financial Statements in this Annual Report on Form
10-K (Report) also include the accounts of 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.
2. Basis of Presentation and Going Concern
The accompanying Consolidated Financial Statements have been
prepared assuming that we will continue as a going concern. As a
clinical-stage biopharmaceutical company having not yet developed
commercial products or achieved sustainable revenues, we have
experienced recurring losses and negative cash flows from
operations resulting in a deficit of $156.5 million accumulated
from inception through March 31, 2018. We expect losses and
negative cash flows from operations to continue for the foreseeable
future as we engage in further potential development of AV-101,
initially as an adjunctive treatment for MDD, and subsequently as a
new treatment alternative for other CNS conditions, execute our
drug rescue programs, and pursue potential drug development and
regenerative medicine opportunities.
Since our inception in May 1998 through March 31, 2018, we have
financed our operations and technology acquisitions primarily
through the issuance and sale of equity and debt securities,
including convertible promissory notes and short-term promissory
notes, for cash proceeds of approximately $61.4 million, as well as
from an aggregate of approximately $17.6 million of government
research grant awards (excluding the fair market value of the NIMH
Study), strategic collaboration payments, intellectual property
sublicensing and other revenues. Additionally, we have issued
equity securities with an approximate value at issuance of $33.6
million in non-cash settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services.
In December 2017, we completed an underwritten public offering of
shares of our common stock and warrants to purchase shares of our
common stock at a combined public offering price of $1.50 per share
and related warrant under our Registration Statement on Form S-1
(Registration No. 333-221009), resulting in gross proceeds of $15.0
million (the December 2017 Public
Offering). In September 2017,
we completed an underwritten public offering pursuant to which we
offered and sold shares of our common stock and warrants resulting
in gross proceeds of approximately $2.4 million (the
September 2017
Public Offering) under our
Registration Statement on Form S-3 (Registration No. 333-215671)
(the S-3
Registration Statement). (See
Note 8, Capital Stock,
for additional information regarding
the December 2017 Public Offering and the September 2017 Public
Offering.) Subject to certain restrictions, the S-3 Registration
Statement 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. 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 or institutions.
At March 31, 2018, we had a cash and cash equivalents balance of
$10.4 million. This amount was not sufficient to enable us to fund
our planned operations, including expected cash expenditures of
approximately $13 million for the twelve months following the
issuance of these financial statements, including expenditures
required to satisfy a significant portion of the projected expenses
associated with our ELEVATE Study.
Our cash position at March 31, 2018 considered with our recurring
and anticipated losses, negative cash flows from operations and
limited stockholders’ equity make it probable, in the absence
of additional financing, that we will not be able to meet our
obligations as they come due within one year from the date of this
Report, raising substantial doubt that we can continue as a going
concern. However, to alleviate that doubt, we plan, as we have
numerous times in the past, to raise additional financing when and
as needed, primarily through the sale of our equity securities in
one or more private placements to accredited investors or public
offerings.
In addition to the potential sale of our equity securities, we may
also seek to enter research and development collaborations that
could generate revenue or provide funding for development of AV-101
and additional product candidates. We may also seek additional
government grant awards or agreements similar to our current CRADA
with the NIMH, which provides for the NIMH to fully fund the NIMH
Study. 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. In a manner similar to the BlueRock Agreement, we may
also pursue similar arrangements with third-parties covering other
of our intellectual property. Although we may seek additional
collaborations that could generate revenue and/or non-dilutive
funding for development of AV-101 and other product candidates, as
well as new government grant awards and/or agreements similar to
our CRADA with NIMH, no assurance can be provided that any such
collaborations, awards or agreements will occur in the future.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 AV-101 as an adjunctive treatment for MDD and
other potential CNS conditions, 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 AV-101 and 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 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
future financing will be available 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 2018 or 2019 and beyond, 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 Consolidated Financial Statements do not include
any adjustments that might result from the negative outcome of this
uncertainty.
3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(U.S.
GAAP) requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates include, but are not limited to, those
relating to stock-based compensation, revenue recognition, research
and development expenses and the assumptions used to value
warrants, warrant modifications and warrant
liabilities.
Principles of Consolidation
The accompanying consolidated financial statements include the
Company’s accounts, VistaStem’s accounts and the
accounts of VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neurosciences and VistaStem Canada. All
material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be highly liquid
investments with maturities of three months or less at the date of
purchase.
Property and Equipment
Property and equipment is stated at cost. Repairs and maintenance
costs are expensed in the period incurred. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of property and
equipment range from three to seven years.
Impairment of Long-Lived Assets
Our
long-lived assets consist of property and equipment. Long-lived
assets to be held and used are tested for recoverability whenever
events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. Factors
that we consider in deciding when to perform an impairment review
include significant underperformance of the business in relation to
expectations, significant negative industry or economic trends, and
significant changes or planned changes in our use of the assets. An
impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of an asset are
less than its carrying amount. The impairment loss would be based
on the excess of the carrying value of the impaired asset over its
fair value, determined based on discounted cash flows. To date, we
have not recorded any impairment losses on long-lived
assets.
Revenue Recognition
We have historically generated revenue principally from
collaborative research and development arrangements, licensing and
technology transfer agreements, including strategic licenses or
sublicenses, and government grants. Revenue arrangements with
multiple components are divided into separate units of accounting
if certain criteria are met, including whether the delivered
component has stand-alone value to the customer or counterparty.
Consideration received is allocated among the separate units of
accounting based on their respective selling prices. The
selling price for each unit is based on vendor-specific objective
evidence, or VSOE, if available, third party evidence if VSOE is
not available, or estimated selling price if neither VSOE nor third
party evidence is available. The applicable revenue
recognition criteria are then applied to each of the
units.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recognize revenue when four basic criteria of revenue
recognition are met: (i) a contractual agreement exists;
(ii) the transfer of technology has been completed or services
have been rendered; (iii) the fee is fixed or determinable;
and (iv) collectability is reasonably assured. For each source
of revenue, we comply with the above revenue recognition criteria
in the following manner:
●
Collaborative
arrangements typically consist of non-refundable and/or exclusive
up front technology access fees, cost reimbursements for specific
research and development spending, and future product development
milestone and royalty payments. If the delivered
technology does not have stand-alone value, the amount of revenue
allocable to the delivered technology is
deferred. Non-refundable upfront fees with stand-alone
value that are not dependent on future performance under these
agreements are recognized as revenue when received, and are
deferred if we have continuing performance obligations and have no
objective and reliable evidence of the fair value of those
obligations. We recognize non-refundable upfront
technology access fees under agreements in which we have a
continuing performance obligation ratably, on a straight-line
basis, over the period during which we are obligated to provide
services. Cost reimbursements for research and
development spending are recognized when the related costs are
incurred and when collectability is reasonably
assured. Payments received related to substantive,
performance-based “at-risk” milestones are recognized
as revenue upon achievement of the milestone event specified in the
underlying contracts, which represent the culmination of the
earnings process. Amounts received in advance are
recorded as deferred revenue until the technology is transferred,
costs are incurred, or a milestone is reached.
●
Technology
license agreements typically consist of non-refundable upfront
license fees, annual minimum access fees, development and/or
regulatory milestone payments and/or royalty payments.
Non-refundable upfront license fees and annual minimum payments
received with separable stand-alone values are recognized when the
technology is transferred or accessed, provided that the technology
transferred or accessed is not dependent on the outcome of the
continuing research and development efforts. Otherwise, revenue is
recognized over the period of our continuing involvement, and, in
the case of development and/or regulatory milestone payments, when
the applicable event triggering such a payment has
occurred.
●
Government
grants, which support our research efforts on specific projects,
generally provide for reimbursement of approved costs as defined in
the terms of grant awards. Grant revenue is recognized when
associated project costs are incurred.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses, including stock-based compensation
expense, of scientific personnel and direct project
costs. External research and development expenses
consist primarily of costs associated with clinical and
non-clinical development of AV-101, our oral NMDAR GlyB antagonist
product candidate in clinical development for MDD and potentially
for other CNS indications, stem cell research and development
costs, and costs related to the application and prosecution of
patents related to AV-101 and our stem cell technology platform.
All such costs are charged to expense as incurred. We also record
accruals for estimated ongoing clinical trial costs. Clinical trial
costs represent costs incurred by contract research organizations
(CROs) and clinical trial sites. Progress payments are
generally made to CROs, clinical sites, investigators and other
professional service providers. We analyze the progress of the
clinical trial, including levels of subject enrollment, invoices
received and contracted costs when evaluating the adequacy of
accrued liabilities. Significant judgments and estimates must be
made and used in determining the clinical trial accrual in any
reporting period. Actual results could differ from those estimates
under different assumptions. Revisions are charged to research and
development expense in the period in which the facts that give rise
to the revision become known.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to
employees and non-employee consultants based on the grant date fair
value of the award. We record non-cash, stock-based
compensation expense over the period during which the employee is
required to perform services in exchange for the award, which
generally represents the scheduled vesting period. We
have granted no restricted stock awards to employees nor do we have
any awards with market or performance conditions. For
option grants to non-employees, we re-measure the fair value of the
awards as they vest and the resulting value is recognized as an
expense during the period over which the services are performed.
Compensatory grants of stock to non-employees are generally treated
as fully-earned at the time of the grant and the non-cash expense
recognized is based on the quoted market price of the stock on the
date of grant.
Income Taxes
We account for income taxes using the asset and liability approach
for financial reporting purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are
established, when necessary, to reduce the deferred tax assets to
an amount expected to be realized.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist of cash and cash
equivalents. Our investment policies limit any such investments to
short-term, low-risk investments. We deposit cash and cash
equivalents with quality financial institutions and are insured to
the maximum of federal limitations. Balances in these accounts may
exceed federally insured limits at times.
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or
for trading or speculative purposes. We follow the principles of
fair value accounting as they relate to our financial assets and
financial liabilities. Fair value is defined as the estimated exit
price received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the
measurement date, rather than an entry price that represents the
purchase price of an asset or liability. Where
available, fair value is based on observable market prices or
parameters, or derived from such prices or
parameters. Where observable prices or inputs are not
available, valuation models are applied. These valuation
techniques involve some level of management estimation and
judgment, the degree of which is dependent on several factors,
including the instrument’s complexity. The
required fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad
levels is described as follows:
●
Level 1 —
Quoted prices (unadjusted) in active markets that are accessible at
the measurement date for assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1
inputs.
●
Level 2 —
Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
●
Level 3 —
Unobservable inputs (i.e., inputs that reflect the reporting entity’s
own assumptions about the assumptions that market participants
would use in estimating the fair value of an asset or liability)
are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3
inputs.
A financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Where quoted
prices are available in an active market, securities are classified
as Level 1 of the valuation hierarchy. If quoted market prices
are not available for the specific financial instrument, then we
estimate fair value by using pricing models, quoted prices of
financial instruments with similar characteristics or discounted
cash flows. In certain cases where there is limited activity or
less transparency around inputs to valuation, financial assets or
liabilities are classified as Level 3 within the valuation
hierarchy.
We carried no assets or liabilities at fair value at March 31, 2018
or 2017.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity
financings as a component of equity, unless there is a deemed
possibility that we may have to settle the warrants in cash or the
warrants contain other features requiring them to be treated as
liabilities. For warrants issued with the possibility of cash
settlement, or otherwise requiring liability treatment, we record
the fair value of the issued warrants as a liability at each
reporting period and record changes in the estimated fair value as
noncash gain or loss in the Consolidated Statements of Operations
and Comprehensive Loss.
Comprehensive Loss
We have no components of other comprehensive loss other than net
loss, and accordingly our comprehensive loss is equivalent to our
net loss for the periods presented.
Loss per Common Share Attributable to Common
Stockholders
Basic net loss attributable to common stockholders per share of
common stock excludes the effect of dilution and is computed by
dividing net loss increased by the accrual for dividends on
our Series B Preferred and, for the fiscal year ended March 31,
2018, the deemed dividend attributable to the trigger of a
down-round provision feature, and, for the fiscal year ended March
31, 2017 (refer to Note 7, Capital
Stock, for a description of these adjustments), the deemed
dividend attributable to the issuance of our Series B Preferred
Units by the weighted-average number
of shares of common stock outstanding for the period. Diluted net
loss attributable to common stockholders per share of common stock
reflects the potential dilution that could occur if securities or
other contracts to issue shares of common stock were exercised or
converted into shares of common stock. In calculating diluted net
loss attributable to common stockholders per share, we have
generally not increased the denominator to include the number of
potentially dilutive common shares assumed to be outstanding during
the period using the treasury stock method because the result is
antidilutive.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of our net loss for both years presented, potentially
dilutive securities were excluded from the computation of diluted
loss per share, as their effect would be antidilutive.
Basic and diluted net loss attributable to common stockholders per
share was computed as follows:
|
|
Fiscal
Years Ended March 31,
|
|
|
|
|
|
Numerator:
|
|
|
|
Net loss
attributable to common stockholders for basic and diluted
earnings
|
|
|
|
per
share
|
$(15,575,500)
|
$(11,623,600)
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted
average basic and diluted common shares outstanding
|
13,890,041
|
7,531,642
|
|
|
|
|
|
Basic and
diluted net loss attributable to common stockholders per common
share
|
$(1.12)
|
$(1.54)
|
Potentially dilutive securities excluded in determining diluted net
loss per common share for the fiscal years ended March 31, 2018 and
2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding (1)
|
750,000
|
750,000
|
|
|
|
|
|
Series B Preferred stock issued and
outstanding (2)
|
1,160,240
|
1,160,240
|
|
|
|
|
|
Series C Preferred stock issued and
outstanding (3)
|
2,318,012
|
2,318,012
|
|
|
|
|
|
Outstanding
options under the Amended and Restated 2016 (formerly 2008) and
1999 Stock Incentive Plans (1999 Plan in 2017 only)
|
5,300,338
|
1,659,324
|
|
|
|
|
Outstanding
warrants to purchase common stock
|
16,603,516
|
4,577,631
|
|
|
|
|
|
Total
|
26,132,106
|
10,465,207
|
(1)
Assumes exchange
under the terms of the October 11, 2012 Note Exchange and Purchase
Agreement, as amended
(2)
Assumes exchange
under the terms of the Certificate of Designation of the Relative
Rights and Preferences of the Series B 10% Convertible Preferred
Stock, effective May 5, 2015
(3)
Assumes exchange
under the terms of the Certificate of Designation of the Relative
Rights and Preferences of the Series C Convertible Preferred Stock,
effective January 25, 2016
Recent Accounting Pronouncements
We
believe the following recent accounting pronouncements or changes
in accounting pronouncements are of significance or potential
significance to the Company.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July
2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2017-11,
“Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part
I: Accounting for Certain Financial Instruments with Down Round
Features; Part II: Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception” (ASU 2017-11). Part I of this ASU
provides that an entity will no longer have to consider “down
round” features (i.e., a provision in an equity-linked
financial instrument, such as a free-standing warrant, or an
embedded feature, such as a conversion option in a convertible
instrument, that reduces the exercise price of such instrument if
the entity subsequently sells stock for a lower price or issues an
equity-linked instrument with a lower exercise price) when
determining whether certain equity-linked financial instruments or
embedded features are indexed to its own stock. The definition of a
down round feature in ASU 2017-11 excludes standard antidilution
provisions related to changes in an entity’s capital
structure. Accounting Standards Codification Topic 815-40,
“Derivatives and Hedging–Contracts in Entity’s
Own Equity” (ASC
815-40) requires that a freestanding equity-linked financial
instrument be indexed to the issuer’s own stock to be
classified as equity. An equity-linked embedded feature that meets
the definition of a derivative may avoid bifurcation and derivative
accounting if it is indexed to the issuer’s own stock. Under
the terms of prior guidance, a freestanding financial instrument or
embedded feature was not considered indexed to the issuer’s
own stock if it had a down round provision. Consequently, the
freestanding financial instrument was classified as a liability (or
asset), and if it met the definition of a derivative, was measured
at fair value with changes in fair value recorded through earnings.
Similarly, an embedded feature was bifurcated and separately
accounted for as a derivative if it met all other criteria for
bifurcation under ASC 815-40. The bifurcated embedded feature was
also measured at fair value through earnings. Under the provisions
of ASU 2017-11, an entity that presents earnings per share
(EPS) under Accounting
Standards Codification Topic 260, “Earnings Per Share”
will recognize the effect of a down round feature in a freestanding
equity-classified financial instrument only when it is triggered.
The effect of triggering such a feature will be recognized as a
dividend and a reduction to income available to common shareholders
in basic EPS. The new guidance requires new disclosures for
financial instruments with down round features and other terms that
change conversion or exercise prices. Part I of ASU 2017-11 is
effective for fiscal years beginning after December 15, 2018, and
interim periods therein, however early adoption is permitted. We
early-adopted ASU 2017-11 effective for the quarter ended September
30, 2017 and applied its guidance to certain of the warrants issued
in the September 2017 Public Offering, as described more completely
in Note 7, Capital Stock.
No retrospective adjustments to our financial statements were
required as a result of our adoption of ASU 2017-11.
In May
2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic
606), to provide guidance on revenue recognition. In August
2015 and March, April, May and December 2016, the FASB issued
additional amendments to the new revenue guidance relating to
reporting revenue on a gross versus net basis, identifying
performance obligations, licensing arrangements, collectability,
noncash consideration, presentation of sales tax, transition, and
clarifying examples. Collectively these are referred to as ASC
Topic 606, which replaces all legacy GAAP guidance on revenue
recognition and eliminates all industry-specific guidance. The new
revenue recognition guidance provides a unified model to determine
how revenue is recognized. The core principal of the guidance is
that an entity should recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in
exchange for those goods or services. ASC Topic 606 defines a
five-step process to achieve this core principal which may require
entities to use more judgment and make more estimates than under
legacy guidance. These estimates and judgments include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each distinct performance
obligation. ASC Topic 606 is effective for our fiscal year
beginning April 1, 2018. We will adopt ASC Topic 606 as of April 1,
2018, using the modified retrospective transition method, applying
the new guidance to the most current period presented. We currently
have only the BlueRock Agreement as a potential revenue generating
arrangement. Upon adoption of ASC Topic 606, we anticipate no
change to the units of accounting previously identified with
respect to that contract under legacy GAAP, which are now
considered performance obligations under ASC Topic 606, and there
was no change to the revenue recognition pattern for the
performance obligation. Accordingly, we do not expect the adoption
of the new standard to result in a cumulative effect change to our
opening accumulated deficit balance.
In
February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which will replace the
existing guidance in ASC 840, Leases, and which sets out the
principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees
and lessors). The new standard requires lessees to apply a dual
approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a
term of 12 months or less will be accounted for similar to the
current guidance for operating leases. This standard will become
effective for our fiscal year beginning April 1, 2019, with early
adoption permitted. We expect to adopt the standard as of April 1,
2019, and are evaluating the expected impact of this new guidance
on our consolidated financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Accounting which includes multiple provisions intended to
simplify several aspects of accounting for share-based payment
transactions, including income tax consequences, classification of
awards as either equity or liabilities, an option to recognize
gross stock compensation expense with actual forfeitures recognized
as they occur, as well as certain classifications on the statement
of cash flows. We adopted the standard effective for our fiscal
year beginning April 1, 2017. Our adoption of this ASU did not have
a material impact on our consolidated financial
statements.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic
718): Scope
of Modification Accounting, to
clarify which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting
under ASC 718. Under the new guidance, an entity will not apply
modification accounting to a share-based payment award if all of
the following remain unchanged immediately before and after the
change of terms and conditions:
●
The
award’s fair value (or calculated value or intrinsic value,
if those measurement methods are used),
●
The
award’s vesting conditions, and
●
The
award’s classification as an equity or liability
instrument.
ASU 2017-09 is effective for our fiscal year beginning April 1,
2018 and is to be applied prospectively to awards modified on or
after the adoption date. We do not believe that our adoption of ASU
2017-09 will have a material effect on our results of operations,
financial condition or cash flows.
In August 2016, the FASB issued ASU
No. 2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash
Payments. The standard
reduces the diversity in practice of
how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The guidance addresses
the following eight specific cash flow issues: (1) debt prepayment
or debt extinguishment costs, (2) settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate
of the borrowing, (3) contingent consideration payments made after
a business combination, (4) proceeds from the settlement of
insurance claims, (5) proceeds from settlement of corporate-owned
life insurance policies, including bank-owned life insurance
policies, (6) distributions received from equity method investees,
(7) beneficial interests in securitization transitions and (8)
separately identifiable cash flows and application of predominance
principle. The guidance is effective for our fiscal year beginning
April 1, 2018 and requires retrospective adoption. We do not
believe that the adoption of this guidance will have a material
impact on our consolidated financial statements and related
disclosures.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash that changes the presentation of restricted
cash and cash equivalents on the statement of cash flows.
Restricted cash and restricted cash equivalents must be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. This standard is effective for our fiscal
year beginning April 1, 2018. As we do not currently have
restricted cash or restricted cash equivalents, we do not believe
that the adoption of this ASU will have a material impact on our
consolidated financial statements.
4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
AV-101
materials and services
|
$505,900
|
$352,800
|
|
Insurance
|
88,300
|
85,800
|
|
Public
offering filing fees and expenses
|
25,900
|
11,600
|
|
All
other
|
24,700
|
6,400
|
|
|
|
|
|
|
$644,800
|
$456,600
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
$888,300
|
$888,300
|
|
Tenant
improvements
|
26,900
|
26,900
|
|
Computers and
network equipment
|
54,600
|
53,000
|
|
Office
furniture and equipment
|
79,700
|
79,700
|
|
|
1,049,500
|
1,047,900
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
(842,100)
|
(761,400)
|
|
|
|
|
|
Property and
equipment, net
|
$207,400
|
$286,500
|
The
following table summarizes depreciation and amortization expense
attributable to owned and leased property and equipment for the
fiscal years ended March 31, 2018 and 2017:
|
|
Fiscal Years Ended March 31,
|
|
|
|
|
|
Owned
assets
|
$77,800
|
$53,100
|
|
|
2,900
|
1,800
|
Total
depreciation and amortization
|
$80,700
|
$54,900
|
Other
than certain leased office equipment, none of our assets were
subject to third party security interests at March 31, 2018 or
2017.
6. Accrued Expenses
Accrued expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
AV-101 development and related expenses
|
$176,600
|
$402,400
|
|
Accrued
professional services
|
27,000
|
37,000
|
|
All
other
|
2,700
|
3,600
|
|
|
|
|
|
|
$206,300
|
$443,000
|
|
|
|
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Notes Payable
The following table summarizes our notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.15% (2018) and
8.25% (2017) Notes payable
|
|
|
|
|
|
|
|
to insurance
premium financing company (current)
|
$53,900
|
$-
|
$53,900
|
$54,800
|
$-
|
$54,800
|
|
|
|
|
|
|
|
|
|
Total notes payable
to unrelated parties
|
$53,900
|
$-
|
$53,900
|
$54,800
|
$-
|
$54,800
|
|
less: current portion
|
(53,900)
|
-
|
(53,900)
|
(54,800)
|
-
|
(54,800)
|
|
Net non-current
portion
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
In May 2017, we executed a promissory note in the face amount of
$142,400 in connection with certain insurance policy premiums. The
note was payable in monthly installments of $14,800, including
principal and interest, through March 2018, when it was paid in
full. In February 2018, we executed a promissory note in the face
amount of $59,700 in connection with other insurance policy
premiums. The note is payable in monthly installments of $6,200,
including principal and interest, through December 2018, and has an
outstanding balance of $53,900 at March 31, 2018.
8. Capital Stock
Common Stock
At our
Annual Meeting of Stockholders on September 15, 2017, as approved
by and recommended to our stockholders by our Board of Directors
(Board), our stockholders
approved an amendment to our Restated and Amended Articles of
Incorporation to increase the authorized number of shares of common
stock that we may issue from 30.0 million shares to 100.0 million
shares. The amendment became effective on September 15, 2017, upon
our filing of a certificate of amendment with the Nevada Secretary
of State.
Series A Preferred Stock
In December 2011, our Board authorized the creation of a series of
up to 500,000 shares of Series A Preferred, par value $0.001
(Series A
Preferred). Each
restricted share of Series A Preferred is currently convertible at
the option of the holder into one and one-half restricted shares of
our common stock. The Series A Preferred ranks prior to
the common stock for purposes of liquidation
preference.
The Series A Preferred has no separate dividend rights, however,
whenever the Board declares a dividend on the common stock, each
holder of record of a share of Series A Preferred shall be entitled
to receive an amount equal to such dividend declared on one share
of common stock multiplied by the number of shares of common stock
into which such share of Series A Preferred could be converted on
the Record Date.
Except with respect to transactions upon which the Series A
Preferred shall be entitled to vote separately as a class, the
Series A Preferred has no voting rights. The restricted common
stock into which the Series A Preferred is convertible shall, upon
issuance, have all of the same voting rights as other issued and
outstanding shares of our common stock.
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series A Preferred then
outstanding shall be entitled to receive distributions out
of our assets, if any, an amount per
share of Series A Preferred calculated by taking the total amount
available for distribution to holders of all of our outstanding
common stock before deduction of any preference payments for the
Series A Preferred, divided by the total of (x), all of the then
outstanding shares of our common stock, plus (y) all of the shares
of our common stock into which all of the outstanding shares of the
Series A Preferred can be converted before any payment shall be
made or any assets distributed to the holders of the common stock
or any other junior stock.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2018 and 2017, there were 500,000 restricted shares of
Series A Preferred outstanding, convertible into 750,000 shares of
our common stock at the option of the two respective
holders.
Series B Preferred Stock
In July 2014, our Board authorized the creation of a class of
Series B Preferred Stock. In May 2015, we filed a Certificate of
Designation of the Relative Rights and Preferences of the Series B
10% Preferred Stock of VistaGen Therapeutics, Inc.
(Certificate of
Designation) with the Nevada
Secretary of State to designate 4.0 million shares of our
authorized preferred stock as Series B
Preferred.
Each share of Series B Preferred is convertible, at the option of
the holder (Voluntary
Conversion), into one (1) share
of our Common Stock, subject to adjustment only for customary stock
dividends, reclassifications, splits and similar transactions set
forth in the Certificate of Designation. Outstanding shares of
Series B Preferred are also convertible automatically on a
one-to-one basis into shares of our Common Stock
(Automatic
Conversion) upon the closing or
effective date of any of the following transactions or events: (i)
a strategic transaction involving AV-101 with an initial up-front
cash payment to us of at least $10.0 million; (ii) a registered
public offering of our common stock with aggregate gross proceeds
to us of at least $10.0 million; or (iii) for 20 consecutive
trading days, our common stock trades at least 20,000 shares per
day with a daily closing price of at least $12.00 per share;
provided, however, that Automatic Conversion and Voluntary
Conversion (collectively, Conversion) are subject to certain beneficial ownership
blockers as set forth in the Certificate of Designation and/or
securities purchase agreements. Following the completion of the May
2016 Public Offering (defined below), which occurred concurrently
with and facilitated the listing of our common stock on the NASDAQ
Capital Market, approximately 2.4 million shares of Series B
Preferred were converted automatically into approximately 2.4
million shares of our common stock pursuant to the Automatic
Conversion provision.
Prior to Conversion, shares of Series B Preferred accrue in-kind
dividends (payable only in unregistered shares of our common stock)
at a rate of 10% per annum (Accrued
Dividends). The
Accrued Dividends are payable on the date of either a Voluntary
Conversion or Automatic Conversion solely in that number of shares
of common stock equal to the Accrued Dividends. At March 31, 2018,
we have recognized a liability in the amount of $2,608,300 for
Accrued Dividends in the accompanying Consolidated Balance
Sheet at March 31, 2018, based on the
Series B Preferred issued and outstanding, net of conversions to
common stock, through that date. We have recognized a deduction
from net loss of $1,030,400 and $1,257,000 related to dividends on
Series B Preferred in arriving at net loss attributable to common
stockholders in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for the fiscal years ended March
31, 2018 and 2017, respectively.
In the event of the liquidation, dissolution or winding-up of our
affairs, after payment or provision
for payment of our debts and other liabilities, the Holders
of the Series B Preferred then outstanding shall be entitled to
receive distributions out of our assets, if any, of an amount equal
to the Stated Value of the Series B Preferred ($7.00 per share),
plus any accrued and unpaid dividends thereon, before any distribution or payment shall be made
to the holders of any junior securities, including holders of our
common stock. If our assets are insufficient to pay, in full, such
amounts, then the entire assets to be distributed to the holders of
the Series B Preferred shall be ratably distributed among the
holders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. Upon liquidation, each share of Series B Preferred ranks
pari-passu with our Series A Preferred and our Series C Preferred
(defined below).The liquidation value of the Series B
Preferred at March 31, 2018 is approximately
$10,729,900.
At March 31, 2018 and 2017, there were 1,160,240 shares of Series B
Preferred outstanding, which shares are currently subject to
beneficial ownership blockers and are exchangeable at the option of
the two respective holders by Voluntary Conversion, or pursuant to
Automatic Conversion to the extent not otherwise subject to
beneficial ownership blockers, into an aggregate of 1,160,240
shares of our common stock.
Series C Preferred Stock
In
January 2016, our Board authorized the creation of and,
accordingly, we filed a Certificate of
Designation of the Relative Rights and Preferences of the Series C
Convertible Preferred Stock of VistaGen Therapeutics, Inc.
(the Series
C Preferred Certificate of
Designation) with the Nevada
Secretary of State to designate 3.0 million shares of our preferred
stock, par value $0.001 per share, as Series C Convertible
Preferred Stock (Series C
Preferred).
In the event of the liquidation, dissolution or winding up of our
affairs, after payment or provision for payment of our debts and
other liabilities, the holders of Series C Preferred then
outstanding shall be entitled to receive, out of our assets, if
any, an amount per share of Series C Preferred calculated by taking
the total amount available for distribution to holders of all of
our outstanding common stock before deduction of any preference
payments for the Series C Preferred, divided by the total of (x),
all of the then outstanding shares of our common stock, plus (y)
all of the shares of our common stock into which all of the
outstanding shares of the Series C Preferred can be exchanged
before any payment shall be made or any assets distributed to the
holders of the common stock or any other junior stock. Upon
liquidation, each share of Series C Preferred ranks pari-passu with
our Series B Preferred and our Series A Preferred.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each share of Series C Preferred is convertible, at the option of
the holder into one share of our common stock, subject to certain
beneficial ownership limitations as set forth in the Series C
Preferred Certificate of Designation. Shares of the Series C
Preferred do not accrue dividends, and holders of the Series C
Preferred have no voting rights. At March 31, 2018 and 2017, one
holder and its affiliates held all 2,318,012 outstanding shares of
Series C Preferred.
Series B Preferred Unit Offering
Between May 2015 and May 2016, in self-placed private placement
transactions, we sold to accredited investors an aggregate of
$5,303,800 of units in our Series B Preferred Unit Offering, which
units consisted of Series B Preferred and Series B Warrants
(together Series B Preferred
Units), including $2,650,000 to
PLTG. We issued 757,692 shares of Series B Preferred and Series B
Warrants to purchase 757,692 shares of our common
stock. During our fiscal year ended March 31, 2017, we
received an aggregate of $278,000 in cash proceeds from our
self-placed private placement and sale of 39,174 Series B Preferred
Units.
The warrants issued in the Series B Preferred Unit Offering have no
anti-dilution or other exercise price or share reset features,
except as is customary with respect to a change in our capital
structure in the event of a stock split or dividend, and,
accordingly, we have accounted for them as equity warrants. We
allocated the proceeds from the sale of the Series B Preferred
Units sold during our fiscal year ended March 31, 2017 to the
Series B Preferred and the Series B Warrants based on their
relative fair values on the dates of the sales. We
determined that the fair value of a share of Series B Preferred was
equal to the quoted market value of a share of our common stock on
the date of a Series B Preferred Unit sale. We calculated the fair value of the Series B
Warrants using the Black Scholes Option Pricing Model and the
weighted average assumptions indicated in the table below. The
table below also presents the aggregate allocation of the Series B
Preferred Unit sales proceeds based on the relative fair values of
the Series B Preferred and the Series B Warrants as of their
respective Series B Preferred Unit sales dates. The difference
between the relative fair value per share of the Series B
Preferred, approximately $4.20 per share, and its Conversion Price
(or stated value) of $7.00 per share represents a deemed dividend
to the purchasers of the Series B Preferred Units. Accordingly, we
recognized a deemed dividend in the aggregate amount of $111,100 in
arriving at net loss attributable to common stockholders in
the accompanying Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2017.
|
Unit
Warrants
|
|
|
|
|
Weighted
Average Issuance Date Valuation Assumptions
|
Per
Share
|
Aggregate
|
Aggregate
|
Aggregate
Allocation of Proceeds
Based
|
|
Warrant
|
|
|
|
Risk
free
|
|
|
Fair
|
Fair
Value
|
Proceeds
|
on
Relative Fair Value of:
|
|
Shares
|
Market
|
Exercise
|
Term
|
Interest
|
|
Dividend
|
Value
of
|
of
Unit
|
of
Unit
|
|
Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,714
|
$
8.45
|
$
7.00
|
5.00
|
1.27%
|
78.43%
|
0.0%
|
$
5.63
|
$
223,500
|
$
278,000
|
$
166,900
|
$
61,100
|
May 2016 Public Offering and Listing of our Common Stock on the
NASDAQ Capital Market
Effective on May 16, 2016, we consummated an underwritten public
offering of our securities, pursuant to which we issued units
consisting of an aggregate of 2,570,040 registered shares of our
common stock at a public sales price of $4.24 per share and
five-year warrants exercisable at $5.30 per share to purchase an
aggregate of 2,705,883 shares of our common stock at a public sales
price of $0.01 per warrant share, including shares and warrants
issued in June 2016 pursuant to the exercise of the
underwriters’ over-allotment option (the May 2016 Public
Offering). We received gross
proceeds of approximately $10.9 million and net proceeds of
approximately $9.5 million from the May 2016 Public Offering, after
deducting underwriters’ commissions and other offering
expenses. The warrants issued in the May 2016 Public Offering have
no anti-dilution or other exercise price or share reset features,
except as is customary with respect to a change in our capital
structure in the event of a stock split or dividend, and,
accordingly, we have accounted for them as equity
warrants.
The
securities included in the May 2016 Public Offering were offered,
issued and sold under a prospectus filed with the Securities and
Exchange Commission (the Commission) pursuant to an effective
registration statement (Primary
Registration Statement) filed with the Commission on Form
S-1 (File No. 333-210152) pursuant to the Securities Act. The
Primary Registration Statement was first filed with the Commission
on March 14, 2016, and was declared effective on May 10,
2016.
In
connection with the completion of our May 2016 Public Offering,
NASDAQ approved our common stock for listing on the NASDAQ Capital
Market. Our common stock began trading on the NASDAQ Capital Market
under the symbol “VTGN” on May 11, 2016.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock and Warrants Issued in September 2017 Public
Offering
On September 6, 2017, we completed the September 2017 Public
Offering, resulting in gross proceeds of approximately $2.4
million, pursuant to which we offered and sold shares of our common
stock and warrants to two of our existing institutional investors.
We issued an aggregate of 1,371,430 shares of our common stock,
Series A1 Warrants to purchase up to 1,388,931 shares of common
stock and Series A2 Warrants to purchase up to 503,641 of common
stock (collectively, the Warrants), each exercisable for $1.82 per share in the
September 2017 Public Offering. The Series A1 Warrants became
exercisable by the investors for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants were immediately
exercisable at any time through September 6, 2022. The common stock
and the shares of common stock underlying the Warrants issued in
the September 2017 Public Offering were offered, issued and sold
pursuant to our S-3 Registration Statement (Registration No.
333-215671) that had previously been declared effective by
the Commission to cover this and potential future sales of our
equity securities in one or more public offerings from time to
time. We received net proceeds of
approximately $2.0 million from the September 2017 Public Offering,
after deducting underwriter’s commission and other expenses
related to the offering.
The Series A1 Warrants to purchase an aggregate of 1,388,931 shares
of our common stock issued in the September 2017 Public Offering
have no anti-dilution or other exercise price or share reset
features, except as is customary with respect to a change in our
capital structure in the event of a stock split or dividend, and,
accordingly, we have accounted for them as equity warrants.
The Series A2 Warrants to purchase an aggregate of 503,641
shares of our common stock contained anti-dilution protection
provisions that would take effect upon the issuance of any common
stock, securities convertible into common stock or certain other
issuances at a price below the then-current ($1.82 per share)
exercise price of the Series A2 Warrants, with certain exceptions;
provided, however, that such anti-dilution protection would
terminate automatically on the trading day following the date on
which we raised at least $20.0 million in aggregate gross proceeds
through one or more issuances of common stock or equity-linked
securities. The anti-dilution protection provisions in the Series
A2 Warrants constituted a down round feature subject to the
guidance in ASU 2017-11. Since the Series A2 Warrants contained no
other provisions which required their treatment as liability
warrants rather than equity warrants, including exercise price or share reset features, except as
is customary with respect to a change in our capital structure in
the event of a stock split or dividend and which are also present
in the Series A1 Warrants, we also accounted for the Series A2
Warrants as equity warrants. The anti-dilution protection
provisions of the Series A2 Warrants were triggered upon our
issuance of common stock and warrants in the December 2017 Public
Offering (defined below) at a price below the Series A2 Warrants
then-current $1.82 per share exercise price.
Common Stock and Warrants Issued in December 2017 Public Offering
and Trigger of Anti-Dilution Protection Provisions of Series A2
Warrants Issued in September 2017 Public Offering
On December 13, 2017, we completed the December 2017 Public
Offering, resulting in gross proceeds of $15.0 million, pursuant to
which we offered and sold shares of our common stock and warrants
to purchase shares of our common stock at a combined public
offering price of $1.50 per shares and related warrant. We issued
an aggregate of 10,000,000 shares of our common stock and warrants
to purchase up to 10,000,000 shares of our common stock at an
exercise price of $1.50 per share (the December 2017 Offering
Warrants). The common stock and
the shares of common stock underlying the December 2017 Offering
Warrants issued in the December 2017 Public Offering were offered,
issued and sold pursuant to our Registration Statement on Form S-1
(Registration No. 333-221009) that was declared effective by
the Commission on December 11, 2017. The December 2017 Offering Warrants are exercisable
at any time through December 13, 2022, have no anti-dilution or
other exercise price or share reset features, except as is
customary with respect to a change in our capital structure in the
event of a stock split or dividend, and do not contain any cashless
exercise features as long as our Registration Statement on Form S-1
(Registration No. 333-221009) is effective. Accordingly, we
accounted for the December 2017 Offering Warrants as equity
warrants. We received net proceeds of approximately $13.6 million
from the December 2017 Public Offering, after deducting
underwriter’s commission and other expenses related to the
offering.
Our
sale of units consisting of common stock and warrants in the
December 2017 Public Offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants. In accordance with the anti-dilution terms and formula
contained in the Series A2 warrants, the exercise price of the
Series A2 Warrants was reduced to $0.001 per share. In December
2017 and January 2018, the holders exercised the reset Series A2
warrants to purchase an aggregate of 503,641 shares of our common
stock from which we received nominal cash proceeds. In accordance
with the guidance in ASU 2017-11, we recognized the effect of
triggering the down round feature as a deemed dividend in our
Consolidated Statement of Stockholders’ Equity for the fiscal
year ended March 31, 2018 and as an addition to net loss
attributable to common stockholders and in our calculation of basic
and fully diluted earnings per share in our Consolidated Statement
of Operations for the fiscal year ended March 31,
2018.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We
calculated the dividend from the trigger of the down round
provision feature, $199,200, using the
Black Scholes Option Pricing Model and the assumptions indicated in
the table below:
|
Assumption:
|
|
|
|
Market
price per share
|
$1.17
|
$1.17
|
|
Exercise
price per share
|
$1.82
|
$0.001
|
|
Risk-free
interest rate
|
2.09%
|
2.09%
|
|
Remaining
contractual term in years
|
4.73
|
4.73
|
|
Volatility
|
97.8%
|
97.8%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
503,641
|
503,641
|
|
Fair value per share
|
$0.77
|
$1.17
|
Common Stock and Warrants Issued in Private Placements
During
the quarter ended December 31, 2016, in self-placed private
transactions, we sold to two individual accredited investors units,
at a purchase price of $3.70 per unit, consisting of an aggregate
of 67,000 unregistered shares of our common stock and warrants,
exercisable through November 30, 2019, to purchase an aggregate of
16,750 unregistered shares of our common stock at an exercise price
of $6.00 per share. The purchasers of the units have no
registration rights with respect to the shares of common stock,
warrants or the shares of common stock issuable upon exercise of
the warrants comprising the units sold. We received aggregate cash
proceeds of $247,900 in connection with this private placement, the
entire amount of which was credited to stockholders’
equity.
During the quarter ended March 31, 2017, in a self-placed
private transaction, we sold to an accredited investor units, at a
purchase price of $2.00 per unit, consisting of an aggregate of
57,250 unregistered shares of our common stock and warrants,
exercisable through April 2021, to purchase an aggregate of 28,625
unregistered shares of our common stock at an exercise price of
$4.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. We received aggregate cash proceeds of
$114,500 in connection with this private placement, the entire
amount of which was credited to stockholders’
equity.
During
the quarter ended June 30, 2017, in self-placed private placement
transactions, we accepted subscription agreements from individual
accredited investors, pursuant to which we sold to such investors
units, at a weighted average purchase price of $2.00 per unit,
consisting of an aggregate of 437,751 unregistered shares of our
common stock and warrants, exercisable through April 30, 2021, to
purchase an aggregate of 218,875 unregistered shares of our common
stock at a weighted average exercise price of $3.99 per share. The
purchasers of the units have no registration rights with respect to
the shares of common stock, warrants or the shares of common stock
issuable upon exercise of the warrants comprising the units sold.
The warrants are not exercisable until six months and one day
following the date of issuance. We received aggregate cash proceeds
of $873,300 in connection with these self-placed private placement
transactions, and the entire amount of the proceeds was credited to
stockholders’ equity.
During
the quarter ended September 30, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 28,572 shares of our unregistered common stock and
warrants exercisable through April 30, 2021 to purchase 28,572
unregistered shares of our common stock at an exercise price of
$4.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $50,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
During
the quarter ended December 31, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 150,000 shares of our unregistered common stock and
warrants exercisable through November 30, 2021 to purchase 150,000
unregistered shares of our common stock at an exercise price of
$2.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $150,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
Issuance of Common Stock to Professional Services Providers and in
Settlement of Accounts Payable
During
our fiscal years ended March 31, 2018 and 2017, we issued the
following securities in private placement transactions as
compensation for various professional services. Unless otherwise
noted, we recorded the related non-cash expense as a component of
general and administrative expense in the Consolidated Statement of
Operations and Comprehensive Loss for the fiscal years ended March
31, 2018 and 2017, as appropriate.
●
During the quarter
ended September 30, 2016, we issued an aggregate of 170,000 shares
of our unregistered common stock having an aggregate fair value on
the date of issuance of $737,800 as compensation to various
professional services providers. Of that amount, we issued
120,000 shares having a fair value of
$520,800 on the date of issuance for services to be rendered from
October 2016 to December 2016.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
●
During the quarter
ended December 31, 2016, we issued an aggregate of 135,000 shares
of our unregistered common stock having an aggregate fair value on
the respective dates of issuance of $479,800 as compensation to
various professional services providers.
●
During the quarter
ended March 31, 2017, we issued an aggregate of 200,000
unregistered shares of our common stock, of which 150,000
unregistered shares were issued from our 2016 Plan (defined below),
having an aggregate fair value of $422,500 on the dates of issuance
to various professional services providers.
●
During the quarter
ended September 30, 2017, we issued an aggregate of 927,500
unregistered shares of our common stock, of which 477,500 shares
were issued from our 2016 Plan, for various professional services,
including contract research, legal, investor relations and
financial advisory services. The common stock issued had an
aggregate fair value of $1,503,600 on the dates issued, of which
all but $117,300 has been recognized as noncash expense through
March 31, 2018. The un-expensed portion at March 31, 2018, which is
included in prepaid expenses in our accompanying Consolidated
Balance Sheet, is being recognized in expense ratably through July
2019 in accordance with the terms of work orders for certain
contract research services to be provided through that
period.
●
During the quarter
ended December 31, 2017, we issued an aggregate of 70,000
unregistered shares of our common stock, all of which were issued
from our 2016 Plan for additional investor relations and financial
advisory services. The common stock issued had an aggregate fair
value of $140,800 on the dates issued.
●
During the quarter
ended December 31, 2017, we also issued 500,000 unregistered shares
of our common stock having a fair value at the time of issuance of
$585,000 and a cash payment of $76,500 to our contract
manufacturing organization (CMO) in exchange for and settlement of
$526,500 of open accounts payable for services provided by the CMO
relating to production of AV-101 drug substance. We recognized a
corresponding loss on settlement of accounts payable in the amount
of $135,000 for the quarter ended December 31, 2017.
●
During the quarter
ended March 31, 2018, we issued 30,000 unregistered shares of our
common stock to a provider of investor relations and financial
advisory services. The common stock issued had an aggregate fair
value of $39,000 on the date issued.
Warrant Exchanges into Common Stock
During our fiscal year ended March 31, 2017, we entered into
Warrant Exchange Agreements with certain holders of outstanding
warrants to purchase an aggregate of 224,693 shares of our common
stock pursuant to which the holders agreed to cancel such warrants
in exchange for the issuance of an aggregate of 156,246
unregistered shares of common stock.
We accounted for the exchanges of these warrants as warrant
modifications, comparing the fair value of the warrants immediately
prior to the exchanges with the fair value of the unregistered
common stock issued. We calculated the weighted average fair value
of the warrants prior to the respective exchanges using the Black
Scholes Option Pricing Model and the weighted average assumptions
indicated in the table below. We determined the post-modification
fair value based on the quoted market price of our common stock on
the effective date of each exchange and the number of unregistered
shares issued in the exchange, as also indicated in the table
below. We recognized the incremental fair value of the unregistered
common stock issued in excess of the fair value of the warrants
cancelled, $350,700, as a component of warrant modification expense
which is included in general and administrative expenses in our
accompanying Consolidated Statement of Operations and
Comprehensive Loss for the fiscal year ended March 31,
2017.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrant Exchanges - FY 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
Price per share
|
$8.44
|
$8.45
|
$3.33
|
$3.33
|
$4.05
|
$4.05
|
$3.73
|
$3.73
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
price per share
|
$7.37
|
|
$8.00
|
|
$8.15
|
|
$10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
1.23%
|
|
1.10%
|
|
0.77%
|
|
0.44%
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
term (years)
|
4.77
|
|
4.58
|
|
2.40
|
|
0.003
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
79.0%
|
|
87.0%
|
|
93.0%
|
|
100.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Rate
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value per share
|
$5.37
|
|
$1.64
|
|
$1.27
|
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
shares cancelled and exchanged
|
41,649
|
|
20,000
|
|
113,944
|
|
49,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued in exchange
|
|
31,238
|
|
15,000
|
|
85,458
|
|
24,550
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
$223,700
|
$264,000
|
$32,900
|
$50,000
|
$144,400
|
$346,100
|
$-
|
$91,600
|
|
|
|
|
|
|
|
|
|
|
|
Incremental
fair value recognized as warrant modification expense
|
|
$40,300
|
|
$17,100
|
|
$201,700
|
|
$91,600
|
Additional Warrant Modifications
In
addition to warrants modified in connection with the warrant exchange transactions described
immediately above, we modified other outstanding warrants during
our fiscal years ended March 31, 2018 and 2017.
In December 2016, our Board authorized the modification of an
outstanding warrant to both alter the exercise terms and increase
the number of shares for which the warrant was exercisable. We
calculated the fair value of the warrant immediately before and
after the modification using the Black Scholes Option Pricing Model
and the assumptions indicated in the table below. We recognized the
incremental fair value, $76,900, as warrant modification expense,
included as a component of general and administrative expenses, in
our Consolidated Statement of Operations and Comprehensive
Loss for the fiscal year ended March 31, 2017.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
Assumption:
|
|
|
|
Market
price per share
|
$3.51
|
$3.51
|
|
Exercise
price per share
|
$8.00
|
$3.51
|
|
Risk-free
interest rate
|
1.88%
|
2.07%
|
|
Remaining
contractual term in years
|
4.26
|
5.03
|
|
Volatility
|
87.1%
|
85.8%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
25,000
|
50,000
|
|
Weighted average fair value per share
|
$1.71
|
$2.39
|
During the quarter ended September 30, 2017, the Board authorized
the modification of outstanding warrants issued in private
placement transactions between March 2017 and June 2017 to reduce
the exercise prices and increase the number of shares issuable
thereunder. We calculated the fair value of the warrant immediately
before and after the modification using the Black Scholes Option
Pricing Model and the weighted average assumptions indicated in the
table below. We recognized the incremental fair value, $279,700, as
warrant modification expense, included as a component of general
and administrative expenses, in our Consolidated Statement of
Operations and Comprehensive Loss for the fiscal year ended March
31, 2018.
|
Assumption:
|
|
|
|
Market
price per share
|
$1.54
|
$1.54
|
|
Exercise
price per share
|
$3.99
|
$2.00
|
|
Risk-free
interest rate
|
1.62%
|
1.62%
|
|
Remaining
contractual term in years
|
3.62
|
3.62
|
|
Volatility
|
95.5%
|
95.5%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
247,500
|
495,001
|
|
Weighted average fair value per share
|
$0.71
|
$0.92
|
During the quarter ended December 31, 2017, the Board authorized
the modification of outstanding warrants issued in private
placement transactions between August 2017 and November 2017 to
reduce the exercise prices of the warrants. We calculated the fair
value of the warrants immediately before and after the modification
using the Black Scholes Option Pricing Model and the weighted
average assumptions indicated in the table below. We recognized the
incremental fair value, $13,000, as warrant modification expense,
included as a component of general and administrative expenses, in
our Consolidated Statement of Operations and Comprehensive
Loss for the fiscal year ended March 31, 2018.
|
Assumption:
|
|
|
|
Market
price per share
|
$1.14
|
$1.14
|
|
Exercise
price per share
|
$2.32
|
$1.58
|
|
Risk-free
interest rate
|
2.12%
|
2.12%
|
|
Remaining
contractual term in years
|
3.85
|
3.85
|
|
Volatility
|
98.7%
|
98.7%
|
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
|
|
Number
of warrant shares
|
178,572
|
178,572
|
|
Weighted average fair value per share
|
$0.64
|
$0.71
|
Warrants Outstanding
The following table summarizes outstanding and exercisable warrants
to purchase shares of our common stock as of March 31,
2018. The weighted average exercise price of outstanding
and exercisable warrants at March 31, 2018 was $2.85 per share and
$2.86 per share, respectively.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Warrants
|
|
Warrants
|
|
Exercise
|
|
|
|
Outstanding
at
|
|
Exercisable
at
|
|
Price
|
|
Expiration
|
|
March
31,
|
|
March
31,
|
|
per
Share
|
|
Date
|
|
2018
|
|
2018
|
|
|
|
|
|
|
|
|
|
$1.50
|
|
11/30/2021
to 12/13/2022
|
|
10,150,000
|
|
10,000,000
|
|
$1.82
|
|
3/7/2023
|
|
1,388,931
|
|
1,388,931
|
|
$2.00
|
|
4/30/2021
|
|
523,573
|
|
523,573
|
|
$3.51
|
|
12/31/2021
|
|
50,000
|
|
50,000
|
|
$4.50
|
|
9/26/2019
|
|
25,000
|
|
25,000
|
|
$5.30
|
|
5/16/2021
|
|
2,705,883
|
|
2,705,883
|
|
$6.00
|
|
9/26/2019
to 11/30/2019
|
|
97,750
|
|
97,750
|
|
$7.00
|
|
12/11/2018
to 3/3/2023
|
|
1,346,931
|
|
1,346,931
|
|
$8.00
|
|
3/25/2021
|
|
185,000
|
|
185,000
|
|
$10.00
|
|
1/11/2020
|
|
20,000
|
|
20,000
|
|
$20.00
|
|
9/15/2019
|
|
110,448
|
|
110,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,603,516
|
|
16,453,516
|
Reserved Shares
At March 31, 2018, we have reserved shares of our common stock for
future issuance as follows:
|
Upon exchange of all shares of Series A Preferred
Stock currently issued and outstanding (1)
|
750,000
|
|
|
|
|
Upon exchange of all shares of Series B Preferred
Stock currently issued and outstanding (2)
|
1,823,700
|
|
|
|
|
Upon
exchange of all shares of Series C Preferred Stock currently issued
and outstanding
|
2,318,012
|
|
|
|
|
Pursuant
to warrants to purchase common stock:
|
|
|
Subject
to outstanding warrants
|
16,603,516
|
|
|
|
|
Pursuant
to stock incentive plan:
|
|
|
Subject
to outstanding options under the Amended and Restated 2016 Stock
Incentive Plan
|
5,300,338
|
|
Available
for future grants under the Amended and Restated 2016 Stock
Incentive Plan
|
3,987,162
|
|
|
9,287,500
|
|
Total
|
30,782,728
|
(1)
Assumes exchange
under the terms of the October 11, 2012 Note Exchange and Purchase
Agreement
(2)
Includes 663,460
common shares issuable in payment of accrued dividends on Series B
Preferred upon conversion
At
March 31, 2018, we have 46,284,657 authorized shares of our common
stock not subject to reserves and available for future
issuance.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Research and Development Expenses
We recorded research and development expenses of approximately $7.8
million and $5.2 million in the fiscal years ended March 31,
2018 and 2017, respectively. Research and development expense is
composed primarily of employee compensation expenses, including
stock–based compensation, direct project expenses, notably
including preparations for and the launch of our ELEVATE clinical
trial, and costs to maintain and prosecute our intellectual
property suite, including new patent applications for AV-101 for
various indications.
10. Income Taxes
The provision for income taxes for the periods presented in the
Consolidated Statements of Operations and Comprehensive Loss
represents minimum California franchise taxes.
On December 22, 2017, the Tax Cuts and Jobs Act was enacted into
law, which significantly changes existing U.S. tax law. The
reduction of the U.S. federal statutory tax rate from 34% to 21% is
effective January 1, 2018. Income tax expense differed from the
amounts computed by applying the U.S. federal income tax rate
of 34% for April 1, 2017 to December 31, 2017 and 21% for January
1, 2018 to March 31, 2018 for 2018 year (prorated basis 30.75%) to
pretax losses as a result of the following:
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Computed expected
tax benefit
|
(30.75)%
|
(34.00)%
|
|
Tax effect of
warrant modifications and other non-deductible items
|
0.40%
|
1.42%
|
|
Tax effect of
research and development credits
|
(1.44)%
|
-%
|
|
Effect of U.S. tax
law change (federal and state)
|
88.09%
|
-%
|
|
Other losses not
benefitted
|
(56.28)%
|
32.58%
|
|
Other
|
-%
|
0.02%
|
|
|
|
|
|
Income tax
expense
|
0.02%
|
0.02%
|
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of our deferred tax assets are
as follows:
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryovers
|
$21,402,600
|
$30,184,100
|
|
Basis differences
in fixed assets
|
(7,600)
|
(4,200)
|
|
Stock based
compensation
|
2,504,500
|
3,673,900
|
|
Accruals and
reserves
|
1,352,900
|
927,900
|
|
|
|
|
|
Total deferred tax
assets
|
25,252,400
|
34,781,700
|
|
|
|
|
|
Valuation
allowance
|
(25,252,400)
|
(34,781,700)
|
|
|
|
|
|
Net deferred tax
assets
|
$-
|
$-
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Realization
of deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the
deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance decreased by $9,529,300 and
increased by $3,567,000 during the fiscal years ended March 31,
2018 and 2017, respectively.
As of March 31, 2018, we had U.S. federal net operating loss
carryforwards of approximately $88,477,000, which will expire in
fiscal years 2019 through 2038. As of March 31, 2018, we
had state net operating loss carryforwards of approximately
$63,457,200, which will expire in fiscal years 2029 through
2038. The Company also has federal and state research and
development tax credit carryforwards of approximately $979,900 and
$826,500, respectively. The federal tax credits will expire at
various dates beginning in the year 2029, unless previously
utilized. The state tax credits do not expire and will carry
forward indefinitely until utilized.
U.S. federal and state tax laws include substantial
restrictions on the utilization of net operating loss carryforwards
in the event of an ownership change of a corporation. We have not
performed a change in ownership analysis since our inception in
1998 and accordingly some or all of our net operating loss
carryforwards may not be available to offset future taxable income,
if any.
We file income tax returns in the U.S. federal, Canada and
various U.S. state jurisdictions. We are subject to
U.S. federal and state income tax examinations by tax
authorities for tax years 1998 through 2017 due to net operating
losses that are being carried forward for tax purposes, but we are
not currently under examination by tax authorities in any
jurisdiction.
Uncertain Tax Positions
Our unrecognized tax benefits at March 31, 2018 and 2017 relate
entirely to research and development tax credits. The total amount
of unrecognized tax benefits at March 31, 2018 and 2017 is $451,600
and $290,500, respectively. If recognized, none of the unrecognized
tax benefits would impact our effective tax rate. The following
table summarizes the activity related to our unrecognized tax
benefits.
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Unrecognized
benefit - beginning of period
|
$290,500
|
$142,400
|
|
Current period tax
position increases
|
102,300
|
77,700
|
|
Prior period tax
position increases
|
58,800
|
70,400
|
|
|
|
|
|
Unrecognized
benefit - end of period
|
$451,600
|
$290,500
|
|
|
|
|
Our policy is to recognize interest and penalties related to income
taxes as components of interest expense and other expense,
respectively. We incurred no interest or penalties related to
unrecognized tax benefits in the years ended March 31, 2018 or
2017. We do not anticipate any significant changes of our uncertain
tax positions within twelve months of this reporting
date.
11. Licensing, Sublicensing and Collaborative
Agreements
BlueRock Therapeutics Sublicense Agreement
In December 2016, we entered into an Exclusive License and
Sublicense Agreement (BlueRock Therapeutics
Agreement) with BlueRock
Therapeutics, LP, a next generation regenerative medicine company
established in December 2016 by Bayer AG and Versant Ventures
(BlueRock
Therapeutics), pursuant to
which BlueRock Therapeutics received exclusive rights to utilize
certain technologies exclusively licensed by us from University
Health Network (UHN) for the production of cardiac stem cells for the
treatment of heart disease. We retained rights to cardiac stem cell
technology licensed from UHN related to small molecule, protein and
antibody drug discovery, drug rescue and drug development,
including small molecules with cardiac regenerative potential, as
well as small molecule, protein and antibody testing involving
cardiac cells.
Under the BlueRock Therapeutics Agreement, we received an upfront
payment of $1.25 million and we have the potential to receive
additional milestone payments and royalties in the future, in the
event certain performance-based milestones and commercial sales are
achieved. At December 31, 2016, we had no further performance
obligations under the BlueRock Therapeutics Agreement and,
accordingly, we recorded a receivable for the $1.25 million upfront
payment with a corresponding recognition of the sublicense revenue.
We received the $1.25 million cash payment due under the BlueRock
Therapeutics Agreement in January 2017 and recognized $1.25 million
in sublicense revenue in the accompanying Consolidated Statement of
Operations and Comprehensive Loss for the fiscal year ended March
31, 2017.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. National Institutes of Health
During fiscal years 2006 through 2008, the NIH awarded a
$4.2 million grant to the Company to support preclinical
development of AV-101 for pain. In June 2009, the NIH further
awarded the Company a $4.2 million grant to support the Phase
I clinical development of AV-101, which amount was subsequently
increased to a total of $4.6 million in July 2010. The
grant expired in the ordinary course on June 30, 2012 and all funds
had been expended. AV-101, our oral NMDAR GlyB antagonist product
candidate is currently in Phase 2 development, initially for the
adjunctive treatment of MDD in patients with an inadequate response
to standard antidepressants. In
February 2015, we entered into the CRADA with the NIMH to
collaborate on an NIH-sponsored Phase 2 clinical study of the
efficacy and safety of AV-101 as a monotherapy in subjects with
MDD. The first patient in the NIMH AV-101 MDD Phase 2 Monotherapy
Study was dosed in November 2015 and we currently anticipate that
the NIMH will complete the study during 2018. We believe AV-101 may
also have broad therapeutic utility with multiple near term central
nervous system pipeline expansion opportunities, including chronic
neuropathic pain, epilepsy, Huntington’s disease and
Parkinson’s disease.
Cato Research Ltd.
We have built a strategic development relationship with Cato
Research Ltd. (CRL), a global contract research and development
organization, or CRO, and an affiliate of one of our largest
institutional stockholders. CRL has provided us with
access to essential CRO services and regulatory expertise
supporting our AV-101 preclinical and clinical development programs
and other projects. We recorded research and development
expenses for CRO services provided by CRL in the amounts of
$1,390,700 and $254,600 for the fiscal years ended March 31, 2018
and 2017, respectively.
University Health Network
In September 2007, we entered into a Sponsored Research
Collaboration Agreement (SRCA) with University Health Network to develop
certain stem cell technologies for drug discovery, development and
rescue technologies. Under the terms of the SRCA, we have acquired
exclusive worldwide rights to patent applications in the U.S. and
foreign countries on multiple inventions arising from studies we
have sponsored, under pre-negotiated license terms. Those license
terms provide for royalty payments based on product sales that
incorporate the licensed technology and milestone payments based on
the achievement of certain events. Any drug rescue new chemical
entity that we develop will not incorporate the licensed technology
and, therefore, will not require any royalty payments. To the
extent we incur royalty payment obligations from other business
activities, the royalty payments will be subject to anti-stacking
provisions, which reduce our payments by a percentage of any
royalty payments paid to third parties who have licensed necessary
intellectual property to us. These licenses will remain in force
for so long as we have an obligation to make royalty or milestone
payments to UHN, but may be terminated earlier upon mutual consent,
by us at any time, or by UHN for our breach of any material
provision of the license agreement that is not cured within
90 days. The SRCA with UHN, as amended, had a term of ten
years, ending in September 2017, but was terminated in
December 2016, as described below.
In December 2016, we entered into a series of agreements with UHN
pursuant to which we (i) executed two new exclusive patent license
agreements related to certain cardiac stem cell technologies
discovered by Dr. Gordon Keller, Director of UHN's McEwen Centre
for Regenerative Medicine, under the SRCA; (ii) amended two
exclusive cardiac stem cell technology patent license agreements
previously entered into between us and UHN under the SRCA; (iii)
terminated the SRCA to facilitate the BlueRock Therapeutics
Agreement, described above; and (iv) agreed to make a sublicense
consideration payment to UHN with respect to the upfront payment we
received under the BlueRock Therapeutics Agreement. All financial
obligations related to these agreements with UHN, aggregating
$3,600 and $233,400, are reflected in research and development
expense in the accompanying Consolidated Statement of Operations
and Comprehensive Loss for the fiscal years ended March 31, 2018
and 2017, respectively.
12. Stock Option Plans and 401(k) Plan
We have the following share-based compensation plans.
Amended and Restated 2016 Stock Incentive Plan
Our
Board unanimously approved the Company’s Amended and Restated
2016 Stock Incentive Plan, formerly titled the 2008 Stock Incentive
Plan (the 2016 Plan), on
July 26, 2016, and the 2016 Plan was approved by our stockholders
at our 2016 Annual Meeting of Stockholders on September 26, 2016,
and further amended at our 2017 Annual Meeting of Stockholders on
September 15, 2017. The 2016 Plan provides for the grant of stock
options, restricted shares of common stock, stock appreciation
rights and dividend equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options under the provisions of Section
422 of the Internal Revenue Code of 1986, as amended (the
Code), or non-qualified
stock options. We may grant incentive stock options only to
employees of the Company or any parent or subsidiary of the
Company. Awards other than incentive stock options may be granted
to employees, directors and consultants. A total of 10.0 million
shares of our common stock are currently authorized for issuance
under the 2016 Plan and as of March 31, 2018, approximately 4.0
million registered shares remain available for future equity grants
under the plan.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan (the 1999 Plan) was adopted by the shareholders of VistaStem on
December 6, 1999 and we assumed it in connection with our
going-public transaction. We initially reserved 45,000 shares
for the issuance of awards under the 1999 Plan. The 1999 Plan has
terminated under its own terms and, as a result, no awards may
currently be granted under the 1999 Plan. At March 31, 2018, no
options granted pursuant to the 1999 Plan remain
outstanding.
Description of the 2016 Plan
The
2016 Plan provides for the grant of stock options, restricted
shares of common stock, stock appreciation rights and dividend
equivalent rights, collectively referred to as
“Awards”. Stock options granted under the 2016 Plan may
be either incentive stock options under the provisions of
Section 422 of the Code, or non-qualified stock options. We
may grant incentive stock options only to employees of the Company
or any parent or subsidiary of the Company. Awards other than
incentive stock options may be granted to employees, directors and
consultants.
The
Compensation Committee of the Board of Directors (the Committee), administers the 2016 Plan,
including selecting the Award recipients, determining the number of
shares to be subject to each Award, the exercise or purchase price
of each Award and the vesting and exercise periods of each
Award.
The
exercise price of all incentive stock options granted under the
2016 Plan must be at least equal to 100% of the fair market value
of the shares on the date of grant. The maximum term of an
incentive stock option granted to any other participant may not
exceed 10 years. The Committee determines the term and exercise or
purchase price of all other Awards granted under the 2016
Plan.
Under
the 2016 Plan, incentive stock options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the participant, only by
the participant. Other Awards shall be transferable:
●
by
will and by the laws of descent and distribution; and
●
during
the lifetime of the participant, to the extent and in the manner
authorized by the Committee by gift or pursuant to a domestic
relations order to members of the participant’s Immediate
Family (as defined in the 2016 Plan).
The
maximum number of shares with respect to which options and stock
appreciation rights may be granted to any participant in any
calendar year will be 300,000 shares of common stock. In connection
with a participant’s commencement of service with the
Company, a participant may be granted options and stock
appreciation rights for up to an additional 50,000 shares that
will not count against the foregoing limitation. In addition, for
Awards of restricted stock and restricted shares of common stock
that are intended to be “performance-based
compensation” (within the meaning of Section 162(m) of
the Code), the maximum number of shares with respect to which such
Awards may be granted to any participant in any calendar year will
be 300,000 shares of common stock. The limits described in this
paragraph are subject to adjustment in the event of any change in
our capital structure as described below.
The
terms and conditions of Awards are determined by the Committee,
including the vesting schedule and any forfeiture provisions.
Awards under the 2016 Plan may vest upon the passage of time or
upon the attainment of certain performance criteria. Although we do
not currently have any Awards outstanding that vest upon the
attainment of performance criteria, the Committee may establish
criteria based on any one of, or a combination of, a number of
financial measurements.
Effective
upon the consummation of a Corporate Transaction (as defined
below), all outstanding Awards under the 2016 Plan will terminate
unless the acquirer assumes or replaces such Awards. The Committee
has the authority, exercisable either in advance of any actual or
anticipated Corporate Transaction or Change in Control (as defined
below) or at the time of an actual Corporate Transaction or Change
in Control and exercisable at the time of the grant of an Award
under the 2016 Plan or any time while an Award remains outstanding,
to provide for the full or partial automatic vesting and
exercisability of one or more outstanding unvested Awards under the
2016 Plan and the release from restrictions on transfer and
repurchase or forfeiture rights of such Awards in connection with a
Corporate Transaction or Change in Control, on such terms and
conditions as the Committee may specify. The Committee also has the
authority to condition any such Award vesting and exercisability or
release from such limitations upon the subsequent termination of
the service of the grantee within a specified period following the
effective date of the Corporate Transaction or Change in Control.
The Committee may provide that any Awards so vested or released
from such limitations in connection with a Change in Control, shall
remain fully exercisable until the expiration or sooner termination
of the Award.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under
the 2016 Plan, a Corporate Transaction is generally defined
as:
●
an
acquisition of securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
but excluding any such transaction or series of related
transactions that the Committee determines shall not be a Corporate
Transaction;
●
a
reverse merger in which we remain the surviving entity but: (i) the
shares of common stock outstanding immediately prior to such merger
are converted or exchanged by virtue of the merger into other
property, whether in the form of securities, cash or otherwise; or
(ii) in which securities possessing more than fifty percent (50%)
of the total combined voting power of our outstanding securities
are transferred to a person or persons different from those who
held such securities immediately prior to such merger;
●
a
sale, transfer or other disposition of all or substantially all of
the assets of the Company;
●
a
merger or consolidation in which the Company is not the surviving
entity; or
●
a
complete liquidation or dissolution.
Under
the 2016 Plan, a Change in Control is generally defined as:
(i) the acquisition of more than 50% of the total combined
voting power of our stock by any individual or entity which a
majority of our Board (who have served on our board for at least
12 months) do not recommend our stockholders accept;
(ii) or a change in the composition of our Board over a period
of 12 months or less.
Unless
terminated sooner, the 2016 Plan will automatically terminate in
2026. Our Board may at any time amend, suspend or terminate the
2016 Plan. To the extent necessary to comply with applicable
provisions of U.S. federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any non-U.S.
jurisdiction applicable to Awards granted to residents therein, we
will obtain stockholder approval of any such amendment to the 2016
Plan in such a manner and to such a degree as
required.
During our fiscal year ended March 31, 2018, we granted from the
2016 Plan:
●
options
to purchase an aggregate of 880,000 shares of our common stock at
an exercise price of $1.96 per share to the independent members of
our Board and to our officers and all non-officer employees in
April 2017;
●
options
to purchase an aggregate of 770,000 shares of our common stock at
an exercise price of $1.56 per share to the independent members of
our Board, officers, non-officer employees and two consultants in
September 2017;
●
options
to purchase an aggregate of 2,000,000 shares of our common stock at
an exercise price of $1.16 per share to the independent members of
our Board, officers, non-officer employees and ten consultants in
February 2018;
●
options
to purchase 25,000 shares of our common stock at an exercise price
of $1.21 per share to a legal services consultant in February 2018;
and
●
an
aggregate of 547,500 shares of unregistered common stock to various
legal, investor relations, and financial and strategic advisory
consultants in September and October 2017 pursuant to which we
recognized an aggregate of $827,900 as a noncash component of
general and administrative expense not included in stock
compensation expense for the fiscal year.
During our fiscal year ended March 31, 2017, we granted from the
2016 Plan:
●
options
to purchase an aggregate of 655,000 shares of our common stock at
an exercise price of $3.49 per share to the independent members of
our Board and to our officers, including one newly-employed
officer, in June 2016;
●
options
to purchase 125,000 shares of our common stock at an exercise price
of $4.27 per share to a newly-employed officer in September
2016
●
options
to purchase an aggregate of 560,000 shares of our common stock at
an exercise price of $3.80 per share to the independent members of
our Board, officers, non-officer employees and a consultant in
November 2016; and
●
an
aggregate of 150,000 unregistered shares of our common stock
pursuant to four consulting agreements in March 2017 pursuant to
which we recognized an aggregate of $324,500 as a noncash component
of general and administrative expense not included in stock
compensation expense for the fiscal year.
The following table summarizes share-based compensation expense
related to option grants to our officers, independent directors,
consultants and service providers, included in the accompanying
Consolidated Statement of Operations and Comprehensive Loss for the
years ended March 31, 2018 and 2017.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Fiscal
Years Ended March 31,
|
|
|
|
|
|
Research and
development expense:
|
|
|
|
|
|
|
|
|
$969,200
|
$375,100
|
|
|
969,200
|
375,100
|
|
General and
administrative expense:
|
|
|
|
|
|
|
|
|
1,375,000
|
476,200
|
|
|
1,375,000
|
476,200
|
|
|
|
|
|
Total
stock-based compensation expense
|
$2,344,200
|
$851,300
|
We used the Black-Scholes Option Pricing model with the following
weighted average assumptions to determine share-based compensation
expense related to option grants during the fiscal years ended
March 31, 2018 and 2017:
|
|
Fiscal Years
Ended March 31,
|
|
|
|
|
|
|
|
|
|
Exercise
price
|
$1.44
|
$3.69
|
|
Market price on
date of grant
|
$1.44
|
$3.69
|
|
Risk-free interest
rate
|
2.39%
|
1.51%
|
|
Expected term
(years)
|
6.87
|
6.69
|
|
Volatility
|
90.40%
|
82.96%
|
|
Expected dividend
yield
|
0.00%
|
0.00%
|
|
|
|
|
|
Fair value per
share at grant date
|
$1.10
|
$2.68
|
The expected term of options represents the period that our
share-based compensation awards are expected to be outstanding. We
have calculated the weighted-average expected term of the options
using the simplified method as prescribed by Securities and
Exchange Commission Staff Accounting Bulletins No. 107 and
No. 110 (SAB No. 107 and
110). The utilization of SAB
No. 107 and 110 is based on the lack of relevant historical data
due to both our limited historical experience as a publicly traded
company as well as the historical lack of liquidity resulting from
the limited number of freely-tradable shares of our common stock.
Those factors also resulted in our decision to utilize the
historical volatilities of a peer group of public companies’
stock over the expected term of the option in determining our
expected volatility assumptions. The risk-free interest
rate for periods related to the expected life of the options is
based on the U.S. Treasury yield curve in effect at the time
of grant. The expected dividend yield is zero, as we have not paid
any dividends and do not anticipate paying dividends in the near
future. We recognize the effect of forfeitures as they
occur.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes activity for the fiscal years ended
March 31, 2018 and 2017 under our stock option plans:
|
|
Fiscal
Years Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at beginning of period
|
1,659,324
|
$4.76
|
336,987
|
$9.56
|
|
Options
granted
|
3,675,000
|
$1.44
|
1,340,000
|
$3.69
|
|
Options
exercised
|
-
|
$-
|
-
|
$-
|
|
Options
forfeited
|
(12,154)
|
$5.39
|
-
|
$-
|
|
Options
expired
|
(21,832)
|
$9.42
|
(17,663)
|
$15.52
|
|
|
|
|
|
|
|
Options
outstanding at end of period
|
5,300,338
|
$2.43
|
1,659,324
|
$4.76
|
|
Options
exercisable at end of period
|
1,818,962
|
$3.31
|
351,532
|
$8.27
|
|
|
|
|
|
|
|
Weighted
average grant-date fair value of
|
|
|
|
|
|
options
granted during the period
|
|
$1.10
|
|
$2.69
|
The following table summarizes information on stock options
outstanding and exercisable under our stock option plans as of
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.16 to $1.21
|
2,025,000
|
9.84
|
$1.16
|
569,524
|
$1.16
|
|
$1.56 to $1.96
|
1,650,000
|
9.26
|
$1.77
|
384,986
|
$1.56
|
|
$3.49 to $4.27
|
1,330,000
|
8.41
|
$3.69
|
577,870
|
$3.68
|
|
|
295,338
|
4.79
|
$9.19
|
286,582
|
$9.19
|
|
|
|
|
|
|
|
|
|
5,300,338
|
9.02
|
$2.43
|
1,818,962
|
$3.31
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2018, there were 3,987,162 registered shares of our
common stock remaining available for grant under the 2016
Plan. There were no option exercises during the years
ended March 31, 2018 or 2017.
Aggregate intrinsic value is the sum of the amount by which the
fair value of the underlying common stock exceeds the aggregate
exercise price of the outstanding options (in-the-money-options).
Based on the $0.93 per share quoted market price of our common
stock on March 31, 2018, there was no intrinsic value in any of our
outstanding options at that date.
As of March 31, 2018, there was approximately $4,492,300 of
unrecognized compensation cost related to non-vested share-based
compensation awards from the 2016 Plan, which is expected to be
recognized through September 2020.
401(k) Plan
Through a third-party agent, we maintain a retirement and deferred
savings plan for our employees. This plan is intended to qualify as
a tax-qualified plan under Section 401(k) of the Internal
Revenue Code. The retirement and deferred savings plan provides
that each participant may contribute a portion of his or her
pre-tax compensation, subject to statutory limits. Under the plan,
each employee is fully vested in his or her deferred salary
contributions. Employee contributions are held and invested by the
plan’s trustee. The retirement and deferred savings plan also
permits us to make discretionary contributions, subject to
established limits and a vesting schedule. To date, we have not
made any discretionary contributions to the retirement and deferred
savings plan on behalf of participating employees.
13. Related Party Transactions
Cato Holding Company (CHC), doing business as Cato BioVentures
(CBV), is the parent of CRL. CRL is a contract
research, development and regulatory services organization
(CRO) engaged by us for certain aspects of the
development and regulatory affairs associated with AV-101. CBV is
among our largest institutional stockholders at March 31, 2017,
holding approximately 6.9% of our outstanding common stock. In
October 2012, we issued certain unsecured promissory notes in the
aggregate face amount of approximately $1.3 million to CBV and CRL
(the Cato
Notes) as payment in full for
all contract research and development services and regulatory
advice previously rendered to us by CRL. The Cato Notes and
additional amounts payable to CRL for CRO services were
extinguished in June 2015 in exchange for our issuance of an
aggregate of 328,571 shares of Series B Preferred to CBV, which
shares of Series B Preferred were automatically converted into an
equal number of registered shares of our common stock in connection
with the May 2016 Public Offering.
In July
2017, we entered into a Master Services Agreement (MSA) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, including AV-101, and provide regulatory and strategic
consulting services as requested from time to time. Specific
projects or services are and will be delineated in individual work
orders negotiated from time-to-time under the MSA. Under the terms of work orders issued pursuant to
the July 2017 MSA and our May 2007 master services agreement with
CRL, we incurred expenses of $1,390,700 and $254,600 during the
fiscal years ended March 31, 2018 and 2017, respectively. During
our fiscal year ended March 31, 2018, we issued an aggregate of
350,000 unregistered shares of our common stock to CRL under the
terms of certain work orders for current and future CRO services
relating to our development of AV-101 for MDD, the fair value of
which represented approximately $465,000 of the reported CRO
expense for the fiscal year. We anticipate periodic expenses for
CRO services from CRL related to nonclinical and clinical
development of, and regulatory affairs related to, AV-101 and other
potential product candidates will increase in future
periods.
14. Commitments, Contingencies, Guarantees and
Indemnifications
From time to time, we may become involved in claims and other legal
matters arising in the ordinary course of business. Management is
not currently aware of any claims made or other legal matters that
will have a material adverse effect on our consolidated financial
position, results of operations or its cash flows.
We indemnify our officers and directors for certain events or
occurrences while the officer or director is or was serving at our
request in such capacity. The term of the indemnification period is
for the officer’s or director’s lifetime. We will
indemnify the officers or directors against any and all expenses
incurred by the officers or directors because of their status as
one of our directors or executive officers to the fullest extent
permitted by Nevada law. We have never incurred costs to defend
lawsuits or settle claims related to these indemnification
agreements. We have a director and officer insurance policy
which limits our exposure and may enable us to recover a portion of
any future amounts paid. We believe the fair value of these
indemnification agreements is minimal. Accordingly, there are no
liabilities recorded for these agreements at March 31, 2018 or
2017.
In the normal course of business, we provide indemnifications of
varying scopes under agreements with other companies, typically
clinical research organizations, investigators, clinical sites,
suppliers and others. Pursuant to these agreements, we
generally indemnify, hold harmless, and agree to reimburse the
indemnified parties for losses suffered or incurred by the
indemnified parties in connection with the use or testing of our
product candidates or with any U.S. patents or any copyright or
other intellectual property infringement claims by any third party
with respect to our product candidates. The terms of these
indemnification agreements are generally perpetual. The
potential future payments we could be required to make under
these indemnification agreements is unlimited. We maintain
liability insurance coverage that limits our exposure. We
believe the fair value of these indemnification agreements is
minimal. Accordingly, we have not recorded any liabilities
for these agreements as of March 31, 2018 or 2017.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
At March 31, 2018 and 2017, the following assets are subject to
capital lease obligations and included in property and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
Office
equipment
|
14,700
|
14,700
|
|
|
|
|
|
Accumulated
depreciation
|
(3,600)
|
(700)
|
|
|
|
|
|
Net book
value
|
$11,100
|
$14,000
|
|
|
|
|
Amortization expense for assets recorded under capital leases is
included in depreciation expense. Future minimum payments, by
year and in the aggregate, required under capital leases are as
follows:
|
|
|
|
Fiscal Years Ending
March 31,
|
|
|
2019
|
$3,800
|
|
2020
|
3,800
|
|
2021
|
3,800
|
|
2022
|
3,300
|
|
Future minimum
lease payments
|
14,700
|
|
|
|
|
Less
imputed interest included in minimum lease payments
|
(2,800)
|
|
|
|
|
Present value of
minimum lease payments
|
11,900
|
|
|
|
|
Less
current portion
|
(2,600)
|
|
|
|
|
Non-current capital
lease obligation
|
$9,300
|
|
|
|
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2018, future minimum payments under operating leases
relate to our facility lease in South San Francisco, California
through July 31, 2022 and are as follows:
|
Fiscal Years Ending
March 31,
|
|
|
2019
|
602,800
|
|
2020
|
623,900
|
|
2021
|
645,800
|
|
2022
|
668,400
|
|
2023
|
225,300
|
|
|
$2,766,200
|
We incurred total facility rent expense for the fiscal years ended
March 31, 2018 and 2017 of $645,800 and $482,100,
respectively.
Debt Repayment
At March 31, 2018, future minimum principal payments on outstanding
notes related only to an insurance premium financing arrangement in
the remaining principal amount of $53,900, which will be repaid in
monthly principal and interest installments of $6,200 through
December 2018.
15. Subsequent Events
We have evaluated subsequent events through the date of this Report
and have identified the following material events and transactions
that occurred after March 31, 2018:
Issuance of Common Stock to Professional Services
Providers
In
April 2018, we issued 25,000 unregistered shares of our common
stock to a consultant pursuant to a financial advisory services
contract. The common stock had a fair value of $24,000 on the date
issued. In May 2018, we issued 75,000 unregistered shares of our
common stock pursuant to an additional financial advisory services
contract. The common stock had a fair value of $99,000 on the date
issued.
16. Supplemental Financial Information (Unaudited)
The following table presents the unaudited statements of operations
data for each of the eight quarters in the period ended March 31,
2018. The information has been presented on the same basis as the
audited financial statements and all necessary adjustments,
consisting only of normal recurring adjustments, have been included
in the amounts below to present fairly the unaudited quarterly
results when read in conjunction with the audited financial
statements and related notes. The operating results for any quarter
should not be relied upon as necessarily indicative of results for
any future period.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarterly Results of Operations (Unaudited)
(in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
$1,096
|
$2,427
|
$1,602
|
$2,638
|
$7,763
|
|
General and
administrative
|
1,164
|
2,567
|
1,266
|
1,440
|
6,437
|
|
Total
operating expenses
|
2,260
|
4,994
|
2,868
|
4,078
|
14,200
|
|
Loss from
operations
|
(2,260)
|
(4,994)
|
(2,868)
|
(4,078)
|
(14,200)
|
|
|
|
|
|
|
|
|
Other expenses,
net:
|
|
|
|
|
|
|
Interest
expense, net
|
(3)
|
(3)
|
(2)
|
(1)
|
(9)
|
|
Loss on
extinguishment of accounts payable
|
-
|
-
|
(135)
|
-
|
(135)
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(2,263)
|
(4,997)
|
(3,005)
|
(4,079)
|
(14,344)
|
|
Income
taxes
|
(2)
|
-
|
-
|
-
|
(2)
|
|
Net loss and
comprehensive loss
|
(2,265)
|
(4,997)
|
(3,005)
|
(4,079)
|
(14,346)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(247)
|
(257)
|
(263)
|
(263)
|
(1,030)
|
|
Deemed
dividend from trigger of down round
|
|
|
|
|
|
|
provision
feature
|
-
|
-
|
(199)
|
-
|
(199)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$(2,512)
|
$(5,254)
|
$(3,467)
|
$(4,342)
|
$(15,575)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$(0.28)
|
$(0.53)
|
$(0.25)
|
$(0.19)
|
$(1.12)
|
|
|
|
|
|
|
|
|
Weighted average
shares used in computing:
|
|
|
|
|
|
|
Basic and
diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
9,034,213
|
9,892,016
|
13,895,642
|
22,880,968
|
13,890,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublicense
revenue
|
$-
|
$-
|
$1,250
|
$-
|
$1,250
|
|
Total
revenue
|
-
|
-
|
1,250
|
-
|
1,250
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Research and
development
|
826
|
1,606
|
1,611
|
1,161
|
5,204
|
|
General and
administrative
|
1,138
|
1,494
|
2,276
|
1,387
|
6,295
|
|
Total
operating expenses
|
1,964
|
3,100
|
3,887
|
2,548
|
11,499
|
|
Loss from
operations
|
(1,964)
|
(3,100)
|
(2,637)
|
(2,548)
|
(10,249)
|
|
|
|
|
|
|
|
|
Other expenses,
net:
|
|
|
|
|
|
|
Interest
expense, net
|
(2)
|
(1)
|
(1)
|
(1)
|
(5)
|
|
|
|
|
|
|
|
|
Loss before income
taxes
|
(1,966)
|
(3,101)
|
(2,638)
|
(2,549)
|
(10,254)
|
|
Income
taxes
|
(2)
|
-
|
-
|
-
|
(2)
|
|
Net loss and
comprehensive loss
|
(1,968)
|
(3,101)
|
(2,638)
|
(2,549)
|
(10,256)
|
|
|
|
|
|
|
|
|
Accrued
dividend on Series B Preferred stock
|
(540)
|
(241)
|
(238)
|
(238)
|
(1,257)
|
|
Deemed
dividend on Series B Preferred stock
|
(111)
|
-
|
-
|
-
|
(111)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
$(2,619)
|
$(3,342)
|
$(2,876)
|
$(2,787)
|
$(11,624)
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
$(0.51)
|
$(0.42)
|
$(0.34)
|
$(0.32)
|
$(1.54)
|
|
|
|
|
|
|
|
|
Weighted average
shares used in computing:
|
|
|
|
|
|
|
Basic and
diluted net loss per common share
|
|
|
|
|
|
|
attributable
to common stockholders
|
5,097,832
|
8,047,619
|
8,381,824
|
8,602,107
|
7,531,642
|
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item
9A. Controls and Procedures
Disclosure Controls and Procedures.
As
required by Rule 13a-15(b) under the Securities Exchange Act of
1934, as amended, (the Exchange
Act) our Chief Executive Officer (CEO) and our Chief Financial Officer
(CFO) conducted an
evaluation as of the end of the period covered by this Annual
Report on Form 10-K, of the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act. Based on that evaluation, our CEO and our
CFO each concluded that our disclosure controls and procedures are
effective to provide reasonable assurance that information required
to be disclosed in the reports that we file or submit under the
Exchange Act, (i) is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms and (ii) is accumulated and
communicated to our management, including our CEO and our CFO, as
appropriate to allow timely decisions regarding required
disclosure.
Management's Report on Internal Control Over Financial
Reporting.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control
system is designed to provide reasonable assurance to our
management and Board of Directors regarding the reliability of
financial reporting and the preparation and fair presentation of
financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only
reasonable assurance of achieving their control objectives. Smaller
reporting companies may face additional limitations in achieving
control objectives. Smaller reporting companies typically employ
fewer individuals who are often tasked with a wide range of
responsibilities, making it difficult to segregate duties. Often,
one or two individuals control many, or all, aspects of the smaller
reporting company’s general and financial operations, placing
such individual(s) in a position to override any system of internal
control. Additionally, projections of an evaluation of current
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the controls may
deteriorate.
Management
has assessed the effectiveness of our internal control over
financial reporting for our fiscal year ended March 31, 2018.
Management's assessment was based on criteria set forth in
Internal Control - Integrated
Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based upon this assessment,
management concluded that, as of March 31, 2018, our internal
control over financial reporting was not effective, based upon
those criteria, as a result of the material weaknesses identified
below.
A
material weakness is a deficiency or combination of deficiencies in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the annual
or interim financial statements will not be prevented or detected
on a timely basis.
Specifically,
management identified the following control weaknesses: (i) the
size and capabilities of the Company’s staff does not permit
appropriate segregation of duties to prevent one individual from
overriding the internal control system by initiating, authorizing
and completing all transactions; and (ii) the Company utilizes
accounting software that does not prevent erroneous or unauthorized
changes to previous reporting periods and/or can be adjusted so as
to not provide an adequate audit trail of entries made in the
accounting software. The Company does not believe that these
control weaknesses have resulted in deficient financial reporting
because each of our CEO and CFO is aware of his responsibilities
under the SEC's reporting requirements and personally certifies our
financial reports. Further, the Company has implemented a series of
manual checks and balances to verify that no previous reporting
period has been improperly modified and that no unauthorized
entries have been made in the current reporting
period.
Accordingly,
while the Company has identified certain material weaknesses in its
system of internal control over financial reporting, it believes
that it has taken reasonable and sufficient steps to ascertain that
the financial information contained in this Annual Report is in
accordance with U.S. generally accepted accounting principles.
Management has determined that current resources would be more
appropriately applied elsewhere and when resources permit, they
will alleviate the material weaknesses through various steps, which
may include the addition of qualified financial personnel and/or
the acquisition and implementation of alternative accounting
software.
As a result of the enactment of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, and the resulting amendment of
Section 404 of the Sarbanes-Oxley Act of 2002, as a smaller
reporting company, we are not required to provide an attestation
report by our independent registered public accounting firm
regarding internal control over financial reporting for the fiscal
year ended March 31, 2018 or thereafter, until such time as we are
no longer eligible for the exemption for smaller issuers set forth
within the Sarbanes-Oxley Act.
Item
9B. Other Information
None.
Item 10. Directors, Executive Officers
and Corporate Governance
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2018 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange Commission on or
before July 27, 2018 pursuant to General Instruction G(3) of Form
10-K.
Item 11. Executive
Compensation
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2018 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange
Commission on or before July
27, 2018 pursuant to General Instruction G(3) of Form
10-K.
Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2018 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange
Commission on or before July
27, 2018 pursuant to General Instruction G(3) of Form
10-K.
Item 13. Certain Relationships and
Related Transactions, and Director Independence
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2018 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange
Commission on or before July
27, 2018 pursuant to General Instruction G(3) of Form
10-K.
Item 14. Principal Accounting Fees and
Services
The
information required by this Item is incorporated herein by
reference to the information that will be contained in our proxy
statement related to the 2018 Annual Meeting of Stockholders, which
we intend to file with the Securities and Exchange
Commission on or before July
27, 2018 pursuant to General Instruction G(3) of Form
10-K.
Item
15. Exhibits,
Financial Statement Schedules
(a)(1) Financial Statements
See Index to Financial Statements under Item 8 on
page 65.
(a)(2) Consolidated Financial Statement Schedules
Consolidated financial statement schedules are omitted because they
are not applicable or are not required or the information required
to be set forth therein is included in the Consolidated Financial
Statements or notes thereto.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index below are filed or
incorporated by reference as part of this report.
Exhibit Index
|
Exhibit No.
|
|
Description
|
|
|
|
Agreement and
Plan of Merger by and among Excaliber Enterprises, Ltd., VistaGen
Therapeutics, Inc. and Excaliber Merger Subsidiary,
Inc.
|
|
|
|
Articles of
Merger filed with the Nevada Secretary of State on May 24, 2011,
incorporated by reference from Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed on May 31, 2011.
|
|
|
|
Certificate of
Designations Series A Preferred, incorporated by reference from
Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on December 23, 2011.
|
|
|
|
Certificate of
Change filed with the Nevada Secretary of State on August 11, 2014
incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on August 14,
2014.
|
|
|
|
Certificate of
Designation of the Relative Rights and Preferences of the Series B
10% Convertible Preferred Stock of VistaGen Therapeutics, Inc.,
filed with the Nevada Secretary of State on May 7, 2015,
incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on May 13,
2015.
|
|
|
|
Certificate of
Designation of the Relative Rights and Preferences of the Series C
Convertible Preferred Stock of VistaGen Therapeutics, Inc., dated
January 25, 2016, incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on January 29,
2016.
|
|
|
|
Restated
Articles of Incorporation of VistaGen Therapeutics, Inc., dated
August 16, 2016, incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed on August 17,
2016.
|
|
|
|
Second Amended
and Restated Bylaws of VistaGen Therapeutics, Inc., dated August
16, 2016, incorporated by reference from Exhibit 3.2 to the
Company’s Current Report on Form 8-K, filed on August 16,
2016.
|
|
|
|
Certificate of
Amendment to the Restated and Amended Articles of Incorporation of
VistaGen Therapeutics, Inc., dated September 15, 2017; incorporated
by reference from Exhibit 3.1 to the Company’s Current Report
on Form 8-K, filed on September 20, 2017.
|
|
|
|
VistaGen’s
1999 Stock Incentive Plan.
|
|
|
|
Strategic
Development Services Agreement, dated February 26, 2007, by
and between VistaGen and Cato Research Ltd.
|
|
|
|
License
Agreement by and between Mount Sinai School of Medicine of New York
University and the Company, dated October 1, 2004.
|
|
|
|
Non-Exclusive
License Agreement, dated December 5, 2008, by and between
VistaGen and Wisconsin Alumni Research Foundation, as amended by
that certain Wisconsin Materials Addendum, dated February 2,
2009.
|
|
|
|
Sponsored
Research Collaboration Agreement, dated September 18, 2007, between
VistaGen and University Health Network, as amended by that certain
Amendment No. 1 and Amendment No. 2, dated April 19, 2010
and December 15, 2010, respectively.
|
|
|
|
License
Agreement, dated October 24, 2001, by and between the University of
Maryland, Baltimore, Cornell Research Foundation and Artemis
Neuroscience, Inc.
|
|
|
|
Employment
Agreement, by and between, VistaGen and Shawn K. Singh, dated April
28, 2010, as amended May 9, 2011.
|
|
|
|
Employment
Agreement, by and between, VistaGen and H. Ralph Snodgrass, PhD,
dated April 28, 2010, as amended May 9, 2011.
|
|
|
|
Notice of Award
by National Institutes of Health, Small Business Innovation
Research Program, to VistaGen Therapeutics, Inc. for project,
Clinical Development of 4-CI-KYN to Treat Pain dated June 22, 2009,
with revisions dated July 19, 2010 and August 9, 2011, incorporated
by reference from Exhibit 10.46 to the Company’s Current
Report on Form 8-K/A filed on December 20, 2011.
|
|
|
|
Notice of Grant
Award by California Institute of Regenerative Medicine and VistaGen
Therapeutics, Inc. for Project: Development
of an hES Cell-Based Assay System for Hepatocyte Differentiation
Studies and Predictive Toxicology Drug Screening, dated April 1,
2009, incorporated by reference from Exhibit 10.47 to the
Company’s Current Report on Form 8-K/A filed on December 20,
2011.
|
|
|
|
Amendment No. 4,
dated October 24, 2011, to Sponsored Research Collaboration
Agreement between VistaGen and University Health Network,
incorporated by reference from Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on November 30,
2011.
|
|
|
|
License
Agreement No. 1, dated as of October 24, 2011 between University
Health Network and VistaGen Therapeutics, Inc., incorporated by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on November 30, 2011.
|
|
|
|
Strategic
Medicinal Chemistry Services Agreement, dated as of December 6,
2011, between Synterys, Inc. and VistaGen Therapeutics, Inc.,
incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on December 7, 2011.
|
|
|
|
License
Agreement No. 2, dated as of March 19, 2012 between University
Health Network and VistaGen Therapeutics, Inc., incorporated by
reference from Exhibit 10.57 to the Company’s Annual Report
on Form 10-K filed on July 2, 2012.
|
|
|
|
Note
Exchange and Purchase Agreement dated as of October 11, 2012 by and
between VistaGen Therapeutics, Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 16,
2012.
|
|
|
|
Amendment to
Note Exchange and Purchase Agreement as of November 14, 2012
between VistaGen Therapeutics Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on November 20,
2012.
|
|
|
|
Amendment No. 2
to Note Exchange and Purchase Agreement as of January 31, 2013
between VistaGen Therapeutics Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on February 14,
2013.
|
|
|
|
Amendment No. 3
to Note Exchange and Purchase Agreement as of February 22, 2013
between VistaGen Therapeutics Inc. and Platinum Long Term Growth
VII, LLP, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on February 28,
2013.
|
|
|
|
Form
of Warrant to Purchase Common Stock issued to independent members
of the Company’s Board of Directors and its executive
officers on March 3, 2013, incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on
March 6, 2013.
|
|
|
|
Lease between
Bayside Area Development, LLC and VistaGen Therapeutics, Inc.
(California) dated April 24, 2013, incorporated by reference from
Exhibit 10.83 to the Company’s Annual Report on Form 10-K
filed July 18, 2013.
|
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Jon S.
Saxe, incorporated by reference from Exhibit 10.84 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Shawn K.
Singh, incorporated by reference from Exhibit 10.85 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and H. Ralph
Snodgrass, incorporated by reference from Exhibit 10.86 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Brian J.
Underdown, incorporated by reference from Exhibit 10.87 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
|
Indemnification
Agreement effective May 20, 2013 between the Company and Jerrold D.
Dotson, incorporated by reference from Exhibit 10.88 to the
Company’s Annual Report on Form 10-K filed on July 18,
2013.
|
|
|
|
Form
of Promissory Note and Form of Warrant issued by the Company to
Icahn School of Business at Mount Sinai effective April 10, 2014 in
satisfaction of technology license maintenance fees and
reimbursable patent costs, incorporated by reference from Exhibit
10.102 to the Company’s Annual Report on Form 10-K filed on
June 25, 2014.
|
|
|
|
Amendment No. 3
to Sponsored Research Collaboration Agreement, dated April 25,
2011, by and between VistaGen and University Health Network,
incorporated by reference from Exhibit 10.103 to the
Company’s Annual Report on Form 10-K filed on June 25,
2014.
|
|
|
|
Amendment No. 5
to Sponsored Research Collaboration Agreement, dated October 10,
2012, by and between VistaGen and University Health Network,
incorporated by reference from Exhibit 10.104 to the
Company’s Annual Report on Form 10-K filed on June 25,
2014.
|
|
|
|
Exchange
Agreement, by and between VistaGen Therapeutics, Inc., and Platinum
Long Term Growth VII, LLC and Montsant Partners, LLC, dated January
25, 2016, incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 29,
2016.
|
|
|
|
Indemnification
Agreement effective April 8, 2016 between the Company and Jerry B.
Gin, incorporated by reference from Exhibit 10.112 to the
Company’s Annual Report on Form 10-K filed on June 24,
2016.
|
|
|
|
Underwriting
Agreement, by and between Chardan Capital Markets, LLC and
WallachBeth Capital, LLC, as representatives of the several
underwriters, and VistaGen Therapeutics, Inc., dated May 10, 2016,
incorporated by reference from Exhibit 1.1 to the Company’s
Current Report on Form 8-K filed on May 16, 2016.
|
|
|
|
Warrant Agency
Agreement, by and between Computershare, Inc. and VistaGen
Therapeutics, Inc., dated May 16, 2016, incorporated by reference
from Exhibit 4.1 to the Company’s Current Report on Form 8-K
filed on May 16, 2016.
|
|
|
|
Form
of Warrant; incorporated by reference from Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on May 16,
2016.
|
|
|
|
Second Amendment
to Employment Agreement by and between VistaGen Therapeutics, Inc.
and Shawn K. Singh, dated June 22, 2016, incorporated by reference
from Exhibit 10.116 to the Company’s Annual Report on Form
10-K filed on June 24, 2016.
|
|
|
|
Second Amendment
to Employment Agreement by and between VistaGen Therapeutics, Inc.
and H. Ralph Snodgrass, Ph.D., dated June 22, 2016, incorporated by
reference from Exhibit 10.117 to the Company’s Annual Report
on Form 10-K filed on June 24, 2016.
|
|
|
|
Second Amendment
to Lease between Bayside Area Development and the Company,
effective November 10, 2016, incorporated by reference from Exhibit
10.1 to the Company’s Quarterly report on Form 10-Q filed on
November 15, 2016.
|
|
|
|
Indemnification
Agreement effective November 10, 2016 between the Company and Mark
A. Smith, incorporated by reference from Exhibit 10.2 to the
Company’s Quarterly report on Form 10-Q filed on November 15,
2016.
|
|
|
|
Exclusive
License and Sublicense Agreement by and between VistaGen
Therapeutics, Inc. and Apollo Biologics LP, effective December 9,
2016, incorporated by reference from Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on May 11,
2017.
|
|
|
|
Patent License
Amendment Agreement between VistaGen Therapeutics Inc. and
University Health Network effective December 9, 2016, incorporated
by reference from Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q/A filed on May 1, 2017.
|
|
|
|
Amended and
Restated 2016 Stock Incentive Plan (formerly the VistaGent
Therapeutics, Inc. 2008 Stock Incentive Plan), incorporated by
reference from Exhibit 10.122 to the Company’s Annual Report
on Form 10-K filed on June 29, 2017.
|
|
|
|
Underwriting
Agreement, dated as of August 31, 2017, by and between VistaGen
Therapeutics, Inc. and Oppenheimer & Co. Inc., incorporated by
reference from Exhibit 1.1 to the Company’s Current Report on
Form 8-K filed on August 31, 2017.
|
|
|
|
Form
of Series A1 Warrant, incorporated by reference from Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on August 31,
2017.
|
|
|
|
Form
of Series A2 Warrant, incorporated by reference from Exhibit 4.2 to
the Company’s Current Report on Form 8-K filed on August 31,
2017.
|
|
|
|
Form
of Warrant, incorporated by reference from Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on December 13,
2017.
|
|
|
|
List
of Subsidiaries.
|
|
|
|
Consent of
Independent Registered Public Accounting Firm, filed
herewith
|
|
|
|
Certification of
the Company’s Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
|
|
|
Certification of
the Company’s Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
|
|
|
Certification of
the Company’s Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed
herewith.
|
|
101.INS
|
|
XBRL
Instance Document, filed
herewith
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema, filed
herewith
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase, filed
herewith
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase, filed
herewith
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase, filed
herewith
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase, filed
herewith
|
_______________
* Incorporated by reference from the like-numbered
exhibit filed with our Current Report on Form 8-K on May 16,
2011.
+ Confidential treatment has been granted for certain confidential
portions of this agreement.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of South San Francisco,
State of California, on the 26th day of June, 2018.
|
|
VistaGen Therapeutics, Inc.
|
|
|
|
|
|
|
|
Date:
June 26, 2018
|
By:
|
/s/
Shawn K.
Singh
|
|
|
|
|
Shawn K. Singh, J.D. |
|
|
|
|
Chief Executive Officer
|
|
In
accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Shawn K.
Singh
|
|
Chief Executive Officer, and Director
|
|
June 26, 2018
|
|
Shawn
K. Singh, JD
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/ Jerrold D. Dotson
|
|
Vice President and Chief Financial Officer
|
|
June 26, 2018
|
|
Jerrold
D. Dotson
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/ H. Ralph
Snodgrass
|
|
President, Chief Scientific Officer and Director
|
|
June 26, 2018
|
|
H.
Ralph Snodgrass, Ph.D
|
|
|
|
|
|
|
|
|
|
/s/ Jon S.
Saxe
|
|
Chairman of the Board of Directors
|
|
June 26, 2018
|
|
Jon
S. Saxe
|
|
|
|
|
|
|
|
|
|
/s/ Brian J.
Underdown
|
|
Director
|
|
June 26, 2018
|
|
Brian
J. Underdown, Ph. D
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Jerry B. Gin, Ph.D
|
|
Director
|
|
June
26, 2018
|
|
Jerry B. Gin, Ph.D.
|
|
|
|
|